Sawtelle Punitive Damage Award Vacated Again –


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$25 Million in Punitive Damages Vacated By Court For the Second Time, Matter Referred to New Arbitration Panel

On January 22, a New York state trial court considered a new Award (Sawtelle v. Waddell & Reed, NASD ID #97-03642, 9/4/03) rendered by a NASD Panel that had been instructed via judicial remand to review its earlier award of $25 million in punitive damages, in light of the guidance offered by the New York Appellate Division (NYAD) in a February 2003 vacatur decision.

Judge Stallman of the New York State Supreme Court, New York County, explains in vacating the Panel’s decision this second time around, that the three NASD Arbitrators failed to provide any showing that they had considered the proportionality of the punitive award to the compensatory damages (around $1 million) awarded, which is what the Appellate Division was concerned about.

Instead, the new Award embellishes upon the reprehensibility of W&R’s conduct, calling it “horrible” and explaining in greater detail why. The NYAD considered that the conduct was outrageous, Judge Stallman states, and still held that, “an award of punitive damages must be proportional to the damage caused by that conduct, as measured by the compensatory damages that are awarded.” The absence of any evidence that the Panel considered proportionality restrictions in reaching its award “conflicts with the Appellate Division’s holding to the contrary.

The panel thus acted contrary to law and beyond the scope and purpose of the remand.” As a consequence, the Court refers the case back to arbitration, solely on the punitive damages issue, but remands to a different panel. (SAC Ed: Readers of the Arb Alert can track this matter through all of its incarnations since the August 2001 initial Award (SAA 01-32).

This Court only modified the Award the first time around (covered in the Lit Alert, SLA 2002-24), but that’s when the Appellate Division stepped in and used the Supreme Court’s BMW v. Gore factors to criticize the $25 million in punitives (SAA 03-06) as “grossly excessive.”

This latest vacatur (which we summarized earlier in the week in SLA 2003-05) followed the remand ruling, reported in SAA 03-36. For the record, we led the SAA 03-06 piece with this exclamation: “Incredibly, the three Arbitrators who were directed to reconsider an excessive award of punitive damages have done so and have decided that they were right after all!”

Unfortunately, the Arbitrators, who are experienced Panelists (more than 150 arbitrations among them) and who are no doubt sincere in their steadfastness, have left the parties the arduous and expensive task of presenting the punitive damages issue anew to a fresh Panel.) (SAC Ref. No. 2004-05-03)



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Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page -, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.