Winning increased punitive awards after Cooper: Tort restrictionists may hail this Supreme Court decision as a victory, but in some cases it could lead to increased awards. (Cover Story).

For years, tort restrictionists have propagated myths about the civil justice system that were intended to advance their political agenda. Now, having won a U.S. Supreme Court ruling that punitive damages awards are subject to de novo appellate review for excessiveness, they may learn why the fractured anecdotes they tell lack the staying power of Greek mythology. The shortsightedness of what the restrictionists wished for recalls the tale of King Midas and his golden touch. Although the Court's decision guaranteed a rigorous appellate review and essentially blessed what federal courts were already doing, it also opened the door to motions to increase a jury's award of punitive damages.

The narrow question in Cooper Industries, Inc. v. Leatherman Tool Group, Inc. (1) was whether district court determinations on the constitutionality of punitive damages awards were subject to de novo, rather than abuse of discretion, review. An 8-1 Court led by Justice John Paul Stevens favored de novo review. Justice Ruth Bader Ginsburg dissented on trial-by-jury grounds. Justices Antonin Scalia and Clarence Thomas concurred, even though they still maintained that nothing in the Constitution limits the size of punitive damage awards.

Tort restrictionists immediately hailed the decision as a victory. A "backgrounder" from the conservative Washington Legal Foundation called the decision a "new weapon in the arsenal of defendants" and claimed that "Cooper could further increase the success rate of defendants' appeals and posttrial motions arguing that the punitive verdict is constitutionally excessive." (2) Its writer reasoned that "de novo review is equivalent to a second bite at the apple." (3) A statement from the business-oriented Legal Defense Resource Center flatly declared that the Cooper ruling will protect defendants by ensuring strict policing of punitive damages awards. (4)

The Cooper case arose from a dispute between two tool manufacturers. Leatherman Tool Group had successfully marketed a folding multifunction tool it called the Pocket Survival Tool (PST). Cooper Industries decided to develop a similar device. Because Cooper's prototype was not ready when the company needed to distribute promotional materials, the firm doctored a PST by rubbing out its competitor's logo and putting different fasteners on the tool. It also retouched a photograph of the tool in the promotional materials to make it look like the design it would be releasing.

Leatherman successfully sued in federal court for trademark infringement, false advertising, and unfair competition. A jury awarded Leatherman $50,000 in compensatory damages and $4.5 million in punitive damages. On appeal, the Ninth Circuit held that there was no trademark infringement (a count for which the jury had awarded no damages) and found that the trial court had not abused its discretion in refusing to reduce the punitive award.

The Supreme Court took the case to determine whether abuse of discretion review was sufficient to meet an appellate court's responsibilities under the Due Process Clause. Only recently had the Court held that "grossly excessive" punitive awards violate the due process rights of defendants. Under the criteria announced in that case, BMW of North America, Inc. v. Gore, (5) an appellate court must consider whether the punitive award is grossly excessive in light of the reprehensibility of the defendant's misconduct, the disparity between the harm or potential harm to the plaintiff and the amount awarded, and the comparability of the award with civil damages or punitive awards in similar cases. (6)

In Cooper, the Court found that these criteria generally fell well within the expertise of appellate courts to evaluate. However, to justify its choice of de novo review, the Court found it necessary to upset a century and a half of jurisprudence that established the jury as the arbiter of punitive damages awards. In doing so, the Court unwittingly authorized additur and changed the dynamics of a case's punitive damages phase.

The Court's decisions construing the Seventh Amendment's right to trial by jury are usually "guided by historical analysis comprising two principal inquiries": Was the cause of action tried at law at the time the Bill of Rights was written, or analogous to one that was? And must the issue "fall to the jury in order to preserve the substance of the common law right as it existed in 1791?" (7) Such an analysis would have established that punitive damages are within the province of the jury.

In 1763, English courts firmly established the legitimacy of punitive damages as a common law device within the jury's province. (8) In one of two cases decided that year, Wilkes v. Wood, the Lord Chief Justice, Sir Charles Pratt, announced: "[A] jury shall have it in their power to give damages for more than the injury received as a punishment to the guilty, to deter from any such proceeding for the future, and as a proof of the detestation of the jury to the action itself." (9) The Supreme Court has acknowledged the importance of the Wilkes case to the thinking of the nation's founding generation. (10)

Soon after Wilkes, American courts began to award punitive damages. (11) These early cases established that punitive damages were a prerogative of the jury. In a 1791 New Jersey case, for example, the jury was instructed "not to estimate the damage by any particular proof of suffering or actual loss; but to give damages for example's sake, to prevent such offenses in [the] future." (12) Since then, punitive damages "have long been a part of traditional state tort law." (13)

In fact, the Supreme Court recognized the jury's dominion over punitive damages as a "well-established principle of the common law" as early as 1851. (14) Thirty-five years later, the Court reiterated that "it is the peculiar function of the jury to determine the amount by their verdict." (15) And as recently as 1983, the Court reminded litigants that it had "repeatedly approved that common law method for assessing punitive awards." (16) All that was abandoned in Cooper.

To reach its conclusion that de novo review is merited, the Court had to overcome those holdings. It did so by declaring that compensatory damages are factual determinations properly made by a jury, while punitive damages are merely "an expression of its moral condemnation." That declaration--along with a footnote stating that the underlying purpose of punitive damages had evolved--took the assessment of punitive damages outside the ambit of the Seventh Amendment. In doing so, the Court also removed the bar against additur.

In 1935, the Supreme Court decided Dimick v. Schiedt. (17) In that case, the plaintiff had won a patently inadequate verdict of $500 for injuries arising from an auto accident. The defendant consented to a judicially proscribed increase to $1,500 in lieu of a new jury trial, but the plaintiff never consented and pursued his case to the Supreme Court.

The Court ruled that the increase violated the right to trial by jury. Applying the same analysis of the Seventh Amendment that the current Court follows (except regarding punitive damages)--that the jury trial right exists today as it did at common law in 1791--the Court held that "the established practice and the rule of the common law, as it existed in England at the time of the adoption of the Constitution, forbade the court to increase the amount of damages awarded by a jury." (18)

However, if the jury's verdict is not constitutionally sacrosanct, and a judge is free to reduce it as excessive without offering the option of a new trial--as the Cooper Court held--it follows that the judge should be free to find it inadequate and increase it, also without that option. The possibility of additur is even more significant given that most punitive awards are very small. A recent U.S. Justice Department study found that the median punitive award in 1996 was only $40,000. (19)

Huge punitive damages verdicts draw equally outsized publicity and skew the public's perception of both the frequency and size of such awards. It seems likely that Cooper's greatest impact will be to increase the size of still-rare but far more typical low-range awards. Moreover, just as defendants have made a motion for remittitur de rigueur in these cases on the chance that the verdict might be reduced--and will be further encouraged by Cooper to do so--plaintiffs should also move for additur, when it is merited. In some cases, the award could be increased. In others, a conscientious judge might treat the motions as offsetting each other and leave the jury's verdict alone.

Even though the Court found a jury's punitive verdict to be merely an expression of moral condemnation and not a factual finding, the Court did recognize that factual findings supporting the punitive award, or the trial court's holding that the award was not excessive, must still receive substantial respect and review under the "abuse of discretion" standard: "Nothing in our decision today suggests that the Seventh Amendment would permit a court, in reviewing a punitive damages award, to disregard such jury findings." (20)

Given that punitive damages are often tried separately from the underlying liability and compensatory phase of a case, this statement strongly suggests that a jury should use special verdict forms and/or interrogatories to preserve their continued common law role in awarding punitive damages. (21) Such findings may be critical to maintaining the jury's verdict because an appellate court must accord facts due deference.

Those who campaign against punitive damages now assert that the Cooper review standard applies in state courts too. Their argument is dubious at best. De novo review of punitive awards is possible, according to the Supreme Court, only because the right to a jury trial does not include assessment of punitive damages. Yet in most states, the right to a jury trial is often declared "inviolate" under the state constitution, and the right will include the punitive damages awarded.

For example, the North Carolina Constitution provides that the "ancient mode of trial by jury" is a "sacred and inviolable" right. (22) The state supreme court has held that the provision was designed to preserve the same jury prerogatives that "existed at common law or by statute at the time the 1868 Constitution was adopted." (23) Those prerogatives clearly included determining the amount of punitive damages. (24)

Because state constitutions provide an independent source of rights and are not subservient to the construction given the federal Constitution, Cooper cannot construe the meaning of the state jury trial guarantees. It would be an act of amazing hubris for a state court--in effect, a judicially declared amendment of the state's constitution--to override the state's guarantee of the right to a jury trial and jettison the jury's authority over punitive damages.

The U.S. Supreme Court did just that in reinterpreting the Seventh Amendment. The Court justified its activism here by claiming that "punitive damages have evolved somewhat" during the past century. (25) Where once punitive damages had a compensatory element to them, the "compensatory damages available to plaintiffs have broadened." (26) In other words, the availability of damages for pain and suffering, for example, has replaced the old compensatory purpose, lessening the need for punitive damages.

On this issue, the Court's analysis is quite facile. Although several states initially regarded punitive damages as partially compensatory, they have always seen them as primarily aimed at deterring and punishing.

Also, in states where economic or non-economic damages are capped, the award of punitive damages still performs a compensatory role. Because the full measure of compensation is not otherwise available, the Court's rationale regarding the reduced need for punitive damages is moot.

One could anticipate defense counsel arguing that the Supremacy Clause of the Constitution should override any state constitutional guarantee of a right to trial by jury. Such an argument should, however, prove unavailing. Due process violations are generally reviewed using a rational basis test: If the state law lacks a rational basis, it violates the Due Process Clause. (27) Moreover, the Court has said that whether an action is "fatally arbitrary," and thus a due process violation, depends in no small measure on who commits the arbitrary act. (28)

When a state court upholds a punitive damages award because it is complying with the commands of the constitution that establishes its authority, and when that award is rendered by a jury authorized to determine such damages, a heavy hand on the scale of justice favors the jury's verdict. It is a decision the Supreme Court must respect, because it cannot be regarded as arbitrary and fundamentally unfair. The Court has acknowledged as much: If

   fair procedures were followed, a judgment that is a product of that process
   is entitled to a strong presumption of validity. Indeed, there are
   persuasive reasons for suggesting that the presumption should be
   irrebuttable ... or virtually so. (29)

A decision to the contrary would smack of hypocrisy because the jury trial right, which was universally demanded by the states that initially refused to ratify the Constitution, is designed to insulate jurors' decisions in a courtroom from arbitrary interference by executives, legislatures, or judges. (30) Because "judicial judgment in applying the Due Process Clause must move within the limits of accepted notions of justice," (31) it is unfathomable that the jury, "a basic and fundamental feature of our system" (32) and an explicitly guaranteed constitutional right, can be overridden on due process grounds.

One state, Alabama, has adopted the Cooper formulation. (33) Because that state supreme court had already eviscerated Alabamians' jury trial right, it provides no guidance as to what other states might do. Still, the state's chief justice, in a partial dissent, questioned whether Cooper should be read as a mandate to state appellate courts. (34)

Some observers from the defense side have also claimed that Cooper provides limits on whether a defendant's wealth and profits can properly be considered in determining punitive damages. (35) This is wishful thinking at best.

In Cooper, the Court reiterated its earlier holding that "states necessarily have considerable flexibility in determining the level of punitive damages that they will allow in different classes of cases and in any particular case." (36) It further acknowledged that "legislatures enjoy broad discretion in authorizing ... punitive damages." (37)

Hence, where a state punitive damage statute authorizes consideration of the defendant's wealth, (38) the evidence will be admitted.

Such considerations are proper if punitive damages are to serve as punishment and deterrence. After all, "a thousand dollars may be a less punishment to one man than a hundred dollars to another." (39)

Notes

(1.) 121 S. Ct. 1678 (2001).

(2.) Christina J. Imre, High Court Imposes New Standard for Review of Punitive Damages, WASH. LEGAL FOUND. LEGAL BACKGROUNDER, June 29, 2001, at 1.

(3.) Id. at 3.

(4.) Theodore J. Boutrous Jr. et al., Supreme Court Speaks Out on Punitive Damages: Cooper v. Leatherman, unpublished paper available at www.abanet. org/cle/programs/nosearch/tscsmo.html (last visited Sept. 4, 2001).

(5.) 517 U.S. 559 (1996).

(6.) Id. at 574-75.

(7.) Markman v. Westview Instruments, Inc., 517 U.S. 370, 376 (1996).

(8.) See Huckle v. Money, 95 Eng. Rep. 768 (C.P. 1763); Wilkes v. Wood, 98 Eng. Rep. 489 (C.P. 1763).

(9.) Wilkes, 98 Eng. Rep. 489, 498-99.

(10.) See City of West Covina v. Perkins, 525 U.S. 234, 247 (1999).

(11.) See Genay v. Norris, 1 S.C.L. 6 (S.C. 1784); Coryell v. Colbaugh, 1 N.J.L. 77 (N.J. 1791).

(12.) Coryell, 1 N.J.L. 77.

(13.) Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 255 (1984).

(14.) Day v. Woodworth, 54 U.S. (13 How.) 363, 371 (1851).

(15.) Barry v. Edmunds, 116 U.S. 550, 565 (1886).

(16.) Smith v. Wade, 461 U.S. 30, 34 (1983).

(17.) 293 U.S. 474 (1935).

(18.) Id. at 482.

(19.) BUREAU OF JUSTICE STATISTICS, U.S. DEP'T OF JUSTICE, CIVIL TRIAL CASES AND VERDICTS IN LARGE COUNTIES, 1996, at 1 (1999).

(20.) Cooper, 121 S. Ct. 1678, 1687.

(21.) Id. at 1692 (Ginsburg, J., dissenting).

(22.) N.C. CONST. art. IV, [section] 13.

(23.) North Carolina State Bar v. DuMont, 286 S.E.2d 89, 93 (N.C. 1982).

(24.) Wylie v. Smitherman, 8 Ired. (30 N.C.) 236, 1848 WL 1279 (N.C. 1848).

(25.) Cooper, 121 S. Ct. 1678, 1686 n.11.

(26.) Id.

(27.) General Motors Corp. v. Romein, 503 U.S. 181, 191 (1992).

(28.) County of Sacramento v. Lewis, 523 U.S. 833, 846 (1998).

(29.) TXO Prod. Corp. v. Alliance Res. Corp., 509 U.S. 443, 457 (1993).

(30.) See Charles Wolfram, The Constitutional History of the Seventh Amendment, 57 MINN. L. REV. 639, 696 n.141 (1973).

(31.) Leland v. Oregon, 343 U.S. 790, 799 (1952)(citation omitted).

(32.) Jacob v. City of New York, 315 U.S. 752, 752-53 (1942).

(33.) Acceptance Ins. Co. v. Brown, Nos. 1991938, 1992026, 2001 WL 729283 (Ala. June 29, 2001).

(34.) Id. at 20 (Moore, C.J., concurring in part, dissenting in part).

(35.) See Boutrous et al., supra note 4, at 7.

(36.) Cooper, 121 S. Ct. 1678, 1683 (quoting Gore, 517 U.S. 559, 568).

(37.) Id.

(38.) See, e.g., N.C. GEN. STAT. [section] 1D-35.

(39.) Pendleton v. Davis, 46 N.C. 98, 1853 WL 1452, at 1 (N.C. 1853).

RELATED ARTICLE: challenging damages caps in the states.

In increasing federal court authority over punitive damages awards, the Supreme Court gave false comfort to tort restrictionists who seek statutory caps on such awards. The Court recognized that legislatures have broad discretion in setting punishment in criminal matters, and it held punitive damages awards to be "quasi-criminal." Therefore, it concluded, "legislatures enjoy broad discretion in authorizing and limiting permissible punitive damage awards."

The Court, however, failed to appreciate that state constitutions often stand as a bulwark against such an arrogation of power by the legislature. State constitutions have been used to strike down legislative limits on punitive damages by courts in Colorado (Kirk v. Denver Publishing Co., 818 P.2d 262 (Colo. 1991)); Georgia (McBride v. General Motors Corp. 737 F. Supp. 1563 (M.D. Ga. 1990)); Kentucky (Williams v. Wilson, 972 S.W.2d 260 (Ky. 1998)); Ohio (Zoppo v. Homestead Ins. Co., 644 N.E.2d 397 (Ohio 1994), cert. denied, 516 U.S. 809 (1995)); and Oregon (Halbasch v. Med-Data, Inc., 192 F.R.D. 641 (D. Or. 2000)).

The Court failed to acknowledge those decisions, but it did note that four states--Alabama, Alaska, North Carolina, and Ohio--had enacted punitive damages caps since 1996. The caps have not been challenged in Alabama or Alaska. However, the Court did not recognize that the Ohio cap was invalidated in State ex rel. Ohio Academy of Trial Lawyers v. Sheward (715 N.E.2d 1062 (Ohio 1999)), a case brought and argued with assistance from ATLA's legal staff and its constitutional litigation program.

And the North Carolina statute is currently being challenged in the state court of appeals, again with ATLA's legal staff assisting. There, the challengers argue that the cap violates the jury trial right (which the North Carolina Supreme Court has held exists today as it did in 1868, when it was acknowledged that jurors were the arbiters of punitive damages), violates separation of powers because it constitutes a legislative exercise of the judicial power of remittitur, violates the "open courts" and "special legislation" guarantees by favoring economically powerful interests, constitutes a taking of property without just compensation, and contravenes the due process and equal protection rights of plaintiffs by treating similarly situated persons differently.

Most state constitutions contain similar provisions that would render legislative caps unconstitutional. --Robert S. Peck

Robert S. Peck is ATLA's senior director of Legal Affairs and Policy Research, and president of the Center for Constitutional Litigation.