Explained Awards in Arbitration: The NASD's Proposed Experiment - Dispute Resolution Journal - Vol. 61, No. 1
Steven C. Bennett, a partner at Jones Day, teaches commercial arbitration at Brooklyn Law School, and writes frequently on the subject of arbitration. William G. Karazsia, a 2005 graduate of the Georgetown University Law Center, assisted with the preparation of this article. The views expressed are solely those of the author, and should not be attributed to the author’s firm, or its clients.
Originally from Dispute Resolution Journal
“Claimant’s claim is denied in its entirety”—these seven deadly words usually signal the end of the line for an arbitration claimant seeking recovery. But they do not provide a meaningful explanation of why the arbitration panel arrived at its decision. Securities customers-turned-claimants whose arbitration cases have ended with these seven deadly words, often after spending more than a year steering their case through a process wholly foreign to them, have voiced profound concerns. They complain that a dispute resolution system should not leave them wanting to know how the decision was arrived at.1 Recently, the National Association of Securities Dealers (NASD), a securities industry self-regulatory organization (SRO) whose dispute resolution arm administers a great many securities arbitration cases, responded with a rule-change proposal that would require arbitrators to provide an explanation for their decisions. The aim of the proposed change, originally floated in March 2005,2 is to bolster confidence in the fairness of the NASD dispute resolution system.
The proposed requirement for an explanation of the outcome should shine light on the rationale for the award, but it could also erode some of the classic differences between arbitration and litigation. It could make arbitration look even more like conventional litigation and this would cause concern in some quarters.3 After all, arbitration is not intended to be “litigation light.”
Arbitration has always differed from litigation in significant ways. First, it is more flexible than litigation and arbitrators are not required to apply court rules of procedure.4 Arbitration affords the parties the opportunity to agree, before a dispute arises, on the rules and procedures they will use when a dispute does come up. Second, it allows the parties to select the arbitrator who will decide their dispute. Third, it is, for the most part, final and binding.5 Fourth, it can be faster and cheaper than a trial.6 Fifth, the parties can agree to keep their arbitration private, although this is not true of arbitration at the NASD,7 where awards are not confidential.