Wednesday’s Word: Alternative Dispute Resolution

By: Brook Ptacek, Spring 2019 IAC Student Intern

Alternative dispute resolution or “ADR” is where parties agree, by contractual agreement or otherwise, to resolve their dispute outside of the court system.  It is another forum to get your matter quickly and efficiently resolved…and most importantly, a way to save extra money spent on attorney fees and court costs to reach a resolution.

There are two main forms of ADR: arbitration and mediation.  In the Investor Advocacy Clinic, you will hear us refer to arbitration a lot.  The main difference between the two is that the rulings in arbitration are binding, while mediation voluntary. Click here for FINRA’s break-down comparison.

When it comes to investor disputes, there are several forums that provide arbitration and meditation.  In the Clinic, we commonly talk about FINRA because it is “the largest securities dispute resolution forum in the United States.”  However, there are other forums that also do ADR, such as the American Arbitration Association (AAA) and JAMS, which formerly stood for Judicial Arbitration and Mediation Services before expanding.

Since the ‘90s, the SEC has backed the use of alternative dispute resolution to resolve investor claims. The incentive for using ADR has usually been expediency, efficiency, and cost. With respect to cost, though, it’s important to clarify there are still costs associated with ADR; they may be, but aren’t always, less than the cost of trial. Forbes did a good article, post-Recession, discussing comparative the costs of arbitration, which is worth taking a look at.

The last point I want to make about ADR regarding investor disputes is that arbitration and mediation are not the same as filing a complaint with a regulator. To learn more about reporting investor complaints, you can either use FINRA’s Investor Complaint Center or the SEC’s Center for Complaints and Enforcement Tips.