Comparing Arbitration Forums

When you are preparing an arbitration clause for inclusion in your company's contracts, it is important to give careful thought to which arbitration forum you will choose. Arbitration's unique flexibility gives you the opportunity to choose a forum that is convenient and favorable for you. There are several national and international organizations that conduct arbitrations, and the rules, locations and arbitrators available through each differ. In some circumstances you may be required to arbitrate in a particular forum. For example, the Financial Industry Regulatory Authority (FINRA) handles disputes among investors and brokerage firms and other entities registered with FINRA.

Some of the characteristics of an arbitration forum you should consider include:

• Is the forum national? International? Can it hear cases in a location convenient for your business?
• Who are the arbitrators? What kind of experience do they have?
• What is the fee structure and how costly is the process likely to be?
• What kind of flexibility is offered? How much discretion do the procedural rules vest in the arbitrators?

Below is a brief look at some of the most prominent arbitration forums and some of their attributes.

The American Arbitration Association (AAA) is one of the larger arbitration and mediation providers in the country. It has offices throughout the U.S. The AAA charges a filing fee as well as an hourly rate for its arbitrators. The amount of the fee is based on the size of the claim. The AAA handles a variety of types of arbitration matters, including consumer and commercial arbitration. The AAA also permits the parties to agree to an optional appeals procedure before an appellate arbitral panel. The AAA's appellate rules contemplate the completion of the appeals process within 3 months. In general, the AAA's rules give the parties a great deal of flexibility to set their own rules. Their arbitrators have the discretion to order whatever discovery (that is, evidence sharing between the parties) they consider necessary. The AAA does not permit its arbitrators to enter a default award. This means that one party cannot win by default if the other party refuses to participate in arbitration.

JAMS (Judicial Arbitration and Mediation Services) is also a larger ADR provider. "ADR" stands for alternative dispute resolution, and includes mediation and neutral analysis services in addition to arbitration. JAMS has more than 25 locations in cities throughout the U.S., as well as offices in London. JAMS charges a filing fee and an hourly rate for arbitrators, and its fee is based on the arbitrator's time. JAMS arbitrators also tend to be lawyers and former judges, rather than people with industry experience. In addition, JAMS offers an expedited arbitration process and an optional appeals procedure. Regarding discovery, the JAMS rules allow each party to take one deposition, and encourage the parties to otherwise engage in a voluntary and informal process. Like the AAA, JAMS offers the parties the flexibility to set their own rules, and forbids a default award.

National Arbitration and Mediation, or NAM, is an ADR provider with conference facilities nationwide. Like JAMS and the AAA, it charges administrative fees based on claim size, as well as hourly charge for the arbitrators' time. Its arbitrators include lawyers and former judges. NAM provides three different kinds of arbitration procedures, which it labels Open Arbitration, High/Low Arbitration, and Baseball Arbitration. In Open Arbitration, a neutral arbitrator holds a hearing and renders a decision, which in format is most similar to the arbitrations that JAMS and the AAA hold. In High/Low Arbitration, the parties agree to restrict the range of an arbitrator's decision by setting high and low limits for an award. Finally, in Baseball Arbitration, each party submits its last best demand and the reason it should be accepted to the arbitrator, with the decision being restricted to one party's figure or the other.

The Financial Industry Regulatory Authority, or FINRA, deals only with cases in the securities industry. In most instances, if your case involves the financial industry, it is nearly impossible to avoid FINRA arbitration, because FINRA has jurisdiction over most of these cases. FINRA is a not-for-profit organization with federal Congressional authorization to regulate the broker-dealer industry, and resolving industry disputes is only part of its function. It has 16 offices in cities throughout the country. FINRA has a variety of fees, including the initial fee a claimant pays to file a claim, as well as hearing fees paid by both parties. Some say that FINRA arbitrations tend to be cheaper than JAMS and the AAA. FINRA gives its arbitrators less flexibility, and its rules limit the available discovery. FINRA's arbitrators are more likely to have financial industry experience.

If you have a business with contracts that include an arbitration clause, or if you would like to begin including arbitration provisions in your company's agreements, contact me at (903) 944-7357 for a consultation today. We can review your existing agreements to determine whether they meet your needs, or create new ones for your business going forward.