# Amicus Curiae Brief — Pacific Mutual Life Insurance v. Haslip > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0717%3A25 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Curiae Brief - **Published:** January 1, 1991 - **Citation:** 499 U.S. 1 ## Text 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