## Facts

- Michael Clemente and Geraldine Waszkiewicz maintained brokerage accounts at Merrill Lynch, Pierce, Fenner & Smith, Inc.
- They alleged Merrill Lynch agreed to a “stop-loss” arrangement under which investments would be liquidated if the account value fell by a set percentage.
- After account losses, they claimed Merrill Lynch failed to implement the stop-loss arrangement and asserted related tort, contract, and criminal-law theories.
- The dispute was submitted to NASD arbitration, where a panel conducted hearings and issued an award for Merrill Lynch, rejecting the customers’ claims.
- The customers relied heavily on an unverified fax on Merrill Lynch letterhead that they asserted documented a stop-loss order; they argued the arbitrators ignored this evidence.
- Merrill Lynch petitioned in federal district court to confirm the award under the Federal Arbitration Act (FAA), and the customers moved to vacate alleging partiality, corruption, misconduct, and manifest disregard of the law.
- The district court confirmed the award and denied vacatur; the customers appealed.

## Issues

1. Whether the customers established statutory grounds under FAA § 10(a) to vacate the arbitration award based on alleged arbitrator partiality, corruption, or procedural misconduct.
2. Whether the arbitrators’ refusal to credit or treat as dispositive an unverified fax constituted “manifest disregard of the law” or other conduct warranting vacatur.

## Decision

- The Third Circuit affirmed the order confirming the arbitration award and denying vacatur.
- The court held the customers failed to present record support sufficient to show “evident partiality,” corruption, or misconduct under the FAA.
- The court rejected the argument that the panel’s handling of the fax reflected manifest disregard, characterizing the dispute as an attempt to re-litigate evidentiary weight and credibility.

## Legal Principles

- Judicial review of arbitration awards under the FAA is narrow and highly deferential; courts do not reconsider the merits or reweigh evidence.
- Vacatur may be granted only on limited statutory grounds, including evident partiality or corruption, specified misconduct (such as refusing to hear material evidence), or arbitrators exceeding their powers.
- Claims of arbitrator bias or corruption require concrete, credible evidence; speculative or conclusory assertions are insufficient.
- “Manifest disregard of the law,” to the extent recognized, requires proof that arbitrators knew a clearly governing legal principle and deliberately ignored it; disagreement with evidentiary evaluation does not meet that standard.

## Conclusion

The Third Circuit upheld confirmation of the NASD arbitration award because the customers did not meet the FAA’s demanding requirements for vacatur, and their objections chiefly sought impermissible judicial reexamination of the arbitrators’ factfinding and evidentiary judgments.


Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Clemente, 272 F. App’x 174 (3d Cir. 2008)