The frequency, predictability, and proportionality of jury awards of punitive damages in State Courts in 2005: a new audit.

Author:Vidmar, Neil
 
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The state of punitive damages in the United States has been a controversial topic for more than three decades, resulting in litigation reaching the U.S. Supreme Court and state supreme courts. Various business advocacy groups have sought to drastically curb or eliminate punitive damages while plaintiffs' lawyers and consumer groups vigorously defend the use of punitive damages. State legislatures have responded with many substantive and procedural reforms over the years. Yet, in Exxon Shipping Co. v. Baker, (2) the United States Supreme Court, while approvingly citing empirical evidence indicating that there are "not mass-produced runaway awards" (3) and that "by most accounts the median ratio of punitive to compensatory awards has remained less than 1:1,"4 once again expressed concerns about punitive awards exceeding a single-digit ratio to compensatory damages and the predictability of punitive awards. A full understanding of the issues involved in the punitive damages controversy requires consideration of the causes of action, the magnitude of both compensatory and punitive claims, the ratios of these two outcomes, and a qualitative understanding of the nature of punitive awards. This article presents a profile of punitive damages awarded by juries in 2005 using the U.S. Bureau of Justice Statistics' Civil Justice Survey of State Courts. We supplement the BJS survey with an additional sample of punitive damages claims from nine states in 2005. This additional database provides more details about the disputes and procedural matters associated with the trials. The data show that there are case-type patterns in the awarding of punitive damages that contradict claims about punitive awards, especially those involving product liability cases, and that the ratio of punitive to compensatory damages is a complex matter not easily resolved without consideration of the underlying factual bases of the claims.

  1. INTRODUCTION

    Litigation involving punitive damages has been before the U.S. Supreme Court and various state supreme courts numerous times since the 1980s.5 Central issues in the litigation have involved the relationship between punitive to compensatory damages, the purposes of punitive damages, and limitations on when, how, and why juries and judges might award punitive damages. Various advocacy groups, including the American Tort Reform Association and the U.S. Chamber of Commerce, have sought strict limits on the amounts that can be awarded for punitive damages, especially in product liability, premises liability, and similar lawsuits that involve businesses as defendants. These groups argue that the threat of punitive damages stifles innovation and harms American businesses. (6) In contrast, consumer groups and plaintiffs' lawyers assert that punitive damages are necessary, because they are a method of deterring extraordinary negligence and compensating victims for social wrongs. (7)

    The Supreme Court, in opinions from Pacific Mutual Life Insurance Co. v.

    Haslip, (8) BMW of North America, Inc. v. Gore, (9) State Farm Mutual Automobile Insurance Co. v. Campbell1 (10) Philip Morris USA v. Williams, (11) to Exxon Shipping Co. v. Baker, (12) has expressed concern about the magnitude of some punitive damage awards, especially the ratio of punitive to compensatory damages and their relation to case characteristics. In BMW, the Court stated that "low awards of compensatory damages may properly support a higher ratio [of punitive to compensatory damages] if, for example, a particularly egregious act has resulted in only a small amount of economic damages." (13) The BMW Court outlined a three-factor test for evaluating whether a punitive damage was excessive: (1) the reprehensibility of the defendant's conduct; (2) the disparity between the compensatory award and the punitive damage award; and (3) the existence and amount of any alternative state sanctions for similar misconduct. (14) In BMW and again in State Farm, the Court further expressed a guideline indicating that harms involving financial injury should be seen as less deserving of high punitive damages ratios than harms involving personal injuries. In Haslip, the Court found that a punitive to compensatory damage ratio of 4:1 was "close to the line" on unconstitutionality. (15) In State Farm, the Court suggested that ordinarily punitive damages should not exceed compensatory damages, and a ratio of single digit (that is, 9:1) is the outer limit of punitive to compensatory damages. (16) The Court further stated "[o]ur jurisprudence and the principles it has now established demonstrate, however, that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process." (17)

    Yet, Michael Rustad, in his review of punitive damages legislation across the United States, argued that when state legislatures have decided that punitive damages are a problem, they have enacted substantive or procedural reforms intended to curb excesses. (18) The procedural reforms include restrictions on pleading, discovery, evidence, jury instructions, increases in the standard of proof for punitive damages, and devices such as bifurcation and restrictions on the use of wealth to ensure greater judicial control over punitive awards, while substantive reforms include caps on the amount of the punitive damage award. Indeed, Rustad argued that the U.S. Supreme Court and state legislatures "have constructed a pro-defendant iron cage'" around punitive damages. (19) The circumstances under which punitive damages are allowed and the relationship between compensatory and punitive damages vary dramatically from state to state. (20) As shown in Appendix A, in all but five states that allow punitive damages, such awards are substantially limited, either in definition or in application. (21)

    Empirical research on punitive damages generally suggests that punitive damages do not endanger the legal system. Specifically, scholars have found that punitive awards have not increased in frequency over time; most awards are modest in size and show a reasonable proportionality between harm and potential harm of conduct; juries pay particular attention to the reprehensibility of conduct; and there is little evidence supporting the claim that juries are biased against businesses. (22) The most recent U.S. Supreme Court case involving punitive damages, Exxon Shipping Co. v. Baker, concerned maritime law but has implied relevance for state tort law. Therein, the Court agreed with the empirical findings, but with a major reservation.

    Justice Souter, writing for the Exxon Shipping majority, reviewed part of the body of empirical evidence bearing on punitive damages. (23) He concluded that empirical research showed that there are "not mass-produced runaway awards" (24) and that "by most accounts the median ratio of punitive to compensatory awards has remained less than 1:1." (25) Justice Souter also concluded that the research showed no marked increase in awards over the past several decades. Nevertheless, he asserted, "the real problem, it seems, is the stark unpredictability of punitive awards." (26) He went on to refer to an analysis of the Civil Justice Survey of State Courts conducted by the Bureau of Justice Statistics (BJS), concluding:

    A recent comprehensive study of punitive damages awarded by juries in state civil trials found a median ratio of punitive to compensatory awards of just 0.62:1, but a mean ratio of 2.90:1 and a standard deviation of 13.81.... Even to those of us unsophisticated in statistics, the thrust of these figures is clear: the spread is great, and the outlier cases subject defendants to punitive damages that dwarf the corresponding compensatories.... Other studies of some of the same data show that fully 14% of punitive awards in 2001 were greater than four times the compensatory damages ... with 18% of punitives in the 1 990s more than trebling the compensatory damages.... And a study of "financial injury" cases using a different data set found that 34% of the punitive awards were greater than three times the corresponding compensatory damages. (27) Theodore Eisenberg, Michael Heise, and Martin Wells have replied to Justice Souter's analysis, arguing that Justice Souter missed the fact that variability of awards relates to the level of the compensatory awards. (28) To demonstrate this argument, Eisenberg and his co-authors reexamined the results of the study relied upon by the Court in Exxon Shipping. By comparing the levels of compensatory awards with the punitive award, those authors concluded that most of the variability in the punitive to compensatory award ratios was associated with cases at the low end of compensatory damage awards, specifically those involving less than $10,000 in compensatory damages. (29) In cases involving compensatory awards under $1000, the mean ratio was roughly 100:1, and cases involving compensatory awards under $10,000 had a ratio of approximately 10:1. (30) However, for cases involving over $10,000 in compensatory damages, the mean ratios were approximately 1.5:1 with standard deviations ranging from 1.31 to 3.58. (31) In short, a substantial amount of the variability in the punitive to compensatory damage ratios was associated with cases on the very low end of the monetary scale.

    The research of Eisenberg and his co-authors represents an important contribution to understanding the profile of punitive damages, but it is incomplete. Previous research by Rustad, Eisenberg, and Vidmar and Rose has drawn attention to the causes of action as factors related to the likelihood and magnitude of punitive damages. (32) For example, Vidmar and Rose's research indicates that, in Florida, while the median ratio of punitive to compensatory damages over all cases between 1989 and 1998 was 0.67:1, there was substantial variability across case types. (33) Cases involving...

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