Punitive Damages and Class Actions

• Author: Francis E. McGovern
• Position: Professor of Law, Duke School of Law, Durham, North Carolina
• Pages: 435-462

Professor of Law, Duke School of Law, Durham, North Carolina. Great appreciation goes to the Louisiana Law Review Articles Editor, Richard Harmon Drew, III, for suggesting the topic and to the editors on the Louisiana Law Review for helping turn a speech into a law review Article. Particular thanks go to Vincent F. McSweeney, who laboriously gathered the underlying research that supports this article's arguments.

Page 435

I Introduction

The union of punitive damages and class actions can be aptly described with Samuel Johnson's famous quotation regarding marriage: "The triumph of hope over experience."¹ By most conventional wisdom, there is little future for plaintiffs or defendants who desire to resolve punitive damages claims globally using the procedural vehicle of a class action. From a conceptual perspective, however, there are circumstances under which the union could function. This Article explores those possibilities, not in the spirit of normative support, but in the spirit of exploring theories that may have some prospective vitality.

Notwithstanding the chilly reception that punitive damages class actions have received from appellate courts, there are several approaches at the micro and macro levels of analysis suggesting that "hope" is still persistent. By disaggregating the United States Supreme Court punitive damages jurisprudence, it is possible to identify a limited number of factual scenarios where a class action for punitive damages could be successful. These micro-level observations can constitute a road map for navigating the current seemingly insurmountable barriers that have severely limited the use of class actions in punitive damages claims. At the macro level, there are two observations that could lead to a revision of punitive damages class actions: the seemingly undaunted, pragmatic desire on the part of trial judges to resolve similar cases collectively, and the powerful support for an economic vision of punitive damages that leads inevitably to a global, rather than individual, procedural approach. Page 436

II Recent Supreme Court Jurisprudence On Punitive Damages And Class Actions

Over the last twenty years of Supreme Court jurisprudence, there have been nine influential decisions devoted to punitive damages and two similarly influential cases related to class actions. The interests of the Supreme Court in both areas have been driven by a major effort on the part of defendants to limit both the scope of liability for compensatory awards and the circumstances and amounts available for punitive damages awards.² At the same time, there have been significant efforts in the state and federal judicial and legislative arenas to accomplish similar goals by tightening the prerequisites for an award of punitive damages and limiting the amount that could be awarded, as well as channeling class actions into federal court.

The outcome of these substantive law cases has been a critical examination of almost every aspect of a punitive damages claim and judicial restrictions on the flexibility of juries and lower courts to sustain punitive damages awards.³ The most recent cases, for example, have demonstrated a linear, numeric ratio between compensatory and punitive damages that is in accord with constitutional standards.⁴ Although most legal research has Page 437 revealed that punitive damages are awarded relatively infrequently and amounts are often reduced by appellate courts, the "shadow effect" of punitive damages has had a major effect on settlement values: defendants tend to settle compensatory damages at a higher level in order to avoid the risk of large punitive damages being awarded at a jury trial.⁵

Defendants have generally reacted quite negatively and independently to the use of class actions, particularly in personal injury cases, where large numbers of plaintiffs can be aggregated into one case for trial.⁶ The attitude of defendants toward the use of class actions to settle cases is more nuanced, however. Threatened by large numbers of individual claims, some defendants prefer to obtain the global peace that might be afforded by a class action.⁷ However, the Supreme Court has been extremely skeptical of class actions in personal injury cases. In both Amchem Products v. Windsor (Amchem)⁸ and Ortiz v. Fibreboard Corp.,⁹ the Court rejected class action settlements Page 438 under Rules 23 (b)(3) and 23(b)(1)(B) with rationales that leave limited room for a successful certification of a class in future mass tort litigation.

The Supreme Court cases that have reviewed punitive damages and class actions together-State Farm Mutual Automobile Insurance Co. v. Campbell¹⁰ and Philip Morris USA v. Williams¹¹-have been similarly limiting. The future opportunities for a class certification of punitive damages causes of action are narrow, indeed.

III Disaggregating The Jurisprudence Of Punitive Damages And Class Actions

Probably the most productive approach for discerning any possibility for the certification of a class action for punitive damages is to disaggregate the Supreme Court jurisprudence and examine each key variable of that jurisprudence separately. Then it might be possible to determine which aspect of each variable could still lead to a possible scenario for a successful certification of a punitive damages class.¹²

A Causes of Action

There has been substantial discussion of the similarity, or lack thereof, among the elements of the theories of liability among Page 439 potential plaintiffs, particularly with differences in causation and defenses. There also seems to be a focus on the level of fungibility of damages incurred by plaintiffs with personal injuries as being more individually unique,¹³ financial loss as being more similar,¹⁴ and property and other damages as being somewhere in between.¹⁵

B Relationships

Attention has also been given to the relationship between and among various elements of a putative case:¹⁶ the relationship between the act and the harm,¹⁷ the replicability or hypothetical nature of the conduct,¹⁸ and the relationship among the potential class members.¹⁹ There is an underlying Seventh Amendment Page 440 concern that the individual right to a jury trial is maintained and that rights are not violated simply because of a mere "relationship" to others.²⁰

C Goals

The focus of the Supreme Court cases has been almost completely on overdeterrence,²¹ with virtually no discussion of underdeterrence. This instrumental analysis has been extremely forceful in the arguments made by defendants. Because of the procedural posture of these cases, there has been no substantial occasion or incentive for a plaintiff to focus on the overall efforts of coping with overdeterrence at the expense of underdeterrence. A second goal has been ending the possibility of multiple punitive damages awards against a single defendant arising out of an incident with many potential plaintiffs.²² If a defendant moves for Page 441 certification of a class to cabin all future punitive damages awards, there is a greater chance for success than if plaintiffs make the same motion.

D Damages

Aside from the nature of the damages, there has been great attention paid to whether compensatory damages were determined prior to an award of punitive damages,²³ the ratio between compensatory and punitive damages,²⁴ and a comparison of comparable civil penalties and punitive damages.²⁵ The single digit Page 442 ratio between compensatory and punitive damages has been the "holy grail" for defendants seeking caps on punitive damages awards, with its focus on the individual and the individual's right to receive compensation.²⁶

E Scope

The scope of any punitive damages award-state or national;²⁷ individual or group;²⁸ party or non-party²⁹-has also been the Page 443 subject of much discussion. Because state common law generally controls tort damages and because of limits in various state jurisdictions, it can be important that any award of punitive damages is limited in its scope. Any application of one state's laws on punitive damages or class actions to another state's citizens can be problematic. The same argument applies to damages for an individual as opposed to a group and to parties as opposed to non- parties.³⁰ The classic view of individualistic determinations of liability and damages is difficult to translate into a larger setting; applying the unique facts of a single party to a group or to non- parties is usually incompatible with a vision of individual rather than group justice.³¹

F Nature of Conduct

Another critical variable in determining the appropriateness of punitive damages in Supreme Court jurisprudence is the nature and reprehensibility of the conduct:³² whether or not the harm is physical or economic,³³ whether there is financial vulnerability on the part of the plaintiffs,³⁴ and whether or not the conduct involves Page 444 an isolated incident or systematic activity.³⁵ In addition, the extent to which the conduct is intentional,³⁶ accidental,³⁷ or involves reckless disregard³⁸ for the well-being of others can implicate the level of reprehensibility.

G Type of Class Action

The types of class actions, both state and federal-for example, under Federal Rules of Civil Procedure...