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Are There Due Process Limits on Arbitral Punitive Damage Awards?
Many franchisors heartily dislike arbitration.It is easy to understand why.To anyone who has ever endured a protracted arbitration,conducted without regard to evidentiary rules or governing law,only to receive a mystifying (or infuriating)award that a reviewing court will simply rubber stamp,the flaws of the process are manifest.1 Certain franchisors tolerate those flaws because,even if they sometimes lose arbitrations,they appraise the aggregate risks of arbitration as materially lower than those of litigation,especially jury trials.2 But what if a particular arbitrator or arbitration panel,offended by a franchisor ‘s conduct,decides to impose substantial punitive damages?Do the constitutional guideposts that the U.S.Supreme Court erected in BMW v. Gore 3 and recently reinforced in State Farm Mutual Automobile Insurance Co. v. Campbell 4 apply to arbitration awards,and require judicial review far more stringent than the norm for arbitration? If not,a single punitive damage award could confound a franchisor ‘s risk management calculus,and,if large enough,threaten the viability of a franchise system.