Opinion ID: 4535791
Heading Depth: 3
Heading Rank: 2

Heading: Disparity Between Harm and Punitive Damages

Text: Next, we consider what is likely the “‘most commonly cited indicium of an unreasonable or excessive punitive damages award:’” the “disparity between actual or potential harm suffered and the punitive damages award (often stated as a ratio between the amount of the compensatory damages award and the punitive damages award).” Trickey, 705 F.3d at 802, 803 (quoting BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 580 (1996)). We conclude the ratio struck by the district court comports with due process. The Supreme Court has “consistently rejected the notion that the constitutional line is marked by a simple mathematical formula, even one that compares actual and potential damages to the punitive award.” Gore, 517 U.S. at 582. But we are not without guidance. The Court has said that “in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, -12- will satisfy due process.” Campbell, 538 U.S. at 425. And, the Court has “repeatedly intimated that a four-to-one ratio is likely to survive any due process challenges given the historic use of double, treble, and quadruple damages as a punitive remedy.” Trickey, 705 F.3d at 803 (quoting Wallace v. DTG Operations, Inc., 563 F.3d 357, 363 (8th Cir. 2009)). To be sure, we treat these ratios not as binding but as instructive. Campbell, 538 U.S. at 425. They demonstrate that “[s]ingle-digit multipliers are more likely to comport with due process, while still achieving the State’s goals of deterrence and retribution.” Id. In the end, our job is to “ensure that the measure of punishment is both reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered.” Id. at 426. We begin by settling the parties’ dispute as to how the ratio should be calculated. The district court instructed the jury to first determine Adeli’s compensatory damages. It instructed the jury to then determine Adeli’s incidental damages only if it found for Adeli on his claim for breach of express warranty. Because incidental damages were awarded only for breach of express warranty, a claim which does not allow punitive damages, Silverstar contends the amount of incidental damages should not be factored into the harm side of the ratio. We disagree. As noted above, Arkansas law allows a successful fraud claimant to recover his incidental damages. Ark. Code Ann. § 4–2–721 (stating remedies for fraud “include all remedies available under this chapter for non-fraudulent breach”); Ark. Code Ann. § 4–2–714 (permitting recovery of incidental damages). For purposes of calculating the correct ratio, it makes no difference that the district court unnecessarily required the jury to first find for Adeli on his breach of express warranty claim. And, in any case, the harm side of the ratio must account for a plaintiff’s actual harm, and Silverstar makes no argument that actual harm excludes incidental damages. See Campbell, 538 U.S. at 418 (instructing courts to consider “the disparity between the actual or potential harm . . . and the punitive damages award”). -13- Taking into account both compensatory and incidental damages, Adeli’s actual harm amounts to $20,201, and the ratio between this harm and the jury’s $5.8 million punitive damages award works out to 1:287. The ratio between actual harm and the district court’s reduced amount of punitive damages ($500,000) is 1:24.75. With the relevant ratios established, we now address Adeli’s argument that the jury’s $5.8 million punitive award did not create a constitutionally excessive ratio. He argues that when potential harm is properly factored in, the 1:287 ratio becomes a low single-digit, or even negative, ratio. Like the district court, we recognize that an otherwise excessive ratio may be justified by factoring in “the magnitude of the potential harm that the defendant’s conduct would have caused to its intended victim . . . as well as the possible harm to other victims that might have resulted if similar future behavior were not deterred.” TXO Prod. Corp. v. All. Res. Corp., 509 U.S. 443, 460 (1993) (plurality opinion); see also Gore, 517 U.S. at 581 & n.34 (explaining that in TXO the Court accounted for actual and potential harm and concluded the relevant ratio was more accurately 1:10 rather than 1:526). But we cannot let the imagination run wild. There must be some reasonable likelihood that the potential harm cited by the plaintiff might have actually occurred. See TXO, 509 U.S. at 460 (emphasizing “the harm likely to result from the defendant’s conduct”); see also Pulla v. Amoco Oil Co., 72 F.3d 648, 659 (8th Cir. 1995) (explaining “the touchstone is the potential harm that would have likely resulted from the dangerousness inherent in defendant’s actual conduct”). At trial, Easton testified the car’s faulty exhaust headers could cause harmful gas to leak into the cabin or could cause the car to catch fire given its proximity to a fuel leak.6 Citing this testimony, Adeli argues the cracked exhaust headers had the potential 6 For the first time on appeal, Adeli cites a long list of articles, administrative reports, and other internet sources to support his potential harm argument. Silverstar, in its motion to strike, correctly points out that Adeli cannot rely on these documents -14- to cause catastrophic harm to himself and his daughter — both of whom were in the car for the short, three-to-four mile drive home from the dealership — like death, major burns from an explosion, or carbon-monoxide poisoning. We believe the likelihood that these specific injuries could have resulted is too speculative. See TXO, 509 U.S. at 460; Pulla, 72 F.3d at 659. Easton did not testify as to the likelihood of any of these injuries occurring during Adeli’s short drive home from the dealership, and their likelihood cannot reasonably be inferred from Easton’s testimony or the trial evidence as a whole. See Pulla, 72 F.3d at 659 (stating “a court may not justify the award of punitive damages in a particular case by overlooking the actual events”). Thus, while these injuries were theoretically possible, the trial evidence does not show they had any reasonable likelihood of occurring. The harm side of the ratio should therefore not account for them, and the 1:287 ratio created by the jury’s $5.8 million punitive damages award is not, as Adeli claims, more accurately a low single-digit or negative ratio. We finish our ratio analysis by addressing Silverstar’s argument that the 1:24.75 ratio between actual harm and the reduced amount of punitive damages violates due process. Punitive damages, Silverstar urges, must be further reduced to strike a singledigit ratio. We disagree. Of course, “[s]ingle-digit multipliers are more likely to comport with due process,” but due process does not require a single-digit multiplier in all cases. Campbell, 538 U.S. at 425 (emphasis added). In fact, as discussed below, we have affirmed ratios exceeding single digits in a case involving the fraudulent sale of a used car. Grabinski v. Blue Springs Ford Sales, Inc., 203 F.3d 1024, 1025–26 (8th Cir. 2000) (“While these ratios are somewhat high, Gore emphasizes that such as evidentiary support for any of his arguments on appeal because they are not part of the trial record. See Fed. R. App. P. 10(a). To the extent Adeli presents these sources not as evidentiary support but as helpful background information only, as he claims, they have no impact on our conclusions. Silverstar’s motion to strike is therefore granted. -15- ratios are not dispositive but merely instructive.”). And because the ratio consideration, like the other required due-process considerations, serve as “‘guideposts’ to ensure that a defendant receives proper notice of possible penalties,” this precedent is important. May, 852 F.3d at 815–16 (emphasis added) (quoting Ondrisek, 698 F.3d at 1028). Silverstar cannot, in light of Grabinski, say it was without an idea of the potential penalty for defrauding its customers. See 203 F.3d 1024. Therefore, we dismiss Silverstar’s argument that the district court was required to strike a single-digit ratio.