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So is it now really the beginning of the end of arbitration

Posted in Broker-Dealer Regulation, Dodd-Frank, Financial Industry Trends, Public Customer Arbitrations

idea.jpgThe North American Securities Administrators Association on behalf of state securities regulators, following 37 members of Congress, recently asked the SEC to exercise its authority under Dodd-Frank and do away with mandatory arbitration agreements.  Consumer groups have also jumped into this fray.

Does this signal the beginning of the end of arbitration clauses in customer agreements?  In my view, probably not, but the ability to force a customer into arbitration is likely to be curtailed.

The likely result will be that firms will have to offer a customer the option of arbitration or some other form of relief.  This does not mean that firms are not without methods to limit the costs associated with customer initiated litigation.

For example, if firms are required to let their customer proceed in a court, I would encourage the firm to require mediation as a pre-condition to a customer lawsuit.  This way, firms and the customers may be able to quickly resolve an issue without litigation.

I would also encourage firms to have venue and choice of law provisions.  In other words, force the customer to sue the firm in a particular court and pursuant to a particular state law. 

Similarly, I would recommend including a provision that requires the customer to waive a jury trial.  This may help you avoid a claimant shopping for a more favorable forum at your expense while, at the same time, expedite the ultimate resolution of the case.

Yes, it does appear as though firms may someday soon be limited in their ability to force arbitration, but you are not without tools to limit litigation.  Be creative, you can still structure your agreements to streamline litigation that may be initiated in the future.