Punitive damages

I tend to be fairly conservative about economic issues. I am strongly capitalist and pro-business. But working for a law firm that files many civil suits, including punitive damages claims, has reshaped my views on the necessity of litigation against corporations who, for higher profit, clandestinely act in ways that endanger human life.

To be fair, I can tell stories of unethical ambulance chasers who take garbage lawsuits to trial with the hopes of persuading juries of imbeciles to award large cash judgments. I think the notorious case of the woman who sued McDonald's after she spilt coffee all over herself belongs in the unethical category (though some respectfully disagree). I also find the tobacco comapny lawsuits dubious, and the "I'm fat because your food that I chose to ate is too fattening" lawsuits sickening.

But there are cases in which corporations consciously decide to endanger human life, weighing the costs of implementing measures to reduce danger against the costs of potential lawsuits when people die or suffer critical injuries. If a Fortune 500 company loses a $3 million compensatory damages claim, that's a drop in the bucket. That's why there's punitive damages.

I find the idea that consumers should be responsible for their own choices fairly compelling. But in cases where they have no reasonable way of obtaining information that their choices to make use of a product or service could be life-threatening or dangerous, the argument that they are responsible for their behavior is nullified.

Anyway, I find the debate between pro-business and pro-consumer advocates over punitive damages interesting since I see both sides. I definitely think people should temper their anti-corporation hatred by observing that life expectancy in this age of the corporation continues to increase at a huge rate (compared with past historical periods) and that quality of life, to me at least, is also increasing astronomically.

A couple of people commented after this writeup about the McDonalds coffee case. They feel that the case was legitimate because of a few facts: coffee was too hot to drink, lid didn't function properly, McDonalds knew these things and didn't remedy the situation. I've been through this debate before. My belief is that a reasonable person is responsible when he spills hot coffee on himself, lid, no lid, or faulty lid. When I get coffee at Starbucks, I don't think to myself--I don't have to worry about spilling it, there's a lid.

Punitive damages are damages that may be awarded to a successful plaintiff in a civil suit in addition to actual or compensatory damages upon a showing of a higher degree of culpability on the part of the defendant.

Merely causing harm to the plaintiff through a breach of a legal duty is not enough to award punitives. Normally, in order to obtain punitive damages, a plaintiff must prove by a preponderance of the evidence that the unlawful injury caused by the defendant was intentional, reckless (as opposed to mere negligence), or that the defendant acted with intent to defraud. States vary in their formulations, but requirements that a plaintiff prove "fraud, malice, wilful or wanton conduct" are common. Punitive damages are reserved for cases in which the plaintiff is not only entitled to compensation, but the defendant deserves punishment.

The theory behind punitive damages is simple. Tortfeasors — corporate and otherwise — can generally estimate the amount of a settlement or jury verdict for compensatory damages, and thus are able to figure the cost of unlawfully injuring others into a "cost-benefit analysis." A particularly striking example of this sort of calculation came to light in the Ford Pinto products liability litigation. There, an internal memo was discovered in which the company had calculated the approximate cost to the manufacturer of deaths resulting from the Pinto's exploding gas tank. Having determined the cost of "compensating" consumers for being burnt to a crisp, the manufacturer decided that the cost was worth the savings in R&D and production costs. A defendant who has already figured out that compensating its victims is a reasonable expenditure has no incentive to follow the law.

This is where punitive damages come in. People and corporations who have already figured out that they have no reason not to break the law and harm others will generally continue to do so, thus rendering the civil justice system an utter farce. Punitive damages fill the "deterrence gap" by adding an unpredictable variable into the equation. Unlike compensatory damages, which are calculated based on the estimated pecuniary value of the plaintiff's loss, punitive damages are based solely on the defendant's assets and the blameworthiness of the defendant's conduct. A tortfeasor may be able to say "I can deal with a $2 million compensatory award," and opt to break the law. An unfixed, unpredictable potential punitives award, however, cannot be figured into a cost-benefit analysis. The only real criterion in assessing punitive damages is deterrence: will the defendant and others think twice about this conduct in the future? The possibility of punitive damages makes it clear that one breaks the law at one's own risk.

Punitive damages are rarely awarded in the first place, and are frequently reduced either by the trial judge ("remittitur") or on appeal. The U.S. Supreme Court has recently begun to take a particularly active role in policing punitive damages awards. In one recent case, BMW of North America, Inc. v. Gore, __ U.S. __ (1996), the Court struck down a jury verdict that awarded the plaintiff, Gore, $4000 in compensatory damages and $4 million in punitives¹ for failing to inform customers of predelivery damage to new cars. In finding the punitive damages award to be "grossly excessive" and thus unconstitutional, the Court noted that the punitives award was 500 times the actual damage found by the jury. While declining to tie the constitutionality of a punitive damages award to a strict mathematical formula, the Court's opinion noted that "[w]hen the ratio is a breathtaking 500 to 1, however, the award must surely 'raise a suspicious judicial eyebrow.'" (quoting TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443, 482, O'CONNOR, J., dissenting).

¹ The trial judge later remitted the punitive damages award to $2 million.