Merrill Lynch, Pierce, Fenner & Smith v. Clemente

Michael Clemente and Geraldine Waszkiewicz (couple) (plaintiffs) held accounts with Merrill Lynch, Pierce, Fenner, & Smith, Inc. (Merrill Lynch) (defendant). The financial advisors handling the couple’s accounts allegedly had a stop-loss order that would bind them to liquidate the couple’s investments if the accounts’ value dropped by a certain percentage. The couple filed a claim with the National Association of Securities Dealers, Inc. (association), asserting that Merrill Lynch’s stop-loss order violated tort, contract, and criminal laws. The parties agreed to arbitration under the association. The arbitration panel conducting hearings and issued an award to Merrill Lynch. Merrill Lynch filed a petition in federal district court to confirm the award, and the couple filed a motion to vacate the award. The couple argued that the arbitration panel was corrupt and biased, invalidating the award under the Federal Arbitration Act (FAA). The couple alleged that Merrill Lynch publicly joked with a panel member about bribing, that a panel member had ex parte communications with Merrill Lynch, and that an arbitrator tampered with a witness who had refused the plaintiff’s request to testify. The couple further alleged that the arbitrator manifestly disregarded the law by not acknowledging key evidence. The evidence the couple presented was an unverified fax on Merrill Lynch letterhead that discussed the stop-loss order. The district court found in favor of Merrill Lynch and confirmed the award. The couple appealed to the Third Circuit.