Predictability in punitive damages: considering the use of punitive damage multipliers.

• Author: Cronan, Sarah G.

DEBATE ABOUT the various issues arising from the award of punitive damages, particularly in the context of mass tort and complex litigation, has raged for decades in courtrooms, classrooms, and the media. Faced with a class action lawsuit, or a multitude of lawsuits from hundreds to thousands of plaintiffs seeking compensatory and punitive damages, courts and counsel struggle to handle the issues surrounding punitive awards in the most economic and efficient manner that meets constitutional muster. For defendants in these lawsuits, the potential of being subjected to multiple punitive damage awards in different amounts--and the economic uncertainty that necessarily follows--presents an especially vexing situation.

Defendants in mass tort, multi-district, and class action litigation often face lawsuits from numerous plaintiffs, each of whom is entitled to assert a claim for and potentially obtain an individual award of punitive damages for a single, allegedly egregious act. (1) While these multiple punitive awards may range from de minimus to an award that exceeds constitutional boundaries, in the aggregate, the cost to a defendant can be catastrophic, ultimately bankrupting a defendant and leaving future plaintiffs without recourse for their actual damages.

One solution to this problem may be the punitive damage multiplier. Rather than awarding a single punitive damage award in each case, under the multiplier approach, a jury sets a mathematical relationship between punitive and compensatory damages by establishing a dollar-for-dollar ratio after hearing evidence of the reprehensibility of the defendant's conduct, including consideration of the harm to nonparties. (2) Over the past decade, the U.S. Supreme Court has made numerous attempts to provide more clarity to the calculation of punitive damage awards. Significantly, the Supreme Court suggested in Exxon Shipping Co. v. Baker that a multiplier approach may be the best way to decrease the unpredictability of punitive damage awards. (3)

Although the idea of a punitive damage multiplier has not yet been widely recognized, various courts and commentators have considered the use of a multiplier to increase the efficiency of complex litigation. This article examines the possibility of having juries use a punitive damage multiplier to determine punitive damages in class action or mass tort litigation, paying particular attention to the advantages and disadvantages of its use. In addition, this article will also analyze the context in which courts have utilized a multiplier approach and the common arguments presented by parties in favor of and opposed to punitive damage multipliers.

1. Recent U.S. Supreme Court Punitive Damage Jurisprudence

   The most often cited rationale underlying punitive damage awards is the public function they serve: to punish and deter behavior society deems objectionable, similar to the function of criminal punishments. (4) In order to achieve this goal, however, courts must provide for some predictability in punitive awards. (5) Research on punitive damage awards has revealed that a major source of unpredictability in how juries decide punitive damage awards "comes from the fact that people do not know how to 'translate' their moral judgments into dollar amounts." (6) In response, the U.S. Supreme Court has attempted to provide guidance in calculating a punitive award that both meets the requirements of Due Process and provides the necessary predictability for the award to fairly and adequately fulfill its function.

   In 2007, the Supreme Court considered the Constitution's Due Process limitations with respect to awarding punitive damages in Phillip Morris U.S.A. v. Williams. (7) In Phillip Morris, the Court concluded that the Due Process Clause forbids a state from awarding punitive damages to punish a defendant for injuries to nonparties because such awards threaten punishment for conduct against which the defendant has no opportunity to defend. (8) While punitive damages cannot be awarded as punishment for injuries suffered by nonparties, juries are allowed to consider the harm to nonparties in determining a defendant's reprehensibility. (9) Thus, the Due Process Clause requires states to provide juries with adequate legal guidance, and to use procedural tools that ensure juries are accounting for the harm caused to nonparties to determine reprehensibility only, and not to punish the defendant for such harm to nonparties. (10) The Court offered little guidance on how states should provide these safeguards, providing only that "[a]lthough the states have some flexibility to determine what kind of procedures they will implement, federal constitutional law obligates them to provide some form of protection in appropriate cases." (11) With this decision, the Supreme Court challenged courts to develop procedures that ensure juries engage in appropriate inquiries and reach punitive damage awards that account for the reprehensibility of defendants' conduct without punishing them based on harm to nonparties.

   The Supreme Court spoke again on the issue of punitive damages in June 2008 in Exxon Shipping Co. v. Baker. (12) That case considered the validity of a $5 million punitive damage award against Exxon arising out of 1989 Exxon Valdez oil spill. The Court reduced the punitive damages verdict by half, and limited the ratio of compensatory to punitive damages to 1:1 in maritime cases. (13) Although the holding is limited to maritime law, the opinion offers interesting commentary on the problems of punitive damage awards and some solutions that have been formulated to address those problems.

   The Exxon Court noted that, despite states' efforts to limit damages awards by setting statutory limits and maximum ratios on punitive to compensatory damages, punitive damage awards are "higher and more frequent in the United States than they are anywhere else." (14) The Court noted that the "real problem [of punitive damages] is the stark unpredictability of punitive awards." (15) "Courts of law are concerned with fairness [and] consistency," but the evidence illustrates that factually similar cases often result in inconsistent punitive awards. (16) For example, in two cases with "strikingly similar facts," the juries awarded comparable compensatory damages, but one jury awarded $4 million in punitive damages and the other did not award any punitive damages. (17) In the Exxon Court's discussion of how to eliminate this unpredictability, the Court suggested "pegging punitive to compensatory damages using a ratio or maximum multiple" as an alternative to hard dollar caps, which do not account well for inflation. (18) This suggestion focuses on the injury of the plaintiffs by tying the amount of punishment to the level of injury. At least one commentator has...