David Randolph Smith

Punitive Damages

The Sixth Circuit Court of Appeals reduced a punitive damages award from $ 3 million to $471,258.26 in a products liability case against Chrysler. Clark v. Chrysler, (6th Cir. Feb. 1, 2006). The case is important for its analysis of what type of evidence will support a constitutionally permissible award. Originally the Sixth Circuit had affirmed the district court; however, Chrysler appealed to the U.S. Supreme Court based upon State Farm Mut. Ins. Co. v. Campbell, 123 S.Ct. 1513 (2003) . The Supreme Court remanded the case to the Sixth Circuit for consideration in light of State Farm. This opinion, post-remand, reduced the punitives damages award and noted that the design defect case against Chysler was not sufficiently reprehensible to warrant a $3 million punishment.

In Mathias v. Accor Economy Lodging, Inc., 347 F.3d 672, 62 Fed. R. Evid. Serv. 1199, 7th Cir.(Ill.), Oct 21, 2003 the Seventh Circuit, in an opinion by Judge Posner, approved a punitive damages award 37 times compensatory damages in a case involving bedbug infestation at a Red Roof Inn motel. The Second Circuit has also approved a 75,000 to 1 ratio in a police-misconduct case, Disorbo v. Hoy, 343 F.3d 172 (2d. Cir. 2003) The Fifth Circuit approved a 150 to 1 ratio in a police-misconduct case. Williams v. Kaufman County, 2003 WL 22890399, 5th Cir.(Tex.), Dec 09, 2003 These cases are important in rejecting the concept that a single-digit ratio should always apply to punitives. In State Farm Mut. Ins. Co. v. Campbell, 123 S.Ct. 1513 (2003) however, the court stated, "few awards exceeding a single-digit ratio between punitive and compensatory damages will satisfy due process." Judge Posner in Mathias suggested that if a tortfeasor is caught only half the time he commits torts, then when he "is 'caught' he should be punished twice as heavily to make up for the times he gets away." Also, absent a mutli-digit multiplier it would be difficult to finance litigation that has a propsect of only negligible compensatory damages. Finally, "official" penalities could have included misdemeanor battery charges and loss of the license to operate. The decision was favorably reviewed in The National Law Journal, Vol. 26, No. 10 (Nov. 3, 2003).

The factors to consider under the Supreme Court's decision in State Farm Mut. Ins. Co. v. Campbell, 123 S.Ct. 1513 (2003) include: 1) the ratio or proprotionaliity between compensatory and punitive damages; 2) the reprehensibility of the defendat's conduct; and 3) the level of official financial sanctions that a defendant could have been subject to for the conduct being punished.

In Hodges v. S.C. Toof & Co., 833 S.W. 2d 896 (Tenn. 1992) the Tennessee Supreme Court permitted evidence of "the defendant's financial affairs, financial condition, and net worth." Donald Paine argues that State Farm does not prohibit consideration of a defendant's wealth because in State Farm Justice Kennedy stated that "The wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award." (Emphasis supplied). Moreover, State Farm quoted BMW v. Gore, 116 S.Ct. 1589, 517 U.S. 559 (1996) with approval that "[Wealth] provides an open-ended basis for inflating awards when the defendant is wealthy. . .That does not make its use unlawful or inappropriate; it simply means that this factor cannot make up for the failure of other factors, such as 'reprehensibility', to constrain significantly an award that purports to punish a defendant's conduct." (Emphasis supplied). See Paine, Punitive Damages: Hodges and State Farm, 39 Tenn. B.J. 33 (Nov. 2003).