Articles / Alternative Dispute Resolution
Forced Remote Arbitration, David Horton (University of California, Davis – School of Law), Cornell Law Review, Vol. 108, 2022
In this paper Horton reviewed and analyzed more than 70,000 filings from FINRA, JAMS, Kaiser, and AAA, and considered how remote procedures impact win rates, case length, and arbitration fees. His findings:
“[P]laintiffs who participate in virtual proceedings generally win less often and recover lower damage awards than individuals who arbitrate in person. This “remote penalty” exists in some settings even after controlling for variables such as claim type, pro se status, and the experience of the defendant, the lawyers, and the arbitrators.
[Additionally,] even though proponents of forced remote arbitration contend that it streamlines cases, the data only partially support this claim. Some remote modes, such as documents only proceedings, seem to save time and money, while others, like video hearings, do not.
The study is academic and its text and analysis dense. It is not “light reading.” However, the study and article do provide some of the first objective data addressing the question that those in the arbitral community are facing: what is the impact of remote hearings on results, and is there a difference in awards rendered when hearings are conducted in person v. remotely? Horton concludes that there is a difference, and the difference benefits corporations.
When considering the findings summarized in the article’s abstract and quoted above, I note the article’s title “Forced Remote Arbitration,” and specifically the word “forced.” Horton begins his article by relating a 2017 case wherein a judge ordered a pro-se claimant to arbitrate a claim arising under a securities investment account and the account documents the claimant signed to open the account. He then states: “Forced arbitration has long been a hallmark of the American civil justice system.”
Contrary to Horton’s implied assertion that arbitrations are forced on unwilling participants, arbitrations are not “forced.” They are creatures of contract where in the parties agree to arbitrate their disputes. While one may argue the propriety of arbitration clauses in consumer contracts, and whether such contracts are contracts of adhesion, to label all arbitrations “forced” as Horton appears to do is just not accurate.
That Horton is not a fan of arbitration is further indicated by his discussion of the use arbitration and remote hearings in particular. Consider this sentence: “Thus, drafters [of arbitration agreements] are using private dispute resolution to delete a right that individuals possess in court. In addition, my research suggests that this gambit systematically favors businesses.” P. 8.
While data is data and the results of Horton’s analysis may well support the conclusion that there is a disparity in result between in-person hearings and remote hearings, those with a better understanding of statistics and the methodology of Horton’s study need to weigh in and provide their analysis of the objectivity and accuracy of Horton’s analysis and conclusions.
FINRA’s Dispute Resolution Pandemic Response, Kristen Blankley (University of Nebraska), Penn State Law Review, Forthcoming
Prof. Blankley, in a paper to be published by the Penn State Law Review, explores the response of the Financial Industry Regulatory Authority (“FINRA”) to the COVID pandemic and resulting cessation of in-person hearings of disputes. FINRA was created in 2007 as a result of the merger of the New York Stock Exchange and the National Association of Securities Dealers, and “operates the largest securities dispute resolution forum in the United States.” Per Prof. Blankley, “[n]early all brokerage firms include pre-dispute arbitration agreements in their customer contracts, and FINRA rules require arbitration at a customer’s request.”
When the United States declared a national emergency due to the coronavirus pandemic, “FINRA made a series of temporary rule changes to continue operations in light of the circumstances.” Specifically, FINRA postponed “all in-person arbitration and mediation proceedings” and asked “nearly all of its staff to work remotely.” Prof. Blankley examines FINRA’s response, and in particular the data for win rates in in-person hearings and remote hearings. Her analysis and conclusions are both thoughtful and measured: “Some evidence suggests that claimants fare worse in zoom arbitrations than in-person arbitrations, which is a conclusion that should be studied in more detail.”
Prof. Blankley bases her conclusion that evidence exists which suggests a results disparity between in-person hearings and remote video hearings on a report prepared in 2021 by the securities litigation and consulting firm SLCG.
“[T]he report compiles FINRA data and raises serious questions. The report cites FINRA’s own publicly available information showing a 34% claimant win rate in 2020, down from rates from 42% to 45% since 2015. A 10% decline based on FINRA’s own published data is concerning and deserves additional attention and study. SLGC’s report goes further by examining the awards themselves to determine which hearings occurred in person and which hearings occurred online. SLGC found that that between May and December 2020, when nearly all arbitrations were remote, investors won only 28.8% of cases. In those remote hearings, claimants recover only 33.3% of the amount requested, down from 57.3% in 2019, and down at least 20 points compared to any other year since 2015. In a March 2021 webinar, FINRA’s Richard Barry claimed that SLGC’s report contains methodological deficiencies and responded that the data show little change from year-to-year.”
Prof. Blankley’s paper has yet to be peer reviewed, and she carefully and repeatedly notes that the data “suggests” discrepancies; she does not conclude that it does. Rather, she concludes that more study is required:
FINRA should study and report on win rate statistics. At this point, a cloud exists over the win rates that can hopefully be explained by a neutral party.