## Facts

- Raytheon’s subsidiary, Lexitron, entered a 1978 exclusive dealership agreement with Automated for distribution of word processing equipment.
- The agreement contained a broad arbitration clause requiring arbitration of “all disputes arising in connection with the Agreement” under American Arbitration Association (AAA) rules.
- The agreement included a California choice-of-law provision for interpretation.
- The parties extended the agreement twice; a proposed 1982 replacement was not executed, and they continued operating under the 1978 agreement until termination in 1984.
- After termination, Automated demanded arbitration asserting contract and tort claims and seeking compensatory and punitive damages.
- An AAA arbitral panel awarded Automated compensatory damages, attorneys’ fees, expenses, and $250,000 in punitive damages.
- Raytheon sued in federal district court to vacate the award; Automated moved to confirm, and the court confirmed the award.
- On appeal, Raytheon challenged only the arbitrators’ authority to award punitive damages.

## Issues

1. Whether commercial arbitrators may award punitive damages under a broad arbitration clause that does not expressly mention punitive damages but incorporates AAA rules.
2. Whether a contractual state choice-of-law provision can limit arbitral remedial authority where the Federal Arbitration Act applies.

## Decision

- The First Circuit affirmed confirmation of the arbitral award, including the punitive-damages component.
- The court held that the arbitrators had authority to award punitive damages because the clause covered “all disputes” and incorporated AAA rules permitting “any remedy or relief” deemed just and equitable within the parties’ agreement.
- The court rejected reliance on labor-arbitration precedents limiting punitive damages, finding them inapposite to commercial arbitration.
- The court concluded that federal law under the Federal Arbitration Act governed and prevented application of state-law limits that would defeat the effectiveness of the arbitration agreement.

## Legal Principles

- A broad commercial arbitration clause submitting “all disputes” to arbitration, coupled with incorporation of AAA rules authorizing “any remedy or relief” within the agreement’s scope, permits punitive damages unless the parties clearly exclude that remedy.
- Under the Federal Arbitration Act, arbitration agreements are construed broadly, with presumptions favoring coverage of remedies available in court absent an express contractual limitation.
- State choice-of-law provisions may inform contract interpretation, but they cannot be applied to impose categorical remedial limits that conflict with the Federal Arbitration Act’s enforcement of arbitration agreements.

## Conclusion

The court upheld an arbitral punitive-damages award, ruling that a broadly worded AAA-governed commercial arbitration clause grants arbitrators full remedial authority, including punitive damages, unless the contract explicitly provides otherwise.


Raytheon Co. v. Automated Bus. Sys., Inc., 882 F.2d 6 (1st Cir. 1989)