The statistics show overall downward arbitration case filing trends continuing from prior months, but with mediations continuing a meteoric rise. As we reported in #03, the headlines are: 1) overall arbitration filings for 2021 – 2,893 cases – were down 26%); 2) cumulative customer claims were down 9% from 2020; 3) industry disputes were way down at minus 45%; 4) the ratio of customer to industry filings – about 2:1– returned to usual levels; 5) arbitrators issued awards in 15% of cases concluded, with customers receiving damages in about a third of these cases; 6) for the sixteenth month in a row, pending arbitration cases declined; 7) mediation cases surged 49%; 8) overall arbitration turnaround times were 15.4 months, with hearing cases now taking 18.1 months (both were up); are 9) there are now 8,269 DRS arbitrators, 3,980 public and 4,289 non-public. We elaborate below on some key takeaways.
Controversy and Security Types: the Top Fives
A few years ago, DRS began sorting the controversy and security types in descending order. We follow that pattern below, showing the top five in each category (ed: note that a single case can have multiple controversy or security types): Controversy Types in Customer Arbitrations: 1) breach of fiduciary duty; 2) negligence; 3) failure to supervise; 4) misrepresentation; and 5) breach of contract. Security Types in Customer Arbitrations: 1) common stock; 2) real investment trust; 3) business development company; 4) private equities; and 5) mutual funds. Controversy Types in Intra-Industry Arbitrations: 1) breach of contract; 2) promissory notes; 3) libel or slander on Form U-5; 4) compensation; and 5) wrongful termination.
Customer “Win Rate”
FINRA has a stat showing the percentage of cases where customers were awarded damages. It is not a “win” or “recovery” rate; it simply shows the percent of the cases where awards were issued (about 13% of customer cases concluded) where a customer was awarded damages of any amount. Whether one finds this stat useful, it does allow year to year comparisons. This figure stood at 31% for all (i.e., hearings, special procedures, and paper) awarded customer cases in 2021, down from 32% in 2020 and 45% in 2019. The picture is somewhat brighter when only hearing cases are considered: 37% (2021); 34% (2020); 45% (2019). There does seem to have been a slight “Zoom Effect” in that customers received damages in 44% of 166 cases with at least one evidentiary hearing conducted by Zoom, as compared to 48% of 80 cases conducted entirely in-person.
Pending Cases Continue to Decline
For months after the pandemic’s onset in March 2020, the pending cases stat built up to a high of 5,415 open cases in August 2020. The last sixteen months, however, have each experienced declines in pending cases, reflecting a 1,499-case reduction from last year’s high water mark. Closed cases were up 13% last year, while pending cases were down 24%. Again, kudos to FINRA DRS for eliminating the backlog.
Checking in on Virtual Hearings
The virtual hearing stats show continued use of Zoom for at least some hearings or parts of hearings. The cumulative FINRA “Virtual Arbitration Hearings” for the last year: 635 arbitration cases conducted one or more hearings via Zoom (269 customer cases and 366 industry cases). There were 492 total joint motions for virtual hearings (209 in customer cases and 283 in industry cases). Customers prevailed in 61% of contested motions for virtual hearings. As we’ve said before, while the August 2021 return of in-person hearings at FINRA DRS will continue to erode use of virtual hearings, we don’t see this option ever going away entirely. Recall that our January 2021 feature article, A Funny Thing Happened on the Way to a Quiet Year in ADR: How a Pandemic Accelerated Profound, Lasting Changes, predicted this development.
Speaking of Mediation
There were 617 mediation cases in agreement for the year, a significant 49% increase over 2020. With 55 mediations, December was the fifth month in a row with a significant increase in monthly and cumulative mediation filings. Recall that, as reported in SAA 2021-46 (Dec. 9), Director of Arbitration Rick Berry attributed the dramatic increase to: the return to in-person hearings; ending waiver of postponement fees for all cases (September 2021); comfort at being in person after inauguration of DRS’s mandatory vaccination policy; growing use of Zoom for mediations; and the return of Mediation Settlement Month. The strong settlement rate also continues, with nine out of ten mediation cases (88%) continuing to result in a settlement.
(ed: *Overall and hearing processing times have ticked up the past few months. We again wonder if the resumption of in-person hearings in August is somehow linked to it, given that it is easier to schedule and attend virtual hearings than those conducted in-person? **We also wonder whether industry “return to the office” and vaccine mandates will cause employment and promissory note cases to increase in 2022?)
CLOSE THIS WINDOW TO RETURN TO THE NEWSLETTER
