II

105TH CONGRESS

1ST SESSION S. 1554

To provide for relief from excessive punitive damage awards in cases involving

primarily financial loss by establishing rules for proportionality between

the amount of punitive damages and the amount of economic loss.

IN THE SENATE OF THE UNITED STATES

NOVEMBER 13, 1997

Mr. HATCH (for himself and Mr. LIEBERMAN) introduced the following bill;

which was read twice and referred to the Committee on the Judiciary

A BILL

To provide for relief from excessive punitive damage awards

in cases involving primarily financial loss by establishing

rules for proportionality between the amount of punitive

damages and the amount of economic loss.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Fairness in Punitive

5 Damage Awards Act’’.

6 SEC. 2. FINDINGS AND PURPOSES.

7 (a) FINDINGS.—Congress finds that—
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1 (1) punitive damage awards in jury verdicts in

2 financial injury cases are a serious and growing

3 problem, and according to a Rand Institute for Civil

4 Justice study in 1997 of punitive damage verdicts

5 from calendar years 1985 through 1994 in States

6 that represent 25 percent of the United States popu7 lation—

8 (A) nearly 50 percent of all punitive dam9 age awards are made in financial injury cases

10 (those in which the plaintiff is alleging a finan11 cial injury only and is not alleging injuries to

12 either person or property);

13 (B) punitive damages are awarded in 1 in

14 every 7 financial injury verdicts overall and 1 in

15 every 5 financial injury cases in the State of

16 California;

17 (C) between calendar years 1985 through

18 1989 and calendar years 1990 through 1994,

19 the average punitive damage verdict in financial

20 injury cases increased from $3,400,000 to

21 $7,600,000;

22 (D) between calendar years 1985 through

23 1989 and calendar years 1990 through 1994,

24 the award of such damages at the 90th percent25 ile increased from $3,900,000 to $12,100,000;
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1 (E) between calendar years 1985 through

2 1989 and calendar years 1990 through 1994,

3 the total amount of punitive damages awarded

4 increased from $1,200,000,000 to

5 $2,300,000,000, for a 10-year total of

6 $3,500,000,000;

7 (F) punitive damages represent a very

8 large percentage of total damages awarded in

9 all financial injury verdicts, increasing from 44

10 percent to 59 percent during the period ana11 lyzed; and

12 (G) in the State of Alabama, punitive dam13 ages represent 82 percent of all damages

14 awarded in financial injury cases;

15 (2)(A) punitive damage verdicts are only the tip

16 of the iceberg because only a small percentage of all

17 complaints filed (1.6 percent according to a Depart18 ment of Justice study in 1995) result in a jury ver19 dict; and

20 (B) the Rand Institute of Civil Justice calls the

21 impact of these verdicts on settlements the ‘‘shadow

22 effect’’ of punitive damages;

23 (3) excessive, unpredictable, and often arbitrary

24 punitive damage awards have a direct and undesir25 able effect on interstate commerce by increasing the
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1 cost and decreasing the availability of goods and

2 services;

3 (4) as a result of excessive, unpredictable, and

4 often arbitrary punitive damage awards, consumers

5 have been adversely affected through the withdrawal

6 of products, producers, services, and service provid7 ers from the marketplace, and from excessive liabil8 ity costs passed on to consumers through higher

9 prices;

10 (5) excessive, unpredictable, and often arbitrary

11 punitive damage awards jeopardize the financial

12 well-being of many individuals and companies, par13 ticularly the Nation’s small businesses, and ad14 versely affect government and taxpayers;

15 (6) individual State legislatures can create only

16 a partial remedy to address these problems because

17 each State lacks the power to control the imposition

18 of punitive damages in other States;

19 (7) it is the constitutional role of the national

20 Government to remove barriers to interstate com21 merce and to protect due process rights;

22 (8) there is a need to restore rationality, cer23 tainty, and fairness to the award of punitive dam24 ages in order to protect against excessive, arbitrary,

25 and uncertain awards;
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1 (9) establishing a rule of proportionality, in

2 cases that primarily involve financial injury, between

3 the amount of punitive damages awarded and the

4 amount of compensatory damages, as 15 States have

5 established, would—

6 (A) be fair to both plaintiffs and defend7 ants; and

8 (B) address the constitutional objection of

9 the United States Supreme Court in BMW of

10 North America v. Gore 116 S. Ct. 1589 (1996)

11 to punitive damages that are grossly excessive

12 in relation to the harm suffered; and

13 (10) permitting a maximum for each claimant

14 recovery for punitive damages of the greater of 3

15 times the amount of economic loss or $250,000 is a

16 balanced solution that would reduce grossly excessive

17 punitive damage awards by as much as 40 percent,

18 according to the Rand Institute for Civil Justice.

19 (b) PURPOSES.—Based upon the powers contained in

20 Article I, section 8, clause 3 and section 5 of the 14th

21 amendment of the United States Constitution, the pur22 poses of this Act are to—

23 (1) promote the free flow of goods and services

24 and to lessen burdens on interstate commerce; and
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1 (2) uphold constitutionally protected due proc2 ess rights by placing reasonable limits on damages

3 over and above the actual damages suffered by a

4 claimant.

5 SEC. 3. DEFINITIONS.

6 For purposes of this Act, the term—

7 (1) ‘‘act of terrorism’’ means any activity

8 that—

9 (A)(i) is a violation of the criminal laws of

10 the United States or any State; or

11 (ii) would be a criminal violation if com12 mitted within the jurisdiction of the United

13 States or any State; and

14 (B) appears to be intended to intimidate or

15 coerce a civilian population, to influence the

16 policy of a government by intimidation or coer17 cion, or to affect the conduct of a government

18 by assassination or kidnaping;

19 (2) ‘‘claimant’’—

20 (A) means any person who brings a civil

21 action that is subject to this Act and any per22 son on whose behalf such an action is brought;

23 and

24 (B) includes—
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1 (i) a claimant’s decedent if such ac2 tion is brought through or on behalf of an

3 estate; and

4 (ii) a claimant’s legal guardian if such

5 action is brought through or on behalf of

6 a minor or incompetent;

7 (3) ‘‘economic loss’’ means objectively verifiable

8 monetary losses including medical expenses, loss of

9 earnings, burial costs, loss of use of property, costs

10 of repair or replacement, costs of obtaining sub11 stitute domestic services, loss of employment, and

12 loss of business or employment opportunities, to the

13 extent such recovery is allowed under applicable

14 Federal or State law;

15 (4) ‘‘harm’’ means any legally cognizable wrong

16 or injury for which punitive damages may be im17 posed;

18 (5) ‘‘interstate commerce’’ means commerce

19 among the several States or with foreign nations, or

20 in any territory of the United States or in the Dis21 trict of Columbia, or between any such territory and

22 another, or between any such territory and any

23 State or foreign nation, or between the District of

24 Columbia and any State or territory or foreign na25 tion;
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1 (6) ‘‘person’’ means any individual, corporation,

2 company, association, firm, partnership, society,

3 joint stock company, or any other entity (including

4 any governmental entity);

5 (7) ‘‘punitive damages’’ means damage awarded

6 against any person to punish or deter such person,

7 or others, from engaging in similar behavior in the

8 future; and

9 (8) ‘‘qualified charity’’ means any organization

10 exempt from filing information returns pursuant to

11 section 6033(a) of the Internal Revenue Code of

12 1986 as that exemption exists on the effective date

13 of this Act.

14 SEC. 4. APPLICABILITY.

15 (a) GENERAL RULE.—

16 (1) CIVIL ACTIONS COVERED.—Except as pro17 vided in subsection (b), this Act applies to any civil

18 action brought in any Federal or State court where

19 such action affects interstate commerce, charitable

20 or religious activities, or implicates rights or inter21 ests that may be protected by Congress under sec22 tion 5 of the 14th amendment of the United States

23 Constitution and where the claimant seeks to recover

24 punitive damages under any theory for harm that

25 did not result in death, serious and permanent phys-
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1 ical scarring or disfigurement, loss of a limb or

2 organ, or serious and permanent physical impair3 ment of an important bodily function. Punitive dam4 ages may, to the extent permitted by applicable

5 State law, be awarded against a person in such a

6 case only if the claimant establishes that the harm

7 that is the subject of the action was proximately

8 caused by such person. Notwithstanding any other

9 provision of this Act, punitive damages may, to the

10 extent permitted by applicable State law, be awarded

11 against a qualified charity only if the claimant estab12 lished by clear and convincing evidence that the

13 harm that is the subject of the action was proxi14 mately caused by an intentionally tortious act of

15 such qualified charity.

16 (2) QUESTION OF LAW.—What constitutes

17 death, serious and permanent physical scarring or

18 disfigurement, loss of a limb or organ, or serious

19 and permanent physical impairment of an important

20 bodily function shall be a question of law for the

21 court.

22 (b) EXCEPTIONS.—

23 (1) IN GENERAL.—The provisions of this Act

24 shall not apply to any person in a civil action de25 scribed in subsection (a)(1) if the misconduct for
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1 which punitive damages are awarded against that

2 person—

3 (A) constitutes a crime of violence (as that

4 term is defined in section 16 of title 18, United

5 States Code) for which the defendant has been

6 convicted in any court;

7 (B) constitutes an act of terrorism for

8 which the defendant has been convicted in any

9 court;

10 (C) constitutes a hate crime (as that term

11 is used in the Hate Crime Statistics Act, Public

12 Law 101–275; 104 Stat. 140; 28 U.S.C. 534

13 note) for which the defendant has been con14 victed in any court;

15 (D) occurred at a time when the defendant

16 was under the influence (as determined pursu17 ant to applicable State law) of intoxicating alco18 hol or any drug that may not lawfully be sold

19 without a prescription and had been taken by

20 the defendant other than in accordance with the

21 terms of a lawful prescription; or

22 (E) constitutes a felony sexual offense, as

23 defined by applicable Federal or State law, for

24 which the defendant has been convicted in any

25 court.
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1 (2) QUESTION OF LAW.—The applicability of

2 this subsection shall be a question of law for deter3 mination by the court. The liability of any other per4 son in such an action shall be determined in accord5 ance with this Act.

6 SEC. 5. PROPORTIONAL AWARDS.

7 (a) AMOUNT.—

8 (1) IN GENERAL.—The amount of punitive

9 damages that may be awarded to a claimant in any

10 civil action that is subject to this Act shall not ex11 ceed the greater of—

12 (A) 3 times the amount awarded to the

13 claimant for economic loss; or

14 (B) $250,000.

15 (2) SPECIAL RULE.—

16 (A) IN GENERAL.—Notwithstanding para17 graph (1), in any civil action that is subject to

18 this Act against an individual whose net worth

19 does not exceed $500,000 or against an owner

20 of an unincorporated business, or any partner21 ship, corporation, association, unit of local gov22 ernment, or organization that has fewer than

23 25 full-time employees, the amount of punitive

24 damages shall not exceed the lesser of—
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1 (i) 3 times the amount awarded to the

2 claimant for economic loss; or

3 (ii) $250,000.

4 (B) APPLICABILITY.—For purposes of de5 termining the applicability of this paragraph to

6 a corporation, the number of employees of a

7 subsidiary of a wholly owned corporation shall

8 include all employees of a parent corporation or

9 any subsidiary of that parent corporation.

10 (b) APPLICATION OF LIMITATIONS BY THE COURT.—

11 The limitations in subsection (a) shall be applied by the

12 court and shall not be disclosed to the jury.

13 SEC. 6. PREEMPTION.

14 Nothing in this Act shall be construed to—

15 (1) create a cause of action for punitive dam16 ages;

17 (2) supersede or alter any Federal law;

18 (3) preempt or supersede any Federal or State

19 law to the extent such law would further limit the

20 award of punitive damages; or

21 (4) modify or reduce the ability of courts to

22 order remittitur.
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1 SEC. 7. FEDERAL CAUSE OF ACTION PRECLUDED.

2 The district courts of the United States shall not

3 have jurisdiction pursuant to this Act based on section

4 1331 or 1337 of title 28, United States Code.

5 SEC. 8. EFFECTIVE DATE.

6 This Act applies to any civil action described in sec7 tion 4 that is commenced on or after the date of enactment

8 of this Act, without regard to whether the harm that is

9 the subject of the action or the conduct that caused the

10 harm occurred before such date of enactment.

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