Originally from Dispute Resolution Journal

The Supreme Court's recent decision in Mastrobuono v. Shearson Lehman Hutton, Inc.,1 reaffirmed the concept that under the United States Arbitration Act,2 private arbitration is a creature of the agreement between the parties. Thus, the court ruled that a choice of law clause which specified New York law, which forbids arbitrators from awarding punitive damages, did not in itself establish that the parties agreed to limit the arbitral award to compensatory damages. The court remanded the case for a determination as to whether in fact the parties had so agreed. Thus, in a broad sense, the court's decision teaches that one must look first to the parties' agreement to arbitrate, to determine the nature of the proceeding and the powers of the arbitrators.

Every year, millions of business contracts are written which include provisions which establish dispute resolution procedures for use by the parties. Many if not most of these predispute resolution provisions incorporate by reference the rules of an alternative dispute resolution (ADR) administrative agency, such as those promulgated by the American Arbitration Association (AAA).3