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Punitive damages after Campbell: a mixed bag awaiting definitive resolution: while courts have paid attention to the Campbell guideposts, there have been successful efforts to justify high punitive damages awards.

LAST YEAR in State Farm Mutual Automobile Insurance Co. v. Campbell, (1) the U.S. Supreme Court gave new force and meaning to the broad, fundamental principles of constitutional law that constrain punitive damages. Although Campbell was an insurance bad-faith case, involving economic loss and emotional distress, the Court's broad general pronouncements on ratio, reprehensibility of the defendant's contact, and comparable civil and criminal penalties for the same conduct are not limited to those cases; they apply generally to all punitive damages cases, including those involving physical injury and death.

In Campbell, the Court emphasized the constraining force of ratio as a guidepost for evaluating the constitutional propriety of a punitive damages award. It made clear that awards exceeding a single-digit ratio of punitive to compensatory damages are presumptively unconstitutional. The Court did not limit that principle to cases of economic loss; rather, that proposition was expressed as a general broad principle of constitutional law, demonstrated, as stated in Justice Kennedy's opinion, by the Court's "jurisprudence and the principles it has now established." The Court identified only one exception to that rule--the longstanding judicial practice of approving higher ratios in cases in which a defendant's conduct is particularly egregious but compensatory damages are "small." That exception, as a general matter, is unlikely to have relevance in the great majority of cases.

Campbell also places new limits on judicial reliance on possible criminal penalties as validation for a high punitive damages award. Justice Kennedy warned:
   Great care must be taken to avoid use of the
   civil process to assess criminal penalties that
   can be imposed only after the heightened
   protections of a criminal trial have been observed,
   including, of course, its higher standard
   of proof. Punitive damages are not a
   substitute for the criminal process, and the
   remote possibility of a criminal sanction
   does not automatically sustain a punitive
   damages award. (2)


The Utah Supreme Court, when it affirmed the punitive damages judgment against State Farm, had speculated about the loss of State Farm's business license, the disgorgement of profits and possible imprisonment.

Campbell also mandates a new direction in the analysis of reprehensibility for the purpose of punitive damages. It rejected the Utah court's picture of supposed nationwide corporate villainy in favor of a more focused and restrained view of the particular corporate conduct in relation to the particular plaintiffs in the case before it. The Court placed new and more stringent limits on the scope of the conduct that a court may consider in determining whether a punitive award is constitutionally excessive, making clear that a court or jury may not take it upon itself to punish a defendant's nationwide conduct.

What are the holdings of Campbell and how have lower courts applied those holdings in different contexts and claims?

CAMPBELL'S HOLDINGS

A. On Ratio

In discussing the ratio guidepost, the Court stated, "courts must ensure that the measure of punishment is both reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered." While declining to impose a bright-line ratio, the Court declared:
   Our jurisprudence and the principles it has
   now established demonstrate, however, that,
   in practice, few awards exceeding a single-digit
   ratio [that is, 9:1] between punitive and
   compensatory damages, to a significant degree,
   will satisfy due process.... Single-digit
   multipliers are more likely to comport
   with due process, while still achieving the
   state's goals of deterrence and retribution,
   than awards with ratios in range of 500 to 1
   ... or, in this case, of 145 to 1. (3)


Justice Kennedy stressed the historical justification for such a limit, pointing out that in Pacific Mutual Life Insurance Co. v. Haslip (4) the Court had concluded that punitive awards of more than four times the amount of compensatory damages "might be close to the line of constitutional impropriety," and that the 4:1 ratio had been cited in BMW of North America Inc. v. Gore. (5) In Gore, Justice Kennedy pointed out, the Court referenced a "long legislative history, dating back over 700 years and going forward to today, providing for sanctions of double, treble, or quadruple damages to deter and punish." Finally, the Court made clear that a ratio of 9:1 or even 4:1 cannot be taken as a norm. Rather, in cases in which compensatory damages are substantial, then a "lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee."

The Court identified only one exception to these general principles--where compensatory damages are small and the defendant's act, to use the words of Gore, was "particularly egregious" or the injury "hard to detect" or difficult to value monetarily. (6) This is significant because the Utah court had asserted that a higher ratio in Campbell was justified on the grounds that the injury was "hard to detect" or the "monetary value of non-economic harm might have been difficult to determine," despite the fact that the Campbell plaintiffs had been awarded compensatory damages of slightly more than a million dollars. That position was rejected, the Court finding that a 1:1 ratio was appropriate, given the substantial award of compensatory damages.

In short, the rule that a higher ratio may be appropriate where a non-economic injury is difficult to value or detect applies only to cases in which a small or nominal amount of compensatory damages has been awarded. In cases like Campbell, in which the compensatory award is substantial, the Court said it "should be presumed a plaintiff has been made whole for his injuries by compensatory damages, so punitive damages should be awarded only if the defendant's culpability, after having paid compensatory damages, is so reprehensible as to warrant the imposition of further sanctions to achieve punishment or deterrence."

The ratio guidepost is of particular significance in product liability cases and other cases in which, unlike Campbell, the same conduct has been directed to many persons. Ratio focuses on the relationship between the punitive award and the harm to the individual plaintiffs before the court. The ratio guidepost may not be disregarded in order to punish defendants for the entire sum of harm allegedly caused to persons not before the court.

B. On Comparable Penalties

The Court emphasized the limited utility of criminal penalties in determining the constitutionally permissible amount of a punitive damages award, stressing that the "remote possibility" of a criminal sanction does not automatically sustain a punitive damages award and rejecting, as noted above, the Utah court's speculation about the loss of State Farm's business license, the disgorgement of profits and possible imprisonment. Instead, it looked to the "most relevant civil sanction" under Utah law, which was a $10,000 fine for an act of fraud, and which was "dwarfed" by the $145 million punitive damages award.

The rejection of judicial reliance on the "remote possibility of a criminal sanction" is particularly relevant to punitive damages in product liability cases. Those cases are likely to involve physical injuries or death, so the criminal penalties for assault or manslaughter could be invoked to attempt to justify an enormous punitive award. In Gore, the Court described the purpose of the comparable penalties guidepost as evaluating the amount of a punitive award in light of the state's "legislative judgments" concerning appropriate sanctions for the conduct at issue. As the Court has now made clear in Campbell, invoking the remote possibility of criminal sanctions does not serve that purpose. Rather, such comparisons simply erase the line between tortious conduct and conduct deserving punitive damages, thus transforming a guide-post intended to restrain punitive damages into a means to support enormous and unconstitutional awards. That approach is no longer permissible under Campbell.

C. On Reprehensibility

Campbell establishes a new and narrower focus for the analysis of the reprehensibility guidepost. The Court rejected the Utah Supreme Court's focus on the defendant's supposed nationwide corporate misconduct in favor of a more focused and restrained view of the particular corporate conduct at issue. A state, it declared, does not have a "legitimate concern in imposing punitive damages to punish a defendant for unlawful acts committed outside the state's jurisdiction." Each state is entitled to the punishment, if any, to impose on defendants who act within its jurisdiction. And a court or jury may not punish nationwide corporate conduct "under the guise of the reprehensibility analysis."

The Court also made plain that a defendant's conduct that is dissimilar to the conduct that allegedly injured the plaintiff may not serve as a basis for punitive damages. Alleged dissimilar acts are irrelevant to the analysis of the reprehensibility of the defendant's conduct toward the plaintiff. In determining whether the defendant is a "recidivist," the Court added, a court must ensure the conduct in question "replicates the prior transgressions." Thus, the kitchen-sink approach to punitive damages taken by the lower courts in Campbell has no place in post-Campbell litigation.

Campbell directs courts to take the following factors stated in Gore into consideration in the reprehensibility analysis: whether "the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident." (7) These factors, unfortunately, are more suited to analyzing conduct in a traditional tort case between individuals than to a manufacturer's conduct in a product liability case, or with respect to other corporate conduct. In a products liability case, for example, the conduct at issue in the reprehensibility analysis generally consists of a series of numerous, complex decisions by engineers and designers, including risk-benefit analyses of various features of a product. (8)

In light of the nature of the conduct that is to be evaluated, the most significant of the Campbell reprehensibility factors in product liability cases are whether the manufacturer evinced "indifference" or "reckless disregard" and whether the harm was the result of malice or mere accident. Other factors, such as whether the target of the conduct had financial vulnerability, are less relevant, as the conduct at issue--designing a product--is not likely to target a particular individual. Likewise, the presence of physical injury or "repeated actions" does not aid in distinguishing a good product manufacturer from a bad one, because physical injury is generally a given in a product liability lawsuit and mass production of a product may always be considered to constitute "repeated actions."

LIFE AFTER CAMPBELL

Clear trends in post-Campbell decisions are not yet apparent. Some courts have drastically reduced punitive damages awards by using ratios. Others appear to be seeking ways to avoid strictly applying the Campbell ratio analysis. For example, some courts have pointed to plaintiffs' physical injuries as justifications for elevating punitive damages, at times even in excess of a single-digit ratio. Courts have given only limited consideration to the Campbell pronouncement that a defendant's wealth cannot justify an otherwise unconstitutional punitive damages award, although that pronouncement may eventually result in a major shift in the juris-prudence of courts that have previously routinely upheld punitive awards as representing only a limited percentage of a defendant's wealth.

The cases noted below are divided into four categories: (1) cases in which single-digit ratios have been approved or required; (2) cases in which greater than single-digit ratios have been approved; (3) cases in which courts have addressed the issue of a defendant's wealth, and (4) cases applying Campbell in personal injury actions. Finally, there are preliminary conclusions.

A. Approving, Requiring Single Digits

1. Alabama--Federal

* McClain v. Metabolife International Inc., 259 F.Supp.2d 1225 (N.D. Ala. 2003). A diet pill manufacturer sought remittiturs for six separate jury verdicts on grounds of excessiveness. One of the verdicts awarded $50,000 in compensatory damages and $1 million in punitive damages, a 20:1 ratio. The court reduced the punitive damages to $450,000 (9:1 ratio) and described the reduced award as the "maximum allowable by the due process clause."

2. Alaska--Federal

In re Exxon Valdez, 296 F.Supp.2d 1071 (D. Alaska 2004). This case concerned the consolidated environmental tort lawsuits by commercial fishermen, landowners and others seeking damages for injuries sustained as a result of the Exxon Valdez oil spill. After the Ninth's Circuit's vacation of the $4 billion punitive award (remitted by the trial court from $5 billion) and remand for reconsideration in light of Campbell, the federal district court reinstated the jury's original $5 billion award. Determining that for purposes of ratio, the compensatory damages should include the many millions of dollars voluntarily paid by Exxon in settlement to other groups, the district court characterized the ratio in this case as 9.74:1.

3. Arizona--Federal

* Ceimo v. General American Life Insurance Co., No. CV-00-1386-PHX-FJM, slip op. (D. Ariz. September 17, 2003). In an insurance bad faith case, the jury imposed compensatory damages of $6,692,610 and punitive damages of $79 million (11.79:1 ratio). The court reduced the punitive damages award to a 1:1 ratio despite the high reprehensibility of the defendant's conduct. The court stressed the substantial nature of the compensatory damages award, noting that under Campbell "the Constitution constrains us to reduce the punitive damages award in this case to an amount roughly equal to the compensatory damages."

4. Arkansas--State

* Advocat Inc. v. Sauer, 111 S.W.3d 346 (Ark. 2003), cert. denied, 124 S.Ct. 535 (2003). In a negligence and wrongful death action against nursing home defendants, the jury awarded $15 million in compensatory damages and $63 million in punitive damages (4.2:1 ratio). The Arkansas Supreme Court reduced the total compensatory damages to $5 million and the punitive damages to $21 million (4.2:1 ratio).

The court concluded that the original $63 million punitive award "shock[ed] the conscience," especially since the highest punitive damages award previously approved in the state was $4 million. The court also stated that the defendants could not have reasonably anticipated such a large punitive damages award given the limited comparable civil penalties under state law, the third Gore guidepost.

It is notable that in trimming both compensatory and punitive damages, the court did not alter the ratio. (9)

5. California--State

* Romo v. Ford Motor Co., 6 Cal.Rptr.3d 793 (Cal.App. 2003). This personal injury and wrongful death case arose following the roll-over of a Ford Bronco. At trial, the jury awarded compensatory damages of $4,574,429 and punitive damages of $290 million (63.4:1 ratio). The California Court of Appeal affirmed the judgment. Ford then sought certiorari in the U.S. Supreme Court, which, after Campbell, vacated the judgment and remanded for further consideration in light of Campbell. (10)

Reconsidering the award, the California court reduced the punitive damages to $23,723,287 (5.2:1 ratio). It stated that although a larger punitive damages award might have been justified as a means to punish and deter an entire course of conduct, Campbell has made clear that the permissible punishment is for the harm inflicted on the "present plaintiffs." In determining an appropriate level of punitive damages, the court noted Campbell's preference for "single-digit multipliers," but it asserted that where a defendant's conduct causes death, the proportionality factor should be given less weight. The court concluded that in light of the extreme reprehensibility of defendant's conduct and the under-compensation of the plaintiffs' individual losses, a punitive damages award of "approximately five times the total compensatory damages" was appropriate.

* Henley v. Philip Morris Inc., 5 Cal.Rptr.3d 42 (Cal.App. 2003), review granted and depublished, 81 P.3d 223 (Cal. 2003). A smoker sued Philip Morris, alleging that it had intentionally concealed and misrepresented the dangers of cigarettes. The jury awarded compensatory damages of $1.5 million and punitive damages of $50 million. The plaintiff consented to the trial court's reduction of the punitive award to $25 million, producing a 16.7:1 ratio. On appeal, the $25 million punitive award was twice affirmed by the California Court of Appeal prior to Campbell. (11)

Following Campbell, the $25 million punitive award was considered again by the California Court of Appeal. This time the court reduced it to $9 million (6:1 ratio), concluding that the plaintiff was a "direct victim" of the defendant's highly reprehensible conduct (all five reprehensibility factors were present), but that the punitive damages award had to be reduced under Campbell exclusively on ratio grounds.

* Diamond Woodworks Inc. v. Argonaut Insurance Co., 135 Cal.Rptr.2d 736 (Cal.App. 2003). The plaintiff sued its workers' compensation insurer for denying coverage to its employee. The trial court allowed $404,270 (later reduced to $258,570) in compensatory damages and $5.5 million in punitive damages (13.6:1 ratio).

The court reduced the punitive damages award, relying on Campbell. Despite finding that the defendant's conduct warranted punitive damages, the court had "no doubt that anything exceeding four-to-one would not comport with due process under Campbell." Owing to the lack of evidence of repeated misconduct of the sort that injured the plaintiff, the court reduced the punitive damages to $1 million (3.8:1 ratio).

6. California--Federal

* Zhang v. American Gem Seafoods Inc., 339 F.3d 1020 (9th Cir. 2003). In a racial discrimination and breach of employment contract case, the federal district court had let stand a $360,000 compensatory damages award and a $2.6 million punitive damages award (7.2:1 ratio). The Ninth Circuit affirmed the punitive award, stating that it was aware of no Supreme Court or Ninth Circuit case disapproving a single-digit ratio between punitive and compensatory damages. The court also emphasized that racial discrimination warrants higher punitive damages awards than other "purely economic" harm.

7. Georgia--Federal

* Bogle v. McClure, 332 F.3d 1347 (11th Cir. 2003), cert. denied, 124 S.Ct. 1168 (2004). In this reverse discrimination case brought under 42 U.S.C. [section] 1983, the plaintiffs were seven librarians in Atlanta's public library system. They alleged that they were transferred to less desirable branch libraries because of their race. The jury awarded total compensatory damages of approximately $3.5 million and total punitive damages of $13.3 million (3.8:1 ratio).

The court affirmed the punitive damages award. Although the amount was high, the court noted that the ratio was in the neighborhood of 4;1, a range which the U.S. Supreme Court had found to be "instructive." It stated, "Although the librarians received substantial compensatory damages, given the facts of this case, the ratio of punitive damages to compensatory damages does not indicate that the punitive damages award violates due process. In short, the punitive damages award was both reasonable and proportionate to the amount of harm to the librarians and to the general damages recovered." The court rejected the defendant's argument that the $300,000 per plaintiff cap on Title VII damages should be considered in assessing the award's reasonableness, stating that Congress has imposed no such limitation on Section 1983 actions.

8. Illinois--Federal

* Jones v. Sheahan, 2003 U.S.Dist. Lexis 19804 (N.D. Ill.). An inmate who was not a gang member sued prison officials, alleging that his constitutional rights were violated by their failure to protect him from an attack by fellow inmates who were gang members. The jury awarded $25,000 in compensatory damages and $250,000 in punitive damages (10:1 ratio) against the prison's former superintendent and $500,000 (20:1 ratio) against the prison's former director. The court held that the double-digit ratios of punitive to compensatory damages were unconstitutionally excessive under Campbell and reduced the punitive awards to $50,000 (2:1 ratio) and $100,000 (4:1 ratio), respectively. (12)

* Motherway, Glenn & Nepleton v. Tehin, 2003 U.S.Dist. Lexis 10928 (N.D.Ill.). The plaintiff alleged breach of contract, breach of fiduciary duty and conversion as a result of the defendant's failure to pay for services in a timely manner. Compensatory damages of $63,158 and punitive damages of $300,000 (4.5:1 ratio) were imposed. In approving the punitive award, the court emphasized the defendant's intentional and willful conduct, stating that reprehensibility is the most important of the Campbell factors. In the light of the defendant's conduct, a ratio of less than 5:1 was constitutionally proper.

9. Iowa--Federal

* Eden Electrical Ltd. v. Amana Co., 258 F.Supp.2d 958 (N.D. Iowa 2003). The plaintiff alleged fraudulent misrepresentation resulting in economic harm. The jury awarded compensatory damages of $2.1 million and punitive damages of $17.875 million (8.5:1 ratio).

The court reduced the punitive damages award to $10 million, which lowered the ratio from 8.5:1 to 4.76:1. It relied on the third Gore element--whether the defendant received fair notice of the severity of the penalty that state law may impose. The court also noted that the plaintiff suffered only economic harm and had recovered substantial compensatory damages, observing that under Campbell, "even where a plaintiff has suffered a physical harm as a result of a recidivist defendant's intentional and malicious disregard for the health and safety of others, and the defendant targeted his victim because the victim was financially vulnerable, still that plaintiff's punitive damages award could probably not constitutionally exceed the 10:1 ratio." The court stated that when it compared the punitive damages award in this economic harm case to this hypothetical case, it must conclude that the 8.5:1 ratio is constitutionally excessive.

10. Kentucky--State

* Rockwell International Corp. v. Wilhite, 2003 Ky.App. Lexis 193 (Ky.App.). The defendant was sued for trespass and nuisance as a result of the alleged release of PCBs on the plaintiffs' land. The jury awarded $7.56 million in compensatory damages and $210 million in punitive damages (27.8:1 ratio). The court vacated the punitive damages award based on counsel's improper arguments focusing on the defendant's wealth. The court stated, however, focusing on the single-digit language of Campbell, that even without such a result, the punitive award "would necessarily be reduced consistent with the dictates" of Campbell.

11. Michigan--Federal

* In re John Richards Homes Building Co., 291 B.R. 727 (Bankr. E.D. Mich. 2003). This case involved an involuntary bankruptcy petition filed against a debtor-homebuilder and alleged that the builder owed money with regard to a dispute about the home's construction. The homeowner allegedly instituted this action in bad faith and in hopes of destroying the builder's business. The court awarded the builder compensatory damages of $4.1 million and punitive damages of $2 million (1:2.05 ratio).

The court concluded that punitive damages of $2 million were necessary and appropriate, noting that they were approximately half the compensatory damages and about one twentieth of the 10:1 maximum limit Campbell suggests for due process purposes.

12. New York--Federal

* TVT Records v. Island Def Jam Music Group, 279 F.Supp.2d 413 (S.D.N.Y. 2003). In a dispute between music companies, a jury awarded the plaintiff $22,358,713 in compensatory damages and $50 million in punitive damages from each of two defendants (2.2:1 ratio). Applying Campbell, the court reduced the punitive award to $25 million (1.1:1 ratio), pointing to the low reprehensibility of the defendant's conduct and the high compensatory damages.

* Parrish v. Sollecito, 280 F.Supp.2d 145 (S.D.N.Y. 2003). The plaintiff sued her employer under Title VII for sexual discrimination and retaliation. The jury awarded $15,000 in compensatory damages and $500,000 in punitive damages (33.3:1 ratio). The court reduced the punitive damages award to $50,000 (3.3:1 ratio). Although it found the defendant's conduct to be particularly reprehensible, it concluded that, based on the ratio guidepost, the jury's $500,000 award "vastly" exceeded Campbell's stated measure of a proper punitive award. (13)

13. Oregon--State

* Bocci v. Key Pharmaceuticals Inc., 76 P.3d 669 (Ore.App. 2003), as modified, 79 P.3d 908 (Ore.App. 2003). Key, a pharmaceutical manufacturer, was sued for negligence and fraud for engaging in allegedly deceitful conduct by promoting a prescription drug as "safe" when it was not and in misleading the federal Food and Drug Administration about the drug. This alleged misconduct resulted in Dr. Frederick D. Edwards's misdiagnosis of the plaintiff, Paul R. Bocci. Edwards also was sued and filed a cross-claim against Key.

The jury awarded Bocci and Edwards a combined total of $6,121,648 in compensatory damages and $57.5 million in punitive damages (9.4:1 ratio). However, because Key had settled with Bocci while the appeal was pending, only the damages awarded to Edwards were at issue. He received $500,000 in compensatory damages and $22.5 million in punitive damages from Key (45:1 ratio).

On remand from the U.S. Supreme Court after Campbell, (14) the Oregon Court of Appeals reduced the $22.5 million punitive damages award to $3.5 million, which resulted in a 7:1 ratio. The court stated that a 45:1 ratio was "clearly in excess of the single-digit neighborhood" of Campbell and that even the combined ratio of 9.4:1 would not comport with due process, since Campbell's preference for single-digit multipliers "obviously does not mean that any award that has only a single-digit ratio will satisfy due process." It noted that the combined 9.4:1 ratio exceeded by more than two times the 4:1 ratio discussed favorably in Campbell. In reducing the punitive damages award to a 7:1 ratio, the court reasoned that a multiplier exceeding 4:1 was permissible since four of the five considerations of reprehensibility outlined in Campbell were present.

* Waddill v. Anchor Hocking Inc., 78 P.3d 570 (Ore.App. 2003). The plaintiff suffered serious injuries to her arms when a glass fishbowl filled with water shattered while she was carrying it. She sued the manufacturer of the fishbowl, claiming that it was dangerously defective because of a lack of adequate warnings. The jury awarded her $100,854 in compensatory damages and $1 million in punitive damages (9.9:1 ratio). After the Oregon Court of Appeals initially affirmed the punitive award in 2001, (15) the U.S. Supreme Court granted certiorari, vacated the award and remanded for reconsideration in light of Campbell. (16)

On remand, the Oregon Court of Appeals held that the punitive award ratio of 9.9:1 ratio was unconstitutionally excessive. The court stated that while the jury found the defendant indifferent to the consequences of its failure to provide adequate warnings, there was no evidence that it acted with intentional malice or engaged in trickery or deceit. The court observed that the defendant's actions were not as egregious as those in Bocci. It court concluded that the maximum constitutionally permissible award was four times compensatory damages, or $403,416.

14. South Carolina--State

* Collins Entertainment Corp. v. Coats and Coats Rental Amusement, 584 S.E.2d 120 (S.C.App. 2003), substituted for 577 S.E.2d 237 (S.C.App. 2003). In an action for intentional interference with contractual relations, a master-in-equity awarded $157,449 in compensatory and $1,569,013 in punitive damages, slightly less than 10:1 ratio.

The defendant argued that the ratio was excessive and pointed out that the highest ratio that a South Carolina court has ever allowed in a contractual interference case was 6:1. The court rejected this argument, stating that although the U.S. Supreme Court has given heightened scrutiny to punitive damages, it has been reluctant to impose a bright-line ratio. The court concluded that in light of defendant's "carefully orchestrated scheme to interfere with [the plaintiff's] contract," a ratio of slightly "less than 10 to 1" was appropriate.

15. South Dakota--State

* Roth v. Farner-Bocken Co., 667 N.W.2d 651 (S.D. 2003). Following an employer's termination of an employee, the employer allegedly opened mail addressed to the employee, made copies of and distributed the contents, and placed the original in a new envelope. The employee sued for age discrimination and invasion of privacy. The jury awarded $25,000 compensatory damages and $500,000 punitive damages (20:1 ratio).

The court found the punitive damages award was excessive and stated that there was no evidence that the conduct at issue reflected a company policy or practice. Thus, there was no evidence of other potential plaintiffs suffering similar harm. The court also stressed the there was a "substantial" compensatory damage award.

16. Texas--State

* Haggar Clothing Co. v. Hernandez, 2003 Tex.App. Lexis 7117 (Tex.App. 2003) (memorandum opinion). The plaintiff alleged that she was fired in retaliation for filing a worker's compensation claim after she was seriously injured on the job owing to unsafe conditions at the plant where she worked. She also alleged that she was mistreated by the defendant-employer thereafter. The jury awarded $210,000 in compensatory damages and $1.4 million in punitive damages (6.66:1 ratio).

The court upheld the award as ratio acceptable, noting that Campbell did not set a bright-line rule for a permissible ratio. The court also emphasized that the highly reprehensible nature of the defendant's conduct, which had resulted in physical harm, was part of a pattern and showed reckless disregard for the plaintiff's health and safety. In addition, the court ruled that evidence of "other acts" at another of defendant's plants could be considered under Campbell to justify the punitive award because that conduct was "of the sort that injured" plaintiffs.

17. Federal Circuit

* Rhone-Poulenc Agro S.A.v. DeKalb Genetics Corp., 345 F.3d 1366 (Fed.Cir. 2003). The plaintiff alleged fraudulent inducement, trade secret misappropriation and patent infringement. The trial court awarded $15 million in compensatory and $50 million in punitive damages (3.3:1 ratio), and the Federal Circuit affirmed in 2001. (17) The U.S. Supreme Court granted certiorari, vacated the decision and remanded for reconsideration in light of Campbell. (18)

On remand, the Federal Circuit declared that its previous decision was unaffected by Campbell, and it upheld the punitive award, focusing on Campbell's ratio language and noting that the 3.3:1 ratio did not even approach the possible threshold of constitutional impropriety.

B. Approving Greater than Single-digit Ratios

1. Arizona--Federal

* Southern Union Co. v. Southwest Gas Corp., 281 F.Supp.2d 1090 (D. Ariz. 2003). This case involved allegations against the Arizona state corporation commissioner that his interference with a merger caused the deal to fail. The plaintiff claimed that the commissioner had engaged in intentional trickery and deceit. The court awarded $60 million in punitive damages, but the compensatory damages were only $390,072 (153:1 ratio).

Noting that the Supreme Court has not established a bright-line ratio rule, the court stated that the ratio of 153:1 was warranted in this case because the punitive award was based "on the particularly reprehensible actions of a public official in violation of the public trust." The court also noted that the defendant waived the right to claim that the punitive damages award would ruin him financially by failing to introduce evidence of his wealth.

2. California--State

* Simon v. San Paolo U.S. Holding Co., 7 Cal.Rptr.3d 367 (Cal.App. 2003), review granted and depublished, 2004 Cal. Lexis 2548 (Cal.). In an action for specific performance on an alleged contract to purchase real property, the jury awarded the plaintiff $5,000 in compensatory damages, which represented the plaintiff's out-of-pocket expenses, and $1.7 million in punitive damages (340:1 ratio). This judgment was twice affirmed by the California Court of Appeal, and twice remanded by the U.S. Supreme Court, this time for reconsideration in light of Campbell. (19)

Again affirming the 340:1 ratio, the court relied not on the plaintiffs "out-of-pocket" expenses of $5,000, but rather on the "effect" of the defendant's conduct. It stated that "a jury that has been limited to awarding only out-of-pocket expenses may consider evidence of loss of bargain in determining the appropriate amount of punitive damages." Since the purchase price of the building in question was $1.1 million, and the building's value had been assessed at $1.5 million, the court reasoned that the benefit of the plaintiff's bargain was $400,000. Using this figure instead of the $5,000 actually awarded, the court reached a 4.25:1 ratio.

3. Georgia--State

* Craig v. Holsey, 590 S.E.2d 344 (Ga.App. 2003), cert. denied, 2004 Ga. Lexis 312. In a personal injury action stemming from a drunk driving automobile accident, the jury returned a verdict of $8,801 in compensatory and $200,000 in punitive damages (22.7:1 ratio).

The court found three of the five reprehensibility factors present (physical harm, reckless disregard of the safety of others, recidivism). In rationalizing the 22.7:1 ratio, it reasoned that the plaintiff could have died as a result of accident, which rendered the potential harm much greater than the actual harm. Since awards for wrongful death can approach or exceed the $200,000 punitive damages award, the court concluded that there was "no disparity between the potential harm" and the punitive damages award. A dissent rejected this analysis, noting Campbell's preference for single-digit multipliers and criticizing the majority's attempt to negate the disparity between the two awards by "leaping to the conclusion" that the plaintiff could have died in the accident.

4. Illinois--Federal

* Mathias v. Accor Economy Lodging Inc., 347 F.3d 672 (7th Cir. 2003), aff'g 2002 U.S. Dist. Lexis 13750 (D.C. N.D. ILL). The plaintiffs sued a hotel operator, claiming that its willful and wanton misconduct had allowed an infestation of bedbugs to occur in the hotel where the plaintiffs had stayed. The jury awarded each of two plaintiffs compensatory damages of $5,000 and punitive damages of $186,000 (37.2:1 ratio).

In an opinion by Judge Posner, the Seventh Circuit upheld the punitive damages award, noting that the $5,000 compensatory award was much smaller than the $1 million compensatory award in Campbell. The court also seemed to discount Campbell's ratio pronouncements, asserting that the real focus should be on the proportionality of the punitive damages to the "wrongfulness" of the defendant's actions, stating that the defendant's behavior was "outrageous but the compensable harm done was slight and at the same time difficult to quantify because a large element of it was emotional." The court also asserted that the punitive award limited "the defendant's ability to profit from its fraud by escaping detection and (private) prosecution." The defendant had continued to rent rooms at the hotel and conceal the infestation of bedbugs, which it misleadingly told guests were ticks.

5. Iowa--Federal

* ASA-Brandt Inc. v. ADM Investor Services Inc., 344 F.3d 738 (8th Cir. 2003), aff'g in part, rev'g in part and remanding 138 F.Supp.2d 1144 (2001). The plaintiff farmers were encouraged to enter into hedging contracts by the managers of cooperative grain elevators. They alleged fraud and violations of the Commodity Exchange Act and the Racketeer-influenced and Corrupt Organizations Act. The jury returned a verdict imposing, inter alia, punitive damages of $1.25 million on the breach of fiduciary duty claim, although the compensatory damages were nominal (1,250,000:1 ratio).

The Eighth Circuit affirmed the punitive damages award, focusing not on the harm the plaintiffs actually suffered, but rather on the potential harm to them as a result of defendants' conduct. The court estimated the potential harm to be $3.9 million, which would create a 0.32:1 ratio.

6. Kansas--Federal

* Jones v. Rent-A-Center Inc., 281 F.Supp.2d 1277 (D. Kan. 2003). In a suit for violations of Title VII stemming from sexual harassment, the jury awarded $10,000 in compensatory and $1.2 million in punitive damages. The court reduced the punitive damages to $290,000 (29:1 ratio) in light of the statutory cap on Title VII damages.

The court found the $290,000 punitive award to be constitutionally permissible, even with its 29:1 ratio. The court stated, "Though Campbell guides this court to conclude that a ratio above 100:1 likely is constitutionally excessive, while a single-digit ratio likely is constitutionally permissible, it offers no bright line standard by which to determine whether the ratio in this case, 29:1, is constitutional." The court justified the high ratio in part because the damages in Title VII cases are "primarily personal" and not necessarily economic. Here the conduct was particularly egregious, and the court concluded that a high ratio was necessary "to punish defendant and to deter others from engaging in similar conduct."

7. Missouri--State

* Werremeyer v. K.C. Auto Salvage Co., 2003 Mo.App. Lexis 1074 (Mo.App.), appeal granted, 2003 Mo. Lexis 144 (Mo.). The plaintiff alleged fraud against a used car dealership for selling a car with the vehicle identification numbers altered. The jury awarded punitive damages of $200,000, which the trial court remitted to $125,000. The compensatory damages were only $9,000 (13.9:1 ratio).

The court affirmed the remitted punitive damages, asserting that the difficulty of detection of the conduct at issue warranted a high punitive damages award. The court pointed out that Campbell stated that nonsingle-digit multipliers are probably constitutional if the harm suffered by the plaintiff is "difficult to detect."

8. New Hampshire--State

* Madeja v. MPB Corp., 821 A.2d 1034 (N.H. 2003). The plaintiff alleged sexual harassment and retaliatory firing. The jury awarded $350,000 in punitive damages, which the trial court reduced to $300,000 because of the Title VII damages cap. That reduced the punitive award to a 35:1 ratio to the compensatory damages.

The New Hampshire Supreme Court held that the 35:1 ratio was not excessive in light of the plaintiff's relatively short period of employment, the difficulty of measuring actual damages where injury is personal, and the defendant's reckless indifference to plaintiff's rights.

9. New York--Federal

* Local Union No. 38 v. Pelella, 350 F.3d 73 (2d Cir. 2003). In a labor dispute, a jury awarded the plaintiff $1 in nominal damages and $25,000 in punitive damages (25,000:1 ratio). The Second Circuit affirmed, stating in dicta that the single-digit ratio of Campbell "may not apply with equal force when punitive damages are compared to nominal damages." This statement, however, was not a holding of the court because the union failed to raise the issue below. Nonetheless, the court's discussion suggests that it may uphold far higher than single-digit ratios in cases where nominal compensatory damages are involved.

10. Pennsylvania--Federal

* Willow Inn Inc. v. Public Service Mutual Insurance Co., 2003 U.S.Dist. Lexis 9558 (E.D. Pa.). In an insurance bad faith action based on the insurer's failure timely to pay property loss damage, a wind storm was found by the trial court to have caused $2,000 in compensatory damages, and punitive damages of $150,000 also were assessed (75:1 ratio).

After the Third Circuit remanded the case in light of Campbell, (20) the trial court upheld $150,000 in punitive damages, stating that amount was justified based on the harm to the plaintiff that potentially could have resulted from the insurer's conduct, which the court estimated at $150,000. So the court reasoned that the ratio of punitive damages to potential harm was 1:1.

11. Pennsylvania--State

* Hollock v. Erie Insurance Exchange, 842 A.2d 409 (Pa. Super. 2004). In an insurance bad faith action based on the insurer's failure to pay within a reasonable time the plaintiff's claim for uninsured motorist coverage, the court awarded $278,825 in attorneys' fees, costs and interest, and punitive damages of $2.8 million (10:1 ratio).

In affirming, the Pennsylvania appellate court characterized the plaintiff's $278,825 compensatory damages as limited and thus able to support a ratio beyond single digits. Two judges dissented, arguing that under Campbell, because no pattern of improper claims handling had been shown, the facts justified an award of punitive damages at or near the amount of compensatory damages (which the dissenting judges calculated as $780,000, including the underlying insurance claim amount).

12. Texas--Federal

* Williams v. Kaufman County, 352 F.3d 994 (5th Cir. 2003), replacing 343 F.3d 609 (5th Cir. 2003). The plaintiffs brought a 42 U.S.C. [section] 1983 action against a county and a sheriff for unlawful detention and invasion of privacy as a result of strip searches conducted without probable cause or reasonable suspicion. The trial court awarded nominal compensatory damages of $100 per plaintiff and punitive damages of $15,000 for each plaintiff (150:1 ratio).

The court affirmed the punitive damages, noting the reprehensibility of the conduct and stating that the ratio analysis cannot be applied effectively in cases where only nominal damages have been awarded. "Because actions seeking vindication of constitutional rights are more likely to result only in nominal damages," the court declared, "strict proportionality would defeat the ability to award punitive damages at all." In a footnote the court stated that Campbell was inapposite when comparing nominal to punitive damages rather than compensatory to punitive damages.

13. Wisconsin--State

* Trinity Evangelical Lutheran Church v. Tower Insurance Co., 661 N.W.2d 789 (Wis. 2003). In a bad-faith insurance action in which the insurer did not provide certain coverage requested by insured, the plaintiff faced potential liability of $490,000 stemming from an accident. At trial, the jury awarded $17,570 in compensatory damages and $3.5 million in punitive damages (200:1 ratio).

The court upheld the punitive award, emphasizing its finding that the potential harm was $490,000, which would bring the ratio to 7:1. The court therefore determined that the punitive award comported with Campbell and would "serve the legitimate state interest in deterrence, as well as in punishment."

C. Considering Defendant's Wealth

* Simon v. San Paolo U.S. Holding Co., supra. The court concluded that a defendant's "wealth is still useful in determining a punitive amount, but that amount must still comport with due process as determined along the Supreme Court's guidelines." But the court failed to recognize or acknowledge the conflict between Campbell's guidelines and holding on wealth with prior California case law holding that a punitive damages award "should not be so small 'that it can be simply written off as a part of doing business'" (21) and rejecting the use of ratios "where the resulting award would not be punitive." (22) The court noted that the punitive award was somewhat less than 5 per cent of the defendant's net worth.

* Romo v. Ford Motor Co., supra. The court stated that although Campbell does not preclude consideration of evidence of a defendant's financial condition, such evidence must be used only "to determine the appropriate punishment for the present malicious conduct, not as a gauge for the imposition of a penalty that will actually deter the entire type or course of conduct that affected these plaintiffs."

* Mathias v. Accor Economy Lodging Inc., supra. The court stated that a defendant should be punished for "what he does, not for who he is, even if the who is a huge corporation." Nevertheless, it found another rationale for relying on the defendant's wealth--that wealth enabling it to "mount an extremely aggressive defense" and "to make litigating against it very costly, which in turn may make it difficult for plaintiffs to find a lawyer willing to handle their case, involving as it does only modest stakes."

* Eden Electric Ltd. v. Amana Co., supra. The court opined that "if punitive damages are to continue to serve the broader functions of deterrence and retribution ... the defendant's wealth must be a consideration in calculating any award." The court asserted that Campbell simply held that wealth may not justify an otherwise unconstitutional punitive award, and it concluded that "if the punitive damages award is to have any punitive or deterrent effect--the stated rationale of such damages--then it is apparent that Amana's wealth and financial condition must be taken into consideration." (Court's emphasis.)

* Rockwell International Corp. v. Wilhite, supra. In vacating the punitive damages award on state law grounds, the court stated that "the case should be tried on the merits without reference to the wealth or poverty of the parties.... The corporation is entitled to have its cases tried just at the cases of individuals are tried." The plaintiff's counsel's focus on the defendant's wealth were improper and were calculated to inflame the passions and prejudices of the jury.

* TVT Records v. Island Def Jam Music Group, supra. The court focused on many factors in reducing the punitive damages, stating, "Evidence of the defendant's wealth ... is considered relevant and admissible to inform the jury in fixing the appropriate amount of a punitive award," but adding, "whatever relative wealth or power an offender may possess, the force driving a penalty cannot be motivated beyond punishment to impoverishment, or calculated not to deter but to paralyze, and utterly to prostrate rather than properly humble the offender into compliance with the law."

D. Applying Campbell in Personal Injury Actions

* Romo v. Ford Motor Co., supra. In assessing the reprehensibility of the defendant's conduct, the court noted, inter alia, the "high degree of physical harm, including deathly harm," to the victims of the instant accident, and this factor weighed "heavily in favor of substantial punitive damages." The court concluded that "the proportionality factor has less weight in the context of malicious conduct causing death."

* Henley v. Philip Morris Inc., supra. In this 6:1 ratio case, the court stated that the infliction of bodily injury in the form of lung cancer is substantially more reprehensible than the conduct at issue in Campbell. It noted that Campbell stated that "where a plaintiff has been fully compensated with a substantial compensatory award, any ratio over 4 to 1 is 'close to the line.'" However, because of the "extraordinarily reprehensible conduct of which plaintiff was a direct victim," the court held that a ratio of 6:1 was permissible in the case before it.

* Bocci v. Key Pharmaceuticals Inc., supra. In approving a 7:1 ratio, the court noted that it exceeded the 4:1 ratio suggested by Campbell as being close to the line of "constitutional impropriety." But the court cited, inter alia, the plaintiff's "misdiagnosis and consequent severe physical injury" as justifying the 7:1 ratio.

* Waddill v. Anchor Hocking Inc., supra. The court described the plaintiff's "significant physical harm"--a slashed ulnar artery, a lacerated ulnar nerve, a severed tendon, and a partial laceration to her right index finger. Nevertheless, it reduced the punitive damages to a 4:1 ratio, noting that the defendant's actions in this case were less egregious than those of the defendant in Bocci. Thus, the court did not use the plaintiff's serious physical injury as a basis for exceeding a single-digit ratio.

CONCLUSION

Ratio is the Campbell guidepost that has received the most comprehensive discussion in subsequent case law. The judicial decisions on ratio, however, show significant inconsistencies. For instance, in Southwest Gas, an Arizona federal court imposed $60 million (153:1 ratio) in punitive damages against a defendant for interfering with a merger. Just three months later, in Ceimo, another Arizona federal district court reduced an 11.79:1 ratio to 1:1 ratio in an insurance bad-faith case. Oregon state courts have stressed ratio in reducing punitive damages awards. California courts also appear to take Campbell's ratio pronouncements seriously. In Romo, Henley and Diamond Woodworks, California state appellate courts reduced punitive damages awards that were above a 10:1 ratio.

Some courts have been unwilling to apply Campbell's ratio restrictions strictly in cases in which damages are nominal or the action involved civil rights violations. In addition, some courts have considered potential harm, instead of actual harm, in applying the ratio guidepost, thereby justifying large punitive awards. Some California courts have held that the measure of compensation allowed by California law for a plaintiff's claim does not fully compensate the plaintiff and have based their ratio analyses on a number higher than the compensatory damages actually awarded. For example, in Simon, the California Court of Appeal focused on the effect of the defendant's conduct to transform a 340:1 ratio to one within Campbell's single-digit preference.

Post-Campbell decisions such as Simon, Romo, Mathias and Eden, have allowed consideration of the defendant's wealth in determining the propriety of a punitive damages award. No decision to date has adopted the view that Campbell prohibits consideration of wealth.

In a number of decisions, courts have considered physical injury to the plaintiff as a factor to increase the defendant's reprehensibility. There are exceptions, however. In Waddill, for instance, the plaintiff suffered severe physical injury, but the court reduced the punitive damages based on the relatively benign nature of the defendant's conduct.

In short, a number of significant decisions on punitive damages have looked to Campbell to determine whether punitive awards comport with due process. From these decisions, it already seems clear that Campbell has significantly changed the legal landscape. However, only a few state high courts and a limited number of federal appeals courts have issued post-Campbell decisions on punitive damages. Thus, the full extent of the changes remains to be seen.

(1.) 538 U.S. 408 (2003), rev'g and remanding 65 P.3d 1134 (Utah 2001).

(2.) 538 U.S. at 428.

(3.) Id. at 425.

(4.) 499 U.S. 1, 23-24 (1991).

(5.) 517 U.S. 559, 581 (1996).

(6.) Some plaintiffs have misstated this rule as approving higher ratios where there is either a particularly egregious act or small compensatory damages. As stated by the Court, however, the rule plainly requires both. See also Gore, 517 U.S. at 582 (in certain circumstances, e.g., an egregious act, "low awards of compensatory damages may properly support a higher ratio than high compensatory awards") (emphasis added). Nothing in Campbell suggests that ratios beyond 9-1 are permissible simply on the basis of reprehensibility.

(7.) Id. at 576-77.

(8.) See W, KIP VISCUSI, Corporate Risk Analysis: A Reckless Act? 52 STAN, L, REV. 547, 563 (2000).

(9.) See also Superior Fed. Bank v. Mackey, No. CA02-1119, 2003 Ark.App. Lexis 848, at * 27-28 (punitive award with 28.5:1 ratio should be re-examined); Hudson v. Cook, 105 S.W.3d 821, 832 (Ark.App. 2003) (in business dispute case, punitive award with 7:1 ratio was "well within the acceptable range").

(10.) 122 Cal.Rptr.2d 139 (Cal.App. 2002), remanded by 538 U.S. 1028 (2003).

(11.) See 113 Cal.Rpr.2d 494 (Cal.App. 2001).

(12.) See also Waits v. City of Chicago, 2003 U.S.Dist. Lexis 9448 (N.D. Ill.) (applying Campbell and reducing punitive damages award to four times compensatory damages, where the defendants had inflicted a "malicious and premeditated battery" on a "defenseless victim").

(13.) See also Smith v. Islamic Emirate of Afghanistan, 262 F.Supp.2d 217, 240 n.37 (S.D.N.Y. 2003) (participation in international terrorism, while "high on the scale of reprehensibility," is nevertheless subject to Campbell limits).

(14.) 538 U.S. 974 (2003).

(15.) 27 P.3d 1092 (Ore.App. 2001), review denied, 47 P.3d 486 (Ore. 2002). See also 944 P.2d 957 (Ore.App. 1997), rev'd, 18 P.3d 1096 (Ore. 2001).

(16.) 538 U.S. 974 (2003).

(17.) 272 F.3d 1335 (Fed.Cir. 2001).

(18.) 538 U.S. 974 (2003).

(19.) 532 U.S. 1050 (2001), remanding for reconsideration in light of Cooper Indus. Inc. v. Leatherman Tool Group, 532 U.S. 424 (2001); 538 U.S. 974 (2003), remanding for reconsideration in light of Campbell.

(20.) 66 Fed.Appx.398 (3d Cir. 2003), aff'g in part rev'g in part and remanding U.S.Dist. Lexis 8063 (E.D. Pa.).

(21.) Grimshaw v. Ford Motor Co., 174 Cal.Rptr. 348 (1981).

(22.) See Clark v. McClurg, 9 P.2d 505 (Cal. 1932) ($0/$5,000]; Werschkull v. United California Bank, 149 Cal.Rptr. 829 (Cal.App. 1978) ($1/$550,000); Contento v. Mitchell, 104 Cal.Rptr. 591 (Cal.App. 1972) ($0/$3,000); Sterling Drug Inc. v. Benatar, 221 P.2d 965 (Cal.App. 1950) ($1/$200).

Douglas W. Dunham is counsel in the Mass Torts and Insurance Department in the New York office of Skadden, Arps, Slate, Meagher & Flom, L.L.P. He holds B.A. (1983) and M.A. (1984) degrees from Harvard University and a J.D. (1987) from Columbia University School of Law.

Ellen P. Quackenbos also is counsel in the Mass Torts and Insurance Group at the same firm. She has a B.A. (1973) from Sarah Lawrence College, an M.A. (1978) from Columbia University and a J.D. (1991) from Fordham University School of Law.

Mr. Dunham and Ms. Quackenbos concentrate their practices in appellate and class action litigation. They both were leading members of the Skadden Arps team that represented State Farm before the United States Supreme Court in Campbell.
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Author:Dunham, Douglas W.; Quackenbos, Ellen P.
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Date:Jul 1, 2004
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