Arbitrator’s Authority to Award Punitive Damages

In New Mexico, punitive damages are allowed in contract cases "on a showing of bad faith, or at least a showing that the breaching party acted with reckless disregard for the interests of the nonbreaching party." Paiz v. State Farm Fire & Cas. Co., 118 N.M. 203, 210, 880 P.2d 300, 307 (1994).

Additionally, since the 1986 Shaw decision, our society has become increasingly dependent on alternative methods of resolving its disputes and has increasingly demanded such methods.

The increasing demands upon the courts have, in turn, encouraged the use of arbitration. See United Tech., 115 N.M. at 3, 846 P.2d at 309 (explaining that the process of arbitration aids in relieving the judiciary's heavily burdened caseload).

Our research also persuades us that "despite its roots in private contract, arbitration has been called upon to function as a wide-ranging surrogate for the courtroom.

Indeed, it has increasingly moved from the role of commercial court to that of a civil court of general jurisdiction." Thomas J. Stipanowich, Punitive Damages and the Consumerization of Arbitration, 92 N.W.U. L. Rev. 1, 8 (1997).

Illustrating this trend to use arbitration to resolve disputes, the United States Supreme Court has recently extended the reach of the Federal Arbitration Act and ruled that employers can require the arbitration of employment disputes, except for those involving transportation workers. Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 121 S. Ct. 1302, 1307, 149 L. Ed. 2d 234 (2001).

Moreover, Garrity, upon which our Supreme Court relied for the proposition that arbitrators had no authority to award punitive damages, was the product of a divided court and has been widely criticized. As one commentator has pointed out, "the split in the Garrity court was essentially a battle of conflicting perspectives over the fundamental nature of arbitration." Stipanowich, supra, at 12.

The majority view was that a private remedy for a private dispute should not, for public policy reasons, be permitted to punish to deter bad behavior, that is, act in a public role. See Garrity, 353 N.E.2d at 795. the dissenting view, on the other hand, focused on the growing role and broadening scope of arbitration to resolve disputes. Id. at 798-801.

Since Garrity, many other jurisdictions have allowed punitive damages to be awarded in arbitration. Some jurisdictions permit arbitrators to award punitive damages only when they are expressly authorized by the contract.

See Edward Elec. Co. v. Automation, Inc., 229 Ill. App. 3d 89, 593 N.E.2d 833, 843, 171 Ill. Dec. 13 (Ill. App. Ct. 1992) (determining arbitrators could award punitive damages, so long as there was an express provision in the agreement authorizing such relief). Complete Interiors, Inc. v. Behan, 558 So. 2d. 48 (Fla. Ct. App. 1990) (holding arbitrators exceeded their power when they awarded punitive damages absent an express provision authorizing them).