Vacating an Arbitration Award is an Uphill Battle

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Posted on: Nov 17 2025

In Allen v. Fidelity Brokerage Servs. LLC, 2025 N.Y. Slip Op. 34169(U) (Sup. Ct., N.Y. County Oct. 30, 2025), plaintiff, the representative of her son’s estate, sought to vacate a FINRA arbitration award after claims alleging negligent oversight of speculative options trading were denied. The arbitration panel imposed $25,000 in sanctions for violating FINRA Rule 12209 by filing a parallel court action. Plaintiff argued the panel exceeded its authority and manifestly disregarded FINRA Rule 2360 by ignoring unrebutted expert testimony. The motion court rejected these arguments, emphasizing the narrow grounds for vacating arbitration awards and confirming the panel’s authority to sanction rule violations. The award was upheld, reinforcing arbitration finality and compliance with FINRA rules.

Allen arose after William Tyler Allen passed away in September 2021. His mother, acting as fiduciary of his estate, initiated a FINRA arbitration in August 2022, alleging that the respondent brokerage firms failed to properly assess the suitability of speculative options trading in the decedent’s account in violation of FINRA Rule 2360,[1] which plaintiff claimed contributed to the decedent taking his own life. Plaintiff later filed the action in September 2023, arguing that the FINRA arbitration could not adequately address wrongful death claims.

In April 2025, the arbitration panel conducted a hearing at which the parties introduced documentary and testimonial evidence. Relevant to the motion before the court, plaintiff introduced the testimony of her proposed expert regarding the application of Rule 2360.[2] While defendants introduced their own experts, as well as fact and witness testimony going to Rule 2360, they did not introduce expert testimony relating to Rule 2360.

Following the close of proceedings, the arbitration panel issued an award, denying plaintiff’s claims and awarding sanctions against plaintiff in the form of $25,000 of attorneys’ fees for violating FINRA rules (the “Award”). The basis for this portion of the Award was that during the course of the arbitration, defendants had sought an order from the arbitration panel directing plaintiff to withdraw the court action as a violation of FINRA Rule 12209 (which bars the bringing of court proceedings that would resolve any matters raised in arbitration), with sanctions to be awarded if plaintiff failed to dismiss the action. The arbitration panel granted the motion for sanctions in a non-final order. The Award confirmed the sanctions and awarded defendants a combined $25,000 for their legal fees in the proceeding.

Plaintiff moved to vacate the Award, and defendants cross-moved to confirm the Award.[3]

Pursuant to CPLR 7511(b)(1)(iii), an arbitration award may be vacated if “an arbitrator, or agency or person making the award exceeded his power.” An arbitration award may also be vacated under federal law pursuant to the “severely limited doctrine” of manifest disregard, meaning that the award “exhibits a manifest disregard of law.”[4] But the judicial review of arbitration awards is “extremely limited.”[5]

Plaintiff raised two main issues with the Award as a basis for vacatur. First, she argued that the arbitration panel exceeded its authority by issuing sanctions for bringing the action and by directing her to drop the court action.[6] Second, Plaintiff argued that the arbitration panel manifestly disregarded the law by failing to accept unrebutted expert testimony regarding Rule 2360 provided by plaintiff in the arbitration.[7] Defendants opposed the motion to vacate and separately (although largely for similar reasons) cross-moved to confirm the Award. The motion court denied plaintiff’s motion and granted defendants’ cross-motions to confirm the Award.

Addressing the first point raised by plaintiff – whether the arbitration panel exceeded its power in imposing sanctions or ordering plaintiff to drop the court proceeding – the motion court held that the panel did not do so.

Plaintiff argued that because federal courts lack the discretionary authority under the Federal Arbitration Act (“FAA”) to dismiss a case subject to arbitration, the arbitration panel could not tell her to drop a case or be subject to sanctions pursuant to FINRA Rule 12209.[8] Plaintiff also argued that by issuing such an order, the arbitration panel became biased against her when she failed to comply. The motion court rejected the arguments.

The motion court found that “it [was] apparent that Plaintiff in fact violated FINRA Rule 12209, and that the arbitration panel was therefore empowered to issue sanctions in response to such a violation.”[9] Any “‘limitation of an arbitrator’s power must be contained, explicitly or by reference, in the arbitration clause itself’ in order for a court to find that an arbitration panel exceeded their power,” said the motion court.[10] Accordingly, concluded the motion court, “[t]he Arbitration Panel was clearly allowed to issue sanctions for the rule violation here,”[11] especially since “Plaintiff [did] not establish[ ] that directing her to cure the violation or to face sanctions as a result violated any explicit or referenced power held by the arbitration panel.”[12]

Turning to the second argument – whether the arbitration panel manifestly disregarded FINRA Rule 2360 – the motion court held that it did not do so.

Plaintiff argued that the arbitration panel manifestly disregarded FINRA Rule 2360 because defendants did not provide expert testimony to match that provided by plaintiff. To vacate an award on the grounds of manifest disregard of the law, “a court must find both (1) that 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.”[13]

The motion court rejected plaintiff’s argument that, because defendants did not provide expert testimony on Rule 2360, the conclusion of their witness regarding the application of Rule 2360 to the facts of the matter, would have required the arbitration panel to adopt those conclusions. “Such a reasoning,” said the motion court, “is not supported by the case law, nor is it sufficient to meet the heavy burden required to vacate an arbitration award.”[14] “Because Defendants provided testimony and facts to support their position that they had complied with the FINRA rule in question,” concluded the motion court, “it cannot be said that the arbitration panel must have ignored FINRA Rule 2360 altogether.”[15]

Finally, the motion court addressed defendants’ cross-motion to confirm the Award. A court is required to confirm an arbitration award unless it is vacated or modified pursuant to one of the grounds listed in CPLR 7511(b).[16] Because plaintiff did not meet “her heavy burden in establishing that the Award should be vacated,” the motion court held that it must confirm the Award.[17]

Takeaway

Allen underscores several important principles concerning arbitration and the awards that are issued in them.

First, judicial review of arbitration awards is extremely limited under both New York law and the FAA. Courts will only vacate an award if the petitioner can satisfy any of the enumerated bases under Section 10 of the FAA and CPLR 7511(b) or acted with manifest disregard of the law, a doctrine that, as the Allen court reiterated, is applied narrowly. Under that doctrine, even errors or misinterpretations of law are insufficient grounds for vacatur.

Second, Allen reinforces the authority of arbitrators to enforce the alternative dispute resolution organization’s rules. As discussed, the Allen court confirmed that arbitrators have the authority to impose sanctions—including attorneys’ fees—when such rules are violated, provided that the arbitration agreement does not expressly limit this power. In Allen, the rule at issue was Rule 12209, which prohibits parties from pursuing parallel court actions on issues already before an arbitration panel.

Third, Allen highlights the informality of arbitral proceedings. As shown in the background discussion of the case, arbitrators exercise broad discretion in accepting and weighing evidence. Thus, as discussed, the absence of opposing expert evidence did not compel the arbitration panel to adopt plaintiff’s interpretation of Rule 2360.

Fourth, the decision illustrates that courts will confirm arbitration awards unless statutory grounds for vacatur are met. This promotes finality and efficiency in arbitration, thereby showing litigants that vacating an adverse award is an uphill battle.

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] In Rule 2360, FINRA established a regulatory framework for the conduct of member firms involved in options trading. The rule governs all aspects of options activity, including account approvals, supervision, position limits, reporting, disclosures, and settlement.

[2] Defendants challenged the witness’s admission as an expert, and the arbitration panel reserved decision on the

matter and permitted the witness to testify.

[3] On many occasions, this Blog has examined the grounds upon which an arbitration award may be vacated under the FAA, CPLR 7511(b), and the manifest disregard of the law doctrine. To find such articles, please see the Blog tile on our website and search for “FAA”, “CPLR 7511”, “vacatur”, and “manifest disregard of the law” or any other issue that may be of interest to you.

[4] Wien & Malkin LLP v. Helmsley-Spear, Inc., 6 N.Y.3d 471, 480 (2006).

[5] Id. at 479.

[6] We have examined the vacatur of arbitral awards under CPLR 7511(b)(1)(iii) on numerous occasions. E.g., Scope of Court Proceedings Limited By Parties’ Agreement, Arbitration Award Confirmed in the Absence of Proof That Arbitrator Exceeded His Authority, Court Finds Performance of an Accounting Within the Scope of the Arbitrator’s Authority, First Department Finds Arbitrator Exceeded Authority By Awarding Relief Not Demanded, and Fourth Department Vacates Portion of Arbitral Award Because Arbitrator Exceeded His Authority.

[7] We have examined the vacatur of arbitral awards under the manifest disregard of the law doctrine on numerous occasions. E.g., Manifest Disregard of The Law and Class Arbitrations, Manifest Disregard of the Law and the Arbitrability of Class Claims, Fourth Department Rejects Violation of Public Policy and Manifest Disregard of the Law as Bases To Vacate Arbitral Award, Saying One Thing When You Mean Another, and Irrationality, Manifest Disregard of The Law and The Contractual Obligation to Arbitrate Disputes.

[8] See Smith v. Spizzirri, 601 U.S. 472, 477 (2024).

[9] Slip Op. at *3.

[10] Id., quoting Brown & Williamson Tobacco Corp. v. Chesley, 7 A.D.3d 368, 372 (1st Dept. 2004).

[11] Id.

[12] Id. at *3-*4.

[13] Wien, at 481.

[14] Slip Op. at *4.

[15] Id., citing Transparent Value, LLC v. Johnson, 93 A.D.3d 599, 601 (1st Dept. 2012) (holding that even an error or misunderstanding of the relevant law is not sufficient to support vacatur).

[16] Matter of Bernstein Family Ltd. P’ship v. Sovereign Partners, L.P., 66 A.D.3d 1, 3 (1st Dept. 2009).

[17] Slip Op. at *4-*5.

Tagged with: Arbitration, Arbitration Award, CPLR 7511(b), FAA, Manifest Disregard Of The Law Doctrine, Vacate Arbitral Award, Vacating Arbitration Award