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When an investor sues his/her broker, a brokerage firm sues another brokerage firm, or a broker sues or is sued by his former employer, those disputes are arbitrated before the Financial Industry Regulatory Authority (“FINRA”).

There are unfortunate instances during such arbitrations where a bias or prejudice of an arbitrator will show, either in the course of discovery, motion practice or during the hearing on the merits. In such a situation, it is critical for a party to proceed cautiously but appropriately act to protect his/her/its interests. FINRA provides avenues for a party to take when an arbitrator openly demonstrates partiality or a bias in favor of or against a party.

FINRA Rule 12406 provides a procedure to remove the arbitrator before a hearing on the merits has commenced. A party may file a motion to have an arbitrator recused, or removed, due to obvious bias or prejudice. But be aware, FINRA Rule 12406 requires the motion to be direct to and decided by the very arbitrator who is subject to the motion. While this process may sound odd and impractical, it is one followed by most courts in the county.

If the arbitrator denies the motion for recusal, maintains his/her position on the arbitration panel and continues his/her biased and prejudicial behavior, a party has one remaining option, found in FINRA Rule 12407(a). This rule permits a party to file a motion before the first hearing day to challenge an arbitrator for cause. A challenge for cause will be granted where it is reasonable to infer, based upon evidence presented in the motion, the arbitrator is biased or lacks impartiality. Unlike a recusal motion, a motion to challenge an arbitrator for cause is ruled upon by the FINRA staff.

When filing either or both such motions, the filing is critical not only to the fairness of the arbitration process, but for what happens next. If the arbitrator remains on the panel, there is an inevitability as to the outcome: an award is rendered against you that falls in line with the arbitrator’s past behavior. There is one remaining course to take, move before a court to vacate the award. In most jurisdictions a motion to vacate an arbitration award on the grounds of arbitrator prejudice or bias will only be granted if the moving party objected to the arbitrator’s behavior during the arbitration process. If this objection is not asserted during the course of the arbitration, courts may rule the party waived the objection and cannot move to vacate on such grounds.

There is a reality that must be faced when making a motion pursuant to FINRA Rules 12406 and 12407(a): if an arbitrator is acting in an outwardly biased or prejudicial manner to you during the arbitration, a motion to recuse or challenge for cause could seal the decision against you. If the outcome is inevitable based upon the arbitrator’s conduct, it is critical you preserve your right to vacate the arbitration award so the improper acts of the arbitrator will not have a lasting effect on you or your case.  Better to have an angry arbitrator than an award rendered against you.

The Law Offices of Barry M. Bordetsky represents customers and industry representatives in FINRA arbitrations as well as before state and federal courts on motions to vacate an arbitration award. If you have questions regarding the process, please contact The Law Offices of Barry M. Bordetsky by calling Barry Bordetsky at (800) 998-7705 or email barry@bordetskylaw.com.