Opinion ID: 159309
Heading Depth: 3
Heading Rank: 2

Heading: Punitive to Compensatory Damage Ratio

Text: 33 In OXY, we surmise[d] that in economic injury cases if the damages are significant and the injury not hard to detect, the ratio of punitive damages to the harm generally cannot exceed a ten to one ratio. OXY, 101 F.3d at 639. Midland points to the 9.65:1 ratio in this case and argues its conduct was not reprehensible enough to warrant a punitive award approaching the OXY limit. We disagree for several reasons. First, we have already rejected Midland's characterization of the reprehensibility of its conduct as relatively minor. Second, the 10:1 ratio is not a sacred line in the sand, across which no punitive award may venture without feeling the wrath of an appellate court's constitutional sword. The Supreme Court was very careful to reject such a categorical approach in BMW. See BMW, 517 U.S. at 582-83. We see nothing in the ratio itself that requires us to hold the award at issue here is unconstitutionally excessive. Nor are we persuaded by Midland's more detailed arguments that a reduction of this award is constitutionally compelled. 34 Midland argues a modest award is appropriate here because the economic injury arises out of a contractual relationship, and the parties should have protected themselves through explicit remedies for breach in the settlement agreement. See Hamilton, 122 F.3d at 862. We might agree with Midland had a district court not determined Midland's conduct was so objectionable as to justify the rare remedy of completely setting aside the 1991 settlement agreement. Any explicit remedies for a breach contained in the settlement agreement conceivably would have been set aside along with the agreement itself. 35 In addition, Midland's objection to the ratio is based on a comparison of the $67,694.03 in compensatory damages with the $653,217 in punitive damages. However, when determining the ratio of punitive damages to the harm caused, both actual and potential damages may be used to determine the harm. OXY, 101 F.3d at 639-40; see generally BMW, 517 U.S. at 581-82. The district court awarded the $67,694.03 in damages to compensate United for the costs of bringing its motion to set aside the 1991 settlement agreement. 6 The district court ruled further damages caused by Fox's fraud such as lost income to United and damage to United's name and reputation in the marketplace were subsumed in the damages awarded on the trademark infringement, unfair competition, and fraudulent registration claims. Reducing a damage award to avoid a double recovery is entirely different than reducing an award due to a lack of evidence supporting the level of damages. A fundamental truth lies at the core of this once-settled case: Had Mr. Fox succeeded in masking Midland's activity through his fraudulent conduct, none of the damages awarded in this case would have been discovered or ultimately recovered. And, arguably, the damages suffered after the settlement in 1991 could have been prevented entirely but for Mr. Fox's fraud. Clearly the actual and potential damages caused by Mr. Fox's fraud substantially exceeded the $67,694.03 awarded. That those damages were subsumed in the jury's $761,866 award on the other counts does not prevent us from recognizing that fact. United's damages expert testified Mr. Fox's scheme cost United $74,215 in lost profits in 1992 alone. Adding this one small measure of the additional damages caused by Mr. Fox's fraud to our original calculation brings the punitive to harm ratio down to less than 6:1.