Punitive Damages

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					Punitive Damages

  Diego Gandolfo
    May 2010

   An ancient concept : “Civil Punishment”
    – Code of Hammurabi
    – Hittite Laws
    – Hebrew Code of Mosaic Law
    – Hindu Code of Manu
   English “multiple damages” (1200’s to 1700’s)
    – Double, treble, and quadruple damages
   “Punitive” or “exemplary” damages develop in
    England (1763)


   In Civil Codes: “the Clausula penal” in contracts.
   In the US:
    – Punitive damages in 1784: plaintiff got ill after
      drinking a glass of wine with Spanish fly as a
      practical joke.
    – US Supreme Court recognized the concept of
      punitive damages in 1851.

US Federal System

   State v. Federal Law.
   Punitive damages are specific to some torts under
    State Law.
   US Sources of the Law:
    – US Constitution
    – US laws
    – State laws
    – Common Law
   Courts must follow precedent.
   Federal v. State Judges.

Punitive Damages Doctrine

   US concept: Damages to punish a party or to deter
    others in that party’s position from similar conduct.
   Imposed in civil judgments.
   To deter outrageous conduct.
   Used in intentional torts ( i.e. libel, slander, assault
    and battery).
   To help criminal law system.
   They slightly exceed compensatory damages.

Expansion of the Doctrine (1960’s)

   In strict liability for product defects
     – This is liability without fault.
     – Still tied to defendant’s conduct.
     – Mainly design defects an failure to warn.
   Some problems with products liability
     – Different persons involved through a long period
        of time.
     – The more the manufacturer wages benefits and
        risks, the greater the risk he is exposed to.
     – Multiple punishment.
     – Bankruptcy concerns.

Punitive Damages Facts and Evolution

   Before 1973, there only were 3 appellate decisions
    upholding punitive damages in products liability cases:
     – Punitive $100K and $125k in compensatory
     – Punitive $250k and $175k in compensatory
     – Punitive $10K and $920k in compensatory
   Between 1983 and 1985 California Courts entered thirty
    eight punitive damages awards in excess of $1 million.
   Today’s examples:
     – Romo (2002) $290 million from a single automobile
     – Baker (2002) $4 million from a $1.8 million employment
       discrimination case.
     – Sand (2002) $15 million in product liability case.
     – State Farm (2003) $145 million from a $2.6 million       7
       corporate misconduct case.
Punitive Damages Facts and Evolution

   Media reports about punitive damages awards in the
    US generally misrepresent judicial reality.
    – Punitive damages are not as common as media
      reports may lead to believe.
    – Most punitive damages awards at the first instance
      are typically modified if not altogether rejected
      upon appellant review.
   US Supreme Court action
   State action
   Tort reform and business action

Factors traditionally considered to award
punitive damages
   whether the punitive damages award had a reasonable
    relationship to the harm actually occurred;
   the reprehensibility of the defendant’s conduct, the
    duration of such conduct, and defendant’s awareness
    and/or concealment of the outrageous conduct;
   the defendant’s profitability form the wrongful conduct and
    the desire of removing such profits;
   the defendant’s wealth;
   the cost of litigation;
   criminal sanctions already imposed against the defendant;
   civil sanctions already imposed against the defendant for
    the similar wrongful conduct.

Concerns with factors

   Juries are invited to award punitive damages based
    on passion, bias and prejudice.
   Punitive damages may bankrupt defendants and
    deprive later plaintiffs of funds to recover from.
   Punitive damages are quasi-criminal in nature yet
    defendants are not afforded the benefit of a higher
    burden of proof than the burden of proof required in
    civil cases.
   A few plaintiffs may be unjustly enriched at the
    expense of other potential plaintiffs.

US Supreme Court Response

   Browning (1989):
    – Plaintiff was awarded $51,146 compensatory and
      $6 million punitive damages (117:1 rate)
    – Defendant argued that the Eight Amendment of the
      Constitution, which forbids “excessive bail” and
      “cruel and unusual punishment” barred the
      punitive damages award.
    – The court held that the Eight Amendment did not
      apply to punitive damages awards in cases
      between private parties.

US Supreme Court Response

   Haslip (1991):
    – Plaintiff was awarded $200k in compensatory and
      $840k in punitive damages (4:1 rate)
    – The court recognized that excessive punitive
      damages awards could violate the Due Process
      Clause of the Fourteenth Amendment of the

US Supreme Court Response
   BMW (1996):
     – An Alabama jury awarded a plaintiff $4k in
       compensatory and $4 million in punitive damages
       (1,000:1 rate)
     – The Alabama Supreme Court reduced the punitive
       damages award to $2 million (500:1 rate)
     – The US Supreme Court overturned the Alabama
       Supreme Court’s decision holding that the reduced
       award was still grossly excessive in violation of the Due
       Process Clause of the Fourteenth Amendment.
     – Three guideposts:
         Degree of reprehensibility of defendant’s conduct

         The ratio of actual damages to punitive damages

         The civil or criminal penalties that could be imposed
          for comparable misconduct.
     – Some courts did not follow these guideposts
US Supreme Court Response
   State Farm (2003):
    – Plaintiff was awarded $2.6 million in compensatory
      damages and $145 million in punitive damages.
    – The US Supreme Court held that:
           The award was “neither reasonable nor
            proportionate to the wrong committed, and it
            was irrational and arbitrary deprivation of the
            property of the defendant.”
           Punitive damages should only be awarded in
            rare circumstances.
           Few awards exceeding a single digit punitive to
            compensatory damages ratio will satisfy due

US Supreme Court Response

   Factors listed by the court in State Farm:
     – Physical or economic harm.
     – Defendant’s conduct evidenced an indifference to or a
       reckless disregard of the health or safety of others.
     – Whether the target of the conduct was financially
     – Whether the defendant’s conduct was repeated or an
       isolated incident.
     – Whether the harm was the result of intentional malice,
       trickery, or deceit, or mere accident.
   Some courts still manage to ignore BMW and State Farm.

US Supreme Court Response
   Williams (2007):
    – Widow of heavy cigarette smoker sued tobacco
    – Jury awarded $800,000 in compensatory damages
      and $79.5 million in punitive damages.
    – Court reduced to $500,000 and $32 million.
    – Both parties appealed. The Oregon Court of
      Appeals reversed and reinstated the $79.5 million
    – The U.S. Supreme Court of the United States
      granted certiorati and vacated the Court of
      Appeals’ judgment, remanding the case for the
      court to reconsider the amount of the punitive
      damages award.

US Supreme Court Response
   Williams (2007) cont’d:
    – The Oregon Court of Appeals and the Oregon
      Supreme Court both restored the punitive damages
      verdict again to $79.5 million.
    – Philip Morris USA petitioned again the U.S. Supreme
      Court for certiorati.
    – In a 5-4 decision, the U.S. Supreme Court ruled that a
      defendant may not be punished for harm caused to
      others and remanded.
    – The Oregon Supreme Court again upheld the punitive
      damages verdict in January 31, 2008.
    – PM petitioned for certiorati a third time
    – PM paid $61.1 million to the plaintiffs (other sums are
      in dispute at the moment)
The States’ approach to control punitive
damages: Evidence standard, additional

   Majority of states now apply the clear and convincing
    evidence standard.
   Illinois
     – No punitive damages in product liability unless:
           Malice
           Knowledge of the defect
           Disregard the foreseeable harm that could
            result from the defect

The States’ approach to control punitive
damages: Bifurcation
   Bifurcation approach
    – California, Georgia, Florida
    – It separates the determination of the amount of
      punitive damages from the remaining issues at
    – It allows the trier of facts to address compensatory
      damages under the preponderance of the evidence
      standard and punitive damages under the clear
      and convincing evidence standard.

    The States’ approach to control punitive
    damages: Caps and No Punitive Damages
    Limits on the amounts (“capping”)
      – Georgia, Florida, Nevada, Connecticut
    No punitive damages
     – Louisiana and New Hampshire: Unless authorized by
       the law of the state where the injury occurred or the
       law of the place where the injured party was
     – Federal Law: No punitive damages but for a few
       causes of action such as RICO or some trademark
       and patent laws.

The States’ approach to control punitive
damages: Split recovery statutes
   “Split Recovery” statutes
     – Split the punitive damages award with the state.
     – Reduces the incentive to bring punitive damages
     – Because punitive damages are quasi-criminal and
       quasi-public in nature the public should get part of the
       award after the victim has been compensated.

Civil Law examples

   Traditionally rejected in civil law jurisdictions that
    follow compensatory-only system.
   However, in many civil law countries, some doctrine
    and jurisprudence calls for applying “moral
    damages” as “punitive damages.”
    – Moral damages are compensatory in nature as
      they are intended to compensate for pain and
    – In some civil law jurisdictions such as Brazil,
      however, courts have gone outside of the law and
      awarded moral damages citing for pedagogic or
      deterrent purposes.

Civil Law examples

   Civil law jurisdictions have also traditionally rejected
    petitions to enforce foreign punitive damages awards.
    – The Italian Cassation Court denied a petition to
      enforce an Alabama ruling that granted US$1
      million in punitive damages against an Italian
      company, holding that punitive damages are a
      peculiarity of American law and offensive to Italian
      notions of justice.
    – In Germany, the Supreme Court denied
      enforcement of an American court’s US$400,000
      punitive damages award on similar grounds,
      holding that damages have a compensatory-only
      nature and are not designed to allow the
      enrichment of the victim.
Civil Law examples

   However, punitive damages are starting to make
    inroads in some jurisdictions.
    – In Argentina, 2008 Consumer Code Amendment
      allows for punitive damages of up to $5 million
    – In Spain, the Supreme Court held that punitive
      damages are not necessarily incompatible with
      Spanish public policy.
    – Proposals to allow for punitive damages in class
      action bill in Mexico City, consumer code proposal
      in Peru, and some bills dealing indirectly with
      punitive nature of damages in Brazil.


   High punitive damages awards are not very common.
   Controlled by courts of appeal.
   The US Supreme Court has taken action to control punitive
   Several states have taken action to control punitive
   There are criminal, quasi-criminal and administrative
    actions to punish wrongdoings.
   Uncontrolled punitive damages awards threaten social and
    economic order, and unjustly enrich a few plaintiffs and
    especially the lawyers.
   The Civil Law awards should compensate plaintiff for the
    damages suffered.


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