Mastrobuono v. Shearson Lehman Hutton, Inc.

PETITIONER: Mastrobuono et al.
RESPONDENT: Shearson Lehman Hutton, Inc., et al.
LOCATION: Arkansas General Assembly

DOCKET NO.: 94-18
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 514 US 52 (1995)
ARGUED: Jan 10, 1995
DECIDED: Mar 06, 1995

ADVOCATES:
Joseph Polizzotto - on behalf of the Respondents
Malcolm L. Stewart - on behalf of the United States, as amicus curiae, supporting the Petitioners
William J. Harte - on behalf of the Petitioners

Facts of the case

Question

Media for Mastrobuono v. Shearson Lehman Hutton, Inc.

Audio Transcription for Oral Argument - January 10, 1995 in Mastrobuono v. Shearson Lehman Hutton, Inc.

Audio Transcription for Opinion Announcement - March 06, 1995 in Mastrobuono v. Shearson Lehman Hutton, Inc.

William H. Rehnquist:

I have the opinion of the Court to announce the Mastrobuono versus Shearson Lehman Hutton, number 94-18.

In this case the Mastrobuonos entered into a contract with Shearson, whereby Shearson agreed to handle their securities trading account, the terms of the contract were spelled-out in Shearson’s standard form agreement.

Paragraph 13 of that agreement contains a choice of law provision stating that “the agreement shall be governed by the laws of the State of New York”.

It also contains an arbitration clause stating “all disputes arising out of the agreement shall be resolved by arbitration.”

The Mastrobuonos later sued Shearson in Federal District Court claiming that it had mishandled their securities account and Shearson filed a motion to enforce the arbitration clause under the Federal Arbitration Act.

The Court granted the motion and a penal of arbitrators was appointed.

After hearings the arbitrators ruled in favor of the Mastrobuonos and awarded both compensatory and punitive damages.

Shearson challenged the punitive damages component of the award arguing that under the agreement the arbitrator should have applied New York law, and the New York Law allows only courts but not arbitrators to award punitive damages.

The District Court and the Court of Appeals agreed with Shearson.

In an opinion written by Justice Stevens and filed with the clerk today we reverse.

The central purpose of the Federal Arbitration Act is to insure that private agreements to arbitrator are enforced according to their terms.

If the parties to this contract agreed to allow punitive damages to be awarding the arbitration then the arbitrator’s award must be enforced.

We think the contract is best read to allow punitive damages because the arbitration clause indicates that punitive damages maybe awarded at the discretion on the arbitrator.

We rule in favor of the petitioners and uphold the award of punitive damages.

Justice Thomas has filed a dissenting opinion.