Originally from:

AAA Handbook on Arbitration Practice - Second Edition

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CHAPTER 40

THE PUNITIVE DAMAGES REMEDY:
LESSONS FOR DRAFTERS OF
ARBITRATION AGREEMENTS

Michael D. Nolan and Andrew M. Leblanc

I. Introduction

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,