The headline comes from a well researched and well reasoned white paper on securities arbitration, produced by the Compliance and Legal Division of SIFMA, the brokerage industry's trade association.
While I would not have said it so bluntly, the comment hits the nail on the head. For years the claimant's bar and other "pro-consumer" organizations have been attempting to alter securities arbitration to the advantage of the customer, and by some measures, have been successful.
At the same time, the proponents of giving a customer a choice while denying brokers and firms the same choice, ignore the interests of the consumer, being blinded by their desire for an advantage over their adversary.
For example, in the pending legislation that I referred to in an earlier post, Congress has premised the need for legislation on a supposed problem - forcing consumers to litigate in far away cities. Obviously the sponsors of the bill have no idea what is involved in securities arbitration, for those are held in a large city closest to where the customer lives. The customer does not travel to a far away city, the broker does.
Advantage for the customer? Of course it is, and Congress admits that is an advantage to the party who does not have to travel. But what happens when we abolish arbitration? The customer travels to the city where the broker-dealer is located, the exact evil that Congress is attempting to address. Although the NASD unilaterally, and without a rule amendment, altered the law of venue, in court, venue provisions are enforced. Customer agreements contain venue provisions and choice of law provisions that typically put the hearing in the broker-dealer's home state, using the law of that state. (Before someone screams about this provision, that is true in virtually every contract ever written, from automobile leases, to softwar leases, to computer purchase agreements, to employment contracts).
Even assuming the customer agreement did not contain a venue clause, traditional considerations for venue, used by the courts for decades, will result in the trial being held in the broker-dealer's city, not the customer's home town.
There is quite a bit more food for thought in the white paper, and it was heartening to see someone take the time and effort to document what those of us practicing securities arbitration have known for decades - arbitration is less expensive (by at least $25,000 per case), faster (by at least 40%) and equally "fair" however you define the term.
Proponents of the abolishment of arbitration often cry that customers have been forced to give up their right to a trial by jury. That is an interesting thought and an emotional battle cry. Unfortunately, it is meaningless, as less than 2% of all civil cases go to a trial. Less than 2%. One should not be heard to complain that he gave up something that he had absolutely no chance of ever receiving.
The paper examines all of these issues, in a well documented and well written discussion of the arbitration process.
One additional note for those of you who believe that the industry created mandatory arbitration, another false battle cry. The government created mandatory arbitration, by forcing brokers and brokerage firms to arbitrate disputes with their customers, at the demand of the customer. That was in 1972, long before there were pre-dispute arbitration clauses in wide spread use, and over a decade before Shearson vs. McMahon.
At the same time I won't object to the abolition of mandatory arbitration, so long as the mandatory part of the concept is removed for all parties - including the firms and brokers. If customers want to spend the time, and the money, litigating their claims in court, so be it. The benefit goes to the defendants, not the claimant. The party with more money always benefits in litigation. Always.
The other benefits are numerous - small cases will never be brought, because no one will be able to afford to bring those cases (even in arbitration, claimant's attorneys are reluctant to take cases where the damage is less than $100,000).
There is also the benefit of having case law to guide decisions, the right to appeal adverse decisions, the advantage of years rather than months, to pay an award, and on and on. In fact, is was all of these advantages that caused the government to force the industry to arbitrate disputes over 30 years ago. Not that much has changed in this regard, and the advantages remain.
So, abolish mandatory arbitration - for all parties.
