Punitive damages after Campbell: a mixed bag awaiting definitive resolution: while courts have paid attention to the Campbell guideposts, there have been successful efforts to justify high punitive damages awards.

• Author: Dunham, Douglas W.

LAST YEAR in State Farm Mutual Automobile Insurance Co. v. Campbell, (1) the U.S. Supreme Court gave new force and meaning to the broad, fundamental principles of constitutional law that constrain punitive damages. Although Campbell was an insurance bad-faith case, involving economic loss and emotional distress, the Court's broad general pronouncements on ratio, reprehensibility of the defendant's contact, and comparable civil and criminal penalties for the same conduct are not limited to those cases; they apply generally to all punitive damages cases, including those involving physical injury and death.

In Campbell, the Court emphasized the constraining force of ratio as a guidepost for evaluating the constitutional propriety of a punitive damages award. It made clear that awards exceeding a single-digit ratio of punitive to compensatory damages are presumptively unconstitutional. The Court did not limit that principle to cases of economic loss; rather, that proposition was expressed as a general broad principle of constitutional law, demonstrated, as stated in Justice Kennedy's opinion, by the Court's "jurisprudence and the principles it has now established." The Court identified only one exception to that rule--the longstanding judicial practice of approving higher ratios in cases in which a defendant's conduct is particularly egregious but compensatory damages are "small." That exception, as a general matter, is unlikely to have relevance in the great majority of cases.

Campbell also places new limits on judicial reliance on possible criminal penalties as validation for a high punitive damages award. Justice Kennedy warned:

Great care must be taken to avoid use of the civil process to assess criminal penalties that can be imposed only after the heightened protections of a criminal trial have been observed, including, of course, its higher standard of proof. Punitive damages are not a substitute for the criminal process, and the remote possibility of a criminal sanction does not automatically sustain a punitive damages award. (2) The Utah Supreme Court, when it affirmed the punitive damages judgment against State Farm, had speculated about the loss of State Farm's business license, the disgorgement of profits and possible imprisonment.

Campbell also mandates a new direction in the analysis of reprehensibility for the purpose of punitive damages. It rejected the Utah court's picture of supposed nationwide corporate villainy in favor of a more focused and restrained view of the particular corporate conduct in relation to the particular plaintiffs in the case before it. The Court placed new and more stringent limits on the scope of the conduct that a court may consider in determining whether a punitive award is constitutionally excessive, making clear that a court or jury may not take it upon itself to punish a defendant's nationwide conduct.

What are the holdings of Campbell and how have lower courts applied those holdings in different contexts and claims?

CAMPBELL'S HOLDINGS

1. On Ratio

   In discussing the ratio guidepost, the Court stated, "courts must ensure that the measure of punishment is both reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered." While declining to impose a bright-line ratio, the Court declared:

   Our jurisprudence and the principles it has now established demonstrate, however, that, in practice, few awards exceeding a single-digit ratio [that is, 9:1] between punitive and compensatory damages, to a significant degree, will satisfy due process.... Single-digit multipliers are more likely to comport with due process, while still achieving the state's goals of deterrence and retribution, than awards with ratios in range of 500 to 1 ... or, in this case, of 145 to 1. (3) Justice Kennedy stressed the historical justification for such a limit, pointing out that in Pacific Mutual Life Insurance Co. v. Haslip (4) the Court had concluded that punitive awards of more than four times the amount of compensatory damages "might be close to the line of constitutional impropriety," and that the 4:1 ratio had been cited in BMW of North America Inc. v. Gore. (5) In Gore, Justice Kennedy pointed out, the Court referenced a "long legislative history, dating back over 700 years and going forward to today, providing for sanctions of double, treble, or quadruple damages to deter and punish." Finally, the Court made clear that a ratio of 9:1 or even 4:1 cannot be taken as a norm. Rather, in cases in which compensatory damages are substantial, then a "lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee."

   The Court identified only one exception to these general principles--where compensatory damages are small and the defendant's act, to use the words of Gore, was "particularly egregious" or the injury "hard to detect" or difficult to value monetarily. (6) This is significant because the Utah court had asserted that a higher ratio in Campbell was justified on the grounds that the injury was "hard to detect" or the "monetary value of non-economic harm might have been difficult to determine," despite the fact that the Campbell plaintiffs had been awarded compensatory damages of slightly more than a million dollars. That position was rejected, the Court finding that a 1:1 ratio was appropriate, given the substantial award of compensatory damages.

   In short, the rule that a higher ratio may be appropriate where a non-economic injury is difficult to value or detect applies only to cases in which a small or nominal amount of compensatory damages has been awarded. In cases like Campbell, in which the compensatory award is substantial, the Court said it "should be presumed a plaintiff has been made whole for his injuries by compensatory damages, so punitive damages should be awarded only if the defendant's culpability, after having paid compensatory damages, is so reprehensible as to warrant the imposition of further sanctions to achieve punishment or deterrence."

   The ratio guidepost is of particular significance in product liability cases and other cases in which, unlike Campbell, the same conduct has been directed to many persons. Ratio focuses on the relationship between the punitive award and the harm to the individual plaintiffs before the court. The ratio guidepost may not be disregarded in order to punish defendants for the entire sum of harm allegedly caused to persons not before the court.

2. On Comparable Penalties

   The Court emphasized the limited utility of criminal penalties in determining the constitutionally permissible amount of a punitive damages award, stressing that the "remote possibility" of a criminal sanction does not automatically sustain a punitive damages award and rejecting, as noted above, the Utah court's speculation about the loss of State Farm's business license, the disgorgement of profits and possible imprisonment. Instead, it looked to the "most relevant civil sanction" under Utah law, which was a $10,000 fine for an act of fraud, and which was "dwarfed" by the $145 million punitive damages award.

   The rejection of judicial reliance on the "remote possibility of a criminal sanction" is particularly relevant to punitive damages in product liability cases. Those cases are likely to involve physical injuries or death, so the criminal penalties for assault or manslaughter could be invoked to attempt to justify an enormous punitive award. In Gore, the Court described the purpose of the comparable penalties guidepost as evaluating the amount of a punitive award in light of the state's "legislative judgments" concerning appropriate sanctions for the conduct at issue. As the Court has now made clear in Campbell, invoking the remote possibility of criminal sanctions does not serve that purpose. Rather, such comparisons simply erase the line between tortious conduct and conduct deserving punitive damages, thus transforming a guide-post intended to restrain punitive damages into a means to support enormous and unconstitutional awards. That approach is no longer permissible under Campbell.

3. On Reprehensibility

   Campbell establishes a new and narrower focus for the analysis of the reprehensibility guidepost. The Court rejected the Utah Supreme Court's focus on the defendant's supposed nationwide corporate misconduct in favor of a more focused and restrained view of the particular corporate conduct at issue. A state, it declared, does not have a "legitimate concern in imposing punitive damages to punish a defendant for unlawful acts committed outside the state's jurisdiction." Each state is entitled to the punishment, if any, to impose on defendants who act within its jurisdiction. And a court or jury may not punish nationwide corporate conduct "under the guise of the reprehensibility analysis."

   The Court also made plain that a defendant's conduct that is dissimilar to the conduct that allegedly injured the plaintiff may not serve as a basis for punitive damages. Alleged dissimilar acts are irrelevant to the analysis of the reprehensibility of the defendant's conduct toward the plaintiff. In determining whether the defendant is a "recidivist," the Court added, a court must ensure the conduct in question "replicates the prior transgressions." Thus, the kitchen-sink approach to punitive damages taken by the lower courts in Campbell has no place in post-Campbell litigation.

   Campbell directs courts to take the following factors stated in Gore into consideration in the reprehensibility analysis: whether "the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident." (7) These...