1. Punitive Damages Diego Gandolfo May 2010 Diego Gandolfo May 2010

2. 2 Origins An ancient concept : Civil Punishment –Code of Hammurabi –Hittite Laws –Hebrew Code of Mosaic Law –Hindu Code of Manu English multiple damages (1200s to 1700s) –Double, treble, and quadruple damages Punitive or exemplary damages develop in England (1763) An ancient concept : Civil Punishment –Code of Hammurabi –Hittite Laws –Hebrew Code of Mosaic Law –Hindu Code of Manu English multiple damages (1200s to 1700s) –Double, treble, and quadruple damages Punitive or exemplary damages develop in England (1763)

3. 3 Origins In Civil Codes: the Clausula penal in contracts. In the US: –Punitive damages in 1784: plaintiff got ill after drinking a glass of wine with Spanish fly as a practical joke. –US Supreme Court recognized the concept of punitive damages in 1851. In Civil Codes: the Clausula penal in contracts. In the US: –Punitive damages in 1784: plaintiff got ill after drinking a glass of wine with Spanish fly as a practical joke. –US Supreme Court recognized the concept of punitive damages in 1851.

4. 4 US Federal System State v. Federal Law. Punitive damages are specific to some torts under State Law. US Sources of the Law: –US Constitution –US laws –State laws –Common Law Courts must follow precedent. Federal v. State Judges. State v. Federal Law. Punitive damages are specific to some torts under State Law. US Sources of the Law: –US Constitution –US laws –State laws –Common Law Courts must follow precedent. Federal v. State Judges.

5. 5 Punitive Damages Doctrine US concept: Damages to punish a party or to deter others in that partys position from similar conduct. Imposed in civil judgments. To deter outrageous conduct. Used in intentional torts ( i.e. libel, slander, assault and battery). To help criminal law system. They slightly exceed compensatory damages. US concept: Damages to punish a party or to deter others in that partys position from similar conduct. Imposed in civil judgments. To deter outrageous conduct. Used in intentional torts ( i.e. libel, slander, assault and battery). To help criminal law system. They slightly exceed compensatory damages.

6. 6 Expansion of the Doctrine (1960s) In strict liability for product defects –This is liability without fault. –Still tied to defendants conduct. –Mainly design defects an failure to warn. Some problems with products liability –Different persons involved through a long period of time. –The more the manufacturer wages benefits and risks, the greater the risk he is exposed to. –Multiple punishment. –Bankruptcy concerns. In strict liability for product defects –This is liability without fault. –Still tied to defendants conduct. –Mainly design defects an failure to warn. Some problems with products liability –Different persons involved through a long period of time. –The more the manufacturer wages benefits and risks, the greater the risk he is exposed to. –Multiple punishment. –Bankruptcy concerns.

7. 7 Punitive Damages Facts and Evolution Before 1973, there only were 3 appellate decisions upholding punitive damages in products liability cases: –Punitive $100K and $125k in compensatory –Punitive $250k and $175k in compensatory –Punitive $10K and $920k in compensatory Between 1983 and 1985 California Courts entered thirty eight punitive damages awards in excess of $1 million. Todays examples: –Romo (2002) $290 million from a single automobile accident. –Baker (2002) $4 million from a $1.8 million employment discrimination case. –Sand (2002) $15 million in product liability case. –State Farm (2003) $145 million from a $2.6 million corporate misconduct case. Before 1973, there only were 3 appellate decisions upholding punitive damages in products liability cases: –Punitive $100K and $125k in compensatory –Punitive $250k and $175k in compensatory –Punitive $10K and $920k in compensatory Between 1983 and 1985 California Courts entered thirty eight punitive damages awards in excess of $1 million. Todays examples: –Romo (2002) $290 million from a single automobile accident. –Baker (2002) $4 million from a $1.8 million employment discrimination case. –Sand (2002) $15 million in product liability case. –State Farm (2003) $145 million from a $2.6 million corporate misconduct case.

8. 8 Punitive Damages Facts and Evolution Media reports about punitive damages awards in the US generally misrepresent judicial reality. –Punitive damages are not as common as media reports may lead to believe. –Most punitive damages awards at the first instance are typically modified if not altogether rejected upon appellant review. US Supreme Court action State action Tort reform and business action Media reports about punitive damages awards in the US generally misrepresent judicial reality. –Punitive damages are not as common as media reports may lead to believe. –Most punitive damages awards at the first instance are typically modified if not altogether rejected upon appellant review. US Supreme Court action State action Tort reform and business action

9. 9 Factors traditionally considered to award punitive damages whether the punitive damages award had a reasonable relationship to the harm actually occurred; the reprehensibility of the defendants conduct, the duration of such conduct, and defendants awareness and/or concealment of the outrageous conduct; the defendants profitability form the wrongful conduct and the desire of removing such profits; the defendants wealth; the cost of litigation; criminal sanctions already imposed against the defendant; civil sanctions already imposed against the defendant for the similar wrongful conduct. whether the punitive damages award had a reasonable relationship to the harm actually occurred; the reprehensibility of the defendants conduct, the duration of such conduct, and defendants awareness and/or concealment of the outrageous conduct; the defendants profitability form the wrongful conduct and the desire of removing such profits; the defendants wealth; the cost of litigation; criminal sanctions already imposed against the defendant; civil sanctions already imposed against the defendant for the similar wrongful conduct.

10. 10 Concerns with factors Juries are invited to award punitive damages based on passion, bias and prejudice. Punitive damages may bankrupt defendants and deprive later plaintiffs of funds to recover from. Punitive damages are quasi-criminal in nature yet defendants are not afforded the benefit of a higher burden of proof than the burden of proof required in civil cases. A few plaintiffs may be unjustly enriched at the expense of other potential plaintiffs. Juries are invited to award punitive damages based on passion, bias and prejudice. Punitive damages may bankrupt defendants and deprive later plaintiffs of funds to recover from. Punitive damages are quasi-criminal in nature yet defendants are not afforded the benefit of a higher burden of proof than the burden of proof required in civil cases. A few plaintiffs may be unjustly enriched at the expense of other potential plaintiffs.

11. 11 US Supreme Court Response Browning (1989): –Plaintiff was awarded $51,146 compensatory and $6 million punitive damages (117:1 rate) –Defendant argued that the Eight Amendment of the Constitution, which forbids excessive bail and cruel and unusual punishment barred the punitive damages award. –The court held that the Eight Amendment did not apply to punitive damages awards in cases between private parties. Browning (1989): –Plaintiff was awarded $51,146 compensatory and $6 million punitive damages (117:1 rate) –Defendant argued that the Eight Amendment of the Constitution, which forbids excessive bail and cruel and unusual punishment barred the punitive damages award. –The court held that the Eight Amendment did not apply to punitive damages awards in cases between private parties.

12. 12 US Supreme Court Response Haslip (1991): –Plaintiff was awarded $200k in compensatory and $840k in punitive damages (4:1 rate) –The court recognized that excessive punitive damages awards could violate the Due Process Clause of the Fourteenth Amendment of the Constitution. Haslip (1991): –Plaintiff was awarded $200k in compensatory and $840k in punitive damages (4:1 rate) –The court recognized that excessive punitive damages awards could violate the Due Process Clause of the Fourteenth Amendment of the Constitution.

13. 13 US Supreme Court Response BMW (1996): –An Alabama jury awarded a plaintiff $4k in compensatory and $4 million in punitive damages (1,000:1 rate) –The Alabama Supreme Court reduced the punitive damages award to $2 million (500:1 rate) –The US Supreme Court overturned the Alabama Supreme Courts decision holding that the reduced award was still grossly excessive in violation of the Due Process Clause of the Fourteenth Amendment. –Three guideposts: Degree of reprehensibility of defendants conduct The ratio of actual damages to punitive damages The civil or criminal penalties that could be imposed for comparable misconduct. –Some courts did not follow these guideposts BMW (1996): –An Alabama jury awarded a plaintiff $4k in compensatory and $4 million in punitive damages (1,000:1 rate) –The Alabama Supreme Court reduced the punitive damages award to $2 million (500:1 rate) –The US Supreme Court overturned the Alabama Supreme Courts decision holding that the reduced award was still grossly excessive in violation of the Due Process Clause of the Fourteenth Amendment. –Three guideposts: Degree of reprehensibility of defendants conduct The ratio of actual damages to punitive damages The civil or criminal penalties that could be imposed for comparable misconduct. –Some courts did not follow these guideposts

14. 14 US Supreme Court Response State Farm (2003): –Plaintiff was awarded $2.6 million in compensatory damages and $145 million in punitive damages. –The US Supreme Court held that: The award was neither reasonable nor proportionate to the wrong committed, and it was irrational and arbitrary deprivation of the property of the defendant. Punitive damages should only be awarded in rare circumstances. Few awards exceeding a single digit punitive to compensatory damages ratio will satisfy due process. State Farm (2003): –Plaintiff was awarded $2.6 million in compensatory damages and $145 million in punitive damages. –The US Supreme Court held that: The award was neither reasonable nor proportionate to the wrong committed, and it was irrational and arbitrary deprivation of the property of the defendant. Punitive damages should only be awarded in rare circumstances. Few awards exceeding a single digit punitive to compensatory damages ratio will satisfy due process.

15. 15 US Supreme Court Response Factors listed by the court in State Farm: –Physical or economic harm. –Defendants conduct evidenced an indifference to or a reckless disregard of the health or safety of others. –Whether the target of the conduct was financially vulnerable. –Whether the defendants conduct was repeated or an isolated incident. –Whether the harm was the result of intentional malice, trickery, or deceit, or mere accident. Some courts still manage to ignore BMW and State Farm. Factors listed by the court in State Farm: –Physical or economic harm. –Defendants conduct evidenced an indifference to or a reckless disregard of the health or safety of others. –Whether the target of the conduct was financially vulnerable. –Whether the defendants conduct was repeated or an isolated incident. –Whether the harm was the result of intentional malice, trickery, or deceit, or mere accident. Some courts still manage to ignore BMW and State Farm.

16. 16 US Supreme Court Response Williams (2007): –Widow of heavy cigarette smoker sued tobacco companies. –Jury awarded $800,000 in compensatory damages and $79.5 million in punitive damages. –Court reduced to $500,000 and $32 million. –Both parties appealed. The Oregon Court of Appeals reversed and reinstated the $79.5 million judgment. –The U.S. Supreme Court of the United States granted certiorati and vacated the Court of Appeals judgment, remanding the case for the court to reconsider the amount of the punitive damages award. Williams (2007): –Widow of heavy cigarette smoker sued tobacco companies. –Jury awarded $800,000 in compensatory damages and $79.5 million in punitive damages. –Court reduced to $500,000 and $32 million. –Both parties appealed. The Oregon Court of Appeals reversed and reinstated the $79.5 million judgment. –The U.S. Supreme Court of the United States granted certiorati and vacated the Court of Appeals judgment, remanding the case for the court to reconsider the amount of the punitive damages award.

17. 17 US Supreme Court Response Williams (2007) contd: –The Oregon Court of Appeals and the Oregon Supreme Court both restored the punitive damages verdict again to $79.5 million. –Philip Morris USA petitioned again the U.S. Supreme Court for certiorati. –In a 5-4 decision, the U.S. Supreme Court ruled that a defendant may not be punished for harm caused to others and remanded. –The Oregon Supreme Court again upheld the punitive damages verdict in January 31, 2008. –PM petitioned for certiorati a third time unsuccessfully. –PM paid $61.1 million to the plaintiffs (other sums are in dispute at the moment) Williams (2007) contd: –The Oregon Court of Appeals and the Oregon Supreme Court both restored the punitive damages verdict again to $79.5 million. –Philip Morris USA petitioned again the U.S. Supreme Court for certiorati. –In a 5-4 decision, the U.S. Supreme Court ruled that a defendant may not be punished for harm caused to others and remanded. –The Oregon Supreme Court again upheld the punitive damages verdict in January 31, 2008. –PM petitioned for certiorati a third time unsuccessfully. –PM paid $61.1 million to the plaintiffs (other sums are in dispute at the moment)

18. 18 The States approach to control punitive damages: Evidence standard, additional factors. Majority of states now apply the clear and convincing evidence standard. Illinois –No punitive damages in product liability unless: Malice Knowledge of the defect Disregard the foreseeable harm that could result from the defect Majority of states now apply the clear and convincing evidence standard. Illinois –No punitive damages in product liability unless: Malice Knowledge of the defect Disregard the foreseeable harm that could result from the defect

19. 19 The States approach to control punitive damages: Bifurcation Bifurcation approach –California, Georgia, Florida –It separates the determination of the amount of punitive damages from the remaining issues at trial. –It allows the trier of facts to address compensatory damages under the preponderance of the evidence standard and punitive damages under the clear and convincing evidence standard. Bifurcation approach –California, Georgia, Florida –It separates the determination of the amount of punitive damages from the remaining issues at trial. –It allows the trier of facts to address compensatory damages under the preponderance of the evidence standard and punitive damages under the clear and convincing evidence standard.

20. 20 The States approach to control punitive damages: Caps and No Punitive Damages Limits on the amounts (capping) –Georgia, Florida, Nevada, Connecticut No punitive damages –Louisiana and New Hampshire: Unless authorized by the law of the state where the injury occurred or the law of the place where the injured party was domiciled. –Federal Law: No punitive damages but for a few causes of action such as RICO or some trademark and patent laws. Limits on the amounts (capping) –Georgia, Florida, Nevada, Connecticut No punitive damages –Louisiana and New Hampshire: Unless authorized by the law of the state where the injury occurred or the law of the place where the injured party was domiciled. –Federal Law: No punitive damages but for a few causes of action such as RICO or some trademark and patent laws.

21. 21 The States approach to control punitive damages: Split recovery statutes Split Recovery statutes –Split the punitive damages award with the state. –Reduces the incentive to bring punitive damages claims. –Because punitive damages are quasi-criminal and quasi-public in nature the public should get part of the award after the victim has been compensated. Split Recovery statutes –Split the punitive damages award with the state. –Reduces the incentive to bring punitive damages claims. –Because punitive damages are quasi-criminal and quasi-public in nature the public should get part of the award after the victim has been compensated.

22. 22 Civil Law examples Traditionally rejected in civil law jurisdictions that follow compensatory-only system. However, in many civil law countries, some doctrine and jurisprudence calls for applying moral damages as punitive damages. –Moral damages are compensatory in nature as they are intended to compensate for pain and suffering. –In some civil law jurisdictions such as Brazil, however, courts have gone outside of the law and awarded moral damages citing for pedagogic or deterrent purposes. Traditionally rejected in civil law jurisdictions that follow compensatory-only system. However, in many civil law countries, some doctrine and jurisprudence calls for applying moral damages as punitive damages. –Moral damages are compensatory in nature as they are intended to compensate for pain and suffering. –In some civil law jurisdictions such as Brazil, however, courts have gone outside of the law and awarded moral damages citing for pedagogic or deterrent purposes.

23. Civil Law examples Civil law jurisdictions have also traditionally rejected petitions to enforce foreign punitive damages awards. –The Italian Cassation Court denied a petition to enforce an Alabama ruling that granted US$1 million in punitive damages against an Italian company, holding that punitive damages are a peculiarity of American law and offensive to Italian notions of justice. –In Germany, the Supreme Court denied enforcement of an American courts US$400,000 punitive damages award on similar grounds, holding that damages have a compensatory-only nature and are not designed to allow the enrichment of the victim. Civil law jurisdictions have also traditionally rejected petitions to enforce foreign punitive damages awards. –The Italian Cassation Court denied a petition to enforce an Alabama ruling that granted US$1 million in punitive damages against an Italian company, holding that punitive damages are a peculiarity of American law and offensive to Italian notions of justice. –In Germany, the Supreme Court denied enforcement of an American courts US$400,000 punitive damages award on similar grounds, holding that damages have a compensatory-only nature and are not designed to allow the enrichment of the victim. 23

24. Civil Law examples However, punitive damages are starting to make inroads in some jurisdictions. –In Argentina, 2008 Consumer Code Amendment allows for punitive damages of up to $5 million pesos. –In Spain, the Supreme Court held that punitive damages are not necessarily incompatible with Spanish public policy. –Proposals to allow for punitive damages in class action bill in Mexico City, consumer code proposal in Peru, and some bills dealing indirectly with punitive nature of damages in Brazil. However, punitive damages are starting to make inroads in some jurisdictions. –In Argentina, 2008 Consumer Code Amendment allows for punitive damages of up to $5 million pesos. –In Spain, the Supreme Court held that punitive damages are not necessarily incompatible with Spanish public policy. –Proposals to allow for punitive damages in class action bill in Mexico City, consumer code proposal in Peru, and some bills dealing indirectly with punitive nature of damages in Brazil. 24

25. 25 Conclusions High punitive damages awards are not very common. Controlled by courts of appeal. The US Supreme Court has taken action to control punitive damages Several states have taken action to control punitive damages. There are criminal, quasi-criminal and administrative actions to punish wrongdoings. Uncontrolled punitive damages awards threaten social and economic order, and unjustly enrich a few plaintiffs and especially the lawyers. The Civil Law awards should compensate plaintiff for the damages suffered. High punitive damages awards are not very common. Controlled by courts of appeal. The US Supreme Court has taken action to control punitive damages Several states have taken action to control punitive damages. There are criminal, quasi-criminal and administrative actions to punish wrongdoings. Uncontrolled punitive damages awards threaten social and economic order, and unjustly enrich a few plaintiffs and especially the lawyers. The Civil Law awards should compensate plaintiff for the damages suffered.