Mastrobuono v. Shearson Lehman Hutton, Inc. case brief

Mastrobuono v. Shearson Lehman Hutton, Inc. case brief summary
514 U.S. 52 (1995)

CASE SYNOPSIS

Petitioners challenged the decision of the U.S. Court of Appeals for the Seventh Circuit, which held that their contract with respondent selecting New York's law as the choice of law in an arbitration agreement meant that New York law prohibiting punitive damages by an arbitration panel was enforceable.

CASE FACTS
Petitioners opened a stock account with respondent brokerage company and claimed that respondent mishandled their account. Petitioners sued respondent in federal court, and respondent successfully stayed the proceeding, claiming that their agreement with petitioners required all disputes to go before an arbitration panel, applying New York law as its choice of law. An arbitration panel convened and found in favor of petitioners, awarding compensatory and punitive damages. Respondent challenged the award of punitive damages, arguing that under New York law, arbitrators were not permitted to award punitive damages.

DISCUSSION

• On appeal, the court held that the agreement requiring that New York law applied meant that only New York's substantive law was applicable to the parties' dispute, and not its provisions limiting an arbitrator's award. 
• The court determined that the parties' agreement permitted punitive damages from arbitrators and so enforced the panel's award.

CONCLUSION

The court reversed the judgment of the lower court and held that a choice of law provision in an arbitration agreement only applied to that state's substantive law, and not to its rules limiting an arbitrator's award.

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