Post Image
Should FINRA Have an Automatic Mediation Process With the Option to Opt Out?
Posted on Categories FINRA Task Force, Mediation, Other FINRA RulemakingTags , , , ,

By Rick Ryder, SAC

Yes, in answer to the title's question, and the prospect for that to happen has been revived by a FINRA staff initiative, launched in July, to solicit public comment on the question through a special email message center:, and to actively inquire of interested participants just how they view the prospect. The FINRA Notification, announcing this initiative, also explained that automatic mediation, qualified by an opt-out privilege, was a key recommendation of the Dispute Resolution Task Force (DRTF or Task Force). For the reasons that follow, I support the Task Force’s recommendation.

While a "lay-up" in the Task Force's view, the National Arbitration and Mediation Committee (NAMC) has, to date, reacted negatively or at least skeptically, to adoption of the DRTF proposal. I'm mystified by such inaction, first, because the proposal itself has great merit, but also because the proposal was central to the DRTF's seven measures for improving the FINRA mediation program.

The Task Force Recommendation

In addressing the question posed by FINRA, I'll start with the Task Force's position on the automatic mediation concept. As the Task Force observed (see p. 34 of the Final DRTF Report) in making this recommendation, some parties are hesitant to request mediation, as the opposition may view it as "a sign of weakness." Making the process automatic assures that each FINRA arbitration proceeding will have the supplemental opportunity to consider mediation. At the same time, each party to a case may exercise an "opt-out" to decline the process for any reason whatsoever.

The Task Force evidently believed its proposal to have broad support, as it clearly vetted the concept before making this recommendation. Its Report indicates, for instance, that "[f]eedback from mediators, arbitrators and attorneys interviewed on the topic was uniformly positive."  Observing that the ABA's Dispute Resolution Section had supported automatic mediation, with a party opt-out qualifier, and viewed the approach as "appropriate to encourage greater participation in the mediation process," the Report adds that an automatic program will also assure that "parties are informed of mediation early in the process when mediation may be most beneficial and cost effective."

Phil Cottone, a preeminent arbitrator and mediator, served as head of the mediation subcommittee of the DRTF. This past Spring, Mr. Cottone spoke at a NYSBA Arbitration Seminar and advised the audience of the progress made by the NAMC in reviewing, rejecting or implementing the DRTF mediation recommendations. As to the automatic mediation proposal, Mr. Cottone viewed it as "a win-win, so why not?" He asked. "If parties don't want it, any of them can opt-out." It appears, however, that the NAMC view was different, he added, "with "counsel on both sides uneasy about seeming to require mediation."

Worth Another Look

I applaud the FINRA-ODR staff and the NAMC for doing this additional research on the DRTF proposal. Let me explain why I favor the proposal. I start with the proposition that the DRTF's hard-won and much-debated proposals deserve not only the NAMC's consideration and deliberation, but the Committee's respect and deference. The correct approach to the 51 recommendations of the Task Force, pieced together over the course of more than a year's time, should be to ask, not "why" but "how"? Unlike the NAMC, the members of which are all litigators, the august membership of the Task Force was hand-selected by FINRA's Board and is quite diverse -- experts, academics, consumer advocates, litigators, neutrals. It was organized with the implicit expectation that its reported recommendations would be adopted in good part, if not in whole -- that its concepts would be honored, in full spirit, if not full implementation. That's exactly how it worked with the Ruder Task Force in 1996.

Why I support the Recommendation

Speaking to the specific proposal, I see great merit in the automatic mediation proposal. For dispute resolution to work at its best, parties should be introduced to a panoply of alternatives and techniques, so that they can select, through negotiation and discourse, the tools that most suitably aid in the resolution of their particular dispute. Mediation is a great tool for parties that are sincere in the belief they can resolve their dispute; those parties who sense good faith among their adversaries will benefit from the greater visibility the process would be accorded under the DRTF proposal:

  • Heightened Visibility/Communication: Besides those parties or counsel who worry about displaying "weakness" in first requesting mediation, there are others who may be uninformed of mediation's availability, skeptical of its benefits, or misinformed of its workings. Placing a decision on mediation before such parties (i.e., should we opt out?) will encourage an in-depth review by counsel with his/her client about the virtues and potential drawbacks of mediation. It may also lead to discussions with opposing counsel about their view of mediation. Those most likely to benefit from mediation's enhanced visibility are often those who are most uninformed and least experienced; that frequently will be the public investor and, perhaps, the aggrieved employee. These are precisely the parties who stand to enjoy the greatest incremental benefit by employing this dispute resolution alternative.
  • Institutional Endorsement - FINRA Benefits: Boasting an 80% success rate, there can be little doubt about the potential for mediation to provide a less costly, more immediate, and often more satisfying result for parties in dispute than can arbitration, so FINRA should have no qualms about further promoting the process to all parties. From the forum's viewpoint, those who accept the mediation challenge and succeed will be more favorably impressed with the fairness and openness of the FINRA-ODR facility and FINRA itself will save money as earlier mediated resolutions supplant the costly hearing phase.
  • Enhanced Choice: That some see automatic mediation, with an opt-out qualifier, as restricting choice is perplexing, as the practice would actually enlarge choice. The worry that an outlying few may not understand the opt-out choice, but will only understand that mediation is automatic, if at all valid, should not prevent the far greater majority from enjoying the benefits and choices available from a decision path that affirmatively offers mediation. The automatic mediation program can be outfitted with many protections to safeguard against such misimpressions and to assure informed choice at every step of the process. Should those protections fail, one needs then to ask whether that results in real or sustained injury.
  • Remember that mediation itself is a consensual process, so that, if one belatedly discovers s/he is in the wrong room, one can exit at any time. Electing not to opt-out initially does not bar a later opt-out at any stage of the mediation process. The choice to stay and mediate should be the affirmative focus; that’s where the value lies. The prospect that a party could feel momentarily "painted into a corner" should not prevent this very desirable renovation. FINRA will save money, the clients will save money, time and stress, and fairness ratings will rise as the forum enjoys more satisfied "customers."


Communication is the key to mediation's success and greater communication about mediation -- among parties and between party and counsel -- will be assured by adopting the DRTF's automatic mediation proposal. Finally, adopting this central proposal will also serve to realize or promote other objectives the DRTF intended for mediation. The addition of more mediation cases of all shapes and sizes to the FINRA docket will, for instance, create more opportunities for fledgling mediators to gain experience and exposure. It will promote diversity among mediators, as more mediators see opportunities to utilize their skills. Expanding the roster of mediators with experience and diversity will enhance competition and party choice, while allowing more suitable matches between mediators and their cases.

(Note: The author encourages those who read this posting to participate in the process by emailing their views to FINRA at

Read Our Recent Blog