Punitive Damages: How Punitive?

Martin Roberts, WB Blogger

“Exemplary damages imposed on a defendant should reflect the enormity of his offense.”
Day v. Woodworth United States Court

This was stated by the Unites States Supreme Court nearly 150years ago. But in today’s world, this seems to have been forgotten. Now, either the judiciary will just hand out minuscule amount of punitive damages as crumbs of a cookie (like in India) or they would give huge amount which would in reality never see the light of the day or they would award these damages in selective cases.

Although, every country is pursuing the same concept of punitive damage, its interpretation is exhibiting variance. Punitive damages, also known as exemplary damages, are awarded to act as a deterrent so as to dissuade the wrongdoer or others from committing the same folly.

glasses-593006_1920Source: PixaBay

They are awarded not as compensation, but in order to reform or deter the defendant and similar persons from pursuing a course of action such as that which caused damage to the plaintiff. Punitive damages are awarded only in those cases where the conduct of the defendant was egregiously invidious. These are over and above the amount of compensatory damages and it is not necessary that they be in consonance with the compensatory damages.

Great judicial restraint is expected to be exercised in their application. Although, the judiciary and the legislature are aware of the basic premise of punitive damages, but then the question that arises is that where are they going wrong?

What as been the attempted in this article is to draw out the distinction in the application of principle of punitive damages in various countries around the world.

United Kingdom:

Under UK law, exemplary damages can be awarded only if permitted by statute or if the following conditions are fulfilled.

First, the wrongdoer has committed a legal wrong of a type for which punitive damages were awarded before 1964.

This rules out the possibility of awarding punitive damages in all cases under sex, race, disability and other anti-discrimination legislation, all of which made their entry after 1970.

The second was laid down by Lord Patrick Devlin in the landmark judgment of Rookes v Barnard, as follows: in cases of oppressive, arbitrary or unconstitutional actions by the servants of government, exemplary damages may be awarded.

Third, where the defendant’s conduct was ‘calculated’ to make a profit for himself.

The ratio of Rookes v. Barnard case was interpreted by the Court of Appeal in A.B. (Gibbons) v South West Water in such a way so as to imply that the exemplary damages could only be imposed when there was an oppressive, arbitrary or unconstitutional action by the servant of the government or where the defendant’s conduct was to make profit for himself to the detriment of others and could not be awarded in any other circumstance.

Thus, exemplary damages were not to be awarded in those cases in which punitive damages would not have been awarded prior to 1964.

In Deane v. The London Borough of Ealing, the Employment Appellate Tribunal applied the rule as laid down in A.B. v South West Water to hold that exemplary damages could not be awarded in a race discrimination case since the legislation forbidding race discrimination in employment did not exist before 1964.

To give redress in the form of punitive damages only in cases of those offences, for which punitive damages were awarded prior to 1964, would seem considerably irrational. Fortunately, this trend and reasoning has not continued further.

The Law Commission of UK in its report on 16th December 1997 recommended that the law should be changed so that “punitive damages would be available for a legal wrong (other than breach of contract) if the defendant has deliberately and outrageously disregarded the plaintiff’s rights.”

There also seems to be a shift in the judicial thinking with regard to awarding of punitive damages, which is in agreement with the view of the Law Commission.

This is evident from the House of Lords decision in Kuddus v. Chief Constable of Leicestershire Constabulary , decided on 7 June 2001. In this case a claim of misfeasance in public office was made. The House of Lords held that whether exemplary damages could be awarded on the grounds of oppressive, arbitrary or unconstitutional action by a public officer depended on the features of the officer’s behavior rather than on the cause of action sued up on. The plaintiff’s claim was not precluded by the fact that misfeasance in public office was not a cause of action justifying an award of exemplary damages before Rookes v Barnard in 1964.

The Lords were all agreed that exemplary damages should not be restricted to causes of action for which they had been available before 1964 and that exemplary damages could be awarded in this particular case.

The wider implications of this judgement on discrimination cases are still unclear. Although, passing reference was made to discrimination cases, with Lord Mackay in particular emphasizing that punitive damages could be awarded in discrimination cases if legislation permits (which at present it does not).

Thus it seems that till such time there is a judicial authority or a new legislation on this subject; the situation would remain the same.

It has to be noted here that the reasoning laid down in Rookes V. Barnard is not followed in Australia and Canada.

United States:

While in England the battle is with regard to awarding of punitive damages in cases beyond those in which they were awarded before 1964, the United States is waging a different kind of war with regard to punitive damages.

In the United States, the number and size of punitive damages is increasing day by day. The jury doles out large sums of monies as punitive damages that are grossly disproportionate in comparison to the compensatory damages. What happens to these huge punitive damages? Are they truly handed out to the victim? The answer is in negative. During the appellate proceedings, these amounts are reduced to a large extent.

The punitive damages awards are further subject to the limitations imposed by the due process of law clauses of the Fifth and Fourteenth Amendments of the United States Constitution.

A classic example of this is the case of BMW v. Gore. The facts of the case are:

After purchasing a new vehicle from an authorized Alabama BMW dealership, Ira Gore, Jr. discovered that his new vehicle had been repainted. He sued BMW’s American distributor (BMW), alleging that it committed fraud by failing to inform him that his car had been repainted. The Alabama Circuit Court entered judgment, following a jury verdict, awarding Gore $4,000 in compensatory damages and $4 million in punitive damages. On appeal from the trial judge’s denial of BMW’s post-trial petition to set aside the punitive damages as ‘grossly excessive,’ the Alabama Supreme Court ruled that the punitive damages were not so excessive as to violate BMW’s Fourteenth Amendment right to due process. Due to a jury calculation error, however, the Alabama Supreme Court reduced Gore’s punitive damage award to $2 million. BMW appealed to the Supreme Court.

The Court held that while a state may impose punitive damages to further its interest in deterring unlawful conduct, the Fourteenth Amendment’s due process clause prohibits states from imposing grossly excessive punishments on tort-feasors. In the present case, the punitive damage’s excessive nature is indicated by the 500 to 1 ratio between the jury’s punitive and actual damage awards, the relatively insignificant amount of damage, and the lack of statutory fines that remotely parallel the present award’s magnitude. BMW’s due process rights were also violated because it could not have possibly anticipated, nor did it receive fair notice, that it might face such a severe punishment.

The supporters of large punitive awards argue that these attract a lot of attention and thus in turn act as a deterrent. The skeptics however, raise the point that the concept of punitive damages is to be a deterrent to the wrongdoer.

Agreed, but what about the other people in the same position as the plantiff. Just because the plaintiff bought a suit of action against the defendant he was showered with a windfall gain, which will benefit only him and not society at large, not even the other victims.

Since in the United States, each state has the authority to regulate punitive damages, one state may award excessive damages while another may not. Juries are thus permitted to punish a defendant in a single lawsuit for nationwide conduct that may be treated differently by the other states.

The modern trend of juries is class wide punitive damage, that is, punishing the defendant for all the wrongs, which he may have committed with regards to a lot of people who have not approached the court, by awarding compensation to those who have.

Even though the Supreme Court’s judgment in State Farm Mutual Automobile Insurance Co. v. Campbell should have been beacon in this direction, but it has got diminished into darkness.

The facts of the case are:

The investigators had concluded that Curtis Campbell caused an accident in which one person was killed and another permanently disabled, his insurer, State Farm Mutual Automobile Insurance Company, contested liability and took the case to trial. State Farm assured the Campbell’s that they would represent their interests. After losing in court, the Campbells sued State Farm for bad faith, fraud, and intentional infliction of emotional distress. In the first part of the trial, the jury found State Farm’s decision not to settle unreasonable. In the second part, the trial court denied State Farm’s renewed motion to exclude dissimilar out-of-state conduct evidence, ruling such evidence was admissible to determine whether State Farm’s conduct in the Campbell case was indeed intentional and sufficiently egregious to warrant punitive damages. The jury awarded the Campbells $2.6 million in compensatory damages and $145 million in punitive damages, which the trial court reduced to $1 million and $25 million respectively. The Utah Supreme Court reinstated the $145 million punitive damages award.

The Court held that the punitive award of $145 million was neither reasonable nor proportionate to the wrong committed, and it was thus an irrational, arbitrary, and unconstitutional deprivation of the property of the insurer. The Court reasoned that evidence of dissimilar out-of-state misconduct was an improper basis for punishing the insurer for the limited harm.

This case could have provided to be a landmark judicial precedent had it been followed. But, sadly this is not the case.

In Matthias v. Accor Economy Lodging, Inc., the propriety of an $186,000 punitive damages jury award to each of two plaintiffs who had been bitten by bedbugs in an Illinois hotel was to be determined. The hotel had 191 rooms, practically all of which were infested by bedbugs, of which the hotel management was aware of. While bedbugs had bitten many in the hotel, only two guests sued. The award they received reflected the jury’s attempt to calculate the harms wrought not only to those two particular plaintiff-guests, but also to all other guests who stayed in the other infested rooms.

Thus, the two plaintiffs who sued were the recipients of large amount of money for being bitten by bedbugs and for suing the hotel. But they were not the only ones who were bitten, there were other guests also but no compensation was awarded to them.

In the light of such a disappointing situation, attempts are being made to introduce reforms in the field of punitive damage.

Some states have introduced the concept of “split recovery schemes.” These are laws, which are currently in place in eight states that require the courts to distribute a portion of any punitive damages award to a recipient other than the plaintiff. For instance, the split recovery statutes in Alaska, Georgia, and Utah require a portion of each punitive damages award to be distributed to the state, which then is deposited in the general revenue fund.

But, a better approach then this has been outlined by Professor Catherine Sharkey in an article published in the November 2003 issue of the Yale Law Journal titled “Punitive Damages as Societal Damages”. Professor Sharkey has brought to light the non-punitive rationale of these damages namely: societal compensation; i.e., the notion that one purpose of punitive damages is to compensate non-plaintiff individuals not before the court for the harms caused by the defendant who is before the court. Thus, attempts should be made that the punitive damages, which are awarded, are be handed out to all the sufferers and not just one.

While this approach seems to be the best way out of preserving the sanctity of the concept of punitive damages. What has to be seen is how far juries are willing to endorse it.

Thus, the current legal state of affairs with regards to punitive damages is in a dilapidated condition. What could have been used as a wagon for justice is being used as a weapon for monetary gain of few. This situation is not only in England or the United States, but different versions of it exist in most of the legal systems around the world. What is required is that a uniform, reasonable as well as a practical system for awarding punitive damages is devised so that they serve their purpose of a deterrent in the true sense.