ARBITRATION OF BUSINESS DISPUTES This research

This research paper discusses the use in the United States of arbitration to resolve business disputes involving large corporations, including disputes between investors and retail securities brokerage firms, and disputes to which smaller businesses are parties. Arbitration developed slowly in the 20th century in common law jurisdictions as a cost effective alternative to litigation in the courts as the courts overcame their traditional reluctance to accept arbitration and to recognize the enforceability of private pre-dispute arbitration agreements (PDAAs). Because of the congestion in the civil courts and for other reasons, arbitration in a number of forms is very much in vogue in a variety of contexts. Large corporations first found arbitration to be an attractive alternative to litigation, but today arbitration is also a very attractive alternative method for resolving small business disputes; however, its appeal may vary depending on the type of business involved, its location and the size and nature of the dispute.

In the securities industry, arbitration has emerged since the mid to late 1980s as the principal vehicle for resolving disputes involving investors and securities brokerage firms. Today, a number of issues face the parties involved in the arbitration of securities-related disputes, including private investors seeking redress for alleged wrongdoing by brokerage firms, the self-regulating industry associations (SROS) under

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oning cannot be mechanically transplanted to claims arising under the Exchange Act," and drew a distinction between private rights of action which were created by statute [under sec. 12(2) of the '33 Act] and those which were created by judicial interpretation [such as those under sec. 10(b) of the '34 Act]. A severe split then developed among the federal circuit courts, the Second, Fifth, Ninth and Eleventh Circuits barring arbitration of '34 Act claims and the Eighth Circuit holding that such claims were arbitrable. Heinemann (1986) said with some logic that "there is no justification for the notion that once a court has recognized an implied right of action under the securities laws, that right should be entitled to less protection than an express [statutory] cause of action" (p. 568). In 1987, the Court decided by a 5-4 vote in Shearson/ American Express, Inc. v. McMahon, 788 F.2d 94 (2d Cir. 1986), aff'd in part, rev'd in part, 107 S. Ct. 2332 (1987), that securities fraud claims under sec. 10(b) of the '34 Act and Rule 10b-5 thereunder as well as RICO claims were arbitrable. In the dissenting opinion of Justice Harry Blackmun, with which Justices Thurgood Marshall and William Brennan joined, concern was expressed at p. 2

Category: Business - A