Limitations on Punitive Damages

• Pages: 199-233

CHAPTER VIII

LIMITATIONS ON PUNITIVE DAMAGES

Among all of the reasons offered for the popularity of

business torts over time, perhaps none has been more often

cited than the availability of punitive damages. With the

increased frequency and magnitude of punitive damages

claims, however, have come increased limitations upon

punitive awards, most notably by the U.S. Supreme Court,

including its most recent decision in State Farm Mutual

Automobile Insurance Co. v. Campbell. Legislative efforts at

tort reform both pre- and post-Campbell impose additional

limitations on punitive damages. This chapter examines the

important Supreme Court decisions on the issue of punitive

damages, as well as efforts by the lower federal courts, state

courts, and legislatures to define the standards under which

punitive damages may be imposed. – Eds.

A. Introduction

This Chapter reviews the historical forces that have influenced this

area of law and analyzes the various Supreme Court decisions and

significant state rulings and statutory responses that define the law of

punitive damages as it exists today.

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

1. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003)

(internal quotations marks omitted), on remand at Campbell v. State Farm

200 Business Tort Law

As the concept of compensatory damages has evolved over the years

to include compensation for intangible injuries, the concept of punitive

damages has evolved as well. The English Courts of the 18th 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 20th 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

Today, punitive damages are not required to compensate 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

Mut. Auto. Ins. Co., 98 P.3d 409 (Utah 2004); Cooper Indus., Inc. v.

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

2. Campbell, 538 U.S. at 416.

3. Note, Exemplary Damages in the Law of Torts, 70 HARV. L. REV. 517,

519 (1957).

4. Id. at 520 and n.32.

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

dismissed, 124 S. Ct. 1168 (2004).

6. Campbell, 538 U.S. at 419.

7. Cooper Indus., Inc., 532 U.S. at 437 n.11.

8. Id. at 432.

9. Campbell, 538 U.S. at 416; Pac. Mut. Life Ins. Co. v. Haslip, 499 U.S. 1,

19 (1991); Cooper Indus., Inc., 532 U.S. at 432.

Limitations on Punitive Damages 201

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

in punishment and deterrence,11 and have been described as a quasi-

criminal punishment12 and a type of “private fine,”13 the Excessive Fines

Clause of the Eighth Amendment is not 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 national waste-disposal giant 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 violative 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 its 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

10. U.S. CONST. amend. VIII.

11. Cooper Indus., Inc., 532 U.S. at 432; Browning-Ferris Indus. of Vt., Inc. v.

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

12. Haslip, 499 U.S. at 19.

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

14. 492 U.S. 257 (1989).

15. Id. at 266.

16. Id.