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Rhode Island: Supreme Court Sends Claim for Punitive Damages to Arbitration (Web)

The Rhode Island Supreme Court held last week that a borrower’s request for punitive damages did not preclude arbitration of his claims against a credit card company where a valid arbitration agreement existed between the parties.
This case was an appeal from a Superior Court decision compelling arbitration after a credit card debtor brought a libel action against a creditor that had allegedly reported to the credit bureaus that the debtor wanted his account “reported as legally paid in full for less than the full balance.”
The borrower argued that the inclusion of a request for punitive damages in his claim entitled him to a preliminary evidentiary hearing in Superior Court pursuant to Palmisano v. Toth, 624 A.2d 314 (R.I. 1993) and, thus, arbitration was not a proper forum for resolution of the dispute. The case came before the Supreme Court pursuant to an order directing the parties to show cause why the issues raised on appeal should not be summarily decided. The Supreme Court found that no such cause had been shown and affirmed the order entered in the Superior Court.
The Supreme Court found that the arbitration agreement between the credit card borrower and creditor was enforceable under Nevada law and applied to stay the borrower’s libel action. The credit agreement stated that it covered “any claim, dispute, or controversy” arising from or related to the agreement or the relationship which resulted from the agreement. The credit agreement also stated, in bold letters, that the parties knowingly and voluntarily waived rights to litigate claims in court.
Given this finding, the Court went on to find that the borrower’s request for punitive damages did not preclude arbitration or entitle him to a hearing before the court. While Palmisano outlined a procedure by which plaintiffs claiming punitive damages would be entitled to an evidentiary hearing, the court in that case also noted that “[a]n evidentiary hearing may not be necessary in every case” and explained that “[t]here may be factual situations demonstrated by affidavits submitted by the plaintiff that clearly demonstrate the viability of a punitive damages claim, thus obviating the need for a time-consuming evidentiary hearing.”
The Court also noted that Nevada’s law, which governed the action, did not prohibit an award of punitive damages in arbitration. Furthermore, the Court pointed out that the United States Supreme Court has ruled that the FAA preempts state laws which prohibit the award of punitive damages in arbitration. In Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995), the Supreme Court stated that “if contracting parties agree to include claims for punitive damages within the issues to be arbitrated, the FAA ensures that their agreement will be enforced according to its terms even if a rule of state law would otherwise exclude such a claim from arbitration.”
Satisfied that the arbitration clause in this case was broad enough to include the plaintiff’s claims in both tort and contract, as well as his claims for punitive damages, the Court affirmed the order staying the civil action pending the resolution of arbitration in accordance with the terms of the credit card agreement.