The Punitive Damages Remedy: Lessons for Drafters of Arbitration Agreements - Chapter 40 - AAA Handbook on Arbitration Practice - Second Edition
Michael D. Nolan
Andrew M. Leblanc
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Michael D. Nolan is a partner in the Litigation and Arbitration Groups, and Andrew M. Leblanc is a partner in the Financial Restructuring and Litigation Groups, in the Washington D.C. office of Milbank, Tweed, Hadley & McCloy LLP.
THE PUNITIVE DAMAGES REMEDY: LESSONS FOR DRAFTERS OF ARBITRATION AGREEMENTS
Michael D. Nolan and Andrew M. Leblanc
A principle well established in arbitration law is that, unless the parties expressly and unambiguously preclude an award of punitive damages in their arbitration clause, the arbitration tribunal will be able to award punitive damages. Federal courts applying this principle have recently expanded this doctrine to grant arbitration panels more freedom than trial courts to award punitive damages. Recently, the U.S. Court of Appeals for the Eighth Circuit re-affirmed this principle and ruled that it was not excessive for an arbitrator to award punitive damages that were 3,000 times the compensatory damages, even though these punitive damages would be excessive as a matter of law had they been awarded by a court.1 This decision on punitive damages reinforces for attorneys the importance of employing direct and unambiguous language in crafting arbitration clauses. It also demonstrates the power of arbitrators to award damages that would not be permitted in traditional litigation.
II. Punitive Damages and Arbitration: Background
In 1995 the U.S. Supreme Court confirmed the power of arbitrators to award punitive damages in Mastrobuono v. Shearson Lehman Hutton,