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

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No. 94-18. Argued January 10, 1995-Decided March 6,1995

Petitioners filed this action in the Federal District Court, alleging that their securities trading account had been mishandled by respondent brokers. An arbitration panel, convened under the arbitration provision in the parties' standard-form contract and under the Federal Arbitration Act (FAA), awarded petitioners punitive damages and other relief. The District Court and the Court of Appeals disallowed the punitive damages award because the contract's choice-of-Iaw provision specifies that "the laws of the State of New York" should govern, but New York law allows only courts, not arbitrators, to award punitive damages.

Held: The arbitral award should have been enforced as within the scope of the contract between the parties. Pp. 55-64.

(a) This case is governed by what the contract has to say about the arbitrability of petitioners' punitive damages claim. The FAA's central purpose is to ensure "that private agreements to arbitrate are enforced according to their terms." Volt Information Sciences, Inc. v. Board of Trnstees of Leland Stanford Junior Univ., 489 U. S. 468, 479. This Court's decisions make clear that if contracting parties agree to include punitive damages claims within the issues to be arbitrated, the FAA ensures that their agreement will be enforced according to its terms even if a rule of state law would otherwise exclude such claims from arbitration. See, e. g., Allied-Brnce Terminix Coso v. Dobson, 513 U. S. 265. Pp. 55-58.

(b) The Court of Appeals misinterpreted the parties' contract by reading the choice-of-Iaw provision and the arbitration provision as conflicting. Although the agreement contains no express reference to punitive damages claims, the fact that it is intended to include such claims is demonstrated by considering separately the impact of each of the two provisions, and then inquiring into their meaning taken together. This process reveals that the choice-of-Iaw provision is not, in itself, an unequivocal exclusion of punitive damages claims, that the arbitration provision strongly implies that an arbitral award of punitive damages is appropriate, and that the best way to harmonize the two is to read "the laws of the State of New York" to encompass substantive principles that


New York courts would apply, but not to include special rules limiting the authority of arbitrators. Thus, the choice-of-Iaw provision covers the rights and duties of the parties, while the arbitration clause covers arbitration; neither provision intrudes upon the other. Pp. 58-64.

20 F.3d 713, reversed.

STEVENS, J., delivered the opinion of the Court, in which REHNQUIST, C. J., and O'CONNOR, SCALIA, KENNEDY, SOUTER, GINSBURG, and BREYER, JJ., joined. THOMAS, J., filed a dissenting opinion, post, p. 64.

William J. Harte argued the cause for petitioners. With him on the briefs were Robert L. Tucker and Joan M. Mannix.

Malcolm L. Stewart argued the cause for the United States et al. as amici curiae urging reversal. With him on the brief were Solicitor General Days, Deputy Solicitor General Wallace, Simon M. Lorne, Paul Gonson, Jacob H. Stillman, Lucinda O. McConathy, and Mark Pennington.

Joseph Polizzotto argued the cause for respondents.

With him on the brief were Phil C. Neal, H. Nicholas Berberian, and Robert J. Mandel. *

JUSTICE STEVENS delivered the opinion of the Court. New York law allows courts, but not arbitrators, to award punitive damages. In a dispute arising out of a standardform contract that expressly provides that it "shall be governed by the laws of the State of New York," a panel of arbitrators awarded punitive damages. The District Court and Court of Appeals disallowed that award. The question presented is whether the arbitrators' award is consistent with the central purpose of the Federal Arbitration Act to

*Briefs of amici curiae urging reversal were filed for the American Association of Limited Partners by Michael B. Dashjian; for the Public Investors Arbitration Bar Association by Stuart C. Goldberg and Seth E. Lipner.

Andrew L. Frey, Andrew J. Pincus, and Stuart J. Kaswell filed a brief for the Securities Industry Association as amicus curiae urging affirmance.

Full Text of Opinion

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