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 AND PURPOSES.

    (a) 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)(A) punitive damage verdicts are only the tip of the 
        iceberg because only a small percentage of all complaints filed 
        (1.6 percent according to a Department of Justice study in 
        1995) result in a jury verdict; and
            (B) the Rand Institute of Civil Justice calls the impact of 
        these verdicts on settlements the ``shadow effect'' of punitive 
        damages;
            (3) 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;
            (4) 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;
            (5) 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;
            (6) individual State legislatures 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;
            (7) it is the constitutional role of the national 
        Government to remove barriers to interstate commerce and to 
        protect due process rights;
            (8) 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;
            (9) establishing a rule of proportionality, in cases that 
        primarily involve financial injury, between the amount of 
punitive damages awarded and the amount of compensatory damages, as 15 
States have established, 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
            (10) permitting a maximum for each claimant recovery for 
        punitive damages of the greater of 3 times the amount of 
        economic loss or $250,000 is a balanced solution that would 
        reduce grossly excessive punitive damage awards by as much as 
        40 percent, according to the Rand Institute for Civil Justice.
    (b) Purposes.--Based upon the powers contained in Article I, 
section 8, clause 3 and section 5 of the 14th amendment of the United 
States Constitution, the purposes of this Act are to--
            (1) promote the free flow of goods and services and to 
        lessen burdens on interstate commerce; and
            (2) 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, the term--
            (1) ``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''--
                    (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) ``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;
            (4) ``harm'' means any legally cognizable wrong or injury 
        for which punitive damages may be imposed;
            (5) ``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;
            (6) ``person'' means any individual, corporation, company, 
        association, firm, partnership, society, joint stock company, 
        or any other entity (including any governmental entity);
            (7) ``punitive damages'' means damage awarded against any 
        person to punish or deter such person, or others, from engaging 
        in similar behavior in the future; and
            (8) ``qualified charity'' means any organization exempt 
        from filing information returns pursuant to section 6033(a) of 
        the Internal Revenue Code of 1986 as that exemption exists on 
        the effective date of this Act.

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, charitable or religious activities, 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 that did not result 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. Punitive damages 
        may, to the extent permitted by applicable State law, be 
        awarded against a person in such a case only if the claimant 
        establishes that the harm that is the subject of the action was 
        proximately caused by such person. Notwithstanding any other 
        provision of this Act, punitive damages may, to the extent 
        permitted by applicable State law, be awarded against a 
        qualified charity only if the claimant established by clear and 
        convincing evidence that the harm that is the subject of the 
        action was proximately caused by an intentionally tortious act 
        of such qualified charity.
            (2) Question of law.--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 the 
        court.
    (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) 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;
                    (B) constitutes an act of terrorism for which the 
                defendant has been convicted in any court;
                    (C) constitutes a hate crime (as that term is used 
                in the Hate Crime Statistics Act, Public Law 101-275; 
                104 Stat. 140; 28 U.S.C. 534 note) for which the 
                defendant has been convicted in any court;
                    (D) occurred at a time when the defendant was under 
                the influence (as determined pursuant to applicable 
                State law) of intoxicating alcohol or any drug that may 
                not lawfully be sold without a prescription and had 
                been taken by the defendant other than in accordance 
                with the terms of a lawful prescription; or
                    (E) 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 
        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.--
                    (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.

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, charitable or religious activities, or implicate rights or interests that may be protected by the Congress under the 14th Amendment, where such damages are sought for harm that did not result 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. Permits punitive damages, to the extent permitted by applicable State law, to be awarded against: (1) a person in such a case only if the claimant establishes that the harm that is the subject of the action was proximately caused by such person. And (2) a qualified charity only if the claimant established by clear and convincing evidence that the harm was proximately caused by an intentionally tortious act of such charity. Makes this Act inapplicable to any person in such action if the misconduct for which punitive damages are awarded: (1) 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 and had been taken by the defendant other than in accordance with the terms of a lawful prescription. Or (2) 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 to the claimant 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 to the claimant for economic loss or $250,000. Directs that these limitations be applied by the court and not be disclosed to the jury. 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.