Supreme Court asks states to reform punitive damages laws.

• Author: Schwartz, Victor E.

For the fifth time in the past six years, the U.S. Supreme Court has agreed to hear oral arguments in a case challenging the constitutionality of a punitive damages award.

The case, TXO Production Corp. vs. Alliance Resources Corp. et. al., features a jury award of $19,000 compensatory damages and $10 million punitive damages--a ratio of more than 530 to 1.

The decision to hear this case came as a surprise because the Court had directly addressed the punitive damages issue in March 1991 in Pacific Mutual Life Insurance Co. vs. Haslip, now commonly known as the Haslip case.

In Haslip, the Court determined that the due process clause of the 14th Amendment placed restraints on the common law of punitive damages. Although the plaintiff in Haslip was successful in keeping her punitive damages award and the constitutionality of Alabama's law on punitive damages was upheld, the Court sent a wake-up call to state legislatures--the law of punitive damages in many states was out of control and needed to be fixed.

The Supreme Court said that punitive damages had "run wild" in this country, and "unlimited jury discretion in fixing punitive damages may invite extreme results that jar one's constitutional sensibilities." But the Court declined to "draw a mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case." The Court indicated, however, that a punitive damage award of four times the compensatory award may be close to that line.

In the wake of the Haslip decision, the Supreme Court vacated and remanded 12 different punitive damages awards. The justices indicated that the Haslip opinion had constitutional teeth and that the Court was placing confidence and trust in state legislatures to clear up and clean up their punitive damages system. The Court's acceptance of the TXO case may signal a lack of patience with the state legislative process and a new willingness to articulate specific reforms.

The Courts vs. the Legislatures

Since Haslip, five appellate courts have held state punitive damages systems unconstitutional: Virginia, South Carolina, West Virginia, Maryland and Tennessee. Although these courts have tried to improve the punitive damages system, they may not be the best forum. I believe that role belongs to state legislatures. Courts deal only with narrow legal issues--they cannot invoke broad-based reform. Courts also lack the ability to hold hearings and consider the...