« Detailed Pleading - What are your thoughts? | Main | Answering Statement and Affirmative Defenses - What are your thoughts? »

Punitive Damages - What are your thoughts?

Can an arbitrator direct that [statutory] punitive damages be paid to a charity, instead of Claimant, since it is Respondent's "bad conduct" that is being punished, not any act of Claimant that merits monetary reward?

Please provide your comments/thoughts below.

Comments (13)

Side question: Would the Respondent then be able to take a tax deduction for the compulsory donation?

I would not direct or authorize such an action. If I contemplated such action, I wouldn't know who to allow to choose the charity.

Jim Bailey

Punitive damages fall in the category of extreme remedies. In order for an arbitrator to award punitive damages the arbitrator has to rely on the wishes of the parties. This means that the power to award punitive damages has to have been agreed by the parties in the disputed contract. During the time I have been practicing arbitration one panel I was a member of awarded punitive damages. on several occasions panels I participated in have considered punitive damages but did not award them. In the one case where we did, the arbitration clause contemplated such relief and specified its requirement. The evidence presented at the hearing was clear that the behavior of one party warranted the award. The amount of the award was in that case dictated by the state law. We know that some of the jurisdictions do not permit a panel issuing punitive damages awards and the panel has to make sure that it is acting within the law when considering or awarding such a relief.

Robert E. Barras:

I know of no case where punitive damages apply to construction contracts. I would like to hear of any from our round table respondents,

As a 50 year practicing architect and AAA neutral clarification is useful on this type issue.

Hon. William G. Bassler:

If the Panel has the authority to award punitive damages under the law applicable to the dispute, and I think that is a big, IF, I know of no authority that would authorize the Panel to direct that the damages be paid to a Charity.

Punitive damages fall in the category of extreme remedies. In order for an arbitrator to award punitive damages the arbitrator has to rely on the wishes of the parties. This means that the power to award punitive damages has to have been agreed by the parties in the disputed contract. During the time I have been practicing arbitration one panel I was a member of awarded punitive damages. on several occasions panels I participated in have considered punitive damages but did not award them. In the one case where we did, the arbitration clause contemplated such relief and specified its requirement. The evidence presented at the hearing was clear that the behavior of one party warranted the award. The amount of the award was in that case dictated by the state law. We know that some of the jurisdictions do not permit a panel issuing punitive damages awards and the panel has to make sure that it is acting within the law when considering or awarding such a relief.

Only if the claimant asked for that relief. If the arbitrator came up with that relief on her own, she would have to explore the source of her authority to do so.

It would seem the claimant could get the deduction if both:

- The claimant books the punitive damages award as income.

- The claimant can prove donative intent (such as by specifically requesting that the arbitrator direct the respondent to pay to a specified charity).

The respondent would have a harder time establishing donative intent.

SInce punitive damages awards stem from the parties arbitration agreement I do not think that the award can be diverted to charity unless the arbitration clause allows it. I also do not believe that an award for punitive damages can be diverted to charity unless the arbitration clause permits it. If anyone comes across such a clause then I sure would like to see/read it!

Eric Holtzman:

This is an intriguing question on many levels. While I don't have an answer, I have learned that there are certain jurisdictions with "split-recovery" statutes dividing judgments for punitive damages. Might the statutes be applicable to an award confirmed by the Court? In any case, here's a fascinating Pepperdine Law review article that highlights many of the issues this question raises: http://digitalcommons.pepperdine.edu/cgi/viewcontent.cgi?article=2135&context=plr

Judge Gerald Harris:

The question appears to assume that the imposition of punitive damages is provided for statutorily . Assuming that is so, I know of no authority allowing the arbitrator to order that such damages be paid to a non-party, even in actions at law. If there is such authority I would be interested in learning about it. I would not presume to opine as to the tax consequences of any such payment.

An arbitrator's authority is determined by the parties' contract and by the applicable statutes and rules. I do not see that directing the disposition of an award of punitive damages to a charity is consistent with that authority unless explicitly provided for in the contract. An award of punitive damages does not become justified by such a condition. It's either allowed and appropriate or not.

Stephen D. Kramer:

[I may have cut myself off. This is a continuation of my comment that a charitable gift to a third party never considered by the scriveners of the arbitration agreement is indefensible.] Add to the benefit awarded to a third party with no concern for the dispute the possibility of receiving a tax deduction is ludicrous. Neither party had a corresponding deduction, nor should they have had. Passing the money through the accounts of the parties truly involves parties not entitled to a kind of relief they have not sought and for which no one was awarded a benefit. The claimant and respondent are more intimately involved than they could have imagined. If the relief was not dictated or permitted by the agreement, the arbitrators have no business making such an award.

Stephen D Kramer:

[The beginning of the comment had gotten lost in the computer.]I once sat solo on a case in which I was certain that both parties' counsel (not necessarily counsel litigating the arbitration) handled the dispute poorly, and I awarded counsel fees to the claimant because the respondent, whose attorney was the more incompetent of the two, would have to pay something. It was the closest I've ever gotten to an award of punitive damages. As others who have responded to this question have remarked, there is some justification to make such an award when the agreement permits it.

Awarding a gift to charity, on the other hand, involves a third party foreign to the proceeding for whom the writers of the arbitration agreement clearly had no intention of giving a windfall. The issue of the selection of the charitable beneficiary alone is fraught with interests different than those anticipated by the scriveners of the agreement.

Anonymous:

No. Not unless it is authorized by the law. And I know of no law that would authorize that.

Post a comment

(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)

About

This page contains a single entry from the blog posted on September 3, 2017 10:39 AM.

The previous post in this blog was Detailed Pleading - What are your thoughts?.

The next post in this blog is Answering Statement and Affirmative Defenses - What are your thoughts?.

Many more can be found on the main index page or by looking through the archives.