Supreme Court to revisit punitive damages issue.

For the fourth time in five years, the justices of the U.S. Supreme Court will examine the constitutionality of punitive damages awards.

In January, the Court agreed to hear oral arguments in a consumer case in which a jury awarded the plaintiff punitive damages that were 1,000 times the amount of the compensatory damage award. (BMW of North America, Inc. v. Gore, 63 U.S.L.W 3562 (Jan. 23,1995) (No. 94-896).)

The case arose out of the sale of a $40,000 BMW car to Ira Gore. Shortly after buying the car, Gore discovered its surface had been repainted, presumably to repair acid rain damage. He sued BMW for failing to tell him that the car had been repainted, and the jury awarded $4,000 - the car's decreased value.

The jury also awarded $4 million in punitive damages after Gore's attorney told them they should multiply the compensatory award by the approximate number of cars - 1,000 - BMW had refinished and sold as new in the United States during the previous 10 years.

On appeal, the Supreme Court of Alabama reduced the punitive damages award to $2 million. The court found the jury had improperly based the award on BMW's conduct in other states. Applying a seven-step review process that included comparing the award to others in similar Alabama cases, the court concluded that a $2 million award was "constitutionally reasonable."

When the U.S. Supreme Court hears the case, the justices are likely to experience a sense of deja vu. Four years ago, the Court upheld another Alabama punitive damages award against a due process challenge. (Pacific Mutual Life Insurance Co. P. Haslip, 499 U.S. 1 (1991).) In that case, the Court found that the Alabama court system - which includes jury instructions about punitive damages and both trial and appellate court review - was sufficient to safeguard a defendant's due process rights. The Court also declined to draw a "mathematical bright line" for determining whether a punitive damages award is excessive.

Just two years ago, the Court upheld a $10 million punitive damages award that was over 500 times the amount of compensatory damages awarded in a West Virginia case. (TXO Production Corp. v. Alliance Resources Corp., 113 S. Ct. 2711 (1993).) The Court said a punitive damages award that is disproportionately greater than a compensatory award does not necessarily violate a defendant's due process rights.

Despite these rulings, BMW argued in its petition for certiorari that "the lower courts are sorely in need of further guidance from this Court." As proof of this, the company cited a study showing that in Alabama "juries award punitive damages ten times more often than juries in the country, as a whole; moreover, the average [award] is more than three times the national median. . . ."

The Court dismissed similar arguments in the earlier cases and refused to restrict jury discretion in awarding punitive damages. But Gore's attorneys are not certain it will do the same this time because the Court's composition has changed since those cases were decided. Justices Ruth Bader Ginsburg and Steven Breyer joined the Court after it last ruled on the constitutionality of punitive damages.

"I don't believe the recent justices have had an opportunity to speak to this issue," said Andrew Bolt, one of Gore's attorneys in Anniston, Alabama. "They might form an alliance with justices [who] were unhappy with the way the Court ruled [in earlier cases]."

The amount of the punitive award is not the only bone of contention in Gore. BMW also claims that the Alabama high court "unconstitutionally punished [the company] for hundreds of transactions that occurred entirely outside of Alabama - and, indeed, that may have been entirely, lawful where they occurred."

Bolt thinks that issue may be the reason why the Supreme Court decided to grant certiorari in this case, and he's hopeful that the Court will disagree with BMW's position. "I don't think that is the law," he said. "I think that there is nothing wrong with a state imposing punitive damages for conduct that occurs outside its borders."

As the parties prepare to debate these issues before the Court, another battle over punitive damages is being waged in Congress. Legislation to limit punitive damages in civil cases has been introduced in both houses.

ATLA is opposed to theses attempts in both the legislative and judicial branches to limit jury discretion. The association is fighting the legislation and plans to file an amicus brief in Gore. Oral arguments in Gore will likely be scheduled for the fall.