http://www.fellerssnider.com/files/bmwofnrthamericagore.pdf
A Guide to Punitive Damages. This research paper reviewed Supreme Court decisions pertaining to punitive damage awards. This guide will help you calculate what you may be entitled to for punitive damages for constitutional violations.
THE APPLICATION OF THE
BMW OF NORTH AMERICA V.
GORE
GUIDEPOSTS BY FEDERAL AND STATE COURTS
_________________
1997 AMERICAN BAR ASSOCIATION ANNUAL MEETING
SECTION OF ANTITRUST LAW
Tort and Insurance Practice Section
Renaissance Stanford Court
San Francisco, CA
“PUNITIVE DAMAGES: AFTER
BMW V. GORE
“
Tuesday, August 5, 1997
4:15 – 5:30 P.M.
_________________
Eric S. Eissenstat
Fellers, Snider, Blankenship, Bailey & Tippens
100 North Broadway, Suite 1700
Oklahoma City, OK 73102-8820
(405) 232-0621
1
Eric S. Eissenstat is a director and shareholder in the law firm of Fellers, Snider, Blankenship,
Bailey & Tippens, Oklahoma City, Oklahoma. Mr. Eissenstat represents plaintiffs and defendants
in complex litigation. He lectures frequently on trial practice and business torts. He has tried many
significant cases for both plaintiffs and defendants and has received several multi-million dollar
punitive damage verdicts for his clients.
2
Familiarity with the Court’s decisions in Haslip and TXO is assumed.
3
116 S. Ct. at 1593-94.
August, 1997
THE APPLICATION OF THE
BMW OF NORTH AMERICA V.
GORE
GUIDEPOSTS BY FEDERAL AND STATE COURTS
By Eric S. Eissenstat
1
On May 20, 1996, the United States Supreme Court, for the first time, vacated a punitive
damages award as “grossly excessive” and a violation of the Due Process Clause of the Fourteenth
Amendment in
BMW of N. Am., Inc. v. Gore, 116 S. Ct. 1589 (1996). Since BMW, the federal and
state courts have grappled with due process challenges to punitive damage verdicts, as well as other
challenges under state and federal law. This paper will briefly address the holding in
BMW and then
set forth brief summaries of some of the pertinent post-
BMW decisions to date.
I.
BMW V. GORE
A. The Holding.
In
BMW, the Court ventured into familiar constitutional territory, expressly reaffirmed its
prior decisions in
Pacific Mutual Life Ins. Co. v. Haslip, 499 U.S. 1 (1991) and TXO Prod. Corp.
v. Alliance Resources Corp.
, 509 U.S. 443 (1993),2 and identified three “guideposts,” each of which
had previously been used by the Court in
TXO, Haslip and Browning-Ferris Indus. v. Kelco
Disposal, Inc.
, 492 U.S. 257 (1989) in determining the reasonableness of a punitive damages award.
Actual harm of $4,000 supported a punitive damages award of $2 million. The punitive
damages award was based in large part on BMW’s lawful conduct in other states.
3 An Alabama jury
had found that BMW had committed fraud by failing to disclose to either the dealer or the customer
that the customer’s car had been repainted after being damaged in transit (apparently by acid rain).
The repainting job cost about $600. The jury accepted expert testimony by a former BMW dealer
that the refinishing reduced the value of the car by 10%. It awarded punitive damages of $4 million
4
Id.
5
539 So.2d 218 (Ala. 1989).
6
646 So.2d 619, 629 (Ala. 1994).
7
116 S. Ct. at 1595.
8
Id.
9
Id. at 1597.
10
Id.
11
Id. at 1597-98.
12
Id. at 1598.
2
by multiplying the $4,000 compensatory damage award by 1,000 nationwide instances of like nondisclosures
by BMW of minor repairs.
4
The Alabama Supreme Court held that it was improper to compute damages based out-ofstate
incidents. Applying factors outlined in
Green Oil Co. v. Hornsby 5 and approved in Haslip, and
limiting its consideration to 14 similar incidents in Alabama, the state supreme court ruled that a
punitive damages award of $2 million would be “constitutionally reasonable” and ordered a
remittitur in that amount.
6
In his opinion for the Court, Justice Stevens wrote that, under
TXO and Haslip, a state court’s
award of punitive damages enters the “zone of arbitrariness that violates the Due Process Clause”
only when it is “grossly excessive” in relation to the state’s legitimate interests in punishing and
deterring unlawful conduct.
7 In reaching its result, the Court emphasized that states “necessarily
have considerable flexibility” in determining the level of punitive damages that they will permit to
vindicate legitimate interests in punishment and deterrence.
8 The Court observed that there is no
doubt that a state may punish deceptive trade practices to protect its citizens. Nevertheless, a state
has an obligation to respect policy choices of other states and, therefore, a state “may not impose
economic sanctions on violators of its laws with the intent of changing the tortfeasors’ lawful
conduct in other States.”
9 It reasoned that the economic penalties that a state imposes on those who
transgress its laws “must be supported by the State’s interest in protecting its own consumers and
its own economy.”
10 Thus, Alabama could not impose punitive damages on BMW to punish or deter
conduct that occurred or might occur in other jurisdictions, and it could certainly not impose
punishment that had not been proven to be “unlawful” wherever it might have occurred.
11
The Court observed that elementary notions of fairness “dictate that a person receive fair
notice not only of the conduct that will subject him to punishment but also of the severity of the
penalty that a State may impose.”
12 The Court relied on three guideposts in concluding that BMW
did not receive adequate notice of the size of the sanction it would incur in Alabama for its non
13
Id.
at 1598-99.
14
Id. at 1599.
15
Id.
16
Id.
17
Id.
18
Id. at 1599-1601.
19
Id. at 1601. See also TXO, 509 U.S. at 458-60 (citing other relevant factors).
20
116 S. Ct. at 1599.
21
Id. at 1601-03.
22
Id. at 1602, quoting from TXO, 509 U.S. at 460 (emphasis in original).
3
disclosure policy: (1) the degree of reprehensibility of the conduct; (2) the disparity between the
harm or potential harm suffered by the plaintiff and his punitive damages award; and (3) the
difference between that remedy and the civil or criminal penalties authorized or imposed in
comparable cases.
13
The Court stated that the most important indicium of the reasonableness of a punitive
damages award is the “degree of reprehensibility of the defendant’s conduct,”
14 noting that some
wrongs are “more blameworthy than others.”
15 Nonviolent offenses, for example, are less serious
than violent offenses.
16 Trickery and deceit are more reprehensible than negligence.17 The Court
identified aggravating factors typically associated with particularly reprehensible conduct as
intentional malice; intentional infliction of economic injury by affirmative acts of misconduct, or
when the target is financially vulnerable; deliberate false statements; and concealment of evidence
of improper motive.
18 Such conduct is ordinarily associated with “egregiously improper conduct”
which “will support a large punitive damage award.”
19 Repeated violations also provide “relevant
support for an argument that strong medicine is required to cure the defendant’s disrespect for the
law.”
20 Because the harm suffered in BMW was minor economic harm and the conduct exhibited
none of the factors associated with egregious misconduct, the Court held that the $2 million award
was grossly excessive.
The second guidepost the Court used in concluding that BMW did not have fair notice was
the disparity between the amount of harm suffered by Gore, the plaintiff, and the amount of the
punitive damages award.
21 This is the “ratio” guidepost. The proper inquiry is “whether there is a
reasonable relationship between the punitive damages award and
the harm likely to result from the
defendant’s conduct as well as the harm that actually has occurred”.
22
23
116 S. Ct. at 1602.
24
Id. at 1603.
25
Id., quoting TXO, 509 U.S. at 482.
26
116 S. Ct. at 1603.
27
Id. at 1598 n. 20 (emphasis in original).
4
Because the contours of this guidepost are flexible and fact-specific, the Court emphasized
that it is rejecting a “categorical approach” based on a “simple mathematical formula.”
23 In most
cases, the ratio will fall within a constitutionally acceptable range, and remittitur will not be justified
on this basis.
24 In BMW there was no potential harm involved and thus the ratio of 500 to 1 was
sufficient to raise a “suspicious judicial eyebrow”.
25
The third yardstick is the comparison between the punitive damages award and the civil or
criminal penalties that could be imposed for comparable misconduct. The Court held that because
the maximum civil penalty authorized by Alabama law for a corresponding violation of its deceptive
trade practice statute was $2,000 with no concomitant criminal penalty there was insufficient notice
that violation of its provisions might subject an offender to a multi-million dollar penalty.
26
B. The Impact.
BMW
has raised more questions than it answers. The three “guideposts” utilized by the
Court in finding that BMW did not have fair notice of the award are nothing more than an
application of the same standards applied by the pluralities in
TXO and Haslip to much different
facts. The Court went to great lengths to distinguish the facts in
BMW from those in TXO and
emphasized that most cases will fall in the constitutionally acceptable range.
The courts are in disagreement after
BMW whether a large award imposed for economic
injury only will pass constitutional muster or whether an award of this magnitude is reserved only
for conduct that imposes danger on the health and safety of citizens. Does a large award for
economic injury withstand constitutional scrutiny where the other factors associated with
particularly aggravating conduct are present? The Court also did not discuss the role of wealth in
the constitutional calculus and expressly reserved for another day the issue of “whether one state
may properly attempt to change a tortfeasor’s
unlawful conduct in another state.”27 As set forth
below, there is a disagreement in the courts concerning the role of wealth. The issue of what
evidence of unlawful conduct would be admissible in a punitive damage setting is also unsettled.
Also unanswered are to what degree multiple punishments for the same misconduct are
constitutionally permissible and what are “comparable” civil and criminal penalties in a case where
the tort is not statutorily prohibited.
28
Sperau v. Ford Motor Co., 674 So.2d 24 (Ala. 1995), vacated, 116 S. Ct. 1843 (1996);
American Pioneer Life Ins. Co. v. Williamson, 1995 WL 372051 (Ala. 1995),
vacated, 116 S. Ct.
1872 (1996);
Continental Trend I, 44 F.3d 1465 (10th Cir. 1995), vacated, 116 S. Ct. 1843 (1996);
Apache Corp. v. Moore, 891 S.W.2d 671 (Tex. App. 1994),
vacated, 116 S. Ct. 1843 (1996); Union
Sec. Life Ins. Co. v. Crocker, 667 S.2d 688 (Ala. 1995),
vacated, 116 S. Ct. 1872 (1996); Life Ins.
Co. of Ga. v. Johnson, 684 So.2d 685 (Ala. 1996),
vacated, 117 S. Ct. 288 (1996); Johansen v.
Combustion Eng’g Inc., 834 F.Supp. 404 (S.D. Ga. 1993),
aff’d, 67 F.3d 314 (11th Cir. 1995)
(
mem.), vacated, 116 S. Ct. 1843 (1996), remanded, 98 F.3d 1351 (11th Cir. 1996).
29
See 810 F.Supp. 1520 (W.D. Okl. 1992).
5
II.
POST-
BMW DECISIONS
The
BMW decision has had a profound impact on punitive damage awards in the federal
courts but a less significant impact in the state courts. Justice Scalia’s critique in his dissent in
BMW
, that the Majority Opinion provided “virtually no guidance … to state and federal courts[ ] as
to what a `constitutionally proper’ level of punitive damages might be,” and that the guideposts
“mark a road to nowhere,” is proving prophetic. The courts are in disagreement on the application
of the
BMW guideposts, including the application of the Court’s discussion on ratio, wealth and
reprehensibility. Nevertheless, it cannot be questioned that
BMW is having a significant impact on
the constitutional punitive damages landscape. The following is a brief summary of some of the
more notable federal and state court punitive damage decisions which have discussed
BMW.
A. FEDERAL CASES
1. Courts of Appeals
a.
Continental Trend Resources, Inc. v. OXY USA, Inc., 44 F.3d 1465 (10th
Cir. 1995),
vacated & remanded, 116 S. Ct. 1843 (1996), on remand, 101 F.3d 634 (10th Cir.
1996),
cert. denied, 117 S. Ct. 1846 (1997):
The
Continental Trend decision is only one of two of the seven decisions remanded
for further consideration in light of
BMW which has been decided.28 Because it is the only federal
court of appeals’ decision which has attempted to apply
BMW after remand and because of the
conclusions reached in that case and the dramatic impact the
BMW decision had on the Court, the
case will be discussed at some length.
Continental Trend
involved claims that OXY had tortiously interfered with CTR’s existing
and prospective contracts. At the conclusion of a 3-week trial, the jury awarded CTR $269,000 in
compensatory damages and $30 million in punitive damages.
The district court conducted a post-trial review of the jury’s verdict in accordance with
Haslip
.29 Based on its firsthand review of the evidence, the district court concluded that “the jury
30
44 F.3d 1465 (10th Cir. 1995).
31
Honda Motor Co. v. Oberg, 114 S.Ct. 2331 (1994).
32
This review appears to conflict with the United States Supreme Court’s decision in Gasperini
v. Center for Humanities, Inc.
, 116 S.Ct. 2211 (1996) which reaffirmed the deferential review test
applied in the punitive damage case of
Browning-Ferris Indus. v. Kelco Disposal, Inc., 492 U.S. 257
(1989).
6
viewed [OXY] with justifiable disappropriation” and that OXY’s conduct was “certifiably
reprehensible” and “insidious.” All of the indicia identified in
BMW as being associated with
reprehensible conduct and warranting a substantial punitive damage award were found to be present
by the district court.
The first decision of the Court of Appeals
30 was rendered with the benefit of the Supreme
Court’s opinions in
Oberg31 and TXO. The first opinion noted that the record contained “voluminous
evidence that OXY had engaged in oppressive and coercive behavior” and found that “the
consequences of such unchecked behavior could be disastrous.” The Court of Appeals further
determined that “the district court properly allowed the jury to consider the potential harm that might
result if [OXY's] conduct continued unabated.” On this issue, the Court of Appeals considered
OXY’s potential profit and found that “the punitive damage award was actually six times OXY’s
potential profit.”
The United States Supreme Court granted OXY’s petition for certiorari, vacated the opinion
of the Court of Appeals and remanded the case to the Court of Appeals for reconsideration in light
of
BMW. The same Panel of the Court of Appeals in a 2-1 decision substantially reduced the
punitive damage verdict from $30 million to $6 million. The Majority, charged to reconsider the
case in light of
BMW, did not change its view of OXY’s conduct. It stated that “OXY’s actions, as
found by the jury, would be condemned universally.” It also found that “this is not a case like
BMW
where the court found `no deliberate false statements, acts of affirmative misconduct, or
concealment of evidence of improper motive.’” The Majority nevertheless reduced the punitive
damage award by $24 million. It applied a
de novo standard of review.32 In applying BMW, the
Majority found in CTR’s favor on nearly every criterion. The Majority concluded that OXY was
properly punished for conduct committed within the State of Oklahoma. It had “no difficulty”
finding that OXY received “fair notice of the conduct that [would] subject [it] to punishment.” The
Majority based its remittitur solely upon its application of one of the three guideposts (the “ratio”
guidepost) identified in
BMW.
Applying the first
BMW guidepost, “the degree of reprehensibility of the defendant,” the
court concluded there was “sufficient evidence in the record of the reprehensibility of OXY’s
conduct to support a `substantial penalty.’” A comparison of the punitive award and the civil and
criminal penalties that could be imposed for comparable misconduct, the third
BMW guidepost, led
the Majority to conclude that OXY had “sufficient notice … of the potential for [a] large punitive
award[ ].” It was the court’s analysis of the second guidepost — the ratio of the punitive award to
harm inflicted — which caused the Majority to find the award to be “too large.” In reaching this
conclusion, the Majority found that $6 million was the “maximum constitutionally permissible
33
The Majority did hold that wealth was an appropriate consideration in the determination of the
constitutionality of a punitive damage award. This holding, as well as many of the others set forth
above, conflicts with many of the holdings discussed in the cases cited in this paper.
7
punitive damages award justified by the facts of this case” because it was “within the range of a 1
to 4 to a 1 to 10 ratio which [the Majority] believe[d]
BMW imposes in cases such as this –
involving commercial litigation with substantial actual and potential damages.”
The Majority based its “ratio” conclusion on a revised “
de novo” finding of “harm”
predicated in large part on evidence outside the trial record. It interpreted
BMW to mean that only
“potential harm to the plaintiff” may be considered in conducting the ratio analysis, and thus
eschewed any consideration of OXY’s expected gain or potential harm to other “in state” victims.
The Majority also reduced its own previous finding of potential harm to CTR from $5 million (the
district court found potential harm of $80-90 million) to $1 million based on two affidavits of
limited scope which were never admitted into evidence nor presented to the jury for its
consideration. Despite CTR’s urging to the contrary, the Majority held that it was not required to
remand the case to the district court to allow it to conduct its own excessiveness review as required
by
Gasperini. Instead, it held that the issue of whether a punitive damage award violated the
substantive prong of the Due Process Clause was a federal constitutional issue which it had “the
power to decide”
de novo and without regard to the Seventh Amendment.
The dissenting opinion agreed that the Majority “thoroughly and correctly analyzed the
`guidelines’ that are to be found in
BMW” but disagreed with the Majority’s “ultimate conclusion that
$6,000,000 is the maximum constitutionally permissible punitive damage award under the facts and
law which govern this case.” The dissent found the conduct under scrutiny in
BMW to be “clearly
distinguishable” from OXY’s conduct. In particular, the dissent criticized the Majority’s finding of
“approximately $1,000,000 in actual and potential loss while OXY’s own evidence would support
a higher figure of $2,000,000.” (Emphasis in original.) The dissent explained:
Since the Majority further noted that in economic injury cases if
damages are significant and the injury not hard to detect, the ratio of
punitive damages to the harm generally cannot exceed a 10 to 1 ratio;
these damage figures alone would justify a punitive damage award of
between ten and twenty million. When the additional factor of the
extent and nature of OXY’s income and net worth is added as a
consideration, one begins to approach the original jury award of
thirty million and this judge can only conclude that an award of not
less than twenty million would be permissible and required under the
circumstances found in this record without violation of the concept
of due process.
33
34
Id. at 1132-33.
8
b.
Neibel v. Trans World Assurance Co., 108 F.3d 1123 (9th Cir. 1997):
The
Neibel case involved misrepresentations by the defendant with respect to an investment
scheme. Many of the plaintiffs were led to financial ruin by the defendant’s conduct which was
“particularly reprehensible” and the defendant could have been subject to twenty years
imprisonment. Punitive damages of $500,000 and compensatory damages of $87,000 — a 5.75 to
1 ratio — did not “raise [our] suspicious judicial eyebrow” or of the United States Court of Appeals
in affirming.
34
c.
Kimzey v. Wal-Mart Stores, Inc., 107 F.3d 568 (8th Cir. 1997):
The
Kimzey case involved claims of sexual harassment, hostile work environment and
constructive discharge. The jury awarded $35,000 in compensatory damages, $1.00 in back-pay and
$50 million in punitive damages. Although the district court found that Wal-Mart’s conduct was
egregious, it remitted the $50 million punitive damage verdict to $5 million because much of the
blame, in the district court’s opinion, for the large punitive damage verdict could be placed at the feet
of Wal-Mart’s counsel. The Eighth Circuit held, on state law grounds, that the award remained
excessive and ordered the punitive damage award reduced to $350,000. The court found it
unnecessary to reach the federal due process issues under
BMW. Significantly, the court found that
it could enter judgment for the $350,000 punitive damage award without providing the plaintiff an
option to accept a new trial without violating the Seventh Amendment.
d.
Gilman v. BHC Sec. Inc., 104 F.3d 1418 (2d Cir. 1997):
In
Gilman, the plaintiffs brought a class action alleging breach of contract and breach of
fiduciary duty in connection with securities transactions. The Second Circuit held that federal courts
did not have subject matter jurisdiction because the class plaintiffs’ claims could not be aggregated
to satisfy the $50,000 amount in controversy requirement. The court also concluded that an award
of $50,000 in punitive damages to an individual class member would violate due process under
BMW
because such an award would produce a ratio of 800 to 1 between punitive and actual
damages.
e.
Hilao v. Estate of Ferdinand Marcos, 103 F.3d 767 (9th Cir. 1996):
The
Marcos‘ decision involved a class action brought by Philippine nationals who were
“victims of torture,” “disappearance” or summary execution under the regime of Ferdinand E.
Marcos. The jury awarded $1.2 billion in punitive damages and $766 million in compensatory
damages. The Ninth Circuit upheld the $1.2 billion punitive damage verdict under
BMW.
f.
Lee v. Edwards, 101 F.3d 805 (2d Cir. 1996):
The
Lee case involved a Section 1981 civil rights action against a police officer for malicious
prosecution. Awarding only $1 in nominal damages, the jury nevertheless awarded $200,000 in
9
punitive damages against the police officer on the malicious prosecution claim. Relying in part on
BMW
, the Second Circuit compared the decision with other “comparable’ cases, discussed the large
ratio between the actual damage verdict and the punitive damage verdict, and remitted the punitive
damage award from $200,000 to $75,000.
g.
Atlas Food Systems and Services, Inc. v. Crane Nat’l Vendors, Inc., 99 F.3d
587 (4th Cir. 1996):
The
Atlas Food case involved claims of breach of contract, breach of express and implied
warranties, fraud, and deceptive and unfair trade practices. The jury awarded $1,320,000 in
compensatory damages and $3,000,000 in punitive damages against the defendant corporation. The
district court ordered a remittitur of the punitive damage award to $1,000,000. Plaintiff refused to
accept the remitted amount. After a second trial on the issue of punitive damages, a second jury
returned a $4,000,000 punitive damage verdict. The district court again remitted the punitive
damage award to $1,000,000 and plaintiff appealed.
The Fourth Circuit affirmed the district court’s orders reducing the punitive damage verdicts
to $1,000,000 holding that a district court reviewing a punitive damage verdict under state law
pursuant to Rule 59 owes less deference to the punitive damage verdict than to a jury’s other findings
and that district courts should therefore exercise their “independent judgment” in determining
whether a punitive damage verdict is excessive under state law.
h.
Moreno v. Consolidated Rail Corp., 99 F.3d 782 (6th Cir. 1996):
The
Moreno case involved claims of disability discrimination under Section 405 of the
Rehabilitation Act. At trial, the jury awarded compensatory damages of approximately $185,000
and punitive damages of nearly $1.3 million. The Sixth Circuit reversed and held that punitive
damages are not available under Section 405 of the Rehabilitation Act. The court expressed an
apparent dislike to punitive damages. Citing
BMW and other decisions, the court explained that the
“Supreme Court has repeatedly struggled with the serious constitutional issues raised by such
[punitive damage] awards … and against this background we are even less enthusiastic than we
might otherwise be about creating by implication a new punitive damage remedy (if a private fine
may be properly called a `remedy’) that Congress has never seen fit to create by statute.” The court
further observed that “[t]he whole issue of punitive damages is becoming an increasingly
problematic one…, as a sort of game-show mentality leaves some contemporary juries to award
punitive damages in amounts that seem utterly capricious.”
i.
Cooper v. Casey, 97 F.3d 914 (7th Cir. 1996):
In
Cooper, the jury awarded $5,000 in compensatory damages and $60,000 in punitive
damages to prisoners who had brought Section 1983 civil rights claims against prison guards. On
appeal, the Seventh Circuit upheld the $60,000 punitive damage award as being in compliance with
the decision under
BMW.
10
j.
Patterson v. P.H.P. Healthcare Corp., 90 F.3d 927 (5th Cir. 1996), cert.
denied
, 117 S.Ct. 767 (1997):
The
Patterson case involved a bench trial for race discrimination claims under Title VII and
Section 1981 in connection with the plaintiff’s employment with P.H.P. Healthcare. The district
court awarded $22,648 in back-pay and lost benefits and imposed $150,000 in punitive damages.
Reviewing the award under all three
BMW guideposts, the Fifth Circuit held that the award was
excessive and remanded the award to the district court for reassessment. Interestingly, the court held
that no punitive damages could be imposed against the corporate defendant because it had no
knowledge of and did not ratify or authorize the alleged misconduct of its employee who was a
“project manager.”
k.
B E & K Constr. Co. v. United Bhd. of Carpenters, 90 F.3d 1318 (8th Cir.
1996):
B E & K Constr. Co.
involved claims of tortious interference with contractual relationship
or business expectancy. The jury awarded $125,000 in compensatory damages against two
defendants, jointly and severally, and $10,000,000 in punitive damages against each defendant. The
Eighth Circuit reversed the jury verdict on liability and remanded for a new trial but also noted that
the two $10,000,000 punitive damage awards “appear[ed] excessive” under
BMW.
2. District Courts
a.
Johansen v. Combustion Engineering, Inc., Civil Action No. CV191-178
(S.D. Ga. June 9, 1997):
In
Johansen, the plaintiffs, twenty-three landowners of 16 different properties, sued the
defendant in trespass and nuisance for the obstruction and pollution of streams on the properties.
The jury awarded the plaintiffs an aggregate $47,000 in compensatory damages and $45 million in
punitive damages. The trial court remitted the punitive damage award to $15 million. The Eleventh
Circuit Court of Appeals affirmed the award without opinion. The United States Supreme Court
granted a writ of certiorari, vacated the punitive damages award and remanded the case to the
Eleventh Circuit for reconsideration in light of the Court’s decision in
BMW. The Eleventh Circuit
remanded the case to the district court. On remand, the district court found that Combustion’s
activity did not “establish that high degree of culpability that warrants a substantial punitive damage
award” and therefore the award was not commensurate with the degree of reprehensibility of
Combustion’s conduct for the relevant time period. The court also found that the aggregate ratio
between the punitive damage award and the compensatory damage award of 320 to 1 bore no
reasonable relationship to the amount of harm or potential harm suffered by plaintiffs. Because
Combustion’s conduct did not support a punitive award that was 320 times more than the
compensatory damages, the ratio factor militated against the “reconfirmation of the punitive
damages award.” Applying the third guidepost of civil and criminal penalties for similar
misconduct, the court observed that the Environmental Protection Division imposed only a $10,000
fine on Combustion and therefore the remitted punitive damage award was 1,500 times that amount.
The court found that the imposition of that award would not comport with the fair notice
requirements of the Constitution. The court nevertheless determined that a punitive damage award
11
was justified and the jury’s affirmed verdict should be “honored in part.” The court imposed a
multiplier of 100 to each plaintiff’s compensatory award as an appropriate assessment of the punitive
damages award. This resulted in a punitive damage award of $4,350,000 on actual damages of
$43,500 damages.
b.
Schutts v. Feldman, No. 5:88-CV-449, 1997 U.S. Dist. LEXIS 3428 (D.
Conn. Feb. 18, 1997):
In
Schutts, a professor alleged that a university official retaliated against the professor based
on protected speech. The professor brought a Section 1983 civil rights claim and was awarded
$150,000 in compensatory damages and $300,000 in punitive damages. Relying on the Second
Circuit’s decision in
Lee v. Edwards, supra, and applying BMW, the district court ordered a
remittitur of the punitive damage award from $300,000 to $150,000 and further remitted the
compensatory damage award to $10,000.
c.
Creative Demos, Inc. v. Wal-Mart Stores, Inc., 955 F.Supp. 1032 (S.D. Ind.
1997):
The plaintiff in
Creative Demos alleged fraud and promissory estoppel claims against Wal-
Mart. The jury awarded $681,126 in compensatory damages on the promissory estoppel claim and
$137 in compensatory damages and $6,500,000 in punitive damages on the fraud claim. The district
court granted defendant’s motion for judgment with respect to liability for punitive damages finding
no evidence of malice. The court alternatively ruled that a new trial should be granted on the issue
of punitive damages because the $6,500,000 punitive damage verdict was grossly excessive under
BMW
. The court specifically found that conduct of Sam’s Clubs was “low, indeed quite low,” that
the ratio of compensatory damages and actual damages of 47,455 to 1 weighed “very heavily in
favor of vacating the punitive damages award,” and that the size of the award was “radically out of
line with Indiana public policy.” The court did find wealth to be a relevant consideration but held
that the “financial status of Sam’s Club cannot justify the punitive damage award in this case.”
d.
Rush v. Scott Specialty Gases, Inc., 930 F.Supp. 194 (E.D. Pa. 1996),
reversed and remanded for a new trial on other grounds
, 113 F.3d 476 (4th Cir. 1997):
The
Rush case involved claims of sex discrimination under Title VII and the Pennsylvania
Human Relations Act. After jury trial, a verdict in the amount of $203,000 in lost wages, $1 million
in pain and suffering, and $3 million in punitive damages was rendered. The district court remitted
the compensatory damages award for pain and suffering to $100,000 and relying on
BMW, reduced
the punitive damage award from $3 million to $300,000. On May 14, 1997, the Fourth Circuit Court
of Appeals reversed and remanded for a new trial based on the erroneous introduction of evidence
on time-barred claims which “infected the entire trial.”
e.
Gregory v. Chemical Waste Management, Inc., 1996 WL 779774 (W.D.
Tenn. Dec. 11, 1996):
In
Gregory, the plaintiffs claimed misrepresentation and bad faith refusal to comply with a
contract. The Western District of Tennessee awarded nearly $76.5 million in compensatory
12
damages primarily attributable to the contract claim. The court found there was a “well defined plan
… to cheat plaintiffs out of money” and a concealment of the fraud by the defendant. Awarding
three times the royalties the defendant had failed to pay the plaintiffs, the court awarded $15 million
in punitive damages.
f.
American Laser Products, Inc. v. Nat’l Imaging Supplies Group, Inc., 1996
WL 705243 (N.D. Ill. Dec. 4, 1996):
The case of
American Laser involved claims of breach of fiduciary duty. The jury awarded
$150,000 compensatory and $100,000 in punitive damages on plaintiff’s claims. The Northern
District of Illinois held that the punitive damage award complied with
BMW.
g.
Jordan v. Shaw Industries, Inc., 1996 U.S. Dist. LEXIS 17917 (M.D.N.C.
1996):
The
Jordan case involved fraud and employment claims arising from a merger. The jury had
awarded compensatory damage awards of $32,000, $12,000, $50,750 and $2,500 to four plaintiffs,
and further awarded each plaintiff $1,222,250 in punitive damages. The district court relied on state
law grounds to grant judgment in favor of the defendants on the fraud and punitive damage claim
as to two of the plaintiffs but upheld the punitive damage award in favor of the other plaintiffs under
BMW
.
h.
Iannone v. Frederic R. Harris, Inc., 941 F.Supp. 403 (S.D.N.Y. 1996):
In
Iannone, the jury awarded $62,000 in back-pay, $5,000 in compensatory damages and
$250,000 in punitive damages on claims for retaliatory discharge under Title VII. The jury reached
a verdict for the defendant on a companion sexual harassment claim. Reviewing the verdict, in light
of
BMW, the district court remitted the punitive damage award from $250,000 to $50,000.
i.
Flores v. Delbovo, 939 F.Supp. 1341 (N.D. Ill. 1996):
The
Flores case involved civil rights claims under Sections 1981 and 1982 of the Civil
Rights Act. The jury awarded $55,000 in actual damages against the individual and corporate
defendants, $2,500 in punitive damages against the individual defendant and $750,000 in punitive
damages against the corporate defendant. The district court remitted the $750,000 punitive damage
to $275,000, in part relying on
BMW.
j.
Hurley v. Atlantic City Police Department, 933 F.Supp. 396 (D.N.J. 1996):
The
Hurley case is interesting in that it remitted a compensatory damage award from
$575,000 to $175,000 in a sexual harassment, hostile work environment case filed under Title VII
of the Civil Rights Act of 1964, Section 1983 and the New Jersey law against discrimination, but
nevertheless upheld a $700,000 punitive damage award as being in compliance with the Supreme
Court’s decision in
BMW.
35
Id. 1090.
13
k.
Pivot Point International, Inc. v. Charlene Products, Inc., 932 F.Supp. 220
(N.D. Ill. 1996):
The
Pivot Point matter involved copyright infringement and unfair competition. The
significant impact of
Pivot Point is that the court held that a defendant’s wealth is not relevant to the
amount of punitive damages awarded and thus barred plaintiff from introducing evidence of the
defendant’s assets and his tax returns. This decision is squarely in conflict with numerous other
decisions which hold that wealth still remains a relevant consideration after
BMW. The district court
in
Pivot Point relied on its view that the Seventh Circuit has held that evidence of a defendant’s
wealth is not relevant to punitive damage claims based on federal law and that the Supreme Court
in
BMW did not treat the defendant’s wealth as relevant in considering the excessiveness of the
punitive damages based on state law. The court also believed that allowing evidence of defendant’s
assets was inconsistent with the practice that privacy interests that protect disclosure of a person’s
income and assets and would also call into question the court’s commitment “to no equal justice to
the rich and poor.”
l.
Utah Foam Products Co. v. Upjohn Co., 930 F.Supp. 513 (D. Utah 1996):
In
Utah Foam Products, the plaintiff claimed misrepresentations in a sale and a jury awarded
$313,593 in compensatory and $5.5 million in punitive damages. The District of Utah discussed the
defendant’s misconduct and surrounding circumstances, the actual damages, the probability of future
misconduct, the relationship of the other parties, the impact on the plaintiff and others, the
defendant’s wealth and safety concerns and sanctions for comparable misconduct. The district court
found that, predicated on all the factors, the punitive damages could not stand and the court reduced
them to twice the compensatory damages.
m.
Schimizzi v. Illinois Farmers Ins. Co., 928 F.Supp. 760 (N.D. Ind. 1996):
In
Schimizzi, the Northern District of Illinois reduced a $600,000 punitive damage verdict
to $135,000. In so doing, the court relied heavily on the
BMW guideposts, and in particular, on an
examination of comparable cases.
n.
Park v. First Union Brokerage Serv., Inc., 926 F.Supp. 1085 (M.D. Fla.
1996):
In
Park, the plaintiff’s claims included wrongful termination, defamation and intentional
interference. In arbitration, the plaintiff was awarded $272,045 in compensatory and $500,000 in
punitive damages. Rejecting a challenge to the punitives, the Middle District of Florida stated,
“[t]his case is not representative of a `grossly excessive’ award that cries out for vacatur.”
35
14
o.
Mack v. General Motors Acceptance Corp., 169 F.R.D. 671 (M.D. Ala.
1996):
In
Mack, the district court denied a motion for nationwide class certification of fraud, breach
of contract, fiduciary duty and RICO claims in connection with car loan financing because,
inter
alia
, BMW “makes clear [that] the treatment of punitive damages varies from state to state.”
B. STATE CASES
1.
Vandevender v. Sheetz, Inc., __ S.E.2d __, 1997 WL 384655 (W. Va. July 11,
1997):
The
Vandevender case involved a claim of wrongful discharge and retaliation. The jury
awarded the plaintiff $130,066 in compensatory damages, $170,000 for noneconomic damages and
$2,699,000 in punitive damages. The West Virginia Supreme Court reviewed the punitive damage
award primarily under state law grounds. It rejected the defendant’s contention that
BMW “somehow
altered the review factors previously identified [by this Court].” It observed that the three
“guideposts” are merely reiterations of factors previously adopted by both the West Virginia
Supreme Court and the United States Supreme Court. It further observed that nothing in
BMW
eliminates reference to previously delineated factors that are not among the “big three `guideposts.’”
The court applied the factors utilized by West Virginia and
TXO and affirmed the punitive damage
award in connection with the theory of retaliation. It observed that the outer limit of the ratio of
punitive damages to compensatory damages in cases which the defendant acted with extreme
negligence or wanton disregard but with no actual intention to cause harm and in which
compensatory damages are neither negligible nor very large was roughly 5 to 1. When the defendant
acted with actual evil intention, much higher ratios are not “per se unconstitutional.” The court
reduced the punitive damages award on the unlawful termination/failure to rehire claim to $466,260
so that a comparison of punitive to compensatory damages would result in a 5 to 1 ratio. The court
did not reduce the amount of punitive damages awarded for the retaliation claim despite the 15 to
1 ratio, due to the fact that the evidence introduced in connection with that claim crossed the line
from “reckless disregard of an individual’s right to willful mean spirited acts indicative of an intent
to cause physical or emotional harm.”
2.
Langmead v. Admiral Cruises, Inc., 1997 WL 244910 (Fla. App. 3 Dist. May 14,
1997):
In
Langmead, the employee of a cruise line who was injured while exercising in the ship’s
gym sued the employer under the Jones Act and for negligence, unseaworthiness, maintenance and
cure, and punitive damages. The trial court directed a verdict for the employer on maintenance and
cure issues and on the punitive damage claims and entered judgment on the jury verdict against the
employee on the unseaworthiness claim and for the employee on the negligence claim. The
employee appealed. The District Court of Appeals, 610 So.2d 565, affirmed in part and reversed
in part and remanded. On remand, the Circuit Court granted the cruise line’s motion for new trial
after the jury returned a verdict awarding the employee $160 and $75 for two doctor bills, $730 for
lost wages and $3.5 million for punitive damages. Analyzing the award under the guideposts set
forth in
BMW, the Florida Appellate Court found no reprehensibility by the defendant, observed that
36
BMW, 1997 WL 233910 at *6.
15
the punitive damage award was 3,626 times greater than the actual harm inflicted on the plaintiff,
and that Admiral’s right to substantive due process was violated under the Florida and federal
Constitutions. Finding no record evidence to justify any award of punitive damages, the court
reversed the trial judge’s order granting a new trial on this issue and remanded with instructions to
grant Admiral’s motion for a directed verdict as to punitive damages.
3.
BMW of N. Am., Inc. v. Gore, 1997 WL 233910 (Ala. May 9, 1997):
On remand from the United States Supreme Court, the Alabama Supreme Court noted that
BMW’s conduct had caused only economic harm and that the $2,000 statutory penalty for fraud was
less than BMW’s profit.
36 The Alabama Supreme Court also observed that BMW‘s guideposts did
not exclude the other factors approved in
Haslip, but that after considering these factors, including
the defendant’s financial position, litigation costs and other civil actions, the previously affirmed $2
million award was reduced to $50,000 to meet the requirements of the United States Supreme Court
decision in
BMW. This resulted in a 12.5 to 1 ratio of punitive to compensatory damages.
4.
Shea v. Galaxie Lumber & Constr. Co., 1997 WL 51655 (N.D. Ill. Feb. 5, 1997):
The plaintiff in
Shea sued Galaxie for violations of the Federal Fair Labor Standards Act and
Title VII. The jury awarded $2,500 in punitive damages on the Title VII claim with $1
compensatory damages. Defendant argued for a remittitur solely on the basis that the ratio between
the compensatory and punitive damage awards was 2,500 to 1 and thus violated
BMW. The court
rejected the mathematical formula argument and held that the overriding consideration under
BMW
is one of reasonableness. Thus, the court found that although the mathematical ratio was “quite
high,” the punitive damage award was “reasonable.”
5.
Cates Construction Co. v. Talbot Partners, 53 Cal.App.4th 1420, 62 Cal.Rptr.2d
548 (Cal. Ct. App. 1997),
cert. granted by California Supreme Court:
The
Cates Construction matter involved claims of breach of contract and alleged bad faith
in connection with the denial of a claim under a commercial surety contract. The jury awarded
$3,142,000 in compensatory damages on the breach of contract claim, stipulated compensatory
damages of $1.00 on the bad faith claim, and $28 million in punitive damages on the bad faith claim.
On appeal, the California Court of Appeals, applying both state law and
BMW, held that the punitive
damage award was excessive.
The court discussed the purely economic nature of the injury. Because the plaintiff had
produced evidence that it was financially vulnerable and that Transamerica acted deliberately and
willfully in reliance on the plaintiff’s weakening financial condition, the court observed that a large
punitive damage award was necessary because
BMW found “infliction of economic injury, especially
when done intentionally through affirmative acts of misconduct or when the target is financially
vulnerable, can warrant a substantial penalty.”
16
With respect to the ratio guidepost, the court disagreed with the
Continental Trend court and
observed that no fixed ratio or simple mathematical formula is determinative of reasonableness. The
court also rejected Transamerica’s argument that the relevant ratio was between the $28 million in
punitive damages and the $1 stipulated as compensatory bad faith damages. The court instead
examined the punitive award in comparison to the actual harm the plaintiff suffered. There was
evidence of the loss of several million dollars which the court found was not “
de minimis damage.”
The court further found that wealth was a relevant consideration even after
BMW.
Observing that the damage was purely economic and did not endanger the public health or
safety, that there was no evidence that Transamerica was a recidivist which had previously engaged
in bad faith behavior and that the punitive damages awarded by the jury are much higher than the
monetary penalties which could be imposed by the California Insurance Commissioner, the
California Court of Appeals determined that the award must be reduced. The court reduced the
award to $15 million which it believed was commensurate with Transamerica’s wrongdoing,
Transamerica’s wealth, the plaintiff’s injury and the state’s interest in good faith performance of its
insurance contracts, and was also an amount slightly more than half the sum awarded by the jury and
roughly 5 times the actual economic harm caused by the bad faith conduct.
6.
Labonte v. Hutchins & Wheeler, 678 N.E.2d 853 (Mass. 1997):
The
Labonte case involved a former executive director of a law firm who was terminated
after he was diagnosed with multiple sclerosis who alleged handicap discrimination against his
former law firm under the Massachusetts discrimination statute. The
BMW case came down after
the trial and after hearing on the motion for new trial. The appellate court therefore concluded that
there should be a rehearing on the defendant’s motion for remittitur of the punitive damage claim
in light of the factors set forth in
BMW. The court instructed the trial court to apply not only the
three
BMW guideposts but also the standards discussed by Justice Breyer in his concurring opinion.
The court instructed the trial court to consider the relationship to the harm that is likely to occur
from the defendant’s conduct as well as to the harm that actually has occurred; whether there was
a reasonable relationship to the degree of reprehensibility of the defendant’s conduct; removal of the
profit of an illegal activity; factoring in the financial position of the defendant; factoring in the costs
of litigation; an examination of whether criminal sanctions could have been imposed; and
examination of whether other civil actions have been filed against the same defendant.
7.
Wilson v. IBP Inc., 558 N.W.2d 132 (Iowa 1996), petition for cert. filed, 65
U.S.L.W. 3783 (U.S. May 14, 1997) (No. 96-1813):
In
Wilson, a punitive damage award of $15 million involving $4,000 compensatory damages
was reduced to $100,000 by the trial court in a case involving libel and breach of fiduciary duty
claims. Holding that the defendant “knowingly engaged in a malicious course of conduct,” the
Supreme Court of Iowa deemed future deterrence “of great importance”, whereas the ratio of
punitive damages to compensatory damages was of “minor significance.” Factoring in the
defendant’s net worth and the other factors, the court increased the award to $2 million in punitive
damages — 500 times the compensatory damages.
17
8.
Walston v. Monumental Life Ins. Co., 923 P.2d 456 (Idaho 1996):
Walston
involved claims for breach of contract, fraud and bad faith arising from the denial
of insurance benefits. The jury awarded $3,800 for breach of contract, $120,000 for fraud and bad
faith, and $10 million in punitives.
The Idaho Supreme Court affirmed the trial court’s reduction of the punitive damage award
to $3.2 million stating that the defendant’s conduct “was high on the reprehensibility scale.”
Observing that
BMW did not “prescrib[e] a mathematical formula,” the court approved a ratio of
punitive to compensatory damages of just under 26 to 1 and further approved the trial court’s
rationale of awarding 5% of the defendant’s annual profits.
9.
SK Hand Tool Corp. v. Dresser Indus., Inc.. 672 N.E.2d 341 (Ill. App. 1 Dist.
1996):
The
SK Hand Tool case involved a purchaser of a corporation’s hand tool division who
brought an action against the corporation for fraud in connection with the sale. The jury awarded
$4 million in actual damages and $50 million in punitive damages. The trial court denied Dresser’s
post-trial motion but granted a remittitur of $42 million of the punitive damages. On appeal, the
case was reversed for new trial on damages because of the speculative nature of the actual damages
based on lost profits and, therefore, punitive damages could not be awarded without reasonably
certain compensatory damages. Notably, the dissent held that the actual damages were proven with
sufficient specificity and that the trial court erred in remitting the punitive damage verdict. The
dissent would have allowed $50 million in punitive damages to stand, holding that the defendant’s
conduct was much more reprehensible than
BMW and that the civil and criminal penalties for such
conduct were potentially great. “Here the punitive damage award is only 12 times the compensatory
award as opposed to the punitive award in
BMW which was 500 times the actual damages.”
10.
Management Computer Services, Inc. v. Hawkins, Ash, Baptie & Co., 557 N.W.2d
67 (Wis. 1996):
In
Management Computer, the jury awarded $65,000 in actual damages and $1,750,000 in
punitive damages in a conversion case in connection with alleged copying of computer software.
The trial court reduced the actual damage award to $62,000 and reduced the punitive damages to
$50,000. The Supreme Court of Wisconsin agreed that the jury’s $1,750,000 punitive damage award
was excessive, but notably held that the trial court had remitted the award by too much and held that
$650,000 was the appropriate amount. This resulted in an award of ten times the compensatory
damages.
11.
Shippen v. Parrott, 553 N.W.2d 503 (S.D. 1996):
The
Shippen case involved sexual assault and battery claims. After a bench trial, the court
awarded $75,000 in compensatory damages and $113,000 in punitive damages. The case was
remanded because the Supreme Court of South Dakota held that some of the claims were barred by
the statute of limitations. The district court then remitted the compensatory damage award but left
the punitive damage award intact. On appeal, the South Dakota Supreme Court reduced the punitive
18
damage award to $25,000, interpreting
BMW to mean that punitive damages could not be imposed
to punish and deter nonactionable conduct that had previously been held outside the limitations
period.
12.
Schaffer v. Edward D. Jones & Co., 552 N.W.2d 801 (S.D. 1996):
The
Schaffer case involved claims for fraud and misrepresentation in the sale of a limited
partnership. At trial, the jury awarded $25,000 in compensatory and $750,000 in punitive damages.
On appeal, the South Dakota Supreme Court considered the
BMW guideposts and factored in the
defendant’s intent and financial condition. Observing that the award of punitives was “generous,”
they did not shock the court’s “collective conscience” and the court thus affirmed.
28809.1
