## Facts

- Howard Greenberg invested through Sterling Foster, an introducing broker; Bear Stearns acted as Sterling Foster’s clearing broker for Greenberg’s trades.
- Greenberg alleged Bear Stearns knew of and participated in Sterling Foster’s fraud, sent false or misleading trade confirmations, and failed to provide a required prospectus for certain transactions.
- Greenberg brought NASD arbitration asserting federal and state securities-law claims against Bear Stearns.
- The arbitration panel dismissed Greenberg’s claims and issued an award for Bear Stearns.
- Greenberg petitioned in federal district court to vacate the award, claiming manifest disregard of federal law and violation of public policy; Bear Stearns argued, among other things, lack of subject-matter jurisdiction.

## Issues

1. Whether a federal district court has federal-question jurisdiction over a petition to vacate an arbitration award when the petition principally alleges manifest disregard of federal law.
2. Whether the arbitration award should be vacated for manifest disregard of federal law or as contrary to a well-defined and dominant public policy.

## Decision

- The Second Circuit held the district court had federal-question jurisdiction because the vacatur petition primarily asserted manifest disregard of federal law.
- The court affirmed denial of vacatur, holding Greenberg did not meet the stringent standard for showing manifest disregard.
- The court rejected the public-policy challenge as an improper attempt to relitigate factual and legal determinations made in arbitration.
- The arbitration award in favor of Bear Stearns remained in effect.

## Legal Principles

- The Federal Arbitration Act does not itself supply subject-matter jurisdiction; an independent jurisdictional basis is required.
- A vacatur petition may “arise under” federal law for 28 U.S.C. § 1331 purposes when it presents, on its face, a substantial claim that arbitrators manifestly disregarded federal law.
- Judicial review of arbitration awards is severely limited; courts do not vacate awards for mere legal error or misinterpretation.
- “Manifest disregard” requires proof that (1) a governing legal rule was well defined, explicit, and clearly applicable and (2) the arbitrators knew the rule and deliberately ignored or refused to apply it.
- The public-policy exception permits vacatur only for clear violations of a well-defined and dominant policy identified from laws and legal precedents, not generalized objections to the merits.

## Conclusion

The Second Circuit affirmed confirmation of an NASD arbitration award for a clearing broker, holding that a vacatur petition alleging manifest disregard of federal law can support federal-question jurisdiction but that the demanding manifest-disregard and public-policy standards were not satisfied.


Greenberg v. Bear, Stearns & Co., 220 F.3d 22 (2d Cir. 2000)