Arbitrating, Not Litigating: Strategic Considerations for FINRA, AAA, and JAMS Forums

Arbitration has become the dominant forum for resolving commercial disputes in significant sectors of the American economy. Financial services disputes involving broker-dealers and their customers proceed almost universally in FINRA arbitration. Construction disputes, technology disputes, employment disputes, and major commercial transactions increasingly include arbitration clauses that route the dispute to AAA, JAMS, or another administering institution. The Federal Arbitration Act and decades of Supreme Court decisions have produced a legal framework that favors the enforcement of arbitration agreements and limits judicial review of arbitration awards in ways that affect strategic decisions throughout the dispute.

I have arbitrated for FINRA, the Chicago Board Options Exchange, the National Arbitration and Mediation organization, and the National Futures Association. I have also tried cases before AAA and JAMS panels, before single arbitrators, and in less common forums including industry-specific arbitration programs. The strategic considerations differ across forums in ways that affect every meaningful decision in an arbitration: forum selection when it remains contested, panelist selection when the rules permit it, discovery strategy in the limited discovery environment that arbitration usually provides, motion practice in forums that often do not contemplate it, and award enforcement in cases where the prevailing party has reason to expect resistance from the losing party.

The Forum Comparison That Most Lawyers Get Wrong

Arbitration is often treated as a single forum, distinguished from court litigation but otherwise undifferentiated. This treatment is wrong, and it produces strategic decisions that do not account for the substantial differences between arbitration forums.

FINRA arbitration is a specialized forum that hears almost exclusively disputes involving the securities industry. The panel composition includes arbitrators with backgrounds in the securities business and arbitrators drawn from the broader public, with the mix depending on the case type and the size of the claim. The discovery framework is rule-based and substantially more limited than federal court practice. The award is typically a one-line statement of the result, without the explanatory opinion that judicial decisions provide. The award is enforceable through the federal courts under the Federal Arbitration Act, with the limited judicial review that the FAA permits.

AAA arbitration is a more general commercial forum that hears disputes across nearly every industry. The panel composition is selected by the parties from AAA’s roster of commercial arbitrators, with attention to the substantive expertise relevant to the dispute. The discovery framework varies more by case and by the agreement of the parties, with the AAA Commercial Rules providing a framework that can be modified substantially. The awards typically include reasoned opinions explaining the basis for the result, providing more guidance for review and for understanding the panel’s analysis.

JAMS arbitration is similar to AAA in many respects but distinguishes itself through its roster of arbitrators, who are often retired judges with substantial trial experience. The procedural framework is more flexible than the AAA framework in some respects, and the JAMS rules permit substantial customization to the parties’ preferences. The awards similarly include reasoned opinions.

Industry-specific arbitration programs — including those run by trade associations, the AAA’s industry-specific rules, and bilateral or sectoral arbitration programs — each have their own procedural and substantive characteristics that must be understood before agreeing to arbitration under their rules.

The strategic implication of these differences is that the decision to agree to arbitration, when that decision is still being made, requires attention to the specific forum and its specific rules. Arbitration in one forum is not the same as arbitration in another. The defense lawyer who treats them interchangeably is missing the opportunity to advocate for the forum whose characteristics most favor the client’s position.

Panelist Selection as the Most Important Decision

In any arbitration, the selection of the panel is the single most consequential procedural decision. The panel’s composition determines the substantive perspective that will be brought to the dispute, the procedural rulings that will frame the hearing, and the ultimate decision on the merits. The lawyers who put serious work into panelist selection produce better results than the lawyers who treat it as a routine procedural step.

The panelist selection process varies by forum. FINRA arbitration provides parties with lists of potential arbitrators and permits strikes and rankings, with the FINRA staff making the final composition decision based on the parties’ responses. AAA arbitration similarly provides lists and permits parties to strike, with various refinements depending on the case type. JAMS arbitration permits the parties to select arbitrators from the JAMS roster, often with substantial input into the specific arbitrator chosen.

Within these procedural frameworks, the strategic work is research. Each potential arbitrator has a background, a record of prior awards (where publicly available), a set of professional and intellectual perspectives, and patterns in his or her decisional history. The defense team that has actually researched the potential arbitrators — read their prior awards, identified their substantive areas of expertise, understood their professional histories — can make strike and ranking decisions that favor the client meaningfully. The team that strikes based on names and résumés alone is making decisions on incomplete information.

I pay particular attention to two factors in panelist research. The first is the substantive expertise of the potential arbitrator in the area of the dispute. An arbitrator whose practice or judicial background involved many cases similar to the present dispute will bring a perspective that the parties’ lawyers cannot fully predict, but that they can research thoroughly enough to anticipate. The second is the arbitrator’s decisional tendencies on the procedural questions that will arise during the arbitration — motion practice, discovery disputes, evidentiary rulings — which often have more impact on the outcome than the substantive merits ruling.

Discovery in the Arbitration Environment

Discovery in arbitration is more limited than in court litigation, but the precise limits vary substantially by forum and by the parties’ agreement. FINRA arbitration provides specific discovery rules with mandatory document production lists and limited deposition availability. AAA arbitration permits broader discovery in the discretion of the panel, with the AAA Commercial Rules providing a baseline that can be expanded by agreement. JAMS arbitration similarly permits flexibility within the JAMS framework.

The strategic implications of the discovery environment depend on which party has the better case at the outset and which party benefits from a complete factual record. If the defense has the better case on the documents and the testimony, broader discovery favors the defense by producing the record on which the defense can prevail. If the defense has potential vulnerabilities that more limited discovery would obscure, narrower discovery favors the defense by foreclosing the opposing party’s ability to develop the record fully.

The defense team must make this assessment early in the matter and then advocate for the discovery framework that favors its position. In FINRA arbitration, this means careful attention to the mandatory production lists and the use of the discovery guide’s optional categories. In AAA and JAMS arbitration, this means working with opposing counsel and the panel to establish a discovery framework that suits the case, with attention to the document production scope, the deposition availability, and the expert disclosure requirements.

The other strategic implication of arbitration discovery is the importance of the prehearing brief. In court litigation, the discovery record develops over years and the parties’ positions evolve through summary judgment briefing. In arbitration, the prehearing brief is often the first comprehensive presentation of the parties’ positions, and the panel’s first impression of the case is formed by these submissions. The defense team that produces a strong prehearing brief — well-organized, factually detailed, legally rigorous — frames the hearing in a way that a weaker brief does not.

Motion Practice in a Forum That Often Resists It

Arbitration panels are sometimes reluctant to grant dispositive motions, on the theory that the parties bargained for a hearing on the merits and should receive one. This reluctance is not absolute, and motions can succeed when the panel is presented with arguments that fit the procedural posture of arbitration.

The most successful motions in arbitration tend to involve threshold legal issues that do not require resolution of factual disputes. Statute of limitations issues, contractual provisions that allocate the dispute to a different forum, mandatory dispute resolution prerequisites that were not satisfied, and similar threshold matters can produce dispositive rulings in arbitration even when broader merits motions would not.

Motions that require resolution of factual disputes face more resistance, but they are not foreclosed. A motion supported by extensive documentary evidence and well-developed factual presentation can succeed if the panel concludes that no genuine dispute exists on the relevant facts. The presentation must be more detailed than what would suffice in a summary judgment motion in court, because the panel does not have the same discovery record to draw from in evaluating the factual disputes.

The strategic decision about whether to file a dispositive motion in arbitration must therefore account for the likelihood of success, the cost of preparing the motion, and the risk that an unsuccessful motion may telegraph the defense theory to the opposing party in ways that complicate the hearing. In most cases, the motion is worth filing if it has a reasonable chance of disposing of meaningful issues. In a few cases, the strategic costs of the motion exceed its expected benefits, and the defense should proceed directly to the hearing.

The Hearing and the Evidentiary Standards

Arbitration hearings differ from court trials in ways that affect the presentation. The rules of evidence apply more loosely than in court. The presentation is typically more efficient, with less time devoted to the procedural mechanics that court trials require. The panel members are typically more experienced in the substantive area than a jury would be, which permits the lawyers to operate at a higher level of sophistication.

These differences have implications for trial preparation. The witness preparation should be calibrated to the panel that will hear the testimony, with attention to the substantive expertise of the panel members and the technical detail that they will appreciate. The exhibits should be organized for efficient presentation, with the panel’s likely engagement with the documents in mind. The expert testimony should be presented in a manner that respects the panel’s substantive knowledge, providing the technical detail that the panel needs to evaluate the opinions without belaboring the basics.

The cross-examination strategy in arbitration is similar to cross-examination in court, but with somewhat more latitude in the questioning and somewhat less time available for the development of each line of inquiry. The defense team must be more selective about which lines of cross-examination to develop fully, with attention to the points that will resonate with the panel’s substantive perspective.

Award Enforcement and Challenge

The Federal Arbitration Act provides a limited framework for judicial review of arbitration awards. The grounds for vacatur — corruption, fraud, evident partiality, exceeding the arbitrator’s powers, and a few related categories — are narrowly construed, and the federal courts overturn arbitration awards relatively rarely.

This framework has strategic implications throughout the arbitration. The defense team that anticipates an adverse outcome must build the record for the limited grounds of challenge that may be available on review. The defense team that expects a favorable outcome must build the record for enforcement, anticipating the resistance that the losing party may mount in the enforcement court.

The cases in which awards have been vacated tend to involve unusual circumstances — undisclosed conflicts of interest by the arbitrator, evident misapprehension of the controlling law, awards that exceed the scope of the arbitration agreement — that are easier to identify than to establish. The defense team that wants to preserve the possibility of vacatur must develop the factual record during the arbitration, not after the award is issued.

The Choice That Frames Everything

At the beginning of every commercial relationship, the parties make decisions about how disputes will be resolved. The arbitration clause that is buried in the contract — what forum, what rules, what procedural framework — will determine how every future dispute proceeds. These clauses deserve substantially more attention at the contracting stage than they typically receive.

For sophisticated parties, the arbitration clause should be drafted with attention to the specific characteristics of the available forums, the likely nature of the disputes that may arise, and the strategic preferences of the parties. A clause that selects a forum well-suited to the relationship will produce better dispute resolution outcomes than a clause that selects a forum based on general familiarity or boilerplate language. A clause that thoughtfully addresses discovery scope, panel selection, motion practice, and award enforcement will produce more predictable outcomes than a clause that leaves these matters to the default rules.

I tell clients negotiating sophisticated commercial transactions that the arbitration provision deserves senior-level attention, not delegation to a junior associate working from a contract template. The decisions made at the contracting stage will frame every future dispute, and the cost of taking those decisions seriously is small compared to the cost of dispute resolution under provisions that were not thoughtfully chosen. That is the discipline that arbitration practice requires from the beginning, and it is the discipline that produces the outcomes sophisticated clients expect when disputes arise.

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Otto K. Hilbert, II is a Trial Attorney with AEGIS Law. He brings over 36 years of first-chair trial and appellate experience to representing clients in complex commercial litigation, securities defense, and regulatory enforcement matters. He has tried cases in 23 states and is admitted before the United States Supreme Court and multiple United States Courts of Appeals.

This article is provided for general informational purposes and does not constitute legal advice. Readers facing specific legal matters should consult qualified counsel.