Punishment but Not a Penalty? Punitive Damages Are Impermissible Under Foreign Substantive Law.

• Author: Hoversten, Paul A.

It is a well-established principle that no court applies the penal laws of another sovereign. But what exactly is a penal law? According to Judge Cardozo, a penal law effects "vindication of the public justice" rather than "reparation to one aggrieved." Although courts have historically treated punitive damages as a purely civil remedy, that attitude has shifted over time. Modern American punitive damages serve not to compensate the plaintiff but to punish the defendant on behalf of the whole community. Therefore, when courts rely on foreign substantive law to impose punitive damages, they arguably violate the well-established principle that no court applies the penal laws of another sovereign. This Note argues that punitive damages are penal in the choice-of-law sense, and state courts violate the penal exception when they impose punitive damages under or alongside foreign substantive law. It proposes several possible means to resolve this dissonance and ultimately concludes that courts should altogether eliminate the prospect of punitive damages when they impose liability under foreign substantive law.

TABLE OF CONTENTS INTRODUCTION I. OVERVIEW: PUNITIVE DAMAGES AND CHOICE OF LAW A. History and Purpose of Punitive Damages in English and American Law B. Choice of Law and Punitive Damages in American Courts II. PUNITIVE DAMAGES ARE PENAL A. Cardozo's Penal Framework in the Context of Modern American Tort Law B. An International Perspective on American Punitive Damages C. Penal Characteristics of Punitive Damages in the United States III. POTENTIAL SOLUTIONS TO THE PENAL PROBLEM A. Forum Law Depecage B. Choice-of-Law Presumption in Favor of the Defendant C. Total Exclusion of Punitive Damages Outside the Forum Law CONCLUSION INTRODUCTION

"The Courts of no country execute the penal laws of another ..." (1) When a broken rule results in punishment, the authority to punish belongs to the person or entity who owns the rule. (2) You don't punish your neighbor's child for staying up past bedtime in her own house while her parents are home. She's not your child, it's not your house, and most importantly, it's not your rule.

Courts behave the same way. State courts routinely apply other states' substantive law in civil cases, but they never apply foreign penal law. (3) A Wisconsin court will not hold a defendant criminally liable under a Minnesota statute. Either it will punish the defendant under Wisconsin law or it will not punish her at all. Courts' refusal to apply foreign penal law extends beyond the criminal context; it extends to civil penalties as well. (4)

This principle is grounded in part in norms of fairness to defendants and the legitimacy of punishment. (5) States can exercise coercive power on behalf of the entire community in a way that individuals cannot. (6) The people of Wisconsin, for instance, have conceded to their government the authority to make laws, prosecute them, adjudicate guilt, and punish the guilty. (7) They consent to the prosecution, by the state of Wisconsin, of wrongs that violate the laws of Wisconsin. (8) As a condition of that concession of authority, the people demand certain procedural protections for actual and would-be defendants, among them notice of laws and trial by a jury of peers in the community. (9) The people of Wisconsin, however, have not consented to prosecution of wrongs that violate Minnesota's laws, which they played no role in enacting. Such a prosecution or punishment would breach the social contract that the people of Wisconsin have made with their government. It would violate basic norms of notice and fairness to defendants, and any ensuing punishment would be illegitimate. (10) In general, therefore, courts decline to apply the penal laws of another sovereign. (11)

It is not hard to understand why an out-of-state defendant would feel uneasy at the prospect of punishment by a foreign court or judgment by a foreign jury. Former Chief Justice Neely of the West Virginia Supreme Court of Appeals quipped,

As long as I am allowed to redistribute wealth from out-of-state companies to injured in-state plaintiffs, I shall continue to do so. Not only is my sleep enhanced when I give someone else's money away, but so is my job security, because the in-state plaintiffs, their families, and their friends will reelect me. (12) Justice Neely was being wry, but it is true that out-of-state defendants often find themselves in hostile courtrooms. One scholar has found that "[sjtate court judges are about twice as likely to choose law that favors the plaintiff if the plaintiff is local and the defendant is out-of-state" than in the inverse situation. (13) Other scholars have discovered that in states where judges are appointed, damages awards are almost twice as large when the defendant /was from out of state. (14) There is an even greater disparity in states where judges are elected. (15)

If out-of-state defendants already face hostile judges and juries, then the availability of punitive damages (16) significantly multiplies the effect of that hostility. The Supreme Court has stated that "[punitive damages] are specifically designed to exact punishment in excess of actual harm to make clear that the defendant's misconduct was especially reprehensible." (17) One scholar has explained that punitive damages "may have a retributive or expressive function, designed to embody social outrage at the actions of serious wrongdoers." (18) The opportunity to impose punitive damages is an invitation to the jury to express "moral condemnation" (19) of the (already-vulnerable) Vikings fan in Packers' territory.

Even when defendants are at home, however, it is still incongruous for a state court to impose punitive damages based on another state's substantive law. If punitive damages are meant to punish guilty defendants and each state is uniquely responsible for punishing violations of its own laws, then it is unusual for a jury to "morally condemn" even its own defendant for her violation of another state's law. This is equivalent to punishing your own child for violating your neighbor's bedtime rule.

Nevertheless, state courts do impose punitive damages under foreign law, and juries do use foreign states' laws to express their own "social outrage" (20) at out-of-state defendants and out-of-state torts. For example, in Wooley v. Lucksinger, (21) the Louisiana Supreme Court approved a $45.5 million punitive damage award against a Texas HMO, over and above a compensatory damage award of $44.54 million. (22) The Louisiana trial court in Wooley applied Texas substantive law to the entire case, including the punitive damages portion, even though Louisiana does not ordinarily permit punitive damages at all. (23)

As a more modest example, in Kammerer v. Western Gear Corp., (24) the Washington Supreme Court approved a judgment of $350,000 in punitive damages ($600,000 total damages) for contract fraud under California law. (25) The contract was negotiated, finalized, and performed in California. (26) The dissent cited an "unbroken line" of thirty-seven cases (27) and a series of failed legislative efforts (28) affirming that, under Washington law, "the doctrine of punitive damages is deemed 'unsound in principle, and unfair and dangerous in practice.'" (29) Nevertheless, the defendant in Kammerer listened as a Washington jury expressed its own "moral condemnation" through a California statute (30) for conduct that occurred in California, even though the jury's own law would never have allowed it.

State courts refuse to impose criminal sanctions and civil penalties under other states' laws, but most courts show no compunction about borrowing foreign law to impose punitive damages. This Note argues that punitive damages are penal and that state courts violate fundamental choice-oflaw principles when they impose punitive damages under foreign substantive law. (31) Part I traces the history and purpose of punitive damages and outlines basic choice-of-law principles at play in civil cases in American courts. Part II argues that punitive damages are penal in the interstate choice-of-law sense and that courts violate the penal exception when they impose punitive damages under or alongside foreign substantive law. Part III considers several possible solutions to the problem and ultimately concludes that state courts should wholly reject punitive damages when they impose liability under foreign substantive law.

1. OVERVIEW: PUNITIVE DAMAGES AND CHOICE OF LAW

   The doctrine of punitive damages is an anomaly in the law. (32) It straddles the line between tort and criminal law (33)--it simultaneously contemplates private wrongs to individuals and widespread injuries to the public. Professors Prosser and Keeton explain that, with respect to punitive damages, "the ideas underlying the criminal law have invaded the field of torts." (34) But this becomes an uncomfortable mixture when courts apply other states' substantive laws to the merits of the case. After all, it is a well-accepted rule that courts do not apply foreign penal laws. (35) This Part places punitive damages and choice-of-law analysis in context, setting the stage for further argument. Section I.A traces the history and purpose of punitive damages in England and the United States. Section I.B briefly examines American choice-of-law theories and methods in the context of punitive damages.

   1. History and Purpose of Punitive Damages in English and American Law

      Punitive damages appeared in common law cases in the late eighteenth century, (36) but the underlying purpose of the practice was not clear. In 1763, in Wilkes v. Wood, a newspaper publisher alleged that King George's secretary of state had committed trespass when he issued a general search warrant without any formal information and without listing any charges. (37) The defendant's lawyer contended that in no prior case had a civil plaintiff argued "the cause of all the good people of...