Determining Whether to Arbitrate or Litigate - Chapter 4 - Securities Arbitration: Practice and Forms - Second Edition

This chapter outlines a framework for a practitioner to use in determining whether a dispute should be resolved by arbitration or litigation. This chapter presumes, of course, that a choice is available. In view of the fact that most disputes between a broker–dealer and the client are subject to arbitration clauses in the customer agreement, there may not be a choice other than arbitration. There may, however, be other situations in which a prospective claimant may have a forum choice, as will be discussed in section 4.02.

The discussion in this chapter draws on legal standards employed in arbitration and facts about the arbitration process that are discussed in detail throughout this volume. Those standards and facts will be referred to only in broad summary terms here, with cross-references to sections where more detailed treatment can be found.

A dispute in the securities industry generally involves a member of the securities industry and an individual investor, who is often the claimant. The common perception is that a particular method of dispute resolution is more advantageous to one party than the other. But this is not always the case, as much depends on the facts of the dispute. Arbitration may provide benefits over litigation to both parties involved (there may also be additional parties with opposing interests, which will be discussed in Section 4.05). This chapter attempts to aid in a practitioner’s assessment of the most beneficial method of dispute resolution for the client by describing and comparing certain features of arbitration and litigation.

The 2007 consolidation of all self-regulatory organization arbitrations into FINRA dictates that FINRA procedures are the most important for consideration. This chapter also provides some information regarding the American Arbitration Association and JAMS arbitration procedures.