Amicus Curiae Brief — Pacific Mutual Life Insurance v. Haslip
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IN THE —acnll
Supreme Court of the United States
OCTOBER TERM, 1989
PACIFIC MUTUAL LIFE INSURANCE COMPANY,
Petitioner,
v.
CLEOPATRA HASLIP, et al.,
Respondents.
On a Writ of Certiorari to the Supreme Court of Alabama
BRIEF AMICI CURIAE FOR
THE ALLIANCE OF AMERICAN INSURERS,
THE AMERICAN COUNCIL OF LIFE INSURANCE,
THE AMERICAN INSURANCE ASSOCIATION,
THE HEALTH INSURANCE ASSOCIATION
OF AMERICA, AND THE NATIONAL ASSOCIATION
OF INDEPENDENT INSURERS
IN SUPPORT OF THE PETITIONER
ERWIN N. GRISWOLD
(Counsel of Record)
PATRICIA A. DUNN
LAURIE W. FINNERAN
DEENA B. JENAB
JONES, DAY, REAVIS & POGUE
1450 G Street, N.W.
, Washington, D.C. 20005
(202) 879-3$39
Counsel for the Amici
[Of Counsel Listed on Inside Cover]
WILSON - Eras PRINTING Co., INc. - 789-0096 - WASHINGTON, D.C. 20001 )
Of Counsel:
KENNETH H. NAILS
JAMES H. BRADNER, JR.
RICHARD E. GOODMAN
MARY N. BELGRADE
Alliance of American Insurers
1501 Woodfield Road
Suite 400 West
Schaumburg, IL’60173-4980
(708) 330-8602
RICHARD E. BARNSBACK
PHILLIP E. STANO
American Council of Life Insurance
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2599
(202) 624-2183
MICHAEL LOVENDUSKY
American Insurance Association
1139 Connecticut Avenue, N.W.
Sui.e 1000
Washington, D.C. 20036
(202) 828-7173
JOE W. PEEL
THERESA L. SOROTA
Health Insurance Association
of America
1025 Connecticut Avenue, N.W.
Suite 1200
Washington, D.C. 20036
(202) 223-7822
PATRICK J. MCNALLY
JOHN J. NANGLE
National Association of
Independent Insurers
2600 River Road
4th Floor
Des Plaines, IL 60018
(708) 297-7800
QUESTION PRESENTED
Whether punitive damages awards imposed without
meaningful standards and bearing no rational relation-
ship to the purposes of deterrence and punishment are
constitucionally excessive under the Due Process Clause
of the Fourteenth Amendment.
(i)
TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES ...000000000...20..0.0.ceeceeeeeceeeenee iv
INTERESTS OF THE AMICI ....W022.02. oe eeee cece eee 1
I vaciannesitinsinsiibiisneinnnsisesneseestitasicnsnsntendsiuiiilictiediadiais 3
SUMMARY OF ARGUMENT .....002002oeee cece 5
deceit a aacceisicecititincirbaeitibciaininsiainsiibiisatnetin 8
JURY AWARDS OF PUNITIVE DAMAGES IM-
POSED WITHOUT MEANINGFUL STANDARDS
AND IN AMOUNTS BEARING NO RATIONAL
RELATIONSHIP TO THE PURPOSES OF DE-
TERRING AND PUNISHING A CIVIL DEFEND-
ANT’S CONDUCT ARE CONSTITUTIONALLY
EXCESSIVE UNDER THE DUE PROCESS
A. The Due Process Clause Requires a Substantive
Limitation on the Amounts of Punitive Dam-
ages That Ci’il Juries Can Award ...................... 7 a
B. Punitive Damages Awards Imposed Without
Meaningful Standards and Exceeding Amounts
Rationally Related to the Purposes of Deterrence
and Punishment Are Constitutionally Excessive.. 14
IIT ices ccitnithcinesenstitiglinsianisienisiiinsssiansiernesennnion 26
(iii)
iv
TABLE OF AUTHORITIES
Cases Page
Aetna Life Insurance Co. v. Lavoie, 475 U.S. 813
EUITIE: -cnpatsestisstointipnsscanscistiectepiddesgtaldoanad teienteaditaaad bia 3
Bankers Life & Casualty Co. v. Crenshaw, 486 U.S.
Saab et ichinintesictsaiecicentsictenicincieimestnaninsidalibtdeietmmidnitatatiis. 3,13
Benson v. Frederick, 97 Eng. Rep. 1130 (1766)... 10
Browning-Ferris Industries v. Kelco Disposal, Inc.,
109 S. Ct. 28:90 (1969) 2.2... oe... passim
CTS Corp. v. Dynamics Corp. of America, 481 U.S.
EEE ER SE Re Rae ee els ROP 24
Chicago, Burlington & Quincy R.R. v. Chicago, 166
ee 11
City of New Orleans v. Dukes, 427 U.S. 297
I aaa BEDE RR het OE OS LOE IT Dal a 14
City of Newport v. Fact Concerts, Inc., 453 U.S.
247 (1981) ....... a a 18, 21, 25
Coryell v. Colbaugh, 1 N.J. (Coxe) 77 (1791)........ 10
Davidson v. City of New Orleans, 96 U.S. 97
ER RT ERDAS es eee UREN ET oe 11
Day v. Woodworth, 54 U.S. (13 How.) 363 (1851).. 5, 10,
11
Douglass v. Hustler Magazine, Inc., 769 F.2d 1128
(7th Cir. 1985), cert. denied, 475 U.S. 1094
a 19
Duke Power Co. v. Carolina Environmental Study
Group, Inc., 488 U.S. 59 (1978) ..........-..00 14
Enmund v. Florida, 458 U.S. 782 (1982)... 22
Gertz v. Welch, 418 U.S. 323 (1974) .....0...0000 ow... 11
Gregg v. Georgia, 428 U.S. 153 (1976)... 15
Hammond v. City of Gadsden, 493 So. 2d 1874
RIS CMe AR AS Rn a 4
International Brotherhood of Electrical Workers
v. Foust, 442 U.S. 42 (1979). nn. 18
Kennon v. Gilmer, 131 U.S. 22 (1889)... 10
Lassiter v. Department of Social Services, 452 U.S.
PEE EE SI SO a 14
Linn v. United Plant Guard Workers, Local 114,
LS >, 17
Linsley v. Bushnell, 15 Conn. 225 (1842) ................. 10
Meagher v. Driscoll, 99 Mass. 281 (1868)
Vv
TABLE OF AUTHORITIES—Continued
Page
Memphis Community School District v. Stachura,
BIT UB. GBD CAGES) ...-..0-ncnccccceccsccseccccceccncesessesesce0e 11
Milwaukee & St. Paul Ry. v. Arms, 91 U.S. 489
II ns aseseh i ecaciesneinhccenistsipndeetennnindiataanmneniaenens 11
Missouri Pacific Ry. v. Humes, 115 U.S. 512
Nahi eciidiais tesisikingedbciedisinetitnerticittabinnsvensbeetoatebe 12, 18
Missouri Pacific Ry. v. Tucker, 230 U.S. 340
STEED ‘ac ditenshictadikainsicanoassidhdeileocaiiaidonasdabucccspenaenl 8, 12, 13, 23
Moore v. City of East Cleveland, 431 U.S. 494
a i isaac is insddescabecoh aden psabiiewinnebsiabecianndiaiaation 14
Schware v. Board of Bar Examiners, 353 U.S. 232
I inci napiitninbiciatliniassarctiiiaisdiciadeuaioniscmadeiiplennesinincionmnéns 14
Slaughter House Cases, 83 U.S. (16 Wall.) 36
iis cide idicia coils ietebiddietadenssieteevedecsceseess ipttices 11
Solem v. Helm, 468 U.S. 277 (1983) ........................ 15, 22
St. Louis, Iron Mountain & Svuthern Ry. v. Wil-
Statutes
liams, 251 U.S. 63 (1919) .............--..........--- 12, 16, 18, 22
Sweet v. Rechel, 159 U.S. 380 (1895) -...... RLY Fenn 11
Tull v. United States, 481 U.S. 412 (1987) ............... 17
Tullidge v. Wade, 95 Eng. Rep. 909 (1769) ............. 10
United States v. Halper, 109 S. Ct. 1892 (1989)...... 22
United States v. United Mine Workers, 330 U.S.
7S ade cadiieioniaeainddbaainnassiacese 18
Waters-Pierce Oil Co. v. Texas, 212 U.S. 86
III esiiasictedinsieesinesécntectalanitassineleitniasitetndnnlintnininscoseanseies passim
Weems v. United States, 217 U.S. 349 (1910) ....15, 22, 24
Wilkes v. Wood, 98 Eng. Rep. 489 (1763) ................ 9
Williamson v. Lee Optical, 348 U.S. 483 (1955) ...... 14
Ala. Code § 6-11-20 (1989).................2..0.ccee cece 24
Ala. Code § 6-11-21 (1989) ..................-..20ce cece 24
Ala. Code § 6-11-23 (1989) ......................... selaoks eo 24
Ala. Code § 27-1-12 (1986) ..................--22....0.---seeeeees 25
Ala. Code § 27-12-17 (1986) ...............-..-----------------+- “ 25
Ala. Code § 27-12-23 (1986)...............------------------eee-+ 25
Colo. Rev. Stat. § 138-21-102 (1987) ...........................- 23
Fla. Stat. Ann. § 768.73(1) (West Supp. 1990) ...... 23
vi
TABLE OF AUTHORITIES—Continued
Page
Nev. Rev. Stat. § 42.005 (Supp. 1989) .............00........ 23
Tex. Code Ann. §§ 41.007 et seg. (Vernon Supp.
I ichicisieliciiKitipatinihichincsisilliciitaleticeeldiiiatenscigilliinainas 23
Miscellaneous
American College of Trial Lawyers, Report on
Punitive Damages of the Committee on Special
Problems in the Administration of Justice
ESS EN eS ee. es 9, 18, 21-23
Dobbs, Ending Punishment in “Punitive” Dam-
ages: Deterrence-Measured Remedies, 40 Ala. L.
8 FE eT ane Sr eee 19, 20
Ellis, Fairness and Efficiency in the Law of Puni-
tive Damages, 56 S. Cal. Rev. 1 (1982) ................ 22
J. Ghiardi & J. Kircher, Punitive Damages Law
and Practice § 4.14 (1981) .....000000 eee 11
1 L. Schlueter & K. Redden, Punitive Damages
Oe ie 10
_ Mallor & Roberts, Punitive Damages: Toward «
Principled Approach, 31 Hastings L. J. 639
EE ree ie a eee a ene a A 20
Massey, The Excessive Fines Clause and Punitive
Damages: Some Lessons From History, 40 Vand.
Ss nner ee nee 23
Morris, Punitive Damages in Tort Cases, 44 Harv.
Bits Te TI CID pc scstcinens eo escecetewsseceevcceceesccece 17
Note, Exemplary Damages in the Law of Torts,
70 Harv. L. Rev. 517 (1957) ........000..0.0-eceeee eee 10
Note, The Imposition of Punishment by Civil
Courts: A Reappraisal of Punitive Damages, 41
N.Y.U. L. Rev. 1158 (1966) ......00000000 ee. 10
Owen, Punitive Damages in Products Liability Liti-
gation, 74 Mich. L. Rev. 1258 (1976) .......... 16, 19, 20, 21
Restatement (Second) of Torts § 908(1) (1979).... 11
vii
TABLE OF AUTHORITIES—Continued
Page
Sales & Cole, Punitive Damages: A Relic That Has
Uutlived Its Origins, 37 Vand. L. Rev. 1117
IITs sisstcacidaiicenlinihadeibinnishebeiiilinie- enniinnsiniinesininaicnnnniai 10, 11, 16
Schwartz, Browning-Ferris: The Supreme Court’s
Emerging Majorities, 40 Ala. L. Rev. 1237
STII os scdeenscncstconvendiiddenssteaniaaniennsentiaiemadinidomeianeren 20
Schwartz, Deterrence and Punishment in the Com-
mon Law of Pi.nitive Damages: A Comment, 56
S. Cal. L. Rev. 183 (1982) ............22..22..0-22---ee0--e 16
IN THE
Supreme Court of the United States
OCTOBER TERM, 1989
No. 89-1279
PACIFIC MUTUAL LIFE INSURANCE COMPANY,
Petitions F.
V.
CLEOPATRA HAsuIP, eft al.,
Respondents.
Ona Writ of Certiorari to the Supreme Court of Alabama
BRIEF AMICI CURIAE FOR
iTHE ALLIANCE OF AMERICAN INSURERS,
THE AMERICAN COUNCIL OF LIFE INSURANCE,
THE AMERICAN INSURANCE ASSOCIATION,
THE HEALTH INSURANCE ASSOCIATION
OF AMERICA, AND THE NATIONAL ASSOCIATION
OF INDEPENDENT INSURERS
IN SUPPORT OF THE PETITIONER
This brief deals with the constitutionality of punitive
damages as applied in this case.
INTERESTS OF THE AMICI!
The amie? are trade associations representing the in-
tevests of many of the life, health, and property and
easualty insurers in the United States. Specifically, the
' Counsel for both the Petitioner and the Respondents have con-
sented to the filing of this brief. Their consents are on file with
the Clerk.
2
Alliance of American Insurers represents approximately
180 insurance companies that write property ana casualty
insurance nationwide, with annual premiums represent-
Ing over ten percent of such insurance. The American
Council of Life Insurance, the largest life insurance
trade association in the United States, represents the
interests of 616 member life insurance companies; these
companies currently underwrite 95 percent of the life
insurance in force in legal reserve life insurance com-
panies in the United States. The American Insurance
Association represents 195 property and casualty in-
surers; these companies are affiliated with 65.000 inde-
pendent insurance agents nationwide. The Health In-
surance Association of America represents the interests
of 320 member companies that provide health insurance
to over 90 million Americans. The National Association
of Indepen-lent Insurers, the largest association of prop-
erty and casualty insurers in the country, represents over
560 property and casualty insurers writing over one-third
- the personal lines of insurance sold in the United
tates.
Whether. and to what extent, the Due Process Clause
of the Fourteenth Amendment imposes procedural and
substantive limitations on punitive damages are issues
of vital importance to the amici’s members. In recent
years, courts have permitted juries to assess substantial
punitive damages awards against insurers, in the ab-
sence of due process constraints, and have deferred to
those awards even though they are imposed without mean-
ingful standards and bear no rational relationship to the
purposes of punishment and deterrence. These decisions
drastically and unpredictably enlarge the risks facing
insurers, which must rely on a predictable allocation of-
risks and costs in providing insurance. and jeopardize
their ability to offer affordable insurance. Because of
their genuine interest in the constitutionality of cur-
rent punitive damages law, therefore, the amici have
filed briefs in this Court in prior cases involving this is-
3
sue. See, e.g., Browning-Ferris Indus. v. Kelco Disposal,
Ine., 109 S. Ct. 2969 (1989); Bankers Life & Casualty
Co. v. Crenshaw, 486 U.S. 71 (1988); Aetna Life Ins.
Co. v. Lavoie, 475 U.S. 813 (1986).
This brief makes available to the Court the views of
the amici, based on the experiences of their broad-based
constituencies, on one of the issues in this case: whether
punitive damages awards imposed without meaningful
standards and bearing no rational relationship to the
purposes of deterrence and punishment are constitution-
ally excessive under the Due Proeess Clause of the Four-
teenth Amendment.”
STATEMENT
1. The facts, which Petitioner sets forth fully in its
brief, are straightforward. Pacific Mutual Life Insur-
ance Company (‘Pacific Mutual’) provides life, but not
health, insurance to employees of Alabama municipalities
(Pet. App. B2). In 1981, Lemmie Ruffin, a non-exclusive
insurance broker, approached Roosevelt City and offered
to provide health and life insurance to its employees (id.
at B1-B2). Ruffin represented that he was “with Pa-
cific Mutual” and submitted an insurance proposal on
Pacific Mutual letterhead ‘id. at B2). In August 1981,
when the City accepted Ruffin’s proposal, Ruffin placed
the employees’ life insurance with Pacific Mutual and
their health insurance with “Union Fidelity Life Insur-
ance Company (“Union Fidelity”) ‘id.). Although Ruffin
personally collected the City’s premiums (id.), he did not
forward them to either Pacific Mutual or Union Fidelity
(id. at B3). In late 1981, the insurers cancelled the
policies for nonpayment of premiums (id. at B2-B3).
* Though the amici agree with the Petitioner and its other amie?
that current punitive damages law raises substantial procedural due
process concerns and urge the Court to impose limits on jury discre-
tion to award these damages, this brief addresses only the constitu-
tionality of excessive punitive damages awards under substantive
due process principles.
4
2. Cleopatra Haslip, a City employee, thus had no
health insurance when, in January 1982, she incurred
$2,500 in hospital and medical expenses (Pet. App. B3).
Haslip and three other City employees then sued Pacific
Mutual and Ruffin in Alabama state court for fraud
(id.). In August 1987, the jury returned a verdict for
the plaintiffs (id.). Its verdict gave Haslip, in particular,
$1,040,000 in compensatory and punitive damages (id.)."
3. The trial court denied Pacific Mutual’s motion for a
new trial or for judgment notwithstanding the verdict
(Pet. App. Al). It concluded that the jury properly found
that, under the doctrine of respondeat superior, Pacific
Mutua! was liable for Ruffin’s fraud (id. at A7-A8). The
court further concluded that the jury properly awarded
punitive damages and declined to order a remittitur (id.
at Al2). Noting that the Alabama Supreme Court had
outlined procedures for review of jury verdicts in Ham-
mond v. City of Gadsden, 493 So. 2d 1374 (Ala. 1986),'
it sustained the verdict because (1) “the conduct in this
case evidenced intentional malicious, gross, or oppressive
fraud” ‘id. at Al4}, (2) the award was not excessive,
even though it was “for a great amount of money” and
the court “would in all likelihood have rendered a less| er |
amount” (id. at Al5)}, and (3) the verdict was not
based on “bias, passion, corruption, or other improper
motive” (id.).
3 The jury did not indicate what portion of this damages award
represented punitive damages. Counsel for Respondent, however,
has consistently argued that this case involves an award of punitive
damages that exceeds $1 million. See Pet. Reply Br. at App. ©.
4The Hammond decision requires trial courts to state fer the
record their findings of fact and conclusions of law regarding the
excessiveness of jury awards and permits them to hold a post-trial,
evidentiary hearing on that issue. Jd. at 1379. Hammond further
suggests that, in making this assessment, the court can consider such
factors as the defendant’s culpability, the need for deterrence and
the impact of the award on the parties. /d.
| al
»
4. The Alabama Supreme Court affirmed. It agreed
with the trial court that Pacific Mutual was liable for
Ruffin’s fraud (Pet. App. B8-B9) and sustained the puni-
tive damages award (id. at B12-B13). The court rejected
Pacific Mutual’s arguments that the award was uncon-
stitutional, noting that the trial court had followed the
Hammond “guidelines” for evaluating jury verdicts (id.
at B12-B13). Because “jury verdicts are presumed cor-
rect” (‘id.), the court affirmed the jury’s award.
Two justices dissented from the majority's constitu-
tional analysis. In their view, “the award of punitive
damages in this case violate{d] | Pacific Mutual’s!] due
process rights under the Fourteenth Amendment” | Pet.
App. B16).
SUMMARY OF ARGUMENT
A. The Due Process Clause imposes substantive limits
on the amounts of punitive damages that civil juries can
award. This conclusion is evident from history. This
Court’s decision in Day v. Woodworth, 54 U.S. (13 How.)
263 (1851), which clarified the early judicial confusion con-
cerning the functions of punitive damages, and the sub-
sequent adoption of the Fourteenth Amendment in 1866,
which permitted federal courts to review state action
under due process principles, laid the groundwork for
substantive review of the amounts of extra-compensatory
damages. Nearly a century ago, therefore, this Court
bezan to review extra-compensatory damages in light of
their deterrent and punitive purposes to determine
whether they were so “grossly excessive as to amount to a
deprivation of property without due |frocess of law.”
Waters-Pierce Oil Co. v. Texas, 212 U.S. 86, 111 (1909).
Although the Court upheld many, but not all, of these
extra-compensatory awards under this constitutional ex-
cessiveness test, it did so largely because juries rendered
these awards within legislatively-prescribed bounds and,
accordingly, deserved deference, Substantive reviow of
the amounts of punitive damages awards, with due re-
6
gard for legislative competence and the dual purposes of
these awards, thus finds historical support in this Court’s
due process decisions.
B. The conclusion that the Due Process Clause limits
excessive punitive damages awards requires a_ second,
more difficult, inquiry inte the appropriate method for
evaluating punitive damages under substantive due proc-
ess principles. This Court’s decisions provide ample guid-
ance here. They demonstrate that determining whether
punitive damages are constitutionally excessive involves
an evaluation of both the competence of the institution
that awards punitive damages and the rationality of these
awards in light of their purposes.
1. The level of serutiny of punitive damages awards
under the Due Process Clause should depend, in part, on
whether the jury rendering the award did so within mean-
ingful legislative bounds. This Court has made clear that
the states’ reasoned legislative choices deserve considerable
judicial deference. This is so because politically account-
able legislatures are well suited to the task of advancing
a state's legitimate punitive and deterrent goals. To the
extent that civil juries award extra-compensatory dam-
ages within such a legislative framework, therefore, those
awards serve to enforce state legislative choices and thus
embody an institutional legitimacy warranting some def-
erence. But jury awards rendered in the absence of such
legislative guidance have no comparable institutional
legitimacy; juries merely examine isolated facts relating
to a specific past incident and thus are unlikely to pro-
vide an award that will serve the states’ broad forward-
looking policy goals. Such unbridled jury awards are
thus not entitled to any particular deference.
2. Jury awards of punitive damages that bear a
rational relationship to the states’ legitimate goals of
deterrence and punishment may meet the due process test
notwithstanding the absence of any legislative guidance.
This Court’s decisions to sustain extra-compensatory dam-
7
ages where they serve, in particular, the deterrent func-
tion of these damages support this conclusion. Whether
such awards are constitutionally excessive thus should
turn, in the first instance, on whether the award rationally
serves its deterrent purpose. To this end, courts may
evaluate the jury’s award for excessiveness using the
amount of a defendant’s gain from his misdeeds and, in
some cases, the plaintiff's reasonable litigation costs as
appropriate objective indicia of a rational deterrence-
based award.
This deterrence-based measure may, in some Cases,
underserve or overserve the second function of these dam-
ages, i.e., punishment. In such cases, courts can adjust
the deterrence-based award to a level that rationally serves
the punitive purposes as well. Courts may examine objec-
tive proportionality factors—whether a punitive damages
award bears a rational relationship to a plaintiff’s actual
harm and whether the award exceeds criminal o7 civi!
penalties for comparable conduct—in order to determine
the appropriate “punitive” adjustment to the deterrence-
based measure. This purpose-oriented analysis ensures
that, consistent with the Court’s substantive due process
principles, extra-compensatory awards will bear a rational
relationship to their purposes, without violating the con-
stitutional rule against excessiveness.
3. This analysis makes abundantly clear that the
punitive damages award in this case, rendered in the ab-
sence of any legislative guidance, rationally serves neither
purpose. It exceeds any objectively-based deterrence meas-
ure of punitive damages. And it greatly exceeds any
amount that might fairly serve to “punish” Pacific Mu-
tual for Ruffin’s misdeeds. It is, therefore, constitutionally
excessive.
8
ARGUMENT
JURY AWARDS OF PUNITIVE DAMAGES IMPOSED
WITHOUT MEANINGFUL STANDARDS AND IN
AMOUNTS BEARING NO RATIONAL RELATION-
SHIP TO THE PURPOSES OF DETERRING AND
PUNISHING A CIVIL DEFENDANT'S CONDUCT ARE
CONSTITUTIONALLY EXCESSIVE UNDER THE DUE
PROCESS CLAUSE
If the states had remained separately independent, their
policies with respect to punitive damages would, of course,
have been a purely local matter. But this is a federal
nation, and the Fourteenth Amendment specifically im-
poses limits on state legislative and judicial actions.
Where those actions exceed the limits of substantive due
process, it is the responsibility of this Court to uphold the
requirements of the Federal Constitution. This interven-
tion is not unprecedented in this Court’s decisions, See,
e.4., Missouri Pacific Ry v. Tucker, 230 U.S. 340 (1913).
Though it is obviously a difficult and delicate area—so
that this Court’s caution is fully understandable—only
this Court can finally establish the limits that the Con-
stitution places on punitive damages law.
This case clearly illustrates the need for the Court’s
oversight. Much more than in the nineteenth century,
business transactions today are conducted on an inter-
state basis. The Petitioner here is a California company
that carries on its insurance business nationwide. It is
true that the injury for which the Respondents seek re-
dress occurred in Alabama. As far as conventional dam-
ages are concerned, there is good reason to apply the law
of Alabama, and no constitutional question is raised.
With respect to punitive damages, though, the burden does
not, as a practical matter, fall on the Petitioner, a mutual
insurance company. Ultimately, the burden falls on all of
the company’s policyholders, residing all over the country.
through its effect on dividends, and on future policy-
holders through its possible impact on premium rates,
9g
Thus, the essential problem here is one of national scope,
thoroughly appropriate for this Court’s oversight. See
American College of Trial Lawyers, Report on Punitive
Damages of the Committee on Special Problems in the
Administrat r Justice (Mareh 3, 1989) at 1-8
“american College Report’) (expressing serious concern
With current punitive damages law and urging prompt
action} .’
This does not mean that the Court must review every
decision that may arise with respect to state punitive
damages law. Once this Court defines the substantive
limitations that the Due Process Clause imposes on puni-
tive damages, the states can be expected to apply those
limits, subject only to eventual review here in presumably
rare cases. This brief thus urges the Court, first, to hold
that the Due Process Clause prohibits excessive punitive
damages awards and, second, to articulate meaningful
standards for determining when those awards exceed that
constitutionai limit.
A. The Due Process Clause Requires a Substantive Limita-
tion on the Amounts of Punitive Damages That Civil
Juries Can Award
1. Application of the Due Process Clause to punitive
damages requires an examination of the basic purposes
of the common law in allowing these damages and the
role of the courts in reviewing these awards. In the early
cases, English and American courts upheld jury awards
of punitive damages without clearly identifying the un-
derlying rationale for the awards. Although some courts
justified punitive damages ‘‘as a punishment to the guilty,
to deter from any such proceeding for the future”
(Wilkes v. Wood, 98 Eng. Rep. 489, 498-99 (1763); see
° For the Court’s convenience, the amici attach copies of the
American College Report to this brief.
10
also Coryell v. Colbaugh, 1 N.J. (Coxe) 77, 77-78
(1791), other courts suggested that punitive damages
also served the remedial purpose of compensating injured
plaintiffs for intangible or dignitary harms that the law
did not then recognize as compensable (see, ¢.g., Tullidge
v. Wade, 95 Eng. Rep. 909 (1769); Benson v. Frederick,
97 Eng. Rep. 1130 (1766); Meagher v. Driscoll, 99 Mass.
281, 285 (1868); Linsley v. Bushnell, 15 Conn. 225, 235
(1842) ).° Because of the ill-defined and varying pur-
poses of these damages, early courts had no clear stand-
ard for reviewing them and, as they were usually in
modest amounts, found little reason to interfere with
them.
Throughout the nineteenth century, the courts broad-
ened the concept of actual damages to include various
sorts of intangible harms. See, e.g., Kennon v. Gilmer,
131 U.S. 22, 26-27 (1889). As these damages began to
| the original compensatory function of punitive dam-
ages, the courts increasingly looked to non-compensatory
justifications for punitive damages. See Note, Exemplary
Damages In The Law Of Torts, 70 Harv. L. Rev. 517, 520
(1957); 1 L. Schlueter & K. Redden, Punitive Damages at
> 141A) (1989). Accordingly, in Day v. Woodworth, 54
U.S. (13 How.) 363, 371 (1851), this Court observed that
“'i|t is a well-established principle of the common law,
that in actions of trespass and all actions on the case for
torts, a Jury may inflict what are called exemplary, puni-
tive, or vindictive damages upon a defendant, having in
view the enormity of his offense rather than the measure
of compensation to the plaintiff.” And, it added, “where
the injury has been wanton and malicious, or gross and
® See generally Sales & Cole, Punitive Damages: A Relic That Has
Outlived Its Origins, 37 Vand. L. Rev. 1117, 1120-23 (1984); Note,
The Imposition of Punishment by Civil Courts: A Reappraisal of
Punitive Damages, 41 N.Y.U. L. Rev. 1158, 1159-61 (1966): Note.
Exemplary Damages in the Law of Torts, 70 Harv. L. Rev. 517, 518-
20 (1957) (commentary on the early courts’ vacillating explanations
of the rationales for punitive damages).
11
outrageous, courts permit juries to add to the measured
compensation of the plaintiff . . . something farther by
way of punishment or example.” Jd.
This Court’s decision in Day, and the subsequent adop-
tion of the Fourteenth Amendment in 1866, marked im-
portant steps in punitive damages doctrine. The Court in
Day clarified the purposes justifying punitive damages
awards as deterrence and punishment, rather than com-
pensation, thus facilitating future judicial review.’ The
Fourteenth Amendment thereafter gave federal courts
the responsibility to evaluate whether state actions actu-
ally served these purposes or, on the contrary, violated
“due process of iaw.” The Fourteenth Amendment thus
brought courts into the process of meaningful, purpose-
based review of the amounts of extra-compensatory
damages.*
In the early part of this century, the Court thus began
to review extra-compensatory damages awards under the
Fourteenth Amendment to determine whether they were
7 See also Milwaukee & St. Paul Ry. v. Arms, 91 U.S. 489, 492-93
(1876). The Court has continued to identify deterrence and punish-
ment as the principal purposes underlying punitive damages, as have
the great majority of jurisdictions. See Gertz v. Welch, 418 U.S.
323, 350 (1974); Memphis Community School Dist. v. Stachura,
477 U.S. 299, 306 n.9 (1986); Browning-Ferris Indus. v. Kelco
Disposal, Inc., 109 S. Ct. 2909, 2920 (1989); see also J. Ghiardi &
J. Kircher, Punitive Damages Law and Practice at 4.14 (1981);
Sales & Cole, Punitive Damages: A Relic That Has Outlived Its
Origins, 37 Vand. L. Rev. at 1126; Restatement (Second) of Torts
§ 908(1) (1979).
8 The Court initially moved slowly in its review of state decisions
under the Fourteenth Amendment, clearly influenced by its concern
that a broader approach would lead to undue federalizing of local
law. See Slaughter House Cases, 83 U.S. (16 Wall.) 36 (1873);
Davidson v. New Orleans, 96 U.S. 97 (1878). The Court’s subse-
quent opinions in Sweet v. Rechel, 159 U.S. 380 (1895), and Chicago,
Burlington & Quincy R.R. v. Chicago, 166 U.S. 226 (1897), marked
the end of its reluctance in this respect and the beginning of mean-
ingful due process review.
12
so “grossly excessive as to amount to a deprivation of
property without due process of law.” Waters-Pierce Oil
Co. v. Texas, 212 U.S. 86, 111 (1909); see also Missouri
Pacific Ry. v. Tucker, 230 U.S. 340, 351 (1913). Under
the “gross excessiveness” test, the Court indenendently
evaluated whether the awards properly served the pur-
poses—and, in particular, the deterrent purpose—of these
extra-compensatory damages. See St. Louis, Iron Moun-
tain & So. Ry. v. Williams, 251 U.S. 68, 67 (1919) (justi-
fying penalty in light of “the numberless opportunities
for committing the offense, and the need for securing uni-
form adherence to established passenger rates’) ; Waters-
Pierce Oil Co. v. Texas, 212 U.S. at 111 (justifying large
award because the defendant’s illegal business “was very
extensive and highly profitable”) ; Missouri Pacific Ry. v.
Humes, 115 U.S. 512, 523 (1885) (noting that legislation
served as “the most efficient mode of preventing . . . the
commission of injuries” and as an important incentive for
victims to seek redress). In this manner, the Court deter-
mined whether these awards were “wholly dispropor-
tioned to the offense and obviously unreasonable.” St.
Louis Iron Mountain & So. Ry. v. Williams, 251 U.S. at
66-67.
Although the Court ultimately upheld many extra-
compensatory awards under this “excessiveness”’ test, it
did so largely because the statutes under which the juries
acted fixed rational bounds and, accordingly, deserved def-
erer.ce. See Missouri Pacific Ry. v. Humes, 115 U.S. at
522 (noting that “the legislature may fix the amount or
prescribe the limit within which the jury may exercise
their discretion’); see also St. Louis, Iron Mountain &
So. Ry. v. Williams, 251 U.S. at 66; Waters-Pierce Oil Co.
». Texas, 212 U.S. at 112. But not all awards survived
this deferential review. In Missouri Pacific Ry. v.
Tucker, 230 U.S. 340, for example, the Court struck
down a jury award rendered pursuant to a state statute
requiring railroad companies to pay $500 in liquidated
damages to any shippers whom they overcharged. In
13
declaring the damages award constitutionally excessive,
the Court observed that the award was “grossly out
of proportion to the possible actual damages” and “arbi-
trary and oppressive.” /d. at 351.
2. That the Due Process Clause imposes substantive
limitations on the amounts of extra-compensatory dam-
ages thus is well-grounded in this Court’s decisions. While
this Court has had no occasion to apply these principles
to the punitive damages awards of civil juries in recent
years, those decisions provide ample basis for holding
that, with due regard for legislative competence and the
dual purposes of these damages, the Due Process Clause
prohibits excessive punitive damages awards. See Waters-
Pierce Oil Co. v. Texas, 212 U.S. 86 (1909); Missouri
Pacific Ry. v. Tucker, 230 U.S. 340 (1913).
Several Justices of the Court have recently expressed
the view that these awards should be evaluated under
substantive due process principles. Justice Brennan, with
whom Justice Marshall concurred, recently indicated
agreement with the Court’s past substantive review of
extra-compensatory damages. See Browning-Ferris Indus.
v. Kelco Disposal, Inc., 109 S. Ct. at 2923 (Brennan,
Marshall, JJ., concurring). Justice O’Connor, with whom
Justice Stevens and Justice Scalia have joined at various
times, has likewise shown a concern for confining puni-
tive damages within substantive limits. Jd. at 2924
(O’Connor, Stevens, JJ., concurring in part and dis-
senting in part) (noting that the Court might ccn-
sider “a due process challenge to awards of punitive
damages or the method by which they are imposed’’) ;
Bankers Life & Casualty Co. v. Crenshaw, 486 U.S. 71,
87 (1988) (O’Connor, Scalia, JJ., concurring in part and
concurring in the judgment) (noting that state laws
that allow juries to award any amount of punitive dam-
ages in certain tort cases “may violate the Due Process
Clause”).
14
To be sure, in recent decades, this Court has been re-
strained when considering state economic policy choices
uncer substantive due process principles. But the Court
has noted that, while the history of substantive due
process review “counsels caution and restraint ... j,|
it does not counsel abandonment.” Moore v. City of East
Cleveland, 431 U.S. 494, 502 (1977). Indeed, notwith-
standing its restraint, the Court has steadfastly main-
tained that state action that is wholly arbitrary and
irrational will not withstand due process scrutiny. See
City of New Orleans v. Dukes, 427 U.S. 297, 303-04
(1976) ‘per curiam); Williamson v. Lee Optical, 348
U.S. 483, 488 (1955); Schware v. Board of Bar Exam-
ners, 353 U.S, 232, 239 (1957); cf. Duke Power Co. v.
Carolina Envtl, Study Group, Inc., 438 U.S. 59, 83 (1978)
‘due process review of congressional legislation). Puni-
tive damages awards that bear no rational relationship
to their purposes likewise cannot withstand that review.
B. Punitive Damages Awards Imposed Without Meaning-
ful Standards and Exceeding Amounts Rationally Re-
lated to the Purposes of Deterrence and Punishment
Are Constitutionally Excessive
The conclusion that the Due Process Clause of the Four-
teenth Amendment encompasses a_ substantive rule
against excessive punitive damages awards in civil cases
does not end the inquiry. Rather, that conclusion neces-
sarily leads to a more difficult examination of the con-
tours of the substantive rule. While the Due Process
Clause is not susceptible to rigid tests (see Lassiter v.
Department of Social Services, 452 U.S. 18, 24 (1981) 5,
this Court’s substantive analysis of state laws under due
process principles—reflecting both a deference to leg-
islative choices and a requirement that the law meet
its purposes—provides appropriate guidance here. Deter-
mining whether punitive damages awards are constitu-
tionally excessive, therefore, requires an evaluation of
(1) the competence of the institution that awards puni-
15
tive damages, and (2) the rationality of these awards in
light of their purposes.
1. One factor in judicial scrutiny of punitive damages
awards is the level of legislative guidance provided to the
jury. While examination of punitive damages awards for
excessiveness under due process principles counsels due
regard for legislative choices, it requires no comparable
deference to jury awards rendered in the absence of
such guidance. Sce Browning-Ferris Indus. v. Kelco
Disposal, Inc., 109 S. Ct. at 2923 (Brennan, Marshall,
JJ., concurring).
The states plainly have legitimate interests in deter-
ring and punishing certain misconduct against their citi-
zens. When the states have acted to further these goals
in their criminal statutes, therefore, this Court has rec-
ognized that the states’ policy choices merit substantial
deference:
‘\i]r a democratic society legislatures, not courts,
are constituted to respond to the will and conse-
quently moral values of the people.’ The deference
we owe to the decisions of the state legislatures under
our federal system is enhanced where the specifica-
tion of punishments is concerned, for ‘these are pe-
culiarly questions of legislative policy.’
Gregg v. Georgia, 428 U.S. 153, 175-76 (1976) (quota-
tions omitted! ; see also Solem v. Helm, 463 U.S. 277, 290
(1983); Weems v. United States, 217 U.S. 349, 379
(1910).
When the states act to advance these same goals
through their civil statutes, this Court has accorded sim-
ilar deference to the states’ legislative judgments, while
recognizing that there are constitutional limits te legis-
lative power. Thus, in reviewing an assessment of a civil
statutory fine in Waters-Pierce, this Court stated:
The fixing of punishment for crime or penalties for
unlawful acts against its laws is within the police
16
power of the State. We can only interfere with such
legislation and judicial action of the States enforcing
it if the fines imposed are so grossly excessive as to
amount to a deprivation of property without due
process of law.
212 U.S. at 111: see also St. Louis, Iron Mountain &
So. Ry. v. Williams, 251 U.S. at 66. Both the deference
and the limitation are appropriate. See Schwartz, Deter-
rence and Punishment in the Common Law of Punitive
Damages: A Comment, 56 S. Cal. L. Rev. 133, 147
(1982).
Juries, however, do not speak with the same effect as
democratically elected, politically accountable legislatures.
When civil juries award punitive damages within a ra-
tional and appropriately limited legislative framewors,
those awards give effect to state legislative choices as |
the amount of punitive damages that will appropr
serve the purposes of deterrence and punisnmen’. >
Waters-Pierce Oil Co., 212 U.S. at 111. But jury
of punitive damages rendered in the absence of such c-
islative guidance embody no such institutional legvima.
See Browning-Ferris Indus. v. Kelco Disposal, Ince., 10%
S. Ct. at 2923 (Brennan, Marshall, JJ., concurring
The jury, as an institution, is not particularly well-
suited to making bioad policy decisions and is not po-
litically accountable for those decisions. Quite the con-
trary, juries face individualized facts and are particu-
larly ill-equipped to take into account the broad impact
of a punitive award on others and thus to determine
when a penalty furthers the state’s legitimate goals. See,
¢.g., Sales and Cole, Punitive Damages: A Relic That Has
Outlived lis Origins, 37 Vand. L. Rev. at 1159; Owen,
Punitive Damages in Products Liability Litigation, 74
Mich. L. Rev. 1258, 1320-21 (1976)."
® As Professor Clarence Morris so aptly explained almost sixty
years ago:
In determining whether or not the defendant has been a ‘reason-
ably prudent man’ or an ‘intentional wrongdoer,’ the jury’s task
17
Thus, while courts generally defer to the deliberative
function of juries and to the verdicts that they reach,
jury awards in civi! cases are not inviolate. Indeed, this
(‘ourt has noted, in another context, that “{i!f the amount
of damages awarded is excessive, it is the duty of the
‘rial judge to require a remittitur or a new trial.” Liyn
United Plant Guard Wkrs., Local 114, 383 U.S. 53,
po-H6 (1966) ‘emphasis added); see also Browning-
Ferris Indus. v. Kelco Disposal, Inc., 109 S. Ct. at 2921.
.xercising that duty does not unduly interfere with a
state’s legitimate interest in deterrence and punishment.
Rather, this judicial review merely recognizes the jury's
lack of institutional competence in advancing these in-
terests, through arbitrary punitive damages awards. and
respects the role that courts must play in ensuring due
process, '”
2. Even in the absence of legislative guidance, puni-
tive damages awards that bear a rational relationship to
is to reflect the social values of the community; the jury evalu-
ates the defendunt’s past behavior, it determines whether or not
his past conduct should be condemned. But in fixing the amount
of punitive damages the considerations all look to the future
conduct of the defendant and others; the question is: how large
a judgment is needed to discourage this sort of conduct in the
future? Evaluation of past conduct is a different type of prob-
lem from control of future behavior. It is evident that problems
of social control may require more technical skill than jurymen
have or can acquire. Probably, many on jury panels cannot
think of punishment as a means to an end, as an expedient for
reformation and deterrence, and only regard punishment as
legal, justifiable revenge.
Morris, Punitive Damages in Tort Cases, 44 Harv. L. Rev. 1173,
1179 (1931).
1 Judicial scrutiny of jury awards likewise does not interfere with
the jury’s function under the Seventh Amendment. Cf. Tull vr.
United States, 481 U.S. 412, 425, 427 (1987) (Seventh Amendment
does not require a jury to determine the amount of the “remedy” in
a civil case, and “a determination of a civil penalty is not an essen-
tial function of a jury trial”).
18
the purposes of deterrence and punishment may not be so
excessive and arbitrary as to deprive a defendant of due
process of law. See St. Louis, Iron & Mountain & So. Ry.
v. Williams, 251 U.S. at 67. By requiring courts to re-
view whether certain amounts of punitive damages are
rationally related to their purposes—and, in particular,
the purpose of deterrence—this Court can provide a work-
able and appropriate test of excessiveness that will pro-
tect against arbitrary and irrational punitive damages
awards. Cf. United States v. United Mine Workers, 330
U.S. 258, 303-05 (1947) (evaluating excessiveness of con-
tempt fines in light of their purposes)."'
a. Examining the substantive contours of punitive
damages law in light of its deterrent purpose is not a
new concept. Nearly a century ago, this Court empha-
sized the deterrent function of extra-compensatory dam-
ages in reviewing them for “excessiveness” under the
Due Process Clause. See St. Louis, tron Mountain & So.
Ry. v. Williams, 251 U.S. at 67; Waters-Pierce Oil Co.
v. Texas, 212 U.S. at 111; Missouri Pacific Ry. v. Humes,
115 U.S. at 523. More recently, this Court has given
weight to this deterrent purpose in determining the
availability of punitive damages in certain types of
cases. The Court has found the risk of overdeterrence too
great to justify awards of punitive damages against
unions in “duty of fair representation” cases. See Inter-
national Brotherhood of Electrical Workers v. Foust, 442
U.S. 42, 51-52 (1979). And, recognizing deterrence as a
major objective of both punitive damages law and section
1983, the Court hes found that allowing these damages
against municipalities, as opposed to individual o‘ficials,
would not advance that purpose. See City of Newport v.
Fact Concerts, Inc., 453 U.S. 247, 267-70 (1981). This
11 Appropriate procedural safeguards, including precise and mean-
ingful jury instructions, would undoubtedly go far toward the pre-
vention of excessive punitive damages awards. See American Col-
lege Report at 14. Those procedural issues, however, are beyond the
scope of this brief.
19
Court’s emphasis on the deterrent function of punitive
damages thus provides an appropriate guide, in the first
instance, for defining the scope of the constitutional rule
against excessiveness: under a deterrence-based approach,
an extra-compensatory award that exceeds an amount
necessary to deter a defendant (and other potential de-
fendants) from engaging in similar misconduct in the
future is, in all likelihood, constitutionally excessive.
Assessing whether an award of punitive damages ex-
ceeds an amount necessary to deter a defendant should,
in many cases, turn on relatively objective factors. Sec
Douglass v. Hustler Magazine, Inc., 769 F.2d 1128, 1145
(7th Cir. 1985), cert. denied, 475 U.S. 1094 (1986)
(focusing on deterrent function). The amount of a de-
fendant’s gain or profit from his misdeeds is an appro-
priate element in measuring deterrence. See Dobbs, End-
ing Punishment In “Punitive” Damages: Deterrence-
Measured Remedies, 40 Ala. L. Rey. 831 (1989); see also
Owen, Punitive Damages in Products Liability Litiqa-
tion, 74 Mich. L. Rev. at 1286. The defendant’s profits
from his misconduct—or, in some cases, his expected
profits—are objectively-based and often ascertainable
withowt substantial difficulty. For example, an insurer
that knowingly induces an individual to purchase a
grossly inadequate policy for an unreasonable sum un-
doubtedly “profits” from the use of excess premiums
that it improperly gained or, at least, stood to profit
from those premiums over time. Removing the actual or
expected gain in such a case, in addition to requiring
the insurer to compensate the plaintiff for his actual!
losses, makes it less likely that the defendant will repeat
the conduct. A gain-based measure of this sort sends a
clear signal to defendants that such misdeeds do not pay
and, thus, will often fully serve the deterrent funetion.'-
12 Significantly, this measure has nothing to do with the defend-
ant’s wealth—a factor that has served to inflate punitive damages
awards against corporate “deep-pocket” defendants under the cur-
20
Of course, a “gain-based”” measure of extra-compensa-
tory damages may not always adequately serve this de-
terrent function. A defendant may, for example, escape
effective deterrence when its conduct is rarely challenged
in private litigation—i.e., when the cost of private en-
forcement exceeds the plaintiff’s damages. See Mallor &
Roberts, Punitive Damages: Toward a Principled Ap-
proach, 31 Hastings L. J. 639, 650 (1980); cf. Owen,
Punitive Damages in Products Liability Litigation, 74
Mich. L. Rev. at 1285 (noting that the deterrent effect of
punitive damages depends, in part. on “the manufac-
turer’s perception of the likelihood of his being identified
and punished”). In such a case, an appropriate measure
of deterrence may include the plaintiff's reasonable liti-
gation costs, to the extent not otherwise provided by
statute. See Dobbs, Ending Punishment in “Punitive”
Damages: Deterrence-Measured Remedies, 40 Ala. L. Rev.
at 890-94. Shifting the plaintiff’s reasonable litigation
costs to the defendant in these types of cases could
achieve appropriate deterrence by encouraging otherwise
uneconomical litigation and, at the same time, removing
the defendant's incentive to continue his misconduct. This
measure, as with the gain-based measure, is relatively
objective and, given the courts’ experience with assessing
attorneys’ fees, hardly unfamiliar.
Evaluating the amounts of extra-compensatory dam-
ages based on these relatively objective measures thus
achieves the deterrent function of these damages without
a substantial risk of overdeterrence from grossly excessive
rent punitive damages system. Because a gain-based measure takes
only profits from misconduct into account, how much money the
defendant makes through lawful business efforts is entirely irrele-
vant. See Dobbs, supra, at 870-74; Schwartz, Browning-Fervis: The
Supreme Court's Emerging Majorities, 40 Ala. L. Rev. 1237, 1255
(1989). Requiring a reviewing court (or, perhaps, the jury in the
first instance) to focus on ill-gained profits—rather than a defend-
ant’s wealth—brings a measure of certainty and rationality to this
area.
21
awards. This evaluation does not require a court to
defer to the jury’s subjective assessment of the amount
necessary to deter future misconduct—a practice that has,
in the past, led to gravely excessive punitive damages
awards that bear no rational relationship to their pur-
poses. See American College Report at 3 (“awards often
bear no relation to deterrence and merely reflect a jury’s
.. . desire to punish’). Rather, it permits a court to re-
view a jury’s extra-compensatory award based on objec-
tive factors that serve to approximate what will ade-
quately deter defendants from future misconduct within
constitutional limits.
b. Deterrence, however, is not the sole function of
punitive damages. This Court has made clear that they
function as “punishment” as well. See Browning-Ferris
Indus. v. Kelco Disposal, Inc., 109 8. Ct. at 2920; City
of Newport v. Fact Concerts, Inc., 453 U.S. at 266-67.
While extra-compensatory damages based on a deter-
rence-based measure will often serve simultaneously to
deter and punish, there may be cases in which such a
measure underserves the punitive function—as, for ex-
ample, where a defendant experiences or expects no gain
from his misconduct. In such cases, adjusting an extra-
compensatory award to serve its punitive purpose may
be necessary. Cf. Owen, Punitive Damages in Products
Liability Litigation, 74 Mich. L. Rev. at 1317 (“‘|t|he
punishment function is the final factor to be considered
in developing a standard for the measurement of puni-
tive damages’) ."*
13 There may also be cases where the deterrence-based measure
overserves the punitive function, as, for example, where a defendant
deserves no substantial punishment at all. Presumably, however, the
substantive standards for assessing punitive damages will, in many
cases, be high enough to ensure that a defendant not deserving
punishment will not be held liable for such damages. To the extent
that a jury nonetheless finds a defendant so liable and a deterrence-
based measure supports an extra-compensatory award—as, for ex-
ample, where the defendant (unknowingly) gains from an employee's
22
Whether a defendant “deserves” punishment beyond an
amount necessary to deter his future, misconduct turns on
the gravity of his misdeeds. Sce Ellis, Fairness and E ffi-
ciency in the Law of Punitive Damages, 56 S. Cal. L. Rev.
1, 6 (1982). In the criminal context, this Court has re-
sorted to several objective factors for determining whether
punishment is disproportionate to the defendant’s conduct
and thus unconstitutional under the Eighth Amendment.
Sce Solem v. Helm, 463 U.S. 277, 290-91 (1983) ‘con-
sidering, among other things, the gravity of the offense
and punishments for comparable conduct); see also En-
mund v. Florida, 458 U.S. 782 (1982); Weems v. United
States, 217 U.S. 349 (1910); ef. United States v. Halper,
109 S. Ct. 1892, 1901 (1989) ‘applying proportionality
concept). This principle of proportionality—and the no-
tion that objective factors can guide it—have force under
the Due Process Clause as well. See St. Louis, Iron Moun-
tain & So. Ry. v. Williams, 251 U.S. at 66-67 (state legis-
lative penalties can violate due process ‘where the penalty
prescribed is so severe and oppressive as to be wholly
disproportioned to the offense and obviously unreason-
able’). Whether an extra-compensatory award properly
serves its “punitive” function, therefore, depends on
whether it bears a rational relationship to the defendant’s
conduct, measured with reference to such objective factors
as the actual harm that the defendant’s conduct has
caused and any legislative penalties for similar miscon-
duct.
That a punitive award must bear some rational rela-
tionship to the plaintiff’s actual harm finds support in this
Court’s precedents under the Due Process Clause. See
misconduct that is attributable to the employer under a theory of
respondeat superior—this flexible purpose-based analysis permits a
reviewing court to reduce any deterrence-based measure, if not
eliminate a punitive damages award entirely, to reflect the absence
of a need to “punish” the defendant. See American College Report
at 16 (given the purposes of punitive damages, “there is no rational
purpose in punishing or attempting to deter” if the person or entity
did not engage in wrongful conduct).
ell
23
Missouri Pacifie Ry. v. Tucker, 230 U.S. at 351 ‘noting
that liquidated damages award was “zrossly out of pro-
portion to the possible actual damages’). Though the
Due Process Clause may not require punitive damages
awards to represent exact multiples of actual or compen-
satory demages, punitive damages that are many times
these damages raise, at a minimum, a serious concern
that they overserve the punitive function. See American
College Report at 14-15 ‘advocating limit on punitive
damages award not to exceed the greater of an amount
twice the compensatory award or $250,000); cf. Massey,
The Excessive Fines Clause and Punitive Damaqes: Some
Lessons From History, 40 Vand. L. Rev. 1233, 1273
(1°87) (“laln award of two to three times actual dam-
ages micht be thought presumptively within the constitu-
tional limits’). Several states have, therefore, enacted
statutes that limit punitive damages awards to amounts
that are some low multiple of the plaintiif’s actual dam-
ages, reflecting a reasoned judgment that any greater
emount would not further the states’ legitimate interests.
See, e.g., Colo. Rev. Stat. § 18-21-102 (1987); Fla. Stat.
Ann. § 768.7311) (West Supp. 1990); Nev. Rev. Stat.
$ 42.005 (Supp. 1989); Tex. Code Ann. $§ 41.007 et seq.
(Vernon Supp. 1990). While there is no clear consensus
on this point, it is reasonable to conclude that, as a gen-
eral benchmark, an award within a relatively low mul-
tiple of actual damages would appear to give adequa:e
recognition to the “punitive” function.
This “ratio” approach is only one objective benchmark
for determining what amount of extra-compensatory dam-
ages will serve the punitive purpose. What is an appro-
priate punishment for a defendant’s misconduct may, in
some cases, be apparent from legislative penalties for
similar conduct. Many states have enacted statutes pre-
scribing penalties, either civil or criminal, for certain
intentional or negligent conduct that is similar to conduct
that exposes a defendant to punitive damages. That legis-
lative assessment concerning what “punishment” is appro-
24
priate, therefore, serves an important role in ascertaining
whether an extrn-compensatory award for comparable
conduct not subject to the legislative penalty is rationally
related to that purpose. See Browning-Ferris lndus. v.
Kelco Disposal, Inc., 109 8. Ct. at 2934 (O’Connor, Stevens,
JJ., coneurring in part end dissenting in part); cf.
Weems v. Uni'ed States, 217 U.S. at 380-81.
The amici recognize ‘hat “the Constitution does not
recuire the States to subseribe to any particular economic
(heory.” CTS Corp. v. Dynamics Corp. of America, 481
U.S. 69, 92 (1987). These objective factors are thus only
euides. But, when applied as a check against a deterrence-
based measure of punitive damages, these factors should
ensure that punitive damavcs) when warranted at. all,
adequately serve both their deterrent an!) punitive pur-
poses, without violating the constitutional rule against
excessiveness.
3. The punitive damages eward in this ease cannot
stend under these principles. This erso does not require
the Court to review any legis!stive policy choice in Ala-
bama concerning the appropriate mencnre of extra-
compensatory damages.'"' The award in this case reflects
only the decision of an Alabama jury io assess, in the
absence of any legislative guidance ‘and with very lim-
ited judicial guidance), a substantial punitive damages
award against Pacific Mutual. Thus, contrary to the
Alabama Supreme Court’s conclusion that it had to
“presume” that the jury’s verdict was correct (Pet. App.
at B13), the jury’s award plainly did not deserve such
substantial deference. See Browning-Ferris Indus. v.
Kelco Disposal, Inc., 109 S. Ct. at 2923 (Brennan, Mar-
shall, JJ., concurring).
A purpose-based analysis of the jury’s award of over
$1 million in punitive damages makes it equally plain that
14 Although the Alabama legislature has recently enacted a statute
that places a $250,000 “cap” on punitive damages awards in certain
types of cases (see Ala. Code §§ 6-11-20, 11-21, 11-25 (1989) ), it did
so on June 11, 1987, after the cause of action arose in this case.
Or
2]
‘he award was constitutionally excessive. As an initial
‘ter, the award greatly exceeds any deterrence-based
measure of punitive damages. Pacific Mutual, after all,
satmed nothing from Ruffin’s misconduct.'’” Even assum-
ng a risk of private underenforcement, moreover, it is
‘oubttul that the plaintiffs’ reasonable litigation costs
were more than a small fraction of the jury’s extra-
compensatory award; this is not a complex cave involving
lengthy discovery or a lengthy trial.
In all events, a deterrence-based measure of extra-
compensatory damages, based on the plaintiffs’ reasonable
litigation costs, would undoubtedly overserve the “puni-
tive’ function in this case. Pacific Mutua! “deserved”
no punishment for the fraudulent conduct of its non-
exclusive agent; Pacific Mutual did not write the health
insurance policy underlying this action, and it did not
authorize or condone Ruffin’s fraudulent acts in causing
that policy to lapse. Reference to objective benchmarks
for analyzing appropriate “punishment” under these cir-
cumstances only confirms that the substantial award of
punitive damages against Pacific Mutual is excessive.
The jury's $1 million assessment bears no rational rela-
tionship to Haslip’s actual damages; indeed, the award
is ever 400 times the $2,500 in medical expenses that
Haslip incurred. The award, moreover, is substantially
in excess of the $1,000 fine that the Alabama legislature
has established for insuranve fraud ‘Ala. Code ££ 27-1-12,
27-12-17, 27-12-23 (1986) 1."
‘S Assessing punitive damages against effin under such a
deterrence-based measure, by contrast, would be entirely rational.
Requiring Ruffin to disyorge his ill-yained monies would undoubtedly
serve to deter any future misconduct on his part. Cf. City of New-
port v. Faet Concerts, Inc., 453 U.S. at 270 (noting that punitive
damages avainst individual officials of municipalities, as opposed to
municipalities themselves, would effectively deter future misconduct >.
'© The jury did not indicate what portion of its award represented
compensatory, as opposed to punitive, damages. This underscores
the need for the lower courts in the event of a remand-—-and trial
26
The punitive damages award in this case rationally
serves neither deterrence nor punishment. It exceeds any
objectively-based deterrence measure of punitive damages.
And it greatly exceeds any amount that might fairly
serve to “punish” Pacific Mutual for Ruffin’s misdeeds.
It should be held constitutionally excessive.
CONCLUSION
The judgment below should be reversed.
Respectfully submitted,
ERWIN N. GRISWOLD
(Counsel of Record)
PATRICIA A. DUNN
LAURIE W. FINNERAN
DEENA B. JENAB
JONES, DAY, REAVIS & POGUE
1450 G Street, N.W.
Washington, D.C. 20005
(202) 879-3929
Counsel jor the Amici
-ourts in general—to ensure that the record reflects the precise
allocation of damages so that reviewing courts can properly apply
the constitutional rule against excessive punitive damages awards.
Of Counsel:
KENNETH H. NAILS
JAMES H. BRADNER, JR.
RICHARD E. GOODMAN
MARY N. BELGRADE
Alliance of American Insurers
1501 Woodfield Road
Suite 400 West
Schaumburg, IL 60173-4980
‘708) 330-8602
RICHARD E. BARNSBACK
PHILLIP E. STANO
American Council of Life Insurance
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2599
(202) 624-2183
MICHAEL LOVENDUSKY
American Insurance Association
1130 Connecticut Avenue, N.W.
Suite 1000
Washington, D.C. 20036
(202) 828-7173
JOE W. PEEL
THERESA L. SOROTA
Health Insurance Association
of America
1025 Connecticut Avenue, N.W.
Suite 1200
Washington, D.C. 20036
(202) 223-7822
PATRICK J. MCNALLY
JOHN J. NANGLE
National Association of
independent Insurers
2600 River Road
4th Floor
Des Plaines, IL 60018
(708) 297-7800
June 1990
American Callege
ut
Crial Launers
REPORT ON PUNITIVE DAMAGES
OF THE
COMMITTEE ON SPECIAL PROBLEMS
IN THE ADMINISTRATION OF JUSTICE
Approved by the Board of Regents
March 3, 1989
American College of Crial Lamyers
American College of Crial Lamyer
CHANCELLOR-FOUNDER
HON. EMIL GUMPERT
(1895-1982)
OFFICERS
PHILIP W. TONE, President
RALPH |. LANCASTER, JR. President-Elect
WILLIAM T. EGAN, Secretary
CHARLES E. HANGER, Treasurer
MORRIS HARRELL, /mmediate Past President
BOARD OF REGENTS
SAMUEL ADAMS MORRIS HARRELL
Bostor.. Massachusetts Dallas. Texas
JOHN A BECK FRANK C JONES
Washington. D ( Atlanta. Georgia
F LEE CAM Fil RALPH! LANCASTER, JR
Seattle. Washingtor Portiand, Maine
GEORGE J COTSIRILOS HENRY G MILLER
Chicag liiinors White Plains. New York
WILLIAM T EGAN PAUL D RENNER
Minneapolis. Minnesota Denver. Colorad
ROBERT B FISKE JR PATRICK T RYAN
New York New York Philadeiphia. Pennsylvania
4URBERT Y REE He > STACHLER
an Ar , ?
f N AAIGH 4 a fA RR
MA i
4 t NE
cr ,
COMMITTEE ON SPECIAL PROBLEMS
IN THE ADMINISTRATION OF JUSTICE
CHAIRMAN
CHARLES B. RENFREW
San Francisco, California
American College of Crial Lawyers
PAST PRESIDENTS
1950-51 EMIL GUMPERT* 1969-70 HON. LEWIS F. POWELL, JR
Los Angeles, California Washington, D.C
MEMBERS
1951-52
1952-53
1953-54
1954-55
1955-56
1956-57
1957-58
1958-59
1959-60
1960-61
1961-62
1962-63
1963-64
1964-65
1965-66
1966-67
1967-68
1968-69
* Decea:
C. RAY ROBINSON’
Merced, California
CODY FOWLER’
Tampa. Florida
E.D. BRONSON’
San Francisco, California
COD’ -OWLER’
Tampa, Florida
WAYNE E. STICHTER’
Toledo, Ohio
JESSE E. NICHOLS’
Oakland, California
LEWIS C. RYAN*
Syracuse. New York
ALBERT E JENNER. JR*
Chicago tilinois
SAMUEL P SEARS’
Boston. Massachusetts
LON HOCKER
Woods Hole. Massachusetts
LEON JAWORSK'!"
Houston. Texas
GRANT B COOPER
Studio City G alif ria
WHITNEY NORTH SEYMOUR’
New York. New York
BERNARD G SEGA\
Philadeipnia Pennsylvania
EDWARD L WRIGHT’
Little Rock Arkansas
FRANK G RAICHLE’*
Buftalo. New York
JOSEPH A BALL
Long Beach California
ROBERT W MESERVE
Boston Massachusetts
ed
1970-
1971
1972-
1973-
71
BARNABAS F. SEARS*
Chicago, Illinois
HICKS EPTON*
Wewoka, Oklahoma
WILLIAM H. MORRISON’
Portland, Oregon
ROBERT L. CLARE, JR
New York. New York
AUSTIN W. LEWIS’
New Orleans, Louisiana
THOMAS E DEACY. JR
Kansas City, Missour!
SIMON H. RIFKIND
New York. New York
KRAFT W. CIOMAN*
Houston, Texas
MARCUS MATTSON
Los Angeles. California
JAMES E.S. BAKER
Chicago. Illinois
JOHN C ELAM
Columbus, Ohio
ALSTON JENNINGS
Little Rock, Arkansas
LEON SILVERMAN
New York, New York
GAEL MAHONY
Boston, Massachusetts
GENE W LAFITTE
New Orleans, Louisiana
GRIFFINB BELL
Atlanta. Ge~rsia
R HARVEY CHAPPELL
Richmond, Virginia
MORRIS HARRELL
Dallas. Texas
JR
GRIFFIN B. BELL
Atlanta, Georgia
DAVID BERGER
Philadelphia, Pennsylvania
JUDAH BEST
Washington, D.C.
RICHARD R. BOSTWICK
Casper, Wyoming
JOHN J. BOUMA
Phoenix, Arizona
BENJAMIN R. CIVILETTI
Washington, D.C.
THOMAS E. DEACY, JR.
Kansas City, Missouri
WAYNE FISHER
Houston, Texas
ERWIN N. GRISWOLD
Washington, D.C.
JOHN M. HARRINGTON, JR
Boston, Massachusetts
SETH M. HUFSTEDLER
Los Angeles, California
GENE W. LAFITTE
New Orleans, Louisiana
ROBERT M. LANDIS
Philadelphia, Pennsylvarva
ARTHUR L. LIMAN
New York, New York
ROBERT W. MESERVE
Boston, Massachusetts
M. ROLAND NACHMAN, JR.
Montgomery, Alabarna
SIMON H. RIFKIND
New Yoik, New York
ASA ROUNTREE
New York, New York
BERNARD G. SEGAL
Philadelphia, Pennsylvania
JOHN C. SHEPHERD
St. Louis, Missouri
LEON SILVERMAN
New York, New York
THOMAS C. UNIS
Dallas, Texas
HENRY G. MILLER
White Plains, New York
Regent Liaison
PROFESSOR ROGER C. HENDERSON. Reporter
University of Arizona
College of Law
Tucsor, Arizona
FOREWORD
The Board of Regents of the American College of Trial Lawyers, at ‘ts
meeting in Boca Raton, Florida, February 27 to March 3, 1989, approved
the following Report of the Committee on Special Problems in the
Administration of Justice, dated March 3, 1989, and directed that copies
be distributed to Fellows of the College and to other interested
parties.
Philip W. Tone
President
TABLE OF CONTENTS
l. 6 |) Aen nr ere away’ eae nee eee
HN. THE NEED FORTHE COLLEGE REVIEW......... Meluenivaags S45
il. . CONCLUSIONS AND RECOMMENDATIONS ..... Gakdecwanae wrens
A.
B.
Civil Awards of Punitive Damages Should Be Retained,
but Only in Carefully Limited Situations ......... ae
Punitive Awards Shouid Not Be a Surrogate
for Compensatory Damages ............-..-.
The Standard for Culpability Should Require a Conscious
and Egregious Invasion of the Rights of Others _.
The Quantum of Punitive Damages Should Be Limited
by a Flexible Formula Based on the Amount of
Compensatory Damages ..............
The Burden of Proof for Punitive Awards Should Be That
of Clear and Convincing Evidence .....
Vicarious Responsibility for Punitive Damages Should
Only Obtain Where There Is Complicity by the Principal
in the Conduct Which Gives Rise to the Punitive Award
Pleadings Regarding Punitive Damage Claims Should Not
Be Permitted To Contain a Monetary Amouni
Discovery of Evidence Regarding a Defendant's Wealth
or Financia! Condition for the Purpose of Proving the
Amount of a Punitive Award Should Not Be Permitted
Without a Prima Facie Showing That There Is a | egal!
Basis for Such an Award
Bifurcated Trials Should Be Employed To Avoid Prejudice to
Defendants Where Evidence of Wealth or Financial Condition
is Admissible Only on Claims for Punitive Damages
Distribution of Punitive Awards Should Not Be Ovivertec tc
Persons or Entities Other Than the Plaintiff
IV THE PROBLEM OF DUPLICATIVE PUNITIVE AWARDS FOR
THE SAME ACT OR COURSE OF CONDU JCT
a State Solutions
B. Federal Solutions
1. The ABA. Nationa! Class Action Proposa
2. Multidistrict Litigation
s interpleader
4. Comparing the Federal Solutions
C The Preferred Approach
V CONCLUSION
APPENDIX: MODEL JURY INSTRUCTIONS ON PUNITIVE DAMAGES
10
13
15
16
16
17
18
AMERICAN COLLEGE OF TR!4L LAWYERS
REPORT OF
COMMITTEE ON SPECIAL PROBLEMS
IN THE ADMINISTRATION OF JUSTICE
| BACKGROUND
On August 8, 1986 the Board of Regents of the American College of Trial Lawyers
approved the Report of the Task Force on Litigation Issues, dated July 22 of the same
year. The Task Force Report addressed a number of issues regarding the tort litigation
system in America and unanimously concluded that one of the greatest problems with
the current tort system is the way punitive damages are handled.'Although a few
members of the Task Force were prepared to abolish punitive damages, other mem-
bers, who favored continuation of punitive damages awards, indicated that they might
move toward abolition if meaningful reform were not forthcoming.”
Subsequent to the American College Task Force Report, the results of two other
studies undertaken through the American Bar Associaton were published. In Feb-
ruary of 1987 the American Bar Association House of Delegates approved a report by
the Action Commission to Improve the Tort Liability System, chaired by Robert B.
McKay, Professor and former Dean of the New York University School of Law. Among
other things, the ABA Action Commission recognized that the current situation with
regard to awards of punitive damages in the civil justice system presented some
serious concerns’ and made a number of general recommendations for reform.‘ In
the meantime, the American Bar Association Section of Litigation nad undertaken a
study of the problems through a Special Committee on Punitive Damages. Recogniz-
ing the relative dearth of statistical data on the subject, the Special Committee com-
missioned an empirical study by the Institute for Civil Justice, a section of the Rand
1 American College of Trial Lawyers, Report of the Task Force on Litigation Issues 4 ( 1986) (hereinaf-
ter referred to as ACTL Task Force Report)
2 ld
3. ABA. Report of the American Bar Association Action Commission to !mprove the Tort Liability
System 15-18 (1987)
4 /d at 18-20 The Report supported the continued award of punitive damages in appropriate cases.
but recommended that the scope be narrowed in five ways
The standard of proof for the award of punitive damages should be tightened to limit such
awards to Cases warranting special sanctions and should not be commonplace
i Vanous suggestions tothe courts are advanced as a means Of judicial limitation of inappropriate
or excessive awards
1 Appropriate safeguards should be putin force to prevent any defendant from being subjected to
punitive damages that are excessive in the aggregate for the same wrongful act
iv Legislatures and courts should be sensitive to adopting appropriate safeguards to protect the
master or principal from vicarious liability for unauthorized acts of non-managerial servants
or agents
v In carefully selected cases. courts should be authorized to award some portion of a punitive
Gamages award to public purposes. aiways being mindful that the plaintiff and counsel are
reasonably compensated for bringing the action and prosecuting the punitive Gamages claim
McKay. Rethinking The Tort Liability System A Report From The ABA Action Commission. 32
Villanova lL Rev 1219 1230-31 (1987)
Corporation in Santa Monica, California.” The Rand report, published in 1987,° served
as a basis for the ABA Section of Litigation study. Although the latter also concluded
that there were anumber of problems with civil awards of punitive damages,’ the Sec-
tion of Litigation did not conclude that the problems, with one exception,’ were suf-
ficiently acute as to require legislative solutions. However, a careful analysis of the
Rand study shows support for the opposite conclusion.®
Because of strong interest in the subject of punitive damages, the Board of Regents
of the American College of Trial Lawyers gave approval for the Committee on Special
5. Rand ts a private, nonprofit institution. incorporated in 1948, which engages in nonpartisan
research and analysis on problems of national security and public welfare The Institute for Civil
Justice, established within the Rand Corporation in 1979. performs independent. objective policy
analysis and research on the American civil justice system The Institute's principal purpose is to
help make tle civil justice system more efficient and more equitable by supplying policymakers
with the results of empirically based. analytic research
6. M.Peterson,S Sarma&M Shanley. Punitive Damages Empirical Findings. Rand. The Institute for
Civil Justice (1987)
7. Punitive Damages. A Constructive Examination. 1986 ABA Sec Litigation. Special Comm. on
Punitive Damages 87-89 (hereinafter cited as ABA Sec Litigation Report)
8. TheLitigation Section Special Committee found that a genuine problem exists regarding the poten-
tial for multiple punitive damages awards to be made against a deendant for essentially the same
conduct. The Committee concluded tnat federal legisiation would be required to solve the problem.
id. at72, and recommended that Congress enact a law creating a national class action which would
allow the consolidation of ai! similar Claims in one federal district court /d at 78-81
9. The Rand study demonstrates that some major changes have occurred in punitive damage awards
in specific areas of litigation in the 25 year period from 1960 through 1984 in the jurisdictions studied
— San Francisco, California and Cook County. Illinois The most dramatic increases occurred inthe
area of business and contract cases which have come to be subject to the tort of “bad faith’
However, products liability and medical maipractice also showed increases in the number and rate
of punitive awards. As a general proposition. the frequency of awards has increased relative to the
number of cases filed and to the number of cases in which compensatory awards are made. as well
as in absolute terms. When this is coupled with the rather dramatic increases in the median and
average amounts awarded in all types of cases. one could easily conclude that punitive awards are
playing a larger role in the civil justice system than in the past However. if one merely focuses on the
Statistics in the aggregate for all types of torts one could conclude there has not been any
significant change
Itis submmitted that to view the figures in the aggregate is erroneous because certain types of tor
tious conduct inherently do not give rise to punitive awards To include figures for this conduct. such
as automobile negligence cases. with the more egregious forms of conduct tends to ‘water down
the results. The same is true if one includes figures regarding traditional intentional torts because
there is little change over time in the frequency of punitive awards in these cases Thus. the Commit
tee on Special Problems believes that the Rand study snows that the problems regarding punitive
awards in the civil justice system are more acute for specific areas of tort litigat. on than indicated ir
the ABA Sec gation Report
Tne Rand Corpo ation has recently published a follow-up report pointing out that some commen
tators are misinterp 1g an earlier study regarding trends in tort litigation by using aqgregate
figures on the assumption theres a single tort system The follow-up report shows that there are ait
ferent types of tort litigation and that each must be viewed separately in order to accurately deter
mine any Changes and trends The use of aggregate figures tends to mask the real situation See D
Hensier M Vaiana. J Kakalik &M Peterson Trendsin TortLitigation The Story Behind the Statis
tics. Rand. The Institute for Civil Justice (1987) The same may be said tor the subsect of punitive
damages anc any analysis of the Rand study on that subject should take this point into a
Problems in the Administration of Justice to conduct an independent review of puni-
tive awards in the civil justice system in the United States, including a review of the
prior studies and other information on the subject.
To assist the Committee in this effort, the services of Professor Roger C. Henderson
of the College of Law at the University of Arizona in Tucson were engaged. Professor
Henderson is a former dean of the law schoo! and presently is a Commissioner on
Uniform State Laws. He prepared a background paper which was reviewed and dis-
cussed by the ‘ ommittee on Special Problems on March 6, 1988 during the Spring
Meeting of the ¢ merican College in Paim Desert. California. '° During the Spring Meet-
ing the Commi. ee assisted in presenting one of the main programs, which consisted
of a panel on the question of whether punitive damages in the modern civil justice sys-
tem constituted an anomaly which was in need of change. Subsequently, an issue
paper'' prepared by Professor Henderson was distributed to the Committee mem-
bers and discussed at a special meeting on June 10, 1988. Thereafter a draft report
dealing with punitive damages was the subject of a meeting of the Committee on
August6, 1988 at the Annual Meeting of the College during the American Bar Associa-
tion meeting in Toronto, Canada. The Committee met again on November 11, 1988
and January 9, 1989 in New York City to discuss subsequent drafts of the report.
After deliberation and study, the Committee on Special Problems has come to cer-
tain conclusions with regard to punitive awards in the modern civil justice system and
has fashioned recommendations for improvements. Initially, however, a brief review
of why this study was warranted is appropriate in view of the prior efforts on the
subject.
| THE NEED FOR THE COLLEGE REVIEW
In the 1986 Report of the Task Force on Litigation Issues, serious concern was
expressed regarding the role of punitive awards in the civil justice system. It was noted
that awards often bear no relation to deterrence and merely reflect a jury's dissatisfac-
tion with a defendant and a desire to punish. often without regard to the true harm
threatened by a defendant's conduct. * The Report also noted that there was a general
feeling that punii:ve awards should be more difficult to obtain and that the amounts of
such awards should be subject to more contro! than was being exercised at that
time.'’ The Report went on to recommend that there be some limit, either by a cap or
some general formula, to the amount of punitive damages that may be recovered. "‘ In
addition, it was recommended that some means should be found to prevent a defen-
dant from being subjected to duplicative punitive awards for a single act or course of
conduct "° Finally. there were recommendations that serous consideration should be
10 This paper entitled Punitwe Dan ges in the Moder . nce System An Anomaly in Need
of Change? is on file at the National Headquarters Amer ege of Tral Lawyers. 10866
Wiishire Blvd Los Angeles Calitermia 90024
11 This paper also is on tile at the National Head
1% ACTL Task Force Report supra 1’ at4
sb
‘ j
; a
given to raising the standard of proof, to developing better jury instructions and to
greater judicial supervision concerning punitive damage awards. '® In sum, the Task
Force Report expressed certain expectations concerning improvements that should
be made in the system. Moreover, as noted, some members indicated that they might
be willing to support the abolition of punitive awards in the civil system if these
improvements were not made."’
Following the Report of the Task Force and its approval by the College Board of
Regents, the A.B.A. Action Commission to Improve the Tort Liability System and Sec-
tion of Litigation reported similar concerns and made recommendations for changes
in the system.'* In addition to these reports, there has been a plethora of articles and
comments in legal periodicals concerning the situation generally, the overwhelming
majority of which call for some change in the process by which punitive damages
are awarded.'°
16 Id
17. Id. Aspreviously noted. afew members of the Task Force were in favor of abolition as the exclusive
reform effort. See text atn 2
18. See supra text at nn 3-4 and 7-8
19 For articles arguing ‘or
(1) abolition. see Carsey, The Case Against Punitive Damages: An Annotated Argumentative
Outline, 11 Forum §7 (1975). Dubois, Punitive Damages: Bonanza or Disaster 3 Litigation 35 (Fall
1976). Ghiardi. The Case Against Punitive Damages. 8 Forum 411 (1972): Ghiardi, Should Puni-
tive Damages Be Abolished? — A Statement for the Affirmative. 1965 ABA Sec. ins.. Neg! &
Comp. L. Proc. 282: Long. Punitive Damages An Unsettied Doctrine. 25 Drake L Rev. 870( 1976)
and Saies & Cole, Punitive Damages A Relic That Has Outlived Its Origins. 37 Vanderbilt L. Rev
1117 (1984);
(2) modification. see Barrett & Merriman. Legislative Remedies for Punitive Damages, 28
Federation of ins CounseiQ 339( 1978). Bell & Pearce. Punitive Damages and the Tort System, 22
U Richmond L. Rev. 1( 1987), Cooter. Economic Analysis of Punitive Damages. 56S Cal L Rev
79 (1982): Ellis. Fairness and Efficiency in the Law of Punitive Damages. 56S Calif L Rev 1
(1982): Johnston, Punitive Liability. A New Paradigm of Efficiency in Tort Law, 87 ColumbiaL Rev
1385 (1987). Launie. The Incidence and Burden of Punitive Damages. 53 Ins. Counsel J. 46 (Jan
1986): Levit, Punitive Damages: Yesterday. Today and Tomorrow. 1980 Ins. L J. 257; Malior &
Roperts. Punitive Damages: Toward a Principled Approach. 31 Hastings L J. 639 (1980), Martin
The Relation of Exemplary Damages to Compensatory Damages. 22 “ oxas L. Rev 235 (1944).
McCormick, Some Phases of the Doctrine of Exemplary Damages. 8 North CarolinaL. Rev 129
(1930); Morris, Punitive Damages in Tort Cases. 44 Harvard L. Rev. 1173 (1931), Owen, Civil
Punishment and the Public Good. 56S Cal L Rev 103 (1982): Phillips. The Punitive Damage
Class Action: A Solution to the Problem of Multiple Punishment, 1984 U. Illinois L_F. 153 (1984).
Priest. Punitive Damages and Enterprise Liability. 56S Cal. L. Rev 123 (1982): Riley, Punit.ve
Damages: The Doctrine of Just Enrichment. 27 Drake L. Rev 195 (1977-78); Wheeler. The Con-
stitutional Case for Reforming Punitiwe Damages Procedure. 69 Va. L Rev. 269( 1983). and Wood-
bury. Limiting Discovery of a Defendarts Wealth When Punitive Damages Are Alieged. 23
Duquesne L Rev 349 1985) anc 34 Defense L J 675 (1985):
(3) the status quo see Bece!) Punitive Damages in Arbitration. 21 J Marshall L Rev 21
(1987): Belli. Punitive Damage® "her History. Their Use and Tneir Worth in Present-Day Society
49 UMKC L Rev 1/1980) Corboy Are Punitive Damages Getting Out of Control? The Existing
Controls Are Effective "O AGA J 16\Dec 1984). Courtney & Cavico Punitive Damages Wer
Are They Justifiable?. 18 Tria! 52 (Aug 1982). Demarest & Jones, Exemplary Damages as @
Instrument of Social Policy |s Tort Reform in the Public interest. 18St Marys J 797/1987) anc
Schwartz. Deterrence and Punishment in tne Common Lawof Punitive Damages AComment 56
S Cai. L. Rev. 133 (1982)
Asaresult of the widespread concern regarding the problems associated with puni-
tive damages, there has been a spate of state court®° and legisilative*' activity across
the nation on this subject. Unfortunately, no clear pattern has emerged in the main,
aithough there has been a trend in some areas which may eventually result in more
uniformity among the states. For example, of those states that have addressed prob-
lems regarding punitive damages, most now require that the plaintiff meet the burden
of proving by clear and convincing evidence that punitive damages should be
awarded *°
20. See. e.g. Rawlings v Apodaca, 151 Ariz. 149, 726 P.2d 565 (1986) (addressing standard for
culpability); Linthicum v. Nationwide Life Ins. Co., 150 Ariz. 326, 723 P20 675 (1986) (addressing
burden of proof), Grimshaw v. Ford Motor Co., 119 Cal. App. 3d 757, 174 Ca. Rptr. 348 (1981)
(addressing, inter alia, various constitutional issues); Tuttle v. Raymond, 494 A.2d 1353 (Maine
1985) (addressing burden of proof); and Anderson v. Continental Insurance Co., 85 Wis. 2d 675,
271 N.W.2d 368 (1978) (addressing standard for culpability)
21. Forexample, with regard to attempts to limit the amount of punitive awards Alabama has adopted
a cap of $250,000 except where there is a practice or pattern of intentional wrongful conduct,
actual malice, or defamation. Ala. Code § 6-11-21 (Supp. 1988). Colorado limits the punitive
award to an amount equal to actual damages except the court has tne power to make an addition
up to three times the actual damages in enumerated cases of aggravated conduct. Colo. Rev.
Stat. § 13-21-102 (1987). Florida creates a presumption which limits the amount of punitive
awards to three times that of the actual damages unless the claimant demonstrates by clear and
convincing evidence that any award which is greater than this amount is not excessive. Fla.
Stat. § 768.73 (Supp. 1988) Georgia limits such awards to $250,000 except in product liability
cases or where the defendant specifically intended to cause harm. Ga. Code Ann. § 105-2002.1
(Supp 1988) Kansas limits the amount of punitive damages in medical malpractice cases to the
lesser of 25° of the defendant's highest gross annual income during the five year period prior to
the wrongful act or $3 million. Kan. Stat. Ann. § 60-3402 (Supp. 1987). (This parv cular provision cf
> Kansas medical malpractice legislation has not been challenged as of ye: on constitutional
rounds. but other provisions have been held unconstitutional by the Supreme Court of Kansas.
See Kansas Malpractice Victims Coalition v. Bell, Kan. __ . 757 P.2d 251 (1988) and
Farley v Engelken. 241 Kan 663, 740 P 2d 1058(1987). There is a serious question as to the con-
stitutionality of this particular provision under Kansas law because it limits ine right to a jury trial
on punitive damages See Folks v. Kansas Power and LightCo.. Kan. ____s—«s 755 P.20 1319
(1988) ) Oklahoma limits punitive awards to an amount equal to the actual damages except where
evidence of the wrongful conduct is clear and convincing. Okla. Stat. Tit. 23, § 9 (1987). Texas
limits awards of punitive damages to four times the amount of actual damages or $200,000.
whichever is greater. for cases involving “fraud” or “gross negligence, but the limit does not
apply to Cases involving “malice” or to intentional torts, the terms in quotes being defined in the
statute Tex Civ Proc. & Rem. Code Ann. §§ 41.001-.008 (Vernon Supp. 1988).
22 For cases adopting this standard see, e.g. Linthicum v. Nationwide Life Ins. Co., supra n. 20;
Travelers indemnity Co v. Armstrong, 442 NE 2d 349 (Ind. 1982); Tuttle v. Raymond, 494 A.2d
1353 (Maine 198£); Wangen v Ford Motor Co.. 97 Wis. 2d 260, 294 NW 2d 437 (1980). For
statutory adoptions see. eg. Ala. Code § 6-11-20 (Supp. 1988), Cal. Civil Code § 3294 (Supp.
1988). Minn. Stat. Ann. § 549 20/1) (1988). Mont. Code Ann. § 27-1-221(5) (1987); and Or. Rev.
Stat § 30. 925 (1983) See a'so Colo. Rev. Stat. § 13-25-127(2) (1987) (adopting proof beyond a
reasonable doubt) Compare Fla. Stat. § 768 73 (Supp. 1988) (apparently adopting the ciear and
convincing test only for amounts which exceed the presumptive cap cf three times the amouni of
compensatory damages. but continuing the use of the mere preponderance test for the treble
award) and Okla Stat Tit 23, § 9 (1987) (following the same pattern as Ficrida)
Also, it appears that the law is evolving in many jurisdictions to require that there be
some conscious indifference to the rights of others before punitive damages are
warranted.** However, it is not easy to divine this latter rule from the myriad of adjec-
tives employed in attempting to define the standard of cuipability in any particular
jurisdiction.*4
Attempts at reforming other punitive damage problem areas have been anything
but satisfactory. For example, there still are serious questions concerning: (1) the
standard to be applied by the trier of fact in determining the quantum. and the stan-
dard to be applied in appellate review of any punitive award; (2) the vicarious ex-
posure facing employers and others; (3) the “windfall” nature of punitive awards and
the question of who should rece ve the award; (4) the potential abuses in the trial pro-
cess regarding pleading and discovery; and (5) the possible prejudice to defendants
on the compensatory liability issue through introduction of otherwise irrelevant
evidence of wealth or financial condition at the stage where that liability issue is being
resolved. Moreover, there nas yet to be a satisfactory solution to the situation that all
agree is a very serious problem — duplicative awards for the same act or course of
conduct. In fact, as a result of the recent legislative activity, the legal landscape has
now been strewn with a number of pieces of disparate legislation in the various states
so that in avery real sense the situation could be described as being as confused and
uncertain as before the reform efforts began.*° Considerable improvements still
could be made to bring about more evenhanded treatment of litigants both
within a jurisdiction and between jurisdictions. In short, the situation is very much in
need of attention and clearly fa'ls within the charge of the Committee on Special Prob-
lems, which has the responsibility of promoting improvements in the administration of
23. See,e.g., Rawlings v. Apodaca, supra n. 20; Freeman v. Anderson 279 Ark. 282,651S.W.2d 450
(1983): Jardel Co. v. Hughes, 523 A.2d 518 (Del. 1987); Tuttle v Raymond, supra n. 22; Preston v
Murty, 32 Ohio St. 3d 334, 512 N.E.2d 1174 (1987); Enright v. Lubow, 202 N.J. Super. 58, 493 A.2d
1288 (App. Div. 1985); Ala. Code § 6-11-20 (Supp. 1988): Cal. Civil Code § 3294 (Supp. 1988);
Colo. Rev. Stat. § 13-21-102(1) (1987); Ga. Code Ann. § 1005-2002 1(b) (Supp. 1988); lowa Code
Ann. § 668A. 1 (1986); Minn. Stat. Ann. § 549.20(1) (1988); Okla. Stat. Ann. Tit. 23, §9( 1987): Tex
Civ. Proc. & Rem. Code Ann. §§ 41.001-.003 (Supp. 1988)
24. See the discussion in Linthicum v. Nationwide Life '!ns. Co., supran. 20 See also 1 J. Ghiardi & J
Kircher, Punitive Damages: Law and Practice § 5.01 (1985)
25. in addition to the different statutory approaches indicated inn. 21, supra, regarding attempts to
limit the amount of punitive awards, anumber of states have taken different approaches to the so-
called “windfall” problem. For recent legislation in this area, see, e.g.. Colo. Rev. Stat. § 13-21-
102(4) (1987) (allocating one-third of a punitive award to the state general fund, two-thirds to the
plaintiff); Fla. Stat. § 768.73 (Supp. 1988) (40% to the plaintiff and 60% to the state general fund
unless the cause of action was based 9n personal! injury or wrongful death, in which event the
state's share is to be paid to Public Med’ca. Assistance Trust Fund); Ga. Code. Ann. § 105-2002.1
(Supp. 1988) (three-fourths to the state, one-fourth to the plaintiff), lowa Code Ann. § 668A.1
(1987) (100% to the plaintiff if the act was directed at the plaintiff: if not, three-fourths of the award
goes to a state fund used for indigent civil litigation programs or insurance assistance programs).
and Mo. Ann. Stat. § 537.675 (Vernon 1988) (50° of punitive award, after deduction of attorneys’
fees and expenses. payable to state of Missour!). Kansas passed medical malpractice legislation
which requires that punitive awards in such cases be allocated one-half to the plaintiff and one-
half to the state health care mairitenance fund (see Kan. Stat. Arin. § 60-3402 ( 1986)), but the con-
Stitutionality of this legisiation is questionable See supra n. 21
justice and maintaining proper liaison with others to that end.
Finally, two other matters should be mentioned. First, there has been amovementin
the criminal justice system to attempt to standardize penalties. The most notable
effort in this regard has taken place at the federal level.“° The sense that there should
be evenhanded treatment of those who are subject to criminal penalties also provides
part of the motivation for reform in the civil system. Secondly, a number of con-
stitutional issues that have lain dormant for years have recently been brought to the
attention of the courts. The Supreme Court of the United States has granted review to
consider constitutional limits on punitive damages awards on three occasions since
1986. In particular, there appears to be concern on the part of some members of the
Court as to whether the Eighth Amendment to the United States Constitution guaran-
teeing that excessive fines shall not be imposed applies to civil punitive awards.
In 1986 in Aetna Life Ins. Co. v. Lavoie,*’ the Supreme Court noted that a challenge
to punitive damages as excessive under the Eighth and Fourteenth Amendments
“raise[d] important issues which, in an appropriate setting, must be resolved.”?* Two
years later in the case of Bankers Life and Casualty Co. v. Crenshaw,’ the Court
granted certiorari and heard oral argument as to whether the Eighth Amendment
applies to civil punitive awards and whether the punitive damage award in the case
violated the Due Process and the Contract Clauses of the Constitution. Although the
Supreme Court declined to decide these issues in Aetna and Bankers Life, as this
report was being finalized the Court again granted certiorari, in Browning-Ferris
Industries of Vermont, Inc. v. Kelco Disposal, Inc.,*° on the question of whether an
award of $6 million in punitive damages, amounting to more than 100 times the plain-
tiff's actual damages, is excessive under the Eighth Amendment or otherwise. These
cases illustrate that there are several potential problems at the constitutional level
with the current rules in the various states. It is possible that these constitutional prob-
lems could be obviated through responsible reform efforts. It is the judgment of the
Committee on Special Problems that this adds impetus to the need for prompt action.
Thus, itis hoped that this Report, which has been approved by the Board of Regents of
the American College of Trial Lawyers, will serve to expedite responsible reform
efforts so as 1_ achieve improvements in the !ustice system in this country.
26. The Comprehensive Crime Contro! Act of 1984 created a United States Sentencing Commission
to recommend new sentencing guidelines to go into effect in federal courts in 1986. One of the
main purposes of the legislation is to establish sentencing policies and practices for the Federal
criminal justice system that provide certainty and fairness and which avoid unwarranted sentenc-
ing disparities among defendants who are similarly situated. See 28 U.S.C. § 991(b)(1) (Supp.
1987). The Supreme Court of the United States upheld the constitutionality of the Sentencing
Guidelines promuigated by the United States Sentencing Commission against an attack that
Congress had delegated excessive legislative power to the Commission and that the legislation
violated the separatior-of-powers principle. Mistretta v. United States, 109 S. Ct. 647 (1989)
27. 106S. Ct. 1580
28. Id. at 1589
29. 108S Ct. 1645 (1988)
30 845 F 2d 404 (2d Cir 1988). cert granted. 109S Ct 527 (1988)
lll. CONCLUSIONS AND RECOMMENDATIONS
A. Civil Awards of Punitive Damages Should Be Retained, But Only in Carefully
Limited Situations.
It has been forcefully argued that punitive awards in the modern civil justice system
are an anomaly and should be abolished except where specifically authorized by
statute.*' Originally, such common law awards in large measure served as surrogates
for pain and suffering and other noneconomic losses which at the time were yet to be
recognized on a de jure basis by courts of law.*° It is contended that now that non-
economic losses, such as pain and suffering, are fully recoverable in tort actions in
their own right as compensatory damages, there is no basis for permitting punitive
awards for any compensatory purpose.*’ Nor should punitive awards serve to reim-
burse plaintiffs for attorney fees and other litigation expenses in the absence of a
specific statute or ru'e of court providing for such.** This is based on the simple prop-
osition that the common law rule in the United States is that each party bears the cost
of his or her own attorney fees and litigation expenses. The civil system does not pro-
vide the requisite constitutional and procedural safeguards for penal awards and was
never designed to be a system for punishment beyond the admonition which is
inherent in compensatory awards.*° Finally, the argument goes, punishment should
be limited to the criminal justice system and o.herwise to specific situations expressly
set out in legislative enactments, and even there the legislation should provide
appropriate safeguards so as to not violate fundamental rights.
A majority of the Committee, while recognizing the force of these arguments, notes
that punitive awards have long been a part of the civil justice system and that they have
been recognized in addition to potential criminal sanctions. Although the early com-
mon law did recognize punitive awards in the civil system as a surrogate for non-
economic losses, they were not recognized for that purpose exclusively. Punitive
awards also were recognized as serving the admonitory goal of the civii system in
31. See, eg., Ghiardi, supra n. 19 at 423-24 and Sales & Cole. supra n. 19 at 1117
32. Fayv. Parker,53N.H 342(1873); Stuart v. Western Union Telegraph Co, 66 Tex. 580.18S W. 351
(1885). See also K. Redden, Punitive Damages 28-29 (1980) and 1T Sedgwick. A Treatise on the
Measure of Damages 688-89 (9th ed. 1912)
33. Ghiardi, supra n. 19 at 423-24 and Sales & Cole, supra n. 19 at 1164-65
34. Ghiardi, supra n 19 at 417
35. See C. McCormick. Handbook on the Law of Damages 276 (1935) See also 1 J Ghiardi & J
Kircher, supra n. 24, ch 3(1985) and K. Redden. supra n 32.ch 7
deterring and punishing wrongdoers.**It also is true that punitive awards in the Civil
justice system serve to reach certain types of conduct that either are not punishable at
all under the criminal system or as a practical matter will not be the subject of a
criminal proceeding. As a result, the common law ultimately has come to recognize
two types of awards — one mainly to compensate for economic and noneconomic
losses and one mainly to punish. Although each is designed to deter, the Committee is
convinced that the more severe sanction is still needed. Notwithstanding the general
conclusion of the Committee that punitive awards are still justifiable in the civil system
today, it also concluded that such awards should be available only in carefully limited
36. InHuckle v. Money [K.B. 1763] 2 Wils. 205, 95 Eng Rep. 768. one of the earliest English cases on
record upholding an award of exemplary damages. it is clear that the monetary award was meant
to punish and deter. Huckle was illegally taken into custody and he subsequently brought an
action for trespass, assault and imprisonment. Although he was not mistreated physically and the
confinement was brief, the jury assessed his damages at 300 pounds which was almost three hun-
dred times any pecuniary loss that he could have suffered. The court upheld the award and in
doing so the Lord Chief Justice stated:
[T}he personal injury done to him was very small, so that if the jury had been con-
fined by their oath to consider the mere personal injury only, perhaps 201. damages
would have been thought damages sufficient: but the small injury done to tne plaintiff,
or the inconsiderableness of his station and rank in life did not appear to the jury in that
striking light in which the great point of law touching the liberty of the subject appeared
to them at the trial; they saw a magistrate over all the King’s subjects, exercising arbi-
trary power, violating Magna Charta, and attempting to destroy the liberty of the
kingdom, by insisting upon the legality of this general warrant before them, they heard
the King’s Counsel, and saw the solicitor of the Treasury endeavoring to support and
maintain the legality of the warrant in a tyrannical and severe manner. These are the
ideas which struck the jury on the trial, and | think they have done right in giving exem-
plary damages. To enter a man’s house by virtue of a nameless warrant, in order to pro-
cure evidence, is worse than the Spanish Inquisition; a law under which no Englishman
would wish to live an hour: it was a most daring public atttack made upon the liberty of
the subject
id. at 206-07, 95 Eng. Rep. at 768-69
Exemplary or punitive damages are still recognized in England today. albeit on a more cir-
cumscribed basis than that in the United States See Rookesv Barnard [1964] 1 All Eng. Rep. 367
where the House of Lords limited punitive damages to two common law situations: (1)
“oppressive, arbitrary or unconstitutional action by servants of the government’ and (2) where
“the defendant's conduct has been calculated by him to make a profit for himself which may well
exceeo the compensation payable to the plaintiff’ /d at 410 Exemplary damages expressly
authorized by statute aiso are permitted /d. at 411
Canadian courts have not foliowed the restrictions enunciated Dy "he Engisn House of Lordsin
Rookes v. Barnard, but have followed 2 course that generally rese™ 5 es "Nat of the courts in the
United States. See K Cooper-Stephenson &! Saunders Persona in ury Damages in Canada, ch.
13 (1981)
it also is to be noted that both England and Canada distinguisn aggravated damages’ from
punitive damages, and for that matter. from awards solely to compensate for losses and other
harm. Aggravated damages are given to compensate when the narm done to the plaintiff by a
wrongful act was aggravated by the manner in which the act was done. punitive damages being
reserved to punish and thereby provide moral retribution or deterrence /d atp 688
situations.*’ Those situations and the limitations are discussed below.
B. Punitive Awards Should Not Be a Surrogate for Compensatory Damages.
The civil justice system shou!d not recognize punitive awards for the purpose of
compensating successful plaintiffs. The common law over time has recognized new
rights and measures for compensation and is fully capable of doing so in the future.
Economic and noneconomic losses are compensable today, and a clear distinction
ought to be maintained between awards of that nature and those which are imposed
solely to punish and deter. The maintenance of this distinction is important in adminis-
tering the rules because there should be differences in the process for obtaining the
two types of awards. For example, it has already been noted that a clear-and-
convincing stand<r 4 for the plaintiff's burden of proof has been adopted by anumber
of jurisdictions rer arding punitive damages.” A mere preponderance is the standard
for obtaining compensatory damages. As will be seen below, other distinctions arise
from the recommendations of the Committee, and they should not be eroded by per-
mitting one type of damage to serve as a surrogate for the other type. Civil punitive
awards should be limited to those egregious situations which clearly call for punish-
ment and deterrence beyond that which is inherent in compensatory awards.
C. The Standard for Culpability Should Require a Conscious and Egregious Inva-
sion of the Rights of Others.
The appropriate minimum standard for culpability for punitive awards, recognized
in some recent, more analytical decisions,’ requires a conscious indifference to the
rights of others. This test encompasses the traditional intentional torts, such as
assault, battery, and false imprisonment, all of which require that the actor know or
understand that there is a great degree of certainty that the invasion will take place ,*°
as well as torts based on lesser degrees of cognition, such as where the defendant
acts in a wilful or wanton manner, or with a certain type of recklessness.*' This test.
however, would not permit punitive awards where the element of consciousness is
sufficiently lacking, such as in the case of negligent, or even grossly negligent,
conduct.
The Restatement of Torts, Second, distinguishes various types of conduct on the
basis of cognition, i.e., the degree to which the actor appreciates or understands that
harm will or may result from his or her conduct.** The greater the knowledge of harm,
the greater the culpability. It is the Committee's position that civil punitive awards can
only be justified on the basis of the more serious or egregious conduct. Although there
is strong support for this position under recent case law,*’ there still is precedent
37. Bell & Pearce, supran 19 at 17
38. Seesupran 22
39. See.eg., Rawings v Apodaca supra n 20
40. ‘The word ‘intent’ is used throughout the Restatement of this subject [intentional torts] to denote
that the actor desires to cause consequences of his act. or that he believes that the consequences
are substantially certain to result from it" Restatement (Second) of Torts § 8A (1965)
41. W Prosser & WP Keeton. Law of Torts 10 and 212 (1984)
42. See Comment to § 8A. Restatement (Second) of Torts (1965)
43. See.eg. Rawiings v Apodaca and Anderson v Continental Insurance Co. supra n 20
10
which leaves much to be desired in the way of clarity.**
A close examination reveals that much of the confusion arises in the area where
mere inadvertent conduct interfaces with the more cognitive forms of conduct. The
two types of conduct are most often described as “gross negligence” and “reck-
lessness."*° It is the overwhelming majority rule that punitive damages are not avail-
able for mere negligence, just as it is the rule that they are available for intentional,
wilful, wanton or reckless conduct.“ As for “gross negligence.” — a perplexing term
at best*’ — some jurisdictions may permit punitive damages for this category of con-
duct.** Itis questionable though whether mere extreme carelessness as distinguished
from the type of conscious indifference that is explicit in the term intentional and
44 For example, compare City of Gladewater v. Pike, 727 S W.2d 514 (Tex. 1987) (holding “grossly
negligent conduct sufficient, but such conduct must evidence an outrageous state of mind — one
of malicious or “evil” intent) with Burk Royaity Co v. Walls, 616 S W.2d 911, 920 (Tex. 1981)
(approving a jury instruction defining “heediess and reckless disregard.” which the court stated
was synonymous with “gross negligence.” to mean ‘an entire want of care as to indicate that the
act or omission in question was the result of conscious indifference to the rights, welfare, or safety
of the person affected by it’)
45. Theterm reckless’ is usually expressed as part of the phrase ‘wilful, wanton and reckless,” and
all three terms are considered to mean the same thing. W. Prosser & W.P. Keeton. supra n
41 at 212
46 See1J Ghiardi & J Kircher, supra n. 24
47 “Asit[gross negligence] criginally appeared, this was very great negligence. or the want of even
slight or scant care. It has been described as a failure to exercise even that care which a careless
person would use. Several courts, however. dissatisfied with a term so nebulous, and struggling
to assign some more or less definite point of reference to it, have construed gross negligence as
requiring wilful, wanton, or reckless misconduct, or such utter lack of all care as will be evidence
thereof — sometimes on the ground that this must necessarily have been the intent of the legisia-
ture. But itis still true that most courts consider that gross negligence falls short of areckless dis-
regard of the consequences. and differs from ordinary negligence only in degree, and notin kind.
There is, in short, no generally accepted meaning. but the probability is. when the phrase is used.
that it signifies more than ordinary inadvertence or inattention. but less perhaps than conscious
indifference to the consequences.” W. Prosser & WP Keeton. supra n. 41 at 211-212
48 Id at10
11
implicit in the terms wil‘ul, wanton and reckless should suffice. *®
The Committee believes that punishment over and above that involved in a com-
pensatory award is not warranted for conduct that does not involve a conscious inva-
sion. Itis the very element of consciousness or awareness that renders the conduct so
morally reprehensible as to call for different treatment. Conduct, extreme as it may be,
that lacks cognition of harm more closely resembles inadvertent or negligent conduct
than it does the type of conduct which calls for a greater sanction than thatinherentina
compensatory damage award. Moreover, permitting punitive awards based merely
on different degrees of carelessness or inadvertent conduct exacerbates the already
difficult problem of articulating a clear standard to be employed by the trier of fact and
for review on appeal. Thus, the logical and practical line of demarcation should be
drawn at the point where the defendant realizes that his or her conduct will, or that
there is a very strong probability that it may, cause the resulting harm. Conduct, such
as extreme carelessness, which does not involve this basic element of consciousness
should not be the subject of punitive damages. The admonitory function of compen-
satory damages should suffice to deter these less egregious forms of conduct justasit
is supposed to deter negligent conduct.”
Bare satisfaction of the conscious indifference standard, however, does not mean
that punitive damages automatically follow. Whether the conduct in question is so
aggravated as to justify such an award still should be a matter to be determined by the
49. The comments in the Restatement of Torts. Second, draw a distinction between these forms of
conduct based on the knowledge of the actor
While an act to be reckless must be intended by the actor the actor does not intend to
cause the harm which results from it. itis enough that he realizes or, from facts which he
knows, should realize that there is a strong probability that harm may result, even
though he hopes or even expects that his conduct will prove harmiess Reckless
misconduct differs from negligence in several important particulars. It differs from that
form of negligence which consists in mere inadvertence, incompetence, unskillful-
ness, or a failure to take precautions to enable the actor adequately to cope with a
possible or probable future emergency. in that reckless misconduct requires a con-
scious choice of a course of action, either with knowledge of the serious danger to
others involved in it or with knowledge of facts which would disclose this danger to any
reasonable man. It differs not only from the above-mentioned form of negligence, but
also from that negligence which consists in intentionally doing an act with knowledge
that it contains a risk of harm to others, in that the actor to be reckiess must recognize
that his conduct involves a risk substantially greater in amount than that which is
necessary to make his conduct negligent The difference between reckless miscon-
duct and conduct involving only such a quantum of risk as is necessary to make it
negligent is a difference in the degree of the risk Dut this difference of degree is 30
marked as to amount substantially to a difference in kind
§ 500. Comments f and g ( 1965}
50. See Morris. supran. 19 at 1177
The position of the Committee is not entirely consistent with the definition of recklessness as
found in Restatement (Second) of Torts § 500( 1965) The postion of the Committee requires that
the actor realize, i.e.. know or understand, that there is a strong probability that harm may result. It
does not encompass the situation, as does the Restatement. where the actor. from facts which he
or she knows. should realize that there is a strong probability that harm may result. See supra n
49. The latter standard sounds more in negligence and would permit. in the opinion of the Com-
mittee, cases to go to the jury without proof of the type of state of mind which may warrant a puni-
tive award
12
trier of fact.°' In addition to requiring knowledge, the instruction to the jury should
state that punitive awards are to be made only in those cases in which it is established.
that the tortfeasor acted in a particularly egregious manner.®’ This element of
aggravated conduct is often referred to as the requirement of a bad motive or evil
mind,°* and in some instances is best described by the term “outrageous.” Case lawis
repiete with attempts by courts to delineate these more antisocial acts. Such words as
“malicious,” “evil,” “vindictive,” “oppressive,” “fraudulent,” “outrageous” and thelike
have been employed™ and should still be employed in jury instructions to require
such findings before punitive damages are assessed.°° Thus, it is recommended that
judicial decisions and any legislation on the subject make it clear that punitive awards
in the civil justice system may be justified only in cases involving the most egregious
forms of conduct. If there is evidence of bad motive, recidivism, or other aggravating
conduct, the trier of fact should take this into account in deciding whether to assess
punitive damages at all and, if so, the amount.°®
The Committee also observes that the articulation of a clear minimum standard for
culpability should enable a trial judge to withdraw the issue of punitive damages from
the jury in those cases in which there is a failure to introduce clear and convincing
evidence upon which a jury could find that the defendant's conduct was of the charac-
ter required for the imposition of punitive damages. In any event, no punitive award
should be permitted for conduct that fails to meet the minimum standard.
D. The Quantum of Punitive Damages Should Be Limited by a Fiexible Formula
Based on the Amount of Compensatory Damages.
The Committee is concerned that the current state of the law provides little
guidance to the trier of fact regarding the standard for assessing the amount of puni-
tive damages. The case law. again, is replete with references to the egregious nature of
the conduct, the wealth or power of the defendant. the relation of the punitive award to
the compensatory award, and the like.°’ This all leaves one with a sense of frustration
in trying to ascertain whether the punitive award is excessive, particularly on review by
the appellate courts.°* In fact, there is evidence that the current attempts to articulatea
standard lead to excessive awards because these definitions fail to provide sufficient
51. See Restatement (Second) of Torts § 908. Comment d(1979).D Dobbs. Handbook on the Law of
Remedies 204 (1973)
52. Restatement (Second) of Torts § 908. Comment d (1979)
53. See Rawlings v Apodaca. supra n 20 at 162. 726 P 2d at 578
54 D. Dobbs, supra n. 51 at 205
55. See Restatement (Second) of Torts § 908. Comment b ( 1979}
56. Id
57. See K. Redden. supra n. 32, at § 3.5 See also Restatement (Second) of Torts § 908. Com-
ment e (1979)
58 The appellate courts have resorted to such tests as whether the award is so excessive that it must
necessarily be a product of passion, prejudice. or corruption of the jury and whether the punitive
award bears a reasonable relationship to the compensatory award K Redden. supran 32 at§
3.6. Whatever the test. it is clear that the tests are more often a rationalization of results than a
means of obtaining them Morris. supra n. 19 at 1180
13
guidance to juries.°* The opportunity for bias and prejudice to operate is too great. It
would be unthinkable to use such vague standards to assess punishment in the
criminal system, much less to let a jury do it. Consequently, the Committee has con-
cluded that some more definite structure needs to be employed regarding the stan-
dard for assessing the amount of damages.
First, the Committee recornmends that greater attention be paid to the question of
whether the evidence offered is so highly prejudicial as to outweigh its probative Value
under Federal Rule of Evidence 403 or the equivalent state rule. This concern, which
frequently arises in criminal cases, seems to be overlooked in the civil process. Since
the civil punitive award serves the same purpose as the criminal sanction, the same
considerations should apply. Courts should not permit the “waving of bloody shirts’ in
civil trials any more than in criminal.
Second, courts should pay particular attention to the jury instructions in defining
the burden of proof and standard for culpability. In this vein, the courts should attempt
to formulate more precise instructions regarding the methods by which juries assess
punitive awards, taking care to inform the jury that it is within their discretion as to
whether any punitive award is to be assessed, that the award should not be excessive
and that they have to be clearly convinced that the amount is appropriate under the
circumstances. A model jury instruction covering these points as well as others is con-
tained in an appendix to this report.
The above recommendations are designed to meet the point of the American
College Task Force Report that greater judicial supervision of punitive awards is
needed. Although the Committee has concluded that the above suggestions will serve
in that way and recommends that they be adopted, it does not feel that these changes
will completely solve the problem of excessive awards, because the standards for
assessing the quantum are inherently deficient insofar as providing any meaningful
guidance to juries and for appellate review. Varicus techniques were considered in an
attempt to regulate jury awards in a fair and reasonable manner. Some members of
the Committee favored using a “cap” or maximum limit, while others were opposed to
any such method. Even among those favoring a cap, different approaches were
advocated. The merits of an absolute dollar cap were advanced, as were those of a
59. The Rand study on punitive damages. mentioned earlier, also attempted to determine what post-
trial adjustments might have occurred to punitive awards and developed sufficient data to pro-
vide statistically useful information involving 33 percent of the cases in the study It was learneo
that punitive awards were frequently reduced by post-trial actions. such as settlements. remit-
titurs, and appellate decisions. The data showed that jury verdicts were reduced in approximately
one-half of the trials reported on and thatthe larger the award the greater the chance of significant
reduction. M. Peterson. S. Sarma & M. Shanley. supra n. 6 at 26-30
Both the Rand study. id. atxi.. and the A.B.A. Litigation Section Report. supran 7 at 21-22 took
a somewhat optimistic view that — even though punitive awards have increased in both absolute
and relative terms over the past 25 years —because Of post-trial actions, the situation probabd y
not as dire as some might believe. However, one is equally entitled to take a more negative v ew
based on the same evidence — that juries exceeded or abused their discretion in many case
that these predominated in the large awards One could also observe that the Rand anc A& 4
positions may underestimate the overall impact of the large awards on the Civi! justice syste
as the latter position may overstate it. The prospect of having a jury go overboard "Owever
not be salutary even if there is the possibility of a later reduction
14
formula based on compensatory damages. in the end. nowever, a substantial majority
were in favor of the following approach.
The Committee recommends that the various legislative bodies enact a statute
which limits the recovery of any punitive award by a plaintiff in a tort case to twice the
amount of the compensatory award or $250,000, whichever is greater. This approach
provides for flexibility. The plaintiff that suffers amounts of compensatory harm below
$125,000 as the result of outrageous conduct by the defendant would be permitted to
recover a substantial punitive award, but the limit of $250,000 would prevent an
excessive award. On the other hand, where the compensatory harm exceeds
$125,000 the ceiling on any punitive award would rise commensurately with the com-
pensatory harm. There would be no limit in the serious injury cases except for the
trebling effect provided by the formula. The Committee believes that this approach is
fair to all concerned in that the award would punish and deter and yet not unjustly sub-
ject defendants to ruinous liability.
Finally, as a corollary to the proposal -egarding the monetary limitation on punitive
awards, the Committee recommends that the jury not be informed of the limitations.
One reason for this recommendation is obvious — the jury should not be permitted to
circumvent the rules by arbitrarily increasing the amount of compensatory damages.
A less obvious, but areal concern nevertheless, is that the maximum amount of
$250,000 in small compensatory injury cases should not become the rule. The jury
should assess the punitive award on the basis of the evidence and the law as con-
tained in the instructions from the court. The monetary limitations, which provide a
range similar to that in the criminal system, should be applied by the court where
necessary after the verdict has been rendered.
E. The Burden of Proof for Punitive Awards Should Be That of Clear and Convinc-
ing Evidence.
The Committee on Special Problems notes that since the Task Force Report, which
recommended that the burden of proof for punitive damages should be raised, those
jurisdictions which have considered the issue have reaffirmed or moved to a clear-
and-convincing standard.®° One jurisdiction has even adopted the criminal burden,
by requiring proof beyond a reasonable doubt.®'
Although some members of the Committee favored the retention of the mere-
preponderance standard and others felt that the criminal standard of beyond a
reasonable doubt should be ernployed, a majority of the Committee recommends that
all jurisdictions follow the modern trend and adopt the clear-and-convincing stan-
dard. The clear-and-convincing standard, when coupled with the recommendations
regarding the standards for determining liability and the rules regarding the quantum
of damages, is more in harmony with a system for punishment than the mere-
preponderance standard applicable in civil proceedings regarding compensatory
damages and similar remedies which merely attempt to restore the status quo. While
tne Deyond-a-reasonabie-doubt standard is appropriate where life and liberty is
terally at Stake, the Committee does not feel that the criminal standard is appropriate
ee supra n. 22
15
where a Civil penalty is sought. The intermediate standard, requis:ng clear and con-
vincing evidence, is the most appropriate. in the opinion of the Committee.
F. Vicarious Responsibility for Punitive Damages Shouid Only Obtain Where There
Is Complicity by the Principal in the Conduct Which Gives Rise to the Punitive
Award.
The Committee on Special Problems does not believe that there is any justification
for holding a party responsible for an act which gives rise to punitive damages if that
person or entity, through its officers or managerial employees or agents, did not com-
mit or otherwise significantly participate in, or in some manner actually control or
ratify, the act. The purpose of punitive damages is to punish and deter certain wrong-
ful conduct. If the individual or entity did not engage in that conduct, there is no
rational purpose in punishing or attempting to deter the person or entity. This is the
position of the American Law Institute as found in the Restatements of Agency and
Torts.®* A number of courts follow the Restatement rule, but there are cases that adopt
the so-called “liberal” rule, which imposes punitive damages in some situations
merely on the basis of respondeat superior.®’ Under this rule, the principal is liable
because of the mere relationship instead of any wrongdoing. Although this may be
appropriate for compensatory damages, the Committee fails to see the justification
for such a rule where punitive darnages are claimed and recommends that the posi-
tion adopted by the American Law Institute be followed.
G. Pleadings Regarding Punitive Damage Claims Should Not Be Permitted To
Contain a Monetary Amount.
At one time, claims for punitive damages were the exception and quite rare, but it
has become more common recently tor some attorneys to include such counts as a
routine matter. This practice often is employed for its in terrorem effect. Some observ-
ers feel that the mere presence of such a count increases the settlement value of the
underlying lawsuit.
A number of jurisdictions have adopted statutes which prohibit plaintiffs from
pleading a claim of punitive damages until a prima facie showing is made regarding
the defendant's potential liability for such an award. For example, lilinois permits a
prayer for relief seeking punitive damages only after the plaintiff, upon motion and
hearing, establishes a reasonable likelihood of proving facts at trial sufficient to sup-
62. Restatement (Second) of Agency § 217C (1958): Restatement (Second) of Torts § 909 (1979)
These two provisions are identical
Punitive Damages Against a Principal
Punitive damages can properly be awarded against a master or other principal
because of an act by an agent if. but only :f
(a) the principal or a maragerial agent authorized the doing and the manner of the
act, or
(b) the agent was unfit and the principal or a managerial agent was reckless in
employing or retaining him, or
(c) the agent was employed in a managerial Capacity and was acting in the scope
of employment, or
(d) the principal or a managerial agent of the principal ratified or approved the
act
63. 2J. Ghiardi & J Kircher. supran 24 § 2407 W Prosser & WP Keeton. supra n. 41 at 13
16
port an award of punitive damages.™ Florida, Idaho and Minnesota have adopted
similar statutes.°° California, however, has adopted a statute that merely prohibits a
plaintiff from including a monetary figure in the pleadings.” These procedures are in
contrast to those of most states, which continue to permit plaintiffs to include claims
for punitive damages and to include monetary figures for such in the original com-
plaint. In those states, the defendant may move to dismiss the claim or may endeavor
to limit discovery of wealth or financial condition until later in the proceedings. The
various approaches described make Clear that the issue essentially is one of placing
the initial burden. Should the plaintiff have to make some type of showing that the facts
could support an award of punitive damages before being permitted to plead a claim
for punitive damages?
The Committee concluded that there was no good reason to put the burden on the
plaintiff to make a prima facie showing before being permitted to plead a claim for
punitive damages, but that the California modification should be followed. The Com-
mittee noted the growing tendency for pleadings to include very large monetary
amounts, the fact that these figures are arbitrary in many instances, and the un-
warranted adverse publicity involved, and found that little purpose was being served
by the present system. Thus, the Committee recommends that no monetary figure for
punitive damages should be permitted in the petition or complaint. This modification
to present practice in no way inhibits a plaintiff from pursuing a claim and obtaining an
award for punitive damages. yet would protect a defendant from needless and
unwarranted adverse pretrial publicity
H. Discovery of Evidence Regarding a Defendant's Wealth or Financial Condition
for the Purpose of Proving the Amount of a Punitive Award Should Not Be Per-
mitted Without a Prima Facie Showing That There Is a Legal Basis for Such
an Award.
The fact that a plaintiff necessarily must engage in efforts to ascertain the facts
involved in acase does not mean thatall efforts at discovery should be permitted at the
outset of a case that might involve a punitive damages issue. Initial efforts at discover-
ing facts regarding liability are clearly necessary and would have to be permitted even
in a jurisdiction that prohibits a plaintiff from initially pleading a claim for punitive
damages. However, to subiect a defendant to unlimited discovery regarding wealth or
financial condition at the outset poses great potential for unwarranted invasions of
privacy and other abuses.
The Committee on Special Problems recommends that the discovery of evidence
regarding a defendant's wealth or financial condition for the purpose of proving the
amount of a punitive award should not be permitted without a prima facie showing by
the plaintiff that there is a reasonable likelinood of proving facts at the trial sufficient to
support a determination of liability for such damages. Where it appears from the com-
plaint or upon motion that evidence of wealth or financial condition is relevant to the
issue Of liability for punitive damages, the burden of persuading the court to limit dis-
64 Ill. Rev. Stat. ch. 110, para 2-604 1(Supp 1988)
65 Fla. Stat §76872(Supp 1988): idano Code §6-1604(Supp 1987). andMinn Stat Ann
§ 549 191 (West 1988)
66 Cal Civ Code § 3295 (Supp 1988)
17
covery should be where it rests in most jurisdictions today. The defendant must move
to limit discovery in this situation and convince the court such evidence is not relevant
to the liability issue. Where the evidence is only relevant to the amount of the punitive
award, the burden should be on the plaintiff to obtain permission from the court to
engage in discovery of wealth or financial condition. This would put the burden on the
plaintiff to make a prima facie showing that there is a plausible case for a punitive
award. Defendants would be protected from unwarranted intrusions into their
records and private affairs and from being unnecessarily inconvenienced, un-
necessary expenses would be avoided by all concerned, and ro real impediment or
obstacle would be placed in the path of plaintiffs who are entitled to pur sue legitimate
claims for punitive damages.
|. Bifurcated Trials Should Be Employed To Avoid Prejudice to Defendants Where
Evidence of Wealth or Financial Condition Ils Admissible Oniy on Claims for Puni-
tive Damages.
Evidence of wealth or financial condition is ordinarily irrelevant to the liability issues
in a case where punitive damages are sought. Normally, such evidence bears only on
the amount of money that would adequately punish and deter. In such situations, per-
mitting evidence of wealth or financial worth to be introduced at the stage of the trial
where liability is determined needlessly provides an opportunity for bias and pre-
judice to operate against a defendant. However, the Committee on Special Problems
recognizes that there may be some situations where evidence of wealth or financial
condition might bear on the punitive damage liability issue ever .nough it has no
relevance to liability giving rise to compensatory damages. For ex unple, the fact that
the defendant is in a superior economic position and able to exert a certain authority
or power over the plaintiff may be relevant to whether the conduct is sufficiently
egregious to warrant punitive damages.°’
Although bifurcation of the trial is an obvious soiution to this problem, itis clear that
different issues would have to be separated in the two situations described. There
may be other situations which would call for still different treatment, such as trifurca-
tion. Recognizing this, the Committee recommends that the defendant be provided an
opportunity to move for a division of the trial in a case where punitive damages are
claimed, if undue prejudice would result from the introduction of evidence of wealth or
financial condition, and that in such a case the issues be separated to afford a fair trial
to all concerned.® The following is one approach for courts to consider.
In atrial where a punitive award is sought and evidence of wealth or financial condi-
tion has no relevance to any liability issues, the court, upon motion by the Gefendant,
should bifurcate the trial on the following basis: During the first phase of the trial, the
issues of liability should be determined and evidence of wealth or financial condition
should not be permitted. In many instances, it may also be desirable to determine the
67. The Committee recognizes that there are other exceptions Evidence of wealth or financial condi-
tion may bear on liability issues for compensatory damages as well as punitive damages issues if
this is the situation, a division of the trial may not be appropriate
68 Several jurisdictions have adopted a bifurcated trial process for cases involving punitive
damages See eg. Cai Civ Code § 3295 (Supp 1988). Ga Code Ann § 105-2002 1(d) (Supp
1988). Mo. Ann Stat § 510 263 (Vernon Supp 1988). and Mont Code Ann. § 27-1-221(7)
(1987)
18
issue of compensatory damages in the first phase. In either event, a special verdict
form should be used to determine whether the defendant is liable for compensatory
damages only, or in addition is liable for punitive damages. !f the jury determines in the
first phase that punitive damages also should be awarded, ovidence of the appro-
priate amount, including that of wealth or financial condition where relevant, should
be permitted in the second phase. This process would prevent undue prejudice in the
situation described, but it would not be appropriate where evidence of wealth or finan-
cial condition is relevant to the issue of liability for punitive damages. In the latter case,
courts should consider the procedure described below.
If a claimant sues for punitive damages and the defendant moves for a bifurcated
trial, the plaintiff should be permitted to show that evidence of wealth or financial con-
dition is relevant to the issue of liability for punitive damages. If the plaintiff prevails on
this issue, the court should limit the first phase of the trial to a determination of whetner
the defendant is liable for compensatory damages and the amount thereof. If the jury
finds liability for compensatory damages, the second phase of the trial should
address the punitive damage liability issue and the amount of any such award. During
the second phase of the trial, evidence of wealth or financial condition, where relevant,
may be admissible. If the second type of bifurcation procedure is employed, the jury
should be informed during the first phase of tne trial that the plaintiff has made a claim
for punitive damages, but that this issue may be addressed in a second phase of the
trial after the jury has decided the issue of liability for compensatory damages.
The Committee on Special Problems has concluded that a flexible approach is
needed to resolve the problem regarding undue prejudice to defendants from the
introduction of evidence of wealth or financial condition during the phase of the trial
dealing with liability for compensatcry damages. The approaches described above
will take care of most situations, but, if they do not, the court should divide the trial in
other ways, possibly trifurcation, to avoid undue prejudice while, at the same time,
protecting the claimant's right to pursue an award of punitive damages where the
evidence would support such a claim.
J. Distribution of Punitive Awards Should Not be Diverted to Persons or Entities
Other Than the Plaintiff.
There has been much discussion regarding whether all or part of a civil punitive
award should be paid to someone other than the plaintiff®’ and, if so, whether there
should be some restriction on the plaintiff's attorney fee. The argument for distribut-
ing the award to someone or some entity other than the plaintiff is based upon the fact
that a punitive award to the plaintiff is viewed as a windfall, the plaintiff having already
been fully compensated for any actual harm suffered. At first glance, the so-called
“windfall” argument wouid seem to have some merit, but on closer examination a
number of problems arise from the suggested chance.
if the plaintiff is not entitled to receive any or a substantial part of the award, it is
argued that there will be little incentive to bring an action for punitive damages. This
would discourage lawyers from acting as “private attorneys general.” Since the trier of
fact might be persuad~d to increase the amount of noneconomic loss in the compen-
69 See tne various legislative approaches taken by different states on this subject supra n 25
19
satory award if not given the opportunity to assess punitive damages, it may be that
the proposal to distribute the award to someone other than the plaintiff could be cir-
cumvented. if this were to be the case, it might be ethically incumbent upon the plain-
tiff's attorney to seek only compensatory damages and forgo any personal or public
interest in seeking a punitive award.
Assuming that the plaintiff were permitted to share in the punitive award on some
substantial basis, problems still arise. How should the award be distributed? Is this to
be alegislative determination, or left to the court? Does the fact that a punitive award is
a “windfall” of sorts currently cause the jury, on occasion, to limit the award to an
amount smaller than might otherwise be awarded? If it is distributed to an authority
which leVies taxes, will jurors see an opportunity to relieve the taxpayer of a burden?
Even were these issues resolved, if punitive awards are limited to an amount which
does not exceed twice that of any compensatory award, as recommended in subsec-
tion D, there will be fewer situations where an unseemly windfall takes place.
On balance, the Committee has concluded that the common law has long permitted
the successful plaintiff to retain the punitive award. and that this is justifiable on the
basis that it was the p‘uintiff who went to the trouble to prosecute the matter in the first
place. The Committee does not see any real justification for changing the current
situation. Finally, there is no more reason to change the rules with regard to the
attorney-client fee arrangements in this situation than in any other area of tort
litigation.
\V. THE PROBLEM OF DUPLICATIVE PUNITIVE AWARDS FOR THE SAME ACT
OR COURSE OF CONDUCT.
The potential for multiple awards of punitive damages for tne same act or course of
conduct creates problems both for plaintiffs and defendants. From the defendant's
standpoint, there is the very real possibility that the punitive awards will be duplicative
and therefore result in punishing the defendant more than once for the same wrongful
conduct. This obviously offerds basic notions of justice. Conversely, a plaintiff runs
the risk that prior punitive awards may exhaust the defendant's resources, and that,
not only wili there be insufficient funds from which to pay the plaintiff's punitive award,
but the funds will be inadequate to pay acompensatory award. Under the current state
of affairs, some defendants have resorted to bankruptcy proceedings for protection.
Although this may be viewed as a limited form of protection, it is a drastic measure.
Moreover, it does not address the problem of duplicative awards against a solvent
defendant. In short, existing procedures are inadequate to resolve the problem satis-
factorily. Although all agree that the problem needs attention and resolution, a solu-
tion is not nearly as evident as the problem.
The Committee on Special Problems has considered a number of approaches to
the multiple awards problem. It is clear to the Committee that there is no simple solu-
tion. Thus, the Committee has decided that it should set out the various approaches
considered, in an attempt to further discussion and facilitate debate in the hope that
more efficacious approaches may eventually evolve. The Committee believes it is par-
ticularly important to follow this approach, since the American Law Institute is current-
ly engaged in two projects that would seem to encompass the multiple awards
situation. The problem of duplicative awards most frequently arises in the context of
the so-called mass tort case and involves multiparties, multiclaims, and multiforums.
Both the A.L.I. projects on complex litigation and on compensation and liability for
product and process injuries provide vehicles for addressing the multiple awards
problem. In addition, Congress has taken some steps to deal with the situation.’”°
Since these efforts are still in the initial stages, the deliberations of the Committee may
prove helpful in resolving the problem. In any event, the work of the Committee should
be recorded for those who come later to the task.
A. State Solutions
At the state level, only two attempts to address the problem of multiple awards for
the same act or course of conduct have resulted in legisiation. Georgia has adopted a
Statute prohibiting multiple recoveries against one defendant in product liability
actions filed in that state, but it has no effect on actions filed outside of the state.’' The
effect of the Georgia statute is to allow only one punitive award — the first obtained —
in that state. This award is to be deemed as sufficient punishment, regardless of the
amount. No other award for punitive damages may be made thereafter in Georgia for
the same conduct
Missouri has adopted a somewhat different approach. The Missouri statute pro-
vides for a post-trial hearing wherein a defendant may file a motion “requesting the
amount awarded by the jury as punitive damages be credited by the court with
amounts previously paid by the defendant for punitive damages arising out of the
same conduct on which the imposition of punitive damages is based.””* This ap-
proach is broader than the Georgia statute in several respects. The statute is not
limited to product liability cases, and it permits evidence of out-of-state awards, as
well as evidence of in-state awards, to reduce any award in Missouri. A subsequent
proceeding is required to determine any offset.
Both the Georgia and Missouri statutes suffer from a deficiency that presently is
inherent in any attempt to resolve the problem at the state level. Although state A may
control what goes on within its courts, it cannot control what goes on in the courts of
state B.’* Neither Georgia rior Missouri can contro! awards that are assessed in other
states, even though those awards are based on the same conduct that gave or will give
rise to liability in Georgia or Missouri. Only trials or awards in Georgia or Missouri can
be affected.
One possible solution to the interstate problem is for the National Conference of
70. Abilito amend title 28, United States Code, containing a number of features that would address
some of the aspects of the multiple awards problem. was passed by the United States House of
Representatives ‘ate in the second session of the 100tn Congress. but this part of the bill was not
passed by the Senate and did not become !aw. See Title !il/A) of H R_ 4807, 100th Cong.. 2d Sess.,
134 Cong. Rec. H7443 (Sept. 13, 1988) and 134 Cong Rec S$16284 (Oct. 14, 1988)
71. Ga. Code Ann. § 105-2002.1(e)(1) (Supp. 1988)
72. Mo Ann. Stat. § 510.263 (Vernon Supp. 1988)
73. Although a state cannot control what goes on in the federal! courts either. under current law a
federal court would probably be required to apply the Georgia or Missouri statutes, if otherwise
applicable. in diversity cases litigated in the federal ccurts because the statutes clearly affect sub-
stantive rights of the litigants See 19C Wright. A Miller & E Cooper. Federal Practice and Pro-
cedure § 4508 (1982)
——
21
Commissioness on Uniform State Laws to undertake a drafting project for the pur-
pose of achieving uniformity among the states on the subject. However, not only is this
approach problematic in terms of achieving uniformity in the near future, if ever, but it
may be complicated by the fact that a somewhat unconventional approach might have
to be employed to obtain the desired result. A type of compact or reciprocal arrange-
ment permitting cases to be transferred from one state to another might have to be
designed and utilized if there is to be but one trial of all punitive damages Claims aris-
ing out of the same act or course of conduct. In any event, the state-by-state approach,
while holding the possibility of improvement of the present situation, does not appear
to afford a complete solution, at least for the near future.
B. Federal Solutions
1. The A.B.A. National Class Action Proposal
The A.B.A. Section of Litigation has recommended that Congress enact legislation
necessary to create a national class.’* This would permit one court to obtain jurisdic-
tion and control over cases which expose a defendant to multiple punitive awards ris-
ing out of the same conduct which results in similar injuries. It would be a mandatory
class action, in that one mass federal trial on the punitive damages issue would be
binding on all concerned — those who have not sued, including those who may not yet
be injured, as well as those who are parties to pending state and federal actions.”°
State court litigants who refuse to join the class would be enjoined from pursuing
punitive awards based on the same conduct, but would be included in the distribution
of the penal award resulting from the federal litigation.”® The procedures envisioned
could be invoked upon defendant's motion and findings by the court that “there is a
reasonable possibility that adequate compensatory damages will not be available if
punitive damages are not brought under control."’’ The applicable substantive law
would be “federal common law’ as the court determines it to be after a full hearing. ”®
The proposal also addresses issues as to how the punitive award should be dis-
tributed, including the problem regarding unknown future piaintiffs.”°
Although the Committee on Special Problems is impressed with the careful thought
that has gone into the A.B.A. Litigation Section proposal and views it as a partial
improvement over the present system, it feels that other alternatives should also be
explored. The A.B.A. propesal does not appear to address the problem of multiple
awards against a solvent defendant, i.e., where the possibility of collecting adequate
compensatory damages will not be affected by punitive awards. The unfairness of
mulcting a defendant more than once for the same conduct does not diminish with the
prospect that there may be sufficient funds to pay all awards. On the contrary, the
unfairness is exacerbated. Moreover, consideration should be given to other
methods of deciding what law should apply to the substantive issues short of develop-
ing federal common-law tort rules.
74. ABA Sec Lit.gation Report, supra n 7 at 78-81
75. Id. at 80
76. /d at 81
77. Id. at79
78. id. at 80
79. Id. at 81
22
2. Multidistrict Litigation
The Committee on Special Problems considered two other federal solutions to the
multiple awards problem. First, it was suggested that Congress should enact a new
statute providing jurisdiction in the federal courts for cases involving personal! injury,
death or property damage where two or more claims or actions seeking punitive
damages are based on the same act or course of conduct of a defendant who is
engaged in or affects interstate commerce. As a further jurisdictional requirement,
the aggregate total of such claims, exclusive of claims for compensatory damages,
should exceed $50,000. The suggestion contemplates that only the individual claims
for punitive damages would be removed and consolidated, leaving other claims,
including those for compensatory damages, for trial in the courts where originally
filed. The authority of Congress to enact such legislation would rest on the powers
granted to it under the Commerce Clause® and Article III°' of the United States
Constitution.
The procedures for removing cases filed in state courts®* and the statutes regarding
multidistrict litigation in the federal courts®* would need to be amended to authorize
removal and transfer for the limited purpose of consolidating all punitive damage
claims, whether originally filed in state or federal courts, for trial in one federal forum.
Proceedings toremove, transfer, or consolidate such claims should be initiated by the
federal judicial panel on multidistrict litigation upon its own motion or by motion filed
with the panel by any party to an action which meets the jurisdictional requirements.
The transferee court should be empowered to appoint lead counsel and to implement
other measures needed to administer the litigation.
Because the jurisdiction is for multiparty, multiclaim actions, absent a legislatively
created standard, the substantive law of several states and perhaps even foreign
nations will often apply to different aspects of the litigation. Thus, the legislation
should set forth the standards to be applied in determining punitive damages or
should at least provide for a single, uniform choice-of-substantive-law procedure for
claims subject to the proposed proceeding.™ The legislation also should be drafted to
80. “TheCongress shal! have Power To requiate Commerce with foreign Nations, and among the
several States, and with the Indian Tribes: “US. Const. art. 1. § 8
81. “The judicial Power [of the United States] shall extend to all Cases, in Law and Equity, arising
under this Constitution, the Laws of the United States. and Treaties made. or which shall be made,
under their Authority, "US. Const art. Ill, § 2
82. 28USC. § 1441 et seq. (1983)
83. 28USC. § 1407 (1983)
84 Currently choice-of-law questions in so-called mass tort cases in the federal courts are determined
under state law. Van Dusen v. Barrack. 376 US. 612 (1964); Klaxon Co. v. Stentor Electric
Manufacturing Co..313 US 487 (1941); Erie RR. v. Tompkins, 304 US. 64 (1938). See Atwood.
The Choice-of-Law Dilemma in Mass Tort Litigation’ Kicking Around Erie. Klaxon, and Van
Dusen, 19 Conn. L. Rev. 9 (1986). It is contemplated that the choice of law provision in the pro-
posed legislation would involve the development and application of a body of substantive federal
law. Arguably this could satisfy the requirement that there be a federal question in order to sustair
jurisdiction in the federal courts through the ‘Arising Under’ clause of Article Ill of the United
States Constitution See Verlinden BV. v. Central Bank of Nigeria, 461 US. 480(1983): Osborn v
Bank of United States. 9 Wheat. 738 (1824) The adoption of a federal standard for determining
punitive awards would more clearly satisfy this constitutional requirement
23
preserve the concept of forum non conveniens to avoid attracting cases from all over
the world to American courts when such cases would be more appropriately resolved
in a foreign forum. There are a number of other matters that would need to be
addressed, but this provides an outline of the basic features.
3. Interpleader
The Committee considered an alternative solution to the multiple awards problem
which wouid require a new federal statute patterned after 28 U.S.C. § 1335, the federal
interpleader statute. The proposed legislation would empower a federal district court,
upon petition or motion by either a plaintiff who has filed an action seeking a punitive
award or a defendant against whom an action for a punitive award has been filed, to
adjudicate the issues involved in the multiple awards problem regardless of the court
in which the claim or action was originally filed. The trial of the tort action in which the
punitive award is sought would be carried out in the court in which it was originally filed
or to which it was otherwise transferred or removed. The trial of the tort case would not
be enjoined. However, the federa! court in which the interpleader action was filed
would have the authority to enjoin® the enforcement of any judgment containing an
award for punitive damages and to remove or transfer jurisdiction of that part of the
judgment to the federal court. Thus, any judgment which contains an award of puni-
tive damages would be the possible subject of interpleader if the jurisdictional
criteria exist.
in order for the federal court to exercise jurisdiction, the plaintiff seeking inter-
pleader would be required to allege, by petition or motion, facts which show that there
is areasonable probability that the plaintiff will not be able to satisfy a judgment for the
punitive award because the defendant's assets will be depleted by other claims for
punitive awards arising out of the same act or course of conduct upon which the plain-
tiff's claim is based. A defendant against whom an action for a punitive award has been
filed also could invoke the jurisdiction of the federal court upon a showing on the same
grounds, i.e., that assets are insufficient to pay all claims. In addition, the defendant
may invoke the jurisdiction of the federal court by alleging that two or more actions for
punitive damages are based on the same act or course of conduct and that any such
awards will be duplicative.
The current federal interpleader statute has a very low amount in controversy
requirement and only requires minimal diversity of citizenship, i.e., diversity between
two adverse parties.®° These, or similar provisions in the new legislation, would suffice
to provide jurisdiction for most cases involving the problems sought to be addressed.
Where minimal diversity does not exist because al! parties are citizens of the same
State, there is agood chance all suits would he filed in the courts of that state and in that
event be subject to consolidation or interpleader under the rules of those courts.
Where all parties are citizens of one state, but some suits are filed in other states, the
defendant could argue forum non conveniens.
Even though most cases would fall within diversity-of-citizenship jurisdiction, the
85. This authority snould be expressly set out in the legislation so that no question is raised under the
federal Anti Injunction Act, § 28 US C. 2283 (1982)
86. 28USC § 1335(a) (1983)
24
Committee on Special Problems considered whether federal question jurisdiction
would be'the preferable route, as in the multidistrict proposal.®’ Not only would federal
question jurisdiction assure that all cases would be covered, but it would be necessary
to set out certain substantive matters in the interpleader legislation in any event. The
legislation should prescribe how the federal court shall determine whether multiple
awards are duplicative and on what basis and when judgments for punitive awards
may be satisfied. The court also should be authorized to hold some funds in reserve or
otherwise assure that there wil! be assets available to satisfy claims of future plaintiffs.
The basis for such a determination should be set out in the statute. Arguably, this
would provide the basis for federal jurisdiction.*®
4. Comparing the Federal Solutions
The basic difference between the federal proposals involves the forum of the trial of
the punitive damages Claims. In the multidistrict approach, there would be one mass
trial on the punitive damages claim in one federal court, because all cases could be
removed from state courts and consolidated in one federal court. Although the
national class action approach of the A.B.A. would leave those who refuse to join the
class in the courts that would otherwise have jurisdiction, all would be bound by the
r.« ‘in the federal court. Under the interpleader approach, the trials of the tort
2 S, including the punitive damages claim would take place in the various courts
** t would otherwise have jurisdiction. Arguably, there would be much less incon-
venience to plaintiffs regarding the trial of the tort cases under the interpleader pro-
posal. Also, there would be no need for federal courts to have to involve themselves in
new choice-of-law problems as the federal court would merely enjoin the execution of
the punitive portion of the judgment. Since the punitive award does not go to compen-
sate victims, the fact that there may be delays in distributing it should not work any
hardship. Plaintiffs could nevertheless proceed to satisfy judgments regarding the
compensatory awards. On the other hand, the interpleader approach may require a
hearing, if not atrial, to determine whether the various punitive awards resulted from
the same act or course of conduct. It may also require a hearing or trial on the issue of
whether the awards are duplicative. Both the multidistrict proposal and the inter-
pleader proposal may avoid the creation of federal common law regarding substan-
tive tort rules whereas the national class action approach, at least as proposed by the
A.B.A., contemplates some federalization of tort law. None of the proposals is perfect,
but the problems may be resolved through further study.
C. The Preferred Approach
Although the problem of duplicative awards of punitive damages for the same actor
course of conduct is a difficult one, the Committee has come to certain conclusions.
First, a federal solution would appear to be preferable to a state-by-state enactment of
a uniform or model act, because there is no assurance that every state would adopt
such an act and, even if every state did, the time period that it would take to achieve
near uniformity would far exceed that which Congress would require to act on the mat-
ter. Moreover, itis not clear to the Committee that the problems involved can be effec-
tively addressed at the state level. There does not appear to be any conventional
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88 Seesuprann 804 81
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mechanism by which the states could cause cases filed in other states or the federal
courts to be consolidated in a particular state court. Although the states might enter
into some compact or reciprocal agreement that would permit all cases filed in the
courts of the participating states to be transferred to a particular court in one of the
states, this sort of arrangement would not reach cases filed in the federal courts unless
Congress enacted legislation to effect such a result. The Committee believes that if
Congress has to act, it might as well opt for a solution that would utilize the federal
court system. The federal system already provides an existing structure and rules that
are near uniform throughout the country and would appear to provide a better
mechanism to handle the problems than a wholly new, if not novel, mechanism at the
state level.
Of the federal solutions discussed above, the Committee prefers an approach that
requires all litigants to appear in the same forum. There should be no opportunity to
opt-out. This would avoid litigation subsequent to the mass trial to determine if those
who opted out should be bound by the results. There would be no question that those
who were parties to the multidistrict case would be bound. Any disputes as to who isa
proper party should be resolved initially, not after the trial. The Committee also favors
a federal choice-of-law ruie, or perhaps even a federal standard, for determining
punitive damages in tort cases that would be subject to the mass trial in a federal court.
At the very least, the federal court should not be required to apply state
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