Amicus Curiae Brief — Pacific Mutual Life Insurance v. Haslip

FILED

No. 89-1279 1990

cuer,

Iu the Supreme Court of the United States —

OCTOBER TERM, 1989

PACIFIC MUTUAL LIFE INSURANCE COMPANY, PETITIONER

V.

CLEOPATRA HASLIP, ET AL., RESPONDENTS

On Writ of Certiorari to the

Supreme Court of Alabama

BRIEF FOR THE BUSINESS ROUNDTABLE AND THE

PRODUCT LIABILITY ADVISORY COUNCIL, INC.,

AS AMICI CURIAE SUPPORTING PETITIONER

ANDREW L. FREY

Counsel of Record

KENNETH S. GELLER

MARK I. LEvy

ANDREW J. PINCUS

4 Mayer, Brown & Platt

_ 2000 Pennsylvania Ave., N.W.

Washington, D.C. 20006

(202) 778-0602

Counsel For Amici Curiae

WILSON - Eres PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

QUESTION PRESENTED

This brief will address the following question:

Whether the punitive damages award in this case

violates the Due Process Clause because the amount of

the penalty imposed is not rationally related to the pur-

poses of fairly punishing the misconduct that occurred

or appropriately deterring such misconduct.

(i)

TABLE OF CONTENTS

QUESTION PRESENTED .0000.o222........cceccccccecceseeeeeeeeeees

INTEREST OF THE AMICI CURIAE ............... iiaiicieee

SUMMARY OF ARGUMENT 00

LE

THE PUNITIVE DAMAGES AWARD IN THIS

CASE VIOLATES DUE PROCESS BECAUSE IT

IS NOT RATIONALLY RELATED TO THE PUR-

POSES OF PUNISHMENT OR DETERRENCE...

I. THE DUE PROCESS CLAUSE PROHIBITS

II.

DISPROPORTIONATE AND IRRATIONAL

AWARDS OF PUNITIVE DAMAGES ............

A. A Punitive Damages Award That Is Arbi-

trary And Irrational In Amount Deprives

The Defendant Of Property Without Due

B. A Punitive Damages Award Is Arbitrary

And Irrational If It Is Disproportionate To

The Objectives Of Imposing Punishment........

AN AWARD OF PUNITIVE DAMAGES IS

DISPROPORTIONATE AND IRRATIONAL

IF IT SUBSTANTIALLY EXCEEDS ANALO-

GOUS STATUTORY PENALTIES AND

BEARS NO REASONABLE RELATIONSHIP

TO THE NATURE OR GRAVITY OF THE

DEFENDANT'S CONDUCT ooo eeeeeeecenenene

A. Punitive Damages Are Disproportionate If

They Substantially Exceed The Statutory

Penalties Prescribed By The Legislature........

B. Punitive Damages Are Disproportionate If

They Do Not Bear A Reasonable Relation-

ship To The Misconduct For Which Punish-

ment Is Being Imposed ..........0..0.00000.00--eeeee ee

(iii)

10

18

iv

TABLE OF CONTENTS—Continued

1. Character of the defendant’s conduct

2. Injury caused by the misconduct ..........

5. Actual or potential gain to the defendant..

Ill. THE PUNITIVE DAMAGES AWARD IN

THIS CASE IS PLAINLY EXCESSIVE .........

A. The Award Is Grossly Disproportionate To

Statutory Penalties In Alabama And Other

Jurisdictions

PPPOE RESET SHOES SSS ESET OS SEES SEOSESESESSSSSSSSCCS

B. The $1,000,000 Penalty Bears No Reasonable

Relationship To The Gravity Of The Con-

duct Being Punished ..........

C. Alabama’s Post-Verdict Review Procedures

Do Not Eliminate The Unconstitutionality

Of The Punitive Award In This Case

CONCLUSION

PO OOS OS OS OO OOO SOS SSSSSSSSSSSSSSSSO 0855S S0S COSC COSOSSOSSEESOSOSOOSSSSS

21

23

28

29

Vv

TABLE OF AUTHORITIES

Cases: Page

AMPAT /Midwest, Inc. Vv. Illinois Tool Works Inc.,

896 F.2d 1035 (7th Cir. 1990) -...........................--- 11

Bell v. Wolfish, 441 U.S. 520 (1979) ....................-...- 8

Berkey Photo, Inc. v. Eastman Kodak Co., 608

F.2d 268 (2d Cir. 1979), cert. denied, 444 U.S.

. _ sles Ses 20

Browning-Ferris Industries of Vermont, Inc. V.

Kelco Disposal, Inc., 109 S. Ct. 2909 (1989) ........ passim

Chicago & N.W. Ry. v. Nye Schneider Fowler Co.,

I I cae iemetliesmenseententibneniensinnen 8,9

City of Newport v. Fact Concerts, Inc., 453 U.S.

A iinet it inainennaiitinesibins 15

City of Revere v. Massachusetts General Hospital,

PE ren 7

Daniels v. Williams, 474 U.S. 327 (1986) -................ 5

Enmund V. Florida, 458 U.S. 782 (1982) ................. 9

Gore V. United States, 357 U.S. 386 (1958) ............. 11

Hawkins v. Allstate Insurance Co., 733 P.2d 1073

(Ariz.), cert. denied, 484 U.S. 874 (1987)........ 20

Hustler Magazine, Inc. Vv. Falwell, 485 U.S. 46

I cli acct tas tatrentssinnededilipdepebansiiabadtiinnsinibietan 5

International Brotherhood of Electrical Workers

v. Foust, 442 U.S. 42 (1979) ........2-.222.222-----2---2----- 6

Lassiter V. Department of Social Services, 452 U.S.

TT scsi coethisstiihiandenininiaanieilianiininsinasidiissieaniedteniabipen 5

Life & Casualty Ins. Co. v. McCray, 291 U.S. 566

ins liechiclithneiiiinnaad inline tibiae daailttcmaneaitaneiiin 17

Logan Vv. Zimmerman Brush Co., 455 U.S. 422

iain iil inet cad Dnnainditesiaene 5

Memphis Community School Dist. v. Stachura, 477

NI MI cain cilettheabiipaiansinalpaiatbaniincen 18

Missouri Pac. Ry. Vv. Humes, 115 U.S. 512 (1985) .... 6

Missouri Pac. Ry. v. Tucker, 230 U.S. 340 (1918)... 7

New York Times Co. v. Sullivan, 376 U.S. 254

ID - dis setssicnttcanitncsiicinsiisnseeientinesiedsinibtabaltidessiabiabesettionen 5

North Georgia Finishing, Inc. v. Di-Chem, Inc., 419

BN I MI inc rcnsenianissiabciietiadaiisiaeiieibidinenen 5

Robinson V. California, 370 U.S. 660 (1962) -......... 20

Rowlett v. Anheuser-Busch, Inc., 832 F.2d 194

ela 15-16, 17

vi

TABLE OF AUTHORITIES—Continued

Page

Seaboard Air Line Ry. v. Seegers, 207 U.S. 78

RSE RR wees one DSCNS CSI 19

Smith v. Wade, 461 U.S. 30 (1983) 6,18

Solem v. Helm, 468 U.S. 277 (1988) .................. passim

Southwestern Tel. & Tel. Co. v. Danaher, 238 U.S.

a a aaa 7

Stack v. Boyle, 342 U.S. 1 (1951) )

St. Louis, 1.M. & S. Ry. v. Williams, 251 U.S. 68

SE Sich cele Sika ee renee eer 6, 8, 19

United States v. Busher, 817 F.2d 1409 (9th Cir.

1987 eee : iatemaiietineee tiles nce A RN 17, 19-20

United States v. Salerno, 481 U.S. 739 (1987) _...... 9

United States v. United Mine Workers, 330 U.S.

ARERR NOISE UOTE, scat 2 ie 3 OES A 9

United States v. United States Steel Corp., 251 U.S.

se ale ee See 20

Waters-Pierce Oil Co. v. Texas, 212 U.S. 86

RIT Ee nT ie staat ine ea adel 6, 7,8

Weems v. United States, 217 U.S. 349 (1910) _...... 11, 13

Constitution and Statutes:

United States Constitution

I A ee 7,8

A A RRC ER TS. SE a ee passion

TET RTT aE SS TS 15

Ala. Code:

EE eT ee a eae 22

Se eee 22

EE NT Ree A IN, CNL! 22

re me aa) 22

EERE ee Seo Senn 21

§ 1BA-B-12 (&) (1) one ceccceeeeeeeeeceeeee 21

EEE STE Sa ENR, a Ue 22

eee ae ee aE ee 22

EE Se ee ee ee ee 22

EET eee eae ee 22

— SEEINP Ir a See See 22

EE See One ae eS 21

vii

TABLE OF AUTHORITIES—Continued

RDG nnn.cceccccccc2oce--cosnccsccccncccessescnssenecesnonseres

I ances cece concnsvescnenscseecscecorenesenccconcsonesonsose

Miscellaneous :

ABA Special Comm. on Punitive Damages, PUNI-

TIVE DAMAGES: A CONSTRUCTIVE EXAMINATION

I: siveiatnsantensnitanciinsptensiitanmcctintiinttianpeensespazineaies

American Coilege of Trial Lawyers, REPORT ON

PUNITIVE DAMAGES (1989) ...........--.-...---------0-0-----+

J. Bentham, AN INTRODUCTION TO THE PRINCIPLES

OF MORALS AND LEGISLATION (1892 ed.) ..............

Cooter, Punitive Damages for Deterrence: Whe

19

19

14, 20

and How Much?, 40 ALA. L. REv. 1143 (1989) .... 20, 24

Dobbs, Ending Punishment in “Punitive” Dam-

ages: Deterrence-Measured Remedies, 40 ALA.

a cae ccatitncleeianeninen

Elliott, Why Punitive Damages Don’t Deter Corpo-

rate Misconduct Effectively, 40 ALA. L. REv. 1053

CEN eecctecestnsecintenstcqnetammnassnmnmmnmansanunrencsmanameees

Ellis, Fairness and Efficiency in the Law of Punt-

tive Damages, 56 S. CAL. L. REV. 1 (1982) .........

Ellis, Punitive Dam- es in Iowa Law: A Critical

Assessment, 66 IOWA L. REV. 1003 (1981) -.........

1 & 2 J. Ghiardi & J. Kircher, PUNITIVE DAMAGES

LAW AND PRACTICE (1985) .......... a i

H.L.A. Hart, PUNISHMENT AND RESPONSIBILITY

I i canciscstnictssdetsecinniimanevnimnninpitinasittemcuansces

P. Huber, LIABILITY: THE LEGAL REVOLUTION AND

ITs CONSEQUENCES (1988) ..................-.--------000-----

Huber, No-Fault Punishment, 40 ALA. L. REV. 1037

(a

viii

TABLE OF AUTHORITIES—Continued

Page

C. McCormick, HANDBOOK ON THE LAW OF DAM-

TET A ATR I ae aS 18

1 M. Minzer, et al., DAMAGES IN TorRT ACTIONS

RTI ‘Suiinianherneniadesitinttatenesenendaetstiditiiaias: yliki Nite 18

Morris, Punitive Damages in Tort Cases, 44 HARV.

L. REV. 1173 (1981) 000 18

Owen, Punitive Damages in Products Liability Liti-

gation, 74 MICH. L. REV. 1258 (1976) 20

K. Redden, PUNITIVE DAMAGES (1980 & 1987

CAL FINDINGS (1987) 000 4

K. Redden, PUNITIVE DAMAGES (1980 & 1987

SRR SEE s PEA Que oS ee oe 17

RESTATEMENT (SECOND) OF TorTS (1979)... 6, 16, 17

Wheeler, A Proposal for Further Common Law

Development of the Use of Punitive Damages

in Modern Product Liability Litigation, 40 ALA.

es Ce UP GED Gectecensttedn ee ee 20

Iu the Supreme Court of the Mnited States

OCTOBER TERM, 1989

No. 89-1279

PACIFIC MUTUAL LIFE INSURANCE COMPANY, PETITIONER

V.

CLEOPATRA HASLIP, ET AL., RESPONDENTS

On Writ of Certiorari to the

Supreme Court of Alabama

BRIEF FOR THE BUSINESS ROUNDTABLE AND THE

PRODUCT LIABILITY ADVISORY COUNCIL, INC.,

AS AMICI CURIAE SUPPORTING PETITIONER

INTEREST OF THE AMICI CURIAE

The Business Roundtable is an association of the chief

executive officers of approximately 200 of the largest

companies in the Nation. The Roundtable examines

public issues that affect the economy and develops posi-

tions that seek to reflect sound economic and social

policies. The Product Liability Advisory Council, Inc.,

is an association of major industrial companies formed

for the purpose of filing amicus curiae briefs in cases

involving significant issues affecting the law of product

liability. Amici have an interest in the resolution of th‘s

case because their members frequently are defendants

in actions in which punitive damages are sought. Amici’s

members thus face on a daily basis the threat of irra-

9

tional and excessive punitive damages awards that is an

omnipresent feature of the current punitive damages

systen.,.'

SUMMARY OF ARGUMENT

. It 1S well settled that the Due Process Clause prohibits

civil monetary penalties that are arbitrary and irrational.

The decisions of this Court establish that a civil penalty

violates due process if it is disproportionate to the ob-

Jectives sought to be achieved by the imposition of such

punishment. That analysis is fully applicable to punitive

damages awards: an award that is not rationally related

to the retributive and deterrent purposes of punitive

damages is unconstitutionally excessive,

Under the proportionality analysis of Solem v. Helm

163. U.S. 277 (1983), an award of punitive damages is

arbitrary and irrational if it (a) is disproportionate to

criminal and civil penalties established by the legislature

for similar conduct or (b) bears no reasonable relation-

ship to the nature and gravity of the defendant’s conduct

The legislative process is well suited for determining the

level of punishment that is appropriate in light of the

type of misconduct involved and the penalties provided

for other categories of wrongdoing: accordingly, the leg-

islature’s judgment provides a significant objective bench-

mark for judging the excessiveness of the punishment

meted out by a jury in the context of a punitive damages

award. In addition, punitive damages must be rationally

related to the nature of the defendant’s wrong, including

in particular the degree of the defendant's culpability and

‘to the extent not already accounted for in the compen-

satory damages award) the amount of the gain to the

defendant or loss to the plaintiff that resulted from the

misdeeds.

1 Letters from the parties consenting to the fling of this brief

have been filed with the Clerk of this Court.

3

Applying this standard here, it is clear that the

$1,000,000 punitive damages award is excessive and ir-

rational. The award is grossly disproportionate to legis-

latively prescribed penalties in Alabama and elsewhere

for even the most severe wrongdoing. Such penalties sel-

dom exceed the range of $10,000 to $100,000—a level of

punishment some 10 to 100 times lower than the punitive

damages award selected by the jury.

Likewise, the award bears no conceivable relationship

to the misconduct being punished. If Lemmie Ruffin,

the miscreant insurance agent, is viewed as the object of

the punishment, his actions, while intentional and serious,

caused only a small gain to himself and slight harm to

Mrs. Haslip ‘her actual damages were $4,000 and her

total compensatory damages were $40,000) in relation to

the enormous punitive award. If, on the other hand, Pa-

cific Mutual is being punished for corporate wrongdoing,

a large award is equally unjustified. Ruffin did not en-

gage in his misconduct pursuant to any company policy

(indeed, he violated company policy!, nor did he act with

the knowledge or approval of corporate management; his

actions were not in any way in furtherance of the com-

pany’s interest, since his defaleation benefited only him-

self and occurred at the expense of the company. Thus,

while we doubt that Pacific Mutual is properly subject

to punishment at all in these circumstances, it certainly

cannot be held liable for anything approaching $1,000,000

in punitive damages.

4

ARGUMENT

THE PUNITIVE DAMAGES AWARD IN THIS CASE

VIOLATES DUE PROCESS BECAUSE IT IS NOT

RATIONALLY RELATED TO THE PURPOSES OF

PUNISHMENT OR DETERRENCE

There can be no doubt that “{a] wards of punitive dam-

ages are skyrocketing.” Browning-Ferris Industries of

Vermont, Inc. v. Kelco Disposal, Inc., 109 8S. Ct. 2909,

2924 (1989) (O’Connor, J.. concurring and dissenting).

In the past, punitive damages were awarded in only a

small fraction of cases where the challenged conduct was

egregiously offensive; today, as this case illustrates, the

distinction between the culpability sufficient to support

liability for compensatory damages and the culpability

warranting punitive damages has all but collapsed. In

the past, punitive damages were awarded in modest

amounts; today, as this case illustrates, many awards

are breathtakingly large. In the past, punitive damages

awards generally bore a discernible relationship to the

offensiveness of the defendant’s behavior and roughly ac-

corded with fines applicable to analogous criminal con-

duct; today, as this case illustrates, punitive damages

often simply reflect sympathy for the plaintiff or the size

of the defendant's pocketbook. See, e.g., P. Huber, Lia-

BILITY: The LEGAL REVOLUTION AND ITs CONSEQUENCES

127 (1988); M. Peterson, et al.. PUNITIVE DAMAGES:

EMPIRICAL FINDINGS 65 (1987).

Petitioner Pacific Mutual Life Insurance Company has

presented a number of substantial] constitutional chal-

lenges to the million dollar punitive damages award in

this case. We fully agree with Pacific Mutual that due

process forbids the imposition of any punishment on ac-

count of its actions ‘see pages 23-25, infra) and that the

jury’s verdict was the product of a gravely flawed set of

procedures. However, assuming arguendo that some pun-

ishment of Pacific Mutual could be sustained following

the trial that was held and on the facts shown, we none-

5

theless believe that the amount of punitive damages

awarded by the jury deprives Pacific Mutual of its prop-

erty without due process because the punishment is

wholly disproportionate to the company’s wrongful con-

duct and does not rationally advance the purposes of

exacting punitive damages.

OCESS CLAUSE PROHIBITS DIs-

. palette AND IRRATIONAL AWARDS

OF PUNITIVE DAMAGES

A. A Punitive Damages Award That Is Arbitrary And

Irrational In Amount Deprives The Defendant Of

Property Without Due Process.

The Due Process Clause of the Fourteenth Amendment

“ ‘protect{s| * “ * against arbitrary action|s| of govern-

ment’ * * * regardless of the fairness of the procedures

used to implement them.” Daniels v. Williams, 474 U.S.

327, 381 (1986) (eitation omitted). See also, e.q¢., Las-

siter V. Department of Social Services, 452 U.S. 18, 24

(1981) ‘(due process “expresses the requirement of ‘fun-

damenta! fairness’’’). And, as the Court has repeatedly

held, the protections of the Due Process Clause extend to

“civil * * * defendants |seeking| to protect their prop-

erty.” Logan v. Zimmerman Brush Co., 455 U.S. 422,

429 (1982). It follows that a disproportionate award of

punitive damages-—one that bears no rational relation-

ship to the purposes for which the damages have been

exacted-—violates due process of law.

There can be no doubt that the imposition of punitive

damages constitutes a government-compelled deprivation

of property... Accordingly, the Due Process Clause re-

2A punitive damages award plainly is state action subject to the

Due Process Clause. It is embodied in the judgment of a stat

court-- which itself constitutes state action. and state law obligates

the defendant to pay the judgment. See Hustler Magazine, Ine. ¥.

Falwell, 485 U.S. 16 (1988); New York Times Co v. Sullivan, 376

U.S. 254, 265 (1964). See also North Georgia Finishing, Ine. V.

Di-Chem, Inc., 419 U.S. 601 (1975).

6

quires that the deprivation not be arbitrary or irr tional.

As this Court recently noted, punitive damages are in-

tended to “advance the interests of punishment and de-

terrence.” Browning-Ferris, 109 S. Ct. at 2920. See also

Smith v. Wade, 461 U.S. 30, 49, 54 (1983): International

Brotherhood of Electrical Workers v. Foust, 442 US.

42, 48 (1979) (citation and internal quotation marks

omitted) (“Punitive damages are not compensation for

injury. Instead, they are private fines levied by civil

juries to punish reprehensible conduct and to deter its

future occurrence’); RESTATEMENT (SECOND) OF TORTS

* 908 comment a (1979). Therefore, an award of puni-

tive damages satisfies due process only if it reasonably

serves to punish and deter. Any part of a punitive dam-

ages judgment that is larger than necessary to accomp-

lish those purposes has no legitimate justification and

amounts to nothing less than an arbitrary, irrational, and

fundamentally unfair transfer of the defendant's prop-

erty to the plaintiff.

In light of these principles, it is not surprising tha‘

this Court has long recognized that the Due Process

Clause prohibits excessive civi! monetary penalties in liti-

gation between private parties. In Waters-Pierce Oil Co.

Vv. Texas, 212 U.S. 86, 111 (1909), in considering a due

process chalienge to a state civil penalty, the Court stated

unequivocally that the Constitution would be violated by

“fines * * * [that] are so grossly excessive as to amount

to a deprivation of property without due process of law.”

Similarly, in St. Louis, 1L.M. & S. Ry. v. Williams, 251

U.S. 63 (1919), the Court recognized that the Due Proc-

ess Clause “places a limitation upon the power of the

States to prescribe [civil] penalties” that are “wholly

disproportioned to the offense and obviously unreason-

able.” 251 U.S. at 66-67; see also Missouri Pac. Ry. v.

Humes, 115 U.S. 512, 523 (1885) (reviewing constitu-

tionality of statutory double-damages penalty under the

Due Process Clause}.

The Court has applied these principles to invalidate dis-

proportionate civil penalties. For example, in Missouri

‘

Pac. Ry. Vv. Tucker, 230 U.S. 340 (1913), the Court

struck down a penalty of $500 for a $3.02 overcharge,

holding that the penalty was “grossly out of proportion

to the possible actual damages” and therefore in viola-

tion of due process. 230 U.S. at 351 (citing Waters-

Pierce: : see also Southwestern Tel. & Tel. Co. Vv. Dana-

her, 238 U.S. 482, 490-491 (1915) ‘invalidating penalty

on due process grounds}. The Court recently acknow!-

edged these precedents in the decision in Browning-

Ferris. 109 S. Ct. at 2921; see also id. at 2923 ( Bren-

nan, J., concurring) .'

Although the Court has not heretofore had occasion to

apply the Due Process Clause to a punitive damages

award, we can imagine no reasoned justification for

limiting the protection against excessive civil penalties

to penalties imposed pursuant to statute. The harm to a

defendant from an irrational government-imposed civil

penalty is no less simply because the penalty is imposed

pursuant to a common law rule. To the contrary, the

danger of arbitrary government action, and therefore

the need for constitutional proteciion, is far greater when

a jury is permitted to exercise essentially unbridled dis-

cretion in fixing the amount of the penalty. See Brown-

ing-Ferris, 109 S. Ct. at 2925 (Brennan, J., concurring) ;

see also pages 11-12, infra.

The conclusion that the Due Process Clause provides

protections in this context analogous to those afforded

by the Fxcessive Fines Clause with respect to criminal

fines is consistent with this Court's decisions in other

areas in which the Eighth Amendment does not apply

due to technical limitations on its scope. In City of Re-

vere V. Massachusetis General Hospital, 465 U.S. 239

(1983), for example, the Court held that, even though

the Eighth Amendment was inapplicable, the Due Proc-

ess Clause required that medical care be provided to a

3 Significantly, even the plaintiff in Browning-Fercis did not dis-

pute that the Due Process Clause imposes a substantive limit on

punitive damages awards. 88-556 Resp. Br. 7 29.

8

person injured while being arrested. “In fact,” the Court

stated, “the due process rights of a person in [that] situ-

ation are at least as great as the Eighth Amendment pro-

tections available to a convicted prisoner.” 463 U.S. at

244; see also Bell v. Wolfish, 441 U.S. 520, 535-536 &

n.16 (1979) (Due Process Clause protects pretrial de-

tainees, who are not entitled to Eighth Amendment pro-

tection because they have not been convicted).

The same approach is proper in the present context.

The Court's conclusion in Browning-Ferris that techni-

cal limitations on the Excessive Fines Clause place puni-

tive damages awards to private parties beyond thai

Clause’s reach does not justify exempting such awards

from all constitutional scrutiny. Indeed, it would be as-

tounding if the Due Process Clause offered no protection

against irrational government action that deprived a de-

fendant of an exorbitant sum of money simply because

the deprivation occurred in the context of private civil

litigation and was labeled “punitive damages.”

B. A Punitive Damages Award Is Arbitrary And Irra-

tional If It Is Disproportionate To The Objectives

Of Imposing Punishment.

As in other areas of substantive due process, the gov-

erning constitutional standard is one of rationality. This

Court's decisions establish that punishment violates the

Due Process Clause if it is “wholly disproportioned to

the offense and obviously unreasonable.” St. Louis, 1.M. &

S. Ry., 251 U.S. at 67. See also Chicago & N.W. Ry. vy.

Nye Sehocice Fowler Co., 260 U.S. 35, 44 (1922) ito

be valid, “penalties * * * must be moderate and reason-

ably sufficient to accomplish their legitimate object”;

those that ave “plainly arbitrary and oppressive” viola.c

the Due Pivcess Clause); Waters-Pierce, 212 U.S. at 111

(“grossly excessive” civil penalties violate due process).

Of cous. ‘he question whether a penalty is “unreason-

able” or ‘“‘disproportion|ate| to the offense” cannot be an-

swered in a vacuum or by a wholly subjective and stand-

ardless inquiry of the kind all too many courts currently

9

engage in when reviewing punitive damages awards. This

Court has firmly rejected such an ad hoe approach,

instead assessing the constitutionality of civil penalties

by evaluating whether they are no more than is ‘“reason-

ably sufficient to accomplish their legitimate object.”

Nye Schneider Fowler Co., 260 U.S. at 44. That is the

same approach the Court has utilized in other contexts

in which it must evaluate the proportionality and reason-

ableness of government action.

For example, in determining whether a criminal sen-

tence is disproportionate to a particular offense and thus

violates the Cruel and Unusual Punishments Clause, the

Court inquires whether the sentence is justified by refer-

ence to the purposes of criminal penalties—deterrence

and punishment. Enmund v. Florida, 458 U.S, 752, 500-

801 (1982). That analogy is particularly probative in

view of the fact that punitive damages have the same

deterrent and pena! purposes as criminal sanctions.

Similarly, bail is excessive within the meaning of the

Eighth Amendment if it is “set at a figure higher than

an umount reasonably calculated to fulfill thje] purpose”

of bail—ensuring the presence of the defendant. Stack

v. Boyle, 342 U.S. 1, 5 (1951). See also United States Vv.

Salerno, 481 U.S. 729, 754 (1987) ‘emphasis added)

(‘when the government has admitted that its only in-

terest is in preventing flight, bail must be set by a court

at a sum designed to ensure that goal, and no more”) ;

United States v. United Mine Workers, 330 U.S. 258,

304 (1947) (a court should calculate the appropriate

fine for civil contempt by looking to the purposes ‘or

which the fine is imposed}.

Here too, courts should judge the rationality of the

government action by reference to its purposes. So long

as an award of punitive damages is “no more’ than is

“reasonably calculated” to serve the purposes of deter-

rence and punishment, it will pass muster under the Due

Process Clause. If, on the other hand, the award ex-

ceeds any amount reasonably justified in light of these

10

purposes, it is a disproportionate and irrational sanction

that violates the Constitution.’ As we now discuss, this

Court's decision in Solem Vv. Helm, 463 U.S. 277 (1983),

provides the appropriate judicial standard for this

inquiry.

Il. AN AWARD OF PUNITIVE DAMAGES IS DISPRO-

PORTIONATE AND IRRATIONAL IF IT SUBSTAN-

TIALLY EXCEEDS ANALOGOUS STATUTORY

PENALTIES AND BEARS NO REASONABLE RE-

LATIONSHIP TO THE NATURE OR GRAVITY OF

THE DEFENDANT'S CONDUCT

The basic framework for analyzing the proportionality

of civil penalties was established in So/em v. Helm, which

involved the closely related question of how to determine

whether criminal penalties are disproportionate to the

defendant’s wrongdoing. First, the Court compared “the

gravity of the offense and the harshness of the penalty”

(463 U.S. at 290-291). Next, it assessed the reasonable-

ness of that reiationship by measuring it against the

sentences that could be imposed for other offenses in the

same jurisdiction and the sentences authorized for the

same offense in other jurisdictions. /d. at 291-292, 298-

300. These factors—modified so as to shift the focus to

4Some have suggested that the haphazard and unpredictable

character of today’s punitive damages awards is a virtue because

it prevents companies from treating misconduct simply as a cal-

culable cost of doing business. See Brief of Consumers Union of

the United States, «ft al., as Amici Curiae in Browning-Ferris, at 42-

51. Such irrationality is not only unacceptable as an instrument

of government but ineffectual to control misconduct. A predictable,

properly proportioned punishment is the most effective possible

deterrent, because the actor would know in advance that it would

lose, not gain, by engaging in the conduct in question. See Elliott

Why Punitive Damages Don’t Deter Corporate Misconduct Eifec-

tively, 40 ALA. L. REV. 1053 (1989). Moreover, the argument that a

system of punishment must be irrational and unpredictable in orde:

to be effective would apply equally to criminal sanctions, but this

Court made clear in Solem v. Helm, 4623 U.S. 277 (1983), that crim-

inal penalties must be proportional to the offense and rational in

light of the purposes for which the sanction is imposed.

11

punitive damages rather than criminal sentences--should

also guide the present inquiry. Browning-Ferris, 109

S Ct. at 2933-2934 (O’Connor, J., concurring and

dissenting ).°

In applying the Solem factors, however, it is impor-

tant to appreciate the critical distinction between a crim-

inal sentence imposed by a court pursuant to statutory

standards and a punitive damages verdict announced by

a jury in the exercise of virtually untrammeled discre-

tion. A jury s unguided award of punitive damages is

not entitled to judicial deference comparable to that

which is appropriate for punishments that fall within a

legislatively prescribed range.

A legislature’s decision to authorize the imposition of

a particular sanction for a particular type of miscon-

duct reflects a finding—either explicit or implicit—that

there is a reasonable relationship between the sanction

and the misconduct. In view of the legislature's superior

ability to gather relevant facts, ascertain and express

the values of the community, and establish a proportional

system of sanctions by considering each offense as part

of the broader universe of wrongful conduct and fixing

the proper relationship between various categories of of-

fenses, the legislature’s determinations of reasonableness

plainly should be accorded “substantial deference.” Solem,

463 U.S. at 290; see also Gore v. United States, 35% US.

223, 392 (1958) | the proper apportionment of punishment

is “peculiarly [al question|| of legislative policy”) ;

Weems v. United States, 217 U.S. 349, 378 (1910).

5 The evaluation of the rationality of a punitive damages award

should reflect as well the common-sense principle that “[t]he

yreater the sanction, the more confidence there should be that it is

justified.” AMPAT/Midwest, Inc. v. Illinois Tool Works Inc., 896

F.2d 1035, 1044 (7th Cir. 1990). A court should look more closely

at a punishment of, for example, $500,000 than at one of $5,000.

Large awards, such as those of $1 million or more, should receive

especially close scrutiny.

12

“Substantial deference’ is appropriate, though, only

when the legislature has in fact authorized the sanction

uncer review. As Justice Brennan observed in Brown-

ing-Ferris, “scrutiny of awards made without the bene-

fit of a legislature’s deliberation and guidance |{should]

be less indulgent than * * * consideration of those that

fall within statutory limits.” 109 S. Ct. at 2923 ‘con-

curring opinion!; see also id. at 2934 (O’Connor, J.,

concurring and dissenting) (substantial deference should

be accorded to legislative judgments |.

A jury hearing a single case differs from a legislature

in at least one especially relevant respect. The jury con-

siders its case in isolation and in retrospect. Unlike a

legislature, the jury lacks the information and expertise

needed to place the particular defendant's actions in the

context of the entire range of behavior that society deems

wrongful and has no knowledge of the scale of punish-

ments to which other wrongdoers are subjected. An

unguided jury is therefore much less likely than a legis-

lature to be able to devise a punishment that is appro-

priately proportioned to the relative wrongfulness of the

defendant’s conduct. According!y, in applying the Solem

standard to an award of punitive damages, courts should

give little deference to the jury’s determination of the

proper punishment but rather should closely scrutinize

the reasonableness of such an award in determining

whether it passes muster under the Due Process Clause.

Browning-Ferris, 109 S. Ct. at 2923 ‘Brennan, J., con-

curring!) (it is appropriate to “look longer and harder at

an awerd of punitive damages based on such skeletal

guidance than * * * at one situated within a range of

penalties as to which responsible officials had deliberated

und then agreed”’).

With this preface, we now briefly sketch the factors

that should be considered in determining whether a puni-

tive damages award is so disproportionate to the de-

fendant’s misconduct as to violate due process.

13

A. Punitive Damages Are Disproportionate If They

Substantially Exceed The Statutory Penalties Pre-

scribed By The Legislature.

As in most states today, a jury’s award of punitive

damages in Alabama is not consirained by any legisla-

tively determined ceiling. In this circumstance, the ex-

cessiveness inquiry should first compare the penalty

selected by the jury with the sanctions set forth in rele-

vant criminai and civil penalty statutes in order to de-

termine whether the award is in line with punishments

fixed by the legislature for similar conduct. See Solem,

463 U.S. at 291-292: see also Weems, 217 U.S. at 380-381.

For the reasons just discussed, the legislature’s judgment

in setting criminal fines and civil penalties—which, like

punitive damages, are designed to further the goals of

punishment and deterrence—furnishes a powerful objec-

tive standard for a court assessing the reasonableness of

a punitive damages award.

If the jury’s punishment significantly exceeds the

penalty range established by the legislature in analogous

areas, that is a telling sign that the award is dispropor-

tionate. Indeed, in some cases that comparison may be

sufficient in itself to demonstrate the existence of a con-

stitutional violation. For example, if a corporation found

guilty of fraudulent trade practices could be fined a max-

imum of $50,000, it would be difficult to justify uphold-

ing a jury verdict of $5,000,000 to punish and deter the

identical conduct. Where such a comparison does not

® Another telltale indication of excessiveness would arise if the

verdict under examination were ubstantially out of line with other

awards of punitive damages. Browning-Ferris, 109 8. Ct. at 2934

(O’Connor, J., concurring and dissenting) ; Solem, 463 U.S. at 291-

292, 298-300. The converse, however, is certainly not true, for the

existence of other large punitive verdicts likely reflects nothing

more than the predictable results of having punitive damages set by

juries exercising unguided and unconstrained discretion. In par-

ticular, justifying an award in terms of its relation to only a few

of the highest previous awards will lead to an inexorable upward

spiral, as more and more large awards are justified by reference

14

conclusively establish the excessiveness of a sanction, a

court should turn to an examination of the proportional-

ity of the penalty to the gravity of the particular con-

duct being punished.

B. Punitive Damages Are Disproportionate If They Do

Not Bear A Reasonable Relationship To The Mis-

conduct For Which Punishment Is Being Imposed.

Another important factor under Solem is “the gravity

of the offense” for which punishment is being imposed.

463 U.S. at 290-291. From the standpoint of both just

retribution and deterrence, a greater wrong should be

punished more severely than a lesser wrong. H.L.A.

Hart, PUNISHMENT AND RESPONSIBILITY 9, 25 (1963) ;

J. Bentham, AN INTRODUCTION TO THE PRINCIPLES OF

MorALS AND LEGISLATION 179-182 (1892 ed.)}. This is

no less true for punitive civil damages than for criminal

fines.

Solem set forth a number of criteria by which the na-

ture of an offense may be measured. See 463 U.S. at

292-294. This Court’s due precess decisions also provide

guidance. See pages 8-9, supra. In addition, the common

law standards developed in the context of excessiveness

challenges to punitive damages awards look to several

considerations that may be relevant in determining the

evavily of particular conduct. Drawing upon these

sources, a punitive damages award can be-said to be

cisproportionate to the conduct for which punishment is

being imposed when it lacks any reasonable relation to

che character of the defendant’s misdeeds, to the injury

caused by the defendant’s actions, or to the actual or

potentia! gain to the defendant.

hiv i» not to say that each of these considerations

will be applicable or of equal weight in every instance;

their significance will depend upon the particulars of

the given case. Where, however, a punitive damages

to prior large awards, and in turn validate still higher awards in

the future

15

award appears disproportionate in relation to any of

these benchmarks, that is a strong signal that the award

does not rationally advance the objectives of imposing

punishment and thus is constitutionally infirm.

Furthermore, where the defendant is a corporation.

labor union, religious body or other organization whose

members or owners consist principally or entirely of

persons wholly innocent of the alleged wrongdoing, the

courts should be especially sensitive to the potential un-

fairness of imposing an excessively large punishment

upon blameless individuals. Here, for instance, Pacific

Mutual is owned by its policyholders, who, of course, had

no part in the wrongdoing but will be forced to bear the

full brunt of any punishment.’

1. Character of the defendant’s conduct

In analyzing the character of the defendant’s conduct.

a reviewing court should first and foremost consider the

relative seriousness of the wrongdoing for which the

punishment is being imposed. See Rowlett v. Anheuser-

Busch, Inc., 832 F.2d 194, 207 ‘ist Cir. 1987) (quoting

‘In holding that municipalities are not subject to punitive dam-

ages in actions ander 42 U.S.C. $ 1983, this Court observed that

“[rjegarding retribution, * * * an award of punitive damages

against a municipality ‘punishes’ only the taxpayers, who took no

part in the commission of the tort. * * * Neither reason nor justice

suggests that such retribution should be visited upon the shoulders

of blameless or unknowing taxpayers.” City of Newport v. Fact

Concerts, Inc., 453 U.S. 247, 267 (1981). “Under ordinary principles

of retribution,” the Court continued, speaking to a point quite

material to this case,

it is the wrongdoer himself who is made to suffer for his un-

lawful conduct. If a government official acts knowingly and

maliciously to deprive others of their civil rights, he may be-

come the appropriate object of the community’s vindictive

sentiments. A municipality, however, can have no malice in-

dependent of the malice of its officials. Damages awarded for

punitive purposes, therefore, are not sensibly assessed against

the governmental entity itself.

453 U.S. at 267 (citations omitted; emphasis in original).

16H

PESTATEMENT (SECOND) OF ToRTS § 908(2)) (the

award “must bear some relation to the ‘character of the

defendant's act’). There are several commonly accepted

yardsticks against which the nature of the defendant's

wrongful conduct may be measured. For example, as the

Court observed in Solem, “nonviolent crimes are less

serious than crimes marked by violence or the threat of

violence” (463 U.S. at 292-293).

In judging the gravity of the misconduct, the degree of

he defendant's culpability is also of central importance.

sce Solem, 463 U.S. at 293-294. A defendant would be

highly culpable where, for instance, it violated a fiduci-

ary duty to the plaintiff or otherwise abused a position

of trust. Similarly, if a defendant acted with what is

commonly called “actual malice’—i.e., with the specilic

intent or purpose io injure the plaintiff or others—it

would have behaved in a highly culpable manner that

would support a relatively higher level of punishment.

if. on the other hand, a defendant lacked any intent to

cause harm but acted in a manner that was later found

to have been “reckless” or in “disregard” of the plain-

tiff’s rights, only a lower level of punishment could be

justified (assuming that punitive damages would be ap-

propriate at all). While a state may have the constitu-

‘ional authority to subject reckless or even “grossly”

negligent conduct to punishment in the form of punitive

damages, principles of fundamental fairness require that

the anount of punishment in such a case be commen-

surate with the lesser degree of culpability.”

* Punitive damayes are not available unless a defendant is shown

to have acted wrongfully. See yvencrally RESTATEMENT (SECOND

oF TorTS § 908(1); 1 J. Ghiardi & J. Kircher, PUNITIVE DAMAGES

LAW AND PRACTICE $5.01 (1985). Thus, proof of the requisite

wrongdoing simply establishes that the conduct merits punishment

and does not speak to the appropriate size of the punishment, The

record would have to show something more, such as a specific intent

to enuse injury or an extraordinary level of wantonness, In corde:

to justify an especially large verdict

17

In addition, where the defendant is a corporation or

other erganization, its level or extent of culpability de-

pends upon the nature of the organization’s complicity

in the wrongful conduct. If the conduct was undertaken

pursuant to corporate policy or was approved by high-

ranking officers, a relatively greater sanction would be

permissible, both because the corporation could in such

a case fairly be said to be more “culpable” and because

higher-level corporate actors have the capacity to commit

greater wrongs in the name of the corporation. If, on

the other hand, the misconduct was the isolated act of

one or two low-level employees, the organization’s culpa-

bility would be less, and only a relatively smaller sanc-

tion would be reasonable.

2. Injury caused by the misconduct

Another red flag irdicating excessiveness is the pres-

ence of a gross disproportion between the punitive dam-

ages award and the injury inflicted by the defendant’s

conduct. Solem, 463 U.S. at 292-293. See also Life &

Casualty Ins. Co. v. McCray, 291 U.S. 566, 573 (1934)

‘sustaining penalty for wrongfully withholding payment

because the penalty amount bore a “reasonable propor-

tion to the possible actual damages”); United States v.

Busher, 817 F.2d 1409, 1415 (9th Cir. 1987). Other

things being equal, “jt|he absolute magnitude cf the

iharm involved] may be relevant” (Solem, 463 U.S. at

9931."

It by no means follows, however, that proportionality

in this factor establishes that a punishment is not exces-

* The extent of the injury inflicted generally is reflected by the

amount of compensatory damages. For that reason, common law

excessiveness standards identify the amount of compensatory dam-

ages as a relevant factor in assessing the propriety of a punitive

damages award. See, ¢.¢.. Rowlett v. Anheuser-Busch, Ince.. ®32

F.2d at 207 (quoting RESTATEMENT (SECOND) OF TORTS § 908(2)

“the award * * * must bear some relation to * * * ‘the nature and

extent of the harm to the plaintiff that the defendant caused’ ”

see generally K. Redden, PUNITIVE DAMAGES $3.5 A) (1980, & 1987

Supp

18

sive, especially when the harm to the plaintiff was unin-

tended by the defendant. The primary reason why harm

is deemed relevant to the level of punishment of crimes

is that society wishes to ensure greater deterrence of

more socially injurious acts than of less dangerous ones.

But in the context of civil tort actions, that objective is

already attained by the fact that the defendant’s duty to

make compensation will itself vary directly with the ex-

tent of the harm caused by his wrongful acts.

Thus, in many circumstances, compensaiory damages

awards themselves can fully satisfy the goals of punish-

ment and deterrence. See Memphis Community School

Dist. v. Stachura, 477 U.S. 299, 312-313 (1986); Smith

vy. Wade, 461 U.S. at 94 (O’Connor, J., dissenting! ; El-

lis, Punitive Damages in Iowa Law: A Critical Assess-

ment, 66 Iowa L. REV. 1003, 1660 (1981); Morris, Puni-

tive Damages in Tort Cases, 44 Harv. L. Rev. 1173, 1182

(1931). Particularly where the compensatory award is

sizeable, this element is likely to obviate the need for

punitive damages altogether or at least to reduce the

amount of such damages that are reasonably necessary

to punish and deter."

19 This is especially true where recovery for intangible harm

such as mental anguish or pain and suffering is a substantial com.

ponent of the compensatory award. Such damages often are so

large—and so far in excess of the defendant’s gain--that they fully

‘atisfy the purposes of punishment. It is well recognized that dam-

ages for pain and suffering —which “frequently constitute| | the

largest portion of awards"—-are inherently “indeterminate” and

thus are “left (o the discretion of the trier of fact’: because the

measurement of such damages is “essentially subjective” and “elu-

sive,’ awards for pain and suffering are “open-ended to the point

of inviting abuse” and are determined in the “virtually untrammeled

discretion” of the jury. 1 M. Minzer, ef al., DAMAGES IN TORT

ACTIONS 4-6, 4-10, 4-198, 4-205, 4-209 (1989). See also, e.g. ©

McCormick. HANDBOOK ON THE LAW OF DAMAGES 318-319 (1955

(damages for pain and suffering represent “an arbitrary allowance”

Coy which the jury givens ‘ne standard te go by: the principal

restraint on such awards is simply the “common sense of the jury”)

19

Accordingly, the size of the compensatory damages

award, while not irrelevant, is but one factor for a court

to consider in determining whether the amount of puni-

tive damages is so large as to offend the Due Process

Clause. Although some commentators have proposed that

punitive damages be considered presumptively excessive

if greater than a prescribed multiple (typically three)

of the amount of compensatory damages,'' a punitive

damages award should neither be conclusively unconsti-

tutional simply because it is more than three times the

compensatory award"? nor conclusively constitutional be-

cause it is less than a trebled compensatory award. In

the absence of legislative: reform, arbitrariness and irra-

tionality can be rooted out of the present punitive dam-

ages system only if this Court establishes a due process

standard that esenews fixed formulas and instead re-

quires a case-specific analysis of the rationality of the

jury’s verdict.

3. Actual or potential gain to the defendant

Much like the harm to the plaintiff, the punishment

inflicted by a punitive damages verdict may be so far

out of line with the amount that the defendant gained

or reasonably could have expected to gain from its mis-

conduct as to suggest irrationality. See Busher, 817 F.2d

11 See, e.g., American College of Trial Lawyers, REPORT ON PUNI-

TIVE DAMAGES 15 (1989); ABA Special Comm, on Punitive Dam-

ages, PUNITIVE DAMAGES: A CONSTRUCTIVE EXAMINATION 6-10 to

6-12 (1986).

12 Where the injury caused is slight or only nominal, basing the

penalty on the amount of compensatory damages may be inadequate

to provide appropriate punishment and deterrence. This Court

recognized as much in St. Louis, 1.M. & S. Ry. v. Williams, supra.

There the penalty imposed pursuant to statute ($75 for a $.66 over-

charge) was held not to be excessive because no individual pas-

senger would have an incentive to sue for such nominal actual

damages (this was before the advent of class actions) and because

the railroad could wrongfully obtain substantial profit from “the

numberless onnortunities for committing the offense” (251 US. at

67). See also Seahoard Air Line Ru. Vv. Seegers, 207 US. 7, 78

WHT

20

at 1415: Hawkins v. Allstate Insurance Co., 732 P.2d

1073, 1080-1081 (‘Ariz.), cert. denied, 484 U.S. 874

(1987): Dobbs, Ending Punishment in “Punitive” Dam-

ages: Deterrence-Measured Remedies, 40 ALA. L. REV.

831, 874-875 (1989): Owen, Punitive Damages in Prod-

ucts Liability Litigation, 74 MicH. L. Rev. 1258, 1319

(1976). In such an instance, it would be exceedingly dif-

ficult to justify the amount of punitive damages as

necessary or appropriate to achieve adequate punishment.

Bentham, at 179-181; Cooter, Punitive Damages for De-

terrence: When and How Much?, 40 ALA. L. Rev. 1143,

1179 & n.69 (1989)."*

Ill. THE PUNITIVE DAMAGES AWARD IN THIS CASE

IS PLAINLY EXCESSIVE

Application of the Solem framework to this case makes

it evident that the punitive verdict is grossly excessive

13 Evidence of Pacific Mutual’s “wealth” was not submitted to

the jury or relied upon by the Alabama courts to justify its punish-

ment and therefore does not appear to be an element of this case.

In general, the role of wealth in the excessiveness inquiry must be

‘imited if punitive damages awards are to be kept within reasonable

bounds. Punitive damages are awarded to deter and punish par-

ticular misecnduct, and the Constitution therefore dictates that the

defendant’s conduct be central to the selection of punishment. To

allow conduct-based limitations to be overridden by consideration

of the defendant’s finances would be irrational. The penalty would

not “fit the crime,” but instead would punish a large entity simply

for its status, even though such status in itself is not wrongful.

United States v. United States Steel Corp., 251 U.S. 417, 451

(1920); Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 265,

273-274 (2d Cir. 1979), cert. denied, 444 U.S. 1093 (1980); ef.

Robinson v. California, 370 U.S. 660 (1962). For these reasons,

and because in the case of organizations charged with economic

wrongdoing size has little rational nexus to effective deterrence,

the great weight of scholarly commentary opposes giving size or

wealth a major role in determining the size of punishment. See.

+.4., Cooter, 40 ALA. L. REv. at 1176-1177; Wheeler, A Proposal foi

Further Common Law Development of the Use of Punitive Damages

in Modern Product Liability Litigation, 40 ALA. L. Rev. 919, 950-952

(1989): Ellis, Fairness and Efficiency in the Law of Punitive Dam-

aaes, 56S. CAL. L. REV. 1, 61-63 (1982).

21

and cannot be justified as a rational means of deterring

or punishing the wrongful conduct found to have oc-

curred.

To begin with, the jury’s determination of the size of

the punishment is not entitled to any appreciable defer-

ence. The amount of the verdict was not chosen by the

jury from a legislatively established spectrum of permis-

sible penalties for the kind of wrong Pacific Mutual was

found to have committed. Rather, the jury was told no

more than that “in fixing the amount [of punitive dam-

ages|, you must take into consideration the character and

degree of the wrong as shown by the evidence and the

necessity of preventing similar wrongs.” RT 897-898.

Because the punitive damages award thus represents the

view of only a single jury, with no experience of any

kind in selecting punishments, and exercising unlimited

and basically unguided discretion regarding the appropri-

ate sanction, deferential review is not appropriate. See

pages 11-12, supra,

A. The Award Is Grossly Disproportionate To Statu-

tory Penalties In Alabama And Other Jurisdictions.

As noted above, the first step in assessing the ration-

ality of a punitive damages award is to compare the

amount of the award with criminal fines and civil pen-

alties. Those legislatively established sanctions are fixed

with reference to the same goals of deterrence and pun-

ishment that underlie punitive damages and _ therefore

provide an objective standard for the proportionality

review.

We have canvassed all the criminal fines and civil

penalties prescribed by the Alabama legislature. None

comes close to the penalty imposed by the jury in this

case. Of greatest significance, the statutory penalties

most directly applicable to Ruffin’s conduct—embezzle-

ment, theft, larceny, and willful violations of the State

insurance code—are limited to $10,000. See Ala. Code

S$ 18A-5-11, 138A-5-12(ai 11), 27-1-12, 27-12-17, 27-12-23.

22

The amounts of Alabama’s other monetary punishments

range from $10 for relatively minor conduct '* to $50,000

for more serious wrongs.’* The $1 million penalty in

this ease is far outside that range.

It is especially noteworthy that, in fixing this range of

penalties, the Alabama legislature has distinguished for

purposes of punishment between individuals and organi-

zations such as corporations, which cannot be imprisoned

but can only be fined. Thus, in a variety of circumstances

—including insurance offenses—Alabama’s penal code

provides more severe fines for corporations, typically pre-

scribing a multiple of the maximum fine for individuals."”

But even after taking these differences into account, the

fine levels are far below the punishment imposed by the

jury here.

The verdict is equally excessive when viewed against

the statutory penalties for similar misconduct in other

jurisdictions. For example, the highest penalties auth-

orized by other states for willful violations of insurance

regulations, embezzlement, larceny, and theft generally

14 E.g., Ala. Code § 6-6-9 ($10; failure of summoned witness to

attend an arbitration without a sufficient excuse); Ala. Code § 13A-

12-3 ($10-$50; selling cigarettes to minors); Ala. Code § 14-6-21

($10-$100; person having custody of a jail allowing the jail to be-

come “foul or unclean”); Ala. Code § 22-9-78 ($5-$25; midwife’s

failure to report a death); Ala. Code § 34-23-52 ($10; late pay-

ment of pharmacists’ license fee).

15 E.g., Ala. Code § 8-19-11 (up to $25,000; violation of a deceptive

trade practice order) ; Ala. Code § 22-22A-5 ($100-$25,000 ; violation

of environmental regulations) ; Ala. Code § 22-30-19 ($50,000; vio-

lation of hazardous waste regulations ) ; see also Ala. Code § 5-5A-10

($1,000-$10,000 per day; engaging in banking without a permit) ;

Ala. Code § 5-20-7 (up to $10,000 per day; failure of credit card

company to comply with cease and desist order).

16 Ala. Code § 27-29-10 (insurer subject to a fine of up to $10,000

for violation; individual subject to a fine of up to $1,000 for same

conduct); Ala. Code § 34-7-25 (corporation subject to a $500 fine

for practicing cosmetology without a license; individual subject to

a $100 fine).

25

range from $10,000 to $100,000, with some states pro-

viding an alternative fine of two or three times the de-

fendant’s gain.'’ The verdict is thus grossly in excess of

the punishment level that legislatures have deemed ap-

propriate for misconduct of the type present in this case.

Accordingly, this factor alone establishes the impropriety

of the jury’s award.'*

At a minimum, the disparity suggests that the punitive

damages award is presumptively excessive. That conclu-

sion is confirmed by an examination of the relationship

between that penalty and the wrongful conduct.

B. The $1,0€0,000 Penalty Bears No Reasonable Rela-

tionship To The Gravity Of The Conduct Being

Punished.

As a preliminary matter, any assessment of the ration-

ality of the punishment in this case requires a careful

and precise identification of the conduct being punished

and of the rationale for imposing punishment on Pacific

Mutual. A proper analysis of that question reveals that

there is no acceptable basis for punishing Pacific Mutual:

even if there were, any imaginable rationale for doing so

cannot support the massive punishment imposed.

1. The Alabama courts did not identify the basis on

which the jury was permitted to punish Pacific Mutual.

17QOnly Arizona authorizes higher sanctions—fines of up to

$150,000 for individuals (see Ariz. Rev. Stat. § 13-801) and $1 mil-

lion for corporations (see Ariz. Rev. Stat. § 13-803). However,

these maxima, which are fixed by general sentencing provisions

applicable to a wide variety of offenses, reflect the legislature’s

judgment regarding the appropriate sanction for the most severe

felonies. They therefore provide no basis for upholding the punish-

ment in this case, which surely did not involve misconduct at the

upper limits of wrongfulness.

18 No different conclusion is supported by examination of other

punitive damages awards in Alabama, which, as petitioner has

demonstrated (see Pet. Reply Br. App. E1-E10), range over a large

seale. For the reasons we already have discussed (see note 6, supra),

such awards do not establish a rational yardstick against which to

measure the punishment in this case.

24

In fact. the Alabama Supreme Court, having once con-

cluded that the sale of health insurance policies to plain-

tiffs was done within the scope of Lemmie Ruffin’s ap-

parent authority (see Pet. App. B7-B10), never separate-

ly addressed whether this asserted basis for civil compen-

satory liability sufficed for the quite distinet task of de-

termining susceptibility to punishment. In fact, the two

questions are worlds apart. When the faithless Ruffin,

acting as an intermediary between Pacific Mutual and

Union Fidelity on the one hand and plaintiffs on the

other, purloined the insurance premiums, someone would

have to bear the resulting loss. The principles invoked by

the court below may serve to explain why, as between

two innocent parties, that loss should be borne by Pacific

Mutual as Ruffin’s employer. But it is surely a far dif-

ferent question whether an innocent party may properly

be punished. ‘ine Alabama Supreme Court simply as-

sumed an affirmative answer to that question by conflat-

ing the conceptually distinct punitive and compensatory

inquiries and conducting only the latter. See 1 & 2 J.

Ghiardi & J. Kircher, PUNITIVE DAMAGES LAW AND PRAC-

TICE $$ 2.04, 24.07 (1985); Cooter, 40 ALA. L. Rev. at

1181-1182: see also Huber, No-Fault Punishment, 40

ALA. L. REV. 1037, 1044 (1989) (“a sweeping new no-

tion of vicarious punishment [has developed, for a]s rec-

ently as 1967, the general rule was that an employer

would not face punitive damages for the unsanctioned

misconduct of an employee’’).

The analysis of the issue of punishability has been fur-

ther confused by the failure to distinguish between the

acts that were taken by Ruffin in furtherance of his

agency relationship with Union Fidelity and Pacific Mu-

tual (the sale of insurance policies and receipt of the

premiums) and the wrongful acts for which punishment

could constitutionally be imposed (the theft of the prem-

ium payments). The sale of the policies was within the

scope of Ruffin’s employment, but not punishavle because

not wrongful. The theft of the premiums, on the other

hand, while certainly wrongful and punishable, cannot

25

rationally be said to have been in the course of or within

the scope of Ruffin’s employment with Union Fidelity and

Pacific Mutual; rather, his self-ernrichment by diverting

to personal use funds paid to his employer was surely a

frolic and detour of his own."’

Properly understood, therefore, Pacific Mutual has been

punished for being the victim of wrongful acts. (It was

a victim because Ruffin’s theft exposed it to liability

under the policies while depriving it of the premium pay-

ments that would cover the insurance risk.) We cannot

believe that the Constitution permits the punishment of

defendants because of crimes directed at least in part

against them, and from which they derive no benefit.

2. Assuming for present purposes that we are wrong

about the constitutional limits on the State’s power to

inflict punishment in a case such as this, it remains nec-

essary in considering the rationality of the punishment

to identify the actor and the conduct that properly are

the focus of the proportionality analysis. Pacific Mutual’s

punishment could not have been and was not imposed

here on the basis of any direct role by the company in

the wrongdoing, because the company had none: Ruffin

did not act pursuant to some company-wide policy, or

with the consent of management, or even in furtherance

of any interest of the company.”’

19 This case is thus different, for purposes of vicarious liability,

from one in which an insurance ager.t commits fraud in the course

of selling a policy. In the latter situation, even though the fraud

may not have been authorized and may have violated his employer's

policies, there is at least a sense in which the agent can be said

to be acting as the corporation in committing the wrongful acts.

For reasons that space does not permit us to explore here, we do

not believe that punishment of the corporation is constitutionally

permissible solely on the basis of vicarious liability even in such

circumstances. But that is a question the Court need not address

in this case, because Ruffin’s wrongful acts cannot in any sense

rationally be said to have been the imputable acts of his employer.

20 Respondents argued in their brief in opposition (at 4) that

“Pacific Mutual’s corporate responsibility was premised on corporat:

malfeasance” (emphasis in original), because the Birmingham office

26

This leads to two possible ways of looking at the case.

Under one view, the company’s vicarious liability for

punishment forces it to stand in Ruffin’s shoes and ac-

cept any punishment that could rationally have been im-

posed on Ruffin for his individual wrongdoing. Under

another, Pacific Mutual is being punished for “corporate

wrongdoing” occurring at the sales agent level. From

either perspective, however, the punishment of approxi-

mately $1,000,000 cannot be justified in the circumstances

of this case.*'

Viewing Ruffin as the subject of punishment, we readily

acknowledge that the misconduct (embezzlement of the in-

surance premiums), though not violent, is of some grav-

ity. But the loss inflicted on respondent Haslip—$4,000

in out-of-pocket expenses and some amount, perhaps ap-

proaching $40,000, for nonmonetary injuries **—is slight

manager allegedly had notice of Ruffin’s wrongful conduct. But if

the office manager countenanced Ruffin’s fraud, he was certainly

not acting on behalf of or in the interests of the company. See Pet.

Reply Br. 3-4. And, to the extent Pacific Mutual had notice of

Ruffin’s acts (but see id. at 1-4), that evidence is not relevant.

The jury was not asked to punish Pacific Mutual for failing to

supervise Ruffin (an act that would, at most, amount to ordinary

negligence and therefore provide no basis for imposition of punitive

damages). Rather, the punishment plainly was inflicted for Ruffin’s

diversion of the premium payments.

21 The judgment in this case does not specify the portion of re-

spondents’ recovery that constitutes punishment rather than com-

pensation. See Pet. App. B3. Nevertheless, as petitioner has dis-

cussed (Pet. Reply Br. 5-6 & n.3), the record makes clear that

the great bulk of the $1,040,000 awarded to respondent Haslip must

have been intended as punitive damages. Indeed, respondents them-

selves repeatedly characterized the punitive award in the court

below as greater than $1,000,000 Ala. Sup. Ct. Br. 58, 62. Because

the Alabama courts did not clarify the precise amount of the punish-

ment and upheld a punitive damages award that may be (and in

fact appears to be) some $1,000,000, analysis of the constitutional

issues in this Court should proceed on the premise that such dam

ages constitute the overw heiming share of the jury's verdict

22 If, as respondents have stated (see note 21, svpra), appres

mately $1 million of the award is punitive, the remainder of the

award—$40,000—must be compensatory.

27

in relation to the size of the punitive award and cannot

rationally explain it. So too for Ruffin’s gain, which was

but a tiny fraction of the punishment exacted.

. No different conclusion can be reached when consider-

ing the purposes of punishment. From the standpoint of

Just retribution, the penalty is wildly disproportionate.

The same is true for the goal of rational deterrence. A

fine of $1,000,000 far exceeds any amount that could

possibly be necessary and appropriate to deter Ruffin and

others like him from similar wrongdoing in the future.

Indeed, because the penalty is to be exacted from Pacific

Mutual, with which Ruffin could have no hope of a con-

tinuing relationship, the size of the penalty is bound to he

entirely immaterial to Ruffin and therefore entirely in-

capable of achieving deterrence. In sum, if Pacifie Mu-

tual is being made to stand in the shoes of Lemmie Ruf-

fin for purposes of punishment, the verdict is egregiously

excessive.

Precisely the same conclusion follows if the punishment

is viewed as being inflicted for corporate wrongdoing. In

contrast to Ruffin himself, the character of the company’s

conduct involves no conscious or deliberate wrongdoing

of any kind. And the punitive award remains just as

disproportionate to respondents’ loss when viewed from

(his perspective. Moreover, the element of gain to the

“offender” vanishes entirely. Even if the company could

have avoided any liability to respondents, the diversion

of the insurance premiums from Union Fidelity and

Pacific Mutual to Ruffin would have gained it not one

cent; as matters eventuated, Pacific Mutual was ‘quite

apart from punishment) left with the responsibility of

providing health insurance but without the benefit of the

corresponding premium income.

Nor, for a variety of reasons, does a deterrence ra-

tionale better support a large award against Pacific Mu-

tual than it would against Ruffin himself. First, although

the company itself is a large entity, the responsibility

28

for any misconduct is limited to the lowest level of the

company. It would plainly be irrational to treat fraud

or theft by R=ffin as equivalent to similar conduct under-

taken or authorized at higher levels of the company:

tuffin simply lacked the capacity to engage in corporate

wrongdoing of the same scope as those with greater

authority. By the same token, the company is bound to

be less resistant to disciplining an employee such as

tuffin than a high-ranking officer and therefore will be

deterred by a far lower penalty from countenancing mis-

conduct by one at Ruffin’s level in the corporate hierarchy.

l’urthermore, because the scheme for which Pacific Mu-

tuai is being held responsible was bound to be discovered

when one of the respondents incurred medical expenses

and could result only in losses to the company, a purely

nominal fine will satisfy fully any need to deter future

“misconduct” of this sort.

Because anything beyond a relatively modest monetary

sanction far exceeds what is justifiable to punish and

deter the type of conduct in question here, the award

against Pacific Mutual is constitutionally excessive and

must be set aside.

C. Alabama’s Post-Verdict Review Procedures Do Not

Eliminate The Unconstitutionality Of The Punitive

Award In This Case.

Respondents contend ‘Br. in Opp. 14-16) that the

state-law review of the size of the punitive damages

award conducted by the courts below assured satisfac-

tion of any proportionality inquiry mandated by the Due

Process Clause. That is simply incorrect. The Alabama

courts did not even purport to conduct the kind of pro-

portionality review required by the Due Process Clause.

The trial court made only the conclusory finding that the

award was “not excessive as a matter of law.” even

“-Of course, even if they had, an erroneous conclusion that th:

sanction was not arbitrary would net insulate the award from

review by this Court

29

though it was “for a great amount of monev" and the

court “would in all likelihood have rendered wu lessje

amount.” Pet. App. Al5. And the Alabama Supreme

Court observed merely that “jury verdicts are presume?)

correct, and that presumption is strengthened when 1

presiding judge refuses to grant a new trial.” /v/. at

B13. Such perfunctory review in the course of uphold-

ing the punishment under state law does not preciuce

scrutiny of the jury’s exorbitant award under the fede ral

Constitution.

CONCLUSION

The judgment of the Alabama Supreme Court should

be reversed.

Respectfully submitted.

ANDREW L. FREY

Counsel of Record

KENNETH S. GELLER

MARK I. LEvy

ANDREW J. PINCUS

Mayer, Brown & Platt

200 Pennsylvania Ave... NAW.

Washington, D.C. 20006

(202) 778-0602

Counsel For Amici Curiae

JUNE 1990