Punitive Damages: From Myth to Theory

• Author: Anthony J. Sebok
• Position: J.D., Yale Law School, 1991; Ph.D., Princeton University, 1993. Centennial Professor of Law and Associate
• Pages: 959-1036

Anthony J. Sebok: Many thanks to Ted Eisenberg, Mark Geistfeld, John Goldberg, Mike Green, Myriam Gilles, Dan Markel, Robert Rabin, Gideon Rosen, David Rosenberg, Cathy Sharkey, Larry Solan, Stephen Sugarman, Ben Zipursky, and the participants in faculty workshops at Brooklyn Law School, Fordham Law School, U.N.C. Law School, N.Y.U. School of Law, Princeton University, Rutgers University School of Law-Camden, The University of Texas School of Law, and the University of Toronto. This Article was written with the support of the Summer Research Grant Program of Brooklyn Law School, as well as the Program in Law and Public Affairs, Princeton University, where I was a Fellow in 2005-2006. My research assistants, Ningur Akoglu, BLS '05, Simon Lee, BLS '06, and Ryan Micallef, BLS '06, provided invaluable assistance. All mistakes are my responsibility.

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I Introduction

Punitive damages have become an important topic in the United States. Until about twenty years ago, punitive damages were an obscure feature of American tort law that was rarely discussed outside of academic circles. Over the past few decades, media coverage of punitive-damages decisions and criticisms of punitive damages by the business community have placed punitive damages at the center of a debate over their proper scope and purpose.¹

The debate has had an effect. Punitive damages have lately been on the retreat. Beginning in the 1980s, nineteen states have reduced them through caps and ratios,² and starting with the decisions BMW of North America v. Gore³and State Farm Mutual Automobile Insurance Co. v. Campbell,⁴ the Supreme Court has begun to use the Due Process Clause of the Constitution to limit the states' power to impose punitive damages.

American tort law, therefore, is in the midst of a major reexamination of punitive damages-the final chapter of which has not yet been written. Some tort scholars predict that this reexamination will be bad for the law in that it will weaken tort law's ability to protect vulnerable parts of the citizenry.⁵ Others celebrate this reexamination, predicting that it will be good for the law in that it will protect defendants-especially corporations- from capricious and potentially devastating judgments.⁶

This Article argues that the current debate over punitive damages is unlikely to produce any useful recommendations for legislators or judges about how to think about punitive damages. This is for two reasons. First, the tort reformers' original motivation for reexamining punitive damages was based on a faulty premise. Contrary to the claims of the reformers, punitive damages had not been, nor were they on the verge of, getting out of control. Second, the most current attempts to explain the function of punitive damages fail to justify the practice. As a result, although punitive- damages critics might not be able to demonstrate that punitive damages are actively harming the legal system, they have gained the upper hand merely because punitive-damages defenders cannot explain what positive Page 960 contribution such damages make that is not already being done more effectively by some other branch of the law. In short, this Article argues that, although there is no crisis in punitive-damages litigation, there was, and still is, a crisis in punitive-damages theory.

In Part II, I will argue that the tort reformers' motivation for the reexamination of punitive damages that captured the attention of legislatures and the current Supreme Court-that punitive damages were (or were about to become) out of control-was groundless. As I will show in Part II, Section A, the idea that punitive damages were out of control had many overlapping meanings, but one stood out: That the ratio between the compensatory damages and punitive damages awarded was growing increasingly large in a noteworthy number of cases. While some scholars, notably Ted Eisenberg, have attempted to deflate this fear, a number of other scholars, especially from the perspective of law and economics, chose to turn the vice of high ratios into a virtue. They argued that if a system of punitive damages is to serve its core function of deterrence, high ratios would be a necessary and natural side effect.⁷ I will argue that this response compounded the original error made by the critics of punitive damages. As I will show in Part II, Section B, it is very hard to make a convincing case for the current practice of punitive damages based on a theory of efficient deterrence, so any argument that relies upon the goal of efficiency simply strengthens the case against punitive damages as they are awarded currently by most courts in the United States.

In Part III, I examine two current nonefficiency-based theories of punitive damages drawn from the decisions of the Supreme Court and recent scholarship. My goal is to distinguish analytically between different types of explanations of the function of punitive damages. The judges and writers from whom I draw the theories likely would protest that they do not think that punitive damages could or should have a single function, and therefore no theory of punitive damages should be limited to a single rationale. They have a point; in fact, the historical record in most complex common-law doctrines is underdeterminative since lines of cases contain conflicting patterns of decision.⁸ This objection, while well taken, is not fatal to the purpose of this Part, which is to test certain claims about the point or purpose of punitive damages against certain historical and theoretical features of American tort law.

In Part IV, I argue that punitive damages are awarded to vindicate an interest in social dignity held by private citizens. This argument has three steps. In Section A, I examine how punitive damages first emerged in tort in Page 961 the United States as a form of redress in cases involving contempt or insult in the course of a violation of private rights.

In Section B, I explain why the practice of awarding punitive damages in tort is an appropriate method of redress for an invasion of a private right. I will argue that the act of pursuing punitive damages is, in itself, very important to the plaintiff who has suffered an invasion of a private right because it is a form of dignitary or "moral" injury as defined by the philosopher Jean Hampton.⁹ This is in contrast to public retribution, in which the good to be obtained is that the wrongdoer suffer in response to the wrong he has done to society.¹⁰ In addition, in this Section I argue that, because it is a form of private retribution, the current practice of punitive damages is best characterized as a form of revenge, although it is a very stylized form of revenge.

In Section C, I explain how the model of punitive damages as revenge for the violation of a private right fits into the larger theory of tort law as civil recourse. Under this account, a defendant's tortious act grounds the plaintiff's right to pursue redress through civil litigation. The key features of the current practice of punitive damages fit this account. The plaintiff chooses to initiate the process by which a judicial factfinder awards punitive damages and decides how to present the nature and extent of the defendant's wrongdoing. After the plaintiff exercises her right to redress, the amount of the award is determined by the judicial factfinder (often a jury), and then it is subject to appellate review. Unlike purely private revenge, punitive damages redress the personal loss of social dignity precisely because it is the state that permits and controls the victim's pursuit of revenge.

In Part V, I conclude the Article by discussing the practical implication of adopting the theory that punitive damages are a form of state-sanctioned revenge. The practical implications are primarily negative. First, one should not conduct the analysis of the practice of punitive damages in terms of whether it is more or less likely to produce the "right" multiple of compensatory damages. This Article argues that the sum of money that represents the answer to the question, "How much should this plaintiff receive at the conclusion of her properly framed private lawsuit for retribution?" cannot be answered in any interesting way by any method that takes the ratio between the plaintiff's compensatory damages and her punitive award to have independent normative bite.

The second negative implication of my theory is that a theory of punitive damages as private retribution can provide reasons to include or Page 962 exclude certain practices in civil litigation. Thus, for example, arguments about the potential harm of a defendant's conduct to anyone other than the plaintiff might play only a slight role in helping the plaintiff redress the injury to her social dignity, and yet they might lead many factfinders to conclude erroneously that they ought to base the damages-award amount on a ratio derived from an estimate of the risk posed to the defendant's potential victims. To the extent that legal...