When is a Punitive Damages Award Too Big? A Five-Part Analytical Framework for Appeals and Post- Judgment Motions

Robert Mandel

By Robert A. Mandel

Robert A. Mandel is co-founder of Mandel Young plc (www.mandelyoung.com), a Phoenix-based appellate law firm. Known for his potent advocacy, Rob routinely appears in business, constitutional and public law disputes pending in the federal and state appellate courts, where he handles appeals of final judgments, preliminary injunctions and other interlocutory decrees, petitions for writs of certiorari (review) and mandamus (special actions), certified questions, motion practice, and the representation of amicicuriae. Rob also is retained as appellate counselor-in-residence, working collaboratively with litigators to optimize their cases for trial and appeal and undertaking primary responsibility for critical projects, including dispositive motions.

Punitive damages questions arise rather frequently both in the appellate arena and in postjudgment motion practice. Often the question is whether the magnitude of the punishment is constitutionally suspect. Although the U.S. Supreme Court has addressed the topic of “grossly excessive” punitive damages awards with uncharacteristic frequency over the past 20 years, the labyrinth of considerations articulated in the precedent remains challenging for many lawyers and judges to navigate. Add intermediate appellate court decisions to the mix and the challenge is that much more daunting. While one could write volumes on the topic, the following considerations provide a helpful starting point for evaluating whether a punitive damages award imposed by a federal court can be challenged on due process grounds. Additional considerations relevant to state court punitive damages awards will be addressed in a future article.

1. The Overarching Inquiry—Fair Notice. As a matter of U.S. Supreme Court jurisprudence, an award of punitive damages is impermissibly excessive, and, thus, a violation of the Due Process Clause, where the defendant lacked “fair notice” that the punishment could be as severe as the one imposed for the conduct upon which liability was premised. As Justice David Souter put the issue in Exxon Shipping Company v. Baker, “The real problem, it seems, is the stark unpredictability of punitive awards. Courts of law are concerned with fairness as consistency[.]” 554 U.S. 471, 499 (2008). He continued:

[A] penalty should be reasonably predictable in its severity, so that even Justice Holmes’s “bad man” can look ahead with some ability to know what the stakes are in choosing one course of action over another. And when the bad man’s counterparts turn up from time to time, the penalty scheme they face ought to threaten them with a fair probability of suffering in like degree when they wreak like damage. The common sense of justice would surely bar penalties that reasonable people would think excessive for the harm caused in the circumstances..

Id. at 502. Accord State Farm Mut. Auto Ins. Co. v. Campbell, 538 U.S. 408, 417 (2003) and Honda Motor Co. v. Oberg, 512 U.S. 415, 432 (1994). Thus, “fair notice” is the focal point of the due process inquiry.

2. The Three Guidepost Paradigm. The U.S. Supreme Court in BMW of N. Am., Inc. v. Gore enunciated three “guideposts” or benchmarks for evaluating whether the defendant had “fair notice”— i.e., whether the punitive damages award comports with due process or is instead “grossly excessive.” 517 U.S. 559, 576-81 (1996). Under this paradigm, “fair notice” is presumed to have been absent where the punitive damages award is disproportionate to (a) the reprehensibility of the conduct causing the plaintiff’s injury, (b) the quantum of harm suffered by the plaintiff(or the amount of potential harm that could have been suffered by the plaintiff had the conduct not been thwarted), and the compensatory damages recovered, and (c) the civil sanctions authorized or imposed in comparable cases, if any. Campbell, 538 U.S. at 418; see also TXO Prod. Corp. v. Alliance Res. Corp., 509 U.S. 443, 460 (1993). Accordingly, in evaluating whether there was “fair notice” of the magnitude of the punitive award, one must view the circumstances through the prism of the three guidepost paradigm.

3. The Reprehensibility Guidepost. The U.S. Supreme Court has enunciated a hierarchy of objective factors for evaluating the reprehensibility of a defendant’s conduct: (a) whether the harm caused was physical rather than economic; (b) whether the tortious conduct evinced an indifference to or reckless disregard of the health or safety of others; (c) whether the target of the conduct was financially vulnerable; (d) whether the conduct involved repeated actions or was an isolated incident; and (e) whether the harm was the result of intentional malice, trickery, or deceit, or mere accident. Campbell, 538 U.S. at 419. This hierarchy embodies the concept that “some wrongs are more blameworthy than others.” Gore, 517 U.S. at 575-76. In applying these factors, one should be mindful of the Supreme Court’s teaching that “[t]he existence of any one of these factors weighing in favor of a plaintiff may not be sufficient to sustain a punitive damages award; and the absence of all of them renders any award suspect.” Campbell, 538 U.S. at 419. As importantly, one must be vigilant to exclude other bad conduct by the tortfeasor from the analysis. Only the conduct upon which liability was premised is relevant to the reprehensibility analysis. Id. at 422-23.

4. The Reasonableness/Proportionality Guidepost … The U.S. Supreme Court, in its quest for some method by which to ensure consistency of punitive awards, views “leav[ing] the effects of inflation to the jury or judge who assesses the value of actual loss, by pegging punitive to compensatory damages using a ratio or maximum multiple,” to be a more promising alternative than hard dollar caps. Exxon, 554 U.S. at 506. While the court has repeatedly declined to impose a “bright-line ratio” that a punitive award cannot exceed, it has recognized that “few awards exceeding a single digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” Campbell, 538 U.S. at 425.

It is important to keep in mind that while the precedent provides trial courts with wiggle room when determining the appropriate ratio of punitive-to-compensatory damages, the fundamental rule is that “courts must ensure the measure of punishment is both reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered.” Id. For this reason, it is impermissible, for example, for the trial court or jury to factor into the size of a punitive damages award any harm the defendant has caused to nonparties, i.e., strangers to the litigation, no matter how certain it might seem that such harm occurred. Philip Morris USA v. Williams, 549 U.S. 346, 353-54(2007). Finally, it is a consistent theme in the U.S. Supreme Court’s jurisprudence that a punitive damages award should be no greater than necessary to achieve the goals of deterrence and retribution.

5. The Commensurate Penalties Guidepost. The third guidepost is the least developed in the case law. What is important to understand is that the focus of this guidepost is on commensurate civil penalties, not criminal penalties. Relatedly, as the U.S. Supreme Court has instructed, “[p]unitive 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.” Campbell, 538 U.S. at 428.

In sum, although the foregoing overview is no substitute for thorough research, it provides a reliable framework for the lawyer or judge as he or she embarks on a constitutional analysis of punitive damages awards in federal court.