This week’s reading discussed the use of arbitration in state lemon laws. As such, in this week’s blog entry, I discuss Massachusetts’ lemon law in greater detail and compare it with Texas’ lemon law in a few specific areas.
I found it interesting that Massachusetts’ lemon law allows consumers such a great deal of discretion.
As the reading states, under Massachusetts’ lemon law, an aggrieved consumer has the right to either proceed to arbitration or proceed to court. However, if the consumer elects to proceed to arbitration, he or she is not prevented from later proceeding to court.
However, under Texas’ lemon law, unlike Massachusetts’, an aggrieved consumer must first proceed to arbitration. Nonetheless, the consumer is not prevented from later proceeding to court.
In my opinion, both of the above options make sense and favor consumers, however, it appears that the option employed by Texas’ lemon law is fairer to manufacturers than is the option employed by Massachusetts’ lemon law. Throughout the course of the semester, we have made much of arbitration’s benefits to businesses—e.g., efficiency, privacy, etc. Because Texas requires an aggrieved consumer to first proceed with arbitration, in a case where an arbitration award is rendered in favor of a consumer, a manufacturer (that does not desire an appeal) will at least have received the benefit of an efficient and private dispute resolution. In Massachusetts, however, this will not always be the case; aggrieved consumers are able to bypass arbitration altogether.
I also found the arbitration proceeding provided for under Massachusetts’ lemon law interesting.
The arbitration proceeding provided for under Massachusetts’ lemon law is "all or nothing." If an arbitrator determines that an aggrieved consumer’s vehicle meets the standards of the lemon law, the manufacturer must refund the purchase price of or replace the car. However, if the arbitrator decides that his or her vehicle is not a lemon, there will be no award.
Similarly, the arbitration proceeding provided for under Texas’ lemon law is “all or nothing,” with two deviations from the arbitration proceeding provided for under Massachusetts’ lemon law. Specifically, in Texas, if an arbitrator determines that an aggrieved consumer’s vehicle meets the standards of the lemon law, the manufacturer must refund the purchase price of, replace, or repair the car. Also, in Texas, unlike Massachusetts, a manufacturer does not get to choose a remedy—the arbitration award will dictate an award of either a refund, replacement, or repair.
In my opinion, as before, both of the above options make sense, however, it appears that in this context, the option employed by Massachusetts’ lemon law is fairer to manufacturers than is the option employed by Texas’ lemon law. In Massachusetts, as previously stated, a manufacturer found liable in arbitration is given the choice of either refunding the purchase price of or replacing the prevailing consumer’s car. However, in Texas, as previously stated, the arbitration award will dictate an award of either a refund, replacement, or repair. Stating the obvious, Massachusetts’ lemon law is fairer to manufacturers because it allows for choice. Texas’ lemon law, on the other hand, does not allow for choice.
What do you think about lemon laws? As a consumer, which law would you prefer, Massachusetts’ or Texas’? As a manufacturer?
Sources: The Book; http://www.mass.gov/ocabr/business/autos-transportation/lemon-law-used.html; http://www.bbb.org/us/Storage/16/Documents/BBBAutoLine/TX-LLaddinfo.pdf; ftp://ftp.dot.state.tx.us/pub/txdot-info/mvd/lemon/2004lemonlaw.pdf.
Friday, October 25, 2013
Friday, October 18, 2013
FINRA: A Critique and Defense
According to its website, “FINRA is not part of the government. [It’s] an independent, not-for-profit organization authorized by Congress to protect America’s investors by making sure the securities industry operates fairly and honestly.”
As part of its operations, FINRA provides a forum for arbitration. The FINRA website provides a thorough account of what cases are eligible for, or require, arbitration in FINRA’s forum. This account is reproduced below.
Eligible Cases
Arbitration cases are eligible to be heard in FINRA's forum if the following criteria are met:
• For disputes with investors:
o The cases involve an investor and an individual or entity registered with FINRA, such as cases between investors and brokers, between investors and brokerage firms, and between investors and brokers and brokerage firms; and
o The claim is filed within 6 years from the time the events giving rise to the dispute occurred.
• For disputes involving industry parties only:
o The cases involve an individual or entity registered with FINRA, such as cases between brokerage firms, between brokers, and between or among brokerage firms and brokers; and
o The claim is filed within 6 years from the time the events giving rise to the dispute occurred.
Required Investor Arbitration
An investor must arbitrate at FINRA if:
• The arbitration is required by written agreement;
• The dispute is with a member of FINRA, which could be a broker and/or brokerage firm; and
• The dispute involves the securities business of the broker and/or brokerage firm.
Required Industry Arbitration
A broker or a brokerage firm must arbitrate at FINRA if:
• The dispute arises out of the securities business activities of a broker and/or a brokerage firm; and
• The dispute is between or among the following members of FINRA: brokerage firms, brokerage firms and brokers, or brokers.
If an investor requests arbitration, a broker or a brokerage firm must arbitrate at FINRA.
Exception to required industry arbitration:
If you are a broker and your dispute involves an issue of employment discrimination, including sexual harassment, the dispute is not required to be arbitrated unless the parties agreed to arbitrate it, either before or after the issue arose.
Despite FINRA’s self-described independence and self-stated mandate of protecting America’s investors, FINRA has been harshly criticized on both fronts.
Earlier this year, on March 21, 2013, an op-ed/editorial entitled “FINRA’s Win is Your Loss” was published in U.S. NEWS & WORLD REPORT. According to the op-ed/editorial, FINRA “touts itself as an independent regulator governing the conduct of all securities firms doing business in the U.S.” However, or so the op-ed/editorial argues, “[g]iven the predatory conduct of the securities industry, it’s obvious that FINRA is falling far short of its mandate.”
To support the op-ed/editorial’s basic premise, “that FINRA is falling short of its mandate”, the op-ed/editorial posits that FINRA’s “running [of a] mandatory arbitration system that adjudicates disputes between investors and [] brokers” is insidious. The op-ed/editorial qualifies this statement by arguing that such a system requires investors to “give up their constitutional right[s] to [] jury trial[s]” for a proceeding where they will be judged by arbitrators that are neither fair nor impartial.
Moreover, the op-ed editorial appears to take special exception to the fact that FINRA does not “permit access to its database so that academics can conduct an analysis of the overall process.” The op-ed/editorial insists “[e]verything about a process that affects the retirement goals of millions of Americans should be in the public domain.”
“FINRA’s Win is Your Loss” did not go unnoticed. George Friedman, the previous Director of FINRA’s Arbitration, wrote a letter to U.S. NEWS & WORLD REPORT to rebut “FINRA’s Win is Your Loss.”
The theme of this letter is aptly displayed in the following excerpt:
To characterize the arbitration system as unfair and a threat to retirement plans is ridiculous. In fact, the FINRA arbitration program is an exemplar of fairness in consumer arbitration. This isn’t my opinion; it’s fact.
Mr. Friedman argues “FINRA has spent years amending the rules to ensure a level playing field. “ And furthermore, “FINRA’s rules must be approved by the SEC after being published in the Federal Register and after a public comment period.” Even more, the “SEC periodically inspects the arbitration program and responds to individual complaints.”
Finally, Mr. Friedman cites favorable words from the “Consumer Federation’s Director of Investor Protection” and “a leading authority in the arbitration field” as support for FINRA’s fairness and impartiality.
In my opinion, Mr. Friedman’s arguments are superior to “FINRA’s Win is Your Loss”’s. “FINRA’s Win is Your Loss” appears to oppose arbitration generally, not just FINRA’s arbitration procedures individually. “FINRA’s Win is Your Loss” implies that the inherent privacy of arbitration proceedings alone suggests corruption and impartiality. While I sympathize with “FINRA’s Win is Your Loss”’s disdain for “take-it-or-leave-it, binding-arbitration” clauses, these clauses are hardly confined to the context of FINRA’s arbitration procedures.
What are your thoughts? Do you agree with “FINRA’s Win is Your Loss” or Mr. Friedman?
Sources:
FINRA’s website
http://www.indisputably.org/?p=4524
http://money.usnews.com/money/blogs/On-Retirement/2013/03/21/finras-win-is-your-loss
As part of its operations, FINRA provides a forum for arbitration. The FINRA website provides a thorough account of what cases are eligible for, or require, arbitration in FINRA’s forum. This account is reproduced below.
Eligible Cases
Arbitration cases are eligible to be heard in FINRA's forum if the following criteria are met:
• For disputes with investors:
o The cases involve an investor and an individual or entity registered with FINRA, such as cases between investors and brokers, between investors and brokerage firms, and between investors and brokers and brokerage firms; and
o The claim is filed within 6 years from the time the events giving rise to the dispute occurred.
• For disputes involving industry parties only:
o The cases involve an individual or entity registered with FINRA, such as cases between brokerage firms, between brokers, and between or among brokerage firms and brokers; and
o The claim is filed within 6 years from the time the events giving rise to the dispute occurred.
Required Investor Arbitration
An investor must arbitrate at FINRA if:
• The arbitration is required by written agreement;
• The dispute is with a member of FINRA, which could be a broker and/or brokerage firm; and
• The dispute involves the securities business of the broker and/or brokerage firm.
Required Industry Arbitration
A broker or a brokerage firm must arbitrate at FINRA if:
• The dispute arises out of the securities business activities of a broker and/or a brokerage firm; and
• The dispute is between or among the following members of FINRA: brokerage firms, brokerage firms and brokers, or brokers.
If an investor requests arbitration, a broker or a brokerage firm must arbitrate at FINRA.
Exception to required industry arbitration:
If you are a broker and your dispute involves an issue of employment discrimination, including sexual harassment, the dispute is not required to be arbitrated unless the parties agreed to arbitrate it, either before or after the issue arose.
Despite FINRA’s self-described independence and self-stated mandate of protecting America’s investors, FINRA has been harshly criticized on both fronts.
Earlier this year, on March 21, 2013, an op-ed/editorial entitled “FINRA’s Win is Your Loss” was published in U.S. NEWS & WORLD REPORT. According to the op-ed/editorial, FINRA “touts itself as an independent regulator governing the conduct of all securities firms doing business in the U.S.” However, or so the op-ed/editorial argues, “[g]iven the predatory conduct of the securities industry, it’s obvious that FINRA is falling far short of its mandate.”
To support the op-ed/editorial’s basic premise, “that FINRA is falling short of its mandate”, the op-ed/editorial posits that FINRA’s “running [of a] mandatory arbitration system that adjudicates disputes between investors and [] brokers” is insidious. The op-ed/editorial qualifies this statement by arguing that such a system requires investors to “give up their constitutional right[s] to [] jury trial[s]” for a proceeding where they will be judged by arbitrators that are neither fair nor impartial.
Moreover, the op-ed editorial appears to take special exception to the fact that FINRA does not “permit access to its database so that academics can conduct an analysis of the overall process.” The op-ed/editorial insists “[e]verything about a process that affects the retirement goals of millions of Americans should be in the public domain.”
“FINRA’s Win is Your Loss” did not go unnoticed. George Friedman, the previous Director of FINRA’s Arbitration, wrote a letter to U.S. NEWS & WORLD REPORT to rebut “FINRA’s Win is Your Loss.”
The theme of this letter is aptly displayed in the following excerpt:
To characterize the arbitration system as unfair and a threat to retirement plans is ridiculous. In fact, the FINRA arbitration program is an exemplar of fairness in consumer arbitration. This isn’t my opinion; it’s fact.
Mr. Friedman argues “FINRA has spent years amending the rules to ensure a level playing field. “ And furthermore, “FINRA’s rules must be approved by the SEC after being published in the Federal Register and after a public comment period.” Even more, the “SEC periodically inspects the arbitration program and responds to individual complaints.”
Finally, Mr. Friedman cites favorable words from the “Consumer Federation’s Director of Investor Protection” and “a leading authority in the arbitration field” as support for FINRA’s fairness and impartiality.
In my opinion, Mr. Friedman’s arguments are superior to “FINRA’s Win is Your Loss”’s. “FINRA’s Win is Your Loss” appears to oppose arbitration generally, not just FINRA’s arbitration procedures individually. “FINRA’s Win is Your Loss” implies that the inherent privacy of arbitration proceedings alone suggests corruption and impartiality. While I sympathize with “FINRA’s Win is Your Loss”’s disdain for “take-it-or-leave-it, binding-arbitration” clauses, these clauses are hardly confined to the context of FINRA’s arbitration procedures.
What are your thoughts? Do you agree with “FINRA’s Win is Your Loss” or Mr. Friedman?
Sources:
FINRA’s website
http://www.indisputably.org/?p=4524
http://money.usnews.com/money/blogs/On-Retirement/2013/03/21/finras-win-is-your-loss
Friday, October 4, 2013
Efficiency and Legal Malpractice
This week’s reading begins by discussing the current similarities between arbitration and litigation. It continues by generally arguing that all parties involved in business-to-business arbitration proceedings must take proactive roles in ensuring arbitration is markedly different from litigation.
I found it interesting that this week’s reading seems to regard extensive discovery as a pestilence to arbitration proceedings. Moreover, it appears to take the position, by quoting certain in-house lawyers, that the goals of fairness, efficiency, and certainty carry equal weight in business-to-business arbitration proceedings.
I personally question the idea that fairness, efficiency, and certainty should carry equal weight in business-to-business arbitration proceedings. It appears facially problematic that fairness is not elevated above all other objectives; after all, what would the founders of our modern-day justice system think of such a sentiment? With the adoption of Lady Justice as the embodiment of the United States’ justice system, it does not appear likely that they would agree with it. After all, if efficiency and certainty are indeed so important, why does Lady Justice not wear a clock around her neck, or hold a rock in her hand? Jeers aside, Lady Justice wears a blindfold and carries a balanced scale. Both the blindfold and balanced scale symbolize principles of justice, or fairness. Symbols of efficiency and certainty are all but missing from Lady Justice’s composition. Nonethless, businesses are free to emphasize whatever objectives they so choose within their own arbitration provisions.
However, as this week’s reading briefly mentions, because of the threat of legal malpractice, some attorneys are weary of deviating from extensive discovery procedures, for the sake of efficiency. In my opinion this is a valid concern.
In Texas, to recover on a claim for legal malpractice, a plaintiff must prove the following: (1) the attorney owed the plaintiff a duty; (2) the attorney’s negligent act or omission breached that duty; (3) the breach proximately caused the plaintiff’s injury; and (4) the plaintiff suffered damages. Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. National Dev. & Research Corp., 299 S.W.3d106, 112 (Tex. 2009).
In regard to the first element, an attorney owes his or her clients a duty. An attorney is held to the standard of care that would be exercised by a reasonably prudent attorney. Cosgrove v. Grimes, 774 S.W.2d 662, 664 (Tex. 1989).
In regard to the second element, a business burned in arbitration, because of an arbitration provision that provides for scant discovery procedures, may argue that the attorney that drafted the arbitration provision breached the aforementioned standard of care---e.g., that the attorney did not act with the diligence required under the standard of care and/or lacked the minimum degree of skill, prudence, and knowledge in regard to drafting its arbitration provision.
In regard to the third element, a business burned in arbitration, because of an arbitration provision that provides for scant discovery procedures, may argue that the foregoing breach proximately caused its injuries. In order to prove proximate cause, a plaintiff must prove both cause-in-fact and foreseeability. Rodriguez v. Klein, 960 S.W.2d 179, 184 (Tex. App.---Corpus Christi 1997, no pet.). Cause-in-fact means that the attorney’s act or omission was a substantial factor in bringing about an injury that otherwise would not have occurred. Hall v. Stephenson, 919 S.W.2d 454, 466 (Tex. App.---Fort Worth 1996, writ denied). Foreseeability means that the attorney should have anticipated the dangers his or her negligent act created. Hall, 919 S.W.2d at 466. In regard to cause-in-fact, a business burned in arbitration, because of an arbitration provision that provides for scant discovery procedures, may argue that the attorney’s drafting of such an arbitration provision was a substantial factor in bringing about the business’s loss in the arbitration proceeding. In regard to foreseeability, such a business would also argue that the attorney should have anticipated that drafting such an arbitration provision would adversely affect its interests.
In regard to the fourth element, a business burned in arbitration, because of an arbitration provision that provides for scant discovery procedures, would argue that, as a result of the drafting attorney’s negligence, it suffered damages---e.g., if an award was rendered against the business, the amount of the award.
In my opinion, the first, second, and fourth elements of a claim for legal malpractice are not too difficult to satisfy. However, the third element appears to rein in liability. As such, a claim for legal malpractice may be difficult to prove int he aforementioned scenario, but it is not impossible.
Moreover, a business burned in arbitration, because of an arbitration provision that provides for scant discovery procedures, may allege that the drafting attorney violated the Texas Disciplinary Rules of Professional Conduct. Specifically, Rule 1.01 which requires competent and diligent representation.
As an attorney, because of the threat of liability, when drafting an arbitration provision that provides for scant discovery procedures, it is highly advisable to carefully document your business client’s desire for such a clause.
I found it interesting that this week’s reading seems to regard extensive discovery as a pestilence to arbitration proceedings. Moreover, it appears to take the position, by quoting certain in-house lawyers, that the goals of fairness, efficiency, and certainty carry equal weight in business-to-business arbitration proceedings.
I personally question the idea that fairness, efficiency, and certainty should carry equal weight in business-to-business arbitration proceedings. It appears facially problematic that fairness is not elevated above all other objectives; after all, what would the founders of our modern-day justice system think of such a sentiment? With the adoption of Lady Justice as the embodiment of the United States’ justice system, it does not appear likely that they would agree with it. After all, if efficiency and certainty are indeed so important, why does Lady Justice not wear a clock around her neck, or hold a rock in her hand? Jeers aside, Lady Justice wears a blindfold and carries a balanced scale. Both the blindfold and balanced scale symbolize principles of justice, or fairness. Symbols of efficiency and certainty are all but missing from Lady Justice’s composition. Nonethless, businesses are free to emphasize whatever objectives they so choose within their own arbitration provisions.
However, as this week’s reading briefly mentions, because of the threat of legal malpractice, some attorneys are weary of deviating from extensive discovery procedures, for the sake of efficiency. In my opinion this is a valid concern.
In Texas, to recover on a claim for legal malpractice, a plaintiff must prove the following: (1) the attorney owed the plaintiff a duty; (2) the attorney’s negligent act or omission breached that duty; (3) the breach proximately caused the plaintiff’s injury; and (4) the plaintiff suffered damages. Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. National Dev. & Research Corp., 299 S.W.3d106, 112 (Tex. 2009).
In regard to the first element, an attorney owes his or her clients a duty. An attorney is held to the standard of care that would be exercised by a reasonably prudent attorney. Cosgrove v. Grimes, 774 S.W.2d 662, 664 (Tex. 1989).
In regard to the second element, a business burned in arbitration, because of an arbitration provision that provides for scant discovery procedures, may argue that the attorney that drafted the arbitration provision breached the aforementioned standard of care---e.g., that the attorney did not act with the diligence required under the standard of care and/or lacked the minimum degree of skill, prudence, and knowledge in regard to drafting its arbitration provision.
In regard to the third element, a business burned in arbitration, because of an arbitration provision that provides for scant discovery procedures, may argue that the foregoing breach proximately caused its injuries. In order to prove proximate cause, a plaintiff must prove both cause-in-fact and foreseeability. Rodriguez v. Klein, 960 S.W.2d 179, 184 (Tex. App.---Corpus Christi 1997, no pet.). Cause-in-fact means that the attorney’s act or omission was a substantial factor in bringing about an injury that otherwise would not have occurred. Hall v. Stephenson, 919 S.W.2d 454, 466 (Tex. App.---Fort Worth 1996, writ denied). Foreseeability means that the attorney should have anticipated the dangers his or her negligent act created. Hall, 919 S.W.2d at 466. In regard to cause-in-fact, a business burned in arbitration, because of an arbitration provision that provides for scant discovery procedures, may argue that the attorney’s drafting of such an arbitration provision was a substantial factor in bringing about the business’s loss in the arbitration proceeding. In regard to foreseeability, such a business would also argue that the attorney should have anticipated that drafting such an arbitration provision would adversely affect its interests.
In regard to the fourth element, a business burned in arbitration, because of an arbitration provision that provides for scant discovery procedures, would argue that, as a result of the drafting attorney’s negligence, it suffered damages---e.g., if an award was rendered against the business, the amount of the award.
In my opinion, the first, second, and fourth elements of a claim for legal malpractice are not too difficult to satisfy. However, the third element appears to rein in liability. As such, a claim for legal malpractice may be difficult to prove int he aforementioned scenario, but it is not impossible.
Moreover, a business burned in arbitration, because of an arbitration provision that provides for scant discovery procedures, may allege that the drafting attorney violated the Texas Disciplinary Rules of Professional Conduct. Specifically, Rule 1.01 which requires competent and diligent representation.
As an attorney, because of the threat of liability, when drafting an arbitration provision that provides for scant discovery procedures, it is highly advisable to carefully document your business client’s desire for such a clause.
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