When can an arbitrator award punitive damages?

That's the $128 million question for 21st Century Fox, which was socked with a massive punitive penalty in a licensing dispute over the television show “Bones.”

It's a huge win for Kasowitz Benson Torres partners John Berlinski and Daniel Saunders —but will it stand?

On Wednesday, the Kasowitz team filed papers in Los Angeles County Superior Court to enforce the award. But Fox tapped O'Melveny & Myer's star litigator Daniel Petrocelli in a bid to reverse the punitive damages, arguing that JAMS arbitrator Peter Lichtman over-stepped his authority.

“The ruling by this private arbitrator is categorically wrong on the merits and exceeded his arbitration powers,” a Fox spokesman said in an emailed statement. “Fox will not allow this flagrant injustice, riddled with errors and gratuitous character attacks, to stand and will vigorously challenge the ruling in a court of law.”

Lichtman, a former Los Angeles County Superior Court judge who joined JAMS as a neutral in 2011, ruled that “Bones” stars Emily Deschanel and David Boreanaz as well as two producers of the hit television series were owed a total of $179 million by Fox. More than two-thirds of the damages were punitive.

In a 65-page decision issued on Feb. 4 but made public yesterday, Lichtman asserted his authority to impose the penalty under the terms of the arbitration agreement.

The retired judge blasted Fox for its “intentional acts of fraud and malice” in licensing “Bones” for artificially low fees to its sister networks and the streaming platform Hulu, a Fox affiliate. He also pointed to the “cavalier attitude of Fox's witnesses,” none of whom “took responsibility or expressed any remorse for their actions,” he wrote.

Moreover, Lichtman had no use for Fox's arguments—which he said “defy comprehension”—that since the “Bones” producers and actors were getting a large amount of money in compensatory damages for economic harm, punitive damages were essentially unwarranted.

“To suggest that respondents should somehow be grateful for what they did receive instead of focusing on what they were deceived and cheated out of is audacious and quite frankly astonishing,” Lichtman wrote.

He continued, “Fox also states that there is 'no evidence of a long-term pattern of reprehensible or unethical behavior' and that 'the tortious conduct was limited to the breaking of two promises.' Does Fox really suggest that short-term reprehensible or unethical behavior and the breaking of just two promises is alright?”

Fox in the arbitration was represented by Munger, Tolles & Olson's Glenn Pomerantz, Anjan Choudhury and John Schwab, according to court papers. A firm spokeswoman declined comment. Jenner & Block represented Fox at the hearing in a more limited role, and likewise declined comment.

As for the eye-popping amount of the punitive damages?

Lichtman reminds us that arbitration is a private proceeding, arranged by contract, and that “California courts have disclaimed any ability to review an arbitrator's fixing of punitive damage awards.”

As such, he continued, “Fox's assertion of federal due process standards as a limitation on punitive damages does not apply here to the arbitrator's discretion in a private arbitration, which was sought by Fox itself.”

In other words, too bad, so sad.

It's now up to Petrocelli—who yesterday saw the D.C. Circuit uphold his win on behalf of AT&T greenlighting its merger with Time Warner—to save the day for Fox.

He declined comment, but in a motion filed Wednesday in Los Angeles Superior Court, Petrocelli laid out Fox's case for slashing the punitive damages award—noting that it's the biggest one they're aware of in California “in a case where the harm is purely economic, the compensatory damages are substantial, plaintiffs are wealthy and sophisticated, and attorneys' fees were awarded.”

According to Petrocelli, the contracts at issue flat-out bar punitive remedies for “any arbitral claims asserted in connection with alleged breaches.”

But Lichtman “refused to apply that unambiguous limitation on his authority,” the O'Melveny partner continued. “He made many other errors, to be sure, but none so glaring and indefensible as his arrogation of power to award punitive damages in the face of a contractual provision explicitly denying him that power.”

Petrocelli did admit courts typically defer to arbitration awards, even when the arbitrator got it wrong. And for that reason, he wrote, Fox isn't challenging the $32.8 million in compensatory damages, $10 million in prejudgment interest and $7.4 million in attorneys' fees.

But the punitive damages here are different, Petrocelli argued, because the contract didn't allow them. That makes the award reviewable by the court.

“In that situation, courts do not defer to an award that erroneously overrides the limitation—they instead enforce the limitation, and thus correct or vacate awards that include remedies 'expressly forbidden by the parties' arbitration agreement,'” he wrote. “That rule controls here.”