Punitive Damages, Forum Shopping, and the Conflict of Laws

AuthorPatrick J. Borchers
PositionVice President for Academic Affairs and Professor of Law, Creighton University.
Pages529-555

Page 529

I Introduction

Few issues have as profound an impact on civil litigation as the availability and dimensions of punitive or exemplary damages. Many of the reasons for this are obvious. Even in the wake of the U.S. Supreme Court's decision in State Farm Mutual Automobile Insurance Co. v. Campbell (State Farm),1 which set some perhaps meaningful constitutional boundaries on them, punitive damages verdicts often dwarf their compensatory counterparts.2 About half the states that allow for punitive damages do not allow the tortfeasor to insure for them.3 Thus, their presence and the concomitant possibility of bankrupting even defendants of considerable means can hang over the litigation like the Sword of Damocles.

Punitive damages also drive an effective wedge between the defendant and the insurer. Defendants wary of having a judgment that is not covered or exceeds the policy limits will often pressure their carriers to settle the case for more than the insurance company judges to be fair value.4 Insurance companies, aware that a failure to accept a settlement offer within the policy limits might subject them to a bad faith claim,5 are thus forced to take into account even very small odds of a large punitive damages award.

In short, even a small possibility of a punitive damages award is of great value to civil plaintiffs.6 Conversely, removing the Page 530 possibility of a punitive damages award from a case is a substantial benefit to a civil defendant. Small wonder, then, that the parties fight so hard over the issue.

An important battleground in that fight is the conflict of laws. Conflicts law is conventionally divided into three categories: jurisdiction, judgment recognition, and choice of law. All three are involved in the punitive damages wars.

Jurisdiction is critical to what is often called "forum shopping." Though the term is mildly pejorative,7 it refers simply to the parties attempting to bring the case in a forum that will be advantageous to them.8 Both plaintiffs and defendants engage in forum shopping. Plaintiffs get the first crack by filing cases, but defendants have important weapons, including motions to dismiss for lack of jurisdiction, venue transfers, removal from state to federal court, and forum non conveniens motions.9 An important battleground here is the availability of what is known as "general jurisdiction," i.e., jurisdiction over defendants who lack any related contacts with the state in which the plaintiff has filed the case.10 Although it is difficult to know precisely what extent the availability of punitive damages drives these jurisdictional battles, many of the important decisions on general jurisdiction have originated in plaintiff-friendly states.

Judgment recognition refers to the enforceability in one court of a judgment rendered in another. This becomes critical if the defendant, though subject to jurisdiction, does not have assets within the forum sufficient to pay the judgment. Within the United States this is a matter of small consequence because under the Full Faith and Credit Clause of the Constitution, and its implementing statute,11 United States courts must give virtually unflinching recognition to each others' judgments.12 So, even a state with a constitutional prohibition on punitive damages13 must recognize without question a judgment for punitive damages from another Page 531 state.14 In international cases, however, judgments issues loom large. The chances of getting a substantial punitive damages judgment from a U.S. court recognized by any court outside the U.S. are virtually nil.15 Thus, civil plaintiffs in U.S. courts who become punitive damages judgment creditors must either enforce the judgment against U.S. assets or, as a practical matter, not at all.

Finally, choice-of-law considerations weigh heavily in punitive damages litigation. U.S. state law in this area varies considerably. Four states completely prohibit punitive damages, and two others allow for them only by statute.16 The rest allow them as a matter of common law, but even those states have wide variations of the requisite burden of proof and the culpability of the conduct necessary to create punitive damages liability.17 Although judges, lawyers, and parties have an instinctive sense that a court will apply its own law, this is not necessarily so with regard to punitive damages issues.

U.S. courts have considered various approaches to choosing the applicable punitive damages law. One way is to treat their availability as a procedural issue subject to forum law. Others take the view that it is a substantive tort issue, and thus should be evaluated under the variety of approaches that have gained favor with U.S. courts. That has led courts to focus alternatively on the situs of the plaintiff's injury, the defendant's domicile or principal place of business, the locus of the defendant's conduct, or some combination thereof.18 Although the Supreme Court's State Farm case was widely noted for its numerical limits on the ratio of punitive to compensatory damages,19 it also evinced skepticism of the constitutionality of states using punitive damages "extraterritorially" to punish and deter conduct in states other than where the defendant acted.20 If indeed that skepticism is a holding of State Farm, it pushes states to treat the locus of the defendant's conduct as the sole, or at least a primary, consideration in choosing the applicable punitive damages law.

However, even if State Farm forces or encourages a march by states toward choosing the law of the locus of the defendant's conduct to determine the availability of-and the standard of culpability for imposing-punitive damages, that may not simplify Page 532 matters as much as one might think. States might, for instance, use different connecting factors to determine other important issues. For example, some states might continue to treat the burden of proof as a procedural issue governed by forum law even if the standard of conduct is governed by another state's law. Similarly, the insurability of punitive liability might be determined by an entirely different set of connecting factors.

The goal of this Article is primarily to catalog the different conflicts issues that affect punitive damages liability. Although the Article offers some modest recommendations, any reasonable policy towards punitive damages must start with a realistic assessment of the conflicts issues involved.

II Jurisdiction, Venue, and Forum Shopping

Forum choice is often an important, and sometimes outcome- determinative, factor in civil litigation.21 Probably the most important sort of forum shopping is horizontal, i.e., picking between state courts within the United States.22 This is most critical to punitive damages law because the choice of one state as a forum over another often affects the availability of punitive damages. However, before considering horizontal forum shopping, it is worth taking note of other kinds of forum shopping that can affect the outcome of civil cases, including the award of punitive damages.

In general, civil defendants prefer federal court, and plaintiffs state court.23 These preferences are not directly related to the applicable punitive damages law because federal courts are required to apply state conflicts law when they hear state law claims,24 and state courts must follow the same substantive law as federal courts when they hear federal claims.25 However, other Page 533 factors, such as greater federal judicial supervision,26 a greater geographical reach of federal jury pools leading to perhaps more pro-defense panels,27 and a perceived greater federal enthusiasm for dismissing cases on summary judgment,28 pulls defendants toward federal court.

In general, civil defendants in state court are entitled to remove a case from state to federal court if the case could have been federally filed.29 Often the basis for removal is diversity of citizenship.30 Diversity jurisdiction, of course, requires "full" diversity, i.e., that no defendant can have a state citizenship in common with any plaintiff.31 This requirement leads to a good deal of gamesmanship, with civil plaintiffs anxious to name non-diverse defendants in an effort to stay in state court and civil defendants equally anxious to have them treated as fraudulently joined parties so as to allow removal of the case.32

A less studied, but no less crucial, sort of forum shopping is intrastate venue shopping. A 2007 U.S. Chamber of Commerce study that ranked states as to their "liability systems" singled out Cook and Madison Counties in Illinois, Beaumont County and the Houston and Dallas metropolitan areas in Texas, San Francisco and Los Angeles Counties in California, Bronx County in New York, Orleans Parish in Louisiana, Miami-Dade County in Florida, and a handful of other local venues as being among the "worst" for business.33 Leaving to one side the descriptor "worst," undoubtedly Page 534 those state court venues are among the friendliest to civil tort plaintiffs and the least friendly to defendants. Thus, even though the same punitive damages law would nominally apply in Alpine and San Francisco Counties in California, a civil tort defendant would undoubtedly prefer the former and the plaintiff the latter. Thus, state venue rules can be critical. In fact, the Chamber of Commerce study specifically includes as one element of the state rankings "Having and Enforcing Meaningful Venue Requirements."34

In the horizontal forum shopping battles, civil defendants are not without weapons. In federal court cases, defendants can seek, and are often granted, a transfer to a more convenient venue, often in a different state.35 Those transfers do...

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