Arbitration vs. Litigation

Minneapolis, MN investor advocacy attorney F. Chet Taylor discusses some of the advantages and disadvantages of pursuing claims in an arbitration forum compared with a court of law.

Contact F. Chet Taylor

Email: [email protected]

Phone: (612) 722-4300


Well, first of all, what is FINRA? FINRA is the Financial Industry Regulatory Authority. It is the regulator that governs stockbrokerage firms. And FINRA among the things that they do is they provide an arbitration forum when there are disputes. Now most customers when they open accounts whether they realize it or not they’re signing in their account agreement and agreement to arbitrate any disputes they might ultimately have with their financial advisors. So if they have a dispute they’re required to bring that case to arbitration as opposed to a court of law and FINRA is the organization that actually supplies the forum to have those disputes heard.

It depends on the individual case and the individual circumstances but I will say that a lot of investors seem to fear arbitration they know that it’s sponsored by FINRA, which is the regulator for brokerage firms and there’s just this assumption that somehow that forum is going to be biased in favor of stock brokerage firms. I don’t find that at all. I find that investors get a very fair shake in arbitration and the other advantages are that it’s a quicker timeline from the beginning of the case to the end of it if you’re in arbitration than court. And it’s also cheaper because you don’t have endless depositions, motion practice, etcetera. So I think it’s quicker, it’s cheaper, and I think customers get good results in arbitration.

It’s my view that arbitration is actually more challenging than a courtroom and here’s why when you’re trained as a litigator they always tell you never ask a question that you don’t already know an answer to when you examine a witness. Well in arbitration, you never know what the witnesses are going to say because you have not had an opportunity to conduct discovery in the form of depositions. So court of law it’s much easier to cross-examine a witness because you’ve already taken their deposition you already know what they’re going to say at trial and if they deviate from that at trial, you can impeach the witness by holding up their prior testimony.

In arbitration, you have no idea what the other witnesses are going to say and it takes a unique ability to be able to make your way through that mind field and successfully cross-examine an opponent or even an expert witness.

The recent Supreme Court case in epic systems is the Supreme Court decided that if there are arbitration agreements with employees that employees are then precluded from participating in class actions on employment type of claims. Now everybody’s up in arms about how bad that is for employees and I’ll be the first to agree that if you’re representing employees it’d be nice to have the option of either going to a class action route or going the individual route. But I don’t think the result is as harmful to employees as maybe a lot of people think.

Here’s my take on it, I think in class actions too often you have big class action law firms that are getting rich off the cases but the individual employees that are participating in the class they get pennies on the dollar. Whereas if they are bringing their individual claims, hiring an attorney like me, another attorney with a small firm a solo firm that will take these types of case that attorney is going to be focused solely on that employees damages, that employees losses. And it’s my opinion that the employee actually might have more leverage and get a better result for themselves going one on one with the company than they would as just a faceless name on a class action lawsuit.