Punitive damages and the Constitution.
For the fourth time in the past six years, the Supreme Court, in Honda Motor Co., Ltd. v. Oberg, addressed the issue of punitive damages and the Constitution. Specifically, the Court held that due process requires judicial review of a jury's punitive damage awards. (114 S. Ct. 2331 (1994).)Taken together with the Court's three earlier rulings, it appears that although the Court believes the Consititution imposes a substantive limit on the size of punitive damage awards, constitutional analysis will focus almost exclusively on the procedures used. Punitive damages will not be declared unconstitutional simply because they are very large but rather will be overturned only if procedureal safeguards, such as judicial review, are not present.
In Browning-Ferris Industries of Vermont, Inc. v. Kelco Disposal, Inc., the Court held that large punitive damage awards do not violate the Excessive Fines Clause of the Eighth Amendment in a civil case between private parties. The Court concluded that the clause applies solely to limit recovery by the government and, thus, is not available to challenge punitive damages in private civil litigation. (492 U.S. 257 (1989).)
The Court, however, expressly left open the question of whether large punitive damage awards might be challenged under the Due Process Clause. Also, Justice William Brennan, joined by Justice Thurgood Marshall, and Justice Sandra Day O'Connor, joined by Justice John Paul Stevens, wrote separate opinions emphasizing that the Court's opinion did not foreclose a due process challenge against punitive damage awards and the process by which they are imposed.
Two years later, in Pacific Mutual Life Insurance Co. v. Haslip, the Court addressed the due process question and found that a large award of punitive damages did not deny due process. (111 S. Ct. 1032 (1992).) If ever there was a case where very large punitive damages might have been deemed unconstitutional, Haslip was it.
In Haslip, a jury awarded punitive damages 200 times the size of the plaintiff's out-of-pocket expenses based on a respondeat superior theory. An insurance agent misappropriated premiums and, as a result, a woman's health insurance policy lapsed without her knowledge. The jury awarded compensatory and punitive damages against both the agent and, based on respondeat superior, the company.
The Supreme Court rejected a due process challenge brought by the company and upheld the constitutionality of the damages. The Court emphasized that "punitive damages have long been a part of traditional state tort law." (Id. at 1041 (citation omitted).) The Court expressed "concern about punitive damages that 'run wild'" but indicated that it would be impossible to draw a "mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable" award. (Id. at 1043.)
The Court concluded that the punitive damages in Haslip were constitutional because there were adequate instructions to the jury to guide its discretion and because there were procedures for judicial scrutiny of the punitive damage award.
Many thought that this resolved the issue of punitive damages before the Supreme Court, but two years later the Court granted review in TXO Production Corp. v. Alliance Resources Corp. (113 S. Ct. 2711 (1993).) In this case, a company filed a claim to oil and gas development rights in land in West Virginia, and the owner counterclaimed with a suit for "slander of title." The jury ruled for the defendant and awarded $19,000 in actual damages on the counterclaim and $10 million in punitive damages. In other words, the punitive damages were more than 500 times greater than the compensatory damages.
The Supreme Court again upheld the constitutionality of the punitive damage award. Justice Stevens, writing for a plurality, declared that punitive damage awards are unconstitutional if they are "grossly excessive." (Id. at 2720.) He stressed, however, that excessiveness is not to be decided based on the "dramatic disparity between the actual damages and the punitive award." (Id. at 2722.) Unfortunately, Justice Stevens did not articulate criteria to be used in evaluating whether or not a particular punitive award is excessive.
In upholding the damages in TXO, he said that the damages were reasonable because of the amount of money potentially at stake, the bad faith involved, and the wealth of the party against whom the damages were awarded. (Id.)
In contrast, Justices Antonin Scalia and Clarence Thomas, in an opinion concurring in the judgment, disputed the view that the Constitution imposes a substantive limit on punitive damage awards. Justice Scalia made it clear that he does "not accept the proposition that [the Due Process Clause] is the secret repository of all sorts of other, unenumerated, substantive rights." (Id. at 2727 (Scalia, J., concurring in the judgment).)
Just as Justice Scalia always has objected to using the Due Process Clause to protect abortion rights, so does he disagree with using the provision to limit the size of punitive damage awards. He views the clause as being exclusively about procedure and not as safeguarding substantive rights.
A majority of the justices in TXO held that the procedures followed in the award and review of the punitive damages were constitutional. The Court concluded that the jury instructions were adequate and there was sufficient opportunity for judicial review of any punitive damages.
After Haslip and TXO, it appeared that a grossly excessive punitive damage award might be challenged on due process grounds, but that a court would not look solely to the ratio between the compensatory and punitive damages. The criteria that courts should use remained a mystery. Moreover, the Court had strongly indicated that procedural safeguards are essential in meeting the requirements of due process.
Oberg Case
An Oregon jury awarded a man injured in an accident involving a three-wheeled all-terrain vehicle $919,000 in compensatory and $5 million in punitive damages. Oregon law prohibits any judicial review of the amount of punitive damages "unless the curt can affirmatively say there is no evidence ot support the verdict." (Oberg, 114 S. Ct. 2331, 2332.) [In each Supreme Court case discussed in the article, ATLA filed amicus curiae briefs arguing that assessment of punitive damages should be left to the jury, as provided by common law.]
The Supreme Court declared the law unconstitutional. It held that punitive damage awards, to be constitutional, must be subject to judicial review. Writing for the Court, Justice Stevens began by noting the Court's distinction between its substantive and procedural due process analysis.
Our recent cases have recognized that
the Constitution imposes a substantive
limit on the size of punitive damage
awards....[T]oday we are not directly
concerned with the character of the
standard that will identify unconstitu-
tionally excessive awards; rather we are
confronted with the question of what
procedures are necessary to ensure
punitive damages are not imposed in
an arbitrary manner. (Id. at 2335.)
The Court explained that "judicial review of the size of punitive damage awards has been a safeguard against excessive verdicts for as long as punitive damages have been awarded." (Id.) In fact, Justice Stevens engaged in several pages of historical analysis reflecting the importance of prior practice in the current Court's reasoning. The Court concluded that Oregon had abrogated a "well-established common law protection" by eliminating judicial review and thus violated procedural due process. (Id. at 2339.)
Justice Ruth Bader Ginsburg, joined by Chief Justice William Rehnquist, were the sole dissenters. Justice Ginsburg challenged the Court's view of history and disputed the notion that judicial review of punitive damage awards is constitutionally necessary. The dissent maintained that adequate procedural safeguards existed under the Oregon scheme to satisfy the procedural requirements of the Due Process Clause. (Id. at 2350.)
What Are the Constitutional Limits?
After four Supreme Court decisions in the past six Terms, it is firmly established that there are constitutional limits on punitive damage awards. The Court has declared that these limits are both substantive and procedural. In other words, under the analysis used in Haslip and TXO, a punitive damage award can be found unconstitutional if it is so excessive as to be unreasonable. Under the Oberg analysis, an award can be found unconstitutional if proper procedures were not followed.
In reality, however, the Court has shown little willingness to engage in substantive review. Instead, the Justices have focused their analysis on the adequacy of procedural safeguards. For example, Haslip and TXO make it clear that punitive damage awards are not to be found unconstitutional simply becasue they are so much greater than the amount of the actual loss or the compensatory damages that were awarded.
Although the Court has emphasized that the Constitution imposes a substantive limit, it also has indicated that punitive damages will be allowed so long as they are reasonable. No criteria have been articulated for evaluating reasonableness, but it appears that the courts should consider the nature of the defendant's conduct, the defendant's bad faith, the amount of money potentially at stake, and the defendant's assets.
The Court's unwillingness to engage in substantive review reflects, in part, the hostility of many of the Justices to using the Due Process Clause to protect fundamental rights. Conservative Justices, such as Chief Justice Rehnquist and Justices Scalia and Thomas, consistently have objected to substantive due process and the use of the clause as a way to protect privacy rights. Moreover, the absence of meaningful substantive review of punitive damages is based on the insurmountable line-drawing problem; it seems impossible for the Court to articulate rules as to when an award should be deemed too large.
The real constitutional protections concerning punitive damages are procedural. Oberg makes it clear that punitive damage awards will be allowed only if there are adequate instructions to the jury to guide its discretion and judicial review of the jury's determination. A constitutional challenge to an award is much more likely to be successful if it can identify procedural defects than if it focuses solely on the size of the award.
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| Author: | Chemerinsky, Erwin |
|---|---|
| Publication: | Trial |
| Date: | Oct 1, 1994 |
| Words: | 1639 |
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