Steve, Will the AFA apply to securities law?

Mr. Lombardi,

Steve's law clerk, Katie, getting back to you. Thanks for your question.

The Arbitration Fairness Act of 2009 would prohibit pre-dispute mandatory arbitration clauses in the employment, consumer, and franchise disputes, as well as disputes arising under any statute intended to protect civil rights.

A “consumer dispute” is defined by the Act as “a dispute between a person other than an organization who seeks or acquires real or personal property, services, money, or credit for personal, family, or household purposes and the seller or provider of such property, services, money, or credit.”

Thus, it appears that the Act would invalidate mandatory pre-dispute securities arbitration agreements between individual investors and their brokers.

When the Act was proposed in 2007, despite application to “consumer disputes,” Attorney Ted Eppenstein argued before the House Subcommittee that the Bill must be clarified to specifically apply to securities disputes. H. Judiciary Subcomm. on Commercial and Admin. Law: Hearing on H.R. 3010, “The Arbitration Fairness Act of 2007,” 110th Cong. (2007).

The legislative history of the 2007 Act makes clear that investors were meant to be covered under the definition of “consumer.” In Senator Russell Feingold’s opening statement at the Senate hearing, he explained that the Act “is intended to cover disputes between investors and securities brokers… [such] disputes are covered by the definition of consumer disputes, but to clear up any uncertainty, we will make the intent even clearer when we mark up the bill in committee.” S. 1782, “The Arbitration Fairness Act of 2007”: Hearing Before the Subcomm. on the Constitution of the S. Judiciary Comm., 110th Cong. (2007).

You’ll note, however, that no such clarification has been included in the current Bill.