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FINRA Mediations and Arbitrations in a Virtual World
With the global pandemic of Covid-19, the world is becoming increasingly more virtual in many ways, and FINRA mediations and arbitrations are no exception. FINRA has offered telephonic and video remote platforms to conduct mediations and arbitrations for many years. However, the need to use these platforms has never been more necessary than our current, challenging environment where it is unknown when FINRA will resume in person arbitrations in all states (all still closed as of the writing of this article). It is also unknown when arbitrators themselves will feel comfortable resuming hearings based on their own personal circumstance, which can have an impact on when they agree to reschedule. In response, FINRA has explicitly stated that panels have the authority to order a virtual hearing, which helps Claimants in instances where Respondents are stalling to push off the hearing. This article, first, identifies the different types of remote hearings. Next, it explores the nature of virtual hearings, and their potential pros and cons. Then, it discusses how to proceed and prepare for a hearing in a virtual forum. One of the most important things to make a successful virtual event is to ensure that everyone agrees to abide by and create fair “rules of the road,” i.e., procedures and attestations around hot-button issues. The author has done several remote hearings, through both FINRA’s teleconference and Zoom, as well as has done remote witnesses by telephone and video many times in the last 20 years.What is a Remote Hearing?
Long before Covid-19, FINRA has offered remote hearings through its telephonic and video platforms. Matters involving arguments of counsel, rather than the introduction of evidence, are often conducted through these platforms. Both platforms can be used in FINRA mediations, arbitrations, and expungement hearings. Understanding each platform will help understand their benefits, and can help parties and counsel decide whether a case should proceed in-person, by teleconference, or by videoconference.
Telephonic conferences are perhaps the simplest and most known way to conduct a remote hearing. Counsel should be familiar with this platform as it is used throughout the pre-hearing process. For example, the Initial Pre-Hearing Conference and oral arguments on discovery disputes are conducted telephonically. For teleconference hearings, FINRA staff will send out a conference number to the arbitrators and the parties. The parties, counsel, arbitrators, and witnesses will call the conference number and proceed as if it were an in-person hearing. However, this platform is limited to vocal presentations, and participants will not be able to see others on the phoneline.
FINRA has been offering videoconference hearings via Zoom since 2018. Zoom is a video platform that is becoming more and more prevalent in today’s society. Similar to a teleconference hearing, FINRA staff will send out a website link to the arbitrators and parties in order to join the meeting. The parties, counsel, arbitrators, and witnesses will then log on to Zoom and join the hearing. This platform is not as limiting as telephonic conferences because it allows participants to see each other, as well as share documents with other participants. At first, Zoom may seem more difficult to navigate because it has more features than simply dialing a number and speaking. However, there are many webinars to assist and train users on how to effectively use Zoom’s features.
FINRA itself has stated that Zoom and teleconferences provide “high-quality, secure, user-friendly options.” For both teleconference and Zoom hearings, FINRA staff is available to provide technical support. For Zoom hearings, a FINRA staff member will be in every meeting to assist with Zoom features. Moreover, FINRA provides “trial runs” to the panel, and to counsel upon request. These trial runs are a way for the panel to become familiar with the platform and its features. Any parties seeking to learn more about either platform can contact their case administrator for details.How Remote Hearings Work
Three types of FINRA hearings that can be conducted remotely are mediations, arbitrations, and expungement hearings. These hearings work in several different ways depending on the type of hearing. As mentioned above, remote hearings can be done via FINRA’s teleconference or Zoom.
Using FINRA’s teleconference platform, the author conducted a mediation. The process was quite simple. The mediator would notify us when to join the conference, then we would tell our client, and all would join the conference to speak with the mediator. When we were finished speaking with the mediator, the mediator would do the same process with opposing counsel. This would repeat until the parties came to an agreement or decided the case was not going to settle. It is the mediator’s challenge to “connect” with the parties (gain trust and rapport) in order to settle the dispute. In this format, you lose the “trapped in a room until it settles” pressure that sometimes contributes to getting the settlement done.
Another way to conduct a mediation would be to use Zoom. Through Zoom, the parties have more options. For example, Zoom has a document sharing function where the parties can present evidence to the mediator. Another benefit of Zoom is that it has “breakout rooms.” By using this feature, the parties can be in separate video sessions or “rooms” and the mediator can go from room to room, much like an in-person mediation, but here you also lose the pressure of being trapped in the room all day that sometimes brings litigants to resolution, as they get a sense what it will be like to be in a room for many hours during the hearing, but in a more adversarial setting. This can be somewhat solved by forcing people to stay on a call or Zoom video the entire day, albeit from the comfort of their home. Remote mediation is not exactly the same, but still can be effective when people agree on the “rules of the road.”
As recently as of June 12, 2020, the author conducted an expungement hearing via Zoom. Because there was limited evidence to present during the hearing, the exhibits were sent to the panel prior to the hearing. This allowed FINRA staff to print and send physical copies of the exhibits to the panel prior to the hearing. The benefit of having the panel view physical copies of exhibits is that they can view both the exhibit and the witness, as the witness discusses the exhibit, rather than using a screen share that would cause a witnesses’ picture to minimize – potentially affecting credibility determinations around the testimony. During the hearing, testimony flowed naturally as the panel was directed to view the corresponding exhibits. In some cases with many exhibits, it may be more efficient to use Zoom’s document sharing feature to ensure the panel is looking at the right exhibit and the right page, with the caveat that it could affect your witnesses’ ability to “connect” (build a rapport) with the panel.
As FINRA currently has no guidance on how to submit exhibits, it is important to ask the panel chairperson in advance how he or she would like the exhibits exchanged and marked. Some panels will request physical copies. In such cases, parties will have to upload exhibits to the FINRA portal a few weeks in advance of the hearing to ensure FINRA staff has ample time to print and mail the exhibits to the panel. A second option is to create a PDF of the exhibits. Similar to the first option, the parties would have to upload the PDF to the FINRA portal, however, FINRA staff would not need to print and mail physical copies to the panel. Although, to eliminate the risk of evidence not being permitted during the hearing with these options, parties will have to decide on which exhibits to use in advance of the hearing.
One challenge would be around using “surprise” exhibits for cross examination. There are different ways to address that issue. Documents could be exchanged between the panel and parties in envelopes and the witnesses and counsel would have to swear they did not open the envelopes in advance of the hearing. Here is where Zoom’s “Share Screen” feature could be effectively used. This allows parties to pull up an exhibit and share it with hearing participants. Using this feature ensures the panel is looking at the evidence as witnesses are testifying or counsel is arguing but will minimize the witnesses’ size on the screen.
Again, everyone must agree on the “rules of the road.” What will witnesses have to attest to?
- • The witness did not review the exhibits exchanged in advance of the hearing;
- • The witness is not being coached by cell phone, email, chats or otherwise;
- • The witness is not testifying while using notes, blackboards, dry-erase boards, etc.; and
- • The witness will not communicate counsel in any format while on cross-examination during breaks.
What should the arbitrators order and/or the parties agree to in advance:
- • Arbitrators will not use other electronic devices during the hearing and ask for breaks as needed to avoid unexpected and/or unavoidable distractions;
- • How will exhibits be exchanged?
- • Who is in the room with the witness, if anyone?
- o What can someone in the room with the witness do?
- o How will the person in the room with the witness participate (separate video or in the shot with the witness)?
These are just some of the procedures and attestations that are unique to remote hearings that need to be agreed upon in advance so all parties can feel that they are having a fair chance to prosecute and/or defend their case.Reasons to Conduct Remote Hearings
Although there are many different reasons parties seek to conduct their hearings remotely, one of the biggest reasons is to avoid infections and delay due to our current challenging environment regarding Covid-19. In response to the virus, FINRA has postponed all in-person hearings for several months as of the writing of this article. Not only have in-person hearings been postponed, but FINRA has extended its original postponement date several times. Moreover, FINRA has suggested scheduling additional hearing dates several months apart, such as hearings scheduled for the fall should also have second hearing dates scheduled for the spring. This becomes challenging for busy arbitrators and lawyers whose schedules then fill up twice as fast, throwing cases into late 2021 and 2022. In addition to FINRA’s postponements, World Health Organization emergencies expert, Dr. Mike Ryan, has stated that “this virus may never go away.” In order to avoid further delay of their hearing, parties should seek to conduct their hearings remotely, even if only in part. Parties could agree to a combination of in-person and remote hearings, where perhaps certain complicated, document laden witnesses testify in person, while other easier witnesses testify remotely.
Another reason to proceed with remote hearings is so to limit the caseload. Because of the market volatility in late February and early March this year, there is expected to be a spike in cases. There has already been a 6% increase in arbitration filings when compared to 2019, and this is only expected to increase. To keep a constant flow of cases, attorneys may decide to resolve some before their workload becomes unmanageable.
Other reasons for seeking a remote hearing are reasons that have been traditionally used, such as a party is unable to travel to the forum or holding an in-person hearing is not cost effective. Parties that are elderly, or suffering from any disease or disability, may want to proceed remotely because they cannot travel to FINRA’s in-person arbitration forum. If the parties are able to travel, they may find that holding a remote hearing is necessary in order to resolve the matter. For many litigants outside the United States or across the country, there may be flight restrictions for some time or health issues that are a roadblock to their physical appearance. For some older litigants, justice delayed may be justice denied. In these circumstances, parties may decide it is in their best interest to proceed with the hearing remotely.Reasons Against Remote Hearings
In this adversarial system, where a party might find it is in their best interest to proceed with a remote hearing, an adversary may find it unfavorable to theirs. There will also always be instances where certain respondents do not want to have a hearing because they fear liability and want to delay the same. In some instances, parties may go out of business and/or lose their securities license, denying a claimant their ability to collect on any judgement and holding an empty bag. These are real concerns a panel should not ignore.
There are several technical reasons why parties might oppose holding a remote hearing, but none are unsolvable. One reason is because the counsel, client, and/or witnesses may be unfamiliar with the platforms. A teleconference is as simple as making a phone call. But with videoconferences, users will have to become familiar with logging on, muting themselves when not speaking, and being able to present well via videoconference. However, as noted above, there are many webinars to train users how to effectively use Zoom’s features, which is user friendly to begin with. And, upon request, FINRA staff will conduct trial runs. Still, some parties may not be computer savvy or may not want to take the time to become efficient on Zoom.
Another reason for opposing a remote hearing is because it is harder to read body language and assess demeanor as opposed to an in-person hearing. Part of a lawyer’s job is to constantly assess the arbitrators and witnesses. A lawyer has to determine where to push on cross examination, or where to ask follow-up questions on direct examination. Without being able to read the arbitrators, a lawyer may not be as effective as he or she should be. However, Zoom does allow some interesting advantages. First, you can really see an arbitrator’s reactions without being “obvious.” You can see a bit into their home. In this author’s recent experience, the chairperson sat in front of trophies and other items that was a window into this arbitrator’s life.
As technology is not faultless, some parties may oppose using virtual platforms to conduct their case. Some concerns may be internet or phone service failure. However, one must think about how often these are issues in our everyday lives. Such concerns are equivalent to unpredictable traffic on your way to an in-person hearing, or technical issues with the recording device for that matter. Although these issues do happen, they are infrequent and should not be a reason to shy away from a remote hearing, as counsel, parties, and arbitrators can wait as the participant’s phone or computer regains service. Moreover, the chance of internet and service failure occurring can be reduced if participants check their hardware and software prior to the hearing. Much like with in-person hearings, building in extra time or days for virtual hearings is something to consider during scheduling.
Parties may also oppose a remote hearing because counsel may not have the full attention of the arbitrators as they present their case. “Most remote hearing participants will be at home where there are often many diversions and interruptions.” This can cause many issues. For example, a respondent in Wunderlich Securities, Inc. and Gary Wunderlich v. Dominick & Dickerman LLC and Michael J. Campbell, moved to vacate partially on the grounds that the panel was inattentive. In its petition, the respondent claimed that the members of the panel were looking at other screens, typing, eating, walked away from the screen, and had their screen blocked during videoconferencing. These issues are less about the Zoom platform, and more about panel conduct during the arbitration.
As of June 2, 2020, FINRA was in the process of finalizing Zoom guidance for arbitrators. The guidance will provide details on how to eliminate distractions and it will present proper Zoom etiquette for arbitrators. FINRA will also post instructional videos for arbitrators. With proper training of arbitrators on how to conduct a videoconference, this issue would be minimized. Since most lawyers know colleagues in their practice areas around the country and large firms have counsel in every major city, lawyers can arrange a safe and technologically capable location for witnesses to be for their testimony if needed. The same goes for arbitrators. FINRA has many locations and can arrange hotels and other venues as needed.
Lastly, parties may oppose a virtual hearing citing that a complicated case may be too challenging to conduct remotely. Cases with multiple parties, numerous witnesses, and significant amounts of exhibits simply require proper coordination and preparation. Regardless of how complicated a matter is, it can still be tried remotely if hearing participants take the time to learn the platform and properly prepare for the hearing.How to Proceed as a Remote Hearing
FINRA offers its virtual hearing services, Zoom and teleconference, to parties in all cases in two ways: by party agreement or by panel order. If it is cost effective to have a remote hearing, and opposing counsel does not have a reason for opposing it, then opposing counsel may be willing to file a joint agreement for a remote hearing.
Although teleconference and videoconference have always been an option, the difference now is that in response to Covid-19, parties can move to compel it. Despite opposing counsel’s reasoning for its opposition, FINRA has made clear that the panel has authority to order a virtual hearing. Moreover, under FINRA Rule 12409, the panel has authority to interpret the code. As FINRA has explicitly granted the panel with authority to order a virtual hearing, it tells us how effective the platform can be and how confident FINRA is from its experience using the platform throughout the United States for meetings and hearings nationally within its organization and with litigants and counsel.
To date, it appears as if panels are likely to grant motions for remote arbitrations, most likely to keep cases moving and to prevent further delay. Inability to have a case heard hurts parties, counsel, and arbitrators’ abilities to control their schedules and manage their lives, not to mention may directly relate to someone’s net worth and/or career. In customer cases, as of June 2, 2020, there were 18 contested motions for videoconference hearings, of which 6 were granted, 2 denied, and 10 decisions still pending. In all FINRA cases, as of June 2, 2020, there were 28 contested motions for a remote hearing, 9 were granted, 5 were denied, and 14 still pending.How to Prepare for a Remote Hearing
Become familiar with the software. In today’s modern times, it is safe to say that everyone knows how (or can figure out how) to use teleconference. But what people might not know, is how Zoom works. While preparing for the hearing, spending some time exploring Zoom’s features, such as getting use to muting yourself and sharing documents, is beneficial to the presentation of your case. When preparing clients and witnesses for the hearing, you might be inclined to take the easy way and prepare via telephone. Instead, attorneys should seize the opportunity and prepare your witness via Zoom. Zoom has excellent tutorials of its technologies and users can test out the system.
Know what is required by the panel. Ahead of the hearing, ask the panel for guidance on protocols. As mentioned above, the panel needs to clearly spell out the “rules of the road,” including attestations from witnesses (no use of notes, review of exhibits in advance or electronic coaching), lawyers (no coaching witnesses or review of exhibits in advance) and arbitrators (no distractions). Panels should specify how they want the parties to handle exhibits: uploaded to the FINRA portal in advance of the hearing or circulation of physical copies. Whatever is required, be sure to be organized. Ask the panel whether participants are required to mute themselves when not speaking, and whether counsel should announce which exhibit it is going to show through the screen share feature prior to showing it to the parties and panel.
Check hardware. As mentioned above, technology is not faultless. Issues can happen, such as phone service or internet failure. Its important to prepare with the software to ensure it is properly installed. Through preparation you will be able to determine if a faster internet connection is needed. Moreover, the chance of internet and service failure occurring is reduced if it is checked prior to the hearing and participants attend from an appropriate location.
Practice presenting. Zoom, unlike presenting in person, allows the presenter to see him or herself. Use this as an opportunity, to see how you present. It would be a distraction to try and watch someone trying to figure out how to screenshare for the first time during cross examination. It would ruin the flow. Also, no one wants to watch counsel and parties adjust their computers on videos during the hearing. Make sure you can see your entire head, that there is good lighting, and you are in a quiet space. You should turn off your smart speakers, such as Google Home and Amazon Alexa, to prevent it from unexpectedly speaking during the hearing. It may be a good idea to mute yourself when not speaking, even if it is not required by the panel. And make sure there is nothing inappropriate in the background. Nothing is more embarrassing than having something going on in the background.
Practice with clients and witnesses. Not only will the virtual hearing be a new concept for counsel, but it will also be foreign to clients and witnesses. It is important that they too are familiar with the software, known what is expected of them, checking their hardware, and practicing with their presentation. Work with them on what the hearing might look like. For example, practice what to do when there is an objection. Because there is a slight delay on Zoom, use a signal as a visual “stop sign” so your clients and witnesses to stop talking, and the arbitrator can focus on the objection. Well prepared clients and witnesses are key to a successful arbitration.Conclusion
Virtual hearings may seem like a foreign concept, but FINRA has internally and externally been using video platforms for years. And, in actuality, the process of remote hearings is not much different from in-person hearings. Although there are some cons to proceeding with a virtual hearing, the cons can be reduced, if not completely eliminated, by taking the time to learn how to use the features of the remote platforms, and by proper preparation. By embracing virtual hearings, attorneys will worry less about whether the case will be conducted virtually or in-person and be able to better manage their schedules.