Transcript Punitive Damages

Punitive Damages
Diego Gandolfo
May 2010
Origins
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An ancient concept : “Civil Punishment”
– Code of Hammurabi
– Hittite Laws
– Hebrew Code of Mosaic Law
– Hindu Code of Manu
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English “multiple damages” (1200’s to 1700’s)
– Double, treble, and quadruple damages
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“Punitive” or “exemplary” damages develop in
England (1763)
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Origins
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In Civil Codes: “the Clausula penal” in contracts.
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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.
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US Federal System

State v. Federal Law.
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Punitive damages are specific to some torts under
State Law.
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US Sources of the Law:
– US Constitution
– US laws
– State laws
– Common Law
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Courts must follow precedent.
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Federal v. State Judges.
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Punitive Damages Doctrine
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US concept: Damages to punish a party or to deter
others in that party’s position from similar conduct.
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Imposed in civil judgments.
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To deter outrageous conduct.
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Used in intentional torts ( i.e. libel, slander, assault
and battery).
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To help criminal law system.
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They slightly exceed compensatory damages.
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Expansion of the Doctrine (1960’s)

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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.
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Punitive Damages Facts and Evolution
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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
accident.
– 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
corporate misconduct case.
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Punitive Damages Facts and Evolution
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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.
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US Supreme Court action
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State action
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Tort reform and business action
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Factors traditionally considered to award
punitive damages

whether the punitive damages award had a reasonable
relationship to the harm actually occurred;
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the reprehensibility of the defendant’s conduct, the
duration of such conduct, and defendant’s awareness
and/or concealment of the outrageous conduct;
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the defendant’s profitability form the wrongful conduct and
the desire of removing such profits;
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the defendant’s wealth;
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the cost of litigation;
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criminal sanctions already imposed against the defendant;
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civil sanctions already imposed against the defendant for
the similar wrongful conduct.
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Concerns with factors
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Juries are invited to award punitive damages based
on passion, bias and prejudice.
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Punitive damages may bankrupt defendants and
deprive later plaintiffs of funds to recover from.
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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.
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US Supreme Court Response
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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.
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US Supreme Court Response
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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
Constitution.
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US Supreme Court Response
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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
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US Supreme Court Response
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State Farm (2003):
– Plaintiff was awarded $2.6 million in compensatory
damages and $145 million in punitive damages.
– The US Supreme Court held that:
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The award was “neither reasonable nor
proportionate to the wrong committed, and it
was irrational and arbitrary deprivation of the
property of the defendant.”
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Punitive damages should only be awarded in
rare circumstances.
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Few awards exceeding a single digit punitive to
compensatory damages ratio will satisfy due
process.
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US Supreme Court Response
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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
vulnerable.
– 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.
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Some courts still manage to ignore BMW and State Farm.
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US Supreme Court Response
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Williams (2007):
– Widow of heavy cigarette smoker sued tobacco
companies.
– 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
judgment.
– 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.
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US Supreme Court Response
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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
unsuccessfully.
– PM paid $61.1 million to the plaintiffs (other sums are
in dispute at the moment)
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The States’ approach to control punitive
damages: Evidence standard, additional
factors.
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Majority of states now apply the clear and convincing
evidence standard.
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Illinois
– No punitive damages in product liability unless:
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Malice
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Knowledge of the defect
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Disregard the foreseeable harm that could
result from the defect
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The States’ approach to control punitive
damages: Bifurcation
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Bifurcation approach
– California, Georgia, Florida
– It separates the determination of the amount of
punitive damages from the remaining issues at
trial.
– 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.
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The States’ approach to control punitive
damages: Caps and No Punitive Damages
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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
domiciled.
– Federal Law: No punitive damages but for a few
causes of action such as RICO or some trademark
and patent laws.
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The States’ approach to control punitive
damages: Split recovery statutes
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“Split Recovery” statutes
– Split the punitive damages award with the state.
– Reduces the incentive to bring punitive damages
claims.
– 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.
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Civil Law examples
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Traditionally rejected in civil law jurisdictions that
follow compensatory-only system.
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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
suffering.
– 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.
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Civil Law examples
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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.
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Civil Law examples
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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
pesos.
– 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.
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Conclusions
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High punitive damages awards are not very common.
Controlled by courts of appeal.
The US Supreme Court has taken action to control punitive
damages
Several states have taken action to control punitive
damages.
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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