Punitive Damages in Commercial Arbitration: A Due Process Analysis

This comment theorizes that awarding punitive damages in commercial arbitration is state action requiring due process. Unlike the traditional contract remedy of compensatory damages, punitive damages have for centuries been under the exclusive control of the State. The Supreme Court has found that a traditional and exclusive State power exercised by a private individual is state action requiring due process. Therefore when punitive damages are at issue, the arbitration agreement must consist of a minimum quantum of procedures that balance the protection against erroneous punishment with the State\u27s interest in limiting the burden on arbitration. This comment also theorizes that punitive damages violate due process by giving the arbitrator unfettered discretion in determining punitive damages awards. This comment will begin by discussing the statutory background of commercial arbitration and the limited judicial review of arbitration awards. It will then discuss the evolution of punitive damages in commercial arbitration. This comment will then show that punitive damages are state action requiring procedural due process. Finally, it will then use the Mathews v. Eldridge calculus created by the Supreme Court and the Haslip case to show that a written opinion and enhanced judicial review are needed to satisfy procedural due process when punitive damages are awarded in arbitration