Opinion ID: 835685
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Heading: Overview of State Farm v. Campbell

Text: We begin by reviewing the United States Supreme Court's opinion in Campbell. The punitive damage award at issue in Campbell arose from an insured's action against an insurer for bad faith, fraud, and intentional infliction of emotional distress. 538 U.S. at 414, 123 S.Ct. 1513. Campbell, the insured, had caused an automobile accident that killed one person and permanently disabled another. Id. at 412-13, 123 S.Ct. 1513. When Campbell was sued, Campbell's insurer, State Farm, chose to contest liability. Id. at 413, 123 S.Ct. 1513. It refused settlement offers that were within policy limits and took the case to trial despite the advice of one of its own investigators, in the process assuring Campbell and his wife that they would face no personal liability. Id. When the jury returned a verdict substantially above the policy limits, State Farm initially refused to cover the excess, telling the Campbells to put for sale signs on their property. Id. State Farm also refused to post a supersedeas bond to appeal the verdict. Id. In their action against State Farm, the Campbells introduced evidence that State Farm's decision to try the case was part of a nationwide effort to limit payouts on insurance claims. Id. at 415, 123 S.Ct. 1513. The evidence concerned State Farm's business practices for over 20 years in numerous States. Most of these practices bore no relation to third-party automobile insurance claims, the type of claim underlying the Campbells' complaint against the company. Id. The jury awarded the Campbells $2.6 million in compensatory damages and $145 million in punitive damages. Id. The trial court reduced the compensatory damages to $1 million and the punitive damages to $25 million. Id. On appeal, the Utah Supreme Court reinstated the $145 million punitive damage award. Id. The United States Supreme Court granted certiorari. Id. at 416, 123 S.Ct. 1513. The Court first noted that compensatory damages are intended to compensate for a loss, while punitive damages are aimed at deterrence and retribution. Id. However, the Court noted, the Fourteenth Amendment's Due Process Clause prohibits imposing grossly excessive or arbitrary punishments on a tortfeasor. Id. A person must have fair notice, not just that the state will punish certain conduct, but also how severely it will do so. Id. at 417, 123 S.Ct. 1513. The Court identified two risks peculiar to punitive damages. First, although punitive damage awards are similar to criminal sanctions, defendants do not receive the procedural protections required of criminal trials. Id. Second, vague jury instructions can leave the jury with too much discretion in choosing the amount of punitive damages, allowing it to express preexisting biases or to rely too much on tangential or inflammatory evidence. Id. at 417-18, 123 S.Ct. 1513. For those reasons, the Court had directed [e]xacting appellate review of a jury's punitive damage award, considering three guideposts identified in BMW of North America, Inc. v. Gore, 517 U.S. 559, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996): (1) the degree of reprehensibility of the defendant's misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases. Campbell, 538 U.S. at 418, 123 S.Ct. 1513. The Court then applied those guideposts. The first guidepost, the reprehensibility of defendant's conduct, represents `[t]he most important indicium of the reasonableness of a punitive damages award.' Id. at 419, 123 S.Ct. 1513 (quoting Gore, 517 U.S. at 575, 116 S.Ct. 1589). In analyzing reprehensibility, courts should consider 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. Id. (citing Gore, 517 U.S. at 576-77, 116 S.Ct. 1589). In analyzing that guidepost in Campbell, however, the Court did not itself focus on those five considerations. Instead, it concentrated on how evidence of out-of-state conduct and dissimilar conduct had skewed the reprehensibility analysis against State Farm. The state wrongly relied on such conduct, the Court ruled, because a state cannot punish a defendant for its lawful conduct in another state, or for conduct that occurred outside [the state] to other persons. Id. at 421, 123 S.Ct. 1513. In Campbell, most of the out-of-state conduct was lawful where it took place, and it was not connected to the harm to the Campbells. Id. at 422, 123 S.Ct. 1513. Furthermore, the Court held, a state cannot punish a defendant for dissimilar acts: A defendant should be punished for the conduct that harmed the plaintiff, not for being an unsavory individual or business. Id. at 423, 123 S.Ct. 1513. In sum, the Court held that, because the Campbells showed no conduct by State Farm similar to that which harmed them, the conduct that harmed them is the only conduct relevant to the reprehensibility analysis. Id. at 424, 123 S.Ct. 1513. The second Gore guidepost examines the ratio between the punitive damage award and the actual or potential harm to the plaintiff. Campbell, 538 U.S. at 424, 123 S.Ct. 1513. The ratio, however, is no mechanical formula. Id. (we have been reluctant to identify concrete constitutional limits on the ratio); id. at 425, 123 S.Ct. 1513 ([w]e decline again to impose a bright-line ratio); id. (there are no rigid benchmarks that a punitive damage award may not surpass). That said, the Court proceeded to give some guidance regarding the second guidepost. Twice in the past, the Court noted, it had suggested that a punitive damage award more than four times compensatory damages might be close to the line of constitutional impropriety. Id. at 425, 123 S.Ct. 1513 (citing Gore, 517 U.S. at 581, 116 S.Ct. 1589, and Pacific Mutual Life Insurance Co. v. Haslip, 499 U.S. 1, 23-24, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991)). The Court also had noted previously that, for 700 years, legislatures had authorized double, treble, or quadruple damages as a sanction. Campbell, 538 U.S. at 425, 123 S.Ct. 1513 (citing Gore, 517 U.S. at 581 & n. 33, 116 S.Ct. 1589). The Court concluded that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process. 538 U.S. at 425, 123 S.Ct. 1513. Single-digit multipliers are more likely to comport with due process, while still achieving the State's goals of deterrence and retribution, than awards with ratios in [the] range of 500 to 1, or, in this case, of 145 to 1. Id. (citation omitted). The Court did acknowledge, however, that even those tentative ratios might be adjusted up or down. A greater ratio might comport with due process if `a particularly egregious act has resulted in only a small amount of economic damages,' if `the injury is hard to detect,' or if `the monetary value of noneconomic harm might have been difficult to determine.' Id. at 425, 123 S.Ct. 1513 (quoting Gore, 517 U.S. at 582, 116 S.Ct. 1589). With a substantial compensatory damage award, however, due process might require a lesser ratio, perhaps only equal to compensatory damages. Id. But [t]he precise award    must be based upon the facts and circumstances of the defendant's conduct and the harm to the plaintiff. Id. In applying the second Gore guidepost, the Court stated that there is a presumption against an award that has a 145-to-1 ratio. Id. at 426, 123 S.Ct. 1513. The Campbells had received a substantial compensatory damage award; they were injured economically, not physically; and State Farm paid the excess verdict before the Campbells sued them, so their economic injuries were minor. Id. Additionally, the outrage and humiliation that State Farm caused the Campbells may have been considered twice  once in the compensatory damage award and again in the punitive damage award. Id. The Court also rejected several other factors that the Utah Supreme Court had identified in support of the punitive damage award. For example, the Utah Supreme Court had pointed to State Farm's wealth. The Court concluded that wealth should not have been considered: While States enjoy considerable discretion in deducing when punitive damages are warranted, each award must comport with the principles set forth in Gore.    The wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award. Gore, 517 U.S., at 585, 116 S.Ct. 1589 (`The fact that BMW is a large corporation rather than an impecunious individual does not diminish its entitlement to fair notice of the demands that the several States impose on the conduct of its business'); see also id., at 591, 116 S.Ct. 1589 (Breyer, J., concurring) (`[Wealth] provides an open-ended basis for inflating awards when the defendant is wealthy   . That does not make its use unlawful or inappropriate; it simply means that this factor 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'). Id. at 427-28, 123 S.Ct. 1513. The third guidepost compares the punitive damage award to comparable civil and criminal penalties. Id. at 428, 123 S.Ct. 1513. Criminal penalties, however, do not help as much in determining the dollar amount of the award: Great care must be taken to avoid use of the civil process to assess criminal penalties that can be imposed only after the heightened protections of a criminal trial have been observed, including, of course, its higher standards of proof. Punitive damages are not a substitute for the criminal process, and the remote possibility of a criminal sanction does not automatically sustain a punitive damages award. Id. The comparable civil sanctions in Campbell fell well below the punitive damage award. The Court identified only one, a $10,000 fine for fraud. Id. The Utah Supreme Court had pointed to other, more substantive penalties, but they were all based on evidence of out-of-state and dissimilar conduct. Id. In all, the Court in Campbell found the case neither close nor difficult, id. at 418, 123 S.Ct. 1513, and concluded that $145 million in punitive damages violated due process, see id. at 429, 123 S.Ct. 1513 (concluding award was irrational and arbitrary deprivation of property). The Court suggested that the guideposts, especially in light of the substantial compensatory damages awarded (a portion of which contained a punitive element), likely would justify a punitive damages award at or near the amount of compensatory damages. Id. However, the Court concluded, Utah state courts should calculate punitive damages in the first instance. Id. at 429, 123 S.Ct. 1513. With the foregoing principles in mind, we turn to the questions presented on review.