Fifth Circuit Upholds Punitive Damages Award

In an opinion (link is to .pdf file) filed Wednesday, the Fifth Circuit affirmed a trial court decision to confirm an arbitral award which contained a punitive damages award for the arbitral plaintiff. The case involved a woman’s breach of fiduciary duty claims against the managers of an investment portfolio she received as part of a divorce settlement. The arbitral panel found that the investment company did in fact breach its duty to the Claimant, but that it could not award attorneys’ fees under the arbitration agreement and California substantive law. However, the panel did award the Claimant punitive damages, in the amount she had sought for attorneys’ fees. On appeal, the investment company argued that the court could not enforce the arbitral award’s punitive damages component.

The opinion does not make any new law on this point, but it does provide another clear example of the steep burden a party must meet in attempting to prevent enforcement of an arbitration award in the Fifth Circuit. In the Fifth Circuit, two non-statutory (i.e. not found in the TAA or the FAA) grounds can exist for vacating an arbitral award: if the award displays manifest disregard of the law or is contrary to public policy. Neither basis for vacatur was found to exist in this case, but again, the opinion’s discussion of the elements of each is thorough and useful. Arbitral awards remain, for the most part, unappealable.

Sarofim v. Trust Company of the West, Cause No. 05-20309

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