Assessing punitive damages (with notes on cognition and valuation in law).

Author:Sunstein, Cass R.
 
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CONTENTS

  1. INTRODUCTION: ARBITRARINESS, UNPREDICTABILITY,

    AND VALUATION PROBLEMS

    1. Two Goals

    2. Shared Outrage and Erratic Awards

  2. DETERRENCE, RETRIBUTION, AND THE CONSTITUTION

    1. The Goals of Punitive Damages

      1. Deterrence

        1. Conventional Arguments

        2. Puzzles and Problems with the Deterrence Justification

      2. Retribution

    2. The Constitution and Punitive Damages

      1. Substantive Versus Procedural Interpretations of Unconstitutional

        Punishment

      2. Leading Cases

      3. The Need for an Understanding of Jury Variability To Inform

        Constraints on Punitive Damages

  3. WHY PUNITIVE DAMAGE AWARDS ARE ERRATIC

    1. Shared Outrage

    2. Hypotheses

    3. Results

      1. Shared Outrage

      2. Unpredictable Dollar Awards

      3. The Effects of Context, Harm, and Firm Size

    4. Discussion

      1. The Underlying Problem: "Scaling Without a Modulus"

      2. A Simple Way. To Improve Predictability

  4. POLICY REFORMS: COMMUNITY JUDGMENTS WITH MEANING

    AND WITHOUT NOISE?

    1. Preliminary Observations on Limitations and Reform

      1. Experiments and the Real World

      2. Anchors and Their Effects

      3. The Rule of Law and How To Obtain (and How

        To Obtain) Its Virtues

      4. Deterrence and Retribution

    2. Punitive Damages Reform

      1. Predictable Populism: Community Judgments

        About Dollars

        1. Administrative Issues

        2. Two Phases

        3. Using Scenarios and Cases: A Note on

        Existing Practice

      2. Technocratic Populism: Using Punitive Intent

        but Not Dollars

        1. Phase One: The Jury's Role

        2. Calibration and Phase Two: Translating Jury

        Judgments into Dollars

      3. Civil Sentencing and Bureaucratic Rationality:

        The Partial or Complete Elimination of Juries

      4. Evaluating the Alternatives: The Proposed Reforms,

        Caps, and Multipliers

  5. IMPLICATION, EXTENSIONS, AND SPECULATIONS

    1. Difficult Damage Determinations

      1. Pain and Suffering

      2. Libel

      3. Intentional Infliction of Emotional Distress and

        Sexual Harassment

      4. Compensatory Versus Punitive Damages:

        General Considerations

    2. Other Valuation Problems

      1. Regulatory Expenditures

      2. Prison Terms

      3. Contingent Valuation

  6. CONCLUSION

    APPENDIX A: EXPERIMENTAL DESIGN

    1. Sample and Procedure

    2. Design and Stimuli

    APPENDIX B: EXCERPTS FROM INSTRUCTIONS

    APPENDIX C: PERSONAL INJURY SCENARIOS

    APPENDIX D: TABLES

  7. INTRODUCTION: ARBITRARINESS, UNPREDICTABILITY, AND VALUATION PROBLEMS

    1. Two Goals

      This Article has two goals. The first is to investigate the sources of arbitrariness and unpredictability in punitive damage awards. On the basis of responses from 899 jury-eligible citizens, we estimate the results of deliberations consisting of all white juries, all African-American juries, all female juries, all male juries, all wealthy juries, all poor juries, and juries of widely diverse degrees of age and education.

      Our principal conclusions, stated briefly,(1) are that at least in the personal injury cases studied here, people's moral judgments are remarkably widely shared, but that people have a great deal of difficulty in mapping such judgments onto an unbounded scale of dollars. Shared moral judgments but erratic, unpredictable, and arbitrary awards, possibly even meaningless awards, are a potential product of this difficulty. Since participants in law are frequently asked to map their judgments onto an unbounded dollar scale, this problem relates not only to punitive damage reform but also to a number of other positive and normative questions now faced by the legal system, including the law governing awards for pain and suffering, libel, sexual harassment and other civil rights violations, intentional infliction of emotional distress, administrative penalties, and contingent valuation. In addition to identifying serious problems in current practices and suggesting possible reforms, our study points in the direction of a large and potentially fruitful research agenda.

      Our second goal involves what might be called the behavioral analysis of law. In the past three decades, a great deal of progress has come from the application of a certain understanding of economics to legal problems. Within economics and psychology, but outside law, that understanding has been under sustained attack. Within social science generally, the attack has produced insights that supplement, and sometimes undermine, those versions of economics that have undergirded economic analysis of law. These insights very much bear on law. Our study is thus an effort to contribute to the behavioral analysis of law, a field at its inception but showing signs of considerable growth.(2) Our findings also help show what might be missing, impractical, or wrong in standard economic approaches to punitive damage awards and does so in a way that bears on a range of additional issues as well.

    2. Shared Outrage and Erratic Awards

      The awarding of punitive damages has become one of the most controversial and important uses of tort law, extending well beyond the common law to such statutory areas as environmental protection(3) and employment discrimination.(4) Punitive damages are allowed in forty-seven of the fifty states,(5) and over sixty federal statutes now permit the award of punitive damages,(6) making judicial review of punitive awards a significant part of federal law.

      The purposes of such awards are not obscure. Sometimes compensatory awards provide insufficient deterrence of private behavior because some injured parties do not detect and seek compensation for their injuries. Punitive damages can, in theory, take account of the infrequency of private suits by penalizing defendants enough ex post that they will undertake optimal precautions ex ante.(7) Moreover, punitive damages may have a retributive or expressive function, designed to embody social outrage at the actions of serious wrongdoers.(8) They may reflect the "sense of the community" about the egregious character of defendants' actions.(9)

      Whatever their ultimate purposes, the most widespread concern about punitive damages has been that they are unpredictable, even "out of control."(10) Consider, as possible examples of this phenomenon, a punitive award of $4 million for nondisclosure of the fact that the plaintiff's new BMW had been repainted;(11) a $6 million punitive award for tortious interference with contractual relations;(12) a punitive award of $80 million, reduced to $7.8 million, for racial discrimination even though the employee had found comparable employment;(13) a $30 million punitive award, subsequently reduced to $6 million, for anticompetitive conduct;(14) and a $2.7 million punitive award, later reduced to $480,000, to a woman who spilled hot coffee on herself.(15)

      These are mere anecdotes, but there is more systematic evidence of unpredictability as well.(16) One study of forty-seven counties in eleven states over a several-year period showed a high degree of variability: Punitive damages were awarded in about 25% of the successful verdict cases in some counties and not awarded at all in others.(17) Median verdicts ranged from less than $10,000 in some areas to as much as $204,000 in San Diego.(18) Leaders of the House of Representatives have said, in a way that captures the conventional wisdom, that the arbitrary character of punitive damage awards produces an affront to the rule of law by "distributing awards in a random and capricious manner,(19) and that they should be subject to a cap of three times the actual harm.(20) Congress continues to debate bills that would limit the availability and amount of punitive damages.(21)

      It is not difficult to understand the widespread concern with erratic punitive damage awards. If similarly situated people--plaintiffs and defendants alike--are not treated similarly, erratic awards are unfair. As a matter of fairness, the evidence suggests that some awards are too low, while others are too high. From the standpoint of economic efficiency, unpredictable awards need not be troublesome; perhaps individual awards cannot be calculated in advance, but if people can calculate the expected value of the relevant risks, there should be no efficiency loss. If awards are unpredictable, however, resources are likely to be wasted on that calculation, and as a practical matter, a risk of extremely high awards is likely to produce excessive caution in risk averse managers and companies.(22) Hence unpredictable awards create both unfairness and (on reasonable assumptions) inefficiency, in a way that may overdeter desirable activity.(23)

      Our principal interest here is in identifying some of the sources of unpredictability in jury judgments.(24) On the basis of responses from 899 jury-eligible citizens, we offer a number of findings. Three are particularly important.

      (1) People have a remarkably high degree of moral consensus on the degrees of outrage and punishment that are appropriate for punitive damage cases.(25) At least in the products liability cases we offer, this moral consensus, on what might be called outrage and punitive intent, cuts across differences in gender, race, income, age, and education. For example, our study shows that all white, all black, all Hispanic, all female, all male, all poor, all wealthy, all old, and all young juries are likely to come to similar conclusions about how to rank a range of cases.

      (2) This consensus fractures when the legal system uses dollars as the vehicle to measure moral outrage. Even when there is a consensus on punitive intent, there is no consensus about how much in the way of dollars is necessary to produce appropriate suffering in a defendant. Under existing law, widely shared and reasonably predictable judgments about punitive intent become highly erratic judgments about appropriate dollar punishment. A basic source of arbitrariness within the existing system of punitive damages (and a problem not limited to the area of punitive damages) is the use of an unbounded dollar scale.

      (3) A modest degree of additional arbitrariness is created by the fact that juries have a hard time making appropriate distinctions among cases when they are not comparing them directly...

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