Punitive Damages and the Constitution

• Author: Thomas H. Dupree, Jr.
• Position: Partner, Gibson, Dunn & Crutcher LLP. The author represented Chrysler in Flax v. DaimlerChrysler, 272 S.W.3d 521 (Tenn. 2008), which is discussed in this Article.
• Pages: 421-434

Page 421

Few areas of the law are as plagued by problems of uncertainty and unfairness as punitive damages. They are all too often awarded in amounts that bear little relation to the alleged injury, and for conduct that was not clearly unlawful-let alone so extreme and outrageous as to warrant an additional sanction on top of a compensatory damages award. In many cases, punitive damages amount to a lottery ticket that can lead to a multimillion dollar windfall for a fortunate plaintiff.

Punitive, or exemplary, damages have existed for centuries, yet it was only in the later years of the twentieth century that the dangers of punitive damages captured the nation's attention, as juries began awarding staggering sums, often against large multinational corporations.¹ By 1996, the United States Supreme Court had seen enough. In its landmark ruling in BMW of North America, Inc. v. Gore (Gore), the Court held that the Constitution prohibits "grossly excessive" punitive damages awards.² The Court set forth three guideposts to steer the excessiveness inquiry, directing the lower courts to focus on the reprehensibility of the defendant's conduct, the ratio between the compensatory and punitive damages awards, and the amount of statutory penalties that could be imposed for comparable conduct.³

In the years since Gore was decided, the lower courts have repeatedly applied and interpreted these guideposts, some faithfully, others less so. The Supreme Court itself has revisited the issue several times, clarifying and strengthening the constitutional limits on punitive damages.⁴

The Gore guideposts assist courts in determining when the amount of a punitive damage award renders the award Page 422 unconstitutional. But there is an antecedent question: what limits does the Constitution place on when punitive damages may be imposed? That is to say, the Constitution limits the amount of awards, but does it also limit the circumstances under which a defendant may even be held liable for punitive damages in the first place?

The answer is yes. It is a bedrock principle of constitutional law that individuals are entitled to fair notice of the conduct that may subject them to punishment. If the law is so unclear or indeterminate that a reasonable person cannot discern the line separating the lawful from the unlawful, then he may not, as a matter of due process, be punished for crossing that line.

But whereas this general constitutional principle is firmly established, the Supreme Court has yet to clarify how courts should apply it in practice when reviewing punitive damages awards in particular cases. This Article identifies two closely analogous lines of case law that can inform and guide this inquiry. The first is the "void for vagueness" doctrine, which holds that a law that does not identify the prohibited conduct with sufficient precision may not be enforced.⁵ The second is the common law rule, recognized most recently in Safeco Insurance Co. of America v. Burr (Burr), that recklessness must be determined by reference to objective standards that are known in advance.⁶

Part I of this Article traces the history of the constitutional limitations on punitive damages, paying particular attention to the concept of "fair notice" that underlies the Supreme Court's decisions in this area. Part II then argues that the Court's vagueness jurisprudence, along with the common law approach to recklessness, provide concrete standards that courts can use in considering a defendant's claim that no amount of punitive damages is constitutionally permissible in light of the conduct at issue.

I The Developing Law Of Punitive Damages

A The Early Cases

Even before Gore, the Supreme Court had recognized that the Constitution limits punitive damages awards and the procedures through which they may be imposed. The Court noted the issue in a 1986 case, Aetna Life Insurance Co. v. Lavoie, in which it stated that federal constitutional challenges to punitive damages awards raise "important issues which, in an appropriate setting, must be Page 423 resolved."⁷ Two years later, Justice O'Connor, in a concurring opinion, wrote that "[i]n my view, because of the punitive character of such awards, there is reason to think that [unlimited jury discretion] may violate the Due Process Clause."⁸

The Court revisited the issue the following term in Browning- Ferris Industries, Inc. of Vermont v. Kelco Disposal, holding that while the Excessive Fines Clause did not constrain a punitive damages award-because the government neither prosecuted the action nor could claim a share of the award, the Court would reserve for "another day" the "precise question . . . whether due process acts as a check on undue jury discretion to award punitive damages in the absence of any express statutory limit."⁹

In 1991, the Court finally made explicit what it had been hinting: that the Due Process Clause limits the amount of a punitive damages award. In Pacific Mutual Life Insurance Co. v. Haslip (Haslip), the Court concluded that "unlimited jury discretion-or unlimited judicial discretion for that matter-in the fixing of punitive damages may invite extreme results that jar one's constitutional sensibilities."¹⁰ Although the Court declined to "draw a mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case," it held that "general concerns of reasonableness and adequate guidance from the court when the case is tried to a jury properly enter into the constitutional calculus."¹¹ The Court reinforced this point two years later in TXO Production Corp. v. Alliance Resources Corp., where it again emphasized that "general concerns of reasonableness" govern the determination of whether a punitive damages award is "so 'grossly excessive' as to violate the substantive component of the Due Process Clause."¹²

The Court's final pre-Gore punitive damages case was Honda Motor Co. v. Oberg (Oberg).¹³ In that case, the Court emphasized that punitive damages "pose an acute danger of arbitrary deprivation of property" and noted that "the rise of large, interstate and multinational corporations has aggravated the problem of arbitrary awards and potentially biased juries."¹⁴ Page 424

B The Due Process Guideposts

The Court made these limits concrete in Gore, where it set forth the three guideposts-reprehensibility, ratio, and comparable penalties-that govern constitutional review of the excessiveness of punitive damages awards. At heart, Gore is a case about "fair notice." The guideposts are intended to assist in determining whether the defendant can be deemed to have had fair notice of the punishment that could be imposed for particular conduct. As the Court explained, "[e]lementary notions of fairness enshrined in our constitutional jurisprudence dictate that a person receive fair notice not only of the conduct that will subject him to punishment but also of the severity of the penalty that a state may impose."¹⁵

A constitutional excessiveness analysis must be performed "with care[] to ensure both reasonableness and proportionality."¹⁶ When reviewing an award on appeal, a court must apply an "[e]xacting" standard, and conduct its own "thorough, independent review" of the trial court's determination of the award's constitutionality.¹⁷ Rigorous appellate review under a de novo standard, the Court has emphasized, ensures that the Gore standards "will acquire more meaningful content through case-by- case application" and "helps to assure the uniform treatment of similarly situated persons that is the essence of law itself."¹⁸

The Court has identified a variety of factors that may bear upon a defendant's level of reprehensibility. These include the presence of physical harm, the financial vulnerability of the plaintiff, and repeated or malicious conduct by the defendant.¹⁹ Nonetheless, "[t]he existence of any one of these factors weighing in favor of a plaintiff may not be sufficient to sustain a punitive damages award; and the absence of all of them renders any award suspect."²⁰ Moreover, in many cases, no award of punitive damages may be justified. That is because "[i]t should be presumed a plaintiff has been made whole for his injuries by compensatory damages, so punitive damages should only be awarded 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."²¹ Page 425

Although the Court has eschewed imposing a bright-line permissible ratio between compensatory and punitive damages, it has repeatedly noted-in Haslip, Gore, and State Farm v. Campbell-that legislative sanctions typically provide for double, treble, or quadruple damages.²² Moreover, it has emphasized that where "compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee."²³ Notably, in Exxon Shipping Co. v. Baker-a case that involved not a constitutional excessiveness challenge but rather an excessiveness challenge under federal maritime common law-the Court reduced a punitive damages award to a 1:1 ratio.²⁴

The third guidepost requires courts to compare the punitive damages award with legislatively authorized civil sanctions, as well as with punitive damages awards imposed in comparable cases. The Court has underscored the limited relevance of criminal sanctions, explaining that "[p]unitive 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."²⁵

The Court has also held that punitive damages may not be...