Opinion ID: 1434840
Heading Depth: 3
Heading Rank: 4

Heading: Unconstitutionally Excessive Punitive Damages (Issue 9)

Text: Westbound's $3.5 million punitive damages award is unconstitutionally excessive and violates due process. After conducting a de novo review, see Bach v. First Union Nat'l Bank, 486 F.3d 150, 153 (6th Cir.2007), we conclude that this award was excessive in light of the Supreme Court's three guideposts for evaluating the constitutionality of a punitive damages awardthe reprehensibility of defendants' conduct, the disparity between plaintiffs' harm and the award, and a comparison of the award and civil penalties in comparable cases. See State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 418, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003); BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 575, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996). [12]
Defendants' conduct was not so reprehensible as to justify a $3.5 million punitive damage award. Perhaps the most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant's conduct. Gore, 517 U.S. at 575, 116 S.Ct. 1589. The Supreme Court has instructed courts to determine the reprehensibility of a defendant by considering whether: the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident. State Farm, 538 U.S. at 419, 123 S.Ct. 1513. The existence of any one of these factors weighing in favor of a plaintiff may not be sufficient to sustain a punitive damages award; and the absence of all of them renders any award suspect. Id. Only one of these factors is present in this casethe harm was the result of intentional malice or deceit. The jury concluded that defendants acted willfully in light of evidence that defendants ignored pre-litigation letters and re-released the album knowing that it contained an unauthorized sample. Defendants continue to argue that the use of the sample was due to a rogue producer (Harvey), that they did not receive the pre-litigation letters, and that they re-released the album under the impression that the present lawsuit would be settled. The jury, however, rejected these arguments and found that defendants acted willfully. Although not a strong showing of intentional malice or deceit, defendants' conduct was still somewhat reprehensible. None of the other reprehensibility factors are present. First, the harm in this case (copyright infringement) was purely economic and did not threaten the health or safety of others (and Westbound does not argue otherwise). Second, Westbound is not a financially vulnerable victim. Westbound argues that it is financially vulnerable because it is a small company that depends almost entirely on income from sampling, because defendants infringed Singing in the Morning instead of Jimi Hendrix's Power of Love, and because defendants had financial clout and strength in the music industry worldwide. Despite Westbound's size, Westbound has been a plaintiff in numerous similar lawsuits, and thus has been able to protect its rights in the courts. The fact that Westbound depends on income from sampling suggests that Westbound is not financially vulnerable, as its business model requires it vigilantly to sue on its copyrights. Defendants' refusal to use the Jimi Hendrix sample cuts both waysit could mean that defendants actually tried to avoid copyright infringement, or it could mean, as Westbound argues, that defendants only avoided infringing copyrights owned by the powerfulbut Westbound offers no evidence that the copyright owner of Power of Love was in a stronger financial situation than Westbound, a company that has proven its ability to protect its rights. Finally, defendants' wealth cannot justify an otherwise unconstitutional punitive damages award, State Farm, 538 U.S. at 427, 123 S.Ct. 1513, and thus should not be given great weight, Clark v. Chrysler Corp., 436 F.3d 594, 604 (6th Cir.2006). Finally, there is no evidence that defendants' infringement was one of a repeated number of actions. The repeated conduct factor `require[s] that the similar reprehensible conduct be committed against various different parties rather than repeated reprehensible acts within the single transaction with the plaintiff.' Chicago Title Ins. Corp. v. Magnuson, 487 F.3d 985, 1000 (6th Cir.2007) (quoting Bach v. First Union Nat'l Bank, 149 Fed.Appx. 354, 356 (6th Cir.2005)). Here, Westbound argues that defendants' infringement involved repeated actions because defendants authorized the release of the Ready to Die album without confirming that all samples were legal and sampled Singing in the Morning on another track on the album. Westbound's first argument does not refer to other unlawful infringements, only the possibility that there were such acts (and defendants' indifference to that possibility). The second argument refers to the same transaction against the same plaintiffthe use of samples of Singing in the Morning on the Ready to Die album. Westbound also states that it is patently unfair for defendants to argue that they did not repeat the illegal sampling because defendants objected during trial to any references to other unauthorized samples. It was Westbound's obligation to introduce evidence of other unauthorized samples, and even though the district court excluded certain evidence of other ongoing lawsuits against defendants, Westbound fails to challenge those evidentiary rulings on appeal. In this case where only one of the reprehensibility factors is present, a ratio in the range of 1:1 to 2:1 is all that due process will allow. This conclusion is apparent from our court's precedent. In Clark v. Chrysler Corp ., this court held that a punitive damages award of $3 million was unconstitutional in light of a damages verdict of approximately $471,258.26, only 50% of which the plaintiff was awarded (pursuant to comparative negligence principles), where only the fact that the conduct resulted in physical harm, notably, the loss of life, weighed in favor of reprehensibility. 436 F.3d at 601, 605, 608 (Opinion of Restani, J.); 436 F.3d at 612-14 (Kennedy, J., concurring in part and concurring in the judgment). The court instructed the district court to enter a punitive damage award of approximately $471,258.26, which Judge Restani concluded was appropriate after applying a 2:1 ratio to the plaintiff's 50% share of compensatory damages, id. at 608 (Opinion of Restani, J.), and Judge Kennedy concluded was appropriate after applying a 1:1 ratio to the total compensatory damage award. Id. at 613-14 (Kennedy, J., concurring in part and concurring in the judgment). Also, in Bach v. First Union National Bank, this court, after having previously decided that a punitive damages award of approximately $2.6 million on top of a $400,000 compensatory damages award was unconstitutionally excessive because the only reprehensibility factor that weighed in favor of a large punitive damages award was that plaintiff, an elderly widow, was a vulnerable victim, held that the district court's remitted punitive damages award of approximately $2.2 million was still excessive and ordered the district court to remit punitive damages to $400,000. 486 F.3d at 154-56. Our conclusion is supported by a case from the Eighth Circuit that concluded that a 1:1 ratio was appropriate where the compensatory damages award was large and the defendant's conduct was more reprehensible than in this case. In Williams v. ConAgra Poultry Co., the court reversed a punitive damages award of approximately $6 million, which was on top of a $600,000 compensatory damages award for a racial harassment claim under § 1981. 378 F.3d 790, 792-93 (8th Cir. 2004). The court concluded that the district court improperly relied on evidence of non-similar acts of harassment, but that the defendant's disparate treatment of plaintiff was still reprehensible in light of evidence that defendant extended certain benefits to white managers and employees that it did not offer to black managers and employees. Id. at 797-98. The court also considered the fact that Title VII capped punitive damages at $300,000, and that the $600,000 in compensatory damages was a lot of money, and held that defendant's conduct was not so egregiously reprehensible to justify a punitive damages award of more than $600,000. Id. at 798-99.
The disparity between compensatory and punitive damages in this case further supports the conclusion that the punitive damages award is unconstitutional, for three reasons. First, the ratio of the overall damages award to the punitive damages awardapproximately 9.5:1 ($3.5 million / $366,939)is large. Although the Supreme Court has repeatedly rejected the use of bright-line rules, it has cautioned that few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process, State Farm, 538 U.S. at 425, 123 S.Ct. 1513, and it has noted that an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety. Id. (citing Pac. Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 23-24, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991)); see also Clark, 436 F.3d at 606. Second, the compensatory damage award itself is very large. The Supreme Court has made clear that [w]hen compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee. State Farm, 538 U.S. at 425, 123 S.Ct. 1513. In Bach, this court concluded that a $400,000 compensatory damages award was substantial and thus, applying the hypothetical scenario described in State Farm, where the plaintiff has received a substantial compensatory damages award, and a ratio of 1:1 or something near to it is an appropriate result, instructed the district court to enter an order of remittitur reducing the punitive damages award to no more than $400,000. 486 F.3d at 156-57. Also, in Pollard v. E.I. DuPont De Nemours, Inc., this court affirmed a punitive damages award of $2.5 million that the district court added to a total compensatory damages award of $2.2 million, which included approximately $1.2 million in back and front pay, because the ratio (1:1 overall and 2:1 when back and front pay were excluded) was close to the 1-to-1 ratio mentioned in [ State Farm ] for the largest [compensatory] awards. 412 F.3d 657, 666-68 (6th Cir.2005). In the instant case, the amount of compensatory damages that Westbound was awarded, $366,939, is large and approximately the same amount as that awarded in Bach. See Bach, 486 F.3d at 156. Third, the compensatory damages award in this case included a punitive element. The actual harm that Westbound suffered is reflected in the amount of licensing fees that Westbound lost because of the infringement. In State Farm, the Supreme Court noted that a large punitive damages award is not justified where a compensatory damages award includes a punitive element that is duplicated in the punitive damages award. 538 U.S. at 426, 123 S.Ct. 1513. Under the federal Copyright Act, an infringer is liable for the copyright owner's actual damages and the profits of the infringer. See 17 U.S.C. § 504. This dual recovery of plaintiff's damages and defendant's profits serves two distinct purposes: damages compensate the copyright owner whereas profits `are awarded to prevent the infringer from unfairly benefitting from a wrongful act.' Hamil Am., Inc. v. GFI, 193 F.3d 92, 103 (2d Cir.1999) (quoting H.R.Rep. No. 94-1476, at 161 (1976), reprinted in 17 U.S.C.A. § 504 at 146 (West 1996)). The purpose of awarding a plaintiff the defendant's profits from copyright infringement, therefore, overlaps substantially with the goals of punitive damages awards. It is undisputed here that the jury, in awarding Westbound damages under New York common law, followed the same formula and awarded actual damages plus profits. Westbound's actual damages from the infringement were lost licensing fees of $43,478 (without interest) and $51,946 (with interest). Accordingly, the ratio of the punitive damages award and the non-punitive element of the compensatory damages award is very high. Even if we were to accept Westbound's argument that the correct ratio is 3.5:1which it calculates by including Bridgeport's share of compensatory damages ($366,939), even though Bridgeport elected statutory damages, and interest ($276,763.93)the ratio indicates that the award is excessive. If these additional amounts were included within the compensatory damages award, that award would be significantly larger and, as discussed above, a substantial compensatory damages award means that a lower ratio is needed to satisfy the requirements of due process. See State Farm, 538 U.S. at 425, 123 S.Ct. 1513. In addition, the smaller ratio would not change the fact, also discussed above, that the compensatory damages award included a large punitive element. [13]
Finally, the amount of statutory damages available under the federal Copyright Act contributes to the conclusion that the punitive damages award in this case was unconstitutional. The Copyright Act provides that a plaintiff may elect statutory damages in lieu of actual damages and profits, and may ordinarily receive no more than $30,000 in statutory damages. 17 U.S.C. § 504(c)(1). But if the plaintiff proves that the infringement was committed willfully, the plaintiff may receive statutory damages of up to $150,000. Id. § 504(c)(2). Accordingly, the ratio of the punitive portion to the compensatory portion of statutory damages under the Act is 4:1 (($150,000-$30,000):$30,000). Of course, $150,000 is the maximum allowable, and thus would be the largest award that a victim of copyright infringement could receive irrespective of the reprehensibility of an infringer's conduct. Here, defendants' conduct, although willful, was not highly reprehensible. In addition, as discussed above, the size of the allowable ratio fluctuates with the size of the compensatory damages award, and thus the 4:1 ratio in the Act suggests that a smaller ratio for a larger damages award is appropriate.
Given the large compensatory damages award of $366,939, a substantial portion of which contained a punitive element, and the low level of reprehensibility of defendants' conduct, a ratio of closer to 1:1 or 2:1 is all that due process can tolerate in this case. Therefore, we remand to the district court for a remittitur of the punitive damages verdict (or a new trial). See Bach, 149 Fed.Appx. at 367.