Constitutional Limitations on Punitive Damages: Ambiguous Effects and Inconsistent Justifications
McMichael, Benjamin J., Vanderbilt Law Review
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Punitive damages occupy a special place in the U.S. legal system. Courts award them in very few cases, yet they have been the center of tort reform efforts because of their controversial nature.1 This controversy centers around the purposes for which punitive damages are awarded-to punish reprehensible conduct and to deter future bad acts.2 While compensatory damages exist to redress specific harms and to compensate a victim for a particular harm suffered, punitive damages exist to further the much broader social goals of retribution and deterrence.3
Because punitive damages must be calibrated to achieve these broad social goals, they necessarily involve more discretion on the part of the adjudicator awarding them. Adjudicators may receive some guidance when setting the final award amount, but this guidance is often minimal when provided at all.4 The broad discretion exercised by adjudicators combined with a lack of guidance has created a system with the potential to impose very large and unpredictable punitive damages awards on defendants.5 While punitive damages can efficiently deter defendants when compensatory damages are not large enough to induce defendants to take the appropriate amount of caution in their activities,6 large and unpredictable awards tend to have a chilling effect on desirable activities. Empirical evidence has demonstrated that punitive damages do not actually provide strong incentives for defendants to take extra precautions in their activities and that they can even systematically harm consumers.7
Because of the potential for very large and unpredictable awards, both legislatures and courts have taken action to limit punitive damages awards.8 Recently, the Supreme Court has invoked the Due Process Clause to place constraints on punitive damages and "grossly excessive awards."9 The Court began by limiting the discretion of judges and juries to award punitive damages, and the Court's restrictions culminated in essentially placing a cap on the ratio of punitive to compensatory damages that could be awarded in a given case.10
Currently, the Court's doctrine on punitive damages is somewhat nebulous. While it has articulated what goals punitive damages may accomplish-punishment and deterrence-it has provided no guidance on how states may accomplish those goals.11 Additionally, while it has announced some general limitations on awards through a vague reasonableness inquiry, the only specific limitation has proven both arbitrary and ineffective. This Note demonstrates that the current limitations on punitive damages are inconsistent with the stated goals of these damages and have an inconsistent effect across the full range of punitive damages awards.
More specifically, this Note addresses punitive damages in two contexts. First, it provides a thorough empirical evaluation of the current doctrine, focusing on the virtual cap imposed by the Court in State Farm Mutual Automobile Insurance Co. v. Campbell to determine what effects that cap has had on punitive damages awards. This Note builds on and extends previous empirical research regarding punitive damages and demonstrates that even though the cap should have decreased award amounts, it has not had that effect. In fact, some evidence suggests that awards may have actually increased after the Court imposed the cap. Second, this Note discusses how the lack of the intended effect combined with other fundamental flaws in the reasoning underlying the current limitations on punitive damages indicates the need for a new doctrine.
The new doctrine proposed here replaces the current punitive damages framework with a simplified version that requires individual courts to match punitive awards to civil fines or penalties authorized by state legislatures in similar cases. This new framework eliminates both the vague reasonableness inquiry and the ratio cap from the current doctrine. …