Can An Arbitration Award Punitive Damages ?
In Stewart v. State Farm Mut. Auto. Ins. Co., 104 N.M. 744, 747, 726 P.2d 1374, 1377 (1986), the Court upheld the arbitration panel's authority to make findings on the amount of punitive damages, but only within the amount permitted by the parties' contract.
The Court observed that the arbitrators had not made an award of punitive damages "undoubtedly" because of the Court's statement in Shaw, but acknowledged that it was for the arbitrator and not the trial court to find the facts relevant to an award of punitive damages. Stewart, 104 N.M. at 747, 726 P.2d at 1377.
We question whether the Shaw v. Kuhnel & Assocs., Inc., 102 N.M. 607, 608-09, 698 P.2d 880, 881-82 (1985) court's statement made in 1986, that the power to award punitive damages is reserved to the courts, reflects the state of our law today.
This Court recognizes that "we are bound by our Supreme Court's precedents." State ex rel. Martinez v. City of Las Vegas, 118 N.M. 257, 259, 880 P.2d 868, 870 (Ct. App. 1994), cert. granted, 118 N.M. 430 (1994). However, when we determine that our Supreme Court would conclude that the precedent is no longer good law and would overrule it given the opportunity, we will decline to follow the precedent. Id.
We have surveyed our case law since Shaw, and observe that it has been the practice for arbitrators to recommend an award of punitive damages and for the trial court to adopt the recommendation. It has not been our practice to require a separate trial on punitive damages.
For example, in Stinbrink v. Farmers Ins. Co., 111 N.M. 179, 182, 803 P.2d 664, 667 (1990), our Supreme Court reversed the confirmation of an arbitration award that required a sharing of costs and found punitive damages were warranted, but precluded by the terms of the insurance policy and remanded the case to the district court.
The Court did not specifically articulate whether this issue should be remanded to the arbitrators, but observed that the arbitrators had already found that punitive damages should be awarded. Furthermore, in United Tech. & Res., Inc. v. Dar Al Islam, 115 N.M. 1, 5, 846 P.2d 307, 311 (1993), the Court affirmed the trial court's adoption of the arbitrators' recommendation denying punitive damages, even though the plaintiffs demanded a jury trial on the issue.
From these cases, we conclude that the trial court does not reserve to itself a fact-finding role in determining whether to award punitive damages.
Our research further reveals that Garrity v. Lyle Stuart, Inc has not been followed by the majority of jurisdictions that have considered the issue. See generally Timothy E. Travers, Arbitrator's Power to Award Punitive Damages, 83 A.L.R. 3d 1037 (1978 & Supp. 2000).
Following the Garrity decision, many employment and brokerage contracts, requiring that disputes be resolved through binding arbitration, began to include a New York choice-of-law clause. See Lorenzo Marinuzzi, Punitive Damages in Arbitration: the Debate Continues, 52-SUM Disp. Resol. J. 67, 70 (1997).
And thus, in 1995, the United States Supreme Court took the opportunity to resolve a split in the circuits on whether arbitrators of Federal Arbitration Act claims could entertain and award punitive damages when such a choice-of-law provision existed. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 131 L. Ed. 2d 76, 115 S. Ct. 1212 (1995).
In that case, the Supreme Court held that a contract between a securities brokerage firm and its customers (arbitrated under the Federal Arbitration Act which authorizes punitive damages) allowed the arbitration panel to award punitive damages despite a choice-of-law provision, which the Court read as controlling only "New York's substantive rights and obligations, and not the State's allocation of power between alternative tribunals." Id. at 60.
Those jurisdictions which hold that arbitrators have no authority to award punitive damages have not based their rulings on exactly the same rationale as that set forth in Garrity.
While New York reasoned that it was not appropriate for a private tribunal to punish, Indiana has held that arbitrators cannot award punitive damages because arbitration arises out of contract, and punitive damages are not available in contract actions. See United States Fid. & Guar. Co. v. DeFluiter, 456 N.E.2d 429, 432 (Ind. Ct. App. 1983).
Based on similar reasoning, Arkansas has held that its law prohibits the arbitration of tort cases, for which punitive damages would be available, and thus punitive damages are not available for cases that can be arbitrated. See McLeroy v. Waller, 21 Ark. App. 292, 731 S.W.2d 789 (Ark. Ct. App. 1987).