We complete our series of summaries focusing on 2017 Awards by turning to Employee-Member cases in which the claimant requested more than nominal compensatory damages.
This general category of claims by brokers against broker-dealers fall into two main categories: (1) those seeking mainly expungement relief (with the occasional request for purely nominal damages in order to minimize filing fees) and (2) those requesting significant damages, with or without reformation, usually from the claimants’ former employers. It is this second category, which we hereafter refer to as “E-M damage” cases, that we survey here. We find that the win rate is only moderately lower than the norm for customer cases, but the average recovery rate – our measure of how generous arbitrators are to the winners -- is much lower. Among other things, we try to determine the reason for the latter attribute.
Universe and Measurements
To eliminate the expungement Awards, we count only Awards with compensatory damage requests of $1,000 or greater. We then calculate the win rate by dividing the number of Awards in which the claimant recovered any damages by the number of non-stipulated E-M damage Awards (those not the result of a settlement). To calculate the average recovery rate (ARR), we divide the aggregate of all damages awarded (including punitive damages, attorney fees, costs and interest) by the aggregate of compensatory damages requested (e.g., while this might seem like comparing apples and oranges, we believe that this is the most meaningful comparison: on the one hand, claimants should generally expect to recover only compensatory damages; on the other hand, when they are awarded other items of damage, ignoring them would give a false measure of the recovery). Finally, we try to determine to what extent certain case characteristics might account for the low win and recovery rates. Our findings appear in the following Chart:
|EMPLOYEE-MEMBER CASES WITH DAMAGE CLAIMS OVER $1,000|
|Case Characteristics||Win Rate (Wins/Non-Stip. Awards (%))||Compens. Dmgs. Claimed (in $000s)||Total Dmgs. Awarded (in $000s)||Average Recovery Rate (%)|
|Pro Se Claimants||5/25 (20%)||2407.7K||84.0K||4%|
|Represented Claimants||26/75 (35%)||115961.9K||18900.2K||16%|
|Identifiable Earned Compensation Claims||20/60 (33%)||96607.1K||14057.2K||15%|
|Other Types of Claims||11/40 (28%)||21762.5K||4927.0K||23%|
|Probable Future Damages Claims||16/ND||86719.4K||5683.9K||7%|
|ND = Not Determined.|
Win Rates – Low But Respectable and Difficult to Explain
The win rate for E-M damage Awards issued in 2017 is only 31%, compared to 40% for Customer-Member Awards and 34% for Small Claims. What case characteristics might account for the difference? Unrepresented claimants clearly do depress the numbers, but even represented parties win only 35% of the time. Claims clearly requesting, with or without other damages, unpaid compensation allegedly earned before termination – a type of claim one might expect to be among the most likely to succeed – are only marginally more likely to win than others.
Average Recovery Rates – Very Low, But Easier to Explain
The ARR is an even greater contrast: a mere 16% in Employee-Member damage Awards, compared to a more healthy 66% for Customer-Member Awards and 70% for Small Claims Awards. Successful pro se broker claimants recover a very low 4% ARR, but are too small, in aggregate dollars, to make an impact on claims overall. Cases requesting unpaid pre-termination earnings have a lower ARR than those that do not, It is hazardous to draw any conclusions from that, since it is not clear what other damages either group might include.
A better explanation for the low ARR becomes evident when one divides E-M damage “win” Awards into two, nearly equal groups: (1) those that are likely to request damages for loss of future earnings, such as claims for wrongful termination and tortious interference, and (2) those that appear not to request such damages. The former has an ARR of only 7%, while the latter has an ARR of 42% -- still significantly short of customer-initiated cases, but well above the ARR for E-M damage Awards as a whole. This is a telling difference and likely attributable to the difficulties in accurately calculating future income loss.
(ed: *We did not calculate win rates for the last two categories of E-M damage Awards (probable future earning loss claims and non-probable future earning loss) for technical reasons. **Even putting aside future damages claims, FINRA arbitration appears to have been less kind to claimant brokers than customers last year, regardless of the circumstances. Of course, the claims involved are, from one set to the other, wholly different. ***The latest issue of the Securities Arbitration Commentator, which we just mailed to subscribers, includes a roundtable discussion of attorneys on “Employment Issues in Securities Arbitration in the Wake of Epic Systems.” A podcast of the discussion will soon be available on our YouTube channel and in our Blog.)
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