Banks and Brokers and Bricks and Clicks: An Evaluation of FINRA\u27s Proposal to Modify the Bank Broker-Dealer Rule

As discussed in this article, the proposed rule change protects bank customers who may be solicited for the purchase of investment products and services, but only to a limited extent. It does not rectify sales practices of broker-dealers--affiliated with financial institutions--which tend to confuse, and even mislead, financially unsophisticated investors of modest means who can least afford to be exposed to excessive risk. Additionally, the proposed rule change adds no meaningful surveillance, inspection, enforcement, or punitive mechanisms to prevent and/or redress insidious practices that are akin to “bait and switch” tactics and are particularly effective against financially unsophisticated investors. In fact, the proposed rule change even rolls back some key regulatory provisions, an especially unsettling retreat when one considers the lack of oversight during the recent market malaise and the contribution that such abridgement may have made to the present economic contraction as a reverse “wealth effect” impinges upon consumer behavior. In short, as demonstrated below, the proposed rule change is inadequate to sufficiently protect investors and promote genuine market integrity

Justice Scalia\u27s Hat Trick and the Supreme Court\u27s Flawed Understanding of Twenty-First Century Arbitration

In this article, I report on the results of my close examination of more than two dozen opinions the Court has handed down interpreting the FAA--arising primarily from commercial, consumer, employment, or securities disputes--since the beginning of the twenty-first century only fifteen years ago.19 I focus on cases in which the Court was asked to decide a question of arbitrability--whether a claim is arbitrable or whether an agreement to arbitrate is enforceable under FAA section 2. I have concluded that these decisions are built on a narrative of an arbitration process that no longer exists, although it may have existed in the twentieth century when Congress passed the FAA. The Court\u27s antiquated understanding of the process threatens to undermine arbitration as a just alternative dispute resolution (ADR) mechanism. Part I of this article describes the process of arbitration, the law that regulates the process, and how both law and process have evolved from the twentieth to the twenty-first century. Part II zeroes in on three opinions enforcing arbitration agreements challenged by consumers seeking to bring statutory claims as class actions. All three opinions were authored by Justice Scalia in 2011, 2012, and 2013--what I call Scalia\u27s “Hat Trick.” As I see it, Justice Scalia scored three times in the game of arbitration--and corporate counsel were likely cheering on the sidelines as their “goals” were achieved: to suppress consumers\u27 ability to bring individual class actions against companies based on claims arising under federal statutes. Many arbitration scholars have sharply criticized those decisions as anti-consumer or anti-employee, claim suppressing, and at odds with the fundamental right to have a dispute heard in a courtroom. Part III argues that, in the Court\u27s twenty-first-century arbitration cases, when justifying its holdings, the Court assumes without factual basis that arbitration is a one-size-fits-all process that is quick and inexpensive for all disputants who have ultimate control over the procedures. This part demonstrates that the Court\u27s oversimplified and out-of-touch decisions have crafted a legal framework that regulates an arbitration process that largely no longer exists. The article concludes by arguing that the Court\u27s expansion of the FAA improperly rests on an outmoded understanding of the modern arbitration process and fails to recognize the many varieties of arbitration that exist today. Those decisions have led to concerns and criticisms that arbitration is no longer a fair process and have promoted a flight from arbitration. This flight necessarily decreases the range of ADR options that parties have at their disposal and ultimately hurts the values of process pluralism. By setting the record straight, I hope to provide some insights into challenges to the Court\u27s FAA decisions that may still exist and that have the potential to lead to a reinvigoration of many types of arbitration as appealing alternatives to litigation

Arbitration Case Law Update 2012

Parties to arbitration agreements sometimes invoke the judicial system to litigate collateral issues arising out of the arbitration process, such as arbitrability of some or all of the claims, arbitrator bias, and award enforcement or vacatur. When deciding these collateral issues arising out of securities arbitration, courts interpret and apply the Federal Arbitration Act (FAA). This chapter identifies recent decisions by the Supreme Court under the FAA, as well as selected lower court decisions that could have an impact on securities arbitration practice

Arbitration Case Law Update 2013

The U.S. Supreme Court and lower state and federal courts continue to decide cases under the Federal Arbitration Act (FAA) at an astounding rate. This chapter summarizes Supreme Court opinions over the past year that interpret the FAA, as well as selected lower court decisions that apply the FAA and could have an impact on securities arbitration practice

Arbitration Case Law Update 2015

This chapter identifies decisions by the U.S. Supreme Court and selected federal circuit and high state courts in the past year that interpret and apply the Federal Arbitration Act (FAA) and could have an impact on securities arbitration practice

AT&T Mobility and the Future of Small Claims Arbitration

This article focuses on small claims arbitration and examines the impact of AT&T Mobility on the legitimacy of the process. Part II of the article describes the Supreme Court’s AT&T Mobility decision, which held that the FAA preempts a California rule that declared a class arbitration waiver in a consumer contract unconscionable. Part III describes the primary features of the two options remaining for the Concepcions—small claims court and small claims arbitration, as well as their perceived advantages and disadvantages. Part IV demonstrates that courts have endorsed simplified arbitration. Part V examines whether simplified arbitration is a fair method of resolving small arbitration claims. Part VI explores other dispute resolution models for resolving small dollar value commercial disputes, including on-line dispute resolution, telephonic arbitration, and a small claims arbitrator. Part VII concludes by urging dispute system designers to consider changing the default mechanism of arbitrating small claims cases from paper or “desk” arbitration to a live hearing before a small claims arbitrator

Loser-Pays—or Whose “Fault” is it Anyway: A Response to Hensler-Rowe’s “Beyond ‘It Just Ain’t Worth it’”

The aim of this study is to evaluate the efficiency of public transport operations undertaken in Swedish counties by the Public Transport Authorities (PTA), taking into account the substantial differences in operating conditions between counties. The analysis will be performed using Stochastic Frontier Analysis (SFA) with annual data from 1986 to 2009 for 26 Swedish counties. The analysis shows how the efficiency of the individual counties has changed over time. The results are used to provide a ranking (in terms of efficiency) of the Swedish public transport authorities that can provide a basis for benchmarking. It is concluded that the efficiency of the public transport providers in all counties fell during the observed time period. Defining cost efficiency as the ratio of minimum cost to observed cost, the overall (average) cost efficiency for the industry fell from 85.7% in the eighties to 60.4% for the period from 2000 to 2009. Possible explanations for the development include increased emphasis on route density as well as higher environmental and safety requirements

Bargaining in the (Murky) Shadow of Arbitration

Disputing parties who are unable to settle their differences will end up before an adjudicator (typically a judge or jury) who will decide their dispute for them. Dispute resolution scholars have long theorized that disputants bargain in the shadow of this adjudicated outcome, predicting what would happen in court substantively and procedurally, and negotiating based on an assessment of the strength of “bargaining endowments” derived from applicable legal norms. The increasing use of arbitration to resolve commercial disputes in the U.S. means that more and more disputants are negotiating in the shadow of arbitration, not litigation. This Article explores how procedural differences between arbitration and litigation impact disputants who bargain in arbitration\u27s shadow, and adds an entirely new critique to the robust scholarship criticizing the fairness of mandatory arbitration. Because arbitration awards are often not public and are not considered precedent, the law does not develop in areas where virtually all disputes are arbitrated. Disputants can only murkily predict the likely outcome in arbitration, and thus can neither negotiate from an anchoring premise nor manage the risk of a failed negotiation. Ultimately, this leads to a reduction in value of the bargaining endowments the shadow of the law would otherwise grant. In turn, this weakens the legitimacy of these settlements and of arbitration as a dispute resolution process

AT&T Mobility and FAA Over-Preemption

The Supreme Court\u27s recent arbitration law decisions reflect the Court\u27s strong support for arbitration agreements, but also severely limit the states’ powers to police the fairness of arbitration. In particular, the Court’s decision in AT&T Mobility v. Concepcion, LLC expands the FAA preemption doctrine beyond its prior boundaries, signaling how far the Court is willing to go to support arbitration clauses at the expense of states’ rights and the values of federalism. This article explores the impact of AT&T Mobility on the preemption of state arbitration law, and the concomitant impact on the balance between state and federal power in the arbitration arena. This article argues that AT&T Mobility results in FAA over-preemption, as it unduly shifts arbitration law-making power away from the states, in violation of the FAA’s savings clause