#11390 - Punitive Damages - Modern American Remedies 4th Ed. Laycock

Why are Punitive Damages Needed? Why Don’t Compensatories Provide Sufficient Deterrence?:

• Because, sometimes the law systematically underestimates damages

  • Ex. emotional distress now generally compensable in intentional torts, but hard to measure, and outrageous conduct sometimes inflicts immeasurable harm:

    • Environmental harm in Exxon, because of economic loss rule or because it was not yet provable at trial

    • Cultural harm

    • Severe emotional distress

Size of Punitive Damage Awards:

• Although PD awards have increased over time, median PD:CD ratio has remained less than 1:1 (spread is great though, and outlier cases subject defendants to punitives many times the compensatories

• The large mean/median pun:comp ratios and standard deviations are with the SMALL verdicts, and nobody cares about the small verdicts. It makes sense that the multiplier would be larger when compensatories are <$1000.

Punitive Damages: Measured neither by Plaintiff’s rightful position nor by Defendant’s – in fact, are not focused on Plaintiff at all. Punitive damages are aimed squarely at the defendant and used for DETERRENCE.

Common Law Review for Excessiveness (federal courts of appeals should review ONLY the trial judge’s ruling on the motion to set aside the verdict, and review that only for abuse of discretion)

Rule for assessing punitive damages under FEDERAL LAW [Exxon]: For cases of “this type, the maximum allowable punitive :compensatory ratio shall be 1:1

• “This Type”: Reckless, not intentional or malicious. Obvious damage with obvious causation, certain to be detected. Large damages, so big liability even before punitives. Profitless to the tort feasor, NOT done for economic gain. Low end of the “blameworthiness” scale

  • Pretty clear that there are going to a be a lot of “types”, basically brings us back to a case-by-case review of punitive damage verdicts

• This rule is NOT controlling under state law, but it is likely to be persuasive

• Fraud

  • Ex. “fraudulent inducement” in Formosa v. Presidio: entering into a contracy with no intent to perform (requires that D knew BEFORE the contract was signed that he was going to breach. If they decided two weeks into the K they did not want to perform as required anymore, that would just be a contract claim, NOT a tort) [i.e. selling shares in a “gold mine” in which you knew there was no gold

  • Fraudulent Misrepresentation: misrepresent what is being sold

• Bad-Faith Breach: well established in insurance contracts but nowhere else (ex. bad faith refusal to settle)

• Conversion: defendant takes or retains money belonging to the plaintiff. Texas Nat’l Bank v. Karenss.

• Tortious Interference W/Contract or Business Relations: “a knowing and intentional breach of one’s direct contract may also be an act tortuously interfering with a third party’s contract, if it is done with a purpose and effect of preventing the third party from performing its contract with another [may require an INTENT to interfere]

• Do there have to be tort damages to make it an independent tort?

  • Economic damages will suffice [Formosa]. The no economic damages rule does not apply here because this is an INTENTIONAL tort(Fraud)

    • Do the damages have to be independent from the damages from breach of contract, or can it be the same?

      • Formosa suggests they can be the same, they do NOT have to be independent. Although the Q will probably be litigated in every instance.

• You DON’T get punitives for intentional or negligent breach of contract

• **There is a goal of not letting plaintiffs easily turn contract claims into tort claims

State possesses discretion over the imposition of punitive damages, but there are procedural and substantive constitutional limitations on these awards

Two potential Constitutional Arguments against the imposition of EXCESSIVE Punitives: (makes Supreme Court review of the punitive damages cases possible) [de novo review – what is the maximum amount of punitive damages consistent with the constitution?]:

1. Excessive Fines Clause of the 8^th Amendment: “excessive fines shall not be imposed”. Majority view is this only applies to fines paid to the government [SCOTUS] [irrelevant]

2. Due Process Clause: [this is where most challenges come from] “cannot lose life, limb, or property without Due Process of Law” [Scalia and Thomas reject all of this, say there is no such thing as Substantive DP and Procedural DP is satisfied by any procedure used at CL]

   1. Procedural Due Process: SCTOUS said PDP requires meaningful jury instructions on punitive damages and meaningful appellate review of punitive verdicts [Pacific Mutual Life v. Haslip]

      1. Procedural DP requires some availability of constitutional review of the amount [can’t preclude judicial review of punitive damages awards in your constitution] [Honda Motor v. Oberg]

      2. Defendants are entitled to notice of what conduct might subject them to punitives and how much [BMW]

      3. O’Connor, White, Souter, think there should be limits on appeals to prejudice in jury argument. Not a majority rule [TXO]

   2. Substantive Due Process: Fairness requires notice not only what conduct will subject him to punishment, but also the severity of that punishment.

      1. If punitive damage award is “unreasonable” and “disproportionate” to the wrong, it violates substantive DP (see long analysis below) [State Farm]

In determining whether the award was “unreasonable” or “disproportionate to the wrong”, SCOTUS considers [three guideposts from BMW, but strengthened in State Farm, requiring a more fact-intensive inquiry]:

• (1) degree of reprehensibility of defendant’s conduct [MOST important]

  • Consider whether: 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; conduct involved repeated actions or was an isolate incident; and harm was result of intentional malice, trickery, deceit or mere accident.

  • Using similar conduct to asses reprehensibility:

    • Similar [the SAME in PM], instate (out of state too) conduct can be used to further “reprehensibility”, but Procedural Due Process requires that you MUST give jury instruction they can only use it for this and NOT punish for out of state conduct. [Phillip Morris] (how can we really tell how jury used it though?)

      • Narrow definition of what type of similar wrong is relevant (third party claims/first party claims NOT similar enough in State Farm)

• (2) the ratio between the punitive damages award and the harm likely to result from the defendants conduct as well as the harm that has actually occurred

  • “few awards would be upheld if the ratio exceeded SINGLE DIGITS” [State Farm]. Many courts have read this as the maximum ratio being 9:1

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