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95-1 NASD Solicits Comment On NASD Mediation Program And Draft Mediation Procedures;
Comment Period Expires On March 1,
At its November 1994 meeting, the NASD Board of Governors approved the issuance of a Notice to Members soliciting comments on the National Arbitration Committee's (Committee or NAC) recommendation to establish an NASD Mediation Program to resolve securities disputes. The Committee proposed a set of procedures governing mediation proceedings conducted under the auspices of the NASD. The NASD is soliciting comments regarding the proposed structure and provisions of the program to be established. Comments received on or before March 1, 1995, will be considered. The complete text of the draft mediation procedures follows this Notice.
From 1989 to 1993 the NASD Arbitration Department engaged in two pilot mediation programs. These programs were established in response to the rapidly growing use, and success, of mediation in the commercial and insurance sectors. The goal of mediation was to provide parties with an alternative to arbitration that would give them more control over the outcome of their dispute, thereby obtaining a more satisfactory resolution earlier than could be achieved in arbitration. The parties would save expenses associated with protracted litigation. In addition to the benefits derived by the parties, the NASD expected a direct benefit in reduction of its backlog, and administrative as well as arbitrator costs associated with processing arbitration cases.
Under both pilot programs, outside mediation specialists were contracted to provide services. The parties used the rules and mediators associated with the specialists. Under the second pilot program the NASD subsidized the customers' fees. Members committed to participate in both programs. Despite best efforts, participation in both programs was lower than expected. In addition, the success rate for closing cases through mediation was lower than experienced in commercial or insurance areas. Feedback from the parties who chose not to utilize mediation, and those who did utilize mediation consistently, indicated a preference for the NASD to establish its own mediation program, as well as utilize experienced NASD arbitrators who also were trained mediators to facilitate the resolution of cases.
As a result of this feedback, the Committee established a Mediation Subcommittee1 in January 1994 to study the issue and develop recommendations. The Subcommittee was requested to study the continued use of outside mediation providers as well as the feasibility of developing NASD model mediation procedures and an internal NASD Mediation Program.
The NAC received reports from the Mediation Subcommittee at each of its meetings during 1994. The NAC discussed an analysis of the potential mediation market, the NASD's competitors, and the history of the previous pilot programs. The NAC determined that although the actual use of mediation in the securities area has been relatively low, the initial experience is not unlike what has transpired in other industries. Initial resistance is followed by extensive participation after parties have gained experience with mediation and have achieved success with it. The NAC determined that the primary advantage to mediation is its ability to help parties settle a dispute much earlier than in arbitration or litigation, and thus greatly reduce the average total cost per claim to the parties. By achieving an earlier settlement, the parties could significantly reduce discovery costs, arbitration fees, and attorney fees. For example, Travelers Insurance Company found that their average cost per claim fell almost 20 percent when they mediated extensively.
The NAC supports the goal of the Arbitration Department to provide a wide range of dispute settlement services to investors, members, and associated persons. It has concluded that mediation has proven in the last decade to be an effective, faster, less costly, and a less adversarial method of resolving business and employment disputes. Commitment to customer service advances the need to provide the same mediation option to our members and customers that is provided by outside dispute-resolution organizations.
Support For Mediation Program
The NAC voted unanimously that an NASD Mediation Program should be developed and implemented as soon as possible. It concluded that the program should be administered by the NASD and that cases should not be referred to an outside provider or providers, except on a limited basis. Based on feedback from the participants in the previous pilots, it was believed that such a program would have strong credibility, but only if administered by the NASD using NASD staff and mediators.
Use For Investor, Employment, Hearings, And Paper Cases
The Committee believes that the mediation process should be available for investor/customer and industry/ employment cases, and for hearings and paper cases. Participation should be voluntary.
Submitted Procedures And Fee Schedule
The NAC reviewed ground rules and procedures that were developed by the Mediation Subcommittee for an NASD Mediation Program. The draft of those ground rules and procedures follows this Notice. The NASD Mediation Program and its procedures were developed to govern claims over $10,000. A slightly modified rule will be developed in the future for paper cases that would envision telephonic mediation conferences and not in-person meetings. The ground rules may be modified or amended as the parties desire. The provisions suggested would permit the direct filing of cases for mediation that have not yet been filed for arbitration with the NASD. The NASD Mediation Program provides for a right to directly file mediation cases only if the subject matter would otherwise be appropriate for the NASD arbitration facilities.
The fee schedule provides that no additional administrative fee will be assessed to the parties on pending NASD arbitration cases if they utilize the NASD Mediation Program. This is consistent with the policy of all other national arbitration/mediation providers. If a mediation case is filed without a companion arbitration claim, the fee schedule requires an administrative fee of $150 per party on customer cases and $250 per party on industry/employment cases. The NASD Mediation Program directs that all other costs of mediation be borne by the parties. This includes the mediator's session fees and expenses as well as any off-site room rentals needed for the mediation meetings.
Mediator Qualification And Selection
The Arbitration Department staff has identified NASD arbitrators who have substantial mediation training and experience. A decision was made to defer any NASD-sponsored mediator training programs. Letters inviting individuals to apply for approval as NASD mediators are being distributed. The NAC will review and approve or disapprove the application of any person who applies to be a mediator.
The NASD Mediation Program provides that the NASD will recommend to the parties a person who will serve as a mediator, or will provide a list of mediators from which the parties will select one person. All parties must agree on the mediator they wish to serve on their case before the mediation will go forward. If any party does not agree, the mediation will not proceed unless and until parties reach agreement on who the mediator will be.
Authority Of The Mediator
The mediator will help the parties arrive at a settlement. The mediator will not impose his or her opinion on the parties and cannot compel the parties to settle. Mediation is nonbinding and any party may withdraw from the mediation at any point before the parties' execution of a written settlement agreement.
Compliance With Settlement Agreement
To promote conformity with settlement terms, the NAC recommends that the Board Resolution entitled "Failure to Act Under the Provisions of the Code of Arbitration Procedure" be expanded to include all settlements, including settlements that occur through the efforts of a mediator. Similar steps in support of mediation have been taken by the National Futures Association.
Confidentiality Of Process
Pursuant to the NASD Mediation Program and in accordance with standard practice in mediation, the underpinning of the process is the confidentiality of the proceeding. The mediator is not permitted to disclose to a third party information received in conjunction with mediation proceedings unless authorized to do so by the party who provided the information. There is no record of the mediation proceeding.
The majority of the mediation session usually involves caucuses between a mediator and a party separately. During the caucus a party may disclose confidential information to the mediator. The mediator may not communicate this information to another party unless expressly authorized to do so by that party. At the conclusion of the mediation sessions, all materials submitted to the mediator are returned to the party who submitted them. This occurs whether or not the mediation results in a settlement. Members and associated persons are required to update Forms U-4 and U-5 pursuant to regulatory requirements should a case settle through mediation.
Initiation Of Program
The NASD is planning to launch the mediation prototype program in the San Francisco Regional Arbitration Office, which includes Alaska, California, Hawaii, Nevada, Oregon, Utah, and Washington. This location was chosen because participants on the West Coast have the greatest exposure to mediation and are generally the most receptive to it. Expansion of the NASD Mediation Program will be determined after assessing the success rate in the San Francisco Region.
The NASD is soliciting comments from members and interested persons to elicit reaction or suggestions to the draft ground rules, and to determine whether there is likelihood that the parties will utilize the NASD Mediation Program and its procedures. It also seeks any other comments regarding the design and nature of an NASD Mediation Program. Comments must be submitted by March 1, 1995, and be addressed to:
Joan C. Conley Corporate Secretary National Association of Securities Dealers, Inc. 1735 K Street, NW Washington, DC 20006-1500.
Text Of Proposed NASD Mediation Program
The goal of mediation is to provide public customers, member firms, and associated persons with an additional effective process for resolution of their disputes. Mediation is a non-binding negotiation facilitated by an experienced third-party neutral. Mediation allows the parties an opportunity for early resolution of their disputes. The resulting settlement is likely to save the parties substantial time and expense.
The National Association of Securities Dealers, Inc. (NASD) has proposed an internal NASD Mediation Program (Program) that will provide parties the alternative of using mediation to resolve their disputes. The first step in developing the Program was to identify a select group of mediators from its own arbitrator pool as well as from outside sources. A set of rules and procedures has been designed to assure the prompt, fair, and orderly administration of mediations under NASD jurisdiction.
Mediation is beneficial because:
- The procedure is private and confidential.
- The case can be resolved very promptly and informally.
- The parties retain control over the process and outcome.
- The parties save time and money.
- The parties get an expert, impartial look at their case's potential strengths and weaknesses.
- Even when the process fails to resolve the dispute, it usually adds value by narrowing the issues and reducing the time and effort needed in preparing for arbitration.
- The process helps preserve the business relationship of the parties by settling the matter much faster, focusing more on solutions and interests rather than positions, and utilizing a less adversarial process.
- The mediator can help identify creative solutions to the dispute that none of the parties may have considered.
Parties and their representatives are encouraged to consider these procedures and the Program for any securities controversy before them.
NASD Mediation Procedures
Mediation is an informal and flexible procedure. The parties may, by agreement, amend these procedures and ground rules to meet their own circumstances.
Matters Eligible For Submission
Parties may, by agreement, submit any pending NASD arbitration case to mediation under the Program. Such cases will be administered by the NASD only where all parties to the arbitration agree to such submission in writing. Disputes arising between or among parties, which are not filed for arbitration with the NASD, may be submitted if the parties agree and if the matter would be permitted for filing under the NASD Code of Arbitration Procedure (Code). Any question about whether a matter would be eligible for mediation will be determined by the Director of Arbitration.
An arbitration case will proceed parallel to any mediation filing on the matter unless the parties agree otherwise.
The parties may submit all or some of the issues in dispute on a given matter to NASD mediation, whether such matters relate to the substantive issues in controversy or to disputes over such procedural issues as the extent, nature, and schedule of discovery.
Authority Of The Mediator And The Non-Binding Nature Of Mediation
The mediator has no authority to compel the parties to settle.
Mediation is non-binding by its nature. The parties consent, however, that should they reach a settlement of all or some of the issues before them, they shall execute a written, binding settlement agreement setting forth the terms and conditions of such settlement.
Filing For Mediation
Any party to an NASD securities arbitration who is interested in requesting mediation should file an "Interest in Mediation" form with the office to which the arbitration case is currently assigned. Any other person should file an interest in mediation form with the Director of Arbitration. Parties also may indicate their interest in mediation, and fulfill this filing requirement, by stating such interest on their signed Uniform Submission Agreement. This form provides the NASD with the name of the interested party or parties, the title and arbitration case number (if assigned), the names of other interested parties (and representatives if known) and a brief description of the nature of the controversy to be submitted to mediation.
The NASD will then contact all other parties, explain the mediation process, answer any questions, and determine whether all parties are agreeable to mediation.
On reaching such agreement, the parties will be required to execute a Mediation Submission Agreement (see Appendix A). A mediator is assigned to the case only with the agreement of all parties to the dispute. Mediation session dates and times will also be chosen only with the agreement of all parties.
The NASD mediation process is designed to run concurrently with the arbitration process, pursuant to the Code. Any NASD associated arbitration case will proceed on its normal processing/hearing track under the Code.
Selection Of Mediator
Unless the parties agree otherwise, the NASD will assign a single mediator. The NASD will select the mediator unless the parties request that a list of approved names be submitted for their consideration. Parties are free to select any mediator on whom they may agree, whether such person is drawn from the NASD pool of mediators, some other qualified mediation organization or pool, or a person who serves in an independent capacity.
The parties may also agree to refer their pending NASD arbitration matter to an outside mediator or mediator provider organization for administration of the mediation process under its own rules of procedure and outside of the NASD. Such referral does not in any way diminish the NASD's arbitral authority or jurisdiction over the arbitration case under the Code.
The NASD will send to the parties a copy of the mediator's disclosure and narrative statement. It shall provide information on the mediator's employment, education, and professional history, as well as information regarding mediator experience, training, and credentials. Any mediator selected or assigned to a case must make full written disclosure of any direct or indirect financial, social, personal, or other interest that he or she has with any party or its counsel, or with any individual whom he or she has been told will be a witness. He or she should also disclose any such relationship involving members of his or her family or his or her current employer, partners, or business associates. Persons agreeing to serve as mediators should disclose any such relationships that are likely to affect impartiality or might reasonably create an appearance of partiality or bias. All disclosures will be consistent with the Code of Ethics for Arbitrators in Commercial Disputes found in SICA's Arbitrator's Manual.
All provisions of Section 23(a) through Section 23(c) of the Code (Disclosures Required of Arbitrators) will govern the obligations of the mediator concerning such disclosures.
Under the provisions of Section 23 of the Code, each mediator is required to disclose any circumstances that might preclude such arbitrator from rendering an objective and impartial determination.
This duty to disclose is a continuing one throughout the mediation process and requires that mediators make reasonable efforts to inform themselves of any interests or relationships described under Section 23 of the Code.
Persons whose background discloses significant regulatory, disciplinary, or civil actions will be disqualified from participating as a mediator. Mediators are required to disclose new information as it arises.
In any instances where the mediator becomes disqualified, or is unable, or unwilling to serve, the NASD shall appoint another mediator at the request of any party. The provision governing the initial appointment or selection of the mediator shall govern any such replacement.
Mediation Process Ground Rules
Once a mediator has been chosen, agreed to by the parties, and has consented to serve, the parties and their representatives will meet jointly with the mediator to discuss the following Mediation Process Ground Rules (Rules) and any possible agreed upon amendments to them. Such meeting may be held in person or by conference call as determined by the mediator or by mutual agreement of the parties.
Confidential information disclosed to the mediator during the mediation process by any party, party representative, or witness shall not be divulged by the mediator. This information includes, but is not limited to, oral testimony whether direct or by electronic communication, depositions, interrogatories, affidavits, or any other records, correspondence, or documents presented to the mediator. The mediator shall not be required to divulge such information or to testify before any judicial, arbitral, or adversarial proceeding, except as compelled by law in connection with a governmental proceeding or investigation.
Each party agrees to maintain the confidentiality of the mediation and agrees not to introduce as evidence, into any arbitral, judicial, or other proceeding: any views, opinions, suggestions, proposals, offers, or admissions made by any other party with relation to possible settlement of the dispute; the fact or nature of any response by another party or witness to any suggestion, proposal, or question of the mediator; any views, opinions, or proposals expressed by the mediator during the mediation process.
In accordance with the confidential nature of mediation and these provisions, the parties are not entitled to a stenographic or other recording of any mediation proceeding, nor to the mediator's notes taken during the mediation process. Persons attending mediation sessions shall be limited to the parties and their representatives unless all parties and the mediator consent that other persons may attend.
Submission To The Mediator
The parties will submit such information as they deem necessary to familiarize the mediator with the dispute and their respective positions. Submissions at the mediation sessions may be made in writing or orally. The mediator may request additional information from the parties as he or she deems necessary.
The mediator may require a summary memorandum of claim or defense from the parties. Such memorandum shall briefly state the issues in dispute and the claims or defenses asserted and, if requested, should be filed with the mediator at least 10 days before the first mediation session.
The mediator may raise questions and issues to evaluate the likely outcome of the dispute if it were to be brought in litigation or arbitration. The mediator may request each party, at separate or joint meetings or at a combination of both, to present its case informally and in summary.
The mediator will keep confidential all written materials, information, and communications disclosed to the mediator. The parties and their representatives are not entitled to receive or review any such materials or information submitted to the mediator by any other party without the concurrence of the party who submitted the information. At the conclusion of the mediation process, the mediator will return all written materials and documentary evidence to the parties who provided them to the mediator.
Mediation Dates And Meetings
The mediator will work with the parties to select mutually convenient dates and locations for the mediation meeting sessions. These meetings may be conducted in person, by telephone, video conference, or any other method to which the parties and the mediator agree.
The NASD will provide hearing room facilities to the parties, when available, after giving first preference to the scheduling of its arbitration cases. The parties will be responsible for hearing room rental charges incurred for off-site facilities. Such charges will be divided equally among the parties unless they agree otherwise.
Negotiation Of Settlement Terms
The mediator may promote settlement in any manner the mediator believes appropriate, consistent with the Rules. If the parties fail to develop mutually acceptable settlement terms, the mediator may at his or her discretion, and before declaring an impasse of the parties' settlement negotiations, submit to the parties a settlement proposal. The parties are then free to discuss its terms and conditions with the mediator and to renew their settlement efforts in the mediation forum.
Efforts to reach a settlement will continue until (i) written settlement is reached, or (ii) the mediator concludes that further efforts would not be useful and declares the settlement negotiations at an impasse, or (iii) any party or the mediator withdraws from the mediation by written notice. Termination of the mediation at such point does not prevent any of the parties from pursuing future efforts at negotiating a settlement or even agreeing to mediation again at a future date.
If a settlement is reached, the mediator or any party will draft a written settlement document incorporating all settlement terms, including mutual general releases from all liability relating to the subject matter of the mediation. The drafting party will circulate this document among the parties for review and comment, after which it will be put in final form. When all parties agree to its terms, it will then be signed and executed by the parties.
No party to the executed settlement agreement shall bring or maintain any action or proceeding in law or equity that may be inconsistent with the terms, purpose, and spirit of the settlement, even if otherwise permitted by law. The settlement will constitute a waiver of any such right and a complete defense to any such related charge, complaint, action, or proceeding.
Interpretation Of Mediation Rules
The mediator shall be empowered to determine the applicability of all provisions and procedures under the NASD Mediation Program, as they relate to the mediator's powers and duties.
Mediation Fee Schedule
Administrative Filing Fees
Pending NASD Arbitration Case— All mediation administrative filing fees for NASD administration of the case shall be paid by the NASD, provided the matter involves an NASD arbitration on file.
No Pending NASD Arbitration File—Should the matter not involve a pending NASD arbitration, the administrative fee will be as follows and apportioned equally among the parties:
- Customer Dispute: $150 per party.
- Industry Dispute: $250 per party.
There is no administrative filing fee for submitting a request for mediation with the NASD. This fee becomes due only if all parties to the dispute subsequently agree to mediate.
Mediator Session Fees
Mediator session fees and expenses, including the mediator's travel expenses, are the responsibility of the parties and all such charges will be apportioned equally among them unless they mutually agree otherwise.
Ordinarily, mediations will be conducted by one mediator, unless all parties agree to a larger number. Each party must deposit its proportional share of the anticipated mediator compensation, as determined by the NASD, before the first mediation session begins.
A hearing session is any meeting between the parties (whether joint sessions or separate private sessions) and the mediator, including telephone or other electronic conferencing, which lasts four hours or less. The session fees per mediator follow;
- Initial Hearing Session Fee: $600.
- Additional Session Fees: $150 per hour or portion thereof.
- Settlement Contract Fee: $100charge for the mediator to draw up the written settlement agreement.
All other expenses of the parties during the mediation process must be borne by them, unless they agree otherwise. Each party is responsible for any fees, charges, or expenses charged by that party's own representative for the mediation process unless the parties agree otherwise.
Administrative Filing Fees—If the matter involves a pending NASD arbitration, any arbitration case fee refunds will be made in accordance with the refund provisions of the Code of Arbitration Procedure, Sections 43(e), (f), and (g) (for customer disputes) and Sections 44(e), (f), and (g) (for industry and clearing disputes).
If the matter does not involve a pending NASD arbitration, there will be no refund of the filing fee once all parties to the dispute have agreed to mediate.
Mediator Session Fees—All advance deposited session fees remaining, after payments made or owed to the mediator for his or her work and expenses under the fee schedule, will be refunded in full to the parties.
Mediation Submission Agreement
The undersigned parties agree to mediate their dispute in accordance with the Mediation Procedures of the National Association of Securities Dealers, Inc. (NASD). The provisions applicable shall be those as amended by the NASD and/or parties and in effect at the date of the NASD's receipt of this executed agreement. This submission will serve as our agreement concerning the mediation process and each party's respective role and obligations in it.
[ ], the agreed upon mediator, will provide a neutral environment designed to foster communication. He or she will facilitate discussion between the parties with the goal of assisting the parties in reaching their own resolution of the dispute. The mediator will not impose any judgment on the parties and will not compel them to reach a settlement. All parties have control over any agreements they reach in the course of the mediation.
Each party understands that the mediation process is voluntary and non-adversarial. Toward reaching an equitable resolution, each agrees to approach negotiations in this matter in good faith.
All parties agree that all information disclosed during the mediation process is confidential, as provided for in Sections 10 and 11 of the NASD Ground Rules of the Mediation Process (Rules), whether or not the parties reach a settlement of the issues before them during or after the mediation process.
Any party may choose to terminate the mediation process at any time. The mediator also has the right to terminate the mediation if any party fails to abide by this agreement or if, in the mediator's judgment, the mediation process is no longer appropriate for resolving the dispute at the time. Upon termination of the mediation for any reason, the underlying dispute will continue in arbitration before the NASD if it involves an arbitration case currently pending before it.
When all parties agree they have resolved all issues referred to mediation, a proposed, written settlement agreement will be prepared in accordance with the Rules. The matter will not be considered formally settled until the written agreement is reviewed, amended as agreed upon, and signed by all parties to the mediation.
The fee of the mediator and any administrative fees of the NASD will be assessed in accordance with the Fee Schedule of the Rules. The parties have agreed to apportion the fees and expenses of the mediator, and any NASD mediation administrative fees that may be due, as follows:
None of the parties to this agreement, nor any of their respective officers, directors, employees, agents, or affiliates, shall institute any proceeding or suit at law or equity against the NASD, its affiliates or their respective officers, directors, employees, or agents, nor against any person who served as a mediator on this matter, for any act or omission arising out of or relating to this Mediation Submission Agreement or the mediation proceedings.
|Name of Party:||Name of Party:|
Nature of Dispute: __________________________________________________
NASD Arbitration Case Number if Applicable: ___________________________
Please check the box below if applicable.
[ ] This does not involve a pending NASD arbitration case.
Please file an original and three copies of this form with the NASD arbitration office to which your arbitration case is currently assigned, or with the Director of Arbitration if it involves a securities dispute not filed for arbitration with the NASD. The submission form must be accompanied with full payment of the administrative filing fee if the matter does not involve a pending NASD arbitration. No additional administrative filing fee is required if the dispute involves an arbitration currently pending before the NASD. You must also submit three copies of any contract mediation provision that may apply to this dispute. Attach an addendum to this form to identify any additional parties.
1 The Mediation Subcommittee's current chairperson is Philip S. Cottone of Rutherford, Brown & Catherwood, Inc., Wayne, Pennsylvania. The other members include Robina F. Asti (New York, New York), W. Reece Bader (Orrick, Herrington & Sutcliffe, San Francisco, California), Joan L. Lavell (Coastal Securities Corporation, Sugar Land, Texas), Thomas W. Smith (Merrill Lynch Pierce Fenner & Smith, New York, New York), and Walter Wallace (New York, New York).