The Delaware Chancery Court rejected a security dealer’s claim that an NASD award was issued in manifest disregard of the law, but modified the award to correct a mathematical error.

In TD Ameritrade, Inc. v. McLaughlin, Piven, Vogel Securities Inc., No. 3603-CC, 2008 WL 2855116 (Del. Ch. July 24, 2008), William Pickert was a longtime client of McLaughlin, Piven, Vogel Securities (MPV). An MPV associate transferred money from Pickert’s account to fraudulent accounts set up at Ameritrade and stole over $400,000.

Pursuant to the terms of his account, Pickert commenced arbitration before the National Association of Securities Dealers (NASD) against MPV and Ameritrade. During the arbitration proceedings, the panel refused to compel Pickert to testify and instead allowed a video deposition of Pickert into evidence.

The panel concluded that MPV was negligent under the Delaware Consumer Fraud Act (DCFA) and ordered it to pay Pickert damages. Additionally, Ameritrade was found liable to MPV for 50% of the damages owed to Pickert. MPV and Ameritrade filed a motion to vacate the arbitration award.

MPV argued that the panel's refusal to compel Pickert to testify in person constituted a refusal to hear material evidence. The Court examined the circumstances surrounding Pickert’s video deposition. In the deposition, Pickert was cross examined by Ameritrade counsel. Additionally, MPV counsel was invited to attend, but chose not to do so.

The Court recognized that cross examining an adverse witness is a fundamental right. However, MPV presented no evidence that it suffered prejudice as a result of the admission of Pickert’s deposition. Since the evidence showed that MPV was given the opportunity to cross examine Pickert, but chose not to do so, MPV failed to demonstrate the hearing was fundamentally unfair.

Additionally, MPV argued that the panel acted in manifest disregard of the law because the panel granted damages to Pickert under the DCFA. MPV supported its contention by arguing that the panel found it negligent, and the DCFA does not punish acts of negligence.

However, the Court concluded that the panel did not act in manifest disregard of the law when it held MPV liable under DCFA. The Court noted that arbitrators have no obligation to give reasons for an award.

Finally, MPV argued that the panel made an error in its calculation of damages. The Court examined the award and discovered a mathematical error, which resulted in Pickert receiving double recovery. The Court noted its authority to modify an award when a mathematical error results in damages being paid in more than one place in the award. Accordingly, the Court modified the award to provide for treble damages alone and denied the motion to vacate the award.