Justice Stevens, delivered the opinion of the Court.
New York law allows courts, but not arbitrators, to award punitive damages. In a dispute arising out of a standardform contract that expressly provides that it "shall be governed by the laws of the State of New York," a panel of arbitrators awarded punitive damages. The District Court and Court of Appeals disallowed that award. The question presented is whether the arbitrators' award is consistent with the central purpose of the Federal Arbitration Act to
In 1985, petitioners, Antonio Mastrobuono, then an assistant professor of medieval literature, and his wife Diana Mastrobuono, an artist, opened a securities trading account with respondent Shearson Lehman Hutton, Inc. (Shearson), by executing Shearson's standard-form Client's Agreement. Respondent Nick DiMinico, a vice president of Shearson, managed the Mastrobuonos' account until they closed it in 1987. In 1989, petitioners filed this action in the United States District Court for the Northern District of Illinois, alleging that respondents had mishandled their account and claiming damages on a variety of state and federal law theories.
Paragraph 13 of the parties' agreement contains an arbitration provision and a choice-of-law provision. Relying on the arbitration provision and on §§ 3 and 4 of the Federal Arbitration Act (FAA), 9 U. S. C. §§ 3, 4, respondents filed a motion to stay the court proceedings and to compel arbitration pursuant to the rules of the National Association of Securities Dealers. The District Court granted that motion, and a panel of three arbitrators was convened. After conducting hearings in Illinois, the panel ruled in favor of petitioners.
In the arbitration proceedings, respondents argued that the arbitrators had no authority to award punitive damages. Nevertheless, the panel's award included punitive damages of $400,000, in addition to compensatory damages of $159,327. Respondents paid the compensatory portion of the award but filed a motion in the District Court to vacate the award of punitive damages. The District Court granted the motion, 812 F.Supp. 845 (ND Ill. 1993), and the Court of Appeals for the Seventh Circuit affirmed, 20 F.3d 713 (1994). Both courts relied on the choice-of-law provision in paragraph 13
We granted certiorari, 513 U.S. 921 (1994), because the Courts of Appeals have expressed differing views on whether a contractual choice-of-law provision may preclude an arbitral award of punitive damages that otherwise would be proper. Compare Barbier v. Shearson Lehman Hutton Inc., 948 F.2d 117 (CA2 1991), and Pierson v. Dean, Witter, Reynolds, Inc., 742 F.2d 334 (CA7 1984), with Bonar v. Dean Witter Reynolds, Inc., 835 F.2d 1378, 1386-1388 (CA11 1988), Raytheon Co. v. Automated Business Systems, Inc. , 882 F.2d 6 (CA1 1989), and Lee v. Chica, 983 F.2d 883 (CA8 1993). We now reverse.
Earlier this Term, we upheld the enforceability of a predispute arbitration agreement governed by Alabama law, even though an Alabama statute provides that arbitration agreements are unenforceable. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995). Writing for the Court, Justice Breyer observed that Congress passed the FAA "to overcome courts' refusals to enforce agreements to arbitrate." Id., at 270. See also Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S., at 474; Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213,
Petitioners seek a similar disposition of the case before us today. Here, the Seventh Circuit interpreted the contract to incorporate New York law, including the Garrity rule that arbitrators may not award punitive damages. Petitioners ask us to hold that the FAA pre-empts New York's prohibition against arbitral awards of punitive damages because this state law is a vestige of the "` "ancient"` " judicial hostility to arbitration. See Allied-Bruce, 513 U. S., at 270, quoting Bernhardt v. Polygraphic Co. of America, Inc., 350 U.S. 198, 211, n. 5 (1956) (Frankfurter, J., concurring). Petitioners rely on Southland Corp. v. Keating, 465 U.S. 1 (1984), and Perry v. Thomas, 482 U.S. 483 (1987), in which we held that the FAA pre-empted two California statutes that purported to require judicial resolution of certain disputes. In Southland, we explained that the FAA not only "declared a national policy favoring arbitration," but actually "withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration." 465 U. S., at 10.
Respondents answer that the choice-of-law provision in their contract evidences the parties' express agreement that punitive damages should not be awarded in the arbitration of any dispute arising under their contract. Thus, they claim, this case is distinguishable from Southland and Perry, in which the parties presumably desired unlimited arbitration but state law stood in their way. Regardless of whether the FAA pre-empts the Garrity decision in contracts not expressly incorporating New York law, respondents argue that the parties may themselves agree to be bound by Garrity, just as they may agree to forgo arbitration altogether. In other words, if the contract says "no punitive damages," that
We have previously held that the FAA's proarbitration policy does not operate without regard to the wishes of the contracting parties. In Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468 (1989), the California Court of Appeal had construed a contractual provision to mean that the parties intended the California rules of arbitration, rather than the FAA's rules, to govern the resolution of their dispute. Id., at 472. Noting that the California rules were "manifestly designed to encourage resort to the arbitral process," id., at 476, and that they "generally foster[ed] the federal policy favoring arbitration," id., at 476, n. 5, we concluded that such an interpretation was entirely consistent with the federal policy "to ensure the enforceability, according to their terms, of private agreements to arbitrate," id., at 476. After referring to the holdings in Southland and Perry, which struck down state laws limiting agreed-upon arbitrability, we added:
Shearson's standard-form "Client Agreement," which petitioners executed, contains 18 paragraphs. The two relevant provisions of the agreement are found in paragraph 13.
The choice-of-law provision, when viewed in isolation, may reasonably be read as merely a substitute for the conflictof-laws analysis that otherwise would determine what law to apply to disputes arising out of the contractual relationship. Thus, if a similar contract, without a choice-of-law provision, had been signed in New York and was to be performed in New York, presumably "the laws of the State of New York" would apply, even though the contract did not expressly so state. In such event, there would be nothing in the contract that could possibly constitute evidence of an intent to exclude punitive damages claims. Accordingly, punitive damages would be allowed because, in the absence of contractual intent to the contrary, the FAA would pre-empt the Garrity rule. See supra, at 58, and n. 8, infra .
Even if the reference to "the laws of the State of New York" is more than a substitute for ordinary conflict-of-laws analysis and, as respondents urge, includes the caveat, "detached from otherwise-applicable federal law," the provision might not preclude the award of punitive damages because New York allows its courts, though not its arbitrators, to enter such awards. See Garrity, 40 N. Y. 2d, at 358, 353
The arbitration provision (the second sentence of paragraph 13) does not improve respondents' argument. On the contrary, when read separately this clause strongly implies that an arbitral award of punitive damages is appropriate. It explicitly authorizes arbitration in accordance with NASD rules;
"B. Punitive Damages
Thus, the text of the arbitration clause itself surely does not support—indeed, it contradicts—the conclusion that the parties agreed to foreclose claims for punitive damages.
Moreover, respondents cannot overcome the common-law rule of contract interpretation that a court should construe ambiguous language against the interest of the party that drafted it. See, e. g., United States Fire Ins. Co. v. Schnackenberg, 88 Ill.2d 1, 4, 429 N.E.2d 1203, 1205 (1981); Graff v. Billet, 64 N.Y.2d 899, 902, 477 N.E.2d 212, 213-214
Finally respondents' reading of the two clauses violates another cardinal principle of contract construction: that a document should be read to give effect to all its provisions and to render them consistent with each other. See, e. g., In re Halas, 104 Ill.2d 83, 92, 470 N.E.2d 960, 964 (1984); Crimmins Contracting Co. v. City of New York, 74 N.Y.2d 166, 172-173, 542 N.E.2d 1097, 1100 (1989); TrumpEquitable Fifth Avenue Co. v. H. R. H. Constr. Corp., 106 App. Div. 2d 242, 244, 485 N.Y.S.2d 65, 67 (1985); Restatement (Second) of Contracts § 203(a) and Comment b; id., § 202(5). We think the best way to harmonize the choice-oflaw
We hold that the Court of Appeals misinterpreted the parties' agreement. The arbitral award should have been enforced as within the scope of the contract. The judgment of the Court of Appeals is, therefore, reversed.
It is so ordered.
Justice Thomas, dissenting.
In Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478 (1989), we held that the Federal Arbitration Act (FAA) simply requires courts to enforce private contracts to arbitrate as they would normal contracts—according to their terms. This holding led us to enforce a choice-of-law provision that incorporated a state procedural rule concerning arbitration proceedings. Because the choice-of-law provision here cannot reasonably be distinguished from the one in Volt, I dissent.
In Volt, Stanford University had entered into a construction contract under which Volt Information Sciences, Inc., was to install certain electrical systems on the Stanford campus. The contract contained an agreement to arbitrate all disputes arising out of the contract. A choice-of-law clause in the contract provided that "[t]he Contract shall be governed by the law of the place where the Project is located," id., at 470 (citation and internal quotation marks omitted), which happened to be California. When a dispute arose regarding compensation, Volt invoked arbitration. Stanford filed an action in state court, however, and moved to stay arbitration pursuant to California Rules of Civil Procedure. Cal. Civ. Proc. Code Ann. § 1281.2(c) (West 1982). Opposing the stay, Volt argued that the relevant state statute authorizing the stay was pre-empted by the FAA, 9 U. S. C. § 1 et seq.
We concluded that even if the FAA pre-empted the state statute as applied to other parties, the choice-of-law clause in the contract at issue demonstrated that the parties had agreed to be governed by the statute. Rejecting Volt's position that the FAA imposes a proarbitration policy that precluded enforcement of the statute permitting the California courts to stay the arbitration proceedings, we concluded that the Act "simply requires courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms." 489 U. S., at 478. As a result, we interpreted the choice-of-law clause "to make applicable state rules governing the conduct of arbitration," id. , at 476, even if a specific rule itself hampers or delays arbitration. We rejected the argument that the choice-of-law clause was to be construed as incorporating only substantive law, and dismissed the claim that the FAA pre-empted those contract provisions that might hinder arbitration.
In this case, as in Volt, the parties agreed to mandatory arbitration of all disputes. As in Volt, the contract at issue here includes a choice-of-law clause. Indeed, the language of the two clauses is functionally equivalent: Whereas the choice-of-law clause in Volt provided that "[t]he Contract shall be governed by the law of [the State of California]," id., at 470 (citation and internal quotation marks omitted), the one before us today states, in paragraph 13 of the Client's Agreement, App. to Pet. for Cert. 44, that "[t]his agreement. . . shall be governed by the laws of the State of New York." New York law prohibits arbitrators from awarding punitive damages, Garrity v. Lyle Stuart, Inc., 40 N.Y.2d 354, 353 N.E.2d 793 (1976), and permits only courts to award such damages. As in Volt, petitioners here argue that the New York rule is "anti arbitration," and hence is pre-empted by the FAA. In concluding that the choice-of-law clause is ambiguous,
The majority claims that the incorporation of New York law "need not be read so broadly" as to include both substantive and procedural law, and that the choice of New York law "is not, in itself, an unequivocal exclusion of punitive damages claims." Ante, at 60. But we rejected these same arguments in Volt, and the Garrity rule is just the sort of "state rul[e] governing the conduct of arbitration" that Volt requires federal courts to enforce. 489 U. S., at 476. "Just as [the parties] may limit by contract the issues which they will arbitrate, so too may they specify by contract the rules under which that arbitration will be conducted." Id. , at 479 (citation omitted). To be sure, the majority might be correct that Garrity is a rule concerning the State's allocation of power between "alternative tribunals," ante, at 60, although Garrity appears to describe itself as substantive New York law.
The majority relies upon two assertions to defend its departure from Volt. First, it contends that "[a]t most, the choice-of-law clause introduces an ambiguity into an arbitration agreement." Ante, at 62. We are told that the agreement "would otherwise allow punitive damages awards," ibid., because of paragraph 13's statement that arbitration would be conducted "in accordance with the rules then in effect, of the National Association of Securities Dealers, Inc. [NASD]." App. to Pet. for Cert. 44. It is unclear which NASD "rules" the parties mean, although I am willing to agree with the majority that the phrase refers to the NASD Code of Arbitration Procedure. But the provision of the NASD Code offered by the majority simply does not speak to the availability of punitive damages. It only states:
It is clear that § 41(e) does not define or limit the powers of the arbitrators; it merely describes the form in which the arbitrators must announce their decision. The other provisions of § 41 confirm this point. See, e. g., § 41(a) ("All awards shall be in writing and signed by a majority of the arbitrators . . ."); § 41(c) ("Director of Arbitration shall endeavor to serve a copy of the award" to the parties); § 41(d) (arbitrators should render an award within 30 days); § 41(f)
The majority also purports to find a clear expression of the parties' agreement on the availability of punitive damages in "a manual provided to NASD arbitrators." Ante, at 61. But paragraph 13 of the Client's Agreement nowhere mentions this manual; it mentions only "the rules then in effect, of the [NASD]." App. to Pet. for Cert. 44. The manual does not fit either part of this description: it is neither "of the [NASD]," nor a set of "rules."
First, the manual apparently is not an official NASD document. The manual was not promulgated or adopted by the NASD. Instead, it apparently was compiled by members of the Securities Industry Conference on Arbitration (SICA) as a supplement to the Uniform Code of Arbitration, which the parties clearly did not adopt in paragraph 13. Petitioners present no evidence that the NASD has a policy of giving this specific manual to its arbitrators. Nor do petitioners assert that this manual was even used in the arbitration that gave rise to this case. More importantly, there is no indication in the text of the Client's Agreement that the parties intended this manual to be used by the arbitrators.
Second, the manual does not provide any "rules" in the sense contemplated by paragraph 13; instead, it provides general information and advice to the arbitrator, such as "Hints for the Chair." SICA, Arbitrator's Manual 21 (1992). The manual is nothing more than a sort of "how to" guide for the arbitrator. One bit of advice, for example, states: "Care should be exercised, particularly when questioning a witness, so that the arbitrator does not indicate disbelief.
Even if the parties had intended to adopt the manual, it cannot be read to resolve the issue of punitive damages. When read in context, the portion of the SICA manual upon which the majority relies seems only to explain what punitive damages are, not to establish whether arbitrators have the authority to award them:
A glance at neighboring passages, which explain the purpose of "Compensatory/Actual Damages," "Injunctive Relief," "Interest," "Attorneys' Fees," and "Forum Fees," see id., at 26-29, confirms that the SICA manual does not even attempt to provide a standardized set of procedural rules.
Even if one made the stretch of reading the passage on punitive damages to relate to an NASD arbitrator's authority, the SICA manual limits its own applicability in the situation
My examination of the Client's Agreement, the choice-oflaw provision, the NASD Code of Procedure, and the SICA manual demonstrates that the parties made their intent clear, but not in the way divined by the majority. New York law specifically precludes arbitrators from awarding punitive damages, and it should be clear that there is no "conflict," as the majority puts it, between the New York law and the NASD rules. The choice-of-law provision speaks directly to the issue, while the NASD Code is silent. Giving effect to every provision of the contract requires us to honor the parties' intent, as indicated in the text of the agreement, to preclude the award of punitive damages by arbitrators.
Thankfully, the import of the majority's decision is limited and narrow. This case amounts to nothing more than a federal
Andrew L. Frey, Andrew J. Pincus, and Stuart J. Kaswell filed a brief for the Securities Industry Association as amicus curiae urging affirmance.
"This agreement shall inure to the benefit of your [Shearson's] successors and assigns[,] shall be binding on the undersigned, my [petitioners'] heirs, executors, administrators and assigns, and shall be governed by the laws of the State of New York. Unless unenforceable due to federal or state law, any controversy arising out of or relating to [my] accounts, to transactions with you, your officers, directors, agents and/or employees for me or to this agreement or the breach thereof, shall be settled by arbitration in accordance with the rules then in effect, of the National Association of Securities Dealers, Inc. or the Boards of Directors of the New York Stock Exchange, Inc. and/or the American Stock Exchange Inc. as I may elect. If I do not make such election by registered mail addressed to you at your main office within 5 days after demand by you that I make such election, then you may make such election. Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction thereof. This agreement to arbitrate does not apply to future disputes arising under certain of the federal securities laws to the extent it has been determined as a matter of law that I cannot be compelled to arbitrate such claims." App. to Pet. for Cert. 44.
Rule 21(f)(4) applies only to contracts executed after September 7, 1989. Notwithstanding any effect it may have on agreements signed after that date, this rule is not applicable to the agreement in this case, which was executed in 1985.
"Where one party chooses the terms of a contract, he is likely to provide more carefully for the protection of his own interests than for those of the other party. He is also more likely than the other party to have reason to know of uncertainties of meaning. Indeed, he may leave meaning deliberately obscure, intending to decide at a later date what meaning to assert. In cases of doubt, therefore, so long as other factors are not decisive, there is substantial reason for preferring the meaning of the other party." Restatement (Second) of Contracts § 206, Comment a (1979).