TABLE OF CONTENTS Introduction I. The Legal Framework II. Justifications for Punitive Damages A. From Compensatory to Non-Compensatory Rationales B. Deterrence 1. Outline 2. Optimal Deterrence and Internalization of Harm 3. Absolute Deterrence and Disgorgement of Gain C. Retribution III. Taking into Account the Defendant's Income A. Deterrence B. Retribution IV. The Proposed Model A. The Criminal Law Lead B. Tort Law Adaptation V. Theoretical Defense of the Model A. Deterrence B. Retribution VI. Challenges and Concerns A. Constitutional Constraints B. Statutory Caps C. Procedural Tools Conclusion INTRODUCTION
Punitive damages are sums awarded to tort victims over and above their compensable harm. (1) Despite their relative rarity, (2) they have been very salient in the media, (3) preoccupied appellate courts, (4) and fascinated scholars for decades. (5) This prominence may be attributed, at least in part, to a combination of doctrinal idiosyncrasy and stupefying case outcomes. On the doctrinal level, punitive damages are a civil law remedy which is patently inconsistent with the traditional goals of civil law. From a case outcome perspective, the debate is fueled by "blockbuster awards," (6) such as a $145 billion award in a class-action brought against tobacco companies in Florida (7) and a $28 billion award in an individual action against Philip Morris in California. (8) While in both cases, as in many others, the extraordinary jury awards were ultimately reduced or overturned, they have surely left a notable mark.
The availability of punitive damages seems undisputed in most common law jurisdictions, but their measure remains controversial. (9) In particular, it is unclear whether and how courts and juries should take the defendant's wealth into account in assessing punitive damages. (10) This Article puts forward and defends an innovative yet simple method for incorporating this factor into the calculation. The proposal is based on an adaptation of a criminal law model, known as "day-fines," which has been primarily used in European and Latin-American legal systems. (11) A criminal day-fine model is based on two variables: "number of days" and "daily unit." (12) The former represents the gravity of the offense; measuring gravity in days makes the monetary sanction conceptually and substantively commensurate with incarceration. The latter reflects the offender's financial condition. A daily unit usually constitutes a fixed portion of the convicted delinquent's daily income. The two factors are multiplied to ascertain the total fine.
Building on global criminal law experience, we propose a new model for assessing punitive damages. In brief, if the gravity of the wrong seems to justify an extra-compensatory award, the scope of punitive damages will be determined in several steps. First, the court will determine the gravity of the wrong and translate it into corresponding "severity units" (analogous to the "number of days" in the criminal law model). Next, the court will assess the wrongdoer's daily income, broadly defined, or a particular fraction thereof. This is the "unit value" (analogous to the daily unit in the criminal law model). The product of these two variables constitutes "total damages." Lastly, if total damages are greater than compensatory damages in the particular case, the punitive award should equal the difference between total damages and compensatory damages. If total damages are lower than compensatory damages, punitive damages should be nil. In such cases the monetary sanction that would serve the twin goals of punitive damages, deterrence and retribution, is lower than compensatory damages. However, as long as tort law is committed to rectification of harm, compensatory damages will set the lower limit of the monetary award.
The Article unfolds in six parts. Part I outlines the development of the law governing punitive damages. Part II analyzes the possible rationales for this unique "middle-ground" doctrine, focusing on deterrence and retribution. Part III considers whether the defendant's wealth should be considered in assessing punitive damages in light of their underlying goals. Part IV demonstrates how the defendant's wealth can be integrated into the calculation. It extracts the foundations from European criminal justice systems and adapts the model to American civil law. Part V defends the proposed model from the relevant theoretical perspectives. Lastly, Part VI discusses potential hurdles to the implementation of the new model--constitutional constraints, statutory caps on punitive damages, and the need for special procedural tools.
THE LEGAL FRAMEWORK
Originating in England in the mid-eighteenth century, (13) punitive damages were soon imported into America. The first reported case was Genay v. Norris, (14) where the court held that a person poisoned by another was entitled to exemplary damages. (15) A few years later, in a breach of promise of marriage case, the court instructed the jury "not to estimate the damages by any particular proof of suffering or actual loss; but to give damages for example's sake, to prevent such offences in future." (16)
A fierce debate over the availability and legitimacy of punitive damages erupted in the mid-nineteenth century between Simon Greenleaf and Theodore Sedgwick. On the descriptive level, Greenleaf insisted that damages constituted compensation for an actual harm, and should be "precisely commensurate with injury; neither more nor less." (17) Sedgwick contended that in cases of fraud, malice, gross negligence, or oppression, the law permitted punitive damages, thereby blending the public and private interests. (18) Greenleaf responded that Sedgwick misinterpreted the case law, confusing courts' willingness to let juries weigh intangible harms in assessing damages with recognition of non-compensatory damages. (19) On the prescriptive level, Greenleaf advocated a clear distinction between private and public law, insisting that a plaintiff in tort should not be permitted to vindicate the state's interests. (20) Sedgwick opined that a division between the public and private interests was "entirely fanciful and imaginary," and that "the sooner the idea [of damages as compensation] is got out of the head of a practical lawyer the better." (21)
The Supreme Court settled the dispute in Day v. Woodworth, (22) holding that the jury in a tort action could inflict exemplary, punitive, or vindictive damages on the defendant, based on the enormity of his wrong rather than the measure of the plaintiffs harm. The Court explained that despite past controversy, "repeated judicial decisions for more than a century are to be received as the best exposition of what the law is." (23) Of course, courts are still committed to the principle of reparation for actual harm, but most states allow punitive damages in exceptional cases, defined by the severity of the defendant's conduct." (24)
Since its recognition, the doctrine has expanded in three significant respects. First, by the early nineteenth century it had become clear that punitive damages were available not only under state common law, but also under Federal maritime law. (25) Second, by the end of the nineteenth century most jurisdictions allowed punitive damages awards not only against individuals, but also against corporations. (26) Still, there has been some controversy about the availability of the remedy against corporations liable under the doctrine of respondeat superior. (27) The controversy also persists in Federal maritime law. In the Exxon Valdez case, the district court instructed the jury that punitive damages could be awarded against a principal (particularly a corporation) because of an act by an agent, inter alia, where the agent was employed in a managerial capacity and was acting in the scope of employment. (28) The Ninth Circuit upheld this instruction. (29) Exxon, the defendant, argued that courts could not award punitive damages under maritime law against ship owners for actions by underlings not "directed," "countenanced," or "participated in" by the owners. (30) The Supreme Court was equally divided on this question, and therefore left the Ninth Circuit's opinion undisturbed without setting a precedent on this matter. (31) Third, while punitive damages were originally awarded in cases of malicious and mean-spirited conduct, (32) the doctrine has expanded in some jurisdictions to cases of recklessness" (11) and even gross negligence. (34) These three developments laid the foundations for the unprecedented, though ultimately reduced, punitive damages award in the famous Exxon Valdez case. (35)
On the other hand, in the twentieth century the doctrine was somewhat restrained. In many states, the plaintiff was required to satisfy a higher standard of proof, such as "clear and convincing evidence," to obtain punitive damages.,(S Moreover, in most states, punitive damages were subject to a statutory cap--a fixed upper limit or a single-digit punitive-to- compensatory-damages ratio. (37) A few state legislatures banned punitive damages generally, or in certain types of cases, such as actions against the state or public officials, medical malpractice cases, and claims against drug manufacturers. (38) Since the mid-1980s, a few state legislatures have also enacted split-recovery statutes, providing that a certain percentage of any punitive damages award shall be paid to the state. (39) Because one of the primary goals of these statutes was to prevent unusual windfalls to plaintiffs, this trend has halted once the Supreme Court limited the punitive-to-compensatory damages ratio. (40)
Most importantly, it was held that the Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary penalties on a wrongdoer. (41) A punitive damages award is therefore subject to substantive due process review. In BMW v. Gore (42) the Supreme Court...