Bonar v. Dean Witter Reynolds, Inc.

James and Beverly Bonar (plaintiff) had a brokerage account with Dean Witter Reynolds, Inc. (Dean Witter) (defendant). The Bonars’ customer agreement with Dean Witter provided that any disputes would be arbitrated with the American Arbitration Association (AAA). The AAA’s rules broadly authorized arbitrators to grant any remedy within the scope of the parties’ agreement. The customer agreement also contained a New York choice-of-law provision. Under New York law, arbitrators were not permitted to award punitive damages. Dean Witter’s account executive stole money from the Bonars’ account. The Bonars demanded arbitration, seeking compensatory damages and punitive damages. Dean Witter admitted liability for compensatory damages but disputed the claim for punitive damages. The Bonars offered the testimony of an expert who opined that Dean Witter’s actions warranted punitive damages. Based on the expert’s testimony, the arbitrators assessed punitive damages against Dean Witter. However, as was discovered later, the expert falsely testified about his credentials. Dean Witter motioned the court to vacate the arbitration award, arguing that the arbitrators had no authority to award punitive damages and that the Bonars waived the right to punitive damages by agreeing to the New York choice-of-law provision. Dean Witter also argued that the award was procured by fraud. The court denied Dean Witter’s motion. Dean Witter appealed.