Excerpted from: The FINRA Neutral Corner - August 2006
The Importance of Avoiding Ex Parte Communications
By John E. Ohashi, Esq.
Ex parte communications occur when an arbitrator and one of the parties have an interaction or conversation, usually without notice to, or argument from, the adverse party. NASD Dispute Resolution stresses the importance of avoiding such communications before, during and after an arbitration hearing.
The following is a recap of an actual arbitration hearing. During the proceeding, two incidents occurred that demonstrate real examples of ex parte communications and the effects they have on an arbitration proceeding. This article also provides guidance to arbitrators and parties on how to minimize the possibility of incurring such interactions.
Scenario
Setting the Tone
As is customary, the Chairperson of the arbitration panel began the hearing by reading from NASD's hearing script, which includes the following:
". . . we, as neutral arbitrators, have the duty of conducting these proceedings with fairness and integrity. This duty extends to all parties and to this process. Therefore, on behalf of the panel, I respectfully request that all parties and their counsel or representatives refrain from engaging in any conversations or contact with the members of this panel except while in this room and in the presence of all parties, counsel or representatives. Thank you for your anticipated cooperation . . ."
The Chairperson added a personal commentary: "We are not anti-social people. We will exchange limited social pleasantries, such as 'good morning,' but for the sake of the hearing process, please do not engage in ex parte communications with us."
Incident at the Hearing
Despite the Chairperson's request, two incidents of ex parte communications did in fact occur. The first occurred during a lunch break at an offsite hotel restaurant. As the arbitrators were concluding their lunch, the NASD staff attorney approached them to confirm the start time of the afternoon's hearing session. As they were conferring on the start time, the claimant's counsel approached the arbitrators' table and exclaimed, "Have I got a joke for you?!"
As counsel prepared to tell his joke, the NASD staff attorney promptly escorted the claimant's counsel from the arbitrators' table. Across the restaurant, the respondents closely watched the commotion caused by the claimant's counsel and wondered what was going on.
As the afternoon session began, the room was tense as the respondents anticipated an explanation of the lunchtime drama. Despite the fact that the ex parte communication was minimal and, for the most part, avoided, the Chairperson began the next portion of the hearing by recounting the incident for the record. He emphasized the limited extent of the ex parte communication and that NASD's staff attorney escorted the claimant's counsel from the table and explained to him that such interactions were not appropriate. The respondents were satisfied with the explanation and agreed to proceed with the hearing.
Unfortunately, the second incident had a more damaging effect. After the afternoon session in which the claimant gave compelling and thoughtful testimony, it was clear that the hearing would require several more days to complete. The parties and arbitrators reviewed their calendars for an appropriate date for the next session. Everyone, including the claimant's counsel, had a busy schedule and agreed that the earliest possible date for all participants would be several months in the future.
After the hearing day concluded, two of the arbitrators walked towards the elevator with the claimant trailing approximately ten feet behind them. The arbitrators entered the elevator and, as the elevator doors were about to close, the claimant leapt into the elevator and unleashed a tirade of insults and accusations. The claimant questioned the arbitrators' intellect and suggested that the arbitrators conspired with the respondents to delay the hearing. These accusations stunned the arbitrators.
Consequences of Ex Parte Communications
What now? Could the arbitrators make the elevator incident "go away" by informing the parties of the incident? If so, then how? Should they ask NASD to forward a notice about the incident to the parties, or wait until the hearing reconvenes in several months and put it on the record, as they did with the incident at lunch?
The incident triggered another dilemma: The arbitrators were troubled by the claimant's perception of the events leading to the delayed scheduling. Claimant's counsel contributed to the delay in selecting the future hearing dates due to his busy schedule. Even more troubling was the claimant's demeanor in the elevator, which was a stark contrast from his calm and thoughtful testimony given minutes earlier. In the arbitrators' minds, the claimant's credibility became questionable. Taking into account the negative impact that the claimant's outburst had on the arbitrators, including their confusion over the claimant's credibility, they concluded that they could not continue as unbiased neutrals and reluctantly recused themselves.
Difficulty in Avoiding Ex Parte Communications
The true incident above demonstrates the varying degrees of ex parte communication and the potential it has to drastically affect an arbitration hearing.
Ex parte communications seem like an easy thing to avoid, but there are times when arbitrators will unexpectedly run into a party without warning in the restroom, hallway or elevator, or on the street. Therefore, arbitrators must be sensitive to the potential for ex parte communications at all times. If a party even attempts to communicate with an arbitrator in any fashion before, during or after the hearing, such communication constitutes an ex parte communication.
Closely related to ex parte communications are communications in which both parties are present but only one party participates. Even though the other party is present, arbitrators should not engage in conversation. The other party may feel left out and believe that an arbitrator is "bonding" with the opponent even if the conversation involves matters outside of the case (e.g., movies, television or sports).
Keeping in mind the potential for ex parte communications, NASD's arbitrator training materials emphasize the prohibition on ex parte communications with the following statement:
"There are not a lot of ways to say this: you simply cannot talk to one party or party representative without the other party being present."
Additionally, the arbitrator training materials promote a proactive approach to preventing ex parte communications, which arbitrators should practice on an ongoing basis.
Minimize the Possibility of Ex Parte Communications
Here are some proactive steps that arbitrators can take to minimize ex parte communications throughout a hearing:
Emphasize Prohibition on Ex Parte Communications After some level of familiarity is established among the participants, or whenever appropriate, the Chairperson can reiterate: "As a reminder, it is not appropriate for arbitrators to have any communication with the parties outside of this hearing room.
Avoid Proximity The panel can set proximity barriers such as asking the parties not to congregate or use cell phones near the hearing room. The arbitrators can designate an area for arbitrator use, which should be considered off limits to the parties, except on an "as needed" basis.
Respond Quickly if Ex Parte Communications Occur Diffuse the situation early and put the incident on the record.
Conclusion
NASD arbitrators are selected from a pool of qualified applicants and undergo comprehensive training. In all likelihood, arbitrators would probably not be swayed by ex parte communications. However, and more importantly, not only must the arbitration hearing process actually be fair, it must also appear fair. A strict adherence to the prohibition on ex parte communications and a proactive approach to avoid such situations helps ensure that an arbitration hearing is free of bias both in fact and appearance.
