Arbitration v. Mediation: Statistics

FINRA (the Financial Industry Regulatory Authority) administers both mediation and arbitration programs for securities brokers, agents, and customers.  Their recently reported statistics for the first part or 2010 show an increase of 106% in new filings for mediation and a decrease of 25% for arbitration.  New arbitration case filings still outnumber mediation requests by about 7 to 1.  FINRA also reports that 85% of mediation cases closed with a successful settlement, an increase of about 5% from historical FINRA mediation settlement rates due in part to a multi-case mediation coordinated by FINRA, which settled a large group of cases.  The average case turnaround time was 88 days.

Statistics like this are difficult to come by.  If anyone knows a good source for similar statistics in other arbitration and mediation programs, let me know.  Without such information, generalizations about filing trends and settlement rates are impossible to make.

Good idea, glad I thought of it

About 5 years ago, my wife and I had some friends over for dinner, and my sister-in-law from Southern California was there as well. We mentioned that our niece (the sister-in-law’s daughter) had just graduated from college and that our friends had a son who had recently moved out there to go to grad school. We thought they might make a good match and asked if they would like to be fixed up. Our friends said that if it came from his parents, their son would have nothing to do with it. So we dropped it.

About 8 or 9 months later, we found out that our niece had begun dating a guy she met through the internet. And so had our friend’s son. Sure enough, they found each other through an electronic Yenta the Matchmaker. When it became their idea, it was a good one. Last summer, we attended their wedding. 

Yesterday, I heard a report on NPR reminding us that Republican opposition to health care reform in the 1990s (Hillary-care) resulted in a Republican sponsored proposal for mandatory health insurance, which the Democrats opposed. Now, Republicans oppose the Democratic health care proposals (Obama-care) because they mandate health insurance coverage for everyone. It seems that neither party thinks this is a good idea unless it is their own. Sounds familiar.

When I try a case or mediate a dispute, I try to plant seeds and let the jury or the parties think that they came up with the ultimate resolution. If the verdict is favorable or the settlement is something everyone can live with, I don’t care whose idea it was. Ego has no place in this business. It’s a shame that politicians can’t say the same thing. 

Alternative Dispute Aggravation

Mediation and arbitration are often referred to as alternative dispute resolution.  But here is an arbitration case that could be called alternative dispute aggravation.  It should be filed under “Be careful what you wish for; you may get it.”  A company hired a female lawyer as its in-house counsel.  When she complained that she was being paid less than a male subordinate, in violation of the Equal Pay Act and Title VII of the Civil Rights Act, the company fired her.  The parties agreed to binding arbitration.  The arbitrators awarded the lawyer $1.7 million and ordered reinstatement, despite the lawyer’s admission that she did not want to be reinstated.  The employer appealed, but the trial court and court of appeals affirmed.  The case is now on appeal to the Wisconsin Supreme Court.  The employer is arguing that the award exceeds the arbitrators’ authority under the parties’ agreement to arbitrate, and it violates the company’s state constitutional right to be represented by a lawyer of its own choosing.

Regardless of how the Wisconsin Supreme Court decides this case, someone should ask why these parties chose binding arbitration?  One of my earliest posts is titled “To Mediate or to arbitrate?”  I suggested that arbitration is a win-lose proposition while mediation can lead to a win-win solution.  In this case, arbitration might result in a lose-lose proposition.  If the award is upheld and the employer allows the lawyer to come back to work, but the lawyer refuses to do so, must she give up the monetary award as well?  Both parties made it abundantly clear that they don’t like each other.  Will the Court really give them the benefit of their bargain by enforcing a shotgun wedding?  In any event, this arbitration has not proven to be an economical and confidential alternative to litigation.  The parties arbitrated and are now engaged in very public litigation.  Was there no mediator available to save these people from themselves?

Caveat arbitrator

The recent settlement of the Minnesota Attorney General’s lawsuit against National Arbitration Forum (NAF) was a welcome development for consumers.  Minnesota alleged that the company—which had been named as the arbitrator of consumer disputes in tens of millions of credit card agreements—hid from the public its extensive ties to the collection industry.  Under the settlement, NAF must stop accepting any new consumer arbitrations and will permanently stop administering arbitrations involving consumer debt, including credit cards, consumer loans, telecommunications, utilities, health care, and consumer leases.  Mandatory pre-dispute consumer arbitration clauses have been suspect for many years because the clauses have been hidden in fine print and the parties’ bargaining power is extremely unequal.  The American Arbitration Association has developed Consumer Due Process Protocols in order to determine which alternate dispute resolution (ADR) mechanisms were fair and which were not.  Arbitrators and mediators should be required to be familiar with these protocols.  The Seventh Amendment to the United States Constitution guarantees the right to a trial by jury in civil cases, when more than $25 is in dispute.  This right can be waived, but like any other waiver, it should be done only after fully informed and voluntary consideration of the costs and benefits.  ADR can be faster and less costly than litigation, but we already pay for judges and the courts through our taxes.  Before giving up such a valuable right, consumers should be fully advised.  They may be giving up not only their right to be heard by a jury of their peers, but also the right to an appeal.  They may also be taking on costs that they are not prepared to pay.  And sometimes confidentiality is not desirable.  If one consumer has been harmed by an illegal financing scheme, it is likely that others have been similarly harmed.  If such disputes are kept out of public courtrooms, other consumers may not become aware of the problem.  There is also the issue of independence, which was the problem with NAF.  When deciding whether an arbitrator or mediator is truly neutral and independent, follow the money.  Where do their fees and referrals come from?  Everyone knows how judges and jurors are paid (poorly!).  Make sure you know how your mediator or arbitrator makes a living.