Punitive Damages and Arbitration: A Modern Dilemma for Courts and Consumers
March 8, 2004Should private arbitration panels be allowed to offer punitive damages? Is a $25 million judgment excessive if actual damages are only about $1 million? How much oversight should courts have over private arbitrators? Do the same legal standards apply in private proceedings as in a court of law?
This is an area that is expert ground for Thomas J. Stipanowich, President and Chief Executive Officer of The CPR Institute for Dispute Resolution. He has studied and analyzed punitive damages in arbitration for the past 15 years. As an attorney, he sought and received one of the earliest reported awards of punitive damages in arbitration. As a scholar, he has written two books and several articles on the subject. As Chair of the Securities Industry Conference on Arbitration, he has worked with investor and securities industry advocates to develop mutually satisfactory approaches to the problem. As an advisor on the Uniform Arbitration Act, he wrestled with the state of the law. With important cases pending on the national scene, he adds insight and clarity to the issues.
Mr. Stipanowich’s biography is below.
Fact: Alternative dispute resolutions (ADR) is one of the fastest growing litigation management trends, and arbitration is more and more widely used in employment and consumer contracts.
Fact: Punitive damages awards by arbitration panels is a hot topic; in a recent New York employment case, Sawtelle vs. Waddell & Reed Financial Inc., a fired securities broker won $25 million in punitive damages from an arbitration panel; in Pacificare Health Systems v. Book, the U.S. Supreme Court directed enforcement of an arbitration agreement between health care systems and doctors despite the fact that it barred recovery of punitive damages.
Fact: Arbitration-related punitive damages is a fascinating legal issue that affects thousands of consumers and employees nationwide. It is a flashpoint in the growing debate over litigation management, and begs for explanation and analysis because of its complexities.
In a landmark decision, a New York trial court judge struck down a private arbitration panel’s record-breaking award of $25 million in punitive damages in Sawtelle. The judge had confirmed the award, but it was overturned on appeal, based on the court’s view that the punitive award was disproportionate. The arbitration panel reconsidered, and issued the $25 million punitive damages award a second time. The trial judge refused to confirm the second award, reversed and vacated it, and, in January, ordered that a new arbitration panel be formed – increasing the likelihood of a long delay before a final award is
rendered and enforced.
“The is a case of first impression that raises lots of new and novel issues,” says Stipanowich. “Punitive damages awards in arbitration raise questions about the growing world of private dispute resolution and its suitability as a broad substitute for public courts. What is clear here is that the Sawtelle court is making this up as it goes – and who knows when the merry-go-round will stop?”
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About Thomas J. Stipanowich
Thomas J. Stipanowich has long been recognized as a force for constructive change in public and private dispute resolution. Over the past two decades he has earned high regard as a scholar, speaker, author, practitioner and policymaker in the fields of mediation, arbitration and conflict management.
Since 2001, Mr. Stipanowich has led The CPR Institute for Dispute Resolution, steadily increasing its range of services, intellectual property, and global network. His responsibilities include providing leadership and strategic guidance to the Institute in cooperation with The Institute’s Board of Directors, led by the Honorable Charles Renfrew, and a forty-member Executive Committee comprised of many of the world’s leading lawyers and corporate counsel.
Prior to joining the organization, Mr. Stipanowich served as the Director of CPR’s National Commission on the Future of Arbitration, and as the Inaugural CPR/Hewlett Professor.
Until 2001 the William L. Matthews Professor of Law at the University of Kentucky in Lexington, he co-authored two of the leading books on commercial arbitration law and practice: including FEDERAL ARBITRATION LAW: AGREEMENTS, AWARDS AND REMEDIES (Little, Brown & Co. 1994) a five-volume treatise that has been cited by the U.S. Supreme Court and many other federal and state courts; and COMMERCIAL ARBITRATION AT ITS BEST: SUCCESSFUL STRATEGIES FOR BUSINESS USERS (ABA 2001). He has advised or participated in important national efforts at statutory reform (the Uniform Arbitration Act and Uniform
Mediation Act), served as chief drafter of a protocol for consumer ADR programs, and played an important role in the development of the leading construction and securities ADR rules and policies. Prior to coming to CPR, he founded a non-profit court-connected mediation program (still in operation), served as Chair of the Securities Industry Conference on Arbitration (SICA), as a member of the Board of Directors of the American Arbitration Association, and as Chair of the Advisory Committee for the Global Disputes Research Center.
A sought-after speaker and widely-quoted commentator on ADR and conflict management topics, Mr. Stipanowich has wide-ranging experience as a commercial and construction mediator, arbitrator, federal court special master, and facilitator.
Mr. Stipanowich earned a Juris Doctor, Magna Cum Laude from the University of Illinois College of Law, a Master of Architecture from the University of Illinois, a Bachelor of Science in Architecture (with Highest Honors) as well as a host of fellowships and academic honors.
The CPR Institute for Dispute Resolution is a pioneer and leader in the area of dispute resolution. In February 2004, CPR was ranked #1 in alternative dispute resolution performance among General Counsels and their Deputies by Corporate Legal Times. Founded in 1979, CPR promotes excellence and innovation in public and private dispute resolution and serves as a primary multinational resource for avoidance, management and resolution of business-related and other disputes. CPR’s unparalleled wealth of intellectual property and published material has educated and motivated America toward an increased reliance on negotiation rather than litigation. CPR’s proprietary Panel of esteemed arbitrators and mediators has provided resolutions in thousands of cases, with billions of dollars at issue, worldwide.
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