Opinion
No. CV 02-0821887S
May 22, 2003
MEMORANDUM OF DECISION
I.
The plaintiff, MedvalUSA Health Programs, Inc. (Medval), a corporation formed to provide membership programs in the health care industry has filed this suit against the defendant, Memberworks, Inc. (Memberworks), a Connecticut corporation which provides membership programs that give consumers access to preferred pricing on a variety of products and services in areas such as health, finance and entertainment. On or around February 9, 1998, the parties entered into an agreement pursuant to which Medval agreed to become a wholesale vendor of one of Memberworks' dental and health plans. The parties amended their agreement on April 15, 1999, by modifying several of Memberworks' contractual obligations. The relationship between the parties deteriorated and, on September 13, 2000, Medval filed a demand for arbitration with the American Arbitration Association asserting three counts: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; and (3) a violation of the Connecticut Unfair Trade Practices Act, General Statutes § 42-110a et seq. (CUTPA). On December 13, 2002, after 18 days of hearings, the arbitration panel ruled in favor of Medval on all counts but awarded no compensatory damages, concluding that Medval had not proved damages to the degree of certainty required by Connecticut law. The panel did award, however, punitive damages, pursuant to CUTPA, in the amount of $5 million, as well as attorneys fees in the amount of $387,794 and arbitration costs in the amount of $70,950.
As noted by Medval, during the course of the 18-day proceeding, "the parties engaged in opening and closing arguments, submitted approximately 600 exhibits, presented testimony from ten witnesses, generated a transcript of 3,321 pages, and submitted posthearing briefs, reply briefs, supplemental briefs and detailed time lines exceeding 250 pages of discussion, analysis and argument."
On December 18, 2002, Medval moved to confirm the arbitration award on the ground that Connecticut courts have always paid great deference to arbitration awards. On January 10, 2003, Memberworks moved to vacate the award asserting that (1) the award is in violation of Connecticut's well defined public policy, embodied in the due process clause of the fourteenth amendment to the constitution of the United States, against grossly excessive punitive damage awards; (2) that the award violates the public policy against awarding punitive damages under CUTPA in the absence of reckless, intentional or wanton conduct; and (3) that the excessive amount of the award evidences a manifest disregard or an egregious or patently irrational application of the law in violation of General Statutes § 52-418 (a) (4).
While Medval, in its briefs, responds to three separate public policy grounds for vacatur allegedly asserted by Memberworks, the third of these, "the public policy that prohibits the imposition of CUTPA liability absent a showing that plaintiff suffered an ascertainable loss"; (Medval's Brief, p. 10); is not addressed herein because while Memberworks references this argument in its brief (Memberworks' Brief, p. 39), it is not enumerated as one of its grounds for vacatur in its Motion to Vacate.
Section 52-418 (a) provides, in its entirety: "(a) Upon the application of any party to an arbitration, the superior court for the judicial district in which one of the parties resides or, in a controversy concerning land, for the judicial district in which the land is situated or, when the court is not in session, any judge thereof, shall make an order vacating the award if it finds any of the following defects: (1) If the award has been procured by corruption, fraud or undue means; (2) if there has been evident partiality or corruption on the part of any arbitrator; (3) if the arbitrators have been guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown or in refusing to hear evidence pertinent and material to the controversy or of any other action by which the rights of any party has been prejudiced; or (4) if the arbitrators have exceeded their powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made."
Pursuant to Garrity v. McCaskey, 223 Conn. 1, 7-8, 612 A.2d 742 (1992), Connecticut recognizes that subpart (4) encompasses the manifest disregard of the law doctrine.
II
The legal principles governing judicial review of arbitral awards are well settled. "This court has declared on numerous occasions that arbitration is a creature of contract, whereby the parties themselves, by agreement, define the powers of the arbitrators . . . [W]hen the parties have established the authority of the arbitrator, the extent of our judicial review of the award is delineated by the scope of the parties' agreement . . . When the parties have not restricted the scope of the arbitrator's authority, the resulting award is not subject to de novo review even for errors of law so long as the award conforms to the submission." (Citations omitted; internal quotation marks omitted.) Schoonmaker v. Cummings Lockwood of Connecticut, P.C., 252 Conn. 416, 426-27, 747 A.2d 1017 (2000). "Because we favor arbitration as a means of settling private disputes, we undertake judicial review of arbitration awards in a manner designed to minimize interference with an efficient and economical system of dispute resolution." (Internal quotation marks omitted.) Saturn Construction Co. v. Premier Roofing Co., 238 Conn. 293, 304, 680 A.2d 1274 (1996). "Where the submission does not otherwise state, the arbitrators are empowered to decide factual and legal questions and an award cannot be vacated on the grounds that the construction placed upon the facts or the interpretation of the agreement by the arbitrators was erroneous. Courts will not review the evidence nor, where the submission is unrestricted, will they review the arbitrators' decision of the legal questions involved." (Internal quotation marks omitted.) Stratford v. International Assn. of Firefighters, AFL-CIO, Local 998, 248 Conn. 108, 115, 728 A.2d 1063 (1999).
These well established principles of deference to the arbitral process are, however, subject to certain exceptions where the court will "conduct a more searching review of arbitral awards." Schoonmaker v. Cummings Lockwood of Connecticut, P.C., supra, 252 Conn. 428. Our Supreme Court has recognized three grounds for vacating an arbitral award: "`(1) the award rules on the constitutionality of a statute; Caldor, Inc. v. Thornton, 191 Conn. 336, 344, 464 A.2d 785 (1983), aff'd., 472 U.S. 703, 105 S.Ct. 2914, 86 L.Ed.2d 557 (1985); (2) the award violates clear public policy; Watertown Police Union Local 541 v. Watertown, 210 Conn. 333, 339, 555 A.2d 406 (1989); or (3) the award contravenes one or more of the statutory proscriptions of § 52-418 (a). Carroll v. AETNA Casualty Surety Co., [ 189 Conn. 16, 22-23, 453 A.2d 1158 (1983)].' The judicial recognition of these grounds for vacatur evinces a willingness, in limited circumstances, to employ a heightened standard of judicial review of arbitral conclusions, despite the traditional high level of deference afforded to arbitrators' decisions when made in accordance with their authority pursuant to an unrestricted submission." Id., quoting Garrity v. McCaskey, supra, 223 Conn. 6.
The arbitration clause entered into between the parties provides, in relevant part: "[A]ny dispute arising out of or relating to this Agreement, including any issues relating to arbitrability or the scope of this arbitration clause, will be finally settled by arbitration in accordance with the rules of the American Arbitration Association and the United States Arbitration Act and judgment upon the award rendered by the arbitrator(s) may be entered by any court with jurisdiction." In the present case, it is not disputed that the arbitration submission is unrestricted. As such, this court's review of the arbitration award is limited to determining whether it contravenes any of the three recognized grounds for vacatur promulgated by our Supreme Court and set forth above.
A. Public Policy Exception
Our Supreme Court recognizes an exception to the generally deferential and limited judicial review of an arbitrator's decision when it is claimed that an arbitration award violates a legitimate and clearly established public policy. The public policy exception has been characterized as "exceedingly narrow [in] scope" and de novo review will not flow automatically from a party merely raising the specter of a public policy violation. See Schoonmaker v. Cummings Lockwood of Connecticut, P.C., supra, 252 Conn. 438.
"[A] party raising such a challenge to an arbitral award may not succeed in receiving de novo review merely by labeling its challenge as falling within the public policy exception to the normal rule of deference. The substance, not the form, of the challenge will govern. Thus, the court should not afford de novo review of the award without first determining that the challenge truly raises a legitimate and colorable claim of violation of public policy. If it does raise such a claim, de novo review should be afforded. If it does not, however, the normal deferential scope of review should apply." Id., 429 n. 7. "[T]he narrowness of the public policy exception continues to be in force . . . [and] for the plaintiff to prevail on this claim, he must demonstrate that [the award] clearly contravenes an established and dominant public policy." Id., 438. The public policy invoked by a party seeking to vacate an award must be "well defined and dominant, and is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interests . . . The party challenging the award bears the burden of proving that illegality or conflict with public policy is clearly demonstrated . . . Therefore, given the narrow scope of the public policy limitation on arbitral authority, the plaintiff can prevail . . . only if it demonstrates that the [arbitrator's] award clearly violates an established public policy mandate." (Internal quotation marks omitted.) State v. AFSCME, AFL-CIO, Council 4, Local 2663, 257 Conn. 80, 90-91, 777 A.2d 169 (2001). Only "where that challenge has a legitimate, colorable basis, de novo review of the award is appropriate in order to determine whether the award does in fact violate public policy." Schoonmaker v. Cummings Lockwood of Connecticut, P.C., supra, 252 Conn. 429.
1. Excessiveness of Punitive Damage Award
Memberworks argues that the arbitration award violates the public policy against grossly excessive punitive damage awards, embodied in the due process clause of the fourteenth amendment to the United States constitution.
In support of its argument that there exists a well defined and dominant public policy against grossly excessive punitive damage awards, Memberworks cites the United States Supreme Court case of BMW of North America, Inc. v. Gore, 517 U.S. 559, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996), which requires that any punitive damage award must be (1) commensurate with the reprehensibility of the conduct at issue; (2) proportionate to the compensatory damages; and (3) consistent with the statutory penalties that exist for the conduct being punished. Id., 575-77, 580. In Gore, the plaintiff/appellee brought suit against BMW under Alabama's unfair trade practices statute after he discovered that the "new" car he purchased had been repainted. The jury awarded him $4,000 in compensatory damages and $4 million in punitive damages, which the Alabama Supreme Court subsequently reduced to $2 million. The United States Supreme Court held that the remittitur award of $2 million was grossly excessive and violated BMW's right to due process. The specific issue was whether the award was sufficiently excessive to constitute a violation of the due process clause of the fourteenth amendment to the United States constitution, which "prohibits a State from imposing a `grossly excessive' punishment on a tortfeasor." (Emphasis added.) Id., 562. Memberworks asserts that, pursuant to the Connecticut Supreme Court's decision in Schoonmaker v. Cummings Lockwood of Connecticut, P.C., supra, 252 Conn. 416, it is entitled to de novo review of the award because it has asserted a legitimate and colorable claim that the award violates public policy.
Medval counters that Memberworks' reliance on Gore is misplaced and that de novo review is not warranted because the alleged public policy which is derived from the due process clause of the fourteenth amendment, does not apply to private consensual arbitration. In assessing the applicability of Gore to the present case, it is important to recognize that BMW was challenging an award originally imposed by a jury and subsequently remitted by a court. "`That an action of state courts and judicial officers in their official capacities is to be regarded as action of the State within the meaning of the Fourteenth Amendment, is a proposition which has long been established by decisions of this Court.' Shelley v. Kraemer, 334 U.S. 1, 14, 68 S.Ct. 836, 92 L.Ed 1161." Lockwood v. Killian, 179 Conn. 62, 75, 425 A.2d 909 (1979). It is axiomatic that "state action . . . [is] an essential requirement for invocation of the due process clauses of both our federal and state constitutions . . ." (Citations omitted.) Savage v. Aronson, 214 Conn. 256, 284, 571 A.2d 696 (1990); see also U.S. v. Morrison, 529 U.S. 598, 120 S.Ct. 1740, 146 L.Ed.2d 658 (2000).
Medval is accurate in its assertion that Memberworks' reliance on Gore is misplaced. Gore does not support the existence of a clearly established public policy against grossly excessive punitive damage awards in the arbitral forum.
In a private arbitral proceeding where the parties have voluntarily consented to resolve their dispute outside the state-sponsored judicial framework, there is no state action. Though never expressly stated by the Connecticut Supreme Court, this principle is well settled in other jurisdictions. "[T]here is ample authority for the proposition that a private arbitration does not implicate due process concerns since, where the parties have voluntarily participated in the arbitration process, there is no state action involved, not even in the judicial confirmation of the award." Sawtelle v. Waddell Reed, Inc., 2003 WL 288471 (N.Y.A.D. 1st Dept.); see also Davis v. Prudential Securities, Inc., 59 F.3d 1186, 1191 (11th Cir. Fla. 1995); Sanders v. Gardner, 7 F. Sup.2d 151, 174-75 (E.D.N.Y. 1998).
"Voluntary arbitration and compulsory arbitration are fundamentally different if only because one may, under our system, consent to almost any restriction upon or deprivation of right, but similar restriction or deprivation, if compelled by government, must accord with procedural and substantive due process . . . To insulate statutorily mandated arbitration awards from judicial review for errors of law creates the anomaly that, without the consent of the parties, arbitrators are empowered to disregard the law in deciding issues affecting substantial rights . . . The case is different where the parties voluntarily bargained for the decision of the arbitrator and, as such, the parties are presumed to have assumed the risks of and waived objection to that decision." General Accident Ins. Co. v. McGee, 33 Conn. App. 626, 629, 637 A.2d 792 (1994).
While it is not greatly disputed that the arbitral process itself does not constitute state action, there is some disagreement as to whether the judicial proceeding confirming or vacating the arbitration award implicates state action. Some courts roundly reject the proposition that the confirmation for an arbitration award constitutes state action. See, e.g., Davis v. Prudential Securities, Inc., supra, 59 F.3d 1186 (holding that "the mere confirmation of a private arbitration award by a district court is insufficient state action to trigger the application of the Due Process Clause"); Sawtelle v. Waddell Reed, Inc., supra, 2003 WL 288471. Other courts have been willing to recognize that the confirmation of an arbitration award involves a "limited degree of state action" that requires some measure of due process protection. See Rifkind Sterling, Inc. v. Rifkind, 28 Cal.App.4th 1282 (Cal.App. 2d. Dist. 1994) (holding that "[o]nly a limited degree of state action is involved in confirming an arbitration award"). Still other courts have declined to specifically address the issue but have nevertheless demonstrated a recognition of a potential dichotomy between the arbitral and judicial proceedings. See Commonwealth Associates v. Letsos, 40 F. Sup.2d 170 (S.D.N.Y. 1999) (stating that "[w]hile the procedures utilized in private arbitration do not constitute state action . . . the application of the coercive power of a court to confirm and enforce an arbitration award arguably is another matter"); Glennon v. Dean Witter Reynolds, Inc., 83 F.3d 132 (6th Cir. Tenn. 1996) (determining that, without deciding whether due process protections attached to an arbitral award, the manifest disregard of the law standard provided meaningful judicial review of the punitive damage award). While these divergent views provide interesting fodder for law review articles and footnotes in judicial opinions, the weight of authority at the present time is consistent with the view in Sawtelle v. Waddell Reed, Inc., supra, that neither the arbitral process itself nor the confirmation proceeding involve state action.
In the present case, Memberworks is challenging an award rendered through private, consensual arbitration in which no state action is involved. As such, the award is not subject to due process scrutiny and cannot be vacated on grounds derived solely from constitutional principles. In its briefs, Memberworks cites cases from various jurisdictions purported to support its argument that a public policy against excessive punitive damages should be recognized in the present case. Virtually every case cited in which a punitive damage award was reviewed for excessiveness involved either a jury or court-issued punitive damage award, not an award rendered through arbitration where state action is lacking. There is one Connecticut Superior Court decision, Hadelman v. DeLuca, Superior Court, judicial district of Ansonia/Milford at Milford, Docket No. CV 97 0060279 (November 25, 20002, Alander, J.), in which the court granted de novo review of an arbitration award. The narrow issue before the court was whether to conduct a de novo review of the arbitrator's decision in view of the defendant's contention that the award violates, inter alia, the public policy prohibiting the imposition of grossly excessive punitive damages, contained in the due process clause of the fourteenth amendment to the United States constitution. Notwithstanding that the punitive damage award at issue was rendered in the course of private consensual arbitration, Judge Alander determined, in reliance on Gore and its progeny, that the constitutional prohibition on grossly excessive punitive damages "constitutes a dominant and clear public policy for purposes of de novo review of an arbitrator's decision." Judge Alander concluded that "[t]he defendants have raised sufficient issues to warrant a de novo review of whether the arbitrators inappropriately exercised their judgment and imposed grossly excessive punitive damages in violation of the constitution."
See, e.g., Pacific Mutual Life Ins. Co. v. Haslip, 499 U.S. 1, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991) (jury award); TXO Prod. Corp. v. Alliance Res. Corp., 509 U.S. 443, 453-54, 113 S.Ct. 2711, 125 L.Ed.2d 366 (1993) (jury award); Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 433, 121 S.Ct. 1678, 149 L.Ed.2d 674 (2001) (jury award); Mathie v. Fries, 121 F.3d 808, 816 (2d Cir. N.Y. 1997) (judge award); Lee v. Edwards, 101 F.3d 805 (2d Cir. Conn. 1996) (jury award); Blackledge v. Carlone, 126 F. Sup.2d 224, 229 (D.Conn. 2001) (jury award); United Techs. Corp. v. Am. Home Assurance Co., 118 F. Sup.2d 174, 179 (D.Conn. 2000) (judge award); Oliver v. Cole Gift Ctrs., Inc., 85 F. Sup.2d 109, 115 (D.Conn. 2000) (jury award).
But see, Sawtelle v. Waddell Reed, Inc., supra, where the Appellate Division entertained cross appeals from an order and judgment of a lower court and denied the respondent's motion to vacate the award of punitive damages. Recognizing that private, consensual arbitration is not tantamount to state action and, therefore, does not implicate due process concerns, the court nevertheless concluded that the Gore test is not only applicable to due process analysis of a punitive damage award but also "provides the appropriate standard in determining the excessiveness of an arbitration award of punitive damages under FAA review." The court rejected the petitioner's argument that Gore pertains only to due process claims and reasoned that "[a]lthough under a due process analysis, Gore established the constitutional limits on the imposition of punitive damages, Gore has been applied in cases where it is alleged merely that the damages are `grossly excessive.'" Indeed, some cases have recognized that the Gore test has application beyond due process challenges and provides a guide for assessing whether a punitive damage award is excessive or irrational. See, e.g., Lee v. Edwards, supra, 101 F.3d 805; Sanders v. Gardner, supra, 7 F. Sup.2d 151.
While this decision is well reasoned and could surely be followed, it has been brought to this court's attention that Judge Alander recently ordered counsel for both parties to brief the issue of the applicability of Gore inasmuch as the arbitration did not involve state action. This issue was not before that court when the matter was originally argued.
For the foregoing reasons, it is the conclusion of this court that Memberworks has failed to demonstrate that Connecticut recognizes a "clearly established public policy" prohibiting excessive punitive damage awards in the arbitral forum.
2. Imposition of Punitive Damages Without Sufficient Evidence
Memberworks further moves to vacate the award on the ground that it contravenes the public policy against imposing punitive damages pursuant to CUTPA in the absence of a specific finding by the panel of reckless indifference to or intentional or wanton violation of the rights of others.
Medval counters that the established rule in Connecticut with respect to arbitral awards is that, unless required by the submission itself, the panel's decision need not contain any more than the actual decision and need not make reference to any specific claims of the parties. Medval argues that there exists no "well defined and dominant public policy" requiring arbitrators to state the specific grounds for their award.
Medval is accurate in its assertion that there exists no public policy requiring specific words to be used in an arbitral award. To the contrary, it has long been established that arbitrators are not required to disclose the basis or reasoning upon which their awards are made. See, e.g., Atkinson v. Sinclair Refining Co., 370 U.S. 238, 82 S.Ct 1318, 8 L.Ed.2d 462 (1962); Kurt Orban Co. v. Angeles Metal Systems, 573 F.2d 739 (2d Cir. N.Y. 1978); Sobel v. Hertz, Warner Co., 469 F.2d 1211 (2d Cir. N.Y. 1972). "A court, therefore, need only infer from the facts of the case the grounds for the arbitrator's decision, even where tenuous at best." Sanders v. Gardner, supra, 7 F. Sup.2d 159, quoting United Paperworkers International Union v. Misco, Inc., 484 U.S. 29, 108 S.Ct. 364, 8 L.Ed.2d 286 (1987).
While Connecticut law may require that, in order to award punitive damages under CUTPA, the evidence must reveal reckless indifference to or intentional or wanton violation of the rights of others, Memberworks has directed this court to no authority requiring that an arbitration panel expressly enumerate its reasoning in the award. While evidentiary limitations on CUTPA damages may very well be part of the well defined and dominant public policy of the state, the essential inquiry is whether there exists a public policy requiring arbitrators to expressly detail the basis of their awards. Because the panel was not required to explain the basis of its award, the mere fact that the award does not specifically state that the conduct was reckless, wanton or intentional does not necessarily reveal an inconsistency with any alleged public policy with respect to CUTPA punitive damages.
Nevertheless, even if public policy required the panel to make specific findings of recklessly indifferent, intentional or wanton violation of the rights of others, a review of the award issued by the panel reveals that it indeed made such findings. The panel took pains to detail conduct it characterized as "illustrative of [Memberworks'] unfair and deceptive behavior." Therefore, the panel's award was replete with "evidence . . . [to] reveal a reckless indifference to the rights of others or an intentional and wanton violation of those rights." Gargano v. Heyman, CT Page 7285 203 Conn. 616, 622, 525 A.2d 1343 (1987).
The panel cited 11 specific instances of Memberworks' conduct that it characterized as "illustrative of its unfair and deceptive behavior":
Respondent's failure to inform Claimant that it had contracted with the CorVal network, and Respondent's failure to offer the CorVal network to Claimant;
Respondent's failure to candidly, accurately and fully disclose to Claimant the nature of its communications with UNV regarding UNV's position on updating its provider lists, and failure to arrange for Claimant to participate in discussions on the subject with UNV and Respondent;
Respondent's assertion to Claimant that Respondent was not obliged to deliver to Claimant provider lists for all states, when the contract was clearly and unambiguously to the contrary;
Respondent's history of repeatedly misrepresenting its obligations under its agreements with Claimant;
The refusal of Memberworks employee Andrew Siegel, following his replacement of Mr. Donner as the senior employee of Respondent who was responsible for Claimant's account to meet with Claimant in a timely manner, as well as Respondent's refusal at various times, for extended periods of time, to communicate with Claimant except in writing. Respondent's fear of a possible lawsuit by Claimant does not excuse the performance of its duties under the contract and under the implied covenant of good faith and fair dealing;
Respondent's failure to inform Claimant that it had contracted with the Beech Street Network and Respondent's failure to offer the Beech Street network to Claimant;
Respondent's preparation and distribution of a materially inaccurate summary of a meeting with Claimant;
Respondent's failure to advise Claimant on a timely basis of the notification which Respondent has received from UNV's principals that they had sold their interests in certain network companies, leaving `uncertain' after ninety days the Claimant's access to UNV's physician and hospital network, and suggesting that Respondent consider `coverage alternatives other than through UNV' for Claimant's enterprise;
Respondent's imposition of conditions on its provision of contractually mandated support services, when the contract provided for no such conditions;
The refusal of Respondent's Mr. Iannucci to make himself sufficiently available for conference calls; his prohibition of non-written communications with Claimant; his failure to respond adequately and fairly to Claimant's requests for information; his failure to timely approve hospital lists for advertising; his failure to respond to Claimant's multiple inquiries about Claimant's elimination of free dental services from Claimant's program;
Respondent's refusal to provide timely and adequate notice of the threatened elimination from Claimant's program of free dental service; and Respondent's failure to provide Claimant with new fulfillment materials necessitated by such elimination."
In addition, even if the panel was required to make specific evidentiary findings and if this court were not persuaded that the award manifested such findings, Memberworks would still not have a valid ground for vacatur. Throughout its briefs, Memberworks attempts to couch its objection to the punitive damage award as a "public policy argument." Memberworks' claim that the award does not make the necessary evidentiary findings required by CUTPA jurisprudence is more accurately characterized as a claim of an error of law and its attempt to characterize it as a public policy argument simply fails. The essence of the allegation is that the panel failed to properly apply the law with respect to specifically enumerating the reasoning behind its findings. An allegation that an arbitrator misapplied the law is the very definition of an error of law. See Lathuras v. Shoreline Dental Care, LLC, 65 Conn. App. 509, 516, 783 A.2d 83 (2001).
"The well established general rule is that [w]hen the parties agree to arbitration and establish the authority of the arbitrator through the terms of their submission, the extent of our judicial review of the award is delineated by the scope of the parties' agreement . . . When the scope of the submission is unrestricted, the resulting award is not subject to de novo review even for errors of law so long as the award conforms to the submission." (Citation omitted; internal quotation marks omitted.) State v. AFSCMS, AFL-CIO, Council 4, Local 2663, supra, 257 Conn. 84. Therefore, even if Memberworks could show that the panel's award was erroneous because of a failure to find Memberworks' conduct to be reckless, intentional or wanton, which this court holds it cannot show, the award would not be subject to vacatur.
B. Manifest Disregard of the Law
Memberworks finally moves for vacatur, pursuant to § 52-418 (a) (4), on the ground that the panel's award "manifests an egregious or patently irrational application of the law." Specifically, Memberworks argues that the amount of the punitive damage award is so excessive and "marks such a radical departure from well established standards for imposing punitive damages and the statutory requirements of CUTPA that it is truly in `manifest disregard' of the law, and should be vacated."
In analyzing this argument, this court is mindful of the extraordinarily narrow scope of review for manifest disregard and that this ground should be reserved for circumstances of an arbitrator's extraordinary lack of fidelity to established legal principles. See Garrity v. McCaskey, supra, 223 Conn. 10. Manifest disregard of the law clearly means more than error or misunderstanding with respect to the law. "The error must have been obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator. Moreover, the term `disregard' implies that the arbitrator appreciates the existence of a clearly governing legal principle but decides to ignore or pay no attention to it . . . Judicial inquiry under the `manifest disregard' standard is therefore extremely limited. The governing law alleged to have been ignored by the arbitrators must be well defined, explicit, and clearly applicable. We are not at liberty to set aside an arbitration panel's award because of an arguable difference regarding the meaning or applicability of laws urged upon it." Id., 8-9. Indeed, our Supreme Court has noted that this ground should be reserved for circumstances of an arbitrator's extraordinary lack of fidelity to established legal principles such as when "the memorandum of an arbitrator revealed that he had reached his decision by consulting a Ouija board" or "the memorandum patently discloses an infidelity to the obligation imposed upon the arbitrators." Garrity v. McCaskey, supra, 8.
The Supreme Court has promulgated a three-part test, the elements of which must be satisfied in order for a court to vacate the award on manifest disregard grounds: "(1) the error was obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator; (2) the arbitration panel appreciated the existence of a clearly governing legal principle but decided to ignore it; and (3) the governing law alleged to have been ignored by the arbitration panel is well defined, explicit, and clearly applicable." Saturn Construction Co. v. Premier Roofing Co., supra, 238 Conn. 305.
Memberworks has failed to satisfy any of the three elements of this test. The "clearly governing legal principle" alleged to be at issue is that the panel was limited in the amount of punitive damages it could award. As discussed previously, Memberworks has provided no authority for the existence of a clearly applicable legal principle limiting the amount of punitive damages that can be awarded in consensual arbitration.
Memberworks cites to the New York Appellate Division case of Sawtelle v. Waddell Reed, Inc., supra, 2003 WL 288471, issued February 11, 2003, in support for its motion to vacate under the manifest disregard of the law standard. In Sawtelle, the Appellate Division determined that the arbitration panel's award of $25 million in punitive damages demonstrated that "the panel completely ignored applicable law [and] provides a separate basis for vacating the award." In reaching this conclusion, the court was guided by several important findings. As a preliminary matter, the court readily accepted the "requirement that punitive damages be proportional to compensatory damages" and found that "both sides agreed on this well-settled rule of proportionality and the panel was specifically advised of its existence." Id. Thus, the court provided the foundation necessary to conclude that (1) there exists a clearly governing legal principle with respect to limitations on punitive damage awards in private arbitration and (2) that the panel was aware of but decided to ignore this principle. As discussed herein, Memberworks has not demonstrated either of these factors to the court's satisfaction.
Furthermore, while the Sawtelle decision is of very recent vintage, this court is not bound by its interpretation of the manifest disregard exception. In view of the fact that the Connecticut Appellate Courts have not yet embraced an approach to the manifest disregard of the law standard that encompasses an excessive punitive damage award, and in recognition that this exception has routinely been characterized as exceedingly narrow in scope, this court is unwilling to unilaterally expand its breadth to include the claim of mere excessiveness advanced by Memberworks.
Moreover, even if there existed a clearly governing legal principle, Memberworks has failed to demonstrate that the panel appreciated the existence of this principle but decided to ignore it. It is well settled that an arbitration award will not be vacated simply because of an error or misunderstanding with respect to the law. See Garrity v. McCaskey, supra, 223 Conn. 9. Rather, only where the error is "obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator . . . [and] the arbitrator appreciate[d] the existence of a clearly governing legal principle but decide[d] to ignore or pay no attention to it," will manifest disregard be found. See DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 821 (2d Cir. 1997), cert denied, 522 U.S. 1049, 118 S.Ct. 695, 139 L.Ed.2d 639 (1997). In Saturn Construction Co. v. Premier Roofing Co., supra, 238 Conn. 293, the court determined that even if the legal principle at issue was well defined, explicit and clearly applicable to the facts, it "could not conclude . . . that the arbitration panel appreciated but ignored it. There is no evidence in the record that the plaintiff ever made this argument before the arbitration panel." Id., 308. Moreover, "[t]o prevail on its application to vacate an arbitration award pursuant to § 52-418 (a) (4), a party must show that the arbitrator knew that her award was contrary to the law." Lathuras v. Shoreline Dental Care, LLC, supra, 65 Conn. App. 515. Memberworks has neither delineated a clearly governing legal principle nor demonstrated that the panel was made aware of it or knowingly disregarded it.
Furthermore, the cases that have interpreted the manifest disregard standard seem to apply it only to clearly governing principles of substantive law, such as a statutes of limitations; Garrity v. McCaskey, supra, 223 Conn. 1; or mitigation of damages principles; Lathuras v. Shoreline Dental Care, LLC, supra, 65 Conn. App. 509. In the present case, Memberworks' argument is based merely on the amount of the damages awarded and not on any substantive legal principles underlying the arbitrators' authority to award such damages. The amount of a damage award is not appropriately characterized as a substantive legal issue. This court is not aware of, nor did Memberworks direct the court's attention to, any authority suggesting that there exist substantive legal principles restricting the amount of a punitive damages that can be awarded in a consensual arbitration proceeding. In awarding damages, the arbitrator, like a judge in a court proceeding, engages in a discretionary analysis of competing factors. "Submitting the issue of damages to the arbitrator without a limitation . . . gave the arbitrator the power `to exercise his own judgment and discretion and to render an appropriate award of damages.'" Zavaski v. World Wide Financial Services of Central Connecticut, Inc., Superior Court, judicial district of Middlesex, Docket No. CV 69853 (October 15, 1993, Arena, J.), quoting Board of Education v. Waterbury Teachers' Assn., 174 Conn. 123, 128, 384 A.2d 350 (1977). The notion that an arbitration panel's exercise of discretion in awarding damages does not involve substantive legal principles was embraced in Board of Education v. New Haven, Superior Court, judicial district of New Haven, Docket No. CV 96 0390191 (September 9, 1996, Hodgson, J.) ( 17 Conn.L.Rptr. 505). The court recognized the broad discretion afforded arbitration panels in the nature and extent of their awards. The court stated: "[s]ince the arbitrators had discretion to fashion a remedy and were not required to order any particular remedy, this court cannot conclude that the exercise of that discretion reflected a manifest disregard for applicable law . . . It must be remembered that the arbitrators were not adjudicating a provision of law, such as a civil service ordinance, that required a particular remedy as a matter of law; rather, they were arbitrating a claimed breach of contract with a range of possible remedies to consider." Id. Therefore, it seems that the manifest disregard standard is applied only with respect to substantive principles of law and is not an appropriate procedural vehicle for a challenge to the amount of a punitive damage award.
For the foregoing reasons, it is the conclusion of this court that Memberworks has failed to demonstrate that the punitive damage award was so excessive as to be in manifest disregard of the law.
CONCLUSION
Memberworks' motion to vacate is hereby denied and Medval's motion to confirm is granted.
Berger, J.