Exemplary Awards in Securities Arbitration: Short-Circuited Rights to Punitive Damages - Mastrobuono v. Shearson Lehman Hutton, Inc.

Despite some residual image problems, arbitration is far from a modem day phenomenon.2 Aristotle himself was a fan of arbitration, for the arbitrator keeps equity in view, whereas the judge looks only to the law. 3 However, inconsistency among federal courts regarding the award of punitive damages by arbitrators has only furthered the image problem.4 Discord among courts arises when parties sign a contract agreeing to be bound by the law of a state which prohibits arbitral awards of punitive damages along with contract language which seems to express intent to allow punitive damages.5 Under the Federal Arbitration Act ( FAA ), federal courts may vacate arbitration awards that exceed the scope of the arbitrator\u27s authority.6 This only begs the question of what is the scope of an arbitrator\u27s authority. In response to this issue, courts among the federal appellate judiciary have taken opposite views, awaiting guidance from the United States Supreme Court.