New York Law Review

Tag: punitive damages

  • Garrity v. Lyle Stuart, Inc., 40 N.Y.2d 354 (1976): Arbitrators Cannot Award Punitive Damages

    Garrity v. Lyle Stuart, Inc., 40 N.Y.2d 354 (1976)

    Arbitrators do not have the power to award punitive damages, even if the parties have agreed to it, as the imposition of punitive sanctions is a power reserved solely to the state.

    Summary

    An author sought to confirm an arbitration award that included both compensatory and punitive damages against her publisher. The New York Court of Appeals held that arbitrators lack the authority to award punitive damages, as this power is reserved to the state. Allowing arbitrators to impose punitive damages would undermine the state’s role in imposing social sanctions and would eliminate judicial oversight of such awards. The court reasoned that while parties can agree to arbitration, they cannot agree to delegate the state’s power to punish wrongdoers.

    Facts

    Plaintiff, an author, had publishing agreements with Defendant, Lyle Stuart, Inc., for two books. These agreements contained broad arbitration clauses but did not mention punitive damages. A dispute arose, and the author initially filed a lawsuit alleging fraudulent inducement and underpayment of royalties. Subsequently, she filed another action claiming wrongful withholding of royalties and demanded arbitration, seeking both compensatory and punitive damages for the alleged malicious withholding of royalties intended to coerce her into dropping the first lawsuit. Defendant objected to the arbitration proceedings but eventually walked out after the objections were overruled.

    Procedural History

    The author initially filed two separate lawsuits against the publisher. The second suit was stayed pending arbitration due to the arbitration clause in the publishing agreement. After the arbitrator awarded both compensatory and punitive damages, the author sought to confirm the award in court. The Supreme Court confirmed the award, and the Appellate Division affirmed. The New York Court of Appeals then heard the appeal.

    Issue(s)

    Whether an arbitrator has the power to award punitive damages in a contract dispute, even if the parties’ agreement contains a broad arbitration clause.

    Holding

    No, because the power to impose punitive sanctions is reserved to the State, and allowing arbitrators to award punitive damages would violate public policy.

    Court’s Reasoning

    The court reasoned that arbitrators are generally not bound by substantive law or rules of evidence, and their remedial power is broad, but it is not unlimited. Public policy prevents arbitrators from enforcing illegal agreements or violating public policy. Punitive damages are not available for mere breach of contract, as this involves only a private wrong, not a public right. The court emphasized that punitive damages serve as a social exemplary remedy, intended to punish and deter, rather than compensate. Permitting arbitrators to award punitive damages would displace the role of the courts and juries in imposing social sanctions, undermining the State’s authority. The court quoted Judge Bergan in Matter of Publishers’ Assn. of N. Y. City (Newspaper Union), stating, “The trouble with an arbitration admitting a power to grant unlimited damages by way of punishment is that if the court treated such an award in the way arbitration awards are usually treated, and followed the award to the letter, it would amount to an unlimited draft upon judicial power.” The court distinguished Matter of Associated Gen. Contrs., N. Y. State Chapter (Savin Bros.) because that case involved treble liquidated damages agreed to by the parties, not punitive damages. The court stated, “In imposing penal sanctions in private arrangements, a tradition of the rule of law in organized society is violated. One purpose of the rule of law is to require that the use of coercion be controlled by the State”. The court also rejected the argument that the publisher waived the right to object to punitive damages by not objecting earlier in the arbitration process. Ultimately, the court held that parties cannot agree to delegate the state’s power to punish, even through a contract.

  • Crane v. Bennett, 177 N.Y. 106 (1904): Punitive Damages and Malice in Libel Cases

    Crane v. Bennett, 177 N.Y. 106 (1904)

    In libel cases, the falsity of the libel is sufficient evidence of malice to allow a jury to consider awarding punitive damages; this decision is not taken away from the jury even if the defendant presents evidence showing a lack of actual malice.

    Summary

    Crane, a New York City magistrate, sued Bennett, the owner of the New York Herald, for libel based on articles published about Crane’s official conduct. After each article, Crane requested a retraction, but Bennett’s manager published more articles instead. Crane then sued, and the jury awarded damages. Bennett appealed, arguing he wasn’t liable for punitive damages because the publications were made by his employees in his absence, and there was no proof of his personal malice. The New York Court of Appeals affirmed the lower court’s decision, holding that the falsity of the libel was sufficient evidence of malice to warrant the jury’s consideration of punitive damages.

    Facts

    The plaintiff, Crane, was a magistrate in New York City.
    The defendant, Bennett, owned the New York Herald newspaper but resided in France, delegating management to employees.
    The newspaper published four articles in August 1899, alleging misconduct by Crane in his official duties.
    Crane informed Bennett’s manager that the articles were untrue and requested a retraction after each publication.
    Instead of retracting, the newspaper published further articles on the same subject.
    Crane sued Bennett for libel in November 1899.
    The articles were proven false, and no retraction was ever made.

    Procedural History

    Crane sued Bennett in a lower court and won a jury verdict.
    Bennett appealed to the Appellate Division, which affirmed the lower court’s judgment (77 App. Div. 102).
    Bennett appealed to the New York Court of Appeals.

    Issue(s)

    Whether the proprietor of a newspaper is liable for punitive damages when libelous material is published by their employees in their absence, without proof of the proprietor’s personal ill-will or hatred.
    Whether the falsity of a libel is sufficient evidence of malice to allow a jury to award exemplary damages, even if the defendant presents evidence of no actual malice.

    Holding

    Yes, because a principal who surrenders their entire business to another is held to the same responsibility as if they personally directed it, as to all matters within the scope of the manager’s authority.
    Yes, because the falsity of the libel is sufficient evidence of malice to allow a jury to consider awarding punitive damages and that decision is not taken away from the jury because the defendant presents evidence showing no actual malice.

    Court’s Reasoning

    The Court reasoned that the proprietor of a newspaper is responsible for the content published, even if done by employees in their absence. The liability stems from the proprietor’s responsibility for the acts of the publisher. When a principal delegates their business to a manager, they are responsible for how the business is conducted. The Court distinguished this from negligence cases, stating the rule for punitive damages differs in tort cases involving personal wrong.

    Regarding the issue of malice and punitive damages, the Court addressed a perceived misinterpretation of its prior decision in Krug v. Pitass. The Court clarified that the falsity of a libel is sufficient evidence of malice for the jury to consider punitive damages. It cited the dissenting opinion in Samuels v. Evening Mail Assn., which the Court of Appeals had previously adopted, stating, “the falsity of the libel was sufficient evidence of malice… The plaintiff in an action of libel gives evidence of malice whenever he proves the falsity of the libel.” The Court emphasized the jury’s discretion in awarding punitive damages when malice is established, even if the defendant presents evidence to negate actual malice.

    The Court noted that the jury could have reasonably found the publications were not only false but also recklessly and wantonly made in bad faith and continued even after the defendant was aware of their falsity. Quoting Hotchkiss v. Oliphant, the court stated, “the case rises to one of premeditated wrong, one of determined malignity towards the plaintiff, which should be dealt with accordingly… and the charities of the law give way to such a prostitution of the public press.”