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Before Lipez and Howard, Circuit Judges, and Oberdorfer, *fn1 Senior District Judge.

Courts must accord substantial deference to the decisions of arbitrators. Nevertheless, there are limits to that deference. This case tests those limits in an appeal arising from a National Association of Securities Dealers, Inc. (“NASD”) arbitration proceeding between defendants-appellants Steven Mscisz, Mark Mscisz, and Lynda Mscisz (“appellants” or “Mscisz”) and plaintiffs- appellees Kashner Davidson Securities Corporation, Victor L. Kashner, Matthew Meister, and Timothy Varchetto (together “appellees”). In the course of resolving a contract and securities dispute between the parties, the arbitration panel (“Panel”) dismissed several of appellants’ counter-claims against Kashner Davidson Securities Corp. (“Kashner Davidson”) and third-party claims against Kashner, Meister, and Varchetto (“Third-Party Appellees”). The Panel first stated in the presence of the parties that its decision to dismiss these claims involved consideration of the merits. Then, after recessing for a brief executive session, the Panel announced that the dismissal was a sanction pursuant to NASD Code Rule 10305. After the dismissal, the Panel took evidence on the remaining claims and entered an arbitration award in favor of appellees.

Appellees filed a motion with the District Court of Massachusetts to Confirm the Arbitration Award, which appellants opposed. Appellants also filed a cross-motion seeking vacatur of the Award. The district court granted appellees’ motion and denied the appellant’s cross-motion. On appeal, Mscisz asserts, inter alia, that the Panel deprived them of a fundamentally fair hearing by sua sponte dismissing their counterclaims and third-party claims with prejudice on the merits or, alternatively, that the Panel acted in manifest disregard of the law by dismissing the claims with prejudice as a sanction.

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