Section 2 U.S. Supreme Court Decisions
Library | Damages 2012 |
Three important cases before the U.S. Supreme Court in the early 1990s provided the direction for states to determine the constitutionality of punitive damages and provided the underpinnings of the seminal case of BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), and its progeny, which are discussed below.
The first case was Pacific Mutual Life Insurance Co. v. Haslip, 499 U.S. 1 (1991). In Haslip, the Supreme Court scrutinized whether the Alabama law providing for punitive damages awards was constitutional. The Court held for the first time that the Due Process Clause of the Fourteenth Amendment imposes substantive and procedural constraints on the award of punitive damages under state law. The Court affirmed the award in that case but, in so doing, noted the rigorous procedural and substantive safeguards imposed
by Alabama law and emphasized the necessity, among other things, of “ensur[ing] that punitive damages awards are not grossly out
of proportion to the severity of the offense and have some understandable relationship to compensatory damages.” Id. at 22.
Further, the Supreme Court approved a seven-part analysis engaged in by the Alabama courts in their post-verdict review of the award and concluded that “application of these standards . . . imposes a sufficiently definite and meaningful constraint on the discretion of Alabama factfinders in awarding punitive damages.” Id. Finally, noting that the award in that case was “more than 4 times the amount of compensatory damages [and] more than 200 times the out-of-pocket expenses of respondent” caused by the wrongful conduct, it concluded that, “[w]hile the monetary comparisons are wide and, indeed, may be close to the line, the award here did not lack objective criteria . . . [and] does not cross the line into the area of constitutional impropriety.” Id. at 23–24.
In Haslip, 499 U.S. 1, the Supreme Court stated that its concern was that punitive damages not “run wild.” Id. at 18. The Court went on to say:
One must concede 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. We need not, and indeed we cannot, draw a mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case. We can say, however, 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.
Id. at 18 (citation omitted).
The second case, two years later, was TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443 (1993). TXO involved a West Virginia land transaction and a counterclaim by Alliance for slander of title that was tried to a jury, resulting in a verdict against TXO of $19,000 in compensatory damages, representing the legal fees and expenses incurred in defending the quiet title action, and $10 million in punitive damages. The trial court refused to set the verdict aside, and the West Virginia Supreme Court of Appeals affirmed. The U.S. Supreme Court accepted transfer.
The Supreme Court affirmed the decision of the lower courts by a six-three vote. No opinion commanded the assent of a majority of the justices. Justice Stevens wrote the plurality opinion, which was joined in its entirety by Chief Justice Rehnquist and Justice Blackmun and, in part, by Justice Kennedy. Purporting to follow Haslip, 499 U.S. 1, the plurality opinion reaffirmed that the Due Process Clause of the Fourteenth Amendment imposes both substantive and procedural limits on punitive damages awards but repeated Haslip’s statement: “We need not, and indeed we cannot, draw a mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case.” TXO, 509 U.S. at 458. The plurality opinion also rejected TXO’s argument that it should adopt “objective” criteria to determine whether a particular punitive damage award “exceeds the bounds of contemporary and historical practice by orders of magnitude” and, if so, strike it down as arbitrary and excessive “unless there is a ‘compelling and particularized justification’ for an award of such size.” Id. at...
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