In May 1996, the United States Supreme Court issued a decision in BMW of North America, Inc. v. Gore, 116 S.Ct.1589 (1996), "to illuminate 'the character of the standard that will identify constitutionally excessive awards' of punitive damages." (citation omitted) The Supreme Court set forth three "guideposts" to be used in determining whether a punitive damage award is sustainable:
- the degree of reprehensibility of the defendant's conduct;
- the ratio of the punitive damage award to the actual harm inflicted on the plaintiff; and
- a comparison of the punitive damage award with the civil or criminal penalties that could be imposed for comparable conduct.
Applying those guideposts, the Court vacated a two million dollar punitive damage award as "grossly excessive" and violative of the Due Process Clause of the Fourteenth Amendment, finding that BMW's conduct was not "egregiously improper," that the 500 to 1 ratio of punitive damages to compensatory damages was "breathtaking" and that the punitive damage award was far more severe than any arguably applicable civil or criminal penalty.
In light of the BMW decision, some federal courts have displayed a greater willingness to overturn or reduce punitive damage awards. In Continental Trend Resources, Inc. v. OXY USA, Inc., 101 F.3d 634 (10th Cir. 1996), the Tenth Circuit, in a case involving tortious interference with contract and prospective business advantage, had upheld a judgment awarding $269,000 in compensatory damages and $30 million in punitive damages. The Supreme Court vacated the judgment and remanded for further consideration in light of the BMW decision.
On remand, the Tenth Circuit found that the "reprehensibility" and "comparison to civil or criminal penalties" guideposts had been satisfied but concluded that the $30 million punitive damage award "exceeds the constitutional limit" because the "ratio between the award and the harm to these plaintiffs -- both actual and potential -- is too large." Using its "best judgment," the Court determined that "$6,000,000 is the maximum constitutionally permissible punitive damages award justified by the facts of this case."
The Court's ruling was interesting in several respects.
- First, in reviewing the ratio of punitive damages to actual harm to the plaintiff, the Court considered not just the compensatory damages awarded by the jury but also the "potential" harm to the plaintiff based on expert evidence introduced at trial.
- Second, the Court stated in dictum that "entirely economic" harm is "less worthy of punishment than harm to health and safety"; in other words, purely economic harm warrants a lower ratio of punitive to actual damages.
- Finally, the Court suggested that, under BMW, the ratio of punitive to actual damages for cases involving commercial litigation with substantial actual damages must be "within the range of a one to four to a one to ten ratio."
We will continue to monitor and report on federal courts' treatment of punitive damage awards in light of BMW and its progeny.
Postscript: On remand from the U.S. Supreme Court, the Alabama Supreme Court in the BMW case recently reduced the punitive damage award from $200,000 to $50,000.