There is a strong policy favoring arbitration, particularly the arbitration of customer claims against securities broker-dealers.

Following the Supreme Courts holding in Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987), pre-dispute contracts to arbitrate securities claims are strictly enforceable. Any such claims against brokerage firms or their agents, including claims for punitive damages available under state law, are subject to arbitration in accordance with the Code of Arbitration Procedure.

Arbitration of disputes with broker/dealers has long been used as an alternative to the courts because it is devised as a prompt and inexpensive means of resolving complicated issues. There are certain laws governing the conduct of an arbitration proceeding that must be considered by those planning to use arbitration to resolve the dispute. Most importantly, perhaps, is the fact that an arbitration award is final and binding, subject to review by a court only on a very limited basis. Parties should recognize, too, that in choosing arbitration as a means of resolving a dispute, they generally give up their right to pursue the matter through the courts.

Arbitration is quick, it is relatively inexpensive, and perhaps most importantly, it provides a forum for the resolution of claims that may otherwise consume scarce judicial resources, (if these matters, particularly arising under the federal securities laws, were heard in federal court). Because of this federal policy of promoting arbitration as an efficient method of expediting disposition of commercial disputes to eliminate the delay of extended court proceedings preliminary to arbitration, Congress provided in the Federal Arbitration Act (“FAA”), 9 U.S.C. § 4 an abbreviated procedure for obtaining specific enforcement of arbitration agreements.  National Railroad Passenger Corp. v Missouri P. R. Co., 501 F2d 423 (8th Cir. 1974)(emphasis added).  Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985)(The primary purposes of the FAA was the “encouragement of efficient and speedy dispute resolution.”); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 (1967) (“the unmistakably clear congressional purpose that the arbitration procedure be speedy and not subject to delay and obstruction in the courts”);  Allied-Bruce Terminix Co., Inc. v. Dobson, 513 U.S. 265, 278 (1995) (noting that “Congress wrote the Act to help the parties avoid costs and delay through litigation); Preston v. Ferrer, 552 U.S. 346, 357-58 (2008) (“A prime objective of an agreement to arbitrate is to achieve streamlined proceedings and expeditious results.”).

While “any doubt as to whether parties should be ordered to arbitrate is to be resolved in favor of arbitration,” whether a party may be compelled to arbitrate a dispute with another party, the a court must determine:  (1) whether there exists a valid agreement to arbitrate and, if so, (2) whether the merits-based dispute in question falls within the scope of that valid agreement.  Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005);  Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 160 (3d Cir. 2009);  John Hancock Mut. Life Ins. Co. v. Olick, 151 F.3d 132, 137 (3d Cir.1998).

Courts have long held that because of the liberal policy of promoting arbitration, all doubts of arbitrability are to be resolved in favor of arbitration. Some courts have also held that a party may even be bound by arbitration absent a signature on an agreement. Blashka v. Greenway Capital Corp., 1995 U.S. Dist. LEXIS 15191 at *7 (S.D.N.Y. Oct. 16, 1995)

The Differences Between Arbitration and Court Proceedings

Many practitioners believe that FINRA Arbitration Panels, containing an industry related non-public arbitrator are biased, and that juries may often render more favorable monetary verdicts than arbitration panels. However actions filed in both state and federal court, are subject to motions to dismiss, and motions for summary judgment, and accordingly, a plaintiff’s claims, based sometime on legal technicalities may never survive or be presented to a jury.

In arbitration, however, as stated in the Arbitrators’ Manual, “Equity is justice in that it goes beyond the written law. And it is equitable to prefer arbitration to the law court, for the arbitrator keeps equity in view, whereas the judge looks only to the law, and the reason why arbitrators were appointed was that equity might prevail.”

However, unlike in state or federal courts where procedure may allow for dismissal based upon the failure to state a claim, or for summary judgment, upon the completion of discovery,   Motions to Dismiss are generally disfavored in arbitration.

In arbitration, the parties are provided the opportunity to submit pertinent evidence in support of their claims or defenses. See, e.g., British Ins. Co. of Cayman v. Water Street Ins. Co. Ltd., 93 F. Supp. 2d 506, 519 (S.D.N.Y. 2000)(“In sum, it is these facts which would present issues of fundamental fairness if a final award were issued without the development of an additional record on the merits.”)(quoting, Areca v. Oppenheimer & Co., Inc., 960 F. Supp. 52, 54 (S.D.N.Y. 1997)(finding that if an arbitrator refuses to hear material and pertinent evidence, prejudicing one of the parties, the award may be set aside); Konkar Maritime Enterprises, S.A. v. Compagnie Belge D’Affretement, 668 F. Supp. 267, 271 (S.D.N.Y. 1987) (“All parties in an arbitration proceeding are entitled to … an opportunity to be heard [and] must be allowed to present evidence without unreasonable restriction.”)(quoting Totem Marine Tug & Barge, Inc. v. North American Towing, Inc., 607 F.2d 649, 651 (5th Cir. 1979)).

In September 2007, FINRA  proposed amendments to Rule 10305 were “designed to limit significantly the number of dispositive motions – more commonly known as motions to dismiss — and to impose “strict sanctions,” including the assessment of  “all forum fees”  against parties who engage in abusive motions practices.

In September 2008, the Securities and Exchange Commission approved Rule 12206 of the Code of Arbitration Procedure, which became effective January 23, 2009,  and which specifically provides that pre-hearing Motions to Dismiss are limited to three circumstances on which to grant the motion: if the parties settled their dispute in writing; “factual impossibility,” meaning the party could not have been associated with the conduct at issue; or the existing 6-year time limit on the submission of arbitration claims.”    In connection with the promulgation of the new Rule, “FINRA emphasize[d] that these exceptions do not constitute an invitation to parties to file motions to dismiss.”

Hearing Locations

The FINRA Director of Arbitration decides which of FINRA’s hearing locations will be the hearing location for the arbitration based upon the closest hearing location to the customer’s residence at the time of the events giving rise to the dispute, unless the hearing location closest to the customer’s residence is in a different state, otherwise the customer may request a hearing location in the customer’s state of residence at the time of the events giving rise to the dispute.

FINRA offers hearing locations in every region of the country. In the Northeast region, FINRA offers hearing locations in Albany, NY; Augusta, ME; Boston, MA; Buffalo, NY; Hartford, CT; London, England; Manchester, NH; Montpelier, VT; New York, NY; Newark, NJ; Philadelphia, PA; Providence, RI; Syracuse NY. In the Western Region, FINRA offers hearing locations in lbuquerque, NM; Anchorage, AK; Boise, ID; Cheyenne, WY; Denver, CO; Helena, MT; Honolulu, HI; Las Vegas, NV; Los Angeles, CA; Phoenix, AZ; Portland, OR; Reno, NV; Salt Lake City, UT; San Diego, CA; San Francisco, CA; Seattle, WA. In the Southeast Region, FINRA offers hearing locations in Atlanta, GA; Baltimore, MD; Birmingham, AL; Boca Raton, FL; Charlotte, NC; Columbia, SC; Jackson, MS; Jacksonville, FL; Little Rock, AR; Memphis, TN; Miami, FL; Nashville, TN; New Orleans, LA; Norfolk, VA; Orlando, FL; Raleigh, NC; Richmond, VA; San Juan, PR; Tampa, FL; Washington, DC; Wilmington, DE. In the Midwest Region FINRA offers hearing locations in Bismarck, ND; Charleston, WV; Chicago, IL; Cincinnati, OH; Cleveland, OH; Columbus, OH; Dallas, TX; Des Moines, IA; Detroit, MI; Houston, TX; Indianapolis, IN; Kansas City, MO; Louisville, KY; Milwaukee, WI; Minneapolis, MN; Oklahoma City, OK; Omaha, NE; Pittsburgh, PA; Rapid City, SD; St. Louis, MO; Wichita, KS.

Guiliano Law Group

Our practice is limited to the representation of investors. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you. There is never any charge for a consultation or an evaluation of your claim. For more information, contact us at (877) SEC-ATTY.

For more information concerning common claims against stockbrokers and investment professionals, please visit us at