Opinion ID: 3031374
Heading Depth: 2
Heading Rank: 3

Heading: Amount of Punitive Damages

Text: [9] ARCO argues that the $5 million in punitive damages awarded by the jury was excessive in light of BMW of North America, Inc. v. Gore29 and In re Exxon Valdez.30 We review the excessiveness of punitive damages de novo.31 The guideposts we follow are: (1) the degree of reprehensibility, (2) the disparity between the harm suffered and the punitive damages award, and (3) the difference between this remedy and the civil penalties authorized or imposed in comparable cases.32 The gist of ARCO’s argument is that the harm to Flying B was purely economic, and that the amount of punitive damages is too great relative to the amount of economic damages awarded. As to the amount of punitive damages, ARCO’s argument is partially correct. [10] State Farm Mutual Automobile Insurance Co. v. Campbell33 enumerates the factors to be used when evaluating the reprehensibility of a defendant’s conduct. We look to 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.”34 Here the harm to Flying B was economic and did not 28 Swinton, 270 F.3d at 810-11. 29 BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996). 30 In re Exxon Valdez, 270 F.3d 1215 (9th Cir. 2001). 31 Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 436 (2001). 32 BMW, 517 U.S. at 574-75. 33 State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003). 34 Id. at 419 (citing BMW, 517 U.S. at 576-77). BAINS LLC v. ARCO PRODUCTS CO. 4381 evince reckless disregard of health or safety. More than in Exxon Valdez, where we noted that the wrongdoing did not kill anyone,35 here there was no threat of physical harm. That reduces reprehensibility. On the other hand, the conduct was not an isolated incident but repeated, the target was highly vulnerable financially, and the harm resulted from intentional malicious conduct. An Exxon oil tanker that performs a socially valuable task can accidentally run aground causing damage. By contrast there can be no excuse for intentional, repeated ethnic harassment, so the reprehensibility here is worse than conduct that might have some legitimate purpose. In Exxon Valdez, we held that “[r]eprehensibility should be discounted if defendants act promptly and comprehensively to ameliorate any harm they cause in order to encourage such socially beneficial behavior.”36 Here, given ARCO’s clear failure to remedy or even address the discriminatory effects of its employee’s conduct, the jury could properly have concluded that punitive damages were necessary to prevent such discrimination from occurring in the future.37 As to the other two BMW factors, the disparity between the harm suffered and the punitive damages award, and the difference between this remedy and civil penalties authorized or imposed in comparable cases,38 ARCO is on stronger ground. On the facts of this case, in determining the correct amount of punitive damages, the jury could properly consider not only the one dollar in nominal damages awarded for discrimination under § 1981, but also the $50,000 in compensatory damages awarded for breach of contract. The conduct was intertwined and the jury could conclude that, even if Tim Reichert would have terminated Flying B based on the safety reports that Al Lawrence gave him, those safety reports would never have 35 In re Exxon Valdez, 270 F.3d at 1242-43. 36 Id. at 1242. 37 See State Farm, 538 U.S. at 419. 38 BMW, 517 U.S. at 574-75. 4382 BAINS LLC v. ARCO PRODUCTS CO. come to Reichert had Lawrence not decided to back up his racist leadman or to exercise his authority to lock Flying B out of the terminal. Thus we take $50,000 as the harm suffered. Flying B argues that because “potential harm” may properly be considered under TXO Production Corp. v. Alliance Resources Corp.,39 a much higher punitive damages award is appropriate. But TXO was speaking of the potential harm “if the wrongful plan had succeeded, as well as the possible harm to other victims.”40 Here the wrongful conduct did succeed. It is not as though Davis had fired a shot at Flying B and missed. Davis bragged that he had “gotten rid of those ragheads.” As for the harm to the individual drivers, the award to Flying B did not impair their own rights to sue for whatever common law or state statutory torts that might lie, such as intentional infliction of mental distress. Potential harm to others is best considered when victims are not in a position to vindicate the wrongs against themselves, not where, as here, they are in such a position. [11] In State Farm, the Supreme Court held that “in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.”41 The rare exception might be a case where “a particularly egregious act has resulted in only a small amount of economic damages.”42 This is not a “small amount” case because the economic damages were substantial — $50,000. The controlling Supreme Court authority therefore implies a punitive damages ceiling in this case of, at most, $450,000 (nine times the compensatory damages) — not anywhere near the $5,000,000 (100 times the compensatory damages) that was awarded by the jury. 39 TXO Prod. Corp. v. Alliance Res. Corp., 509 U.S. 443 (1993). 40 Id. at 460. 41 State Farm, 538 U.S. at 425. 42 Id. (quotation and citation omitted). BAINS LLC v. ARCO PRODUCTS CO. 4383 Flying B argues that we should sustain the $5 million amount under Swinton, because there we upheld a $1 million punitive damages for racial harassment where the compensatory damages award was $35,600.43 That argument is not persuasive for several reasons. First, Swinton involves a much lower award, $1 million instead of $5 million, and less than one-third the ratio — punitive damages that were only 28, not 100, times the compensatory damages. Second, we decided Swinton before the Supreme Court decided State Farm, which limits Swinton. State Farm emphasizes and supplements the BMW limitation by holding 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.”44 In Zhang v. American Gem Seafoods, Inc.,45 a post-State Farm § 1981 race discrimination case, we took note that “few awards exceeding a single digit ratio” will satisfy due process, although this is not a “brightline rule,” and upheld the award because it was only seven times the amount of compensatory damages.46 [12] We need not rely solely on the ratio, because the third BMW guidepost — which looks to the difference between the amount of punitive damages awarded and the civil penalties authorized or imposed in comparable cases47 — provides us with another measure that restrains the permissible amount. Both pre-State Farm in Swinton, and post-State Farm in Zhang, we noted that the $300,000 statutory limitation on punitive damages in Title VII cases was an appropriate benchmark for reviewing § 1981 damage awards, even though the statute did not apply to § 1981 cases.48 43 Swinton, 270 F.3d at 818. 44 State Farm, 538 U.S. at 425. 45 Zhang v. Am. Gem Seafoods, Inc., 339 F.3d 1020 (9th Cir. 2003). 46 Id. at 1044 (quoting State Farm, 538 U.S. at 425). 47 BMW, 517 U.S. at 574-75. 48 See Zhang, 339 F.3d at 1045; Swinton, 270 F.3d at 820. 4384 BAINS LLC v. ARCO PRODUCTS CO. Flying B argues that the huge corporate assets of ARCO justify a higher award than might be justified for a defendant less able to pay it. A punitive damages award is supposed to sting so as to deter a defendant’s reprehensible conduct, and juries have traditionally been permitted to consider a defendant’s assets in determining an award that will carry the right degree of sting. But there are limits. “The wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award,” and “cannot make up for the failure of other factors, such as ‘reprehensibility,’ to constrain significantly an award that purports to punish a defendant’s conduct.”49 [13] Thus what we are left with is a case of highly reprehensible conduct, though not threatening to life or limb, that caused economic harm to a corporation. The jury found $50,000 of actual harm, and, as this is not the “rare case” for which State Farm leaves room, the ratio approach suggests that punitive damages could not, consistent with due process, exceed $450,000. Comparing the award to the civil penalty authorized in Title VII for comparable harm suggests that Congress regards $300,000 as the highest appropriate amount in somewhat comparable cases. The conclusion we reach is that the district court must, to comply with State Farm (which came down after the district court had ruled) and BMW, reduce the amount of punitive damages to a figure somewhere between $300,000 and $450,000.