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William C. Altreuter
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Friday, January 28, 2005

Friday posts about the law may turn into a tradition here at "Outside Counsel", The Blawg That's Really About Bob Dylan, Or the Clever Thing My Kid Said, Or Something Else That's Not Law. Today I'd like to talk a little about the Revised Uniform Arbitration Act. The RUAA is presently on the table in the Empire State, and the ramifications of this go well beyond the narrow sort of procedural question you'd think amending Article 75 of the CPLR would have.

I'm still thinking through all of this, and am really thinking aloud here, but one of the things that the RUAA provides for that is not in present New York law is the award of punitive damages in arbitrations. New York is in the minority here-- we don't allow this, and I think it would be a bad idea to introduce this, particularly by way of amendment to our code of civil procedure.

I'm okay with punitive damages as a concept-- sometimes that's what it takes, and in New York at least, punitives are rare enough that I do not see them as the tremendous evil that some do. That said, it seems to me that an award of punitive damages is something that should properly come from a jury, and be subject to judicial and appellate review. Arbitration is a good thing, but the possibility of an arbitrator, or a panel of arbitrators making a punitive damages award gives me the heebe-jeebes. The RUAA tries to address this by allowing for judicial review of punitive damage awards (without the heightened deference that arbitral awards generally receive), but it seems to me that punitives have no place in arbitration at all-- and just saying that a judge can look the award over doesn't make me feel any better about it.

Let's start with the fact that you generally get to arbitration because you were in a contractual relationship with the other party. Equal bargaining power is a bit of a myth, but there was a contract, or else you wouldn't be there. Although I can conceive of abuses in such a relationship that might warrant punitives, I also think that the advantages and benefits of private law solutions to contractual disputes outweigh the slight protection against such abuses that the threat of punitive damages offers. Indeed, I favor arbitration exactly because it is a system that encorages compromise. It accomplishes this by starting out as a compromise-- the parties agree that they will forgo certain rights, like juries, and appellate review, inter alia-- for the sake of simplifying the method for resolving any dispute that might arise between them.

As a colleague observed today, amending New York's arbitration statute amounts to a choice of law question. There really already is a uniform statute-- it's the Federal Arbitration Act. If the parties are arbitrating under New York rules, it is because they have agreed to use New York law. New York is important because it is a commercial center, and it seems to me that there is a value in being careful about how we go about changing the rules by which we do business if we as New Yorkers want to remain a commercial center-- and if we as New York lawyers wish to continue to do remunerative arbitrations.

I understand that the thinking might be different in New Mexico or Mississippi-- chances are that consumer arbitrations and suchlike are a bigger part of the practice in places like that, and in that sort of dispute concerns about unequal bargaining power should not e so lightly tossed off. New York is different. New York is international-- not just New York City-- Buffalo functions that way, too, and should be moving more in that direction. If we are in the minority on the punitive damages question, the reason my be that this is one way in which our state is endeavoring to be more hospitable to business. G-d knows we should have something going for us in that department, and if what we have going is something that makes the Empire State a better place for lawyers, hey, I'm especially down with that. Barring punitive damage awards in arbitration is a fine reason to have contractual provisions calling for New York law to apply-- the resulting legal work is probably not stuff that our colleagues in New Mexico or Mississippi would want to do anyway. At a minimum, I would want to see some sort of empirical evidence about how many, and what sort of arbitrations predominate in our state, so that we could better decide if this is a change that might effect New York's status as a commercial center.

Finally, it seems to me that changes in procedural law are an inappropriate way to effect a change in substantive law, which is what this would be. If the Legislature, in its (I can't believe I'm using this word) wisdom wants to make punitive damages available in an arbitration context it should do it straight up-- pass a bill that says that in arbitration, punitive damages are allowed. The RUAA doesn't really do that-- it sort of slides it in-- and that means that there really isn't the sort of legislative history going to be there that I think should be there for such an important substantive change.

I'm going to keep turning this over in my head, because I think it is important and interesting. I'll be revisiting the question, too, for those same reasons. The intersection of policy and proceedure-- what could be more interesting that that?

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