In the case of Antonio Mastrobuono and Diana G. Mastrobuono v. Shearson Lehman Hutton, Inc., et al., 1994, the U.S Supreme Court ruled in favor of the Mastrobounos. The dispute arose from a disagreement over an arbitration agreement that was part of a larger contract between the parties. The Mastrobounos had lost significant money due to poor investment advice from Shearson Lehman Hutton (now Morgan Stanley). They sought punitive damages through arbitration as per their contract with Shearson but were denied because New York law - which governed their contract - did not allow for punitive damages in arbitrations. However, upon appeal to higher courts, it was found that while New York law applied generally to their contractual relationship, it did not specifically govern all aspects including arbitration proceedings themselves; those could be guided by other laws or rules allowing for punitive damages if so agreed by parties involved in such contracts.

In the dissenting opinion for Mastrobuono v. Shearson Lehman Hutton, Inc., Justice Clarence Thomas, joined by Chief Justice William Rehnquist and Justice Sandra Day O'Connor, argued that the majority misinterpreted the arbitration agreement between parties. The dissenters believed that punitive damages were not within an arbitrator's power to award because of a clause in the contract stating New York law governed it. They pointed out that under New York law at the time, arbitrators could not award punitive damages. Therefore, they contended that when parties agreed to be bound by this specific state law in their contract; they implicitly excluded such awards from potential outcomes of arbitration proceedings. Furthermore, they criticized how majority’s decision ignored clear contractual language and undermined predictability in commercial transactions.