Connecticut Supreme Court Backs $5 Million Punitive Damages Arbitral Award (Web)

In a 5-2 decision, the Connecticut Supreme Court affirmed the confirmation of a $5 million punitive damages arbitration award, even though no compensatory damages were awarded.
           
On May 17th, 2005, the Connecticut Supreme Court held that neither the 14th Amendment nor state public policy prevented the confirmation of a $5 million arbitral award against MemberWorks Inc., a Stamford, Conn., direct marketer.
           
The five-judge majority held that the due process protections of the U.S. Constitution’s 14th Amendment cannot be invoked against the punitive damages award because the state trial court’s confirmation of the arbitral award didn’t constitute state action, “regardless of how excessive the award may be.”
           
Justice David M. Borden, writing for the majority, added that “because Connecticut does not have a well-defined public policy against the award of excessive punitive damages, the award does not violate public policy.”
          
Borden noted that the award did not violate any “explicit, well defined [or] dominant” public policies.  Rather, the court ruled that “the defendant has failed to sustain its burden of establishing that the arbitration panel’s award violated a clearly demonstrated Connecticut public policy against excessive damage awards.”
           
Justice Peter T. Zarella dissented.  While agreeing that the award was not state action, he argued that the award’s size violates a “well-defined and dominant public policy against excessive punitive damage awards.” 
          
 Wrote Zarella, “It does not take much foresight to predict that the majority’s decision will cause parties to shun arbitration as a preferred method of dispute resolution because it will expose them to virtually unlimited punitive damage awards without any meaningful recourse from the courts.”  Justice Flemming L. Norcott Jr. joined in Norcott’s opinion.
           
The case stems from a dispute between a failed health care network, MedValUSA, and MemberWorks, with whom it contracted to sell its services via consumer membership subscription plans.  MedValUSA, according to the dissent, closed when it failed to enlist doctors and hospitals.  The network was to sell subscriptions for physician, hospital and other medical services.  After the companies failed to get the network running, the plaintiffs’ brought claims against MemberWorks before an American Arbitration Association panel, which issued the award.
           
The Medvalusa Health Programs majority opinion is also available at: http://www.jud.state.ct.us/external/supapp/Cases/AROcr/CR273/273CR68.pdf

The minority opinion can be found at:  http://www.jud.state.ct.us/external/supapp/Cases/AROcr/CR273/273CR68E.pdf
 

-Mark Boyko