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February 8, 2000


The opinion of the court was delivered by: Spatt, District Judge.


Presently before the Court are motions by each of the Petitioners to vacate an arbitration award against them issued by the National Association of Securities Dealers, and a cross-motion by the Respondents, Tate and Gail Randle ("the Randles"), to confirm that award.


In November 1991, the Randles were contacted by Respondent William Winters, a broker with Petitioner Lew Lieberbaum & Co., and solicited to invest monies with the company. In December 1991, the Randles transferred $48,012 in assets to the Florida office of Lew Lieberbaum & Co. for Winters to oversee. Winters purchased about $36,000 worth of shares in a stock called Action Products, Inc. on behalf of the Randles from December 1991 through February 1992. The Randles allege that some of those purchases were fraudulently billed to their account but that no stock was ever transferred. By March of 1992, the Action Products stock had dropped significantly in value.

The Randles contacted Winter, who assured them that Lew Lieberbaum & Co. had a significant investment in Action Products and that the stock price would recover. In April 1992, Winter moved to another branch, and the Randles contacted his new branch manager to discuss, among other things, allegations by Winter that his former branch manager was engaging in fraudulent conduct involving investors. On April 20, 1992, Petitioner Leonard Neuhaus, a Lew Leiberbaum & Co. official, called the Randles to discuss the Action Products stock and Winters' allegations. The next day, Neuhaus called the Randles again, stating that he had spoken to Petitioners Mark Lew and Sheldon Lieberbaum; that they would investigate the problems; that he would personally oversee the Randles' account; and that he would work with Winters on recovering the Randles' lost money. In the meantime, Neuhaus encouraged the Randles to leave their money with Winters, and stated that by September 1, 1992, the Randles' account would be back to its original balance. By May of 1992, Winters had sold all of the Randles' stake in Action Products for a net loss of $22,687.

Shortly thereafter, Winters arranged for the Randles' assets to be transferred to what was apparently another brokerage, although he did not inform the Randles of that fact. By September 1992, the Randles contacted Neuhaus to inquire why their balance had not returned to its original balance. Neuhaus explained that he had not actually been personally overseeing their account and stated that there was nothing he could do. The Randles also contacted Sheldon Lieberbaum, who promised to look into the matter and get back to them, but never did.

On December 7, 1997, the Randles filed a statement of claim with the National Association of Securities Dealers, requesting arbitration of their claims against the Petitioners and Winters. Their claim, apparently drafted pro se, did not set forth any specific legal theories, but merely recited the chronology described above. On October 7, 1998, the Randles withdrew their claim against Winters in exchange for his agreement to testify regarding his knowledge of the facts at the hearing. The Petitioners then filed a third-party claim against Winters, seeking to hold him partially or totally responsible for the Randles' losses. The Petitioners filed prehearing motions to dismiss the case on several grounds, but the arbitration panel denied them in their entirety. Following hearings on March 16 and 17, 1999, the panel found in favor of the Randles and awarded them $53,352 in actual damages against each of the Petitioners jointly and severally. The panel also denied the Petitioners' third-party claim against Winters.

Petitioners now move under the provisions of 9 U.S.C. § 10 to vacate the award on four grounds: (i) that the Panel's decision incorrectly held the Petitioners liable despite the absence of evidence that they participated in any wrongdoing; (ii) that the Panel erred in holding that claims against the Petitioners were timely; (iii) that the Panel incorrectly charged the Petitioners with damages for trading losses incurred by the Randles after Winters had transferred their account to the independent brokerage; and (iv) that the Panel erroneously denied the Petitioners' third-party claim against Winters. The Randles cross-move to confirm the award.


The party moving to vacate an arbitration award has the burden of proof. Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corporation, 103 F.3d 9, 12 (2d Cir. 1997). Under federal law, a court's review of arbitration awards is "very limited . . . in order to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation." Yusuf Ahmed Alyhanim & Sons, W.L.L. v. Toys "R" Us, Inc., 126 F.3d 15, 23 (2d Cir. 1997); Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108, 111 (2d Cir. 1993). Accordingly, the burden on the burden seeking to vacate the award is a heavy one. Id.; citing Ottley v. Schwartzberg, 819 F.2d 373, 376 (2d Cir. 1987). An arbitrator's decision may be vacated, however, where the award is in "manifest disregard of the law." Id.; Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933-34 (2d Cir. 1986).

Proving "manifest disregard" means more than simply showing that the arbitrator made an error or misunderstood the law. Bobker, 808 F.2d at 933. A person seeking to vacate an award for manifest disregard must show that the error was obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator. DiRussa v. Dean Witter Reynolds, Inc., 121 F.3d 818, 821 (2d Cir. 1997). Moreover, the term "disregard" implies I that the arbitrator appreciates the existence of a clearly governing legal principle but decides to ignore or pay no attention to it. Id. Thus, to modify or vacate an award on this ground, a court must find both that (1) the "arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether," and (2) the "law ignored by the arbitrators [was] `well defined, explicit, and clearly applicable'" to the case. Id.; citing Folkways, 989 F.2d at 112.

Where, as here, an arbitrator has not set forth the specific rationale supporting the decision, the Court may confirm an award if "a ground for the arbitrator[s] decision can be inferred from the facts of the case." Standard Microsystems, 103 F.3d at 13. If there is "even a barely colorable justification for the outcome reached," or even if the award is tainted by errors of fact or law that do not rise to the level of manifest disregard, the court must confirm the arbitration award. Id. at 14.

Here, the Petitioners contend that the arbitration panel deliberately overlooked the law that generally insulates officers of a brokerage from vicarious liability for their agents' acts; failed to apply the proper statute of limitations; and incorrectly attributed damages to them that they did not cause. The Petitioners' efforts to argue that the panel disregarded a "clearly governing legal principle" are substantially hampered by their failure to supply the Court with a transcript of the tape recorded proceedings. Other than the panel's award, the Petitioners have only supplied the Court with the Petitioners' counsel's self-serving summary of the testimony in his supporting affidavit. The lack of a sufficiently complete record alone is enough to require rejection of the Petitioners' position. It is the Petitioners' burden to demonstrate manifest disregard of the law, and the failure to offer the entire record leaves the Court unable to exclude the possibility that the award is supported by evidence that the Petitioner has not supplied. See Commonwealth Associates v. Letsos, 40 F. Supp.2d 170, 174 (S.D.N Y 1999).

Nevertheless, the Court finds that, on the face of the limited record before it, the Petitioners have failed to carry their burden of ...

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