May 31 (Reuters) - Judging by a flurry of recent court cases, you might think that securities arbitrators are biased.

Arbitrators, who typically hear the cases of brokerage customers and employees against firms, are supposed to be impartial. The decisions they make are usually binding. Proving bias is one of the few ways that arbitration parties can overturn rulings in their cases.

Several recent cases alleging wrongdoing by arbitrators -- mainly failure to disclose potential conflicts of interest -- swayed a panel's decision.

Among them: A Merrill Lynch unit is arguing the point to overturn a $64 million ruling last year in a hedge fund's favor. Morgan Keegan also alleges bias as a reason to overturn a 2009 award of $1.5 million to former professional basketball star Horace Grant. Both cases are still pending in appeals courts.

Bias claims against an arbitrator whose lawyer husband had successfully sued Merrill in the past are also the lynchpin in a high-stakes fight by Merrill against two former brokers who won $10 million in a deferred compensation case decided by a Financial Industry Regulatory Authority panel. The brokerage faces 1,000 or more similar cases from former brokers who say they were denied compensation they were owed.

Very few bias cases are ultimately successful. Judges are usually reluctant to throw out arbitration awards because they are supposed to be binding. Federal law, however, allows them to do so in limited circumstances, including when arbitrators are biased or misapply the law.

A California state judge, in a rare move last year, threw out an $11.6 million award in favor of actor Larry Hagman after Citigroup, which originally lost the arbitration, claimed arbitrator bias. The parties eventually settled.

The relentless claims of arbitrator bias are disconcerting to many brokers and investors, who are typically required to resolve their legal disputes against brokerages before a FINRA arbitration panel. That process alone can take around two years and can cost thousands of dollars. Bias claims often mean enduring more lengthy court proceedings that further delay award payments.

SCREENING IT

FINRA's screening process and rules require arbitrators to make extensive disclosures about potential conflicts of interest -- from an involvement in prior lawsuits to the location of their bank accounts.

Despite a litany of questions in FINRA's 52-page arbitrator application packet, including whether a family member's employer has ties to the securities industry, some arbitrator candidates may not mention every relevant detail.

The omissions are not always intentional: A spouse's short-term relationship with an expert witness 20 years ago, for example, could be easy to overlook or simply forget.

"Anytime someone is judging someone else, you always have that potential problem (of bias)," said Constantine Katsoris, a professor at Fordham University School of Law in New York. Some judges and jurors in courts are also prone to bias, said Katsoris, an arbitrator for 40 years.

But pointing out a prejudice may not be enough to convince a court to overturn an arbitration award, Katsoris said.

New York State Supreme Court Judge Barbara Kapnick made a similar point last month in a suit against a Raymond James & Associates Inc unit. The customer wanted an emergency order to stop his arbitration case after learning arbitrators made disparaging remarks about his lawyer in a private conversation that had been accidentally taped.

Kapnick dismissed the case for procedural reasons but also expressed skepticism that the arbitrators were biased against the customer. They "were not complimentary" to the lawyer, she said during a hearing. But Kapnick likened the conversation to those she regularly has with her law clerks.

The investor's lawyer did not return calls requesting a comment. A Raymond James spokeswoman declined to comment.

STEMMING THE TIDE

FINRA has several initiatives designed to make its pool of nearly 6,500 arbitrators aware of their disclosure obligations.

Among other things, arbitrators must sign an oath swearing they do not have any conflicts and answer a round of questions meant to determine whether they know anything about the case, said Linda Fienberg, president of FINRA's dispute resolution unit. She declined to comment specifically on any pending bias claims involving FINRA arbitrators.

Frequent email reminders about disclosure are also sent to arbitrators, Fienberg said.

There are several opportunities for a party in a dispute to ask for removal of an arbitrator before a case is heard, or at least request more clarity about their disclosures.

Parties can, in most cases, strike up to 12 candidates, four for each of the three arbitrator slots that are often on a panel. Lawyers can do their own research on the candidates, and in addition to disclosures they receive they can submit questions to FINRA for arbitrators to answer. They can also question arbitrators directly during a conference call before the hearing.

But these provisions have not stemmed the tide of bias claims.

"You can't stop the allegations. You'll never stop it because it's the only avenue for appeal," said one arbitrator, who did not want to be identified.

(Reporting by Suzanne Barlyn)

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