The opinion of the court was delivered by: Sprizzo, District Judge:
MEMORANDUM OPINION AND ORDER
The evidence introduced at the arbitration established the
following facts. In late 1985 or early 1986, petitioners opened
an arbitrage account with Rooney Pace, Inc. ("Rooney Pace"), a
broker-dealer. See Stipulation of Undisputed Facts ("Stip") at
¶ 4 (I Appendix ("App.") Ex. C). The Rooney Pace representative
on their account was Kenneth Shashoua. See id. The funds were
held by Bear Stearns, which as a "clearing broker" had the
responsibility of clearing those funds upon appropriate
instructions.*fn2 See id. at ¶ 5.
In connection with this account, petitioners executed a
"Customer Agreement" with Bear Stearns, which provided in part
8. Clearance Accounts. If Bear Stearns carries your
account as clearing broker by arrangement with
another broker through whose courtesy your account
has been introduced, then unless Bear Stearns
receives from you a written notice to the contrary,
Bear Stearns shall accept from such other broker,
without any inquiry or investigation by it (i)
orders for the purchase or sale in account of
securities and other property on margin or
otherwise, and (ii) any other instructions
concerning said account. You understand that Bear
Stearns shall have no responsibility or liability
to you for any acts or omissions of such other
broker, its officers, employees or agents.
I App.Ex. C(3). Petitioners also received a "Correspondent
Allocation of Responsibility Letter," which set forth the
allocation of responsibilities between the petitioners'
introducing firm, Rooney Pace, and the respondent. Although one
of the respondent's responsibilities was "safeguarding funds
and securities," the responsibilities for supervising and
monitoring the account and the transactions made in connection
therewith were placed squarely upon Rooney Pace. See I App.Ex.
C(3). Moreover, Rooney Pace was also responsible for
"selecting, investigating, training and supervising all
personnel who open, approve or authorize transactions in your
[petitioners'] account." Id.
On or about September 30, 1986, without the approval of the
petitioners, Bear Stearns, acting upon what purported to be the
instructions of petitioners, executed a transfer of $675,000
from the petitioners' account to the account of an unrelated
foreign corporation with a mailing address in Switzerland.
See Stip. at ¶ 10. Respondent's statement of account, see I
App.Ex. C(12), and marginal activity report, see Supplemental
Appendix of Respondent ("Supp.App.") Ex. K, reflect the
September transaction as an "LOA" or a letter of authorization.
See also Tr. at 77. Testimony at the arbitration hearing
established that Rooney Pace's representative, Shashoua, forged
petitioners' signatures on the documents which authorized the
aforementioned transfer. See Transcript of Arbitration
Proceeding ("Tr.") at 202, 227 (I App.Ex. D). A copy of that
letter, which was obtained from Shashoua, was also admitted
into evidence at the arbitration. See I App.Ex. C(2); Tr.
82-85. However, respondent was unable to locate the original
letter of authorization in its files. See Tr. at 186-87.
In October of 1986 Bear Stearns received a letter, also
forged by Shashoua, changing the address on petitioners'
account so that all account information would go to Shashoua's
home address.*fn3 See Stip. ¶ 12; Tr. at 202-05, 226-27. As a
consequence, Fine and Perlow did not receive monthly statements
of account which reflected the unauthorized transactions and
transfers from their account.*fn4 Thereafter, Shashoua stole
another $50,000 from petitioners' account by forging a second
authorization for transfer on or about December 17, 1986.*fn5
See Stip. at ¶¶ 19-20. The parties stipulated to the identity
and authenticity of the letter of authorization for this
transaction which Bear Stearns produced. See Stip. at ¶¶ 19-20
& Ex. 9 (I App.Ex. C(9)).
Petitioners filed a claim with the New York Stock Exchange
against Bear Stearns alleging breach of contract, negligence,
conversion, and racketeering violations, 18 U.S.C. § 1961
(1988), in connection with the unauthorized transfers. After
three days of arbitration hearings, the arbitration panel
dismissed the claim in all respects.
Petitioners contend that the award must be vacated for the
following reasons: (1) the arbitrators acted in manifest
disregard of the law, see Wilko v. Swan, 346 U.S. 427, 436-437,
74 S.Ct. 182, 187-188, 98 L.Ed. 168 (1953); (2) the arbitration
award is irrational because it is not supported by any
evidence, see Swift Indus., Inc. v. Botany Indus., Inc.,
466 F.2d 1125, 1134-35 (3d Cir. 1972); and (3) certain evidentiary
rulings made by the arbitration panel constituted a "refusal to
hear evidence pertinent and material to the controversy" under
9 U.S.C. § 10(c).
It is well-settled that a court's power to vacate an
arbitration award must be extremely limited because an overly
expansive judicial review of arbitration awards would undermine
the litigation efficiencies which arbitration seeks to achieve.
See Transit Casualty Co. v. Trenwick Reinsurance Co., Ltd.,
659 F. Supp. 1346, 1350-51 (S.D.N.Y. 1987), aff'd, 841 F.2d 1117 (2d
Cir. 1988); Tinaway v. Merrill Lynch & Co., 658 F. Supp. 576,
578 (S.D.N.Y. 1987); see also Andros Compania Maritima, S.A. v.
Marc Rich & Co., A.G., 579 F.2d 691, 701, 703-04 (2d Cir.
1978). Tested by that standard, the award here must be
Petitioners' argument that the arbitration panel "manifestly
disregarded the law" must be rejected. "Manifest disregard of
the law" by arbitrators is a judicially created standard for
vacating an arbitration award, see Carte Blanche (Singapore)
Pte. Ltd. v. Carte Blanche Int'l, Inc., 888 F.2d 260, 265 (2nd
Cir. 1989) (quoting Merrill Lynch, Pierce, Fenner and Smith,
Inc. v. Bobker, 808 F.2d 930, 933-34 (2d Cir. 1986)), which is
applicable only where the law alleged to have been disregarded
is "well defined, explicit, and clearly applicable," so that
the error was ...