I'm involved in an arbitration dispute and the arbitrators were recently appointed. One of them seems to be very "pro-customer." When I asked our attorney why he allowed that arbitrator to be on the panel, I was told that FINRA had appointed him and we didn't have a choice. It was my understanding that we got to strike arbitrators we didn't like from a list provided by FINRA, so how did this arbitrator wind up simply "getting appointed?

— R.S., Florida

The current method used for selecting arbitrators is found in FINRA Rules 12400 through 12406. FINRA sends out three lists to the parties. One contains the names of eight, chairperson-qualified, non-industry arbitrators. Another list contains names of an additional eight non-industry arbitrators. The third list contains eight industry arbitrators. The lists also provide background information for each arbitrator. Each side is allowed to strike up to four names from each list. These are sometimes called "peremptory challenges." Since each list contains eight names, if both sides use the maximum number of available challenges and strikes the four names not eliminated by the other side, then there are no more names left. Even if there happens to be some duplication in the parties' challenges-that is, each side making a decision to strike a similar arbitrator-the remaining people on the list may have other conflicts or otherwise be unwilling or unable to serve. As a result, when there are no more available names on the list, FINRA has the authority to randomly select another arbitrator whose name was not originally on the list. In that case, the only grounds for removing that arbitrator is to assert what is known as a "for-cause challenge." But, to do so there must be some definite grounds for alleging potential bias on the part of the arbitrator such as a business, professional or social relationship with a party, their counsel or a witness. The fact that an arbitrator may have ruled more often for one side than the other would not rise to the level of a causal challenge. Remember, in order to address the situation where both sides strike four different names from the list, FINRA is proposing to amend the rules to provide ten names per list, rather than eight. While this might alleviate the problem somewhat, it won't completely eliminate it in cases where there are more than two parties.

My firm is being sued by a former client and I noticed that none of the three arbitrators is from the securities industry. How can three people who know nothing about the business decide issues involving complex products, technical rules and regulations?

— E.P., Illinois

Arbitrators are not chosen for their intimate knowledge of the brokerage industry, but rather for their more generalized business and professional experience as well as their neutrality. It is the parties' job, during the course of the hearing, to educate the arbitrators regarding the specific products or trading strategy as well as the laws, rules and regulations involved. FINRA has been running a Public Arbitrator Pilot Program where some brokerage firms have agreed to have a certain number of their cases handled by panels made up entirely of "public" arbitrators. Participation in the program is voluntary; the client must also agree to participate. The program's purpose is to address concerns of some investor-representatives who allege industry bias on panels. Whether the use of all-public panels results in more (or larger) awards in favor of investors remains to be seen.

Alan J. Foxman is an attorney in private practice in Boca Raton, Florida. His comments are not intended as legal advice. He can be reached at this address.