Lead Opinion
This case involves two separate appeals.
The record reveals the following facts and procedural background. The plaintiff is a Connecticut coiporation formed by Andrew Bronfman and Andrew Flneberg to sell discount health care subscriptions for physician, dental, vision, prescription, hearing and other medically-related services to targeted segments of the general public. The defendant is a Connecticut corporation that provides membership service programs that give consumers access to discounts on a variety of products and services in many areas, including the health care industry. The parties entered into a contract whereby the plaintiff agreed to become a wholesale, nationwide vendor of one of the defendant’s dental and health plans. After they entered into the contract, relations between the parties deteriorated, prompting them to amend their agreement on April 15,1999. The amended contract delayed the “start date”
The arbitration panel ruled in favor of the plaintiff on all counts, but awarded no compensatory damages, finding that the plaintiff had failed to establish damages with reasonable certainty. The panel found, however, that, because the defendant had engaged in a number of unfair and deceptive acts in violation of CUTPA, General Statutes § 42-1 lOg (a), the provision within CUTPA providing for the award of punitive damages, justified a punitive damages award of $5 million.
The plaintiff timely applied to the trial
I
The defendant claims that the trial court improperly confirmed the arbitrator’s award because the award of punitive damages was excessive: (1) in violation of the defendant’s right to due process under the fourteenth amendment to the United States constitution; and (2) in violation of well-defined Connecticut public policy.
We first address the defendant’s claim that the arbitrator’s award of punitive damages violated its right to due process because the award was excessive. See generally BMW of North America, Inc. v. Gore,
The United States Supreme Court currently employs a two part test to determine whether the conduct of a private actor is fairly attributable to the state. “First, the deprivation must be caused by the exercise of some right or privilege created by the [s]tate or by a rule of conduct imposed by the [s]tate or by a person for whom the [s]tate is responsible. . . . Second, the party charged with the deprivation must be a person who may fairly be said to be a state actor.” Id. In order to determine whether the actor is a state actor, the court must consider: “the extent to which the actor relies on governmental assistance and benefits, see Tulsa Professional Collection Services, Inc. v. Pope,
The defendant does not argue that the arbitration panel relied on government assistance or benefits or performed a traditional governmental function. Indeed, we can find no instance in which a claimant has relied on a claimed dependence by an arbitration panel on government assistance and benefits, and federal courts have consistently rejected the “traditional government function” argument as support for concluding that an arbitrator was a state actor. See Davis v. Prudential Securities, Inc.,
Because Shelley v. Kraemer, supra,
At first glance, judicial confirmation of an arbitration award fits the Shelley pattern perfectly. Judicial confirmation is indisputably an exercise of government authority. See id., 18 (actions of state courts and state officials are state action for purposes of fourteenth amendment). Furthermore, just as with the restrictive covenant in Shelley, the arbitration award at issue in the present case would have had no effect without the active intervention of the courts, “supported by the full panoply of state power . . . .” Id., 19. Therefore, the same “but for” reasoning that guided the analysis of the Supreme Court in Shelley would seem to compel the conclusion that the judicial confirmation of an arbitration award constitutes state action. Shelley’s precedential authority for this
A survey of subsequent United States Supreme Court cases that have discussed Shelley supports this conclusion. The court has criticized Shelley and expressed reservations about extending its holding, most expressly in Bray v. Alexandria Women’s Health Clinic,
In addition to this direct criticism, the court’s minimal reliance on Shelley as precedent evinces the court’s reluctance to extend Shelley’s holding beyond the context of racial discrimination. Over the years, the Supreme Court has cited to Shelley primarily as a part of general language introducing the problem of state action, for the basic proposition that only state action is subject to fourteenth amendment strictures and that private action, no matter how discriminatory, is not subject to constitutional scrutiny.
In Bell v. Maryland,
Only once has a majority opinion discussed Shelley at any length—in order to distinguish it. Evans v. Abney,
Our conclusion that Supreme Court case law does not support the extension of Shelley to the context of the judicial confirmation of an arbitration award is further supported by the various state and federal courts that have considered whether state action exists under such circumstances. Almost universally, courts have concluded that judicial confirmation of an arbitration award is not sufficient to convert the action of an arbitrator into state action. For example, the Seventh Circuit Court of Appeals found no state action in a case where the plаintiff claimed that her right to equal protection had been violated because her arbitration panel contained no women. The court noted that arbitration is a “private self-help remedy.” Smith v. American Arbitration Assn., Inc.,
Other courts that have directly addressed this issue have arrived at the same conclusion. See, e.g., Cremin v. Merrill Lynch Pierce Fenner & Smith, Inc., supra, 957 F. Sup. 1469 (court confirmation of arbitrators’ decision was not state action); United States v. American Society of Composers, Authors & Publishers, 708 F. Sup. 95, 96-97 (S.D.N.Y. 1989) (mere court approval of arbitration was not state action); cf. Glennon v. Dean Witter Reynolds, Inc.,
None of the cases relied upon by the defendant in arguing that the Supreme Court has repeatedly applied Shelley’s rule converting the conduct of a private actor into state action via judicial enforcement involves an application of the third Edmonson factor—that is, whether state action may be imputed to the conduct of a private actor because the claimed injury was aggravated in a unique way by the incidents of governmental authority. We discuss several of these cases by way of illustration. For instance, one of the principal cases relied upon by the defendant, New York Times v. Sullivan,
B
The defendant next claims that the arbitration award violates Connecticut public policy against excessive punitive damage awards, grounded in Connecticut common law and in thе constitution of the United States, as interpreted by BMW of North America, Inc. v. Gore, supra,
We begin with the applicable standard of review. It is undisputed that the submission to arbitration was voluntary and unrestricted.
An arbitrator’s award may be vacated if it violates clear public policy. State v. New England Health Care Employees Union, supra,
Thus, in the face of a challenge to an arbitral award on public policy grounds, we engage in a two step process: First, we determine “whether an explicit, well-defined and dominant public policy can be identified.” (Internal quotation marks omitted.) State v. New England Health Care Employees Union, supra,
We have looked to a variety of sources in determining whether an arbitral award violates a well-defined public policy, and have cited, as examples of possible sources, statutes, administrative decisions and case law. Schoonmaker v. Cummings & Lockwood of Connecticut, P.C., supra,
We have also found public policy clearly defined in noncriminal statutes. For instance, in Board of Trustees v. Federation of Technical College Teachers,
Statutes have not been the exclusive source from which we have found clear statements of public policy. We also have looked to city charters and, on one occasion, to the Rules of Professional Conduct. In Waterbury Teachers Assn. v. Furlong,
In other cases, we have found that the statute relied upon as a ground for the alleged public policy was too tenuously related to the subject matter to constitute a ground for a clearly defined and dominant public policy. For example, in State v. AFSCME, AFL-CIO, Council 4, Local 2663, supra,
Thus, our case law establishes that, although we have been willing to find a public policy grounded in a variety of sources, the party seeking to establish the public policy bears a heavy burden of showing the existence of such a well-defined and dominant public policy. Indeed, we have in the past found a clear statement of that policy in some objectively stated form, such as a statute, city charter or rule of professional conduct. Although we do not decide that a statement in such a form is always required as the predicate for the public policy exception, we nonetheless adhere to the principle that the public policy must be “explicit, well defined and dominant . . . .” (Internal quotation marks omitted.) State v. New England Health Care Employees Union, supra,
Applying these principles to the present case, we conclude that the defendant has failed to sustain its burden of establishing that the arbitration panel’s award violated a clearly demonstrated Connecticut public policy against excessive damage awards. In fact, the only statute relevant to the arbitration panel’s award of punitive damages supports the opposite conclusion. The award was based on the panel’s finding that the defendant violated CUTPA, which expressly allows the award of punitive damages, and does not, by its express terms, provide a cap on the amount of damages awarded. See General Statutes § 42-1 lOg (a).
The second source advocated by the defendant as a ground for demonstrating a public policy against excessive punitive damage awards is the state’s common law. We have not found, however, and the defendant has not produced, any decision or line of decisions clearly demonstrating the existence of a well-defined and dominant public policy against the imposition of excessive punitive damages. Instead, the defendant attempts to glean the public policy from various principles established by our case law and court practices, such as: a reviewing court’s authority to overturn a jury award as excessive; see Gray v. Fanning,
Although all of these rules evince a generalized concern with limiting damage awards, the cases and practices cited by the defendant fail to satisfy its heavy burden of demonstrating a well-defined and dominant public policy against excessive punitive damages. Put another way, we simply fail to find in the combination of general limitations on damage awards in courts, the kind of well-defined and dominant public policy against excessive punitive damages that would justify setting aside a private, consensual arbitration award on the basis of the stringent and narrow confines of the public policy exception.
II
In the second appeal in this case, the plaintiff contends that the trial court abused its discretion in denying its motion for prejudgment and postjudgment interest. We disagree. The following additional facts are relevant to our consideration of the plaintiffs claim.
At the time that the plaintiff applied for confirmation of the arbitration award, it also requested prejudgment interest pursuant to General Statutes § 37-3a.
The plaintiff argues that, because the purpose of arbitration is to provide
The decision of whether to grant interest under § 37-3a is “primarily an equitable determination and a matter lying within the discretion of the trial court.” (Internal quotation marks omitted.) O’Hara v. State,
The trial court cited as its primary reason for denying the plaintiffs motion for interest pursuant to § 37-3a that the defendant had not wrongfully withheld the money because its arguments in opposition to the application to confirm the award and in support of its motion to vacate the award were not frivolous. This was an appropriate equitable consideration within the discretion of the trial court. The trial court’s decision, therefore, was not an abuse of discretion.
The judgment is affirmed.
In this opinion SULLIVAN, C. J., and KATZ, PALMER and VERTEFEUILLE, Js., concurred.
Notes
In the first case, SC 17117, the defendant, MemberWorks, Inc., appealed from the judgment of the trial court to the Appellate Court. In the second case, SC 17116, the plaintiff, MedValUSA Health Programs, Inc., appealed from the judgment of the trial court to the Appellate Court. We transferred both appeals to this court pursuant to Practice Book § 65-1 and General Statutes § 51-199 (c).
The “start date” is defined in the parties’ contract as “the date that all fulfillment materials and services are readily available so that [the plaintiff] can commence its business opеrations hereunder.”
Although network 1 included a hospital network, network 2 did not.
The term “fulfillment materials” refers to the membership cards and booklets that would have been made available to the plaintiffs customers.
General Statutes § 42-110g (a) provides in relevant part: “The court may, in its discretion, award punitive damages and may provide such equitable relief as it deems necessary or proper.” the award requires the performance of any other act than the payment of money, the court or judge entering the judgment or decree may direct the enforcement thereof in the manner provided by law for the enforcement of equitable decrees.”
General Statutes § 52-417 authorizes such a motion and provides in relevant part: “At any time within one year after an award has been rendered and the parties to the arbitration notified thereof, any party to the arbitration may make application to the superior court for the judicial district in which one of the parties resides or, in a controversy concerning land, for the judicial district in which the land is situated or, when the court is not in session, to any judge thereof, for an order confirming the award. ...”
General Statutes § 52-421 (b) establishes the effect of confirmation of an arbitration award, providing: “The judgment or decree confirming, modifying or correcting an award shall be docketed as if it were rendered in a civil action. The judgment or decree so entered shall have the same force and effect in all respects as, and be subject to all the provisions of law relating to, a judgment or decree in a civil action; and it may be enforced as if it had been rendered in a civil action in the court in which it is entered. When
The plaintiff argues that these claims are not properly before this court because the defendant failed to argue to the arbitration panel that the failure to award compensatory damаges should place a limit on the amount of punitive damages that the panel could award. Regarding the defendant’s public policy claim, however, we have already stated, in Schoonmaker v. Cummings & Lockwood of Connecticut, P.C.,
Shelley actually involved two separate cases, the second of which involved facts that were not materially distinct from the first case. Shelley v. Kraemer, supra,
S. Saxer, “Shelley v. Kraemer's Fiftieth Anniversary: ‘A Time for Keeping; a Time for Throwing Away?’ ” 47 U. Kan. L. Rev. 61, 83 (1998) (noting that “Shelley has been celebrated as an expansion of the state action doctrine which allows private discrimination to be restricted by constitutional norms”); L. Henkin, “Shelley v. Kraemer: Notes for a Revised Opinion,” 110 U. Pa. L. Rev. 473 (1962) (noting that Shelley was “hailed as the promise of another new deal for the individual”).
S. Saxer, “Shelley v. Kraemer’s Fiftieth Anniversary: ‘A Time for Keeping; a Time for Throwing Away?’ ” 47 U. Kan. L. Rev. 61, 83-84 (1998) (noting that Shelley’s expansion of state action doctrine has been criticized because of its potential to convert all private action to state action); see also P. Kurland, “The Supreme Court 1963 Term—Foreword: Equal in Origin and Equal in Title to the Legislative and Executive Branches of the Government,” 78 Harv. L. Rev. 143, 148 (1964) (referring to Shelley as “constitutional law’s Finnegan’s Wake”); L. Graglia, “State Action: Constitutional Phoenix,” 67 Wash. U. L.Q. 777, 788 (1989) (describing reasoning in Shelley as “disconcerting because it illustrates with stark clarity both the [c]ourt’s belief and the truth that it is exempt from any requirement that its opinions make sense”).
Moreover, Shelley’s critics worry about the consequences should Shelley’s reasoning be extended. For example, Professor Lawrence Tribe has opined that Shelley’s reasoning, if “consistently applied, would require individuals to conform their private agreements to constitutional standards whenever, as almost always, the individuals might later seek the security of potential judicial enforcement.” L. Tribe, supra, 1697. One author proposes the following hypothetical: “[Neighbors, in the absence of zoning regulations, could not stop the operation of an adult bookstore or anude dancing establishment in their community either through the use of private covenants or nuisance law because such activities would be protected by the [fjirst [ajmendment.” S. Saxer, supra, 47 U. Kan. L. Rev. 65. Another commentator indicates that the flaw of Shelley is that it is grounded on a fundamentally paradoxical principle: “that the state may properly be charged with . . . discrimination when it does no more than give effect to an agreement that the individual involved is, by hypothesis, entirely free to make.” L. Henkin, “Shelley v. Kraemer: Notes for a Revised Opinion,” 110 U. Pa. L. Rev. 473, 476 (1962). Finally, one author, in commenting on the expansive nature of Shelley’s conception of state action, notes that “every action engaged in by a private person is either compelled, prohibited, or permitted, i.e., authorized, by the legal system within which that person lives.” (Emphasis added.) G. Buchanan, “A Conceptual History of the State Action Doctrine: The Search for Governmental Responsibility (Part II),” 34 Hous. L. Rev. 665, 724 (1997).
See, e.g., Cuyahoga Falls v. Buckeye Community Hope Foundation,
Sawtelle, while recognizing that the weight of authority supports the conclusion that judicial confirmation of an arbitrator’s award does not constitute state action, concluded that BMW of North America, Inc. v. Gore, supra,
The arbitration clause of the parties’ contract provides: “With the exception of seeking injunctive or other relief for violation of Confidential Information of a party pursuant to Sectiоn C above, any dispute arising [out] of or relating to this Agreement, including any issues relating to arbitrability or the scope of this arbitration clause, will be finally settled by arbitration in . . . accordance with the rules of the American Arbitration Association and the United States Arbitration Act and judgment upon the award rendered by the arbitrator(s) may be entered by any court with jurisdiction. The arbitration will be held in the Stamford, CT metropolitan area.”
The dissent’s argument, that our decision upholding the arbitrator’s award violates the clearly defined public policy favoring arbitration, cannot survive this second prong of the public policy inquiry. Rather than demonstrate a violation of the public policy at issue, the dissent offers the following speculation: in light of our decision, parties will opt not to include arbitration clauses in their contracts. The dissent offers no evidence in support of this prediction and does not consider the more likely alternative—that is, that parties who are concerned about such a result will, instead, opt to include in arbitration clauses language that either caps or precludes punitive damages altogether, or subjects an arbitral punitive damages award to judicial review.
To put the point more generally, the dissent’s argument is premised on the notion that parties engaged in negotiation over contract language will decide not to include an arbitration clause at all, because of the possibility that, in the event of a breach, the arbitration panel will render an excessive punitive damages award that a court will not be able to overturn on the basis of the public policy exception to the generally limited scope of judicial review of such awards. This assumption is wholly speculative. As we have stated, parties who are negotiating over contractual terms—including whether to incorporate an arbitration clause—will be able to negotiate over the terms of that clause as well. There is absolutely no reason to assume that, if they want to include an arbitration clause in their contract, they will find it impossible to negotiate whatever limits they deem appropriate on the scope of the arbitrators’ powers, and of judicial review of the exercise of those powers, including the potential for an excessive award of punitive damages.
Moreover, we believe it relevant that the astronomical awards envisaged by the dissent, although theoretically possible, are very unlikely. Simply because we can conceive of an arbitration award of the magnitude hypothesized by the dissent, does not mean that such an award is likely to occur. We ought not to make rules of law based on unrealistic hypotheses.
Thus, the fact that the dissent’s entire public policy argument rests on speculative consequences makes evident that it fails to “ ‘clearly [demonstrate]’ ” a violation of the public policy. State v. AFSCME, AFL-CIO, Council 4, Local 2663,
The defendant argues that the absence of a limit on punitive damages awards in CUTPA must be read against the backdrop of the public policy established by the common law of this state against excessive punitive damage awards. Because we conclude that our case law does not establish a well-defined and dominant public policy against such awards, we reject this contention.
Moreover, we disagree with the dissent that, based on previous court awards pursuant to § 42-110g (a), we should infer that this is an implied limit on punitivе damages awarded under CUTPA. Even if we were to agree that such a limit might be inferred in a case involving a judicial action based upon CUTPA, a question we do not reach, such an inference would be insufficient to support a clear, well-defined and dominant public policy against the imposition of excessive punitive damages in a private, consensual arbitration proceeding. The mere fact that the dissent must rely on the past practices of the trial court to infer such an implied limit on the punitive damages provision of CUTPA, at the same time that it recognizes that other statutes expressly provide for limits on punitive damages, supports our conclusion that our precedents are insufficient to establish a clear, well-defined and dominant public policy against excessive punitive damages. Put another way, it is counterintuitive to suggest that there is a clear, weE-defined and dominant pubhc pohcy that may be identified only by inference from a smaE sample of trial court cases and other precedents that neither expressly state nor clearly imply that they rest on such a pohcy.
This does not mean, and we do not decide, that any arbitral award of punitive damages, no matter how grossly excessive, is insulated from judicial review. We can conceive that there may be such a grossly excessive award that the court would be justified in vacating it on the basis of the arbitrators’ evident partiality; see General Statutes § 52-418 (a) (2); or manifest disregard of the law. The defendant does not claim on appeal, however, that this award fits either of those criteria.
We also disagree with the dissent that our decision necessarily means that an excessive compensatory damage award wih be unreviewable under the public policy exception. That is a question that has not been presented, briefed or argued before us.
The dissent contends that, regardless of Gore’s application solely to state action, we should infer from that case a clear and well-dеfined, dominant public policy against excessive punitive damages in general, and conclude that the award in the present case violates that public policy. Although we agree with the dissent that the constitution may be a source of public policy in an appropriate case, we disagree with the application of Gore for that purpose in the present case. Were we to draw such an inference, we would render meaningless Gore’s own stated limitation of its application to state actors by circumventing the state action requirement. Moreover, the same reasoning employed by the dissent would be applicable to other due process protections as well, including procedural due process, thus paving the way for constitutionalizing a wide variety of private conduct through public policy analysis. We decline to countenance this indirect imposition of constitutional norms on private actors.
Thus, we disagree with the dissent that the rule, originating in Hanna v. Sweeney, supra,
General Statutes § 37-3a (a) provides in relevant part: “Except as provided in sections 37-3b, 37-3c and 52-192a, interest at the rate of ten per cent a year, and no more, may be recovered and allowed in civil actions or arbitration proceedings under chapter 909, including actions to recover money loaned at a greater rate, as damages for the detention of money after it becomes payable. . . .”
See footnote 6 of this opinion.
Dissenting Opinion
dissenting. I agree with the majority insofar as it holds that the judicial confirmation of an arbitration award does not constitute state action. I disagree with and am perplexed by the majority’s conclusion in part I B of its opinion that this state does not have a well-defined and dominant public policy against excessive punitive damage awards. In my view, such a policy is evident in case law that spans nearly a century and is a foundational principle of any dispute resolution system, including arbitration. Because I believe that a $5 million punitive damage award under the circumstances of this case not only violates that policy, but also undermines the equally well settled policy encouraging arbitration as an efficient method of dispute resolution, I respectfully dissent.
I set forth an expanded rendition of the facts in order to place the issues posed by this case in their proper context. In 1994, Andrew Bronfman, an attorney, and Andrew Fineberg, a real estate professional, decided to embark on a business venture that they believed would be highly lucrative. They planned to sell subscriptions for physician, hospital and other medical services to persons located throughout the country who otherwise would not have access to health insurance at reasonable rates. In order to execute that vision, Bronfman and Fineberg formed MedSaver Health Programs, Inc., the predecessor to the plaintiff, MedValUSA Health Programs, Inc., and, in 1998, entered into an agreement with the defendant, MemberWorks, Inc., which provides membership programs that offer consumer discounts on a variety of products and services in the health care, finance and entertainment industries. Pursuant to that agreement, the defendant was to assemble networks of physicians, hospitals and other health care
In May, 2000, the plaintiff closed its business and thereafter filed a demand for arbitration, claiming in counts one and two, respectively, that the defendant had breached the parties’ contract and the implied duty of good faith and fair dealing. The plaintiff also alleged in count three that the defendant had engaged in unfair and deceptive trade practices in violation of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq. The plaintiff sought compensatory damages, attorney’s fees and punitive damages pursuant to CUTPA, interest and costs.
In the proceedings before the arbitration panel, the plaintiff argued that the defendant’s failure to perform its contractual obligations was not solely the result of ineptitude, but also was the product of a calculated, deliberate plan to undermine the plaintiffs business and to usurp the plaintiffs visionary business concept for its own benefit. The plaintiff asserted that the defendant’s actions caused it to lose approximately $39.8 million in lost profits and sought compensatory damages in that amount. The plaintiff further argued that certain of the actions that gave rise to the compensatory damage claim also warranted a “substantial” punitive damage award under CUTPA. The plaintiff, however, did not suggest to the arbitrators an appropriate dollar amount for that award, nor did it articulate the legal standard by which it should be measured.
The defendant rеsponded that, as of October, 1999, it had substantially fulfilled its obligations under the terms of the parties’ agreement. It claimed that the plaintiffs lack of success was not due to its action or inaction but, instead, was attributable to the plaintiffs failure to mobilize its business and to provide a sufficient infrastructure to support a national sales effort. Indeed, during the course of the arbitration proceedings, Fineberg admitted that the plaintiff had not hired any employees, entered into binding contracts with independent contractors, secured office space or advertised its product in any substantial way.
The arbitration panel found in favor of the plaintiff on all counts but did not award any compensatory damages because the plaintiff “[had] not established them with reasonable certainty.”
On appeal to this court, the defendant contends that the $5 million award violates the state’s public policy against excessive punitive damages that is deeply rooted in the common law of this state and the United States constitution. I agree.
For nearly 100 years, this court has adhered to the rule first announced in Hanna v. Sweeney,
Nearly eighty years later, we reaffirmed our commitment to the common-law rule in Waterbury Petroleum Products, Inc. v. Canaan Oil & Fuel Co.,
We further explained that, “[i]n permitting awards of punitive damages, but limiting such damages as we do, our rule strikes a balance—it provides for the payment of a victim’s costs of litigation, which would be otherwise unavailable to him, while establishing a clear reference to
Against this common-law backdrop, the legislature has authorized punitive damage awards for certain causes of action. These statutes fall into three categories: (1) those that limit the amount of the award to no more than two times the actual damаges incurred;
The legislature enacted CUTPA in order to eliminate or to discourage “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” General Statutes § 42-110b (a). Recognizing that the attorney general is hampered in his enforcement efforts by limited staffing, the legislature, in its design of the statutory scheme, sought “to create a climate in which private litigants help to enforce the ban on [such] practices or acts.” Hinchliffe v. American Motors Corp.,
The legislature did recognize, however, that the absence of a definitive standard for measuring punitive damages under CUTPA could give rise to excessive awards. In order to safeguard against that risk, the legislature vested the authority to make such awards in the court, rather than in the jury; General Statutes § 42-1 lOg (a) and (g); presumably because it believed that a court would be more likely to fix punitive damages at amounts that are reasonable and consistent with the policy goals of the statute.
Although this court never has articulated a formula for measuring punitive damages under CUTPA, awards made in past cases traditionally have been modest. See Sawtelle v. Waddell & Reed, Inc., 304 App. Div. 2d 103, 112,
In BMW of North America, Inc. v. Gore,
The defendant contends that Gore is relevant to its public policy argument because it is based on fundamental notions of fairness and fair warning that, together with the common law, “forge a strong public policy for placing substantive limits on awards of punitive damages.” In other words, if an award is so large that it would violate the constitution if issued by a court of law, then we also should conclude that such an award contravenes public policy when it is made by an arbitration panel. Although I believe that Connecticut’s public policy is even more restrictive than the limitations set forth in Gore, I agree with the defendant that, at a minimum, the state disfavors any punitive damage award that is so large that it “offends [e]lementary notions of fairness [and notice as] enshrined in [federal] constitutional jurisprudence . . . .’’Id., 574. In reaching that conclusion, I do not hesitate to embrace constitutional principles as a source of public policy when, as in the present case, it makes sense to do so because, as the defendant notes, “[i]t is difficult to conceive of a more elemental point of origin for public policy than the nation’s constitutional guarantees.”
The majority rejects this argument, however, concluding that “[t]he court in Gore . . . was concerned only with whether the due process clause of the fourteenth amendment barred a state from imposing grossly excessive punitive damages on a tortfeasor. . . . Thus, although Gore supports a finding of a public policy against the imposition of grossly excessive punitive damages by the state ... it cannot serve as a basis for concluding that Connecticut has a public policy against the imposition of excessive punitive damages by a private actor, such as an arbitration panel.” (Citation omitted; emphasis added.) In providing such an abbreviated response to the defendant’s argument, the majority fails to consider the broader import of Gore in the context of this case and disregards the impact of its decision on another equally important policy, namely, that favoring arbitration as an efficient and economic system of dispute resolution.
In its public policy argument, the defendant does not contend that Gore is relevant to this case because the substantive due process guarantees of the United States constitution apply to the arbitral forum. Rather, the defendant invokes the underlying principles of Gore in support of its claim that any punitive damage award that is so grossly excessive that it does not satisfy even the minimal constitutional standards of fairness and notice violates public policy irrespective of the forum in which it is issued. I agree with the defendant
I also find it troubling that the majority’s ill-conceived reasoning is not confined to this case, but extends to any punitive damage award issued by an arbitrator no matter how large that award may be. Under its rationale, a $50 million punitive damage award or even a $5 billion award would not violate public policy and, therefore, would be immune from judicial review.
For all of the foregoing reasons, I would hold that Connecticut case law governing the award of punitive damages under the common law and CUTPA, together with the United States Supreme Court’s decision in Gore, supports the conclusion that the state has a well-defined and dominant public policy against grossly excessive punitive damage awards. In order to determine whether a punitive damage award issued by an arbitration panel violates that policy, I would apply the three guideposts set forth in Gore, as further illuminated in State Farm Mutual Automobile Ins. Co. v. Campbell,
This case involves an ordinary contract dispute between two private parties. The defendant’s misconduct implicated only economic harm and did not pose a risk to the health and safety of others. See State Farm Mutual Automobile Ins. Co. v. Campbell, supra,
With respect to the second guidepost, the ratio of punitive damages to compensatory damages, the United States Supreme Court has stated that there is no “bright-line ratio which a punitive damages award cannot exceed. . . . [I]n practice [however], few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” State Farm Mutual Automobile Ins. Co. v. Campbell, supra,
The third guidepost, which directs us to consider “the disparity between the punitive damages . . . and the civil penalties authorized or imposed in comparable cases”; (internal quotation marks omitted) id., 428; also supports the conclusion that the punitive damage award in the present case is grossly excessive. The maximum civil penalty authorized by the legislature for the defendant’s CUTPA violation is $5000. See General Statutes § 42-110o (b). The $5 million punitive damage award issued against the defendant exceeds that amount by a factor of 1000. It also is nearly fifteen times greater than the highest award issued in a business dispute that did not entail an ongoing pattern of misconduct, that is, $340,000. See Fabri v. United Technologies International, Inc., supra,
Finally, it is relevant to note that other courts have applied the Gore guideposts even when the defendant does not claim that a punitive damage award violates his or her due process rights, but merely contends that it is excessive. See, e.g., Lee v. Edwards,
To summarize, I would conclude that Connecticut has a well-defined and dominant public policy against grossly excessive punitive damages. Because I believe that the award in the present case violates that policy and compromises the integrity of the arbitration process, I would remand the case to the trial court with direction to vacate the award. In light of that disposition, I would not reach the issue that the majority addresses in part II of its opinion, namely, whether the trial court improperly declined to award the plaintiff interest on the arbitration award.
Accordingly, I respectfully dissent.
Fulfillment materials included membership cards and information produced for the benefit of the plaintiffs members. See footnote 4 of the majority opinion.
In fact, the arbitration panel did not award even nominal damages.
E.g., General Statutes § 35-53 (b) (punitive damage awards limited to amount equal to twice actual loss realized from wilful and malicious misappropriation of trade secrets); General Statutes § 52-240b (in product liability action, punitive damages must “not . . . exceed an amount equal to twice the damages awarded to the plaintiff’).
E.g., General Statutes § 46a-89 (b) (2) (punitive damages limited to $50,000 for discriminatory practice related to rental or sale of dwelling or commercial property or in provision of public accommodations); General Statutes § 46a-98 (d) (punitive damages limited to “the lesser of five thousand dollars or one per cent of the net worth of the creditor” for discriminatory credit practices); General Statutes § 52-564a (a) (3) (in civil action based on defendant’s act of shoplifting, merchant may recover no more than $300 in punitive damages).
E.g., General Statutes § 16-8d (b) (in action brought by employee alleging retaliation for disclosure of substantial misfeasance, malfeasance or nonfeasance in management of, inter alia, public service company, court “may award punitive damages”); General Statutes § 19a-550 (e) (“punitive damages may be assessed” in civil action in which there is finding of wilful or reckless deprivation of rights under patients’ bill of rights); General Statutes § 31-51q (authorizing punitive damage awards against employers who wrongfully discharge or discipline employees for exercising their constitutional rights); General Statutes § 36a-618 (authorizing punitive damages against loan brokers who violate certain banking laws).
See, e.g., Faulkner v. United Technologies Corp.,
This observation prompted the majority to write “that the astronomical awards envisaged by the dissent, although theoretically possible, are very unlikely . . . [and] [w]e ought not to make rules of law based on unrealistic hypotheses.” Footnote 14 of the majority opinion. In response, I simply note that we need not look any further than this case to find an astronomical award because, in my view, a $5 million punitive damage award in the absence of even nominal damages fits that bill. More importantly, the majority does not disagree that its reasoning would apply to a punitive damage award of any size, but merely suggests that we need not worry about the reach of its decision—a position that I believe is incompatible with a sound acjjudicative process.
What I find even more alarming, and even more threatening to the state’s policy of encouraging arbitration, however, is that there apparently is nothing in the majority’s reasoning that would preclude it from applying to compensatory damage awards in arbitration proceedings. Thus, grossly excessive compensatory or punitive damage awards would not be subject to review by the courts under the majority’s rationale. After today’s decision, I wonder how any attorney could, in good conscience, expose his client to the risk of excessive damages by agreeing to an arbitration clause in a contract.
The majority responds to this concern by merely registering its disagreement with the notion that its “decision necessarily means that an excessive compensatory damage award will be unreviewable under the public policy exception.” Footnote 15 of the majority opinion. In rendering that cursory response, the majority once again offers no principled basis for its disagreement with my observation, nor does it explain why its rationale also would not embrace excessive compensatory damage awards.
The majority nevertheless suggests that an excessive award might be renewable by the courts on grounds set forth in § 52-418 and the case law interpreting that provision. See id. In particular, the majority notes that it “can conceive that there may be such a grossly excessive award that the court would be justified in vacating it on the basis of [an] arbitrators’ evident partiality; see General Statutes § 52-418 (a) (2); or manifest disregard of the law.” Footnote 15 of the majority opinion; see, e.g., Garrity v. McCaskey, supra,
With regard to the second ground cited by the majority, namely, an arbitrator's manifest disregard of the law, we have stated that, in order for a case to come within the reach of that doctrine, the defendant must show, inter alia, that “[t]he governing law alleged to have been ignored by the arbitrators [is] well defined, explicit, and clearly applicable.” (Internal quotation marks omitted.) Garrity v. McCaskey, supra,
The majority states that my prediction is “wholly speculative” because it assumes that parties will completely avoid arbitration and “does not consider the more likely alternative—that is, that parties who are concerned ab out such a result will, instead, opt to include in arbitration clauses language that either caps or precludes punitive damages altogether, or subjects an arbitral punitive [damage] award to judicial review.” Footnote 14 of the majority opinion. Although I realize that predicting human behavior is not an exact science, it simply defies common sense to think that the majority’s decision will not discourage parties from arbitrating their disputes, particularly when they realize that its rationale applies to excessive punitive damages and potentially to excessive compensatory damages. See footnote 7 of this opinion. I further believe that the scenario advanced by the majority is not entirely plausible because many parties will be unwilling to sign a clause that eliminates or limits punitive damages, particularly if they bear more risk from the venture than their counterparts. Indeed, when faced with such a provision, they may prefer to litigate in a court of law, where full remedies are available to them, or simply walk away from the contrаct.
I also note that contract provisions that eliminate or limit punitive damages would allow wrongdoers who engage in egregious misconduct to escape the appropriate punishment in situations that warrant a reasonable punitive damage award beyond that authorized by the contract. Because statutory punitive damages are designed to protect the public interest, I do not believe that we should encourage private parties to contract them away.
With respect to arbitration clauses that provide for expanded judicial review of punitive damage awards, it is clear that General Statutes § 52-418 narrowly circumscribes the grounds on which courts may vacate an arbitration award, and I seriously question whether a party can expand them by contract. Cf. Pina v. Pina,