Opinion ID: 835320
Heading Depth: 2
Heading Rank: 1

Heading: Determining When a Punitive Damages Award Violates the Due Process Clause

Text: We turn, then, to the question that prompted our decision to allow review whether the Court of Appeals erred in determining that the jury's punitive damages award was grossly excessive and that the maximum constitutionally permissible punitive damages award was three times the amount that the jury awarded in compensatory damages. Plaintiff contends that the Court of Appeals did err and that, if all of the relevant circumstances are taken into account, it is clear that the jury's award was within the permissible range. Defendant responds that the punitive damages award was excessive and that, if anything, the maximum constitutionally permissible punitive damages award is even smaller than the Court of Appeals determined. Punitive damages awards that are grossly excessive violate the Due Process Clause of the Fourteenth Amendment to the United States Constitution, because excessive punitive damages serve no legitimate purpose and constitute arbitrary deprivations of property. BMW of North America, Inc. v. Gore, 517 U.S. 559, 568, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996). Excessive punitive damages also implicate the requirement of fair notice that is enshrined in the Due Process Clause: Due process dictates that a person receive fair notice not only of the conduct that will subject him to punishment, but also of the severity of the penalty that a state may impose. Id. at 574, 116 S.Ct. 1589. The United States Supreme Court has identified three guideposts that should be considered by appellate courts charged with determining whether a jury's punitive damages award comports with the Due Process Clause. They are: (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. State Farm Mut. Ins. Co. v. Campbell, 538 U.S. 408, 418, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003). See also Williams v. Philip Morris Inc., 340 Or. 35, 55, 127 P.3d 1165 (2006), vac'd on other grounds, ___ U.S. ___, 127 S.Ct. 1057, 166 L.Ed.2d 940 (2007), on remand, 344 Or. 45, 176 P.3d 1255 (2008) (setting out those guideposts and using them to analyze Oregon punitive damages award for excessiveness). Two of the Court's recent cases Gore and Campbell elaborate on those factors and illustrate how they are to be applied in determining whether, and to what extent, a jury's punitive damages award violates a tortfeasor's due process rights. In Gore, the Court considered an Alabama jury's verdict awarding punitive damages in an amount that was 1,000 times the amount of the plaintiff's compensatory damages. The case arose out of a lawsuit by a car owner, who sued the manufacturer of his new BMW automobile because the manufacturer had failed to disclose to him that the vehicle had been repainted prior to sale (the original paint job had been marred en route to the United States). 517 U.S. at 563, 116 S.Ct. 1589. The jury awarded the car owner $4,000 in compensatory damages and $4 million in punitive damages, id. at 565, 116 S.Ct. 1589, but the Alabama Supreme Court reduced the punitive damages award to $2 million, largely because it concluded that the jury had unlawfully based much of its award on BMW's out-of-state conduct, when it was unclear whether that conduct was unlawful where it occurred. Id. at 567, 116 S.Ct. 1589. On review, the United States Supreme Court agreed with the Alabama Supreme Court that the punitive damages award could not be used to punish BMW for, or to deter, conduct that was lawful in the state where it occurred. Id. at 571-74, 116 S.Ct. 1589. But the Court also concluded that, even with the Alabama Supreme Court's adjustment to the jury's award, the punitive damages award was grossly excessive. Although the court warned that there was no `mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case,' id. at 583, 116 S.Ct. 1589 (quoting Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 18, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991)), it nevertheless set out a framework for determining when punitive damages awards are grossly excessivespecifically, the three guideposts mentioned above. As to the first guidepost, reprehensibility, the Court described a number of aggravating factors associated with particularly reprehensible conduct. Gore, 517 U.S. at 576, 116 S.Ct. 1589. Those aggravating factors (as the Court later summarized them in Campbell ) include 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. 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. Campbell, 538 U.S. at 419, 123 S.Ct. 1513 (citation omitted). Applying those aggravating factors to the facts, the court concluded that BMW's conduct had not been particularly reprehensible: No physical harm or threat to safety or health had been involved, the plaintiff was not financially vulnerable, and there was no clear evidence of intentional recidivism or a malicious motive. Gore, 517 U.S. at 575-80, 116 S.Ct. 1589. With respect to the second guidepost, the Court noted that even the reduced $2 million punitive damages award was 500 times the amount of actual harm, id. at 582, 116 S.Ct. 1589a ratio that the Court described as breathtaking, and which must surely raise a suspicious judicial eyebrow. Id. at 583, 116 S.Ct. 1589 (internal quotation marks and citation omitted). Finally, with respect to the third guidepost, the Court observed that there was an enormous difference between the $2 million punitive damages award and the civil penalty that could be imposed in the only comparable class of casesa $2,000 fine. Id. at 584, 116 S.Ct. 1589. Based on its analysis, the Court concluded that the jury's $4 million punitive damages award, and even the Alabama Supreme Court's $2 million remitted award, were unconstitutionally large. Id. at 585-86, 116 S.Ct. 1589. However, the court did not determine what size award would be constitutional. Rather, it left that question to the state court to decide in the first instance. Id. at 586, 116 S.Ct. 1589. Several years later, in Campbell, the Court again applied the three guideposts to decide whether a punitive damages award comported with due process. The basic fact pattern in Campbell, a Utah case, was similar to the present case: After an insurer failed to settle a liability lawsuit against its insured within policy limits, the case went to trial and the jury returned a verdict that was significantly in excess of the policy limits. 538 U.S. at 412-13, 123 S.Ct. 1513. The insured sued the insurer for bad faith, fraud, and intentional infliction of emotional distress. Id. at 414, 123 S.Ct. 1513. A jury awarded the insured $2.6 million in compensatory damages and $145 million in punitive damages. The trial court reduced those awards to, respectively, $1 million and $25 million. The Utah Supreme Court reinstated the $145 million punitive damages award. Id. at 415, 123 S.Ct. 1513. The United States Supreme Court's analysis in Campbell essentially tracked its reasoning in Gore. The Court began with the first Gore guidepost, reprehensibility. In examining that factor, the court excluded from consideration much of the conduct that the state court had relied on in its analysis specifically, the defendant's out-of-state conduct and conduct that was not similar to the underlying tort, which the plaintiff had argued was evidence of a nationwide policy of capping payouts on claims of all kinds. 538 U.S. at 420-24, 123 S.Ct. 1513. The Court noted, as it had in Gore, that a state may not legitimately punish a defendant for unlawful acts committed outside of the State's jurisdiction. Id. at 421, 123 S.Ct. 1513. Furthermore, the Court concluded, the punitive damages award should have been based only on similar conduct: A defendant should be punished for conduct that harmed the plaintiff, not for being an unsavory individual or business. Id. at 423, 123 S.Ct. 1513. Given those parameters, the Court concluded, the conduct that harmed [plaintiffs was] the only conduct relevant to the reprehensibility analysis. Id. at 424, 123 S.Ct. 1513. With regard to that conduct, the Court suggested that a more modest punitive damages award could have satisfied the state's legitimate objectives, and the [state] courts should have gone no further. Id. at 419-20, 123 S.Ct. 1513. Regarding the second guidepost, the ratio between punitive damages and actual or potential harm, the Court declined to impose a bright-line ratio which a punitive damages award cannot exceed. Id. at 425, 123 S.Ct. 1513. Still, it observed that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process. In [ Pacific Mutual Life v.] Haslip, [499 U.S. 1, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991)] in upholding a punitive damages award, we concluded that an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety. We cited that 4-to-1 ratio again in Gore. The Court further referenced a long legislative history, dating back over 700 years and going forward to today, providing for sanctions of double, treble, or quadruple damages to deter and punish. While these ratios are not binding, they are instructive. Id. (citations omitted). Having said that, the Court concluded that there was a strong presumption against a punitive damages award involving a 145-to-1 ratio, like the one before it. Id. at 426, 123 S.Ct. 1513. With respect to the third guidepostthe relationship between the punitive damages award and civil or criminal penalties for comparable conductthe Court began by discounting the value of criminal penalties to the analysis: 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. Id. at 428, 123 S.Ct. 1513. In the case at issue, the Court concluded, the only relevant civil sanction was a $10,000 fine applicable to certain acts of fraud, which the Court characterized as an amount dwarfed by the $145 million punitive damages award. Id. Taking all three of the guideposts into account, the Court concluded that the $145 million award was an irrational and arbitrary deprivation of property and, as such, a violation of due process. In addition, for the first time, the Court suggested what the constitutionally permissible maximum award might be. An application of the Gore guideposts to the facts of this case    likely would justify a punitive damages award at or near the amount of compensatory damages. Id. at 429, 123 S.Ct. 1513. Still, the Court did not intend that estimate to be binding. It held that the proper calculation of punitive damages under the principles we have discussed should be resolved, in the first instance, by the Utah courts. Id.