Punitive Damages in Lawsuits
In a civil case, a plaintiff can request an award of punitive damages. Unlike compensatory damages, which compensate plaintiffs for their concrete losses, punitive damages seek to punish defendants for their egregious conduct and to deter defendants and others from engaging in similar behavior. However, this ad hoc approach to punishing possible misdeeds can result in large punitive damage awards that completely exceed the harm that the defendants had inflicted on the plaintiffs:
- A Florida jury awarded plaintiff $116.7 million in compensatory damages and $100.1 million in punitive damages after the plaintiff suffered severe brain damage when an unlicensed doctor's assistant misdiagnosed his stroke as a sinus infection.
- A California jury awarded plaintiff in a products liability action $290 million in punitive damages--in addition to $5 million in compensatory damages--for a design defect that killed and injured several of plaintiff's family members when their Ford Bronco SUV rolled over.
- A New Jersey jury awarded plaintiff who had suffered a heart attack after taking the prescription drug Vioxx $9 million in punitive damages. The plaintiffs had argued that Merck, the drug manufacturer, had hid the risk of heart attacks and strokes from federal regulators. The jury also awarded $3 million in compensatory damages to the plaintiff and $1.5 million in compensatory damages to his wife.
While multi-million dollar verdicts attract both local and national headlines, studies show that such cases are atypical. Juries rarely award punitive damages. Furthermore, when they do, the punitive damages award is usually for much less than those figures above. A 2001 Department of Justice study revealed that juries only awarded punitive judgments in a little over 5% of cases with the average punitive award (adjusted for inflation) being $50,000. More importantly, when juries do order large punitive awards, judges frequently reduce them or remove them altogether.Constitutional Limits to Punitive Damages
Because the imposition of excessive punitive damages may be unfair to a defendant, the U.S. Supreme Court imposed limits on the amount of punitive damages that a jury may award in civil cases. In BMW v. Gore, 517 U.S. 599 (1995), a jury had awarded plaintiff $4,000 in compensatory damages because BMW had failed to disclose that it had repainted plaintiff's car, which the plaintiff had purchased as new.
BMW had a policy of repairing and repainting vehicles damaged in transport and selling them as new. The jury also awarded $4 million in punitive damages to deter BMW from continuing to engage in its deceptive practices. The Alabama Supreme Court subsequently reduced this amount to $2 million.
The U.S. Supreme Court found that the $2 million punitive damages award was grossly excessive and in violation the Due Process Clause of the U.S. Constitution. The Supreme Court outlined three factors that courts may consider in evaluating the size of punitive awards.
- How "reprehensible" was the defendants' conduct?
- What's the relationship between the actual damage and the punitive awards?
- What's the difference between the punitive award and the relevant civil penalties?
In Dr. Gore's case, the Supreme Court found that BMW's behavior was not so reprehensible to justify the award, since only economic damage was involved. While the Court declined to specify a mathematical formula, the Court said that the 500-to-1 ratio of the punitive damages award to the actual damages "must surely raise a judicial eyebrow."
A few years later, the U.S. Supreme Court again declined to establish "a bright-line ratio which a punitive damages award cannot exceed." However, the Supreme Court did suggest that "few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process." State Farm v Campbell, 548 U.S. 408 (2003). The Court added that to justify a higher ratio, a plaintiff would have to show that "a particularly egregious act has resulted in only a small amount of economic damages."Harm to Third Parties
In Oregon, the estate of a deceased smoker had sued Philip Morris for knowingly and falsely leading the deceased to believe that smoking was safe. A jury found for the plaintiff and awarded the estate $821,000 in compensatory damages and $79.5 million in punitive damages. Finding that the punitive damages award was excessive, the trial judge reduced it to $32 million. This reduced the punitive damages to compensatory damages ratio from 96-to-1 to 38-to-1. However, an Oregon appellate court reinstated the original $79.5 punitive damages award citing the defendant's lengthy record of "false and misleading information to keep smokers smoking" to justify exceeding the single-digit ratio from the State Farm decision.
The U.S. Supreme Court vacated the lower court's decision without deciding whether the punitive damages award was excessive. Instead, the Court noted at trial that plaintiff's attorney has asked the jury to "think about how many other Jesse Williams in the last 40 years in the State of Oregon there have been." The Court held that the Due Process Clause does not permit a jury to base a punitive damages award on its desire to punish the defendant for harming persons who are not parties to the suit. Philip Morris USA v. Williams, 549 U.S. ___ (2007).Large Punitive Damage Awards
Despite the above cases, juries may still award multi-million dollar punitive damage awards, particularly in cases involving significant compensatory damages. After all, the Supreme Court has consistently focused on the ratio of the punitive damages to the compensatory damages, and not the absolute dollar amount of the punitive damages award. In a Georgia case, the Supreme Court let stand a $250 million punitive damages award against Time Warner. Despite the large dollar amount, the punitive damages award was only double the compensatory damages award.
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