Awarding Individuals Damage for Harm Done to A Corporation Results in Vacature of the Award


Spear Leeds & Kellogg v. Bullseye Securities, Inc., No. 5435, 2002 N.Y. App. LEXIS 1563 (N.Y. App. Div., 1Dept., 2/14/02).

Award Challenge * Vacatur of Award * Exceeding Powers * Manifest Disregard * Irrationality * Remand to Arbitrators * Rationale of Award.

Individual claimants, as a matter of law, cannot be compensated by arbitrators on a cause of action stating wrongdoing to a corporation.

The trial court vacated this NASD Award (ID #99-02963, NYC, 10/8/99), granting $1.25 million to the co-owners of Bullseye Securities, Joseph and Eva Roffler, for acts allegedly committed by a Spear Leeds employee, Joseph Schettino.

There are two problems with the Award, Spear Leeds successfully persuades the Court: first, it awards damages to the Rofflers in their individual capacities when the alleged wrongs occurred to their corporate broker-dealer; secondly, it assesses damages against Spear Leeds, presumably for the conduct of its employee, but the employee was released from any liability (“without explanation,” the Court observes).

These two defects led the lower court to vacate the Award (see SLA 2000-09 for summary) and remand “the matter for a new hearing before the [NASD].” This Court affirms on grounds that the Panel majority (“the only lawyer on the panel” dissented, the Court notes) exceeded its powers, manifestly disregarded the law, and, by rendering an “inherently inconsistent” result, evinced irrationality in its Award. “Where, as here, there is no independent basis for finding SLK solely liable for over a million dollars in damages, apart from one grounded upon the negligence of its employee, the award must be set aside as irrational….” (SLC Ref. No. 02-10-03)


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