POOLER, Circuit Judge.
This case raises questions regarding the scope of federal court review of a decision issued by an arbitral panel. We resolve the case through the application of the familiar principle that the scope of such review is highly constrained. This is especially true with regard to an arbitral panel's assessment of whether the documentary and testimonial evidence presented to it is sufficient to satisfy a particular legal claim. Federal district judges are, of course, highly skilled in matters of weighing evidence. As illustrated by the result we reach here, however, district judges must put these skills aside when faced with the question of whether a decision issued by an arbitral panel should be confirmed.
A. The Buttars' Claim.
Daljit and Paramjit Buttar, who are husband and wife, are residents of Raleigh, North Carolina. Daljit Buttar (hereafter "Dr. Buttar") is a physician specializing in neurology, and is currently in solo practice.
We note that, immediately preceding the arbitration clause, the application sets forth the following "understanding" in bold lettering: "
Soon after opening this initial account, Dr. Buttar also began to discuss his investments with Robert Winston. Winston's actual responsibilities at Montrose are not entirely clear from the record, but Dr. Buttar testified that Winston "talked to me like he was the owner" of the firm. Verma himself testified that while he worked at Montrose he was under the impression that Winston ran the firm.
Verma and Winston successfully urged Dr. Buttar to make substantial investments in the securities of two firms: (1) Skynet Holdings, Inc. ("Skynet") and (2) CNF Technologies ("CNF"). Dr. Buttar was also persuaded to provide a "bridge loan" to CNF in the amount of $150,000.00. Eventually, Dr. Buttar alleges, Montrose "had invested virtually all of [his] liquid assets in CNF and Skynet." It is undisputed that Dr. Buttar suffered substantial losses as a result.
B. The Arbitration Proceeding.
On September 11, 2000, the Buttars instituted an arbitration proceeding by filing a statement of claim with the National Association of Securities Dealers, Inc. ("NASD"), which names Montrose and Winston as respondents. The statement of claim alleges that Winston and Verma made numerous false statements to Dr. Buttar regarding the wisdom of investing in Skynet and CNF. These included characterizing Skynet as "a long-term safe investment" when it was in fact "a thinly traded bulletin board stock," falsely representing that Skynet's immediate prospects were particularly favorable because it "was in the process of a buyout by Federal Express," and assuring Dr. Buttar that the principal amount of his loan to CNF would be returned to him "plus ten percent within two months, `guaranteed.'" The Buttars sought compensatory damages in the amount of $1,375,000.00 and an unspecified amount of punitive damages.
The Buttars filed an amended statement of claim with the NASD on March 9, 2001,
The Buttars' claim was assigned to a three-person arbitration panel ("the Panel"). None of the Panel's members is an attorney, but they are all seasoned business executives with substantial experience as arbitrators. On May 29, 2001 the Panel granted Winston's motion, which was joined by Wallace, Jacaruso, and Scotti, to assert a third-party claim against Verma.
The Panel conducted a three-day hearing on the Buttars' claim in November 2001. Although they were all represented by counsel at the hearing, Winston, Jacaruso, and Scotti chose not to appear in person and did not give any testimony. Wallace was also represented by counsel and testified very briefly by telephone.
A central issue on this appeal is whether the Panel could conclude that Wallace, Jacaruso, and Scotti are liable to the Buttars as control persons of Montrose. During his opening statement to the Panel, counsel for Wallace, Jacaruso, and Scotti denied that the three men could be found liable as control persons and alerted the Panel to his intention to move for dismissal on this ground at the close of evidence. This motion was in fact made, but the Panel declined to rule on it "until all of the various written pleadings and memoranda have been reviewed." The Buttars submitted a post-hearing memorandum to the Panel which sets forth the basic principles of control person liability under North Carolina and federal law. Counsel for Wallace, Jacaruso, and Scotti, however, submitted a post-hearing memorandum which is notable for its use of invective, but which is almost completely devoid of legal discussion of any type. It devotes slightly more than one-half of a page to the law of control person liability, and does not discuss North Carolina law at all. The Buttars and Wallace, Jacaruso, and Scotti also
The evidence before the Panel regarding the status of Wallace, Jacaruso, and Scotti as control persons was neither non-existent nor overwhelming. In the first place, documents filed by Montrose with the Securities and Exchange Commission tend to support a finding of control person status. On a "Form BD" — a Uniform Application for Broker-Dealer Registration — filed by Montrose in May 1999, Wallace is identified as the firm's president. On the same form, Jacaruso and Scotti are identified as directors who each owned a 50% share of Montrose, but only Wallace is actually identified as a "control person." On an amended Form BD, however, dated November 11, 1999, Jacaruso and Scotti are listed as each owning a 25% to 50% interest in Montrose and each, along with Wallace, is listed as a "control person." Two subsequent Form BD amendments, dated December 17, 1999 and December 21, 2000, repeat this listing.
The Panel also heard the testimony of Michael Kavanagh, a stockbroker who came to work at Montrose upon a promise that he would be given a 5% ownership interest in the firm. Kavanagh testified that upon his arrival at Montrose, Winston urged him to buy Skynet and CNF securities for the accounts of the clients he had brought with him to the firm. Upon meeting with representatives of both companies, however, Kavanagh decided that he "wasn't too impressed with either one of them."
As time went on, Kavanagh became increasingly concerned that other brokers at Montrose "were being forced [by Winston] to buy ... securit[ies] that they didn't want to buy for their customers." Kavanagh testified that he eventually brought his complaints about Winston's conduct to Jacaruso, whom he identified as "the Chairman" of Montrose. Kavanagh recalled that Jacaruso "made an agreement with me that he was going to deal with this Robert Winston issue" and that Jacaruso told him "[j]ust don't pay any attention to Robert's antics, and I'll take care of it." Kavanagh also averred that Winston's misconduct was "the topic of numerous conversations on my part in the partners' meetings," and that such meetings "were really never held without all the partners there." Nowhere in his testimony does Kavanagh state that his complaints about Winston were ever acted upon. Kavanagh eventually left the firm, testifying that he did so because "Montrose is a criminal activity. It's a pump and dump operation. It's a fraud. It's a scam...."
Dr. Buttar himself testified that, prior to filing the arbitration claim, he had never heard of Wallace, Jacaruso, or Scotti. The Buttars also offered the testimony of William Collison as an expert witness in securities investing. With respect to the responsibility of Jacaruso and Scotti for the losses suffered by the Buttars, Collison testified that "they are directors of the firm. They are on the Form BD [as] the owners of the firm and ... responsibility for what goes on in that firm ultimately rests with them." Collison further declared that Jacaruso and Scotti "as owners of the firm acquiesced, approved, sanctioned, use whatever term pleases you, the activities of Mr. Winston...." Collison also testified, however, that he had no basis for concluding that Jacaruso and Scotti had actual knowledge of the trades being made in the Buttars' particular accounts.
As already noted, Jacaruso and Scotti did not testify before the Panel. Wallace, however, testified that he "was in control of everyone performing their functions" at Montrose. Wallace also acknowledged
C. The Panel's Award.
The NASD served all parties with a copy of the Panel's determination of the Buttars' claim ("the Award") on March 8, 2002. On December 7, 2001 the U.S. District Court for the Southern District of New York had issued a stay of all legal proceedings against Montrose pursuant to § 362(a) of the Bankruptcy Code, 11 U.S.C. § 362(a). Accordingly, the Award states that the Panel "made no determination with respect to the claims asserted against" Montrose, but that the stay "does not apply to Respondents Winston, Wallace, Scotti and Jacaruso."
The Award contains no factual findings beyond briefly outlining the terms of the parties' claims and defenses. The determination of liability is set forth in relevant part as follows:
D. The District Court's Decision.
The Buttars filed an action on June 3, 2002 in the U.S. District Court for the Eastern District of North Carolina seeking confirmation of the Award. Four days later, Wallace, Jacaruso, and Scotti filed actions to vacate the Award in the U.S.
The district court granted the motions to vacate the Award, and consequently denied the cross-motion to confirm the Award. See Wallace v. Buttar, 239 F.Supp.2d 388 (S.D.N.Y.2003). The district court took it to be "undisputed that Winston, a broker employed by Montrose, committed a primary violation of the securities laws, that Jacaruso and Scotti were directors and shareholders of Montrose and Wallace was its president." Id. at 395. The question then became whether the Panel could have properly found Wallace, Jacaruso, or Scotti in any way liable for Winston's acts.
The district court held that, in addition to the grounds for vacating an arbitration award set forth in the Federal Arbitration Act ("FAA"), see 9 U.S.C. § 10, "the Second Circuit[ ] recognize[s] two additional bases for vacating arbitration awards: manifest disregard of the law and manifest disregard of the facts." Wallace, 239 F.Supp.2d at 392. In the district court's view, the Panel could not have found Wallace, Jacaruso, or Scotti liable for the Buttars' losses without engaging in both sorts of disregard. First, secondary liability pursuant to the doctrine of respondeat superior could not lie because the doctrine "imposes liability on the employer of those committing fraud in their employment. The entity that could have been held liable for Winston's fraud under the doctrine ... was Montrose, Winston's employer." Id. at 394. Second, Wallace, Jacaruso, and Scotti could not be found liable as co-participants in Winston's scheme to defraud the Buttars because "[i]n order to commit fraud, one must act with intent to defraud." Id. The district court held that no evidence put before the Panel could serve as the basis of a finding of such intent on the part of Wallace, Jacaruso, or Scotti:
Id. at 394-95.
Finally, the district court held that the Panel manifestly disregarded the law and the evidence by holding Wallace, Jacaruso, and Scotti liable as control persons because "[t]he Buttars rely solely on Wallace's status as President and Jacaruso and Scotti's designation as a control person of Montrose." Id. at 396. The district court observed, however, that status alone does not suffice to make one liable as a control person. Rather, "the control person must additionally possess the necessary mental culpability by either knowing, or failing to know due to their [sic] own recklessness or negligence, of the alleged wrongdoing." Id. at 395. Upon its review of the evidentiary record, the district court found "[n]o evidence [had been] adduced that the Petitioners were involved in the allegedly unsuitable and unauthorized transactions in the Buttars' accounts." Id.
"When a party challenges the district court's review of an arbitral award under the manifest disregard standard, we review the district court's application of the standard de novo." The GMS Group, LLC v. Benderson, 326 F.3d 75, 77 (2d Cir.2003) (citing Greenberg v. Bear, Stearns & Co., 220 F.3d 22, 28 (2d Cir.2000)).
A. The Scope of Federal Court Review of an Arbitration Award.
A motion to vacate filed in a federal court is not an occasion for de novo review of an arbitral award. "It is well established that courts must grant an arbitration panel's decision great deference. A party petitioning a federal court to vacate an arbitral award bears the heavy burden of showing that the award falls within a very narrow set of circumstances delineated by statute and case law." Duferco Int'l Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383, 388 (2d Cir.2003). The FAA sets forth certain grounds upon which a federal court may vacate an arbitral award, but "all of [these] involve corruption, fraud, or some other impropriety on the part of the arbitrators." Id.; see 9 U.S.C. § 10(a). The district court did not hold, nor did it in any way imply, that the Award is the result of an act of corruption or unseemliness on the part of the Panel. We therefore immediately proceed to a consideration of the cases within our Circuit which have recognized grounds for vacating an arbitral award other than outright perfidy on the part of arbitrators. We conclude that the district court took too broad a view of these grounds for vacatur.
1. Manifest Disregard of the Law.
Our circuit has long held that "[a]n arbitration award may be vacated if it exhibits `a manifest disregard of the law.'" Goldman v. Architectural Iron Co., 306 F.3d 1214, 1216 (2d Cir.2002) (quoting DiRussa v. Dean Witter Reynolds, Inc., 121 F.3d 818, 821 (2d Cir.1997)). But we have also been quick to add that "manifest disregard of law" as applied to review of an arbitral award is a "severely limited" doctrine. Gov't of India v. Cargill Inc., 867 F.2d 130, 133 (2d Cir.1989) (internal quotation marks and citation omitted). Indeed, we have recently described it as "a doctrine of last resort — its use is limited only to those exceedingly rare instances where some egregious impropriety on the part of the arbitrators is apparent, but where none of the provisions of the FAA apply." Duferco, 333 F.3d at 389. Accordingly, we have said that the doctrine "gives extreme deference to arbitrators." DiRussa, 121 F.3d at 821.
An arbitral award may be vacated for manifest disregard of the law "only if `a reviewing court ... find[s] 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.'" Banco de Seguros del Estado v. Mutual Marine Office, Inc., 344 F.3d 255, 263 (2d Cir.2003) (quoting Greenberg, 220 F.3d at 28). We have emphasized that an arbitral panel's refusal or neglect to apply a governing legal principle "`clearly means more than error or misunderstanding with respect to the law.'" Hoeft v. MVL Group, Inc., 343 F.3d 57, 69 (2d Cir.2003) (quoting Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933
In sum, a court reviewing an arbitral award cannot presume that the arbitrator is capable of understanding and applying legal principles with the sophistication of a highly skilled attorney. Indeed, this is so far from being the case that an arbitrator "under the test of manifest disregard is ordinarily assumed to be a blank slate unless educated in the law by the parties." Goldman, 306 F.3d at 1216. There is certainly no requirement under the FAA that arbitrators be members of the bar and we have recognized "that arbitrators often are chosen for reasons other than their knowledge of applicable law." Duferco, 333 F.3d at 390. Further, "arbitrators are not required to provide an explanation for their decision." Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir.1997). As already noted, the arbitration clause in this case explicitly informed the parties that they should not expect the Award to be accompanied by any explanation of the Panel's reasoning. See supra, p. 3.
Our cases demonstrate that we have used the manifest disregard of law doctrine to vacate arbitral awards only in the most egregious instances of misapplication of legal principles. In New York Telephone Co. v. Communications Workers of America Local 1100, 256 F.3d 89 (2d Cir.2001) (per curiam), an arbitral award cited precedent from two of our sister circuits, and expressly declined to apply contrary precedent from this Circuit. The award justified its conclusion as follows: "'As for the argument that the law of the 2nd Circuit is different and controlling, that can be tested, if needs be, by this decision. [The Second Circuit decision at issue] was decided 34 years ago.... Perhaps it is time for a new court decision.'" Id. at 91 (alteration in original). We held that this explicit rejection of controlling precedent constituted manifest disregard of the law. Id. at 93.
In Hardy v. Walsh Manning Securities, L.L.C., 341 F.3d 126 (2d Cir.2003), an arbitral panel found the manager of a brokerage firm ("Skelly") liable for fraudulent securities transactions undertaken by an employee of the firm "based upon the principles of respondeat superior." Id. at 128. We noted that as a matter of definition "respondeat superior is a form of secondary liability that cannot be imposed upon the fellow employee of a wrongdoer." Id. at 130. This made the arbitral award highly problematic "because of the undisputed fact that Skelly is an employee, not
Finally, we note that raw numbers demonstrate the rarity with which we have vacated an arbitral award pursuant to the manifest disregard of law doctrine. In Duferco, decided in 2003, it was calculated that "since 1960 [this Court has] vacated some part or all of an arbitral award for manifest disregard in ... four out of at least 48 cases where we applied the standard." 333 F.3d at 389. To say the least, these are sobering odds.
2. Manifest Disregard of the Evidence.
Citing Halligan v. Piper Jaffray, Inc., 148 F.3d 197, 202, 204 (2d Cir.1998), the district court held that an arbitral award may be may be vacated on the ground of "[m]anifest disregard of the facts" when the award "runs contrary to `strong' evidence favoring the party bringing the motion to vacate." Wallace, 239 F.Supp.2d at 392.
In Halligan, we reviewed a district court's confirmation of an arbitration award which rejected an employment discrimination claim. We reversed, finding that the award had been made in the face of "overwhelming evidence" that discriminatory conduct had occurred. 148 F.3d at 203. This evidence included the employer's admission that the claimant's "performance was not so unsatisfactory as to justify [his] discharge," and considerable circumstantial evidence that we found to be "consistent only with a finding that [the claimant] was pushed out of his job" by discriminatory animus. Id. Further, the arbitration panel issued no explanation for its rejection of the claim, and we concluded that any explanation it could have given "would have strained credulity." Id. at 204. We held that the district court had erred in confirming the award because the evidence in the claimant's favor was so strong as to engender "the firm belief that the arbitrators here manifestly disregarded the law or the evidence or both." Id.
Our later cases, however, have cautioned against an over-broad reading of Halligan. In GMS Group, we noted that Halligan confronted "the unique concerns at issue with employment discrimination claims." 326 F.3d at 79. These concerns included "whether the composition of industry-specific panels were ill-suited to the nature of the claims, and whether employees were receiving due process in the course of arbitration." Id. We concluded, however, that "[t]hese concerns do not translate to the claims at issue in this case." Id. GMS Group dealt with a securities fraud claim, as does the instant case.
Further, in Westerbeke we explicitly characterized Halligan's suggestion that arbitral awards may be vacated on the ground of manifest disregard of evidence as dicta. 304 F.3d at 213, n. 9. We explained this conclusion in the following way:
Id. (first emphasis in original; second emphasis added).
Moreover, if a federal court is convinced that an arbitral panel has reached a merely incorrect legal result — that is based upon an irrational application of a controlling legal principle — the court should not conduct an independent review of the factual record presented to the arbitral panel in order to achieve the "correct" result. In Hardy, as set forth above, an arbitral panel, which had provided
Id. at 131.
In sum, "the Second Circuit does not recognize manifest disregard of the evidence as proper ground for vacating an arbitrator's award." Success Sys., Inc. v. Maddy Petroleum Equip., Inc., 316 F.Supp.2d 93, 94 (D.Conn.2004). We recognize only the doctrine of manifest disregard of the law, which doctrine holds that an arbitral panel's legal conclusions will be confirmed in all but those instances where there is no colorable justification for a conclusion. To the extent that a federal court may look upon the evidentiary record of an arbitration proceeding at all, it may do so only for the purpose of discerning whether a colorable basis exists for the panel's award so as to assure that the award cannot be said to be the result of the panel's manifest disregard of the law. A federal court may not conduct a reassessment of the evidentiary record, as did the district court here, upon the principle that an arbitral award may be vacated when it "runs contrary to `strong' evidence favoring the party bringing the motion to vacate" the award. Wallace, 239 F.Supp.2d at 392 (quoting Halligan, 148 F.3d at 202). Instead, whatever the weight of the evidence considered as a whole, "[i]f a ground for the arbitrator's decision can be inferred from the facts of the case, the award should be confirmed." Fahnestock & Co., Inc. v. Waltman, 935 F.2d 512, 516 (2d Cir.1991) (internal quotation marks and citation omitted). Only this approach to the evidentiary record is consistent with the "great deference" which must be paid to arbitral panels by federal courts. Duferco, 333 F.3d at 388.
B. Is the Award Supported by a Colorable Justification?
1. Control Person Liability.
The Buttars alleged before the Panel that Wallace, Jacaruso, and Scotti were liable as control persons under both federal and North Carolina law. The district court acknowledged this, 239 F.Supp.2d at 395, but it made no finding as to whether the Buttars' claim under North Carolina law, at least as such law was presented to the Panel, provides a colorable justification for the Award. We find that it does and that the Award should therefore be confirmed. Having found that state law provides a colorable justification
Section 20 of the federal Securities and Exchange Act of 1934 provides for control person liability as follows:
15 U.S.C. § 78t(a).
North Carolina securities regulation statutes contain an analogous provision:
N.C.G.S.A. § 78A-56(c)(1).
In their post-arbitration brief to the Panel, the Buttars, citing our opinion in SEC v. First Jersey Securities, Inc., 101 F.3d 1450, 1472 (2d Cir.1996), stated that a prima facie case of control person liability under federal law requires a showing of "a primary violation by the controlled person, control of the primary violator by the targeted defendant, and that the controlling person was in some meaningful sense a culpable participant in the fraud perpetrated by the controlled person." The Buttars argued, however, that North Carolina law is "broader" than federal law. While it may by the case under federal law that, as the district court put it, "the power to direct the management and policies of a person must be a real, de facto power and not just de jure," Wallace, 239 F.Supp.2d at 396, the Buttars argued before the Panel that this is not true under North Carolina law, stating as follows: "Under North Carolina law, controlling shareholders, officers and directors are control persons within the meaning of N.C.G.S.A. § 78A-56(c)(1), as a matter of law. Waterman v. Alta Verde Industries, Inc., 643 F.Supp. 797, 809 (E.D.N.C.1986), aff'd., 833 F.2d 1006 (4th Cir.1987)." Further, while the district court stated that Wallace, Jacaruso, and Scotti could not be liable as control persons under federal law unless "they were knowing participants in Winston's breaches of the securities laws," Wallace, 239 F.Supp.2d at 396, the Buttars told the Panel that North Carolina law is "more favorable" to plaintiffs. Specifically, the Buttars noted that § 78A-56(c)(1) states that control person liability can be imposed unless the defendant "in the exercise of reasonable care, could not have known" of the primary violator's fraudulent acts. This, they argued, "is the language of negligence. In other words, even if Jacaruso, Scotti and Wallace did not know of the fraud, they clearly were negligent in not knowing, and are jointly and severally liable as control persons under North Carolina law."
In their post-arbitration memorandum to the Panel, as already noted, Wallace, Jacaruso and Scotti take notice of the requirements of control person liability under federal law, but they make no statement whatsoever regarding control person liability under North Carolina law. That
If a party fails to identify governing law to an arbitrator, "we will infer knowledge and intentionality on the part of the arbitrator only if we find an error that is so obvious that it would be instantly perceived as such by the average person qualified to serve as an arbitrator." Duferco, 333 F.3d at 390. Thus, counsel forego their obligation to educate arbitral panels as to governing legal principles at their great peril. A motion to vacate an arbitral award because of manifest disregard of the law requires a showing that an arbitrator disregarded "a governing legal principle [that] is well-defined, explicit, and clearly applicable to the case, and [that] the arbitrator ignored it after it was brought to the arbitrator's attention in a way that assures that the arbitrator knew its controlling nature." Goldman, 306 F.3d at 1216 (emphasis added; citation and quotation marks omitted). Having made no attempt to educate the Panel as to North Carolina's control person statute, Wallace, Jacaruso, and Scotti certainly cannot make such a showing. Nor do they make any argument on this appeal that demonstrates that the Panel misapprehended North Carolina law to an extent that would be instantly recognizable to the average person qualified to serve as an arbitrator.
"We do not sit in judgment over the wisdom of [an] arbitrator's holdings." Westerbeke, 304 F.3d at 216. We do, however, review an arbitral panel's decision to assure that it rests upon "a barely colorable justification for the outcome reached." Banco de Seguros del Estado, 344 F.3d at 260 (citation and quotation marks omitted). We conclude that North Carolina's control person statute, as it was explained to the Panel, provides such a justification for the Award. First, the Buttars directed the Panel's attention to case law which holds that "controlling shareholders, officers and directors ... are... `control persons' within the meaning of N.C.G.S. § 78A-56(c)." Waterman, 643 F.Supp. at 809. As we have described, Wallace, Jacaruso, and Scotti are identified on numerous Securities and Exchange Commission filings as "control persons" of Montrose. Kavanagh testified that he directly informed Jacaruso of Winston's fraudulent activities and that he raised this same issue at numerous Montrose partner meetings. Collison, the Buttar's expert, opined that Jacaruso and Scotti, "as owners of the firm acquiesced, approved, sanctioned ... the activities of Mr. Winston." Wallace, Jacaruso,
Considered as a whole, this evidence is sufficient to provide a colorable basis for control person liability under North Carolina law as that law was explained to the Panel by the parties. We therefore reject the contention of Wallace, Jacaruso, and Scotti that the Award was based on "the Panel's own brand of frontier justice without regard to the law or facts." Instead, we believe the Award is at least colorably based upon the facts and the law as presented to the Panel.
2. Liability for Punitive Damages.
The Award imposes joint and several liability against Winston, Wallace, Jacaruso, and Scotti for punitive damages in the amount of $604,805.00. The district court held that the Panel's imposition of punitive damages against Wallace, Jacaruso, and Scotti was based upon the doctrine of respondeat superior. This, the district court concluded, amounts to a manifest disregard of law because "the doctrine of respondeat superior imposes liability on the employer of those committing fraud in their employment. The entity that could have been held liable for Winston's fraud under the doctrine of respondeat superior was Montrose, Winston's employer." 239 F.Supp.2d at 394. We believe that this conclusion is incorrect because it fails to consider the law of punitive damages as it was presented to the Panel.
First, we note that the Award does not explicitly mention the doctrine of respondeat superior as the basis of the Panel's imposition of punitive damages as to Wallace, Jacaruso, and Scotti:
As with the issue of control person liability, there is a considerable difference in the efforts made by the Buttars, on the one hand, and Wallace, Jacaruso, and Scotti, on the other, to educate the Panel as to the law of punitive damages. The Buttars provided the Panel with a copy of the Hunt opinion, in which the Fourth Circuit stated that "[p]unitive damages are not available under ... federal and North Carolina securities claims." 908 F.2d at 1216, n. 13. The Buttars further explained the law of punitive damages in their post-arbitration brief:
In contrast, Wallace, Jacaruso, and Scotti do not appear to have addressed the issue of punitive damages at all in their submissions to the Panel, and their argument as to the doctrine of respondeat superior is limited to the assertion in their reply memorandum that "the doctrine has been rendered irrelevant: by virtue of the District Court's December 7, 2001 order staying all further proceedings against Montrose, Montrose can not be held liable for the acts of its employees even if those acts are found to be injurious."
The shortcoming here is that Wallace, Jacaruso, and Scotti cite no evidence in the record which establishes that Winston's employer was Montrose alone, or that Winston could not be found to have acted as an agent of Wallace, Jacaruso, and Scotti. As already noted, Winston's status and responsibilities at Montrose are not entirely clear from the record. But the Panel had no argument before it to the effect that punitive damages could not be awarded against Wallace, Jacaruso, and Scotti because they did not have an employer-employee relationship with Winston, or because Winston could not be found to have acted as their agent.
Again, we do not sit in judgment of the wisdom of the Panel's imposition of punitive damages upon Wallace, Jacaruso, and Scotti. But we find no basis for holding that this portion of the Award was based on a manifest disregard of the law because, given the manner in which the law of punitive damages was presented to the Panel, we cannot find that they committed "an error so obvious that it would be instantly perceived as such by the average person qualified to serve as an arbitrator." Duferco, 333 F.3d at 390.
3. Liability for Fraud.
The district court found that, to the extent that the Award makes Wallace, Jacaruso, and Scotti primarily liable for securities fraud as co-conspirators with Winston, it manifestly disregards the law. 239 F.Supp.2d at 394-95. Because we have found that a colorable basis for the Award exists pursuant to North Carolina's control person statute, we have no need to consider this holding.
C. Confirmation of the Award as to Winston.
Finally, the Buttars argue that the district court erred in declining to confirm the Award's finding of liability against Robert Winston. As already noted, Winston brought no action to vacate the Award and his time to do so has elapsed. See 9 U.S.C. § 12 (party must move to vacate, modify, or correct award within three months of the award's issuance). He has also filed no opposition to the Buttars' cross-motion to confirm the Award.
We have made clear that "a party may not raise a motion to vacate, modify or correct an arbitration award after the three month period has run, even when
Winston was not a petitioner below, and he is not an appellee here. Indeed, it is unclear from the record whether the Buttars served Winston when they sought to have the Award confirmed. In its opinion, the district court made no statement as to whether the Award against Winston should be confirmed. Nevertheless, the Buttars' cross-motion below sought confirmation of the Award in full. In addition to granting appellees' motions to vacate, the district court denied the Buttars' cross-motion to confirm. Thus, the district court, at least implicitly, denied the cross-motion to confirm not merely as to appellees, but also as to Winston. To the extent that this is so, the district court erred. On remand, the district court should explicitly address the issue of the Award as it relates to Winston, and either confirm the Award as to him or explain why it is unnecessary or inappropriate to do so.
The decision of the district court is reversed. We remand the case for the entry of an order confirming the Award as to Wallace, Jacaruso, and Scotti and for consideration of the Award as to Winston.