## Facts

- Joan Garrity, an author, entered publishing agreements with Lyle Stuart, Inc. containing broad arbitration clauses that did not provide for punitive damages.
- Garrity sued in 1971 alleging fraudulent inducement, underpayment of royalties, and malicious acts; that action remained pending.
- In 1974, Garrity filed a second action alleging the publisher maliciously withheld about $45,000 in royalties to coerce her to drop the 1971 lawsuit.
- The publisher obtained a stay of the second action pending arbitration, and Garrity demanded arbitration seeking both the withheld royalties and punitive damages.
- The publisher participated in selecting arbitrators and appeared, raising objections about standing and the conduct of the proceeding, but did not specifically challenge the arbitrators’ power to award punitive damages; it later left the hearing after its objections were rejected.
- The arbitrators awarded Garrity $45,000 in compensatory damages and $7,500 in punitive damages.
- Garrity moved to confirm the award; the publisher then argued that the punitive damages component exceeded arbitral authority.

## Issues

1. Whether, under New York law, arbitrators may award punitive damages under a broad arbitration clause, even if the parties purport to submit all disputes and remedies to arbitration.
2. Whether an objection to arbitral punitive damages can be waived by failing to raise it during the arbitration.

## Decision

- The Court of Appeals modified the order confirming the award.
- The court vacated the $7,500 punitive damages portion and confirmed the $45,000 compensatory portion.
- The court held arbitrators have no power to award punitive damages, even if the parties agree to arbitrate and even if they purport to authorize such relief.
- The court rejected waiver as a basis to sustain the punitive award because the defect was a nonwaivable limitation on arbitral authority grounded in public policy.

## Legal Principles

- Punitive damages are a public sanction reserved to the State; private arbitrators lack authority to impose them.
- A contractual agreement to arbitrate cannot confer power to grant punitive damages when enforcement would violate strong public policy.
- Courts may intervene to prevent enforcement of arbitral relief that functions as a private punitive measure lacking public accountability and judicial safeguards.
- Arbitrators may award compensatory damages within the scope of the arbitration agreement; the bar applies specifically to punitive sanctions.

## Conclusion

The court held that punitive damages cannot be awarded in arbitration under New York law because punishment and deterrence are public functions reserved to state-controlled processes; accordingly, it vacated the punitive portion of the award while confirming compensatory relief.


Garrity v. Lyle Stuart, Inc., 40 N.Y.2d 354, 353 N.E.2d 793 (N.Y. 1976)