In an effort to avoid overcrowding in the courts, both judges and lawyers recommend arbitration as a viable alternative to mediation or litigation. While any case can go to arbitration, this option is more successful if the case is fairly straightforward and the plaintiff and the defendant are willing to discuss things. Instead of judges, arbitration hearings have panels that are generally comprised of one to three arbitrators chosen by both parties.

The process

The panel examines the allegations presented by the plaintiff and the defendant before the arbitrators hear the arguments. The attorney for either party may present the documents and testimony may be given. Although the process is quite similar to a traditional trial, it is much less formal. For example, witnesses are not subject to the laws of perjury and related crimes, since they do not have to take an oath.

What are the advantages?

On average, arbitration cases are faster than traditional trials, which can languish in court for years as cases are delayed and appeals are heard. From the time the initial claim is filed until the panel makes a decision, the average case takes a little over a year. The award issued by the panel is binding on all parties.

The main advantage of the process for plaintiffs is speed, which generally results in much smaller legal fees. For the defendant, the fact that the decision is often confidential is imperative, as many of the defendants in these cases are companies that do not want their laundry to be aired in public.

What are the disadvantages?

As we mentioned, the judgment or award of the panel is final. There are also fees associated with the process, which are determined by the size of the award and the number of hearings required to reach a decision.

What cases are eligible?

Any case involving an individual investor and a person or entity that is registered with the Financial Industry Regulatory Authority (FINRA) is eligible. Arbitration can also be an option for disputes involving companies. In most cases, however, the dispute is between an individual and their investor or brokerage house. The reason for this is simple: Most investment firms now insist that their new clients resolve any disputes they may have with them in arbitration, rather than in court. This clause is included in most contracts between investors and investment firms. Although the process is not necessarily less expensive for investment firms, they prefer it because it helps them avoid bad press.

Should the plaintiff retain an attorney?

As with a regular trial, although it is possible to represent yourself at an arbitration hearing, it is not recommended. The company you are arguing against will almost certainly have an experienced attorney who knows the process on their side. Therefore, we strongly recommend that you contact a securities arbitration attorney before presenting your case.