## Facts

- Patrick McCarthy maintained a margin brokerage account with Advest’s predecessor and held shares of Avco, Amdahl, and Recognition Equipment.
- Advest sent margin “mailgrams” requesting additional funds; McCarthy was initially told at least one request resulted from a computer error and could be ignored.
- After McCarthy increased his Amdahl position (eventually exceeding 60% of account value), Advest raised his margin requirement from 30% to 45% and issued repeated mailgrams demanding additional deposits.
- McCarthy did not deposit additional funds; Advest liquidated positions without his authorization, selling all Recognition Equipment shares and later selling a substantial block of Amdahl shares.
- McCarthy contended the mailgrams were misleading because they stated Advest was “required by federal regulation” to demand additional margin for concentration, when the regulations permitted but did not mandate the increase.
- A three-member NYSE arbitration panel ruled for McCarthy, awarding monetary damages and restoration of most of the stock positions Advest had liquidated.

## Issues

1. Whether the arbitration award could be vacated under the Federal Arbitration Act, 9 U.S.C. § 10, including the ground that the arbitrators “exceeded their powers.”
2. Whether the award could be vacated on narrow non-statutory grounds, including “manifest disregard of the law” or an award lacking any “rational basis in fact or law,” particularly as to the stock-restoration remedy.

## Decision

- The First Circuit affirmed the district court’s denial of Advest’s motion to vacate the arbitration award.
- Advest did not establish any statutory ground for vacatur under 9 U.S.C. § 10.
- The award was not in “manifest disregard of the law” and was not irrational.
- The arbitrators’ stock-restoration remedy was within their remedial discretion and rationally related to the dispute submitted.

## Legal Principles

- Judicial review of arbitration awards under the FAA is extremely limited; courts do not vacate awards for ordinary factual or legal error.
- An arbitrator “exceeds powers” under 9 U.S.C. § 10(a)(4) only when the award falls outside the scope of the parties’ submission or the arbitrator’s authority, not merely because the remedy is generous or arguably mistaken.
- “Manifest disregard of the law” requires more than error: the arbitrators must know and recognize controlling law and deliberately refuse to apply it.
- An award must be upheld if it is at least arguably grounded in the record and the parties’ agreement; an award is not vacated as “irrational” unless it lacks any rational connection to the dispute and the evidence.
- Arbitrators may grant equitable-type relief, including restoration of securities positions, when rationally tied to the injury found and the relief submitted.

## Conclusion

The First Circuit left intact an NYSE arbitration award that included both damages and restoration of liquidated stock positions, holding that Advest failed to meet the FAA’s narrow vacatur standards and did not show manifest disregard of law or irrationality in the arbitrators’ chosen remedy.


Advest, Inc. v. McCarthy, 914 F.2d 6 (1st Cir. 1990)