Punitive Damages Take a Beating

The first half of 2003 has not been kind to friends of punitive damages. No matter the setting, they have taken a beating.

First Round

First came the ruling in Sawtelle v. Wadell & Reed, Inc., 2003 WL 288471 (1st Dept. 2/11/03), that an arbitration panel's award of $25 million in punitive damages in a securities case violated respondent's right to due process. The court noted in rejecting the punitive damages award that the arbitration “award dwarfs the total compensatory damages by a factor of 23,” an amount vastly out of proportion to the civil and criminal penalties that could be imposed for such misconduct.

Second Round

Next came a victory of sorts for Leona Helmsley in Bell v. Leona Helmsley et al., 2003 WL 1453108 (Sup.Ct. N.Y.Cty. 3/4/03) In that case, the jury awarded plaintiff $10 million in punitive damages in a sexual orientation discrimination case on top of an award of almost $1.2 million in actual and compensatory damages. The court found the damages awarded by the jury to be against the weight of the evidence and reduced all actual and compensatory damages to $54,000 and the punitive damages award to $500,000. (See A Word to the Wise on page 5.)

Knockout Punch

Finally, the Supreme Court in State Farm Mutual v. Campbell, 2003 WL 1791206 (U.S. 4/7/03), ruled that an award of $145 million violated defendants' due process rights in an insurance bad faith defense case where compensatory damages were $1 million. In doing so, the Court gave strong support for the view that single-digit multipliers over the award of compensatory damages are more likely to survive due process challenges. While declining to impose a bright line ratio or upper cap, the Court instructed that “Our jurisprudence and the principles it has now established demonstrate, however, that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” The Court concluded that in this case the punitive damages award was unreasonable for, among other reasons, it was not proportionate to the wrong committed and was intended to punish defendants for out-of-state conduct that bore no relation to the plaintiffs' harm.

Conclusion

In sum, punitive damages have become a little less punitive in 2003 and, apparently, for the near and perhaps distant future.

The first half of 2003 has not been kind to friends of punitive damages. No matter the setting, they have taken a beating.

First Round

First came the ruling in Sawtelle v. Wadell & Reed, Inc., 2003 WL 288471 (1st Dept. 2/11/03), that an arbitration panel's award of $25 million in punitive damages in a securities case violated respondent's right to due process. The court noted in rejecting the punitive damages award that the arbitration “award dwarfs the total compensatory damages by a factor of 23,” an amount vastly out of proportion to the civil and criminal penalties that could be imposed for such misconduct.

Second Round

Next came a victory of sorts for Leona Helmsley in Bell v. Leona Helmsley et al., 2003 WL 1453108 (Sup.Ct. N.Y.Cty. 3/4/03) In that case, the jury awarded plaintiff $10 million in punitive damages in a sexual orientation discrimination case on top of an award of almost $1.2 million in actual and compensatory damages. The court found the damages awarded by the jury to be against the weight of the evidence and reduced all actual and compensatory damages to $54,000 and the punitive damages award to $500,000. (See A Word to the Wise on page 5.)

Knockout Punch

Finally, the Supreme Court in State Farm Mutual v. Campbell, 2003 WL 1791206 (U.S. 4/7/03), ruled that an award of $145 million violated defendants' due process rights in an insurance bad faith defense case where compensatory damages were $1 million. In doing so, the Court gave strong support for the view that single-digit multipliers over the award of compensatory damages are more likely to survive due process challenges. While declining to impose a bright line ratio or upper cap, the Court instructed that “Our jurisprudence and the principles it has now established demonstrate, however, that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” The Court concluded that in this case the punitive damages award was unreasonable for, among other reasons, it was not proportionate to the wrong committed and was intended to punish defendants for out-of-state conduct that bore no relation to the plaintiffs' harm.

Conclusion

In sum, punitive damages have become a little less punitive in 2003 and, apparently, for the near and perhaps distant future.