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Award of Punitive Damages - What are your thoughts?

Assuming the arbitrator/panel determines that an award of punitive damages is appropriate under the governing law and the evidence adduced at the hearing, if the parties leave it to the arbitrator/panel to determine the magnitude of that award, what factors should be utilized in reaching that determination?

Please provide your thoughts/comments below.

Comments (5)

The main factor, of course, is whether the award of punitive damages is supported by the applicable law. If supported, the justification and basis for the punitive damage award should be clearly set forth and reasoned. The punitive damage portion should also be listed separately from any other damage award. The tribunal should also be aware, to the extent possible, as to whether the award, including the punitive damage portion, is likely to be enforced in a jurisdiction in which punitive damages are considered to be against public policy. In such a case, the tribunal may wish to consider whether an enforceable award that does not include punitive damages is more appropriate than an award that may not be enforceable but which includes punitive damages.

It seems to me that if the evidence shows that one party was guilty of abusive behavior and that behavior led to money damages of 'X' to the other party, and that the purpose of punitive damages is to dissuade the first party - or others like them - from doing it again, the punitive damages ought to be large enough to have that effect. Awarding some multiple of 'X' of their profit might be a small enough sum not to be a real factor in affecting future behavior. And making it a percentage of net profit wouldn't be effective if the company isn't profitable in the first place. I would consider making the award a significant percentage of their cash flow or assets.

Jose W Cartagena:

Since arbitration is supposed to be private, there should be no effect on the conduct of others arising from an award of punitive damages.
Regarding the offending party, assuming applicable law allows for punitive damages, the arbitrator has enough tools to adequately "punish" that party. I agree with Mr Lowe.

Most international arbitration rules preclude the possibility of a punitive damages award. In a purely domestic matter where the parties' agreement and the applicable arbitration rules do not prohibit a punitive damages award, the tribunal should carefully examine the upper limit under applicable law (e.g. multiples of actual damages allowed by courts). if the tribunal is convinced that a punitive award is appropriate, it must ensure the amount is below the upper limit.

In Sawtelle v. Waddell & Reed, Inc., 304 A.D.2d 103 (1st Dep't 2003), for example, the claimant argued for an award of punitive damages of twice the amount of compensatory damages allegedly incurred by breach of a Connecticut statute. Counsel for both parties agreed that neither the statute nor Connecticut case law supported an award of treble damages. Id., 304 A.D.2d 113-114. Yet the arbitrators awarded punitive damages of $25 million, 23 times the awarded compensatory damages. There was no indication that the arbitrators considered whether the amount of punitive damages complied with applicable law. This Court accordingly found that "[s]ince both sides agreed on this well-settled rule of proportionality and the panel was specifically advised of its existence, its $25 million punitive damages award, grossly disproportionate to the compensatory damages awarded, was made in manifest disregard of law." Id. at 114.

Dennis Cavanaugh:

Where punitive damages are allowed under statute or case law, generally the governing statute(s) establishes the magnitude of or methodology for computing the amount of the punitive damages or it is well settled under case law. In many jurisdictions punitive damages are limited to be the prevailing party's attorneys' fees. I agree with the comments of others that the punitive damages portion should be listed separate from other damages in the award because of potential challenges to this component of the award.

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