We keep dipping back into the April 6 program sponsored by the New York State Bar Association, entitled, "Securities Arbitration & Mediation: The Courage to Simplify." The sessions were rich and provocative, sparking a lot of thought about arbitration's future. We have summarized parts of the program, including to date the main presentation by FINRA-ODR Chief Richard Berry (SAA 2017-14), highlights of FINRA's coursebook contribution -- the FINRA-ODR Activities Report (SAA 2017-16) -- and now a piece on the mediation segment of the program.
That session was entitled, “Whether and When to Settle a Securities Mediation,” and, of course, the answer is, whenever and wherever you can. The segment was moderated by mediator James D. Yellen and kicked off with a review by mediator-arbitrator Philip S. Cottone of the recommendations of the FINRA Dispute Resolution Task Force (DRTF) and what’s been done. The DRTF submitted its full Report in December 2015, leaving it to FINRA’s National Arbitration and Mediation Committee (NAMC) to decide what to leave in and what to leave out.
Mr. Cottone was a member of the DRTF and chaired its panel on mediation. That panel came up with seven proposals for change that were ratified by the full Task Force and incorporated into the December 2015 DRTF Report with rationale and recommendations for action.
Mr. Cottone led off by noting only one substantive change has been made to the FINRA Mediation Code, since its original adoption a decade ago. The program has been very successful, since its inauguration by NASD back in 1995. Since the Mediation Code has been adopted, some 120,000 mediations have been conducted with an 80% success rate. Experienced mediators, Mr. Cottone proudly pointed out, have done even better, achieving a 90% success rate. Nevertheless, he said, the program “really required a look.”
He then reviewed the seven DRTF recommendations to the NAMC back in 2015 and what the NAMC has done with those recommendations in the 16 months since the DRTF Report.
Seven Major Recommendations
- Automatic Mediation with Opt-Out. “The task force recommends an automatic mediation process for all cases filed in arbitration, subject to an opt-out by any party.”
The DRTF was unanimous on this one, Mr. Cottone said. Mediation is a win-win, so why not? If parties don't want it, any one of them can opt out. NAMC seems to feel differently, with counsel on both sides uneasy about seeming to require mediation. FINRA will be surveying people in business (counsel) before deciding to go forward with automatic mediation. In the meantime, the staff will put more mediation material in the Party Portal to encourage counsel to consider mediation.
- Financial Incentives for Early Success. “The task force suggests that a schedule be developed to refund part of the mediation and arbitration fees to parties who are successful at early mediation.”
Under this proposal, fees would be forgiven or refunded if a mediated settlement can be reached prior to designated breakpoints in the arbitration proceeding, such as prior to the filing of an Answer or commencement of the 20-day exchange. Refunds would vary from 100% to lesser percentages, based on a sliding scale. NAMC has not moved on the proposal as yet; Mr. Cottone quipped that FINRA wants to see what it will cost first.
- Training. “The task force heard concerns that the pool of experienced FINRA mediators is not deep and lacks diversity." A tri-partite response is recommended: (a.) “A formal, mandatory continuing education program for new mediators; (b.) “FINRA should sponsor more opportunities for inexperienced mediators to gain experience and training; (c.) “A formal mentoring program should be established in which experienced mediators would permit new mediators to shadow them and perhaps co-mediate with them.”
FINRA’s mediator ranks have diminished from 1,000 not so long ago to 200 today. The DRTF suggested a great mentoring effort and more training for mediators who left and have come back or who haven’t worked in awhile. The NAMC likes the concept, Mr. Cottone allowed, but not so much the comprehensive vision Mr. Cottone’s mediation committee had envisioned. The idea that experienced mediators might serve as a pro bono faculty to teach new mediators the best techniques does not appear to have NAMC support. The existing Small Claims telephonic mediation program has permitted some progress in utilizing more inexperienced mediators.
- Diversity. “The task force is concerned about the lack of race and gender diversity among mediators in the FINRA forum. It recommends that FINRA undertake aggressive efforts to recruit, train, and encourage the use of more diverse mediators.”
FINRA has made a concerted effort to include diversity goals in an aggressive arbitrator recruiting campaign and the mediation folks will try to tap into that effort and work more with the arbitrator recruiting team. FINRA has also dropped its annual fee for mediators in order to keep more mediators on the rolls.
- Special Mediator Rosters. “Mediators would be encouraged to volunteer for training in specialized areas and to list it on their disclosures. Subjects may include, among others, special products, intra-industry issues like raiding and promissory note cases, and elder financial abuse cases.”
Right now, FINRA is conducting training for elderly cases with a special group. Hopefully, the staff will expand that effort to other specialized areas as time proceeds.
- Alternatives to Mediation. “The task force supports alternatives to mediation in appropriate cases where the parties choose them. It recommends that mediator training include these alternatives and the requirements for handling them correctly.”
As counsel have grown more familiar with THE benefits of mediation, a greater openness to alternatives/hybrids to mediation has arisen. In particular, training opportunities should be available for mediators in the use and advantages of early neutral evaluation, arb-med, med-arb, etc. According to Mr. Cottone: “We thought that training opportunities in those areas should be available, because, as mediation is becoming more sophisticated, more of us are getting involved” in these alternative processes. He did not report any specific progress on this recommendation.
- Mediator Self-Assessment Program. “The task force endorses FINRA’s continuing participation in the mediator self-assessment programs being developed by the ABA, together with AAA, FINRA, CPR and the cooperation of JAMS, to provide mediators with confidential insights on their performance.”
The idea is for FINRA staff to work with and become involved with the ABA’s ADR Section and their mediator assessment program. The effort has stalled for the time being at the ABA, Mr. Cottone reported, but he hopes that it will get back on track soon.
(ed: The DRTF made some truly constructive recommendations on mediation. The automatic mediation option was not mandatory mediation – there’s a clear opt-out. The mentoring recommendations for co-mediation and “shadowing” were intended to treat a real disparity in the FINRA mediation program, i.e., the quandary of mediators needing experience to attract business not being situated to gain experience. It’s ironic that the DRTF could so easily see the problems and possible solutions, while the NAMC seems either unmoved or immobilized by disagreement.) (SAC Ref. No. 2017-18-01)
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