Limitations on Punitive Damages

• Pages: 229-265

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CHAPTER VIII

LIMITATIONS ON PUNITIVE DAMAGES

Like treble da mages in private antitrust litigation, punitive

damages raise the stakes in business tort litigation. Unlike treble

damages, however, punitive da mages historically have neither

been automatic nor fixed in a strict ratio to actual damages.

With the ascent of so-called tort reform have come efforts by

courts and legislatures to limit the availability and the amount of

punitive damages awards. This chapter examines the leading

Supreme Court decisions involving punitive damages, as well a s

efforts by the lower federa l courts, state courts, and legislatures

to define the standards under which punitive da mages may be

imposed. – Eds.

A. Introduction

The case law surrounding punitive damages was, for many years,

rapidly developing, with major Supreme Court decisions being issued

almost annually. In the past few years, the law surrounding punitive

damages, particularly in the business tort context, has matured. This

Chapter reviews the historical forces that have influenced this area of law

and analyzes the various decisions and significant state rulings and

statutory responses that define the current law of punitive damages.

B. The Nature and Purpose of Punitive Damages

The Supreme Court’s jurisprudence in this area is driven by the

fundamental difference between compensatory and punitive damages.

Whether cast as general or special, compensatory damages “are intended

to redress the concrete loss that the plaintiff has suffered by reason of the

defendant’s wrongful conduct.”

1

Punitive damages, by contrast, are

designed for deterrence and punishment.

2

As the concept of compensatory damages has evolved over the years

to include compensation for intangible injuries, the concept of punitive

1

. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 41 6 (2003)

(internal quotations marks and citations omitted); Cooper Indus. v.

Leatherman Tool Grp., 532 U.S. 424, 432 (2001).

2

. Campbell, 538 U.S. at 416.

230 Business Torts and Unfair Competition Hand book

damages has evolved as well. The English Courts of the eighteenth

century resorted to the doctrine of exemplary (or punitive) damages to

authorize monetary awards exceeding a party’s tangible harm, explaining

that such awards were justified as compensation for mental suffering,

wounded dignity, and injured feelings.

3

As late as the middle of the

twentieth century, several American states still viewed punitive damages

as a means of compensating a party for intangible injury not accounted

for in the legal measure of compensatory damages.

4

Until there were

separate awards for intangible injuries, punitive damages were a useful

device to make an injured party whole.

Today, punitive damages are no longer viewed as providing

compensation for a litigant. Because compensatory damages now redress

intangible harms such as pain and suffering, and intentional, or even

negligent, infliction of emotional distress,

5

“it should be presumed a

plaintiff has been made whole for his injuries by compensatory

damages.”

6

“As the types of compensatory damages available to

plaintiffs have broadened, . . . the theory behind punitive damages has

shifted toward a more purely punitive (and therefore less factual)

understanding.”

7

Consequently, it is now well-established that

compensatory and punitive damages serve distinct purposes.

8

Rather than

serving as a determination of intangible harm suffered by a party,

“[p]unitive damages serve a broader function; they are aimed at

deterrence and retribution.”

9

C. Supreme Court Jurisprudence Before

Campbell

1.

Eighth Amendment

The Eighth Amendment provides that “[e]xcessive bail shall not be

required, nor excessive fines imposed, nor cruel and unusual

punishments inflicted.”

10

However, while punitive damages are imposed

through the authority of courts, serve to advance governmental interests

3

. Note, Exemplar y Da mages in the Law of Torts , 70 H ARV. L. REV. 517 ,

519 (1957).

4

. Id. at 520 & n.32.

5

. See Bogle v. McClure, 332 F.3d 1347, 1358-59 (11th Cir. 2003).

6

. Campbell, 538 U.S. at 419.

7

. Cooper Indus. v. Leatherman Tool Grp., 532 U.S. 424, 437 n.11 (2001) .

8

. Id. at 432.

9

. Campbell, 538 U.S. at 416; see also Pacific Mut. Life Ins. Co. v. Haslip,

499 U.S. 1, 19 (1991); Cooper Ind us., 532 U.S. at 432.

10

. U.S. CONST. amend. VIII.

Limitations on Punitive Damages 231

in punishment and deterrence,

11

and have been described as a quasi-

criminal punishment

12

and a type of “private fine,”

13

the Excessive Fines

Clause of the Eighth Amendment has never acted as a meaningful

restraint on either the availability or amount of punitive damages.

The Supreme Court addressed this issue in Browning-Ferris

Industries of Vermont, Inc. v. Kelco Disposal, Inc.

14

In Kelco, a Vermont

waste-disposal company sued a large national waste-disposal firm in

federal district court, alleging attempted monopolization in violation of

the Sherman Act and interference with contract under Vermont common

law. The jury found in favor of the plaintiff on both claims and awarded

$51,146 in compensatory damages and $6 million in punitive damages.

On appeal, the defendant challenged the punitive award as constituting a

violation of the Excessive Fines Clause. The Second Circuit rejected this

argument, and the Supreme Court agreed.

The Court unanimously held that the Excessive Fines Clause does

not apply to awards of punitive damages in cases between private parties

where the government has neither prosecuted the action nor has any right

to receive a share of the award.

15

The Court explained that the primary

purpose of the Eighth Amendment is to prevent the government from

abusing prosecutorial power, rather than to limit the amount of civil

damages or to prescribe the purposes for which they may be awarded.

16

Noting that the history of the Eighth Amendment provides convincing

evidence that the Excessive Fines Clause was intended to limit only

those fines directly imposed by, and payable to, the government, the

Court concluded that the fact that punitive damages are imposed through

the authority of courts and serve to advance governmental interests in

punishment and deterrence is insufficient to support the application of

the Excessive Fines Clause to a case involving private parties.

17

Notwithstanding Kelco, however, there may be circumstances under

which the Excessive Fines Clause will limit punitive damages awards.

As discussed later in this chapter, several states now require by statute

that a portion of certain punitive damages awards be remitted to the state,

and there are cases in which the government, as a plaintiff, seeks the

11

. Cooper Indus., 532 U.S. at 432; Browning-Ferris Indus. o f Vt. v. Kelco

Disposal, Inc., 492 U.S. 257, 268, 275 (1989).

12

. Haslip, 499 U.S. at 19.

13

. Cooper Indus., 532 U.S. at 432.

14

. 492 U.S. 257 (1989).

15

. Id. at 266-68.

16

. Id.

17

. Id. at 268, 275.