Compelling or Resisting Arbitration - Chapter 5 - Securities Arbitration: Practice and Forms - Second Edition
W. Reece Bader
Burton W. Wiand
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Originally from Securities Arbitration: Practice and Forms - Second Edition
§ 5.01 Compelling and Resisting Arbitration
This chapter focuses on the role of the judicial process in compelling and resisting arbitration. It also examines the interrelationship between arbitration and judicial proceedings, including:
- The obligation of courts to stay their own proceedings where an arbitrable dispute exists;
- How such a stay may be obtained or resisted;
- When must judicial and arbitral proceedings be conducted simultaneously;
- The availability of provisional judicial remedies in an arbitrable dispute; and
- Pre-arbitration judicial procedures.
Generally, judicial intervention is not needed either to begin an arbitration or to oversee its progress. An arbitration begins when one of the parties to an arbitration agreement commences it in compliance with the procedures specified in the agreement or established by the procedural rules of the arbitral body.
FINRA, the American Arbitration Association (AAA), and JAMS provide that a securities arbitration is initiated by filing a statement of claim and other specified documents with the arbitral tribunal. This process is more fully discussed in the next chapter.
Issues of compelling or resisting arbitration arise when one party to an apparently arbitrable dispute refuses to participate in the arbitration or seeks to use the judicial process instead, either to resolve the entire dispute or to obtain partial relief (such as a preliminary injunction or discovery) outside the arbitration proceeding. If a party to an arbitration agreement files a lawsuit despite receiving a demand to
arbitrate, any other party to the agreement may apply to a court for an order compelling arbitration and staying the judicial proceeding. In some circumstances, parallel proceedings are unavoidable — for example, if only some parties to the dispute are also parties to, or otherwise bound by, the agreement to arbitrate.
There are a number of issues to consider when deciding whether to compel or resist arbitration. The first, of course, is whether or not arbitration would be advantageous. This decision should be made in light of the party’s overall litigation strategies and goals, interim litigation needs (such as needs for discovery or other judicial relief), and the cost of bringing a motion to compel or to stay. The decision should be made carefully since there are costs and strategic advantages to each forum based on the needs, strengths, and weaknesses of each case and client. These considerations are discussed more fully in Chapter 4.
If the practitioner decides to try to compel arbitration, the second issue to be considered is: Which judicial forum is best? Often, securities disputes will permit a choice between state or federal courts. Because of the complex preemption and choice-of-law issues involved under the Federal Arbitration Act (FAA), state and federal courts may apply different substantive law to determine whether a given dispute is arbitrable. Procedural rights and rules may also differ, including the right to a jury trial, the appealability of interlocutory orders, and procedures for obtaining a stay of some or all claims either in arbitration or litigation. For this reason, the substantive law of the FAA and preemption and choice-of-law issues are discussed first in this chapter.
Specific procedures used to compel arbitration in the chosen judicial forum may vary from the procedures generally followed when instituting other kinds of actions. For example, in federal court, a petition to compel arbitration, rather than a normal complaint, is generally used. State court procedures may differ as well.6 In addition, an understanding of which issues raised by a petition to compel arbitration will require a jury trial, which issues will be decided by the court, and which issues will be referred to the arbitrator for a decision is critical in planning a litigation strategy and determining whether to compel - or resist - arbitration at all.
The practitioner must also keep in mind the substantive law governing arbitrability, including such issues as whether the arbitration clause covers the claim and the parties at issue, whether there are public policy reasons for not enforcing the agreement, and whether the arbitration agreement is revocable under traditional principles of law and equity, such as fraud in the inducement. As doctrines in these areas become better established, counsel who are not familiar with them may be subject to sanctions for trying to compel or resist arbitration without adequate grounds. In addition, parties must be aware of the law governing whether these issues are decided in the first instance by the arbitrators or the court.
Finally, the interaction between judicial and arbitral forums is important. This interaction is especially significant where multiple parties or claims are present, only some of which are subject to an agreement to arbitrate.