Punitive Damages: From Myth to Theory

Summary

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In this Article, I argue that the current problem with punitive damages in the United States is not, as popularly is believed, that they are out of control and threatening the orderly function of the tort system. Punitive damages suffer from a different sort of crisis-courts now lack an adequate theory to explain to themselves, lawyers, and litigants the purpose of punitive damages. The argument contains the following steps. First, I illustrate that the dominant rationale in recent years for punitive damages has been efficient deterrence. Second, I argue that the current practice of punitive damages is ill-suited to the achievement of efficient deterrence, which explains why it has been so easy for critics of the tort system to characterize punitive damages as a failed branch of civil litigation. Third, I argue that the remaining significant nondeterrence theories of punitive damages-including the theory developed by the United States Supreme Court in a series of recent decisions-fail to provide an adequate theory of punitive damages. Fourth, I argue that the point of punitive damages can be understood as a form of private retribution, and I use the history of punitive damages in England and the United States as well as the work of the philosopher Jean Hampton to illustrate my point. Fifth, I argue that the theory of punitive damages as "private retribution"-which sounds odd to the modern ear-fits surprisingly well with modern theories of the tort system that view tort law as a system of civil recourse for citizens who have suffered wrongs in private law.

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Punitive Damages: From Myth to Theory

Anthony J. Sebok: Many thanks to Ted Eisenberg, Mark Geistfeld, John Goldberg, Mike Green, Myriam Gilles, Dan Markel, Robert Rabin, Gideon Rosen, David Rosenberg, Cathy Sharkey, Larry Solan, Stephen Sugarman, Ben Zipursky, and the participants in faculty workshops at Brooklyn Law School, Fordham Law School, U.N.C. Law School, N.Y.U. School of Law, Princeton University, Rutgers University School of Law-Camden, The University of Texas School of Law, and the University of Toronto. This Article was written with the support of the Summer Research Grant Program of Brooklyn Law School, as well as the Program in Law and Public Affairs, Princeton University, where I was a Fellow in 2005-2006. My research assistants, Ningur Akoglu, BLS '05, Simon Lee, BLS '06, and Ryan Micallef, BLS '06, provided invaluable assistance. All mistakes are my responsibility.

I. Introduction

Punitive damages have become an important topic in the United States. Until about twenty years ago, punitive damages were an obscure feature of American tort law that was rarely discussed outside of academic circles. Over the past few decades, media coverage of punitive-damages decisions and criticisms of punitive damages by the business community have placed punitive damages at the center of a debate over their proper scope and purpose.1

The debate has had an effect. Punitive damages have lately been on the retreat. Beginning in the 1980s, nineteen states have reduced them through caps and ratios,2 and starting with the decisions BMW of North America v. Gore3and State Farm Mutual Automobile Insurance Co. v. Campbell,4 the Supreme Court has begun to use the Due Process Clause of the Constitution to limit the states' power to impose punitive damages.

American tort law, therefore, is in the midst of a major reexamination of punitive damages-the final chapter of which has not yet been written. Some tort scholars predict that this reexamination will be bad for the law in that it will weaken tort law's ability to protect vulnerable parts of the citizenry.5 Others celebrate this reexamination, predicting that it will be good for the law in that it will protect defendants-especially corporations- from capricious and potentially devastating judgments.6

This Article argues that the current debate over punitive damages is unlikely to produce any useful recommendations for legislators or judges about how to think about punitive damages. This is for two reasons. First, the tort reformers' original motivation for reexamining punitive damages was based on a faulty premise. Contrary to the claims of the reformers, punitive damages had not been, nor were they on the verge of, getting out of control. Second, the most current attempts to explain the function of punitive damages fail to justify the practice. As a result, although punitive- damages critics might not be able to demonstrate that punitive damages are actively harming the legal system, they have gained the upper hand merely because punitive-damages defenders cannot explain what positive contribution such damages make that is not already being done more effectively by some other branch of the law. In short, this Article argues that, although there is no crisis in punitive-damages litigation, there was, and still is, a crisis in punitive-damages theory.

In Part II, I will argue that the tort reformers' motivation for the reexamination of punitive damages that captured the attention of legislatures and the current Supreme Court-that punitive damages were (or were about to become) out of control-was groundless. As I will show in Part II, Section A, the idea that punitive damages were out of control had many overlapping meanings, but one stood out: That the ratio between the compensatory damages and punitive damages awarded was growing increasingly large in a noteworthy number of cases. While some scholars, notably Ted Eisenberg, have attempted to deflate this fear, a number of other scholars, especially from the perspective of law and economics, chose to turn the vice of high ratios into a virtue. They argued that if a system of punitive damages is to serve its core function of deterrence, high ratios would be a necessary and natural side effect.7 I will argue that this response compounded the original error made by the critics of punitive damages. As I will show in Part II, Section B, it is very hard to make a convincing case for the current practice of punitive damages based on a theory of efficient deterrence, so any argument that relies upon the goal of efficiency simply strengthens the case against punitive damages as they are awarded currently by most courts in the United States.

In Part III, I examine two current nonefficiency-based theories of punitive damages drawn from the decisions of the Supreme Court and recent scholarship. My goal is to dis...

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