FINRA is making changes to its arbitrator selection process amid a potential appeal of
FINRA has created a public
The original decision by Fulton County Superior Court Judge Belinda Edwards had called "the entire fairness"
"This episode really demonstrates three things I'm really proud about the dispute resolution program at FINRA: our continuous improvement effort, our transparency and how we listen," FINRA Dispute Resolution Director Richard Berry said in a panel at the Public Investors Advocate Bar Association's annual meeting on Oct. 26. "When you get a decision like this where they challenge the integrity of the program, you have to take action."
FINRA has updated its policy manual clarifying how managers and supervisors in Berry's department audit arbitrator selections and to refer more specifically to an algorithm the regulator uses to create a list of potential arbitrators. In the other shift, FINRA now provides written explanations to the parties in cases any time the Dispute Resolution staff either accept or deny a request to remove potential arbitrators. Berry's department is adding 17 staff members to carry out those and other pending adjustments.
That latter update to the process makes a big difference to firms, brokers and client attorneys such as the PIABA members present at the conference in San Antonio, according to moderator Michael Edmiston of Jonathan W. Evans & Associates. He was president of PIABA until his one-year tenure ended last week. Arbitrator selection is "the most important thing" in every client arbitration complaint against brokerages, and the process needs to be "as clear and fair and transparent as possible," Edmiston said in an interview after the panel.
He pointed out that the law firm's report had found that, for the last seven years, there was often no review by FINRA or any of the parties of the so-called drop notes explaining why arbitrators got removed from the pools of potential panelists. PIABA tried unsuccessfully in a "massive battle in federal court" about 10 years ago to get access to the drop notes, Edmiston said. Inappropriate drops or disagreements about the justification for them could pose problems.
"You can get inconsistent and unfair results," he said. "That extra transparency is a big plus for every case."
As for the Leggett case itself, the Georgia State Supreme Court is currently weighing the client's request for an appeal trial on the overturning of Edwards' decision from earlier this year. In their Aug. 22 request for what would mark the third review of the arbitration decision, Leggett's attorneys argue that the appeals court that vacated Edwards' decision made two mistakes.
The appeals court "relied on policy considerations not found anywhere in the actual text" of the Federal Arbitration Act and "failed to apply the proper standard of review with respect to the superior court's factual findings," attorney Craig Kuglar wrote. "The court of appeals decision ignored the relevant standard of review with respect to the superior court's findings of fact, substituting its own factual findings rather than determining whether the superior court's factual findings had any evidence to support them."
In the company's Sept. 12 response to the filing, Wells Fargo's attorneys called on the state Supreme Court to reject any further reviews of the decision.
"Instead of giving deference to the arbitration panel as it was required to do as a matter of law, the trial court erroneously vacated the arbitration award," the firm's lawyers wrote. "The Georgia Court of Appeals then appropriately reversed the trial court's decision. Now, Leggett tries to frame a case of routine error correction by the Court of Appeals as an act of judicial fiat, ranging far afield from the statutory text of the Federal Arbitration Act."
