Werner Sabo is a partner at the construction law firm of Sabo & Zahn in Chicago. He is also a licensed architect, having practiced architecture for a number of years prior to establishing his law practice in 1981. He is a member of the AIA and CSI, has been an officer and director of the Chicago Chapter AIA, President of the Chicago Chapter, Construction Specifications Institute, and writes a monthly construction law column for The Construction Specifier. He is also a founding member of the Society of Illinois Construction Attorneys. In 1997, the AIA elected him to the College of Fellows. His book, Legal Guide to AIA Documents, published by Aspen Publishing, is in its fourth edition. Mr. Sabo is also a construction arbitrator and mediator for the American Arbitration Association and is admitted to the federal trial bar.
James K. Zahn is a licensed architect and attorney in the State of Illinois. He is a partner in the law firm of Sabo & Zahn, concentrating in construction law and representing owners, contractors, architects, developers, engineers and other parties in the construction process. He received a Bachelor of Architecture from the University of Illinois and his JD from Chicago-Kent College of Law. Mr. Zahn is a member of the American, Illinois and Chicago bar associations, American Institute of Architects, Association of Licensed Architects, Construction Specifications Institute and has NCARB Certification. He was a past president of the Illinois Council of the American Institute of Architects and is a Fellow of both the American Institute of Architects and the Association of Licensed Architects. He is currently a resource member of the AIA National Documents Committee.
Shawn E. Goodman is a partner with Sabo & Zahn. He concentrates in litigation of all types. A graduate of the Northwestern University School of Law, he was admitted to the bar 1993. Since that time, he has practiced before local and outlying circuit courts, U.S. District Court, and various administrative tribunals. He has acted on behalf of a variety of clients including small to mid-sized businesses and individuals. He has handled all facets of litigation from pleading to motion practice to discovery to trial. The cases with which he has been involved are varied and wide-ranging and include personal injury, breach of contract, criminal defense, commercial disputes, and consumer fraud. He has represented both plaintiffs and defendants and has practiced before juries as well as judges. Mr. Goodman has also worked on appeals and has assisted in the drafting of appellate briefs.
Punitive Damages in Arbitration
On May 17, 2005, the Connecticut Supreme Court released its opinion in Medvalusa Health Programs, Inc. v. Membership, Inc. (Nos. SC 17116 and 17117). The plaintiff sells discount health care subscriptions to the public and the defendant provides membership service programs that give consumers access to discounts on a variety of products and services. The parties entered into an agreement whereby plaintiff was to become a wholesale vendor of one of defendant's dental and health plans. A dispute arose and plaintiff filed a demand for arbitration for breach of contract, breach of the implied covenant of good faith and fair dealing and a violation of the Connecticut Unfair Trade Practices Act. The arbitration panel ruled in favor of plaintiff on all counts, but awarded no compensatory damages, finding that plaintiff had failed to establish damages with reasonable certainty. However, the panel awarded $5million in punitive damages to plaintiff for defendant's unfair and deceptive acts.
The case found its way all the way up to the Connecticut Supreme Court, which upheld the punitive damages award in a split opinion. The court found no well-defined public policy against the award of excessive punitive damages. It also found that the defendant's right to due process was not violated because and arbitration award does not constitute state action and is not converted into state action by the trial court's confirmation of that award, therefore an arbitration panel's award of punitive damages does not implicate the due process clause of the fourteenth amendment of the United States constitution, regardless of how excessive that award may be.
With regard to the due process argument, the court considered BMW of North America, Inc. v. Gore, 517 US 559 (1996) (punitive damages exceeding 10 times the actual damages sought may violate a defendant's due process rights). "Thus, althought Gore supports a finding of a public policy against the imposition of grossly excessive punitive damages by the state, an issue we do not address in this opinion, it cannot serve as a basis for concluding that Connecticut has a public policy against hte imposition of excessive punitive damages by a private actor, such as an arbitration panel."
This case should come as a warning to anyone drafting arbitration agreements. A well written clause in a contract that prohibits punitive damages would have avoided this result.
