## Facts

- STMicroelectronics, N.V. (ST) maintained a large short-term portfolio intended to function as cash equivalents.
- ST engaged Credit Suisse Securities (USA) LLC (Credit Suisse), a FINRA member broker-dealer, to invest ST’s funds in agreed-upon safe, highly liquid instruments.
- Credit Suisse purchased auction-rate securities (ARS) that did not match the agreed risk and liquidity profile.
- Credit Suisse personnel altered or manipulated confirmations and communications to make the ARS appear consistent with ST’s investment guidelines.
- When the ARS market froze in 2007–2008, ST was left holding a large illiquid ARS position with diminished cash-equivalent utility.
- Two Credit Suisse brokers involved with ST’s account later pleaded guilty to criminal charges arising from their handling of the account.
- ST filed a FINRA arbitration in 2008 asserting federal securities fraud and state-law claims; a three-arbitrator panel included a designated industry arbitrator, John Duval.
- Credit Suisse sought Duval’s removal, arguing his disclosures were misleading because he had previously stated he testified more often for claimants; Duval declined to recuse and the panel denied removal.
- The panel issued a unanimous award for ST including roughly $400 million in compensatory damages plus interest, attorneys’ fees, and costs.
- The district court confirmed the award and largely denied Credit Suisse’s post-judgment request to account for post-award ARS buy-backs and related interest adjustments.

## Issues

1. Whether the award should be vacated under FAA § 10(a)(2) for “evident partiality” based on the industry arbitrator’s allegedly incomplete or misleading disclosures.
2. Whether vacatur was warranted for “manifest disregard of the law” in the panel’s liability and damages determinations.
3. Whether the confirming judgment had to be modified to reflect post-award partial satisfaction (approximately $75 million) and to adjust interest without substantively revising the award.

## Decision

- The Second Circuit affirmed confirmation of the FINRA award and rejected vacatur based on evident partiality.
- The court held the record did not require a conclusion that the arbitrator was partial, and the challenged disclosures were not shown to be materially false or intentionally misleading.
- The court affirmed rejection of the manifest-disregard challenge, concluding Credit Suisse’s arguments alleged, at most, legal or factual error rather than a knowing refusal to apply clearly governing law.
- The court vacated and remanded in part, directing the district court to modify the judgment to credit Credit Suisse for approximately $75 million ST had recovered post-award from sales/buy-backs of ARS and to reduce interest accordingly.
- The court rejected Credit Suisse’s attempt to rework the award’s internal approach to interest allocation as an impermissible effort to modify the substance of the award.

## Legal Principles

- FAA § 10(a)(2) vacatur for “evident partiality” requires more than an appearance of bias; the showing must support the conclusion that a reasonable person would have to find the arbitrator partial.
- In FINRA arbitration, industry arbitrators are expected to have substantial sector experience; disclosures are evaluated for materiality and misleading omission, not for whether an arbitrator’s background may be viewed as favorable to one side.
- “Manifest disregard of the law” (to the extent recognized) is extremely limited; vacatur requires clearly applicable law, arbitral awareness of that law, and deliberate refusal to apply it, not mere error.
- A federal judgment confirming an arbitration award should be reduced to reflect post-award partial satisfaction to prevent double recovery, while avoiding changes that effectively revise the arbitral merits determination.

## Conclusion

The Second Circuit largely sustained a substantial FINRA award against Credit Suisse, holding that alleged shortcomings in an industry arbitrator’s disclosures did not establish evident partiality and that the panel’s merits determinations did not meet the demanding manifest-disregard standard; however, it required the confirming judgment to account for ST’s post-award recovery to prevent double recovery and to adjust interest correspondingly.


STMicroelectronics, N.V. v. Credit Suisse Sec. (USA) LLC, 648 F.3d 68 (2d Cir. 2011)