Retributive Damages: A quick overview of American Punitive Damages Law

Yesterday I posted the introduction to Retributive Damages. Today I provide some background on the law of American punitive damages and tomorrow I do a quick survey of recent normative scholarship on punitive damages. (You can find the whole article here.)

  Punitive damages have a long history.[1] According to the conventional understanding, early Anglo-American courts awarded “exemplary” damages for a range of purposes, in some cases as compensation to a plaintiff for suffering “intangible wrongs” such as insults that caused dignitary harms and in other cases as punishment of “the defendant for his misconduct.”[2] As the scope of compensatory damages in recent years expanded to include “mental anguish, wounded feelings, indignity and embarrassment,” however, the need to use punitive damages to compensate such harms may have diminished.[3] Indeed, many of the “intangible harms” initially uncompensated are now covered.[4]

Consequently, the Supreme Court has cast its doubts on the compensatory rationale of punitive damages, explaining that today punitive damages should be understood as “quasi-criminal” “private fines” designed to punish and deter the misconduct at issue.[5] Interestingly, although courts frequently view punitive damages as serving both and primarily retribution and deterrence,[6] analysis of these purposes and their implications is often scant. As such, courts rarely instruct juries to consider decoupling these functions by determining the amount of money necessary to serve as the punishment of the defendant and the amount necessary to achieve deterrence.[7] Indeed, the courts rarely bother to distinguish between optimal deterrence (aiming at cost-internalization) and complete deterrence (aiming at stopping the misconduct’s commission in the future).

Today, notwithstanding the public nature of the retributive and deterrent values the Court associates with extra-compensatory damages, only a small number of states have adopted split-recovery schemes through which the state shares in the award of punitive damages.[8] Consequently, in most states, if extra-compensatory damages are awarded, the plaintiff (and her lawyers) will receive most, if not all, of the amount awarded.[9]

Despite the variations in who recovers punitive damages, certain practices are well-entrenched. For example, in every jurisdiction where punitive damages are allowed, the fact-finder must make a predicate finding about the defendant’s culpable state of mind, i.e., did the defendant’s action evince something like “wanton, willful, malicious, or reckless conduct that shows an indifference to the rights of others?”[10] Moreover, most American jurisdictions have in recent decades required that punitive damages be awarded only if the plaintiff has proven the defendant’s culpable state of mind with “clear and convincing evidence,” rather than the traditional, “preponderance of the evidence” standard.[11]

Additionally, the Supreme Court has, in the last fifteen years, begun to establish a constitutional framework for regulating punitive damages. These rules are designed to ameliorate “the basic unfairness of depriving citizens of life, liberty, or property, through the application, not of law and legal processes, but of arbitrary coercion.”[12] The Court’s requirements can be summed up in six rules.

First, when courts review the reasonableness of punitive damages awards, the most important factor they must consider is the degree of reprehensibility of the defendant’s misconduct.[13] Second, reviewing courts must also consider whether the “disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award” is constitutionally excessive.[14] More controversially, in State Farm, the Court established a presumption that “in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.”[15]

Third, reviewing courts should consider “the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.”[16] Fourth, reviewing courts, under the Supreme Court’s new Philip Morris decision, must ensure that the jury is instructed not to punish defendants an amount that figures in the harms to nonparties to the litigation.[17] One might see this as related, though not essential, to the Court’s stated interest in ensuring that one state not try to punish defendants for conduct lawfully performed in another state.[18] Fifth, judicial review of a jury’s award of punitive damages must be available at both the trial and appellate levels.[19] Finally, appellate review of punitive damages must adopt a “de novo” standard of review of the jury’s award, at least when the action is a federal case.[20]

Importantly, although the Court developed these rules to improve fair notice and proportionality to defendants facing these sanctions,[21] the Court has not extended to defendants the protections normally applicable in the criminal law context. Indeed, defendants in punitive damages actions have no right to bifurcated proceedings between liability and punitive damages, no right against vicarious liability,[22] no double jeopardy rights,[23] no right to counsel, no right to standards of proof requiring proof beyond a reasonable doubt, and no right to avoid testifying on the grounds that such testimony might lead to punitive damages liability. Moreover, the Court has not stepped in to prohibit vicarious liability for punitive damages,[24] or multiple awards of punitive damages for the same underlying tortious conduct, such as in a mass torts case.[25] Nor has the Court insisted that the trial court specify its reasons for upholding or remitting the amount of punitive damages.[26]

The Court’s efforts to regulate punitive damages coincide with, and are responsive to, corporate-funded tort reform movements pushing states to place caps that limit a defendant’s exposure to punitive damages payments.[27] Looking at the landscape as a whole, one might be tempted to view the Court’s jurisprudence here as arcing in the direction of retributive justice’s requirements for procedurally fair, proportionate, and even-handed punishment.

But its jurisprudence is decidedly not yet there. For example, as elaborated in Part V, there is no retributivist justification for the

State Farm Court

’s presumption that a single-digit multiplier of compensatory damages is the appropriate measure. Nor is there much justification for the ongoing common law practice of denying defendants the safeguards necessary for the just imposition of even an intermediate sanction.[28] Moreover, to the extent the Court’s jurisprudence can be said to avoid gross disproportionality and unfair surprise, then those are values that Benthamite utilitarians might embrace too—for reasons separate from any retributive leanings to try to reduce Type II errors as well.[29]

As a matter of interpreting the Constitution, the Court should refrain from embracing a particular theory of punitive damages as it goes about delineating the rights of defendants in tort actions. That under-theorized position will permit experimentation among the states. Indeed, that strategy leaves a range of constitutionally available policy options: a state could decide, in furtherance of retributive justice goals, to provide more substantive and procedural protections to punitive damages defendants (and plaintiffs) than it does currently. Alternatively, a state could decide it wanted to rely exclusively on criminal law institutions to pursue retributive justice and instead use extra-compensatory damages simply to pursue, within constitutional limits, goals such as victim-vindication or cost-internalization.[30] More radically, a state could abolish all extra-compensatory damages. The array of punitive damages laws we have now, however, fails to evince much awareness of which goal(s) it is pursuing let alone the goals it ought to be pursuing.

 

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[1] E.g., Wilkes v. Woods, (1763) 98

Eng.

Rep. 489 (K.B.); Huckle v. Money, (1763) 95

Eng.

Rep. 768 (K.B). See also Pac. Mut. Life Ins. Co. v. Haslip, 499

U.S.

1, 24 (1991) (Scalia, J., concurring) (furnishing a brief history of punitive damages).

[2] Redish & Mathews, supra note 9, at 13-16 (discussing early English cases where plaintiff showed dignitary harm that would otherwise remain uncompensated in the absence of exemplary damages).

[3] Schlueter & Redden, supra note 3, at § 1.4(B). But see Sebok, supra note 12, at 204-05 (“If punitive damages served a compensatory function [in early cases], it would have been for a category of injury that is still not considered compensable by contemporary tort law, namely the injury of insult that wounds or dishonors.”).

[4] For example, in Philip Morris USA v. Williams, the jury awarded the decedent’s wife $21,000 in economic compensatory damages and $800,000 in non-economic compensatory damages. Additionally, the jury awarded $79.5 million in punitive damages. 127 S.Ct. 1057, 1060-61 (2007). Recently, the Supreme Court of Oregon upheld the jury verdict. See Williams v. Philips Morris Inc., 2008 WL 256614 (Or. Jan. 31, 2008).

[5] Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532

U.S.

424, 432 (2001); Gertz v. Robert Welch, Inc., 418

U.S.

323, 350 (1974).

[6] See, e.g., cases cited supra note 22.

[7] Schlueter & Redden, supra note 3, at § 2.2(A)(1); Restatement (Second) of Torts § 908(1) (1979).

[8] See Sharkey, supra note 4, at 375-80. Compare Ind. Code. Ann. §34-51-3-6(d) (“The office of the attorney general may negotiate and compromise [its portion of] a punitive damage award”) and Ga. Code Ann. § 51-12-5.1(e)(2) (“Upon issuance of judgment [for punitive damages], the state shall have all rights due a judgment creditor until such judgment is satisfied and shall stand on equal footing with the plaintiff of the original case in securing a recovery after payment to the plaintiff of damages awarded other than as punitive damages.”).

[9] See Schlueter & Redden, supra note 3, at § 20.1 (providing state summaries).

[10] Ronald W. Eades, Jury Instructions on Damages in Tort Actions §§ 2-6, 2-7, 2-8 (4th ed. 1998). Some variety exists regarding the level of the defendant’s culpability. For example,

Ohio

requires a finding of actual malice. Rice v. Certainteed Corp. 704 N.E.2d 1217, 1220-21 (

Ohio

1999).

Texas

allows punitive damages for “gross negligence” but its definition approximates what is elsewhere called malice or recklessness. See Gen. Motors Corp. v. Sanchez, 997 S.W.2d 584, 595 (

Tex.

1999).

[11] See Schlueter & Redden, supra note 3, at § 5.3(H). But cf. Priest, in Cass R. Sunstein et al., Punitive Damages: How Juries Decide 12 n.14 (2002) (indicating skepticism toward the suggestion that these different standards are treated differently by jurors).

[12] BMW of N. Am. Inc. v. Gore, 517

U.S.

559, 562 (1996) (Breyer, J., concurring).

[13] State Farm Mut. Auto. Ins. Co. v. Campbell, 538

U.S.

408, 419 (2003). This analysis proceeds by looking at factors including “whether: the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident.” Gore, 517

U.S.

at 576-77. The “existence of any one of these factors weighing in favor of a plaintiff may not be sufficient to sustain a punitive damages award; and the absence of all of them renders any award suspect.” State Farm, 538

U.S.

at 419.

[14] State Farm, 538

U.S.

at 418.

[15]

Id.

at 425.

[16]

Id.

at 428.

[17] Philip Morris

USA

v. Williams, 127 S.Ct. 1057, 1063 (2007). Members of the Court have in the past also expressed some thoughts that if punitive damages were captured in part by the state, that structure might trigger review under the Eighth Amendment’s Excessive Fines Clause. See Browning-Ferris Indus. v. Kelco Disposal, 492

U.S.

257 (1989). However, the statutes in

Utah

and

Oregon

under consideration in State Farm and Philip Morris respectively involved a split-recovery scheme and the Court did not address that issue in either case.

[18] State Farm, 538

U.S.

at 421.

[19] Honda Motor Co., Ltd. v. Oberg, 512

U.S.

415, 432 (1994).

[20] Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532

U.S.

424, 436 (2001).

[21]

See

State

Farm, 538

U.S.

at 416-17.

[22] See

Pac.

Mut. Life Ins. Co. v. Haslip, 499

U.S.

1, 13-15 (1991)

[23] In Hudson v. United States, the Supreme Court stated that it has “long recognized that the Double Jeopardy Clause does not prohibit the imposition of all additional sanctions that could… be described as punishment. The Clause protects only against the imposition of multiple criminal punishments for the same offense.” 522

U.S.

93, 98-99 (1997) (citation omitted).

[24] Haslip, 499

U.S.

at 13-14.

[25] Some federal courts have rejected the “overkill” argument that fundamental fairness precludes allowing a defendant to face limitless multiple punishments. E.g., Cathey v. Johns-Manville Sales Corp.,

776 F

.2d 1565, 1571 (6th Cir. 1985). However, “the vast majority of courts that have addressed the issue have declined to strike punitive damages awards merely because they constituted repetitive punishment for the same conduct.” Dunn v. Hovic,

1 F

.3d 1371, 1385 (3d Cir. 1993). Nothing in the Court’s Philip Morris decision changes this outcome. Thus a tobacco company could easily face punitive damages in separate actions for the same misrepresentations it made about its product’s health effects.

[26] See, e.g., TXO Prod. Corp. v. Alliance Res. Corp., 509

U.S.

443, 464-65 (affirming the trial court’s unelaborated ruling that the large punitive damages award was acceptable).

[27] The variety of reforms can be sensed by glancing at BMW of N. Am. Inc. v. Gore, 517 U.S. 559, 614 (1996) (Ginsburg, J. dissenting) (appendix listing various state reforms).

[28] Haslip, 499

U.S.

at 42 (O’Connor, J., dissenting) (“Punitive 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.”).

[29] Jeremy Bentham, An Introduction to the Principles of Morals and Legislation 86-88 (John Bowring ed., 1843) (“The punishment should be adjusted in such manner to each particular offence, that for every part of the mischief there may be a motive to restrain the offender from giving birth to it.”).

[30] Justice Breyer’s opinion in Philip Morris suggests that augmenting damages based on optimal deterrence would only be permissible if the penalty were based on potential harm to the particular plaintiff, rather than other potential victims who are nonparties to the litigation. Philip Morris USA v. Williams, 127 S. Ct. 1057, 1063 (2007) (in discussing appropriateness to consider the potential harm by defendant, “we have made clear that the potential harm at issue was harm potentially caused the plaintiff”) (emphasis in original). See also supra note 7.