CHAPTER 10 HOW PUNITIVE DAMAGES REALLY WORK

• Jurisdiction: United States
• Publication year: 2018

For more than fifty years I have personally seen the fear in the faces of corporate executives faced with a suit claiming wrongful conduct and punitive damages. Even for those who knew that they had acted properly and fairly and that the allegations of the suit were totally spurious, the fear and trembling engendered by a suit seeking punitive damages is patent.

The defendant who should be leading a charge like General Patton acts more like Prime Minister Neville Chamberlain. Defendants seem to prefer to appease a plaintiff rather than litigate good and viable defenses. Unless counsel advises a 100% chance of total victory—a statement no trial lawyer will ever make—the defendant does not want to go to trial and is willing to pay more than he or she owes to avoid the potential of a serious punitive damage judgment.

In March 1996 Steven Hayward, the Vice President of research for the Pacific Research Institute for Public Policy, and William S. Loughman published a paper called The Role of Punitive Damages in Civil Litigation—New Evidence from Lawsuit Filings¹ that established empirically that the problem with punitive damages is not the award of the judgment but the effect of claims for punitive damages on settlement of other cases.

The highlights of the analysis of these cases include:

• 78% of all punitive damage demands were filed against a business defendant.

• Government defendants face punitive demands in more than one-third of lawsuits filed against government agencies.

• Lawsuits that include punitive damage demands take about six months longer to resolve than lawsuits that do not include punitive damage demands.

• The probability of a punitive damage award if a case proceeds to trial is 14% or higher. For business defendants, the probability is more than 20%.

Contrary to common belief, the chances of a suit seeking punitive damages actually obtaining an award of punitive damages is very small. Hayward and Loughman found that between 1.5 and 2% of all cases filed go to trial. The punitive awards are a small, and possibly insignificant, gauge of the effect of claims of punitive damages claims on litigation. The study found that

the large disparity between median punitive award amounts and average award amounts ($50,000 and $735,000 respectively in the estimates) highlights the unpredictability of punitive awards. . . . [P]unitive damages are unpredictable and arbitrary. In California cases during [1990 and 1994] the range of punitive awards runs from 710 times compensatory damages to 0.0001 times compensatory. In one case, a defendant who was not assessed any compensatory damages was nevertheless hit with $62,000 in punitive damages. It is precisely this uncertainty that provides the plaintiff with additional leverage in the settlement process.

In addition, research by Mr. Loughman established:

Lawsuits that include punitive damage demands take

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