NASD Vacature Statistics Reveal Surprises
More attempts to vacate, higher success rate revealed
As a consequence of NASDs efforts to track payment of the arbitration Awards it issues, statistics are now available that indicate the incidence with which Awards favoring customers are challenged and how often those challenges meet with success. NASD Rules require broker-dealers to report whether they have paid amounts awarded to customers in NASD Arbitrations and, when they have not, they must indicate a satisfactory reason for non-payment.
As a consequence of this tracking procedure, NASD has the means to evaluate just how often Awards get challenged in the courts through post-Award petitions for vacatur. Now, the Awards that NASD tracks, and the vacatur proceedings it follows, are just those in which the customer won money from a registered person or broker-dealer. Thus, challenges by customers who lost in arbitration are not part of the statistical sample and could add significantly to the statistical incidence of vacatur attempts. On the other hand, court challenges by customers who won something, but claim they should have won more, are part of the sample.
The sample covers the 2003 period and catalogs 119 vacatur filings, during a time when 2,077 Awards issued. If one excludes Small Claims Awards from the total, on the assumption (probably only half-true) that they are not generally the subject of formal court challenges, then 1,764 Awards were decided during the survey period. This would indicate that broker-dealers (and disgruntled winning customers) go to court to overturn Arbitration Awards about 6-7% of the time. Just counting the Awards that contained some monetary amount to challenge (54% in 2003), that challenge rate would climb to 12-14% of the time.
How often are such vacatur efforts successful? Well, deduct those that are still pending and others that settled and only 54 of the 119 concluded with a denial or grant of vacatur. Of that 54, there were 39 Awards (or 72%) that survived the vacatur attempts and 15 (or 28%) in which vacatur was granted. That is a high incidence of vacaturs, viewed in that perspective, and it surprised us.
We were surprised, too, to hear that about half of the 15 successful vacatur attempts were initiated by the customer side. Of course, viewed in terms of the overall, it is still quite true that 98% of all arbitration Awards are final. It is helpful, though, to see that one reason for that is not necessarily judicial restraint, but, perhaps, party restraint (dare we say satisfaction with the process). For brokerage firms, at least, it appears that the Arbitrators decision is accepted in 90-95% of the cases they lose. (SAC Ed: We wish to thank NASDs Liz Clancy and Staff Attorney Avi Rosenfeld for taking the trouble to compile and to make available the figures we cite above; the conclusions and extrapolations are ours alone, not theirs.) (SAC Ref. No. 2004-05-01)
Copyright 2003 Securities Arbitration Commentator, Inc. P.O. Box 112, Maplewood, NJ 07040; t: 973-761-5880 f: 973-761-1504. Materials denoted with a SAC Reference No. (e.g. SAC Ref. No. 99-01-001) are on hand at SAC and may be obtained by calling the Securities Arbitration Commentator, or by email to email@example.com. The Securities Arbitration Commentator is the leading publication for securities arbitration news and information, and maintains the most complete database of arbitration awards availalble anywhere. For more information regarding their services, visit their website at www.sacarbitration.com
Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.
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