Lawyers Just Say ‘No’ to Zoom for Finra Arbitration Hearings
Pandemic-triggered virtual arbitration hearings have hardly ranked as a smash hit at the Financial Industry Regulatory Authority.
Since hearings went virtual in mid-March 2020, one of the parties has objected to Zoom arbitration in 57%, or 453, of the 792 cases, according to Finra data as of July 31.
Expect even more objections to Zoom hearings to ensue since Finra on August 2 reopened in-person options for hearings, lawyers for both firms and investors said. There is too much room for error when the arbitrators, broker-dealers, brokers and clients are not in the same physical room to hear disputes, according to lawyers.
“Most parties are not going to be in favor of it,” said Brady Hermann, senior counsel at
Maurice Wutscher in Dedham, Massachusetts, about continuing Zoom hearings. Hermann, who appears for broker-dealers at Finra arbitration, recently had a hearing postponed because a party didn’t want even one panel member to show up via Zoom, he said.
“Over Zoom, attorneys find it difficult to read body language, to make sure everyone’s paying as close attention as they should,” Hermann said. “It makes it a little bit more difficult, making sure everybody’s looking at the right exhibit or the right section of each exhibit.”
Tom Lewis, a lawyer with Stevens & Lee in Princeton, New Jersey, expects his “overwhelming preference” to lead him to “the excitement and the drama of a live, in-person arbitration.”
“Zoom arbitration hearings would be a last resort,” he said.
He particularly dislikes conducting witness examinations via Zoom as witnesses are typically less engaging over video conference.
Troublesome conduct has also occurred in Finra’s Zoom proceedings, which arguably could have never happened in an in-person hearing.
In one recent succession planning dispute between two brokers, an arbitration panel slapped James Womack, a 13-year broker registered with Cambridge Investment Research, with a $10,000 penalty for allegedly reading off a script during his testimony in violation of arbitration rules and then denying he had done so.
“I saw something out of the corner of my eye that looked like he was looking at a piece of paper, and his exhibits were in very large exhibit binders and so this looked like a separate sheet of paper and I raised the issue,” said Connie Fickel, a partner in Lewis Brisbois Bisgaard & Smith, in Los Angeles, California, who represented the other broker in the dispute.
The penalty was more than the $5,000 Womack had won in the underlying arbitration in which he had been seeking $10 million in damages for defamation. The panel blamed Womack’s lawyer, Michael E. Ciochina in Asheville, North Carolina for the problem. Ciochina did not return a call for comment.
“This would never have happened if you were in person,” Fickel said. “Zoom arbitrations present a unique landscape where we need to be concerned about new and different potential abuses.”
In March, a pair of former J.P. Morgan Securities brokers asked a court to nullify a high profile $19 million Finra panel arbitration award issued in February, alleging the arbitration process “broke down” over the 43 hearing sessions as the arbitrators dozed off, failed to address a potential conflict and declined to admit an allegedly key piece of video evidence. That litigation is still pending in federal court.
Although in-person hearings are happening, Finra will also allow Zoom hearings if both parties agree, or if, despite one side’s objections, a panel rules a hearing can be conducted virtually. In the 18 months of the pandemic prior to July 31, all parties in 339 Finra arbitrations filed joint motions seeking virtual hearings, according to the data. In the 453 cases when at least one party contested proposals for a virtual hearing, arbitration panels overrode those objections and allowed the Zoomed event to proceed 64% of the time, or in 279 cases, Finra reported.
Part of the appeal is that Zoom hearings also offer cost savings to all sides, but Hermann said he and other lawyers are more than ready to return to a hearing room where everyone arrives in the flesh.
“You don’t have to worry about any technical glitches or somebody not being able to hear properly,” he said. “Zoom for an arbitration hearing is certainly not ideal.”
The new virtual playing field, however, may have skewed results toward firms and defendants, according to a report from the Securities Litigation & Consulting Group, an expert witness firm that represents claimants. From May to December 2020, investors won only 28.8% of their disputes, compared to 57.3% in 2019, the report said.