NCJ Number
116301
Journal
Catholic University Law Review Volume: 37 Issue: 4 Dated: (Summer 1988) Pages: 1113-1144
Date Published
1988
Length
32 pages
Annotation
Although neither legislation nor United States Supreme Court decisions state whether punitive relief is available on State claims that are joined with allegations of violations of Federal security laws in cases handled by arbitration, no statutory or policy obstacles exist to restrict the authority of arbitrators to fashion appropriate remedies flexibly.
Abstract
The United States Supreme Court's decision in Shearson/American Express, Inc. v McMahon will encourage the use of binding commercial arbitration to resolve disputes. However, to the extent that arbitral consideration excludes punitive awards, the process sacrifices both systemic efficiency and investor protection. Federal and State laws currently conflict in that securities fraud does not result in punitive relief under Federal law, whereas most States allow punitive damage awards for particularly outrageous conduct. Thus, changing from court to arbitration not only changes the method of dispute resolution but also restricts the recovery available to the claimant and limits the defendant's exposure to liability. Therefore, arbitration has modified substantive law in ways unintended by the drafters of the Federal Arbitration Act. It also interferes with the contractual expectations of parties to an arbitration agreement. Rule changes are needed consistent with the policies underlying both the Federal Arbitration Act and Federal securities law. 318 footnotes.