Punitive Damages. Conditions, Limits, Proportionality


Seminar Paper, 2016
28 Pages, Grade: 17,00

Excerpt

Table of Contents

Bibliography

Abbreviations

A. Introduction

B. Conditions, Limits and Proportionality
I. Conditions and purpose
1. Prerequisites of a punitive damages award
a) Independent cause of action
b) Aggravating element
2. Purposes of punitive damages
a) Punishment and deterrence
b) Economic theory
c) Litigation expenses
d) Further Purposes
II. Assessment of the award
III. Limits on the doctrine of punitive damages
1. Limits by the U.S. Supreme Court: Constitutionality
a) Excessive Fines Clause of the Eight Amendment
b) Due Process Clause of the Fourteenth Amendment
aa) Pacific Mutual Life Insurance Co. v. Haslip
bb) TXO Production Corp. v. Alliance Resources Corp.
cc) Honda Motor Co., Ltd. v. Oberg
dd) BMW of North America, Inc. v. Gore
ee) Cooper Industries, Inc. v. Leatherman Tool Group, Inc.
ff) State Farm Mut. Auto. Ins. Co. v. Campbell
gg) Philipp Morris USA v. Williams
hh) Summary
2. Limits by legislation
3. Review of limits – Critical discussion

C. Conclusion

Bibliography

Anderson, Robert E./Van Arsdale, Barbara J./Glenn, John A./Ingwersen, CandyceVana/Jacobs, Alan J./Levin, Jack K./Oakes, Karl/Shampo, Jeffrey J., American Jurisprudence, 2nd edition, May 2016 Update.

Behr, Volker, Punitive Damages in America and German Law – Tendencies towards Approximation of Apparently Irreconcilable Concepts, 78 Chicago-Kent Law Review 105 – 161 (2003).

Braun, Daniel M., The Risky Interplay of Tort and Criminal Law: Punitive Damages, 11 Cardozo Public Law, Policy and Ethics Journal 449 – 471 (2013).

Bronstadt, Amanda/Ruiz, David, Volkswagen AG: Has Until April 21 to Draw Up Emissions Solution,Class Action Reporter, LexisNexis, Vol. 16, Article from May 5, 2016.

Buchner, Benedikt, Die Grenzen zulässiger Strafschadensersatzurteile nach der neuesten Rechtsprechung des US Supreme Court, in: VersR 2003, 1203 – 1207.

Bungert, Hartwin, Anmerkung zu Joachim Rosengarten: Punitive damages und ihre Anerkennung und Vollstreckung in der Bunderepublik Deutschland, in: RabelsZ (1997), 388 – 400.

Cain, Kevin G., And now the rest of the story … The McDonald’s Coffee Lawsuit, 11 Journal of Consumer & Commercial Law 14 – 18 (2007).

Calandrillo, Steve P., Penalizing Punitive Damages: Why the Supreme Court Needs a Lesson in Law and Economics, 78 George Washington Law Review 774 – 821 (2010).

Cavico, Frank, J., Punitive Damages for Breach of Contrac t – A Principled Approach, 22 Saint Mary's Law Journal 357 – 452 (1990).

Cohen, Thomas H./Harbacek, Kyle, Punitive Damages Awards in State Courts 2005, Bureau of Justice Statistics, Special Report March 2011.

Cutter, David F., TXO Production Corp. v. Alliance ResourcesCorp.: A Failure to Create True ConstitutionalProtection Against Excessive Punitive Damages, 44 Catholic University Law Review 631 –674(1995).

Diamond, John L./Levine, Lawrence C./Bernstein, Anita, Understanding torts, 4th edition, San Francisco 2010.

Efting, Lindsay J., Punitive Damages: Will the Courts Still Punish the Wrongdoer After State Farm Mutual Automobile Insurance Co. v. Campbell, 49 South Dakota LawReview 67–106 (2003).

Fritz, Thorsten,Punitive/examplarydamages in den USA und ihre Qualifikation als Zivilsache, Hamburg 2004 (cited: Fritz, Punitive damages, 2004).

Garner, Bryan A. (Editor), Black’s Law Dictionary, 10th edition, New York 2014.

Gash, Jim, The End of an Area: The Supreme Court (Finally) Butts Out of Punitive Damages for Good, 63 Florida Law Review 525 – 597 (2011).

Hancock, Ben, Judge Delays Release Of Details in VW Emissions Settlement, New York Law Journal, Section Corporate Update, Vol. 255, p. 5 (April 28, 2016).

Hay, Peter, U.S.-Amerikanisches Recht, Ein Studienbuch, 6. Auflage, München 2015.

Kircher, John J./Wiseman, Christine M., Punitive Damages: Law and Practice, Volume 1, 2nd edition, New York 2015.

Klass, Alexandra B., Punitive Damages in Valuing Harm, 92 Minnesota Law Review 83 – 160 (2007).

Levitt/Arnowitz, Volkswagen Scandal Is Perfect For A Damages Class Action, 360 Law, LexisNexis, Article from October 13, 2015.

Lindahl, Barry A., Modern Tort Law: Liability and Litigation, 2nd edition, Update June 2015.

McCormick, Charles T., Handbook on the law of damages, New York 1935.

McCormick, Charles T., Some Phases of the Doctrine of Exemplary Damages, 8 North Carolina Law Review 129 –151(1930).

McKee Pohlman, Jill, COMMENT: Punitive Damages in the American Civil Justice System: Jackpot or Justice?, 1996 Utah Law Review 613 –658 (1996).

McMichael, Benjamin J., Constitutional Limitations on Punitive Damages: Ambiguous Effects and Inconsistent Justifications, 66 Vanderbilt Law Review 961 –1012 (2013).

Morisse, Heiko, Die Zustellung US-amerikanischer Punitive-damages-Klagen in Deutschland, in: RIW 1995, 370 –373.

Müller, Peter, Punitive Damages und deutsches Schadensrecht, Berlin 2000.

Note, Exemplary Damages in the Law of Torts, 70 Harvard Law Review 517 –532 (1957).

Orr, Leila C., Making a case for wealth-calibrated punitive damages, 37 Loyola of Los Angeles Law Review 1739 – 1770 (2004).

Owen, David G., A Punitive Damages Overview: Functions, Problems and Reform, 39 Villanova Law Review 363 –413 (1994).

Pera, John, Consumer News: Consumer Law in the News, 28 Loyala Consumer Law Review 59 – 166 (2016).

Polinsky, Michell A./Shavell, Steven, Punitive Damages: An Economic Analysis, 111 Harvard Law Review 869 –962 (1997-1998).

Rosengarten, Joachim, Punitive Damages und ihre Anerkennung und Vollstreckung in der Bundesrepublik Deutschland, Hamburg 1994 (cited: Rosengarten, Punitive Damages, 1994).

Schlegel, Christian E., Is a Federal Cap on Punitive Damages in Our Best Interest?: A Consideration of H.R. 956 in Light of Tennessee’s Experience, 69 Tennessee Law Review 677 – 700 (2002).

Schlueter, Linda L., Punitive Damages, Volume 1, 7th edition, San Francisco 2015.

Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

Abbreviations used according to:

The Bluebook, A Uniform System of Citation (Columbia Law Review Ass’n et. al. eds., 20th ed. 2015).

A. Introduction

Punitive damages, also known as exemplary damages, can be awarded to a plaintiff in US courts in addition to compensatory damages.[1] Instead of compensating the plaintiff, punitive damages aim at punishing the defendant for an outrageous misconduct and deterring himand others from similar wrongdoing in the future.[2] The first exemplary damages in a US court were awarded in 1791,[3] which shows the long tradition of the doctrine. In 2005 punitive damages were sought in 12 % of the estimated civil trials, however punitive damages were only awarded in 5 % of the trials where plaintiffs prevailed.[4] Nevertheless,punitive damages remainan important part of the legal system as they are used forbigcommercial tort cases.

Acurrent example for such a case is the Volkswagen (VW) emission scandal.Volkswagenprogrammed its cars with software to hide true emission characteristics during tests while, in fact,the carsspew more pollutants than are allowed on the road.[5] VW’s cheating was exposed and car ownersand dealerships filed nationwide class-actions seeking for damages.[6] Since Volkswagen acted intentionally, it seemed rather likely that a court would award punitive damages.[7] The company tried to solve the crisesand reached a settlementthat is not yet disclosed.[8]

Although a settlement seems to be the result, this scandal shows the currency and relevancy of the topic of punitive damages.Further, it shows how even German companies can be affected if they are sued in the US. The enforcement of such awards in Germany is difficult, since the German law of damages only allows damages for compensation.[9] According to the German Federal Supreme Court, punitive damages awards are in general against the ordre public and not enforceable.[10] Commentaries raise different opinions and make enforcement in Germanycontroversial.[11] However, the issue of enforcement should not be examined in the following because this paper rather focuses on the controversies regarding punitive damages in US law.

Therefore, the following first part shows the conditions for punitive damages and discusses the different purposes to give a general understanding.The second part explains the process of assessing punitive damages to demonstrate issues regarding the jury’s broad discretion. The third partanalyzes limitations on punitive damages and examines limits set by the Supreme Court of the USand by legislation. As a result, the current limits are reviewed and it is answered whether the limits satisfy concerns against the doctrine.

B. Conditions, Limits and Proportionality

I. Conditions and purpose

1. Prerequisitesof a punitive damages award

In general, punitive damages are available in nearly all jurisdictions in the US.[12] Each state is able to define its own law and most states allow punitive damages at common law while they have additional statutes to govern the recovery.[13] Some states,like Nebraska,[14] prohibit punitive damages almostcompletely[15] and others, like Louisiana[16] or Massachusetts,[17] abolished punitive damages awards at common law and allow them only by statute.[18] The different conditions for punitive damages vary from state to state but the following will discuss the most common conditions.

a) Independent cause of action

First, the plaintiff must establish a cause of action for which he can recover damages.[19] As a general rule, punitive damages are only awarded in tort law.[20] A tort is a civil wrong which is not a breach of contract and for which a remedy can be obtained.[21] Typically,torts like deceit, defamation, battery, fraud, assault, misrepresentation or defective products are involved.[22]

In contract law it is established that for a mere breach of contract punitive damages cannot be awarded.[23] Nevertheless there are an ever-increasing amount of exceptions to this rule since most jurisdictions allow punitive damages if the breach of contract also constitutes an independent tort.[24]

b) Aggravatingelement

In general, punitive damages are designed to punish and deter, and thus it is necessary to show an aggravation element in the defendant’s conduct.[25] Each jurisdiction defines the aggravation differently, but basically they all describe a necessary mental state of the defendant.[26] The defendant has to have acted intentionally or maliciously,consciously, willfully, oppressively, recklessly or wantonly.[27] Only if such a “highly reprehensible conduct” exists, courts will give a jury the discretion to determine whether to give a punitive damages award.[28]

2. Purposes of punitive damages

a) Punishment and deterrence

The most commonly stated purpose for the award of punitive damages is to punish the defendant for his wrongful act and to deter him and others from similar misconduct in the future.[29] This purpose is found in the Restatement of Torts.[30] In modern law the idea of punishment is embraced in criminal law. In contrast, civil law is aimed to indemnify the plaintiff.[31] Yet proponents of punitive damages argue that a punishment element is also needed in civil law, especially for acts that may not be prosecuted by criminal law.[32] Opponents argue that the punishment purpose makes punitive damages contrary to the recognized separate and distinct natures of criminal and civil law.[33] Furthermore,no safeguardsknown from criminal proceedings exist and therefore the defendant is not sufficiently protected.[34] Such safeguards include the burden of proof andthe rule against double jeopardy.[35] However, proponents justify the imposition of punitive damages with its function of deterring tortuous conduct.[36] The calculated amount is based on specific circumstances and not set in advance like statutorily prescribed criminal fines.[37] Therefore the calculations can include and reflect the defendants’ wealth and thus have a much greater general deterrent impact on him.

b) Economic theory

An economic argument, which is raised as a purpose of punitive damages, is effective consumer protection.[38] This is also called a function of optimal deterrence or an economic theory of punitive damages.[39] The theory is best explained with a calculation example:[40]

If the harm costs of a product are $100 and the chances for this harm to occur are50 %, then a manufacturer will calculate expected costs of $50 ($ 100 • 0.5 = $50). The costs of elimination of the harm are $75 which means that it is economically more lucrative not to invest in precautions. This result is against what society wants.[41] To ensure the “optimal level of care”[42], punitive damages in addition to compensatory awards must be imposed.

A case law example for this economic theory is the Grimshaw v. Ford Motor Co.[43] case.This case dealt with a car accident that occurred because Ford’s Pinto automobile had a design defect in its fuel tank which caused the Pinto to catch fire after a collision.[44] One passengerwas Grimshaw, a thirteen year-old,who suffered serious burns and had permanent severe injuries.[45] Ford’s managers were aware of the Pinto’s defect because the car failed in previous tests[46] and the managers still decided to sell the car and save money by deferring corrective measures.[47] Therefore, the jury awarded Grimshaw$2.5 million compensatory damages and $125 million punitive damages which were reduced by the trial court to $3.5 million.[48] Ford appealed,and in its analysis the Court of Appeals found the deterrence purpose of punitive damages especially for commercial torts. It analyzed that without punitive damages, manufacturers can find it more profitable to accept possible compensatory damages rather than remedy the defect.[49] Thus, the court held that punitive damages serve a consumer protection purpose.[50]

In conclusion, this economic argument shows how punitive damages serve an optimal deterrent effect and ensure, in the context of effective consumer protection, that businesses take the optimal level of care.

c) Litigationexpenses

Another purpose that can be found is the recovery of litigation expenses.[51] Due to the “American Rule” in the United States, even a successful plaintiff has to pay his own litigation expenses[52] which include court costs and legal fees.[53] A justification for punitive damages is that a successful plaintiff should not bear the burden of the expenses becausehe legitimately wanted to right the wrongs done to him.[54]

The recovery of the expenses is in fact a compensatory element in the role of punitive damages.[55] In general, attorney’s fees cannot be compensated if there is no statutory basis.[56] However, a lot of jurisdictions allow the jury in the context of punitive damages to consider litigation expenses and to embrace them as an element of the calculation of the award.[57] In contrast, some states do not allow this approach.[58] Opponents argue that the idea to assist a successful plaintiff who was harmed by the defendant intentionally cannot be adequately realized with punitive damages awards. Rather, the procedural rules must be amended or else equitable recoveries and discriminates among victorious plaintiffs will be affected.[59] Nevertheless, such an amendment has not happened so far, and in the current status it seems appropriate in some cases to include the expenses because otherwise it could happen that plaintiffs would be left financially worse off after paying all the litigation expenses than they were before the injury.[60] This would lead to an illogical andunjust result.

d) Further Purposes

Sometimes commentaries alsomention private law enforcement[61] or gain elimination as purposes. Gain elimination (“Gewinnabschöpfung”) is especially named by German commentaries[62] whereas in the US the defendant’s gain is more seen as a factor of the calculation[63] of the award and not as a purpose itself.[64] Private law enforcement is closely intertwined with all the purposes of punitive damages, especially with punishment and deterrence.[65] Therefore it is argued that law enforcement is only an effect of the doctrine and cannot be stated as a purpose on its own.[66]

In sum, the different purposes for punitive damages show strong arguments for the doctrine, but alsoraise reasonable concerns. Further concerns can be found in the assessment of punitive damages awards explained in the following part.

II. Assessment of the award

Under the traditional common-law approach, a jury initially determines the amount of punitive damages. The jury is instructed by the judge to consider the gravity of the wrong and the need to deter from similar conduct.[67] Afterwards, the jury’s final determination is reviewed by trial and appellate courts.[68] A jury does not determine the amount if the jury trial was waived by the parties.[69]

Each state defines its own jury instructions.[70] Decisive factors the jury must consider are in many states: the nature, the degree of reprehensibility, the enormity,and the duration of the wrong.[71] Further, the defendant’s intent, motivation or awareness,[72] as well as his wealth or financial condition,are taken into account.[73] Profits gained out of the wrongful act[74] and in some jurisdictions attorney’s fees or court costs must also be considered.[75] In sum, these factors give the jury a broad discretion in determining punitive damages.

Some case examples show how this broad discretion could lead to enormous punitive damages awards.In the above mentioned Ford Motor Co. case, the jury initially awarded $125 millionpunitive damages because of Ford’s design defects.[76] In Liebeck v. McDonalds, the plaintiff spilled McDonald’s coffee in her lap and got third degree burns because the coffee was so hot.[77] Since the company was aware of this, the jury awarded $2.7 million punitive damages in addition to $160,000 compensatory damages.[78] In Jimenez v. Chrysler Corp., the liftgate latch of a car was the result of a defective design and caused a rollover accident where a passenger was ejected from the car.[79] Due to this defective design, the jury awarded $250 million punitive damages and $12.5 million actual damages.[80]

Since the court may review the amount awarded by the jury,[81] the initial awards did not always remainin these examples,but instead were reduced. However, the cases show that the jury’s broad discretion may result in originally very high awards and therefore give rise to concerns.One approach to satisfy these concerns is to set limitations.

III. Limits on the doctrine of punitive damages

1. Limits by the U.S. Supreme Court: Constitutionality

The following analyzes important key cases of the US Supreme Court and examines how the court tried to satisfy concerns against the constitutionality of punitive damages by limitingthe doctrine.

a) Excessive Fines Clause of the Eight Amendment

In Browning-Ferris Industries of Vermont, Inc. v. Kelco Disposal, Inc.,[82] a jury found Browning-Ferris liable for antitrust violations and interference with Kelco’s contractual relations and awarded $6 million in punitive damages in addition to $51,146 in compensatory damages.[83] TheSupreme Courthad to decide whether the Excessive Fines Clause of the Eight Amendment of the Constitution is applicable to a punitive damages award by a civil-jury, and if so, whether in this case a violation of theclause occurred.[84]

The court analyzed the history and purpose of the Eight Amendment as well as its language and the constitutional framework and concluded that the Excessive Fines Clause does not apply to punitive damages awards between private parties. The Eight Amendment only deals with criminal process and actions that were initiated by a government to punish,[85] therefore, the Supreme Court onlydecided that the Excessive Fines Clause is not applicable and did not even turn to the excessiveness of the award. In conclusion, the court did not set any limits on the doctrine.

b) Due Process Clause of the Fourteenth Amendment

Generally the Due Process Clause of the Fourteenth Amendment of the US Constitution requires that legal procedures are fundamentally fair.[86] Punitive damages awards can be attacked in the light of the Due Process Clause in two ways. First, the method by which the award is assessed and reviewed can violate procedural due process. Second, an overly excessive award can establish an unreasonable and arbitrary taking of property and violate substantial due process.[87] The Supreme Court has dealt with both ways of attacks in the past.

aa) Pacific Mutual Life Insurance Co. v. Haslip

The Supreme Court first addressed due process[88] consideration of punitive damages in Pacific Mutual v. Haslip[89]. Inthis case,policy holders of an insurance company paid their premiums to an agent of the company,but the agent did not remit the payments to the insurance company.[90] The insuredbrought a claim against the company for fraud,[91] and as a result,the jury found the company liable and awarded over $800,000 in punitive damages which was four times the amount of compensatory damages.[92]

The Supreme Court had to deal with the issue of whether the punitive damages award was rendered unconstitutional because of a violation of the Due Process Clause. The court first turned to procedural concerns and established from the consistent history that the common law approach for assessing punitive damages is not per se unconstitutional.[93] Hence, the courtruled that as long as the jury’s discretion is not completely unlimited, but rather exercised within reasonable constraints, due process is complied.[94] In this case the trial judge explained to the jury the purpose and instructed the jury to consider the character of the wrong.[95] The majorityof the Supreme Court decided that the instructions were not too vague and thus the jury’s discretion was not unlimited, but rather confined to the deterrence and retribution purpose.[96]

Further, the court found that Alabama’s case law established post-verdict standards for an adequate review which ensure a reasonable amount of an award.[97] In Pacific Mutual’s case, all Alabama’s procedural protections were satisfiedsince the jury was adequately instructed and the judges did not err in their post-verdict reviews.[98]

The court also briefly examined the question of substantial reasonableness,[99] but only found that the ratio did not render the award unconstitutional.[100] Therefore the punitive damages award in this case did not violate the Due Process Clause of the Fourteenth Amendment.[101]

In sum, the Supreme Court refused to draw a “mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case”[102] and rather only determined general concerns of reasonableness.[103] Still, through this case the court recognized that the constitution imposes limits on punitive damages. As a result, Haslip established a framework for the constitutional analysis of punitive damages, but unfortunately there wasno uniform interpretation of the decision.[104] Courtsapplied Haslip differently, since HasliHassdfhbsdfbhthe limits set by the court were rather broad in this case.

bb) TXO Production Corp. v. Alliance Resources Corp.

In TXOv.Allliance,[105] TXO purchased from Alliance oil and gas development rights tolandowned by Alliance.[106] Afterwards, TXO discovered a deed conveying coal rights to another company[107] and alleged that there was a cloud on title.[108] TXO actually attempted to renegotiate its agreement with Alliance making the contract more profitable by reducing royalty payments.[109] Thus, TXO knowingly and intentionally filed a frivolous declaratory judgment action to remove the alleged cloud from the title.[110] Alliance brought a counterclaim for slander of title and the jury awarded Alliance $19,000 actual damages and $10 million punitive damages.[111] The Supreme Court of the US granted certiorari and had to decide whether the particular punitive damages award violated the Due Process Clause either because its amount was “grossly excessive” or because it was the product of an unfair procedure.[112]

In resolving the issue of excessiveness, both parties presented the court tests to determine grossly excessiveness.[113] The court rejected both proposals and returned to its position in Haslip - that there is no mathematical bright line.[114] The court noted that the amount of punitive damages was 526 times greater than the actual damages, but stated that the relationship was only one of several factors that must be considered.[115] In fact, the court concluded that because of the potential harm and the bad faith of TXO and its wealth, it was reasonable for the jury to determine such a large amount.[116] Therefore the court found the amount not “grossly excessive” as to be a violation of substantial due process.[117]

On the second issue of procedural due process, the court found no merits on TXO’s arguments.[118] Thus, the award was constitutional.[119]

In conclusion, TXO v. Alliance established that there can be a violation of due process if the award of punitive damages is “grossly excessive.”Nevertheless the court could not create a general objective test to determine such excessiveness and rather used general concerns for reasonableness. However, the court found that different factors, and not only the relationship to actual damages,must be considered. This case was narrower in regards to the constitutional requirements for punitive damages, but still stayed in sum rather broad.

cc) Honda Motor Co., Ltd. v. Oberg

Honda Motor v. Oberg[120] was an Oregon product liability case against the all-terrain vehicle manufacturer Honda. Oberg wanted to recover for injuries suffered in an accident with a Honda vehicle and alleged that Honda used an inherently and unreasonably dangerous design.[121] The jury found Honda liable and awarded Oberg $5 million punitive damages, which was over five times greater than the compensatory damages award.[122] On appeal, Oregon’s courts affirmed this decision because Oregon’s Constitution prohibits reviewing the amount of punitive damages set by a jury “unless the court can affirmatively say there is no evidence to support the verdict”.[123] The US Supreme Court granted certiorari and had to decide whether Oregon’s limited review is consistent with the Due Process Clause.[124]

The court found that Oregon’s standard only ensures that there is evidence to support that some punitive damages are awarded and not that there is evidence for the actually awarded amount.[125] Therefore the court concluded that there is no review of the size of the award and thus no protection against an arbitrary award.[126] In sum, the Supreme Court held that Oregon failed to ensure an adequate post-verdict review and therefore violated the Due Process Clause.[127] Further the court did not give any precise criteria on how a standard of review has to be run, but found that at least some rational nexus has to exist between the award and the evidence in the record.[128]

As a result this case established that there has to be a post-verdict review, as a procedural safeguard, to ensure the award is within an allowed range of damages.[129]

dd) BMW of North America, Inc. v. Gore

In BMW v. Gore,[130] Gore purchased a car from BMW which was misrepresented as new when in fact the car was repainted. BMW intentionally and willfully suppressed this fact.[131] The jury awarded Gore $4,000 in compensatory damages and $4 million in punitive damages which were calculated by multiplying the amount of compensatory damages with the amount of similar sales in Alabama and other jurisdictions.[132] The Supreme Court of Alabama reducedthe punitive damages to $2 million.[133] Afterwards, the US Supreme Court granted certiorari and held for the first time that this punitive damages award was grossly excessive and exceeded the constitutional limits.[134]

During the analysis the court dealt with different issues that lead to an excessiveness of the award. First, the court analyzed the scope of Alabama’s interest in punishing BMW.[135] Alabama’s intention for the large award was changing BMW’s nationwide policy.[136] However, each state has its own disclosure policies for presale repairs and Alabama cannot infringe in the policy choices of other states by punishing BMW for conduct that had no impact on Alabama.[137] Thus, the court found that a state may not impose sanctions with the intent of changing the tortfeasor’s lawful conduct in other states.[138]

Second, the court found that BMW did not receive adequate notice of the range and severity of the sanction that the state could impose.[139] In analyzing the adequate notice, the court established three guideposts which serve as indicators.[140] Those guideposts are the degree of reprehensibility, the ratio, and the sanctions for comparable conduct.[141] The degree of reprehensibility considers the enormity of the offense, which was in this case very low since the harm was only economic in nature and there was no effect on safety features.[142] This guidepost indicated excessiveness.The ratio means the relationship between the harm or potential harm suffered and the punitive damages award.[143] In this case the $2 million award was over 500 times greater than the actual harm, and in contrast to TXO, there was no further potential harm.[144] This disparity also made the ratio an indicator of excessiveness. The third guidepost compares the award with the civil or criminal penalties authorized or imposed in comparable cases.[145] Here, the maximum civil penalty was much less than the actual award and therefore this guidepost also indicated excessiveness.[146] In sum, all these factors led the Supreme Court to find a grossly excessive award which was unconstitutional under the Due Process Clause.[147]

The Supreme Court remanded the case to Alabama’s courts and the Supreme Court of Alabama finally reduced the punitive damages award to $50,000 using the three guideposts as factors of a judicial review.[148] In the subsequent development, Gore triggered a controversial discussion and most commentaries believed the Supreme Court still did not formulate a test.[149] However, lower courts applied the guideposts in their judicial review.[150] In conclusion, since lower courts started to apply the guideposts, this case setthe first clear limits on the doctrine of punitive damages.

ee) Cooper Industries, Inc. v. Leatherman Tool Group, Inc.

In Cooper Industries v. Leatherman,[151] the key issue for the US Supreme Court was whether the Court of Appeals applied the wrong standard of review in determining the constitutionality of a punitive damages award.[152] Cooper Industries used advertising pictures that contained a modified version of Leatherman’s competing product.[153] A jury found Cooper guilty for unfair competition and awarded Leatherman $50,000 compensatory damages and $4.5 million punitive damages.[154] The District Court rejected Cooper’s argument of gross excessiveness and entered judgment accordingly.[155] The Court of Appeals found no abuse of discretion and thus affirmed the punitive damages award.[156] In contrast, the US Supreme Court concluded that the abuse-of-discretion standard of the appellate court refers only to non-constitutional issues.[157] If the constitutionality of an award is attacked, the appellate court should apply a de novo standard.[158] Therefore, the Supreme Court established that the Court of Appeals can review the trial court’s application of the Gore guideposts de novo.[159]

In sum, through the Cooper casethe Supreme Court determined more limits on the doctrine of punitive damages because it established greater reviewing power of the Court of Appeals and made them apply the Gore standards.

ff) State Farm Mut. Auto. Ins. Co. v. Campbell

In State Farm v. Campbell,[160] Campbell caused an accident where a person was killed and another was rendered disabled.[161] Afterwards, Campbell’s insurance company Sate Farm declined to settle the ensuing claims for the policy limit and instead decided to contest Campbell’s liability against its own investigator’s advice.[162] The jury did not share State Farm’s view and found Campbell 100% liable. A judgment that was more than three times the policy limit was entered. Afterwards,State Farm first refused to cover the amount in excess of the policy limit but then changed its attitude and paid the full amount.[163] Campbell sued State Farm for bad faith failure to settle a claim within the policy limits, fraud and intentional infliction of emotional distress.[164] The jury awarded $2.6 million in compensatory damages which were reduced to $1million and $145 million in punitive damages which the trial court reduced to $25 million.[165] The Utah Supreme Court applied the Gore guideposts and reinstalled the punitive damages to $145 million.[166] Afterwards, the Supreme Court of the US granted certiorari and had to decide whether an award of $145 million in punitive damages was excessive and therefore in violation of the Due Process Clause.[167]

In this case, the court made a detailed analysis of punitive damages and laid out clear, general principles from the cases it decided before. The court emphasized that, in general, it’s within a state’s discretion to impose punitive damages awards, but there are procedural and substantial constitutional limitations on this discretion.[168] The Supreme Court reiterated that courts should review punitive damages awards using the Gore guideposts and stressed that appellate courts have to do a de novo review in light of these guideposts.[169] Finally the court turned to an analysis of the Gore guideposts for this particular case and gave more guidance on each of the guideposts. Regarding the reprehensibility guidepost,courts cannot expand the scope of the case so that a defendant may be punished for any malfeasance.[170] In this case, Utah’s courts considered State Farm’s nationwide policies anderred because they awarded damages to punish and deter conduct that had no relation to Campbell’s harm.[171] Turning to the second guidepost, the court finally gave some practical points on the ratio and found that punitive damages exceeding a single-digit ratio between compensatory and punitive damages are likely to be excessive.[172] In this case the ratio of 145-1 gave a presumption against the award.[173] Regarding the third guidepost, the court determined that civil penalties should be taken into account and criminal penalties are less useful to determine a dollar amount.[174] Otherwise a civil process could lead to assess criminal penalties and thereby undermine safeguard for criminal proceedings.[175] Here, the $145 million amount was far above civil sanctions available in Utah,[176] and in sum, the court held that the punitive damages award was excessive and unconstitutional.[177]

In this case the court determined a detailed analysis and gave clearer limits with more defined guideposts. In subsequent cases, courts used the three guideposts from Gore, the facts of the particular case, and the due process analysis from Campbell to determine whether an award is excessive.[178]

gg) Philipp Morris USA v. Williams

In the recent case Philipp Morris USA v. Williams,[179] a widow brought a claim for negligence and deceit against Philipp Morris, the manufacturer of Marlboro cigarettes, and sought damages for the smoking-related death of her husband.[180] The jury found that the manufacturer was negligent and engaged in deceit and thus awarded $821,000in compensatory damages and $79.5 million in punitive damages.[181] Philipp Morris alleged that a main portion of the punitive damages award was punishment for having harmed other cigarette smokers.[182] The Supreme Court of the US decided upon the specific issue of whether the Due Process Clause permits a jury to base an award partly upon its desire to punish the defendant for harming persons who are nonparties.[183] The court held that the Due Process Clause forbids using punitive damages to punish for injury that happened to nonparties.[184] Otherwise defendants that are threatened with punishment cannot defend against that charge, and for example, show that one specific victim was not entitled to damages.[185]

[...]


[1] Diamond/ Levine/ Bernstein, Understanding torts,4thed. 2010, § 14.05 (A).

[2] Restatement (Second) of Torts, § 908(1) (1979).

[3] Coryell v. Colbough, 1 N.J.L. 77, 77 (N.J. 1791); Schlueter, Punitive Damages, 7th ed. 2015, § 1.4 (A).

[4] Cohen/Harbacek, Punitive Damages Awards in State Courts 2005, Bureau of Justice Statistics,Special Report March 2011.

[5] Pera, 28 Loy. Consumer L. Rev. 159, 160, 164 (2016).

[6] Bronstadt/ Ruiz, Class Action Reporter, LexisNexis, Vol. 16, Article from May 5, 2016.

[7] Levitt/Arnowitz, 360 Law, LexisNexis, Article from October 13, 2015.

[8] Hancock, N.Y.L.J., Section Corporate Update, Vol. 255, p. 5 (April 28, 2016).

[9] Behr, 78 Chi.‑Kent. L. Rev. 105, 106 (2003).

[10] BGH, Urt. v. 4.6.1992 (Az.: IX ZR 149/91), BGHZ 118, 312, 338 ff.

[11] Müller, Punitive Damages und deutsches Schadensrecht, 2000, S. 360 ff.; Fritz, Punitvedamages, 2004, S. 205 ff.

[12] Rosengarten, Punitive Damages, 1994, S. 108.

[13] Kircher/Wiseman, Punitive Damages: Law and Practice, 2nd ed. 2015, Appendix 4-1.

[14] Schlueter, Punitve Damages, 7th ed. 2015, § 3.13 (B)(2).

[15] Boyer v. Barr, 8 Neb. 68, 71, 75 (Neb. 1878).

[16] King v. E.l. Du Pont de Nemours, 850 F.Supp. 503, 504 (W.D. La. 1994).

[17] Santana v. Registrars of Voters of Worcester, 502 N.E.2d. 132, 135 (Mass. 1986).

[18] Fritz, Punitve damages, 2004,S. 19.

[19] Orr, 37 Loy. L.A. L. Rev. 1739, 1744 (2004).

[20] Cavico, 22 St. Mary's L.J. 357, 364 (1990).

[21] Garner, Black’s Law Dictionary, 10th ed. 2014, Tort.

[22] Schlueter, Punitive Damages, 7th ed. 2015, § 9.2-9.7.

[23] Id. at § 7.2.

[24] E.g.: Spano v. King Park Cent. School Dist., 877 N.Y.S.2d 163, 168 (N.Y 2009); Shore v. Farmer, 522 S.E.2d 73, 76 (N.C. 1999); Murphy v. Stowe Club Highlands, 761 A.2d. 688, 696‑ 697 (Vt. 2000).

[25] Rosengarten, Punitive Damages, 1994, S. 44.

[26] Orr, 37 Loy. L.A. L. Rev. 1739, 1744 (2004).

[27] 22 Am. Jur.2d. Damages, § 574 (2016); Owen, 39 Vill. L. Rev. 363, 364 (1994); Behr, 78 Chi.‑Kent. L. Rev. 105, 105 (2003).

[28] Orr, 37 Loy. L.A. L. Rev. 1739, 1744 (2004).

[29] McCormick, Handbook on the Law of Damages, 1935, § 77; Note, 70 Harv. L. Rev. 517, 522 (1957); Klass, 92 Minn. L. Rev. 83, 90 (2007).

[30] Restatement (Second) of Torts § 908(1) (1979).

[31] Schlueter, Punitive Damages, 7th ed. 2015, § 2.2 (A)(1).

[32] McCornick, 8 N.C.L. Rev. 129, 130 (1930); Klink v. Combs, 135 N.W.2d 789, 798 (Wis. 1965).

[33] McKee Pohlman, 1996 Utah L. Rev. 613, 623 (1996).

[34] Owen, 39 Vill. L.Rev. 363, 382-383 (1994).

[35] Diamond/Levine/Bernstein, Understanding torts, § 14.05 [B].

[36] Id.

[37] Id.

[38] Fritz, Punitive damages, 2004, S. 38.

[39] McMichael, 66 Vand. L. Rev. 961, 969 (2013).

[40] Id.

[41] Fritz, Punitive Damages, 2004, S. 38-39; McMichael, 66 Vand. L. Rev. 961, 969 (2013).

[42] McMichael, 66 Vand. L. Rev. 961, 969 (2013).

[43] Grimshaw v. Ford Motor Co., 174 Cal.Reptr. 348 (Cal. Ct. App. 1981).

[44] Id. at 360.

[45] Id. at 359.

[46] Id. at 360.

[47] Id. at 370.

[48] Id. at 389.

[49] Id. at 382.

[50] Id.

[51] Müller, Punitive Damages und deutsches Schadensrecht, 2000, S. 13.

[52] Hay, U.S.-Amerikanisches Recht, 6. Aufl. 2015, Rn. 154.

[53] Schlueter, Punitive Damages, 7th ed. 2015, § 2.2 (B)(1).

[54] Imported Car Center, Inc. v. Billings, 653 A.2d 765, 768 (Vt. 1994).

[55] Owen, 39 Vill. L.Rev. 363, 378 (1994).

[56] Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 247 (1975).

[57] E.g.: Stohlts v. Gilkinson, 867 A.2d 860, 869 (Conn. App. Ct. 2005); In re Estate of Talty, 877 N.E.2d 1195, 1207 (Ill. App. Ct. 2007); Alexander v. Meduna, 47 P.3d 206, 220 (Wyo. 2002).

[58] Schlueter, Punitive Damages, 7th ed. 2015, § 2.2 (B)(1).

[59] Id. at § 2.2 (B)(2).

[60] Owen, 39 Vill. L.Rev. 363, 379 (1994).

[61] Lindahl, Modern Tort Law: Liability and Litigation, 2nd ed. 2015, § 21:5; Morisse, RIW 1995, 370, 371; Owen, 39 Vill. L.Rev. 363, 380 (1994); Klass, 92 Minn. L. Rev. 83, 91 (2007).

[62] Müller, Punitive Damages und deutsches Schadensrecht, 2000, S. 13; Morisse, RIW 1995, 370, 371; Bungert, RabelsZ 61 (1997), 388, 390.

[63] Polinsky/Shavell, 111 Harv. L. Rev. 869, 918 (1997-1998).

[64] Fritz, Punitve Damages, 2004, S. 43.

[65] Owen, 39 Vill. L.Rev. 363, 380 (1994).

[66] Fritz, Punitive Damages, 2004, S. 44.

[67] Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 15 (1991).

[68] Id.

[69] Kircher/Wiseman, Punitive Damages: Law and Practice, 2nd ed. 2015, §5:23.

[70] Klass, 92 Minn. L. Rev. 83, 92 (2007).

[71] 22 Am. Jur. 2d Damages, § 622 (2016).

[72] Id.

[73] Tarr v. Bob Ciasulli's Mack Auto Mall, Inc., 943 A.2d 866, 872 (N.J. 2008); 22 Am. Jur. 2d Damages, § 623 (2016).

[74] Gryc v. Dayton-Hudson Corp., 297 N.W.2d 727, 741 (Minn. 1980).

[75] Mynatt v. Collis, 57 P.3d 513, 538 (Kan. 2002); Farmers Ins. Exchange v. Shirley, 958 P.2d 1040, 1046 (Wyo. 1998); 22 Am. Jur. 2d Damages, § 624 (2016).

[76] Grimshaw v. Ford Motor Co., 174 Cal.Reptr. 348, 389 (Cal. Ct. App. 1981).

[77] Cain, 11 J. Consumer & Com. L. 14, 15 (2007).

[78] Liebeck v. McDonalds’s Restaurants P.T.S., Inc, 1995 WL 360309 (N.M. Dist. 1994).

[79] Jimenez v. Chrysler Corp.,74 F.Supp.2d 548, 552 (D.S.C.1999).

[80] Id. at 553.

[81] 22 Am. Jur.2d Damages, § 624 (2016).

[82] Browning-Ferris Industries of Vermont, Inc. v. Kelco Disposal, Inc, 492 U.S. 257 (1989).

[83] Id. at 257.

[84] Id. at 259.

[85] Id. at 260.

[86] Cutter, 44 Cath. U.L.Rev. 631, 635 (1995).

[87] Id.

[88] McMichael, 66 Vand. L. Rev. 961, 965 (2013).

[89] Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1 (1991).

[90] Id. at 6.

[91] Id. at 5.

[92] Id. at 1,6.

[93] Id. at 17.

[94] Id. at 20.

[95] Id. at 19.

[96] Id.

[97] Id. at 20-21.

[98] Id. at 21.

[99] Id. at 23.

[100] Id.

[101] Id. at 24.

[102] Id. at 18.

[103] Id.

[104] Cutter, 44 Cath. U.L.Rev. 631, 657 (1995).

[105] TXO Production Corp. v. Allliance Resources Corp, 509 U.S. 433 (1993).

[106] Id. at 447.

[107] Id. at 448.

[108] Id. at 449.

[109] Id.

[110] Id. at 450.

[111] Id. at 451.

[112] Id. at 446.

[113] Id. at 456.

[114] Id. at 456, 458.

[115] Id. at 459-460.

[116] Id.

[117] Id.

[118] Id. at 465-466.

[119] Id.

[120] Honda Motor Co., Ltd. v. Oberg, 512 U.S. 415 (1994).

[121] Id. at 418.

[122] Id. at 415.

[123] Id. at 418.

[124] Id.

[125] Id. at 429.

[126] Id. at 432.

[127] Id.

[128] Id. at 432 Fn. 10.

[129] Schlueter, Punitive Damages 7th ed. 2015, § 3.4.

[130] BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996).

[131] Id. at 563.

[132] Id. at 567.

[133] Id. at 562, 565.

[134] Id. at 569 – 573.

[135] Id. at 568.

[136] Id. at 572.

[137] Id. at 559.

[138] Id. at 572.

[139] Id. at 574.

[140] Id. at 575.

[141] Id. at 575 – 584.

[142] Id. at 576.

[143] Id. at 580.

[144] Id. at 582.

[145] Id. at 583.

[146] Id. at 584.

[147] Id. at 575.

[148] BMW of North America, Inc. v. Gore, 701 So. 2d 507, 510 (Ala. 1997).

[149] Schlueter, Punitive Damages, 7th ed. 2015, § 3.4.

[150] Id.

[151] Cooper Industries, Inc. v. Leatherman Tool Group, Inc, 532 U.S. 424 (2001).

[152] Id. at 426.

[153] Id. at 427.

[154] Id. at 426.

[155] Id. at 429.

[156] Id. at 430.

[157] Id. at 433.

[158] Id. at 436.

[159] Id. at 443.

[160] State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003).

[161] Id. at 413.

[162] Id.

[163] Id.

[164] Id. at 414.

[165] Id. at 415.

[166] Id.

[167] Id. at 412.

[168] Id.

[169] Id. at 418.

[170] Id. at 424.

[171] Id. at 422.

[172] Id. at 425.

[173] Id. at 426.

[174] Id. at 428.

[175] Id.

[176] Id.

[177] Id. at 429.

[178] Schlueter, Punitive Damages, 7th ed. 2015, § 3.4.

[179] Philipp Morris USA v. Williams, 549 U.S. 346 (2007).

[180] Id. at 349.

[181] Id. at 349-350.

[182] Id. at 351.

[183] Id. at 349.

[184] Id. at 353.

[185] Id.

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Details

Title
Punitive Damages. Conditions, Limits, Proportionality
College
University of Augsburg
Grade
17,00
Author
Year
2016
Pages
28
Catalog Number
V337909
ISBN (eBook)
9783668273269
ISBN (Book)
9783668273276
File size
799 KB
Language
English
Series
Aus der Reihe: e-fellows.net stipendiaten-wissen
Tags
punitive, damages, exemplary, US, Law, tort, Strafschadensersatz, Schadensersatz, US-amerikanisch, Zivilrecht, McDonald's, BMW, Philip Morris, pönales Element, Supreme Court, punitive damages
Quote paper
Kristina Cyglakow (Author), 2016, Punitive Damages. Conditions, Limits, Proportionality, Munich, GRIN Verlag, https://www.grin.com/document/337909

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