After losing several million dollars in high-risk investments, Michael Lessin filed a statement of claim alleging misrepresentation and negligent supervision against his broker, Brett Bernstein and investment firm, Merrill Lynch. A panel of three NASD arbitrators heard evidence over a six-day period and found Merrill Lynch, but not Bernstein, liable to Lessin for compensatory damages of $32,975. Lessin sought to vacate the arbitration award on the basis that the arbitration panel refused to hear one of his expert witnesses and demonstrated a manifest disregard of the law in awarding compensatory damages.
The D.C. District Court affirmed the arbitration award and Lessin appealed to the D.C. Circuit Court of Appeals. Lessin argued that the arbitration panel engaged in misconduct by refusing to hear pertinent evidence from one of his two designated expert witnesses. Lessin proffered two expert witnesses to show that certain notes regarding his investments stored in a Merrill Lynch computer system were fabricated after the fact. While the Court of Appeals recognized that the experts were testifying to different aspects of the computer system (one on personal observation/testing and the other on methodology), the court concluded that “[e]very failure of an arbitrator to receive relevant evidence does not constitute misconduct requiring vacatur of an arbitrator’s award.” The Court of Appeals also rejected Lessin’s claim that the panel manifestly disregarded the law because Lessin was unable to demonstrate that the panel acted beyond its authority or that the award violated an explicit public policy.
This is yet another, in a long line of cases, demonstrating the limited judicial review of arbitration awards, and the limited success that parties have in overturning arbitration awards. Lessin v. Merrill Lynch, Case No. 06-7067 (D.C. Cir. Mar. 16, 2007).