Sawtelle Punitive Damage Award Vacated
Court vacates punitive damage award on constitutional due process grounds as being arbitrary and excessive, labeling the $25 million dollar punitive damage award at “grossly excessive.”
SAWTELLE v. WADDELL & REED, INC., No. 2330 (N.Y. App. Div., 1Dept., 2/11/03).
Courts may allow arbitrators to award punitive damages, but not if it runs afoul of BMW v. Gore. The Appellate Division vacates a punitive damage award of $25 million as vastly out of proportion to proportionality standards developed by the U.S. Supreme Court in BMW v. Gore, 517 U.S. 559. The Award, rendered in August 2001 (SAA 01-32), assessed Waddell & Reed Respondents about $28 million, which was confirmed in the lower court with a modification of the compensatory award from $1.8 million to $1.1 million (NASD ID #97-03642 (New York City, 8/7/01). That created a proportionality ratio of punitive to compensatory damages of about 23 to 1. The lower court decided that BMW v. Gores proportionality tests did not apply to arbitration proceedings, because there is no state action involved (SLA 2002-24). The Appellate Division rules that constitutional due process standards serve as benchmarks for determining as well that which is arbitrary and irrational under the FAA. Thus, the Court engages in a Gore analysis and decides the punitive portion of the Award must be vacated as grossly excessive. Otherwise, the modified Award is confirmed. To determine how much, if any, punitive damages should be awarded on remand, the Court returns the case to the same NASD Panel. (ed: A more detailed summary of this 28-page decision will appear in next weeks Lit Alert, SLA 2003-07. Skadden Arps (NY Partners Seth M. Schwartz & Susan L. Saltzstein, and Associates Timothy G. Nelson & Betsy A. Hellman) represented Waddell & Reed before the Court.) (SAC Ref. No. 03-06-01)
Copyright 2003 Securities Arbitration Commentator, Inc. P.O. Box 112, Maplewood, NJ 07040; t: 973-761-5880 f: 973-761-1504. Materials denoted with a SAC Reference No. (e.g. SAC Ref. No. 99-01-001) are on hand at SAC and may be obtained by calling the Securities Arbitration Commentator, or by email to firstname.lastname@example.org. The Securities Arbitration Commentator is the leading publication for securities arbitration news and information, and maintains the most complete database of arbitration awards availalble anywhere. For more information regarding their services, visit their website at www.sacarbitration.com
Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.
Return to The Securities Law Home Page
Visit Beam & Astarita, LLC, securities arbitration, regulation and litigation attorneys