Litigation Vs. Arbitration – Which is Right for Me?

Investors who lose money due to broker fraud or negligence may want to sue their broker or brokerage firm. Those investors will most likely discover that their brokerage firm agreement includes a pre-dispute arbitration clause. This is an agreement to pursue damages through FINRA arbitration, rather than in civil court. There are several essential differences between litigation and arbitration that every investor should know.

Differences Between Arbitration and Litigation

Investors should review the following list to know what to expect from their FINRA arbitration case.

1. Time. The arbitration process is designed to be quicker than a civil case. FINRA arbitration disputes often resolve within 16 months, while many civil cases last for approximately two years. Investor attorneys may also be able to expedite arbitration cases depending on their client’s age and medical condition.
2. Claims. In a FINRA arbitration suit, the initial filing is called a statement of claim, instead of a civil complaint.
3. Discovery. In FINRA arbitration, certain documents are presumptively discoverable – lawyers are less likely to have to spend time arguing over whether they must be produced. In general, FINRA arbitration has far fewer motions than a civil trial.
4. Depositions. A deposition is when a witness is questioned under oath outside of a courtroom. These are highly discouraged in FINRA arbitration. Under FINRA Rule 12510, depositions are generally only allowed if there is a need to preserve the testimony of an ill or dying witness, or in order to manage an especially large or complex case.
5. Appeals. There is extremely limited opportunity for appeal in FINRA arbitration, and arbitration awards are typically binding. Civil cases can face endless appeals, allowing them to drag on for years. In FINRA arbitration, appeals can only be successful in extraordinary circumstances – for instance, if one of the parties can prove “the award was procured by corruption, fraud, or undue means.”
6. Securities Lawyers. Investors should think twice before relying on general-practice lawyers for these types of cases. Securities law is highly specialized, and most investors should work with lawyers who are highly familiar with the FINRA arbitration process. FINRA arbitration lawyers can help select arbitrators and pick the best possible hearing location for your case.
7. The Arbitration Panel. There is no judge or jury in FINRA arbitration. Arbitration cases are decided by one or three arbitrators, depending on the amount the client is trying to recover. Cases seeking less than $100,000 are usually overseen by one arbitrator, while cases alleging $100,000 or more in damages have three arbitrators.

Both parties have a say in arbitrator selection. Each party receives the same list of randomly generated potential arbitrators. They then strike arbitrators from the list and rank the rest according to preference. Securities lawyers can be extremely useful for this process and can help keep out arbitrators who have track records of siding against investors.

8. Objections. If a party objects to any discovery, they should object in writing. These objections must be served to all parties. ]
9. Receiving Payment. Once a FINRA arbitration panel issues an award, the brokerage firm or broker usually has 30 days to pay, unless they file a motion to vacate. Motions to vacate are heard in court. FINRA Rule 9554 states that brokerage firms or brokers who fail to pay awards may be suspended or barred from the securities industry.

In a civil trial, the appeals process may indefinitely delay your award.

Do Arbitration and Litigation Have Anything in Common?

Yes, there are parts of FINRA arbitration that will be familiar to anyone who has gone through a civil trial.

1. Investors pay a filing fee. Our securities attorneys will cover this fee for you. In some cases, FINRA may waive the fee if investors can demonstrate a lack of funds.
2. Opening statements. The hearing opens with both sides delivering statements that lay out the essential arguments.
3. Mediation is an option. Instead of going through a hearing, both civil trials and FINRA arbitration offer the chance to enter mediation and arrive at a settlement agreement.

Brokerage Firm Agreements

Brokerage firm agreements are required by FINRA Rule 2268 to highlight pre-dispute arbitration clauses. Investors should note that not everything in their brokerage firm agreement is necessarily enforceable. Certain brokerage firms have attempted to curtail investors’ rights to recover losses, even following clear misconduct on the part of the firm. These clauses are typically not enforceable. One of our securities lawyers can review your brokerage firm agreement during a free case evaluation.

How Do I Start My FINRA Arbitration Claim?

Set yourself up for success by first speaking with a securities lawyer. Our attorneys will instruct what documents you should be ready to provide and what to expect from a FINRA arbitration panel. If you are not sure if you have a case, it does not hurt to speak with a lawyer. Contact (877) 600-0098 or info@kurtalawfirm.com.