The Supreme Court, Punitive Damages and State Sovereignty

Punitive damages have become an extremely controversial topic in American public life. Businesses and the insurance industry claim that juries have "run wild" by awarding multi-million dollar verdicts. They argue that measures must be put in place to prevent such "excessive" awards, occasionally even arguing that punitive damages should be abolished. On the other side of the ledger, advocates for victims' rights assert that punitive damages are not in fact out of control and are necessary to ensure that wrongdoers change their ways. Thus, they largely reject calls for significant reform in this area. In the last twenty years in particular, the Supreme Court has also become involved in the punitive damages debate. For example, it has established a series of "guideposts" by which to judge whether awards of punitive damages are excessive as a matter of federal constitutional law under the Due Process Clause. This endeavor has been controversial principally as being a usurpation by the federal government of an area of the law traditionally left to the States. But this issue, while certainly interesting, is not the subject of my article. Rather, I address a largely neglected aspect of the Court's punitive damages jurisprudence, the use of principles of State sovereignty as an independent constitutional limitation on the size of punitive damage awards. This issue is by no means an insignificant one. The Court began its foray into the State sovereignty area in BMW v. Gore decided in 1996. The full import of the sovereignty rationale was not clear, however, until the Court decided State Farm v. Campbell last year. In Campbell, the Court struck down a punitive damage award against an insurance company in part because the jury had considered the defendants out-of-state activities when setting the amount of punitive damages to be awarded. According to the Court, the jury was constitutionally prohibited from considering such out-of-state conduct when setting the award. The Court reasoned that allowing the consideration of out-of-state conduct would sanction unconstitutional extraterritorial regulation by the State, something anathema in our federal system. I essentially address three major issues in the Article. First, I take time to unpack the Supreme Court's opinion in Campbell. As several commentators and lower courts have recognized, the opinion is not a model of judicial clarity. In particular, it is difficult to separate the various strands of constitutional doctrine in the case. This separation is critical, however, if one is to fully appreciate the potential impact of the State sovereignty rationale. Next, I critique the Court's reasoning underlying the State sovereignty rationale. I suggest that the rationale is not supported by either logic or precedent. A critique of the rationale is important because the issue of any federal constitutional limitation on punitive damages is still very much alive on the Supreme Court. Both Gore and Campbell were close decisions and at least two justices have indicated that they will not accord the decisions stare decisis effect. Thus, we can expect to see the Court revisit the matter in the Terms to come. Finally, and perhaps most importantly, I discuss the potential serious consequences flowing from the Court's adoption of the State sovereignty rationale. This discussion is in two parts. To begin with, I address the impact of the rationale on punitive damages. I suggest that the State sovereignty rationale will lessen the ability of States to experiment with punitive damages by, for example, implementing creative measures to deal with the distribution of awards to a wide array of victims. In addition, I point out that it is also likely that the rationale will undermine the justifications of punishment and deterrence that punitive damages are designed to serve. The potential consequences of the doctrine are not limited to punitive damages. In the concluding section of the Article, I also address the potential impact of the State sovereignty rationale on areas beyond punitive damages. Here, I principally discuss the impact of this doctrine on nationwide class actions and personal jurisdiction. I suggest that the Court's logic advanced in Gore and Campbell concerning State sovereignty cannot be easily restricted to punitive damages and can be expected to have as yet unrealized implications in these areas. In the final analysis, I conclude that the State sovereignty rationale for limiting punitive damages awards is unsupported by law. Moreover, the rationale carries with it serious dangers to both the utility of punitive damages as a remedial device and matters ranging far beyond the specific area of punitive damages. To the extent that the Court does not reverse its course, lower courts seeking to implement the State sovereignty rationale will need to be cautious so that their efforts do not result in more harm than good. I am hopeful that this Article will serve as a beginning of serious academic discussion of this quite important issue.