Labor & Employment Law

PIABA proposed rule change regarding the arbitration panel makeup is too extreme

By Dobin & Jenks

The Public Investors Arbitration Bar Association has proposed a rule directly to the SEC that would effectively eliminate the ?industry? arbitrator from the arbitration panel. The paranoia exhibited by this organization, without any true empirical basis, knows no bounds.

As a lawyer who represents both industry and investor clients, I have a unique position to assess this proposal (although I am not alone in representing both types of parties.) PIABA remains critical of the presence of a person experienced in the industry on an arbitration panel. Personally, having experienced arbitrations where the industry panelist was marginally affiliated and the public arbitrators knew next to nothing about securities, I suggest that we should all be afraid of PIABA?s proposal.

PIABA continually refers to the industry panelist as an advocate for the industry. There is no basis for this. The organization cites flawed research that states that claimants in arbitration win less than they ?should.? But how does PIABA know that these cases would have fared better either in court or with an all-public arbitration panel? It doesn?t. I have stated before and I will say it again, that cases that go to hearing tend to be self-selecting. Those cases which can?t settle because the Claimant wants too much or the Respondent won?t pay enough are the ones that go to hearing. Therefore, these are the more difficult, or bad, cases depending on one?s point of view.

I have been involved in a number of cases where it was obvious that the industry panelist did not agree with the Respondent?s position. There is no evidence that the industry panelist serves as a patsy for the brokerage firms. Just because a flawed analysis finds that the ?win rate? is down, does not mean that the system is bad. In arbitration, each case stands on its own. Two cases cannot be compared as every person?s situation is different.

PIABA has come up with some good ideas in the past. This is not one of them.

Rule Change Petition presented to the SEC from the Public Investors Arbitration Bar Association

Full post as published by The Law Planet Blog on July 07, 2009 (boomark / email).