## Facts

- Daljit S. Buttar and Paramjit Buttar opened brokerage accounts at Montrose Capital Management after discussions with a Montrose broker.
- The account agreement contained a broad clause requiring arbitration of disputes arising from transactions and related agreements, governed by the Federal Arbitration Act (FAA), and warning that appellate review of awards is strictly limited.
- The Buttars alleged that Montrose personnel induced unsuitable trading and misrepresentations that caused substantial losses.
- The Buttars brought arbitration claims against a senior Montrose broker and later added Michael E. Wallace, David Jacaruso, and Joseph Scotti, alleging they were Montrose “control persons” and secondarily liable under federal and state securities law.
- Evidence presented to the arbitration panel included corporate/ownership materials identifying the added respondents as control persons, testimony suggesting managerial control, and expert testimony supporting control-person responsibility for the broker’s conduct.
- The arbitration panel found Wallace, Jacaruso, and Scotti liable to the Buttars on a control-person theory.

## Issues

1. Whether the district court exceeded the FAA’s limited scope of review by vacating the arbitration award for “manifest disregard of the law” or “manifest disregard of the evidence.”
2. Whether the control-person liability determination lacked any colorable legal or evidentiary basis sufficient to justify vacatur.

## Decision

- The Second Circuit reversed the district court’s judgment vacating the arbitration award.
- The court held that judicial review of arbitration awards is extremely narrow and does not permit a court to reweigh evidence or substitute its view of the facts.
- The court concluded the record contained a “barely colorable justification” for the panel’s control-person liability findings.
- The court found no showing that the arbitrators knowingly and intentionally disregarded clearly applicable law.
- The case was remanded with instructions to enter judgment confirming the arbitration award.

## Legal Principles

- Review of arbitration awards under the FAA is among the narrowest known to law; confirmation is required unless a statutory ground for vacatur (or a narrowly defined judicial gloss) is satisfied.
- “Manifest disregard of the law” requires more than legal error: the governing law must be clear, the arbitrators must know it, and they must intentionally disregard it.
- Courts may not vacate an award because they disagree with the arbitrators’ factfinding or believe the evidence weighs differently; arbitral determinations stand if there is at least a barely colorable justification.
- When parties submit legal authority and evidence to arbitrators, a court may not infer intentional disregard merely from the outcome.

## Conclusion

The Second Circuit ordered confirmation of a securities arbitration award, holding that the district court improperly reweighed the record and that neither the governing law nor the evidence was disregarded under the demanding FAA standard for vacatur.


Wallace v. Buttar, 378 F.3d 182 (2d Cir. 2004)