Fairness in Punitive Damage Awards Act

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Fairness in Punitive Damage Awards 
Act''.

SEC. 2. FINDINGS.

    Congress finds that--
            (1) punitive damage awards in jury verdicts in financial 
        injury cases are a serious and growing problem, and according 
        to a Rand Institute for Civil Justice study in 1997 of punitive 
        damage verdicts from calendar years 1985 through 1994 in States 
        that represent 25 percent of the United States population--
                    (A) nearly 50 percent of all punitive damage awards 
                are made in financial injury cases (those in which the 
                plaintiff is alleging a financial injury only and is 
                not alleging injuries to either person or property);
                    (B) punitive damages are awarded in 1 in every 7 
                financial injury verdicts overall and 1 in every 5 
                financial injury cases in the State of California;
                    (C) between calendar years 1985 through 1989 and 
                calendar years 1990 through 1994, the average punitive 
                damage verdict in financial injury cases increased from 
                $3,400,000 to $7,600,000;
                    (D) between calendar years 1985 through 1989 and 
                calendar years 1990 through 1994, the award of such 
                damages at the 90th percentile increased from 
                $3,900,000 to $12,100,000;
                    (E) between calendar years 1985 through 1989 and 
                calendar years 1990 through 1994, the total amount of 
                punitive damages awarded increased from $1,200,000,000 
                to $2,300,000,000, for a 10-year total of 
                $3,500,000,000;
                    (F) punitive damages represent a very large 
                percentage of total damages awarded in all financial 
                injury verdicts, increasing from 44 percent to 59 
                percent during the period analyzed; and
                    (G) in the State of Alabama, punitive damages 
                represent 82 percent of all damages awarded in 
                financial injury cases;
            (2) excessive, unpredictable, and often arbitrary punitive 
        damage awards have a direct and undesirable effect on 
        interstate commerce by increasing the cost and decreasing the 
        availability of goods and services;
            (3) as a result of excessive, unpredictable, and often 
        arbitrary punitive damage awards, consumers have been adversely 
        affected through the withdrawal of products, producers, 
        services, and service providers from the marketplace, and from 
        excessive liability costs passed on to consumers through higher 
        prices;
            (4) excessive, unpredictable, and often arbitrary punitive 
        damage awards jeopardize the financial well-being of many 
        individuals and companies, particularly the Nation's small 
        businesses, and adversely affect government and taxpayers;
            (5) individual State legislatures, 5 of whom have banned 
        punitive damages and 14 others of whom have place limitations 
        on the amount of such awards, can create only a partial remedy 
        to address these problems because each State lacks the power to 
        control the imposition of punitive damages in other States;
            (6) it is the constitutional role of the national 
        Government to remove barriers to interstate commerce and to 
        protect due process rights;
            (7) there is a need to restore rationality, certainty, and 
        fairness to the award of punitive damages in order to protect 
        against excessive, arbitrary, and uncertain awards;
            (8) establishing a rule of proportionality, in cases that 
        primarily involve financial injury, between the amount of 
        punitive damages awarded and the amount of economic damages 
        would--
                    (A) be fair to both plaintiffs and defendants; and
                    (B) address the constitutional objection of the 
                United States Supreme Court in BMW of North America v. 
                Gore 116 S. Ct. 1589 (1996) to punitive damages that 
                are grossly excessive in relation to the harm suffered; 
                and
            (9) based upon the powers contained in Article I, section 
        8, clause 3 and section 5 of the 14th amendment of the United 
        States Constitution, this Act will--
                    (A) promote the free flow of goods and services and 
                lessen the burdens on interstate commerce; and
                    (B) uphold constitutionally protected due process 
                rights by placing reasonable limits on damages over and 
                above the actual damages suffered by a claimant.

SEC. 3. DEFINITIONS.

    For purposes of this Act:
            (1) Act of terrorism.--The term ``act of terrorism'' means 
        any activity that--
                    (A)(i) is a violation of the criminal laws of the 
                United States or any State; or
                    (ii) would be a criminal violation if committed 
                within the jurisdiction of the United States or any 
                State; and
                    (B) appears to be intended to intimidate or coerce 
                a civilian population, to influence the policy of a 
                government by intimidation or coercion, or to affect 
                the conduct of a government by assassination or 
                kidnaping.
            (2) Claimant.--The term ``claimant''--
                    (A) means any person who brings a civil action that 
                is subject to this Act and any person on whose behalf 
                such an action is brought; and
                    (B) includes--
                            (i) a claimant's decedent if such action is 
                        brought through or on behalf of an estate; and
                            (ii) a claimant's legal guardian if such 
                        action is brought through or on behalf of a 
                        minor or incompetent.
            (3) Compensatory damages.--The term ``compensatory 
        damages'' means damages awarded for economic and non-economic 
        loss.
            (4) Economic loss.--The term ``economic loss'' means 
        objectively verifiable monetary losses including medical 
        expenses, loss of earnings, burial costs, loss of use of 
        property, costs of repair or replacement, costs of obtaining 
        substitute domestic services, loss of employment, and loss of 
        business or employment opportunities, to the extent such 
        recovery is allowed under applicable Federal or State law.
            (5) Harm.--The term ``harm'' means any legally cognizable 
        wrong or injury for which punitive damages may be imposed.
            (6) Interstate commerce.--The term ``interstate commerce'' 
        means commerce among the several States or with foreign 
        nations, or in any territory of the United States or in the 
        District of Columbia, or between any such territory and 
        another, or between any such territory and any State or foreign 
        nation, or between the District of Columbia and any State or 
        territory or foreign nation.
            (7) Person.--The term ``person'' includes any governmental 
        entity.
            (8) Punitive damages.--The term ``punitive damages'' means 
        damage awarded against any person to punish or deter such 
        person, or others, from engaging in similar behavior in the 
        future.

SEC. 4. APPLICABILITY.

    (a) General Rule.--
            (1) Civil actions covered.--Except as provided in 
        subsection (b), this Act applies to any civil action brought in 
        any Federal or State court where such action affects interstate 
        commerce or implicates rights or interests that may be 
        protected by Congress under section 5 of the 14th amendment of 
        the United States Constitution and where the claimant seeks to 
        recover punitive damages under any theory for harm. Punitive 
        damages may, to the extent permitted by applicable State law, 
        be awarded against a person in such an action only if the 
        claimant establishes by clear and convincing evidence that 
        conduct of such person was carried out with a conscious, 
        flagrant indifference to the rights or safety of others and was 
        the proximate cause of the harm that is the subject of the 
        action.
    (b) Exceptions.--
            (1) In general.--The provisions of this Act shall not apply 
        to any person in a civil action described in subsection (a)(1) 
        if the misconduct for which punitive damages are awarded 
        against that person--
                    (A) caused harm that resulted in death, serious and 
                permanent physical scarring or disfigurement, loss of a 
                limb or organ, or serious and permanent physical 
impairment of an important bodily function;
                    (B) constitutes a crime of violence (as that term 
                is defined in section 16 of title 18, United States 
                Code) for which the defendant has been convicted in any 
                court;
                    (C) constitutes an act of terrorism for which the 
                defendant has been convicted in any court;
                    (D) constitutes a hate crime referred to in 
                subsection (b)(1) of the first section of the Hate 
                Crime Statistics Act (28 U.S.C 534 note) for which the 
                defendant has been convicted in any court;
                    (E) occurred at a time when the defendant was under 
                the influence (as determined pursuant to applicable 
                State law) of--
                            (i) intoxicating alcohol, or
                            (ii) any drug that may not lawfully be sold 
                        without a prescription or had been taken by the 
                        defendant other than in accordance with the 
                        terms of a lawful prescription, and
                if the defendant so being under the influence caused 
                the harm for which the civil action was brought; or
                    (F) constitutes a felony sexual offense, as defined 
                by applicable Federal or State law, for which the 
                defendant has been convicted in any court.
            (2) Question of law.--The applicability of this subsection 
        and what constitutes death, serious and permanent physical 
        scarring or disfigurement, loss of a limb or organ, or serious 
        and permanent physical impairment of an important bodily 
        function shall be a question of law for determination by the 
        court. The liability of any other person in such an action 
        shall be determined in accordance with this Act.

SEC. 5. PROPORTIONAL AWARDS.

    (a) Amount.--
            (1) In general.--The amount of punitive damages that may be 
        awarded to a claimant in any civil action that is subject to 
        this Act shall not exceed the greater of--
                    (A) 3 times the amount awarded to the claimant for 
                economic loss; or
                    (B) $250,000.
            (2) Special rule for small business and certain 
        individuals.--
                    (A) In general.--Notwithstanding paragraph (1), in 
                any civil action that is subject to this Act against an 
                individual whose net worth does not exceed $500,000 or 
                against an owner of an unincorporated business, or any 
                partnership, corporation, association, unit of local 
                government, or organization that has fewer than 25 
                full-time employees, the amount of punitive damages 
                shall not exceed the lesser of--
                            (i) 3 times the amount awarded to the 
                        claimant for economic loss; or
                            (ii) $250,000.
                    (B) Applicability.--For purposes of determining the 
                applicability of this paragraph to a corporation, the 
                number of employees of a subsidiary of a wholly owned 
                corporation shall include all employees of a parent 
                corporation or any subsidiary of that parent 
                corporation.
    (b) Application of Limitations by the Court.--The limitations in 
subsection (a) shall be applied by the court and shall not be disclosed 
to the jury.
    (c) Bifurcation at Request of Any Party.--
            (1) In general.--At the request of any party the trier of 
        fact in any action that is subject to this section shall 
        consider in a separate proceeding, held subsequent to the 
        determination of the amount of compensatory damages, whether 
        punitive damages are to be awarded for the harm that is the 
        subject of the action and the amount of the award.
            (2) Inadmissibility of evidence relative only to a claim of 
        punitive damages in a proceeding concerning compensatory 
        damages.--If any party requests a separate proceeding under 
        paragraph (1), in a proceeding to determine whether the 
        claimant may be awarded compensatory damages, any evidence, 
        argument, or contention that is relevant only to the claim of 
        punitive damages, as determined by applicable State law, shall 
        be inadmissible.

SEC. 6. PREEMPTION.

    Nothing in this Act shall be construed to--
            (1) create a cause of action for punitive damages;
            (2) supersede or alter any Federal law;
            (3) preempt or supersede any Federal or State law to the 
        extent such law would further limit the award of punitive 
        damages; or
            (4) modify or reduce the ability of courts to order 
        remittitur.

SEC. 7. FEDERAL CAUSE OF ACTION PRECLUDED.

    The district courts of the United States shall not have 
jurisdiction pursuant to this Act based on section 1331 or 1337 of 
title 28, United States Code.

SEC. 8. EFFECTIVE DATE.

    This Act applies to any civil action described in section 4 that is 
commenced on or after the date of enactment of this Act, without regard 
to whether the harm that is the subject of the action or the conduct 
that caused the harm occurred before such date of enactment.

Summary: Fairness in Punitive Damage Awards Act - Limits punitive damage awards in civil actions brought in Federal or State court that affect interstate commerce or implicate rights or interests that may be protected by the Congress under the 14th Amendment where such damages are sought under any theory for harm. Permits punitive damages, to the extent permitted by applicable State law, to be awarded against a person in such an action only if the claimant establishes by clear and convincing evidence that conduct of such person was carried out with a conscious, flagrant indifference to the rights or safety of others and was the proximate cause of the harm that is the subject of the action. Makes this Act inapplicable to any person in such action if the misconduct for which punitive damages are awarded: (1) caused harm that resulted in death, serious and permanent physical scarring or disfigurement, loss of a limb or organ, or serious and permanent physical impairment of an important bodily function. (2) occurred at a time when the defendant was under the influence of intoxicating alcohol or any drug that may not lawfully be sold without a prescription or had been taken by the defendant other than in accordance with the terms of a lawful prescription, and if the defendant so being under the influence caused the harm for which the civil action was brought. Or (3) constitutes a crime of violence, an act of terrorism, a hate crime, or a felony sexual offense, for which the defendant has been convicted in any court. Limits the amount of punitive damages that may be awarded to a claimant in any civil action that is subject to this Act: (1) to the greater of three times the amount awarded for economic loss or $250,000. Or (2) for an individual whose net worth does not exceed $500,000 or against an owner of an unincorporated business, or any partnership, corporation, association, unit of local government, or organization that has fewer than 25 full-time employees, to the lesser of three times the amount awarded for economic loss or $250,000. Directs that these limitations be applied by the court and not be disclosed to the jury. Directs the trier of fact, at the request of any party in such an action, to consider in a separate proceeding, held subsequent to the determination of the amount of compensatory damages, whether punitive damages are to be awarded and the amount thereof. Specifies that if any party requests a separate proceeding, in a proceeding to determine whether the claimant may be awarded compensatory damages, any evidence, argument, or contention that is relevant only to punitive damages, as determined by applicable State law, shall be inadmissible. Denies the US district courts jurisdiction pursuant to this Act based on Federal provisions regarding Federal question jurisdiction, or commerce and antitrust regulations and amount in controversy.