The Conduct of the Hearing - Chapter 8 - Securities Arbitration: Practice and Forms - Second Edition

The basic function of an arbitration hearing is to give the parties an opportunity to present evidence and arguments, and to challenge the evidence and arguments presented by their adversaries. These functions are carried out in an environment radically different from the courtroom setting.

The salient feature of arbitration hearings is their informality. They typically take place in a conference room. The arbitrators, parties, and counsel are seated relatively close to one another. There is no jury, and no elevated bench. The arbitrators typically wear business suits or the equivalent, not judicial robes. This informality is joined by a relaxed attitude toward the rules of evidence and by the flexibility granted to the arbitrators to control the proceedings.

Arbitration hearings also differ from bench or jury trials in that they are presumptively private, rather than being open to the public and the press. FINRA and other self-regulatory organizations make summaries of their arbitral awards available to the public, and the Securities Arbitration Commentator maintains copies of awards, which are available to counsel. The proceedings themselves are generally conducted in the presence of only the arbitrators, the parties, counsel, witnesses, and, in some cases, and staff members.

The procedural aspects of arbitration are governed by rules promulgated by FINRA or other bodies such as AAA and FINRA. The rules, however, are not detailed procedural codes along the lines of the Federal Rules of Civil Procedure. Many points are resolved by the arbitrators on an ad hoc basis in accordance with the perceived dictates of fairness, economy, and common sense.

There are, however, some limitations on the procedural flexibility of arbitration. The arbitrators cannot deprive the parties of a full and fair opportunity to present their claims or defenses. Thus, the Federal Arbitration Act specifically provides that:

[T]he United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration . . . [w]here the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced.

Although arbitration awards have been vacated for gross procedural irregularities, the scope of judicial review is fairly narrow.

Counsel appearing in arbitrations will find that the basic rules of advocacy are as applicable in arbitrations as they are in trials. Matters such as how to choose witnesses, how to question a witness on direct, whether to cross-examine, and how a case should be organized, are governed by essentially the same factors in judicial and arbitral forums. However, the arbitral context may affect the types of issues that are raised (arbitrations give the advocate greater scope for reliance on "equitable" arguments that might not carry any weight in more formal proceedings), the manner in which points are proven (the lack of formal rules of evidence makes available to the advocate a wider variety of sources of proof), and the "tone" adopted by the advocate.

The fact that the arbitrators will be well-educated individuals, and that at least one of them is likely to be particularly knowledgeable about the securities industry, obviously calls for a different manner of presentation than would be appropriate for a jury or even a judge. Courtroom theatrics have no place in arbitration. Further, counsel should avoid focusing on hypertechnical "legal" arguments. The key is to propose what the panel will perceive to be a pragmatic, fair resolution of the problem at hand.