As any of my clients will tell you, I’m not a fan of arbitration for many reasons, which I detail here and here.  One of the reasons is the biases of the arbitrators that can creep into the process—sometimes subtly, sometimes not.  According to a study just released by three law school professors, they found that arbitration awards in securities cases were 7.5% lower when the arbitration panels were composed of attorneys who also represented brokers and brokerage firms.

The authors studied over 6,700 awards from the Financial Industry Regulatory Authority (”FINRA”) (which was formerly known as the National Association of Securities Dealers).  FINRA has apparently come under fire in the past for using arbitrators with potential conflicts-of-interest due to their brokerage ties.  According to the study, over 82% of the arbitrators were attorneys.

7.5% might not sound like a big deal, but if an investor is awarded $1 million, that extra $75,000 sure helps to pay attorney’s fees and other costs.  And bias is bias any way you look at it.  But this is hardly surprising and nothing new.  In one of my articles, I talk about the favoritism that arbitrators can show one side or the other, depending upon their background and how they’re chosen.

The important thing to glean from this article, which applies to ANY type of arbitration no matter what the type or size of the claim, is that the “background of the arbitrators matters to the outcome.”  When you have a choice in the matter, make sure that you or your attorney carefully consider the backround of any potential arbitrator.  (Actually, if you have a choice in the matter—which many contracts these days don’t give you—litigation really may be the best option sometimes, as painful as it sounds.  It depends on the circumstances.) 

For example, when possible, I generally like to choose former judges as arbitrators and typically (but not always) steer clear of other attorneys.  First, many judges, depending upon how long they were on the bench and on the court upon which they sat, have a paper trail that allows you to take a look at their past decisions to get a sense of how they may have decided issues germane to your case, as well as their judicial temperments.  Most lawyers don’t have such a trail.  

Second, judges are trained to be fair to both sides.  Lawyers are trained to be advocates for one side.  Even though they may undergo training to be arbitrators, lawyers are inherently advocates.  After all, are you hiring your lawyer to be fair to the other side or to zealously represent your interests?  This is why the study didn’t really reach any groundbreaking conclusions as far as I’m concerned, i.e. lawyers that represent brokers as clients favor them as arbitrators.

Finally, judges are often put in the position of having to make unpopular decisions.  They know that someone will almost always be unhappy.  Over time, they’ve typically developed a thicker skin so they may be more willing to make the tough call.  This isn’t always the case, but all judges recognize that being unpopular comes with the job.  I like to believe that even after they leave the bench and join the world of alternative dispute resolution, they keep some of these important characteristics.  But there are always exceptions, too.  Former judges have to make a living also.  They need to be vetted like anyone else.

Of course, as mentioned above, all of this depends upon whether you have a choice in the matter.  Depending upon the arbitration clause, you may be robbed of this as well.  Still, knowledge is power and as this study concluded, bias is an ever-present problem in arbitration.  So I try to avoid it when I can.  Does that make me biased?

Actually, this post is really about those brave souls who decide to sue the IRS, one of the most powerful agencies there ever was.  While I was in law school (which seems like a long time ago), I took a tax law class to learn a little bit—and I do mean a little bit—about tax law and our complicated tax code.  Here’s what I took away from the class: (1) I didn’t want to be a tax lawyer; and (2) Don’t mess with the IRS.  Duh.

While this blog usually addresses various legal issues in technology-related matters, I also like to address those brave souls who go the distance in litigation—especially against a government agency.  That is no easy task.  As someone who often finds himself in court and has fought agencies in the past, I found this brief article to be interesting, although not very surprising.   

It highlights the 10 most litigated tax issues and the less-than-optimistic results.  A few of the areas addresssed in the article include gross income, summons enforcement, deductibility of trade/business expenses, family status issues, and penalties for failure to file.  While only a relative handful of cases in each area went all the way through to the end, the amount of time a taxpayer won fully in 8 of the areas ranged from 0% (you can’t get lower than that) to a whopping 10%.  The taxpayer prevailed in issues involving the joint liability of spouses and penalties involving frivolous litigation 24% to 31% of the time.  This is only slightly more encouraging.

The article only discusses those cases that are litigated from start to finish.  It makes no mention of the many cases that, in all likelihood, settled at some point along the way.  Still, I applaud those individuals who do take a stand.  It was an expensive one to be sure, but they did it.  Agencies of all types and sizes usually (but not always) have little to lose by going the distance.  Most people will either tire or be unable to keep paying their lawyers to fight.  And for that select group taxpayers who did prevail, I especially salute you.  Sometimes, you just gotta do what you think is right.  What could be more American than that?

It will only be a matter of time (if it hasn’t happened already), until someone gets his/her employer in trouble for using Twitter, the latest social networking and “microblogging” craze.  (Does it ever end?)  As if the well-known dangers of e-mailing haven’t been documented enough over the years—and have been a boon to litigators—Twitter may soon up the ante.

The issues are really no different than those that have already surfaced with e-mails.  Issues involving privacy, confidentiality, defamation, sexual harassment, discrimination, and copyright infringement (to name a few potential problem areas) have been well-litigated over the years.  By now, most employers hopefully have a formal e-mailing and internet usage policy in place for their employees to follow.  Instilling a healthy sense of fear never hurts.  

So how much harm can someone do with 140 characters or less on Twitter?   As a lawyer, I’ve learned never to underestimate the ability of clients to get themselves in all sorts of trouble.  As with texting, it’s only a matter of time before we all read about some clueless employee who gets him/herself fired and puts the employer in legal hot water.  And of course, it’s only a matter of time before lawyers start subpoening these types of electronic communications also.  Just because a message is only a few characters long doesn’t mean that it won’t be stored and saved—possibly forever.

But as noted by one commentator in the article linked-to above, Twitter messages are “quick sound bites and instantaneous” and “aren’t the most well-thought out.”  Someone who is upset, angry, or frustrated could easily use poor judgment and—in a few characters or less—wreak all sorts of havoc on his/her employer.  And once it ends up in the Twitter universe, it’s there for all to see . . . again and again and again.

Needless to say, an employer’s e-mail and internet usage policy should be specifically updated to account for services such as Twitter.  Employees must understand that even very short messages (designed for the inner ADD child who seems to live in all of us these days) can create liability.  Not that it will stop everyone, but it will stop some people.  And the ones it doesn’t stop?  Well, I’m just a “tweet” away!