Court Opinion

ID: 9477077
Source: CourtListenerOpinion
Date Created: 2023-08-05 06:13:07.140426+00
Date Added: 2024-06-11T17:45:40.582188
License: Public Domain

TJOFLAT, Circuit Judge, specially
concurring:
I agree that under circuit precedent the arbitrator in this case is not precluded from awarding punitive damages. See Willoughby Roofing & Supply Co. v. Kajima Int'l, Inc., 598 F.Supp. 353 (N.D.Ala.1984), affd on the basis of the district court’s opinion, 776 F.2d 269 (11th Cir.1985). I write separately to air my reservations about the wisdom of that precedent.
As the court notes, the Bonars’ customer agreement incorporates by reference the rules of the American Arbitration Association. Section 42 of those rules provides that “[t]he arbitrator may grant any remedy or relief which he deems just and equitable and within the scope of the agreement of the parties.” (Emphasis added). I can understand how, in an appropriate case, an arbitrator may find that an award of punitive damages would be “just and equitable.” I have difficulty, however, understanding how punitive damages can ever be considered “within the scope of the agreement of the parties” absent some express provision in the contract.
In voicing this view, I do not mean to impugn the ability of arbitrators to fashion appropriate remedies. Nor do I mean to give short shrift to the federal policy favoring arbitration. I mean only to suggest that when parties contractually agree to submit contract disputes to arbitration, they do no more than simply that: they agree to submit contract disputes to arbitration. In other words, the arbitration *1389clause in a contract is inserted with the understanding that the arbitrator’s remedial power will be limited to fashioning relief that is fairly included within the scope of the parties’ agreement. That scope may of course encompass a variety of “make whole” remedies which, when correctly applied, serve to uphold the economic bargain the parties struck upon entering into the contract. Whether that scope can fairly be said to encompass the assessment of a penalty for willful or wanton misconduct, however, is extremely doubtful. Punitive damages are designed to serve the societal functions of punishment and deterrence; unlike contract remedies, they are not designed to vindicate the parties’ contractual bargain. Consequently, absent an express provision in the contract, punitive damages should be considered as outside the scope of the parties’ agreement and beyond the power of the arbitrator to award.
The rules of the American Arbitration Association recognize this important distinction by providing that arbitrators may award only those remedies that are “within the scope of the agreement of the parties.” Applying this principle, courts outside this circuit have held that arbitrators lack power to award punitive damages absent an express provision in the contract. See, e.g., Howard P. Foley Co. v. International Bhd. of Elec. Workers, Local 639, 789 F.2d 1421, 1424 (9th Cir.1986); Internatinal Ass’n of Heat & Frost Insulators & Asbestos Workers, Local 34 v. General Pipe Covering, Inc., 792 F.2d 96, 100 (8th Cir.1986); Baltimore Regional Joint Bd. v. Webster Clothes, Inc., 596 F.2d 95, 98 (4th Cir.1979). I believe that our circuit’s adherence to a different rule reflects a basic misunderstanding of the nature of punitive damages and the scope of arbitrators’ remedial powers.