I

105TH CONGRESS

2D SESSION H. R. 4785

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 HOUSE OF REPRESENTATIVES

OCTOBER 10, 1998

Mr. HYDE (for himself and Mr. MORAN of Virginia) introduced the following

bill; which was 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.

7 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) excessive, unpredictable, and often arbitrary

16 punitive damage awards have a direct and undesir17 able effect on interstate commerce by increasing the

18 cost and decreasing the availability of goods and

19 services;

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

21 often arbitrary punitive damage awards, consumers

22 have been adversely affected through the withdrawal

23 of products, producers, services, and service provid24 ers from the marketplace, and from excessive liabil-
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1 ity costs passed on to consumers through higher

2 prices;

3 (4) excessive, unpredictable, and often arbitrary

4 punitive damage awards jeopardize the financial

5 well-being of many individuals and companies, par6 ticularly the Nation’s small businesses, and ad7 versely affect government and taxpayers;

8 (5) individual State legislatures, 5 of whom

9 have banned punitive damages and 14 others of

10 whom have place limitations on the amount of such

11 awards, can create only a partial remedy to address

12 these problems because each State lacks the power

13 to control the imposition of punitive damages in

14 other States;

15 (6) it is the constitutional role of the national

16 Government to remove barriers to interstate com17 merce and to protect due process rights;

18 (7) there is a need to restore rationality, cer19 tainty, and fairness to the award of punitive dam20 ages in order to protect against excessive, arbitrary,

21 and uncertain awards;

22 (8) establishing a rule of proportionality, in

23 cases that primarily involve financial injury, between

24 the amount of punitive damages awarded and the

25 amount of economic damages would—
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1 (A) be fair to both plaintiffs and defend2 ants; and

3 (B) address the constitutional objection of

4 the United States Supreme Court in BMW of

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

6 to punitive damages that are grossly excessive

7 in relation to the harm suffered; and

8 (9) based upon the powers contained in Article

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

10 amendment of the United States Constitution, this

11 Act will—

12 (A) promote the free flow of goods and

13 services and lessen the burdens on interstate

14 commerce; and

15 (B) uphold constitutionally protected due

16 process rights by placing reasonable limits on

17 damages over and above the actual damages

18 suffered by a claimant.

19 SEC. 3. DEFINITIONS.

20 For purposes of this Act:

21 (1) ACT OF TERRORISM.—The term ‘‘act of ter22 rorism’’ means any activity that—

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

24 the United States or any State; or
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1 (ii) would be a criminal violation if com2 mitted within the jurisdiction of the United

3 States or any State; and

4 (B) appears to be intended to intimidate or

5 coerce a civilian population, to influence the

6 policy of a government by intimidation or coer7 cion, or to affect the conduct of a government

8 by assassination or kidnaping.

9 (2) CLAIMANT.—The term ‘‘claimant’’—

10 (A) means any person who brings a civil

11 action that is subject to this Act and any per12 son on whose behalf such an action is brought;

13 and

14 (B) includes—

15 (i) a claimant’s decedent if such ac16 tion is brought through or on behalf of an

17 estate; and

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

19 action is brought through or on behalf of

20 a minor or incompetent.

21 (3) COMPENSATORY DAMAGES.—The term

22 ‘‘compensatory damages’’ means damages awarded

23 for economic and non-economic loss.

24 (4) ECONOMIC LOSS.—The term ‘‘economic

25 loss’’ means objectively verifiable monetary losses in-
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1 cluding medical expenses, loss of earnings, burial

2 costs, loss of use of property, costs of repair or re3 placement, costs of obtaining substitute domestic

4 services, loss of employment, and loss of business or

5 employment opportunities, to the extent such recov6 ery is allowed under applicable Federal or State law.

7 (5) HARM.—The term ‘‘harm’’ means any le8 gally cognizable wrong or injury for which punitive

9 damages may be imposed.

10 (6) INTERSTATE COMMERCE.—The term ‘‘inter11 state commerce’’ means commerce among the several

12 States or with foreign nations, or in any territory of

13 the United States or in the District of Columbia, or

14 between any such territory and another, or between

15 any such territory and any State or foreign nation,

16 or between the District of Columbia and any State

17 or territory or foreign nation.

18 (7) PERSON.—The term ‘‘person’’ includes any

19 governmental entity.

20 (8) PUNITIVE DAMAGES.—The term ‘‘punitive

21 damages’’ means damage awarded against any per22 son to punish or deter such person, or others, from

23 engaging in similar behavior in the future.

24 SEC. 4. APPLICABILITY.

25 (a) GENERAL RULE.—
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1 (1) CIVIL ACTIONS COVERED.—Except as pro2 vided in subsection (b), this Act applies to any civil

3 action brought in any Federal or State court where

4 such action affects interstate commerce or implicates

5 rights or interests that may be protected by Con6 gress under section 5 of the 14th amendment of the

7 United States Constitution and where the claimant

8 seeks to recover punitive damages under any theory

9 for harm. Punitive damages may, to the extent per10 mitted by applicable State law, be awarded against

11 a person in such an action only if the claimant es12 tablishes by clear and convincing evidence that con13 duct of such person was carried out with a con14 scious, flagrant indifference to the rights or safety of

15 others and was the proximate cause of the harm

16 that is the subject of the action.

17 (b) EXCEPTIONS.—

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

19 shall not apply to any person in a civil action de20 scribed in subsection (a)(1) if the misconduct for

21 which punitive damages are awarded against that

22 person—

23 (A) caused harm that resulted in death, se24 rious and permanent physical scarring or dis25 figurement, loss of a limb or organ, or serious
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1 and permanent physical impairment of an im2 portant bodily function;

3 (B) 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 (C) constitutes an act of terrorism for

8 which the defendant has been convicted in any

9 court;

10 (D) constitutes a hate crime referred to in

11 subsection (b)(1) of the first section of the

12 Hate Crime Statistics Act (28 U.S.C 534 note)

13 for which the defendant has been convicted in

14 any court;

15 (E) occurred at a time when the defendant

16 was under the influence (as determined pursu17 ant to applicable State law) of—

18 (i) intoxicating alcohol, or

19 (ii) any drug that may not lawfully be

20 sold without a prescription or had been

21 taken by the defendant other than in ac22 cordance with the terms of a lawful pre23 scription, and
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1 if the defendant so being under the influence

2 caused the harm for which the civil action was

3 brought; or

4 (F) constitutes a felony sexual offense, as

5 defined by applicable Federal or State law, for

6 which the defendant has been convicted in any

7 court.

8 (2) QUESTION OF LAW.—The applicability of

9 this subsection and what constitutes death, serious

10 and permanent physical scarring or disfigurement,

11 loss of a limb or organ, or serious and permanent

12 physical impairment of an important bodily function

13 shall be a question of law for determination by the

14 court. The liability of any other person in such an

15 action shall be determined in accordance with this

16 Act.

17 SEC. 5. PROPORTIONAL AWARDS.

18 (a) AMOUNT.—

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

20 damages that may be awarded to a claimant in any

21 civil action that is subject to this Act shall not ex22 ceed the greater of—

23 (A) 3 times the amount awarded to the

24 claimant for economic loss; or

25 (B) $250,000.
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1 (2) SPECIAL RULE FOR SMALL BUSINESS AND

2 CERTAIN INDIVIDUALS.—

3 (A) IN GENERAL.—Notwithstanding para4 graph (1), in any civil action that is subject to

5 this Act against an individual whose net worth

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

7 of an unincorporated business, or any partner8 ship, corporation, association, unit of local gov9 ernment, or organization that has fewer than

10 25 full-time employees, the amount of punitive

11 damages shall not exceed the lesser of—

12 (i) 3 times the amount awarded to the

13 claimant for economic loss; or

14 (ii) $250,000.

15 (B) APPLICABILITY.—For purposes of de16 termining the applicability of this paragraph to

17 a corporation, the number of employees of a

18 subsidiary of a wholly owned corporation shall

19 include all employees of a parent corporation or

20 any subsidiary of that parent corporation.

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

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

23 court and shall not be disclosed to the jury.

24 (c) BIFURCATION AT REQUEST OF ANY PARTY.—
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1 (1) IN GENERAL.—At the request of any party

2 the trier of fact in any action that is subject to this

3 section shall consider in a separate proceeding, held

4 subsequent to the determination of the amount of

5 compensatory damages, whether punitive damages

6 are to be awarded for the harm that is the subject

7 of the action and the amount of the award.

8 (2) INADMISSIBILITY OF EVIDENCE RELATIVE

9 ONLY TO A CLAIM OF PUNITIVE DAMAGES IN A PRO10 CEEDING CONCERNING COMPENSATORY DAMAGES.—

11 If any party requests a separate proceeding under

12 paragraph (1), in a proceeding to determine whether

13 the claimant may be awarded compensatory dam14 ages, any evidence, argument, or contention that is

15 relevant only to the claim of punitive damages, as

16 determined by applicable State law, shall be inadmis17 sible.

18 SEC. 6. PREEMPTION.

19 Nothing in this Act shall be construed to—

20 (1) create a cause of action for punitive dam21 ages;

22 (2) supersede or alter any Federal law;

23 (3) preempt or supersede any Federal or State

24 law to the extent such law would further limit the

25 award of punitive damages; or
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1 (4) modify or reduce the ability of courts to

2 order remittitur.

3 SEC. 7. FEDERAL CAUSE OF ACTION PRECLUDED.

4 The district courts of the United States shall not

5 have jurisdiction pursuant to this Act based on section

6 1331 or 1337 of title 28, United States Code.

7 SEC. 8. EFFECTIVE DATE.

8 This Act applies to any civil action described in sec9 tion 4 that is commenced on or after the date of enactment

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

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

12 harm occurred before such date of enactment.

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