|
|
Publications
Punitive Damages: U.S. High Court Takes Its Biggest Step Yet
In recent months, we have been writing a lot about punitive damages, one of the hottest topics on the legal radar screen. Most of the activity has come from the U.S. Supreme Court, which, with every new opinion, is giving out progressively stronger signals about reducing punitive damage awards. The Campbell opinion, issued in early April, is the court's latest pronouncement, the most forceful, and, in some ways, the most surprising, to date.
State Farm Mut. Auto. Ins. Co. v Campbell (2003) 538 US ___, 155 L Ed 2d 585, 123 S Ct 1513, is the third in a series of decisions on excessive punitive damage verdicts. In 1996, BMW of N. Am., Inc. v Gore (1996) 517 US 559, 134 L Ed 2d 809, 116 S Ct 1589, established substantive "guideposts" for courts to use in deciding whether a jury's punitive award is "grossly," or constitutionally, excessive: How reprehensible was defendant's conduct? What is the ratio of punitive damages to the harm caused? How does the punishment compare with state penalties for the conduct in issue?
But even after BMW of N. Am., Inc., punitive damage verdicts continued to rise, sometimes exponentially. (See Imre, Supreme Court Watch: As Big Punitive Awards Get Bigger, A Flurry of Activity in the Courts, 25 CEB Civ LR 55 (Apr. 2003). Five years later, apparently reacting to this trend, the justices tried a different approach. Although reaffirming BMW's substantive guideposts, the Court radically changed the procedure by which appellate courts review a punitive verdict for constitutional excessiveness, giving courts of appeal broad new powers to evaluate defendants' excessiveness claims de novo, completely independent of the trial judge. Cooper Indus. Inc. v Leatherman Tool Group, Inc. (2001) 532 US 424, 149 L Ed 2d 674, 121 S Ct 1678.
Now, with Campbell, the Court has gone still further, using sweeping language about restraining runaway punitive awards, limiting a state's power to punish a corporation for conduct outside that state, and even limiting what types of evidence may be used to prove when and how much punitive damages are warranted.
In Campbell, a Utah insurance bad faith case, the jury rendered a $145 million punitive verdict for an insurer's failure to settle an auto accident lawsuit against its elderly insured. The trial judge, finding the award excessive, reduced it to $25 million. The Utah Supreme Court reinstated the jury's original verdict. After granting certiorari, the U.S. Supreme Court remanded for a redetermination of the proper amount of punishment.
In the process, the Court made no secret of its views about the dangers of runaway punitive awards. Justice Kennedy, writing for the majority, began by expressing concern that juries have wide latitude in selecting the amount of punishment, and that evidence of net worth, required in most states, creates a danger that juries will "use their verdicts to express biases against big businesses." 155 L Ed 2d at 601. He echoed Justice O'Connor's dissent in Pacific Mut. Life Ins. Co. v Haslip (1991) 499 US 1, 64, 113 L Ed 2d 1, 111 S Ct 1032, that (155 L Ed 2d at 600): [p]unitive damages are a powerful weapon. Imposed wisely and with restraint, they have the potential to advance legitimate state interests. Imposed indiscriminately, however, they have a devastating potential for harm. Regrettably, common-law procedures for awarding punitive damages fall into the latter category.
The majority also voiced dismay over the "imprecise manner" in which punitive damage systems are administered, the "acute danger of arbitrary deprivation of property," and vague and inadequate instructions that do little to guide the jury. 155 L Ed 2d at 601. Campbell stressed that, in evaluating just how bad the defendant's conduct was, i.e., how much punishment is warranted, courts must weigh reprehensibility on what could be called a "relativity scale": Was the harm physical as opposed to economic? Was defendant indifferent to or did it recklessly disregard others' rights or safety? Was the plaintiff financially vulnerable? Was the conduct repeated or only an isolated incident? Did the harm result from intentional malice, deceit or trickery, or mere accident? In surprisingly frank language, the majority added that "the existence of any one of these factors weighing in favor of plaintiff may not be sufficient to sustain a punitive damages award; and the absence of all of them renders any award suspect." 155 L Ed 2d at 602 (emphasis added). Because the plaintiff has been made whole by the compensatory damage award, punitive damages should only be awarded if the defendant's culpability is "so reprehensible as to warrant the imposition of further sanctions." 155 L Ed 2d at 602.
Moreover, the court made its strongest pronouncement yet about the size of verdicts, noting that few awards significantly "exceeding a single-digit ratio" between punitive and compensatory damages will satisfy due process. It reiterated that a 4:1 ratio is close to the line of constitutional excessiveness, then went further: When the compensatory damages are themselves substantial, "then a lesser ratio, perhaps only equal to compensatory damages , can reach the outermost limit of the due process guarantee." 155 L Ed 2d at 606 (emphasis added).
In its last and perhaps most significant ruling, Campbell broke new ground about what evidence may be used to prove a punitive damages case. The conduct of the Campbell insurer, in the words of Justice Kennedy, "merit[ed] no praise." The auto carrier defended the insured in a death and permanent injury lawsuit, but rejected a settlement demand within policy limits. Ultimately, the underlying jury rendered a judgment well exceeding those limits. The trial court had found that the insurer's employees had altered claims file records to make the insured appear less culpable, that the company disregarded the "overwhelming likelihood" of an excess verdict, and, when the excess verdict was rendered, told the elderly insured and his wife to put a for-sale sign on their home.
Even so, the Court expressed dismay that the trial court had admitted evidence of the insurer's "nationwide practice" of bad acts unrelated to the handling of the claim, including, for example, how the company treated its employees. The Court first noted that a state has no legitimate interest in punishing a defendant for conduct committed outside the state's jurisdiction. Moreover, the other conduct must have a "nexus to the specific harm suffered by the plaintiff." A defendant's dissimilar acts that are independent from the acts on which liability is based "may not serve as a basis for punitive damages." 155 L Ed 2d at 604. "A defendant should be punished for conduct that harmed the plaintiff, not for being an unsavory individual or business." 155 L Ed 2d at 604.
With legal pundits only starting to evaluate the full ramifications of this sweeping decision, the Court immediately went to work granting certiorari in other cases, summarily deciding them, and remanding to redetermine the proper amount of punitive damages in light of Campbell .
For example, in the span of one week in late May, the court eradicated a $290 million punitive damages verdict against Ford in a California products liability case (Ford Motor Co. v Romo, cert granted (May 19, 2003, No. 02-1097) 71 USLW 3721), a $15 million Kentucky verdict, also against Ford (Ford Motor Co. v Estate of Tommy Smith, cert granted (May 19, 2003, No. 021096) 71 USLW 3721), and a Texas punitive damages judgment (Cass v Stephens , cert granted (May 27, 2003, No. 02-983) 71 USLW 3734).
With the advent of Campbell , there can be no mistaking the message this time.
This article originally appeared in California Civil Litigation Reporter, Vol.25, No.3 (June 2003).
This material is reproduced from California Civil Litigation Reporter, copyright 2003 by the Regents of the University of California. Reproduced with permission of Continuing Education of the Bar - California. (For information about CEB publications, telephone toll free 1-800-CEB-3444 or visit their Web Site, http://ceb.com/ .
|
Related Practices
|