The Financial Industry Regulatory Authority (FINRA) provides a helpful overview of the main attributes of each of these dispute resolution processes. Keep in mind that these non-legal processes are described in the context of securities disputes whether between a client and a broker-dealer or between a broker-dealer and one of its ex-brokers. Ideally, there should be a good relationship between brokers and investors, but inevitably there are disagreements. Arbitration and Mediation are examples of alternative dispute resolution processes that bypass the inconveniences an expense associated with a lawsuit filed in civil court.
Mediation and Arbitration are non-judicial processes for resolving disputes between parties. In mediation, an impartial third party, known as the mediator, tries to help the parties to the dispute reach a resolution by focusing both parties on the critical issues. Mediation is a voluntary process where the parties agree to ‘give it a try’ but the mediator cannot make any decisions or force any party to do anything. In contrast, once the parties have agreed to submit their dispute to arbitration, the (hopefully) impartial arbitrator makes a decision that is binding on both sides. The arbitrator listens to each party’s concerns and makes a decision based on each party’s presentation of their story.
The Financial Industry Regulatory Authority (FINRA) states that:
Meditation…
- “Is voluntary. The parties also decide who the mediator will be, when the mediation will take place, and how the dispute will be settled.”
- “Is informal. In mediation, an impartial person—the mediator—promotes negotiations between the disputing parties.”
- “Is inexpensive. The mediation process is less expensive than arbitration or litigation.”
- “Is non-binding. Unlike other forms of dispute resolution, such as arbitration and litigation, the mediator does not impose a solution or decide your case. Instead, the mediator guides or helps the parties to reach or create their own solution. Parties may still arbitrate their dispute if they are unable to agree on a settlement.”
- “Is a “win-win” solution. The mediator’s role is to help the parties find a mutually acceptable solution to their controversy. Since the inception of the program in 1995, more than 6,000 cases have been filed in mediation. Parties who mediate at this forum resolve four out of every five disputes, an 80% settlement rate!!”
Arbitration…
- “Is impartial. Based on the size of your claim, your dispute will be heard by one or more impartial arbitrators. Arbitrators are selected by the parties through an automated system that produces arbitrator lists. Parties may remove any listed arbitrator for any reason. They are encouraged to rank the remaining arbitrators, according to preference.”
- “Is fair. During the hearing, parties make brief opening statements explaining what they intend to prove and what relief (e.g., money damages) is sought. Parties have the opportunity to present documents and witnesses in support of their positions, to object to documents and to question witnesses presented by other parties, and to make closing remarks to summarize their positions.”
- “Is final and binding. Arbitrators evaluate the evidence and arguments presented and reach a final and binding decision (the “award”). Awards are only subject to court review on very limited grounds.”
- “Is expedient. Arbitrators endeavor to render the award within 30 business days after the close of the proceeding.”