Opinion ID: 2570318
Heading Depth: 3
Heading Rank: 2

Heading: Ratio of Punitive Damages to Actual or Potential Harm

Text: While the high court had in BMW and earlier decisions already demanded that punitive damages bear a `reasonable relationship' to compensatory damages ( BMW, supra, 517 U.S. at p. 580, 116 S.Ct. 1589) and had in BMW made that relationship one of the three guideposts for due process evaluation ( id. at pp. 574-575, 580-581, 116 S.Ct. 1589), the decision in State Farm addressed this guidepost with markedly greater emphasis and more constraining language. If, in [ BMW ], the high court threw a lasso around the problem of what it had previously identified as `punitive damages awards `run wild'' [citation], in [ State Farm ] it tightened the noose considerably. ( Bardis v. Oates (2004) 119 Cal.App.4th 1, 19, 14 Cal. Rptr.3d 89.) In BMW, the court not only abjured drawing `a mathematical bright line,' but also observed that [i]n most cases, the ratio will be within a constitutionally acceptable range, disapproving only the breathtaking 500 to 1 ratio in the case before it. ( BMW, supra, 517 U.S. at p. 583, 116 S.Ct. 1589.) In State Farm, while still declin[ing] ... to impose a bright-line ratio which a punitive damages award cannot exceed, the court went on to hold that few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process. ( State Farm, supra, 538 U.S. at p. 425, 123 S.Ct. 1513.) The court also explained that past decisions and statutory penalties approving ratios of 3 or 4 to 1 were instructive as to the due process norm, and that while relatively high ratios could be justified when `a particularly egregious act has resulted in only a small amount of economic damages' [citation] ... [t]he converse is also true.... When compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee. ( Ibid. ) We understand the court's statement in State Farm that few awards significantly exceeding a single-digit ratio will satisfy due process to establish a type of presumption: ratios between the punitive damages award and the plaintiff's actual or potential compensatory damages significantly greater than 9 or 10 to 1 are suspect and, absent special justification (by, for example, extreme reprehensibility or unusually small, hard-to-detect or hard-to-measure compensatory damages), cannot survive appellate scrutiny under the due process clause. [7] As stated in Williams v. Conagra Poultry Company (8th Cir.2004) 378 F.3d 790, 799, a ratio significantly greater than single digits alerts the court to the need for special justification. (See also Bardis v. Oates, supra, 119 Cal.App.4th at p. 22, 14 Cal. Rptr.3d 89 [42-to-1 ratio cannot stand unless extraordinary factors are present]; McClain v. Metabolife International, Inc., supra, 259 F.Supp.2d at p. 1231 [red flag goes up when ratio exceeds single digit].) Multipliers less than nine or 10 are not, however, presumptively valid under State Farm. Especially when the compensatory damages are substantial or already contain a punitive element, lesser ratios can reach the outermost limit of the due process guarantee. ( State Farm, supra, 538 U.S. at p. 425, 123 S.Ct. 1513.) But we do not agree with the court in Diamond Woodworks, Inc. v. Argonaut Insurance Company (2003) 109 Cal.App.4th 1020, 1057, 135 Cal.Rptr.2d 736, that in the usual case the high court's decisions establish an outer constitutional limit of approximately four times the compensatory damages. Reviewing the history of double, triple and quadruple damages, the court in State Farm warned that these ratios are not binding,  but only instructive. ( State Farm, supra, at p. 425, 123 S.Ct. 1513 italics added.) Moreover, their instruction, what [t]hey demonstrate, is simply that [ s ] ingle digit multipliers are more likely to comport with due process than ratios of 500 to 1, as in BMW, or 145 to 1, as in State Farm. ( Ibid., italics added.) Measurement of damages is, of course, far from exact, a fact reflected in the high court's qualification of its single-digit presumption: only awards exceeding that level to a significant degree are constitutionally suspect. ( State Farm, supra, 538 U.S. at p. 425, 123 S.Ct. 1513.) As due process does not entitle a tortfeasor to notice of the precise amount the state may penalize him or her, [t]he judicial function is to police a range, not a point ( Mathias v. Accor Economy Lodging, Inc., supra, 347 F.3d at p. 678). The disputed $1.7 million punitive damages award to Simon was 340 times his $5,000 award of compensatory damages. This qualifies as a breathtaking multiplier ( BMW, supra, 517 U.S. at p. 583, 116 S.Ct. 1589), far outside the single-digit neighborhood ( Bocci v. Key Pharmaceuticals, Inc. (2003) 189 Or.App. 349, 76 P.3d 669, 675, mod. on other grounds and adhered to as mod., 190 Or.App. 407, 79 P.3d 908) suggested by the high court in State Farm. As we have already determined, moreover, the $5,000 compensatory award accurately measures the actual harm done to Simon, and Simon failed to demonstrate that San Paolo Holding's fraud threatened to cause him substantial additional harm. (See pt. I., ante. ) Nor can the 340-to-1 ratio here be justified on the ground that `a particularly egregious act has resulted in only a small amount of economic damages' ( State Farm, supra, 538 U.S. at p. 425, 123 S.Ct. 1513 italics added), for while San Paolo Holding's fraud qualified for punitive damages under California law, compared to conduct in other punitive damages cases it was not highly reprehensible. (See pt. II.A., ante; accord, Atkinson v. Orkin Exterminating Co., Inc. (2004) 361 S.C. 156, 604 S.E.2d 385, 393 [despite particularly low compensatory damages of $6,191, ratio of 127 to 1 not justified because conduct not sufficiently egregious].) Measured against the second BMW/State Farm guidepost, therefore, the punitive damages award is grossly excessive.