## Facts

- Warren Hardy opened an investment account with Walsh Manning Securities, L.L.C., handled by registered representative Barry Cassese.
- Hardy claimed Cassese, Walsh Manning, and Frank Skelly misrepresented the fiscal health of stocks Hardy was urged to purchase and failed to disclose the firm’s financial interest in selling certain “house stocks.”
- Before the arbitration concluded, Cassese settled with Hardy for $250,000 and agreed to testify in the remaining arbitration proceedings.
- At the hearing, Cassese testified that challenged transactions occurred at Skelly’s direction or with Skelly’s and the firm’s knowledge.
- The arbitration panel awarded Hardy relief and stated that Walsh Manning and Skelly were jointly and severally liable, expressly on a theory of respondeat superior.
- Hardy petitioned to confirm the award; Walsh Manning and Skelly moved to vacate.

## Issues

1. Whether the arbitration award against Walsh Manning could be confirmed under the Federal Arbitration Act’s deferential review standards.
2. Whether an arbitration panel may impose respondeat superior liability on Skelly, characterized as a fellow employee of Cassese.
3. Whether a court may confirm an arbitration award by inferring an unstated alternative legal theory when the panel expressly relied on a legally unavailable theory.

## Decision

- The Second Circuit affirmed confirmation of the award against Walsh Manning.
- The court reversed confirmation of the award against Skelly and directed that the award be vacated as to him.
- The court held that the award against Walsh Manning had at least a “barely colorable justification” under respondeat superior.
- The court held that respondeat superior cannot impose vicarious liability from one employee to another and declined to supply an alternative, unarticulated basis for Skelly’s liability.

## Legal Principles

- Under the FAA, arbitration awards are reviewed with extreme deference; confirmation is required if there is a “barely colorable justification” and no manifest disregard of law.
- Respondeat superior is a principal–agent (employer–employee) doctrine; it does not make a fellow employee vicariously liable for another employee’s misconduct.
- A court may not “rewrite” or reconstruct an arbitration award by inventing new legal theories to sustain liability when the arbitrators expressly grounded the award on a different, legally defective theory.

## Conclusion

The court enforced the arbitration panel’s respondeat superior-based award against the broker-dealer but vacated the award against an individual employee because the panel expressly relied on a vicarious-liability doctrine that could not apply between co-employees, and judicial deference did not permit confirmation on an implied alternative theory.


Hardy v. Walsh Manning Sec., L.L.C., 341 F.3d 126 (2d Cir. 2003)