Punitive Damages: Achieving Fairness and Consistency after State Farm V. Campbell: Despite Its Best Efforts, the U.S. Supreme Court's Opinion Leaves Many Blank Spaces and Holes with Which Appellate Courts Have Had to Cope
Sud, Nitin, Defense Counsel Journal
PUNITIVE damages have been a part of the American jurisprudence and have been recognized by the U.S. Supreme Court for more than 150 years. (1) But that Court began to suggest the possibility of limiting such damages in 1988. (2) As businesses became more financially vulnerable to excessive punitive damages awards, several states enacted statutes limiting them. Although the U.S. Supreme Court consistently had upheld the constitutionality of punitive damages as determined by lower courts, in 1996 it created limitations and set a standard in BMW of North America v. Gore, (3) a test re-emphasized and clarified in 2003 in State Farm Mutual Automobile Insurance Co. v. Campbell. (4)
Section 908(1) of the Restatement (Second) of Torts states that punitive damages are designed to "punish [the defendant] for his outrageous conduct and to deter him and others like him from similar conduct in the future." Unfortunately, the focus of punitive damages has shifted from deterring defendants to rewarding plaintiffs with windfalls. Some argue that plaintiffs should not receive punitive awards because they are made whole by compensatory damages. (5) The dilemma is who should receive punitive damages. To address this problem, some states, including Alaska, Georgia, Illinois, Indiana, Iowa, Missouri, Oregon, and Utah, have enacted split-recovery statutes, which allocate a portion of the punitive damages to either the state or a special fund.
A problem of excessive punitive damages is the severe financial impact they have on defendants, many of whom have gone bankrupt as a result of adverse judgments resulting in large compensatory and punitive damages. As the purpose of punitive damages is primarily to deter and punish, it is difficult for juries and judges to determine an appropriate award under such an arbitrary goal in a consistent manner. Historically, punitive damages were intended to punish a private harm done to a specific plaintiff, (6) not to compensate the plaintiff. (7)
Over time, courts and lawmakers have used punitive damages to address the harm done to society. (8) Despite the inherent problems that policy imposes, another basic issue arises. Under the historical approach, it is more acceptable for plaintiffs to receive the punitive damages because the harm suffered by plaintiffs is paramount. The harm to society is now taken into account, however, adding an additional dilemma of whether plaintiffs or society should be entitled to punitive damages.
Another effect of assessing punitive damages occurs when defendants face multiple punitive damages for conduct for which they were previously punished. (9) Under Section 908(1) of Restatement (Second), once a company pays punitive damages for "outrageous conduct," hypothetically, it has been deterred and punished. Therefore, similar to the law against double jeopardy in criminal cases, why should a defendant be penalized again for the same conduct?
States and courts have directed their efforts in reducing extreme payments of punitive damages in two general ways: limiting the actual amount of punitive damages awarded and trying to prevent multiple punitive damages.
A. Monetary Limits
Many states have enacted legislation limiting punitive damage awards. These statutes implement a variety of means to impose limits, like using a multiple of compensatory damages (Idaho, Indiana, New Jersey), basing damages on the net worth or annual income of the defendant (Alabama, Kansas, Mississippi), limiting damages for certain types of claims or conduct (Florida, Georgia, Oklahoma) or setting a specific dollar amount (Virginia). Table 1 shows these statutes and the limitations.
B. Split Recovery
Eight states (Alaska, Georgia, Illinois, Indiana, Iowa, Missouri, Oregon and Utah) also have split-recovery statutes, by which the state obtains a portion of the punitive damages awarded. Although the constitutionality of these statutes has been challenged, (10) only a couple of states found them unconstitutional. (11) But, some states oppose split recovery by statute. (12)
There is a debate whether split recovery is good policy. (13) While there are legitimate concerns regarding the possibility of the state promoting pro-punitive damage policies, appropriately allocating funds obtained from punitive damage awards eliminates this concern. Rather than depositing the state's portion of the award directly into the general state treasury, some states have allocated the awards to a special fund to compensate victims. (14)
STATE FARM AND ITS IMPACT
Although only about half the states have specific statutes limiting punitive damages, case law provides some guidance. In the 1996 BMW v. Gore decision, the U.S. Supreme Court created a standard to determine the constitutionality of punitive damages. It developed a three-part test to gauge whether they were "grossly excessive." The test consisted of evaluating (1) "the degree of reprehensibility," (2) "the disparity between the harm or potential harm suffered ... and [the] punitive damages award," and (3) "the difference between this remedy and the civil penalties authorized or imposed in comparable cases." In State Farm, the Court re-emphasized this test and focused primarily on the type of evidence that can be produced to show the degree of reprehensibility and acceptable punitive to compensatory damages ratios.
But in trying to limit punitive damages even further, the Court seems to have opened a flood of uncertainty that still could allow for excessive or multiple punitive damages, thus doing little to alleviate the problem.
A. Overview of State Farm
In State Farm, Curtis Campbell, who was insured by State Farm, was involved in a car accident resulting in the death of one driver and the permanent disability of another. Although it was fairly clear that Campbell was at fault, State Farm decided to contest liability and declined offers to settle for the policy limit of $50,000. After losing in a jury trial that found Campbell 100 percent at fault, State Farm refused to pay the excess $135,849 in liability. Although State Farm eventually agreed to pay the entire judgment, Campbell filed a complaint in Utah state court alleging bad faith, fraud and intentional infliction of emotional distress.
In the first part of a bifurcated trial, the jury found the decision not to settle was unreasonable because there was a substantial likelihood of an excess verdict. The second phase, which came after the U.S. Supreme Court decided BMW, addressed State Farm's fraud and intentional infliction of emotional distress liability and compensatory and punitive damages. The jury awarded the Campbells $2.6 million in compensatory and $145 in punitive damages. The trial court reduced this award to $1 million and $25 million, respectively, but on appeal, the Utah Supreme Court, in an attempt to apply BMW, reinstated the $145 million punitive damages award.
The U.S. Supreme Court also used the BMW guidelines but held that the decision to reinstate the $145 million in punitive damages was incorrect. It concluded that under the reprehensibility guidepost of BMW, the Utah Supreme Court erred by allowing evidence that enabled the jury to punish State Farm for actions not directed toward the Campbells. The trial court had allowed State Farm to be punished for mishandling of insurance claims that "bore no relation to the Campbells' harm," Justice Kennedy wrote for the Court.
Next, addressing the ratio guidepost of BMW and stating that "few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process," the Court found that the 145-to-1 ratio was clearly excessive. It also reiterated that a 4-to-1 ratio borders on constitutional impropriety.
Using the third guidepost, comparing the disparity between the punitive damages and civil penalties possible, the court stated that an act of fraud would subject State Farm to only a $10,000 fine under Utah state law.
The Court then remanded the case to determine punitive damages in light of its new ruling.
B. Problems in State Farm
Unfortunately, the U.S. Supreme Court's analysis is ambiguous and contains various contradictions, specifically with respect to the reprehensibility and ratio guideposts of BMW. As a result, it remains difficult for lower courts to apply the proposed standards consistently.
1. Failing to Prevent Multiple Punitive Damages
In determining the evidence that can be allowed to show the reprehensibility of the defendant's conduct, the Court emphasized that a "state cannot punish a defendant for conduct that may have been lawful where it occurred." (15) It also indicated that a state does not "have a legitimate concern in imposing punitive damages to punish a defendant for unlawful acts committed outside of the state's jurisdiction," stating that the "proper adjudication of conduct" occurring outside of Utah would "require their inclusion" in the current case and "would need to apply the laws of their relevant jurisdiction." However, evidence of out-of-state conduct is allowed in order to prove the defendant's actions within the state where the case is being tried, as long as it has a "nexus to the specific harm suffered by the plaintiff." The Court went on to say that only a defendant's similar acts can be used to determine punitive damages.
Although this appears to be a valid attempt to curtail multiple punishments, the Court later points out that similar out-of-state conduct can be used to help determine the degree of reprehensibility of the defendant. It indirectly contradicts itself because a jury will weigh out-of-state conduct when imposing punitive damages, even if the defendant already has paid for that harm. Such evidence has a good chance of affecting the jury's analysis of the defendant's reprehensibility. This analysis overextends the state's jurisdiction, as delineated in BMW, and could exacerbate the problem of multiple punitive damages. (16)
2. Applying the Restatement
State Farm seems to undermine the basic purpose of punitive damages. In ruling that the punitive damages in that case were excessive, the Court relied on the Restatement (Second) to find that the compensatory damages were based on a "component which was duplicated in the punitive award." This reasoning is based on Comment c to Section 908 of the Restatement:
In many cases in which compensatory damages include an amount for emotional distress, such as humiliation or indignation aroused by the defendant's act, there is no clear line of demarcation between punishment and compensation and a verdict for a specified amount that frequently includes elements of both.
Although the Court is using the Restatement to make a point, it is nearly impossible for lower courts to apply the various rules together. If the three-part BMW test, as clarified by State Farm, is to be used, punitive damages must be treated as completely separate from compensatory damages, especially when applying the reprehensibility and ratio guidelines. If the Restatement is applied, then such a test is practically meaningless. An overlap between compensatory and punitive damages, as implied by the Restatement, contradicts the Court's analysis in State Farm.
3. Ratio Test
Another problem arises from the Court's consideration of the proper ratio between compensatory and punitive damages that are necessary for the punitive damages to be within constitutional bounds. While reemphasizing that the Court refuses to impose a bright-line ratio, Justice Kennedy stated, "few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process." However, the Court also referenced points made in Pacific Mutual Life Insurance Co. v. Haslip (17) and BMW that an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety.
In reading these cases together, one should assume that a 4-to-1 ratio is the maximum amount allowed unless there is an extremely reprehensible scenario or the compensatory damages are negligible. In such extreme cases, a "single digit" ratio limit should be applied. Therefore, barring negligible damages, a 9-to-1 ratio should usually be the maximum allowed.
C. State Farm Will Not Limit Punitive Damages
State Farm focuses on the type of harm that can be used as proof of punitive damages. All evidence of the harm must be similar to the conduct that harmed the plaintiff. Historically, punitive damages were meant to punish a defendant for a private wrong, not to punish public wrongs. The trend in modern cases has been to punish the defendant "for the full scope of its wrongful conduct," (18) resulting in assessing multiple punitive damages for the same "wrong" committed. State Farm's only attempt to address the problem of multiple punitive damages is to ensure that conduct that is dissimilar to the type at issue is not punished; it does not provide any indication that prior similar punished conduct would be disallowed as evidence for assessing punitive damages.
The U.S. Supreme Court appears to be avoiding this issue. For example, it is possible for one serious infraction to be used repeatedly in numerous cases to show the reprehensibility of a defendant. There is little stopping a plaintiff's attorney from recounting the same or similar harm in other incidents in order to show the defendant's reprehensibility. Potentially, a jury could assess punitive damages repeatedly for that same act. A few states have enacted statutes that prevent a defendant from being penalized for previously assessed punitive damages. (19) Although this is a step in the right direction, additional states need to enact such statutes or the Supreme Court needs to address this issue more directly.
Some people believe that legislation would not adequately deter defendants, especially because "early" plaintiffs who file first would receive punitive damages, while "late" plaintiff would not. By adhering to the historical purpose of punitive damages, however, punishment is rendered for only the harm committed to a specific plaintiff, making it possible for every plaintiff to obtain punitive damages without subjecting the defendant to multiple punitive damages for the same act. The end result may be more lawsuits with smaller punitive damage awards, which could serve as a greater deterrent because of the added legal costs a defendant would face. (20)
An article in Trial, the publication of the Association of Trial Lawyers of America, manifests how easily plaintiffs can get around the limits of State Farm. (21) The authors argue that State Farm does nothing to disturb the principle that the greater the danger to the largest number of people, the higher the punitive damages should be. They point out that State Farm does not instruct courts to "narrowly consider how the conduct affected the health and safety of just the plaintiff or ... engaged in repeated misconduct toward the plaintiff alone." Regarding the second guidepost of BMW, they note that the Court specifically did not overrule TXO Production Corp. v. Alliance Resources Corp., in which punitive damages were 526 times the amount of actual damages. (22) Although the article acknowledges that the court emphasized that ratios greater than a single digit should face increased scrutiny, it notes that plaintiffs can show that a "defendant's conduct implicated many of the five 'reprehensibility' factors (23) and that the compensatory damages awarded are too low to deter misconduct adequately, which remains a principal purpose of punitive damages."
This path appears to be the basis of most punitive damages cases following Slate Farm.
LOWER COURT INCONSISTENCIES
In trying to comply with BMW and State Farm, lower courts have focused significantly on the ratio between punitive and compensatory damages, the type of harm committed, the reprehensibility factors, and evidence that can show similar harm being committed elsewhere. The following decisions were rendered within a few months after State Farm, yet there is little consistency in the applications of State Farm.
In Henley v. Philip Morris Inc., (24) a tobacco case alleging tortuous misconduct in the manufacture and marketing of cigarettes, the California Court of Appeal focused on the defendant's reprehensibility and held that a 17-to-1 ratio of punitive to compensatory damages was too high, but allowed a 6-to-1 ratio.
Philip Morris faced a high degree of reprehensibility, the court stated because the type of injury was physical rather than economic, and the conduct consisted of reckless disregard of the health or safety of others, involved repeated actions, and was the result of "intentional malice, trickery, or deceit." The Henley court acknowledged that although State Farm stated a 4-to-1 ratio is "close to the line,'" a "higher ratio is justified here by the extraordinarily reprehensible conduct of which plaintiff was a direct victim."
The Henley decision suggests that insurance fraud is less reprehensible than personal, physical harm.
In contrast, in Motherway, Glenn & Napleton v. Tehin, (25) a case involving attorneys' fees, the federal district court for the Northern District of Illinois indicated that the harm to the plaintiff was "purely economic" and the defendant's actions did not involve health and safety, but that the "conduct was part of a larger pattern of conduct and the result of deliberate action rather than a mere accident or mistake." The court approved 4.7-to-1 ratio.
In comparing Motherway to Henley, the reprehensibility clearly is much less, so why would a ratio greater than 4-to-1 be acceptable, especially considering that such a ratio would be above the Supreme Court's "line of constitutional impropriety"? To answer this question, it may make sense to look at the actual dollar amount of compensatory damages in Motherway, $63,158, while in Henley the compensatory damages were $1.5 million. The larger dollar amount in Henley could allow for the discrepancy and make these cases consistent. Although this may be acceptable, then the ratio analyses of BMW and State Farm may not be as necessary, because the focus really is on the reprehensibility of the defendant.
Are courts consistent in interpreting the State Farm decision within the same state? Two Oregon Court of Appeals cases that analyzed State Farm demonstrate some consistency.
Bocci v. Key Pharmaceuticals Inc. (26) involved a pharmaceutical manufacturer that, according to the court, "acted with wanton disregard for the health and safety of others and had knowingly withheld from or misrepresented to the [FDA] or prescribing physicians information known to be material and relevant to [the drug's] toxicity." The court found a high degree of reprehensibility because of its "nationwide misconduct," which is allowable evidence under State Farm as long as it is "of the sort" that injured the plaintiff. In determining the appropriate ratio, the court ultimately allowed a maximum ratio of 7-to-1 ($500,000 compensatory damages and $3.5 million punitive damages).
In the other Oregon case, Waddill v. Anchor Hocking Inc., (27) the plaintiff suffered serious injuries when a bowl shattered due to a manufacturing defect, and she was awarded $100,854 in compensatory damages. The defendant was aware of the defect but had purposely not attempted to fix it. As in Bocci, the Wadill court found that the defendant's actions "showed an indifference to or reckless disregard for the health and safety of its customers" and involved repeated actions, but there was no evidence of intentional malice, trickery or deceit. Relying on Bocci, it approved four times the compensatory damages.
The court remained consistent in these decisions by focusing on both the reprehensibility and ratio guideposts of State Farm and BMW. The Bocci court reduced the trial court's punitive damages from $22.5 million (ratio of 45-to-1) to $3.5 million (ratio of 7-to-1), and the Waddill court reduced them from $1 million (ratio of 10-to-1) to $403,416 (ratio of 4-to-1).
Oregon's consistency is not being replicated by California courts. In Romo v. Ford Motor Co., (28) a products liability action that resulted in a wrongful death claim, the California Court of Appeal, Fifth District, allowed nearly $24 million in punitive damages based on $5 million compensatory damages. The court focused significantly on the single-digit ratio limit set by State Farm.
In Simon v. San Paolo United States Holding Co., the California Court of Appeal, Second District, upheld a $1.7 million punitive damage award even though the plaintiff received only $5,000 in compensatory damages. The court acknowledged the ratio test but downplayed its importance, stating a ratio can be "'troublesome, if not unworkable,' where the actual award comes in the form of an offset, nominal damages, or equitable relief." (29)
In Diamond Woodworks Inc. v. Argonaut Insurance Co., (30) the California Court of Appeal, Fourth District, found that punitive damages of $5.5 million based on $258,570 compensatory damages were too excessive. The court took a more unusual approach to applying State Farm by using the 4-to-1 ratio as a strict guideline. It read State Farm more literally than other courts and stated that the "outer constitutional limit on the amount of punitive damages is approximately four times the amount of compensatory damages." It stuck to this 4-to-1 limit because of the relatively high reprehensibility found against the defendant, despite the economic, rather than physical, nature of the harmful conduct. It also placed significant emphasis on the authority a jury has in determining punitive damages.
Because these three California courts place emphasis on different parts of State Farm and arrive at varying results, there seems to be no way to find any consistency among Simon, Romo and Diamond Woodworks.
In federal court in Alabama, McClain v. Metabolife, (31) found the State Farm decision "unhelpful" and identified two significant problems in interpreting the opinion. First, when several compensatory damages awards exist for different torts, the punitive damages assessed would have different ratios depending on whether the compensatory damages are grouped together or analyzed separately. The court in this case did not combine the compensatory damages awarded but used the lower compensatory damage award of $50,000, instead of the higher award of $150,000, to determine that the ratio of 20-to-1 based on $1 million in punitive damages was too high. The court then reduced the punitive damages to $450,000, or 9-to-1, to comply with State Farm.
Although BMW stated that the ratio test is between the harm, or potential harm, and punitive damages, (32) State Farm has not made it entirely clear as to the proper way to approach such a situation. The Supreme Court specifically stated that "few awards exceeding a single-digit ratio between punitive damages and compensatory damages ... will satisfy due process." Because compensatory damages are determined by the fact finder, it is sensible to evaluate punitive damages with respect to only this amount. Potential harm is too speculative. Because punitive damages encompass the totality of the circumstances, it makes sense to determine the ratio based on total compensatory damages, rather than the lowest or highest amount for one claim. Otherwise, in cases with several separate claims, one claim with a very low compensatory damage amount could detract from possible justified punitive damages.
The McClain court identified a second problem with State Farm decision on the lack of a strict ratio. The ratio test is intended as a guideline in determining the validity of punitive damages. However, McClain specifically based its determination of punitive damages on the "maximum" allowable ratio of 9-to-l, stating the importance of using punitive damages to deter and punish wrongdoers, yet focusing on the ratios rather than on the reprehensibility factors. Although the Oregon court in Bocci and Waddill used the ratio test on which to base its decision, it also relied heavily on the reprehensibility factor and, in Waddill, used a comparison with Bocci to achieve some consistency.
Although the U.S. Supreme Court indicated that the ratio limits are to be used only as guidance, it is difficult to accept the fact that most courts are allowing nearly all cases involving punitive damages to surpass the 4-to-1 ratio that is supposed to be "close to the line of constitutional impropriety" and, more surprising, the single-digit ratio limit as delineated in State Farm. There does not appear to be any consistency based on the actual type of harm committed, whether economic or physical, regardless of the severity. The Supreme Court implied that physical harm is generally more reprehensible than economic harm, but the ratios do not appear to show this trend. The only consistency appears to be that higher compensatory damages (in the millions of dollars) tend to result in lower ratios for punitive damages, whereas lower compensatory damages (including nominal damages) result in higher ratios.
However, given the Supreme Court's opinion, one should expect more cases to be within the 4-to-1 ratio. It does not seem reasonable to assume that nearly all punitive damages cases are severe enough to surpass what the Supreme Court considers to be bordering on "constitutional impropriety."
The State Farm ruling has done little to prevent multiple punitive damages awards from being assessed and is not having the desired effect of limiting excessive punitive damages. In order to limit excessive and prevent multiple punitive damages effectively while remaining fair to plaintiffs, a combination of approaches must be used.
A. Statutory Limits
As shown by Table 1 on pages 68-70, only about half the states have statutes with actual limits on punitive damages. Every state should enact statutes that set some type of limit. Variations, such as directly taking into account the defendant's wealth or the type of harm, should achieve the same result. Plans like Virginia's, which has a limit of $350,000, is too restrictive because it does not take into account other factors that may be necessary to deter defendants. As shown by State Farm, courts cannot create limits, they merely set guidelines. Statutory limits set by the legislature, however, can be consistently followed by courts.
States should follow the leads of Oklahoma and Georgia and enact legislation that identifies the mens tea or level of intent required to assess punitive damages. However, despite this guidance, courts will have to determine the over-all reprehensibility as explained in BMW and State Farm. Some inconsistencies will have to be accepted because punitive damages by their nature are very subjective and dependant on jury opinions. The combined approach of state statutory limits and consistent cases interpreting them would result in fairer and more predictable solutions.
B. Ratio Test
The uncertainty of State Farm's ratio test has caused confusion and inconsistency among lower courts, and it must be clarified. Courts have been interpreting the State Farm opinion haphazardly, without clear guidance as to whether the limit is 4-to-1 or 9-to-1, or whether compensatory damages or potential harm need be factored into the equation. In attempting to comply with State Farm's ratio guidelines, appellate courts have reduced punitive damages. In states without statutory limits or in federal cases, courts should adhere to State Farm and impose a 4-to-1 limit in most cases and a 9-to-1 limit in extreme cases or where the compensatory damages are minimal when compared to the defendant's wealth. Courts should not allow punitive damages to go above the 9-to-1 limit except in very rare cases--for example, when compensatory damages are negligible.
C. Multiple Punitive Damages
A few states (Florida and Georgia) have statutes preventing multiple punitive damages. These statutes could pose a serious problem for plaintiffs. Theoretically, the first time a defendant is held accountable for its act and punitive damages are assessed, it is possible that little evidence would be available to show the extent of the harm. (23) As a result, the defendant is practically immune from future lawsuits relating to the same type of conduct. It is essential to limit punitive damages to the conduct that harmed the specific plaintiff, ensuring that every case is truly plaintiff and fact specific.
Of course, two problems can develop from such a goal: the defendant is not deterred or the jury over penalizes the defendant by hypothesizing about the possible harm to others.
One solution may be to allow defendants to bring in evidence of prior punitive damages previously paid, as currently allowed in some states. For example, Texas allows defendants to introduce evidence to mitigate punitive damages. (34) Plaintiffs also should be allowed to introduce evidence of repeated harmful conduct committed despite the fact that the defendant already paid punitive damages. This evidence would benefit both parties.
Another alternative would permit the jury to assess punitive damages without allowing a defendant's mitigating evidence. After the jury has rendered its decision, the defendant could present evidence to the judge as to whether punitive damages have already been paid for exactly the same conduct. The judge can simply subtract the previous punitive damages assessed from the current punitive damages assessed, subject to a statutory minimum based on an actual dollar amount, percent of compensatory damages or wealth of defendant.
D. Split-Recovery Statutes
Although there has been criticism of split-recovery statutes, and only a few states have enacted them, these statutes could be essential both for plaintiffs and defendants. In view of the original purpose of punitive damages, plaintiffs should not be entitled to receive all of the punitive damages money. Although there may be some apprehension that plaintiffs' lawyers may not be as compelled to obtain punitive damages from defendants, as long as the lawyer obtains a portion of the punitive damages award, the incentive is not lost. Some split-recovery statutes (Georgia and Missouri) allow the plaintiff's lawyer to obtain an appropriate share. However, in order to protect plaintiffs, compensate their lawyers and allow for continued deterrence, all split-recovery statutes should include language allocating the funds after the plaintiffs' counsel has been allotted a fair fee.
The main dilemma arises in allocating the portion of the punitive damages that does not go to the plaintiff. To maintain a separation between the branches of government, the punitive damages award should not go directly into the state treasury to be used at the government's discretion. Some states have recognized this fallacy and allocate a portion of punitive damages to a special victim's compensation fund. However, because the money is still being used for a purpose unrelated to the lawsuit, the state is arguably overstepping its bounds.
A more just remedy would allocate the money into a fund that pays compensatory damages to future plaintiffs when the same defendant is sued for the same type of conduct. Because of defendants' bankruptcies, due in part to legal liability, "late" plaintiffs are often not compensated for damages, while "'early" plaintiffs receive both compensatory and punitive damages. (35) By allocating punitive damages into this fund, future plaintiffs could recover, and defendants could remain in business.
Opponents may argue that defendants will neither be deterred nor punished following the initial "early" case: however, defendants would continue to pay punitive damages into this fund, which would serve as a continued deterrent. Another benefit is that even if a defendant goes into bankruptcy, future plaintiffs still will be able to recover compensatory damages from the fund.
Although the Supreme Court has attempted to control and reduce punitive damages by its decision in State Farm, courts and commentators have shown that its ruling has not clarified the issue of punitive damage awards. In order to reduce excessive and prevent multiple punitive damages, while still ensuring appropriate recovery for plaintiffs, states need to play a more substantial role by setting limits, enacting split-recovery statutes and focusing on the historical perspective of punitive damages. This combination of approaches will safeguard plaintiffs seeking compensation for particular harms and protect defendants from unnecessary financial distress.
Table 1 State Statute Limitation of Punitive Damages Alabama ALA. CODE Greater of three times compensatory damages [section] or $500,000; if defendant is a small 6-11-21 business, greater of $50,000 or 10% of business's net worth; if there is physical injury, greater of three times compensatory damages or $1.5 million; no limits for wrongful death or intentional infliction of physical injury. Alaska ALASKA STAT. Greater of three times compensatory damages [section] or $500,000; If defendant's conduct 09.17.020 was motivated by financial gain and the adverse consequences of the conduct were actually known by the defendant," greater of four times the amount of compensatory damages, four times the aggregate amount of financial gain the defendant received as a result of the defendant's misconduct, or $7 million. In an action against an employer for unlawful employment practices, $200,000 if employer has less than 100 employees in the state, $300,000 if between 100 and 200 employees, $400,000 if between 200 and 500 employees, and $500,000 if more than 500 employees. Arkansas ARK. CODE Greater of $250,000 or three times the ANN. compensatory damages awarded not to [section] exceed $1 million; no limit if defendant 16-55-208 intended to cause injury or harm to the plaintiff. Colorado COLO. REV. Equal to the amount of actual damages STAT. awarded, but the court may increase it to [section] three times the amount of actual 13-21-102 damages if it is shown that the defendant has continued or repeated the conduct or acted in a willful and wanton manner during the action knowing the plaintiff's damages will be aggravated. Connecticut CONN. GEN. For product liability actions, STAT. not to exceed twice the amount of [section] actual damages awarded. 52-240B Florida FLA. STAT. Greater of three times the amount of ANN. 768.73 compensatory damages or $500,000. If defendant's conduct was motivated by unreasonable financial gain and likelihood of injury was known, greater of four times the compensatory damages or $2 million. If defendant had a "specific intent to harm the claimant," then no cap on punitive damages. Punitive damages may not be awarded if the defendant establishes before trial that "punitive damages have previously been awarded against that defendant in any state or federal court in any action alleging harm from the same act or single course of conduct for which the claimant seeks compensatory damages." Georgia GA. For product liability actions, no CODE ANN. limit, but only one award allowed [section] in the state from a defendant for 51-12-5.1 any act or omission, "regardless of the number of causes of action which may arise from such act or omission." No limit if defendant acted with the specific intent to cause harm or was under the influence of alcohol or unlawful drugs; otherwise the limit is $250,000. Idaho IDAHO CODE Greater of $250,000 or three times the [section] compensatory damages awarded. 6-1604 Illinois 735 ILL. Three times the amount of economic COMP. STAT. damages awarded. 5/2-1115.05 Indiana IND. CODE Greater of three times the amount of [section] compensatory damages awarded, or $50,000. 34-51-3-4 Kansas KAN. STAT. Lesser of annual income earned by defendant ANN. (determined by highest gross annual income [section] earned in any one of the five years 60-3701 immediately before the harmful act) or $5,000,000; however, if the defendant's profitability will exceed this amount, then 1.5 times the amount of profit which the defendant gained or is expected to gain as a result of the defendant's misconduct. Mississippi Miss. CODE $20 million if defendant's net ANN. worth is over $1 billion; [section] $15 million if net worth is over 11-1-65 $750 million; $10 million if net worth is over $500 million; $7.5 million if net worth is between $100 and $500 million; $5 million if net worth is between $50 and 100 million; 4% of defendant's net worth if net worth is $50 million or less. Nevada NEV. REV. Three times the amount of compensatory STAT. ANN. damages awarded if the amount is $100,000 42.005 or more; $300,000 if the amount of compensatory damages awarded is less than $100,000; no limits for actions regarding products liability, insurers acting in bad faith, person violating laws prohibiting discriminatory housing practices, toxic torts, and defamation. New Jersey N.J. Greater of five times the compensatory STAT. ANN. damages awarded or $350,000. [section] 2A:15-5.14 North N.C. GEN. Greater of three times the compensatory Carolina STAT. damages awarded or $250,000. [section] 1D-25 North N.D. CENT. Greater of two times the compensatory Dakota CODE damages awarded or $250,000. [section] 32-03.2-11 Oklahoma OKLA. STAT. If defendant was reckless, greater of TIT. 23, $100,000 or amount of actual damages; if [section] defendant acted intentionally and with 9.1 malice, greatest of $500,000, twice the amount of actual damages, or the increased financial benefit derived by the defendant as a result of the harmful conduct. If the court (out of presence of jury) finds beyond a reasonable doubt that the defendant acted intentionally and with malice and engaged in conduct life-threatening to humans, then there is no limit. Texas TX Civ. Greater of two times the amount of economic PRAC. & REM. damages plus an amount equal to any non- CODE ANN. economic damages up to $750,000 or [section] $200,000. No limit on certain acts 41.008 considered felonies under the Penal Code (e.g. murder, kidnapping, sexual assault, bribery). Virginia VA CODE ANN. $350,000 [section] 8.01-38.1
(1.) See Day v. Woodworth, 54 U.S. 363, 371 (1851).
(2.) See Bankers Life & Cas. Co. v. Crenshaw, 486 U.S. 71, 80 (1988).
(3.) 517 U.S. 559 (1996).
(4.) 538 U.S. 408 (2003), rev'g and remanding 65 P.3d 1134 (Utah 2001).
(5.) See Jeffrey Grube, Punitive Damages. A Misplaced Remedy, 66 S. CAL. L. REV. 839, 841, 843 (1993).
(6.) Thomas Colby, Beyond the Multiple Punishment Problem: Punitive Damages as Punishment for Individual, Private Wrongs, 87 MINN. L. REV. 583, 628 (2003).
(7.) Margaret Meriwether Cordray, The Limits of State Sovereignty and the Issue of Multiple Punitive Damage Awards, 78 OR. L.REV. 275, 277 (1999).
(8.) Colby, supra note 6, at 650.
(9.) See, e.g., An End to Multiple Punishments? BROWARD DAILY BUS. REV., May 19, 2003: Colby, supra note 6, at 588.
(10.) See, e.g., Gordon v. Florida, 608 So.2d 800, 802 (Fla. 1992); Shepherd Components Inc. v. Brice Petrides-Donohue & Assoc. Inc., 473 N.W.2d 612. 619 (Iowa 1991).
(11.) See Mack Trucks Inc. v. Conkle, 436 S.E.2d 635 (Ca. 1993): Kirk v. Denver Pub. Co., 818 P.2d 262, 273 (Colo. 1991).
(12.) See, e.g., ALA. CODE [section] 6-11-21-(1) (2000).
(13.) See, e.g., Victor E. Schwartz et al., I'll Take That." Legal and Public Policy Problems Raised by Statutes that Require Punitive Damages Awards to be Shared with the State, 68 MO. L. REV. 525, 526 (2003); Grube, supra note 5, at 850-55 (1993).
(14.) MO. ANN. STAY. [section] 537.675 (West 2003); OR. REV. STAT. [section] 18.540 (2001).
(15.) BMW, 517 U.S. at 572, and Bigelow v. Virginia, 421 U.S. 809, 824 (1975)).
(16.) See BMW, 517 U.S. at 573-74 (only "conduct that occulted within Alabama," not entire United States, could be used to determine punitive damages).
(17.) 499 U.S. 1 (1991).
(18.) See Colby, supra note 6 at 604.
(19.) See, e.g., FLA. STAT. ANN. [section] 768.73(2) (West 2003); GA. CODE ANN. [section] 51-12-5.1(e)(1) (2000).
(20.) See David M. Trubek et al., The Costs of Ordinary Litigation, 31 UCLA L. REV. 72 (1983).
(21.) Ned Miltenberg & Erwin Chemerinsky, Punitive Damages after Campbell, Smith, and Romo, 39 TRIAL 18 (August 2003).
(22.) 509 U.S. 443 (1993).
(23.) These reprehensibility factors are "whether: the harm caused was physical as opposed to economic: the tortious conduct evinced an indifference to or a reckless disregard of the health or satiety of others ... the target of the conduct involved repeated actions or was an isolated incident: and the harm was the result of intentional malice, trickery, or deceit, or mere accident." State Farm, 538 U.S. at 419, citing BMW, 517 U.S. at 576-77.
(24.) 5 Cal.Rptr.3d 42 (Cal.App. 2003), review granted, opinion vacated and case transferred, 81 P.3d 223 (Cal. 2003), subsequent opinion, 9 Cal.Rptr.3d 29 (Cal.App. 2004), review granted, briefing deferred, 88 P.3d 497 (Cal. 2004), review dismissed, 97 P.3d 814 (Cal. 2004), stay of remitter granted pending filing of petition for writ of certiorari. 2004 U.S. Lexis 7092.
(25.) 2003 WL 21501952, 2003 U.S.Dist. Lexis 10928 (N.D. Ill.).
(26.) 76 P.3d 669 (Or.App. 2003), as modified. 79 P.3d 908 (Or.App. 2003).
(27.) 78 P.3d 570 (Or.App. 2003), on remand from U.S. Supreme Court, 123 S.Ct. 1781 (2003), former decision, 27 P.3d 1092 (Or.App. (2001).
(28.) 122 Cal.Rptr.2d 139 (Cal.App. 2002), vacated and remanded, 538 U.S. 1028 (2003), subsequent decision, 6 Cal.Rptr.3d 793 (Cal.App. 2003), rehearing denied, 2003 Cal.App. Lexis 1927.
(29.) 7 Cal.Rptr.3d 367 (Cal.App. 2003), quoting Gagnon v. Continental Casualty Co., 26 Cal.Rptr. 305 (Cal.App. 1989)).
(30.) 135 Cal.Rptr.2d 736 (Cal. App. 2003) (remitting punitive damages to $1 million, resulting in 3.8-to-1 ratio).
(31.) 259 F.Supp.2d 1225 (N.D. Ala. 2003).
(32.) 517 U.S. at 582.
(33.) See Cordray, supra note 7, at 280 (extent of harm caused by defendant is rarely known at end of first lawsuit; first jury will likely not be in position to assess magnitude of defendant's wrong).
(34.) Owens-Coming Fiberglas Corp. v. Malone, 972 S.W.2d 35, 40-41 (Tex. 1998).
(35.) See Cordray, supra note 7, at 280-81.
Nitin Sud is a third-year student at the University of Houston Law Center in Houston, Texas. He earned an undergraduate degree at Duke University. This is an edited and condensed version of the paper with which he won an honorable mention in the 2004 IADC Legal Writing Contest.…
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Publication information: Article title: Punitive Damages: Achieving Fairness and Consistency after State Farm V. Campbell: Despite Its Best Efforts, the U.S. Supreme Court's Opinion Leaves Many Blank Spaces and Holes with Which Appellate Courts Have Had to Cope. Contributors: Sud, Nitin - Author. Journal title: Defense Counsel Journal. Volume: 72. Issue: 1 Publication date: January 2005. Page number: 67+. © 1999 International Association of Defense Counsels. COPYRIGHT 2005 Gale Group.
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