Opinion ID: 2625838
Heading Depth: 4
Heading Rank: 1

Heading: Disparity Between the Harm and the Punitive Award (Ratio)

Text: ¶ 54 The most common means of determining whether a punitive damage award is excessive under federal law is to look at the ratio of punitive to compensatory damages. See BMW, 517 U.S. at 580, 116 S.Ct. 1589. However, when conducting such an analysis, there is no simple mathematical formula, categorical approach, or constitutional line for determining an appropriate punitive to compensatory damage ratio. Id. at 582, 116 S.Ct. 1589. In fact, low awards of compensatory damages may properly support a higher ratio than high compensatory awards, if, for example, a particularly egregious act has resulted in only a small amount of economic damages. A higher ratio may also be justified in cases in which the injury is hard to detect or the monetary value of noneconomic harm might have been difficult to determine. Id. Overall, the ratio of punitive to compensatory damages needs to be reasonable considering the totality of the circumstances. Id. at 583; see also TXO Prod. Corp. v. Alliance Res. Corp., 509 U.S. 443, 458-62, 113 S.Ct. 2711, 125 L.Ed.2d 366 (1993) (upholding punitive damage award that was 526 times amount of compensatory damage award because of potential harm that could have occurred had defendant's fraudulent scheme worked); Pac. Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 23, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991) (upholding punitive damage award that was 200 times amount of plaintiff's out-of-pocket expenses based on reprehensibility of conduct and wealth of defendant). ¶ 55 Based on the language cited above, the trial court found that this BMW factor does not impose a rigid cap on punitive damages awards because in the Campbells' case, as in TXO, the injury is hard to detect and the potential for large harm is substantial. Specifically, the trial court relied on the following facts to justify the high punitive damage award: (1) State Farm never reported previous punitive damage awards to headquarters, even though prior awards included a Texas judgment of $100 million; (2) State Farm is an enormous company with massive wealth; (3) State Farm's actions, because of their clandestine nature, will be punished at most in one out of every 50,000 cases as a matter of statistical probability; and (4) State Farm's policies have affected vast numbers of other Utah customers. ¶ 56 While not contesting the validity of the finding that it is likely to be punished at most in one out of 50,000 cases, State Farm does challenge the other three justifications. Because State Farm's objections to considering relative wealth and the effects on other Utah customers are identical to its arguments against the punitive damage award under Crookston I, we again incorporate by reference our previous analysis of Crookston I factors one and four in section IA 1 and 4 of this opinion. ¶ 57 Turning to the remaining justification relied on by the trial court, we note that the court found that a prior $100 million punitive damage award against State Farm had not been reported to its national headquarters. State Farm argues that the award in this case need not be more severe than that award, citing Johansen v. Combustion Engineering, Inc., for the proposition that a punitive award does not need to be large enough to `make the company newsletter' and need `not attract the attention of the board of directors' in order to have a deterrent effect. 170 F.3d 1320, 1338 & n. 36 (11th Cir.1999), cert. denied sub nom. Combustion Eng'g. Inc. v. McGill, 528 U.S. 931, 120 S.Ct. 329, 145 L.Ed.2d 256 (1999). State Farm's reliance on Johansen is unfounded. First, unlike this case, Johansen did not involve punishing a company that had previously been assessed punitive damages for its illicit conduct. Rather, the punitive damage award issued in Johansen against the mining company was the first and only punishment imposed for its misconduct. Id. at 1336. ¶ 58 More importantly, State Farm misconstrues the holding of Johansen, which in fact stands for the proposition that larger awards are necessary for large corporations, and that company executives should be aware of imposed punitive sanctions. See id. at 1338-39. Specifically, Johansen states that in promoting deterrence, the economic wealth of a tortfeasor may be considered. A bigger award is needed to attract the... attention of a large corporation. ... It is not unlikely that having to pay ... punitive damages would not make the company newsletter. It should, however, attract the attention of whomever is in charge of the corporation's daily decisions ... and would, no doubt, bear heavily upon regional or local managers where failure to regard consequences would be expected to subject their employer to loss. Id. (citations and footnotes omitted and emphasis added). ¶ 59 Many large corporations are entities too powerful to be constrained by remedies provided by criminal and civil law. Michael Rustad & Thomas Koenig, The Historical Continuity of Punitive Damages Awards: Reforming the Tort Reformers, 42 Am. U.L.Rev. 1269, 1329-30 & n.299 (1993). In many cases, the public's only protection against exposure to fraudulent harmful conduct by such large, powerful corporations is the threat that sanctions imposed for misconduct will be sufficiently severe. Id. If such a threat is unavailable, punitive damage awards against large entities will not serve their deterrent and punitive purposes. See Crookston II, 860 P.2d at 941. ¶ 60 State Farm points out that in the wake of BMW, many lower courts have held unconstitutional far lower ratios of punitive to compensatory damages than exist here. State Farm cites eighteen cases where courts have reduced punitive damage awards after conducting a BMW analysis. Id. at 77-78. In contrast, the Campbells cite nine other cases upholding punitive damage awards where the ratio of punitive to compensatory damages is larger than or the same as the ratio in this case. ¶ 61 All the cases agree, however, that each court must analyze the facts of each case to ensure that the defendant's acts warrant the punitive damage award imposed. [11] In fact, the BMW court made it clear that the initial punitive damage award in that case (500 times the amount of plaintiff's damages) was not automatically invalid, but that it was unconstitutional because of the specific facts of the casei.e. the fraud was perpetrated without trickery or deceit, the available criminal and regulatory sanctions for comparable misconduct were minor, and some of the conduct for which BMW was being punished was legal in states other than Alabama. BMW, 517 U.S. at 582-84, 576-78, 572, 116 S.Ct. 1589. [12] ¶ 62 Like BMW, this case contains exceptional facts and circumstances. Here, however, they support a higher rather than a lower punitive damage award. State Farm's fraudulent conduct has been a consistent way of doing business for the last twenty years, directed specifically at some of society's most vulnerable groups. The likelihood of further misconduct by State Farm is great, given the fact that it has not changed its conduct despite a previous $100 million punitive damage award. Moreover, the effect on the Campbells warrants a large award, given that they had to live in fear of complete financial ruin for over eighteen months because of State Farm's refusal to settle their claim. Finally, the harm propagated by State Farm is extreme when compared to the statistical probability that State Farm is likely to be required to pay damages only once in 50,000 cases. Thus, because there are reasonable justifications for the large punitive damage award based upon the specific facts of this case, the ratio factor in BMW does not require the award to be reduced simply because the ratio of punitive to compensatory damages is high.