By: Michael D. Handelsman, Esq.
Sallah Astarita & Cox, LLC
The concept behind FINRA arbitration was to offer participants in the financial industry a quicker, low cost alternative to proceeding in Court. However, even with the lower costs of arbitration, the costs associated with pursuing a case make it prohibitive for customers seeking to recover relatively low losses.
Very often, individuals seeking to recover minimal damages will find it very difficult to find an attorney to represent them. The hourly fees charged by most attorneys will often eclipse the damages sought, making arbitration unattractive to the potential client. Or, the potential recovery for these low damage cases makes it difficult for attorneys to proceed under a contingency agreement.
What resulted was a significant issue that needed to be addressed. Individuals with legitimate claims were unable to find counsel to represent them and their claims were going un-pursued.
As a result, FINRA has instituted a Simplified Arbitration process for individuals seeking damages of less than a threshold amount, currently $50,000.
There a number of differences between a Simplified Arbitration and what I will refer to as a traditional arbitration. For example, all Simplified Arbitrations before FINRA are heard by a single arbitrator panel, while most traditional arbitrations before FINRA are heard by a three person panel.
The biggest difference between the Simplified and traditional arbitration is that a party filing a Simplified Arbitration has the option of having the issue decided without a final hearing, and the significant costs associated therewith.
Some of the costs avoided by not conducting a final hearing include, but are not limited to: no live witness preparation, no travel, no live expert witness testimony or travel, no preparation of exhibits for the hearing and the significant expenses associated with preparation of same, reduced attorneys’ fees (no appearances at final hearing), more limited motion practice, and no required discovery obligations. Each of these differences should greatly reduce the cost of a simplified arbitration when compared to traditional arbitration.
Instead of final hearing where witnesses are questioned and evidence submitted to the Panel, a simplified arbitration is decided based entirely on final written submissions submitted by the parties. The final submission is comprised of the parties’ arguments in favor of their positions. Parties also include copies of documents referenced in the written submission, as well as any affidavits that have been prepared by individuals with knowledge of the case, in lieu live testimony.
While these final written submissions require significant preparation and are substantial, the costs associated with preparing a final submission are insignificant when compared to the costs of preparing for, and participating at, hearings in a traditional arbitration.
Another major difference in Simplified Arbitration is the discovery process (the exchange of documents and information relevant to the matter). In a traditional arbitration, documents identified within the FINRA Discovery Guide are presumptively discoverable. Within 60 days of the date the last answer is due, the parties are required to produce the documents referenced in the FINRA Discovery Guide or otherwise object to their production. The FINRA Discovery Guide is not used in Simplified Arbitrations.
In traditional arbitrations, parties are allowed to make additional discovery requests outside of the FINRA Discovery Guide. These requests seek the production of documents and information that are relevant to the claims, but not covered by the FINRA Discovery Guide.
Parties to Simplified Arbitration are also allowed to make discovery requests. However, the time limits related to discovery are altered in a Simplified Arbitration. In a traditional arbitration, the parties conduct a prehearing conference with the Arbitrators, where a schedule is created. Included in this schedule is a deadline by which parties must file any additional discovery requests outside of the FINRA Discovery Guide. Often this date is months in the future and allows the parties ample time to prepare for discovery, both as the requesting and producing party.
No prehearing conference is held in a Simplified Arbitration, unless the party initiating the arbitration requests that an in person hearing be held. Instead, all discovery requests must be made within 30 days of the date the last answer is due in a simplified arbitration, greatly decreasing the time that parties have to prepare their discovery requests.
While the breath of discovery in a Simplified Arbitration is not limited by FINRA Rules, arbitrators hearing disputes over discovery requests in a Simplified Arbitration are likely to limit the parties in discovery in an effort to streamline the process. As a result, parties should focus on preparing well-crafted discovery requests that are limited in their breath and ambiguity.
Also, the time for responding to discovery requests in a Simplified Arbitration is drastically different. Parties in a traditional arbitration have 60 days from the date they receive a parties discovery requests to provide responses and objections to same, unless otherwise ordered by the Panel. In a Simplified Arbitration, the parties have 10 days from that date they receive another parties’ discovery requests to provide responses and objections. As a result, if you are involved in a Simplified Arbitration, it is advisable to have all documents and information relevant to the dispute ready for production as soon as possible. It is advisable that your attorney be provided with these documents prior to preparation of the complaint, if you are the Claimant, and answer, if you are a Respondent.
While there are significant differences in the process, the end result is the same. After weighing the submissions by the parties, a Panel presiding over a simplified arbitration reviews the parties’ written submissions and the evidence, and issues an enforceable award.
---
If you are considering initiating a FINRA Arbitration under the simplified arbitration rule, or have been named as a Respondent in a simplified arbitration, contact Sallah Astarita & Cox, LLC at (973) 559-5566 and we will be happy to address your questions or concerns regarding the process.
