Practice Tip: Pleading Punitive Damages After Supreme Court's State Farm Decision

In those forums that prohibit separate causes of action for punitive damages, the allegation for punitive damages should still be pleaded together with a 'classical' cause of action, eg, negligence, warranty or strict liability. Under other Supreme Court decisions, attorneys should not allege a specific dollar amount for punitive damages unless the forum requires it. The allegation should merely state that 'plaintiff is entitled to punitive damages in a sum to be set by the jury.' If the forum requires an amount to be pleaded, I suggest using a phrase demanding a 'multiple of 10 times the compensatory damages' or just a calculation of 10 times whatever is demanded for compensatory damages. This allegation should, of course, be modified in those cases where the compensatory damages may be nominal, where a particularly egregious act has resulted in only a small amount of economic damages, where the injury is hard to detect or the monetary value of noneconomic harm might be difficult to determine.

In State Farm, the Supreme Court also reaffirmed that the most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendants' conduct. Thus, an allegation should be made as to whether the punitive damages are being sought for an economic harm or physical harm, if the conduct evinced an indifference to or a reckless disregard of the health or safety of others or if the target of the conduct is plaintiff's financial vulnerability. The allegation should also be made as to whether or not the conduct involved repeated action, was an isolated incident or if the harm was the result of intentional malice, trick or deceit.

The Court also prohibited out-of-state acts that had nothing to do with the plaintiffs as being the basis for punitive damages. In product cases, often the manufacturer is out of state. Therefore, attorneys should also allege that the out-of-state conduct was tortious in the place where it occurred. To escape constitutional prohibitions, it must be further alleged that the conduct had a nexus to the harm suffered by the plaintiff.

Last but not least, the factual basis of the claim for punitive damages must be alleged. It is insufficient to state merely that 'defendant's conduct was so egregious as to warrant punitive damages.' The attorney must state that the acts alleged were done 'willfully, recklessly or with such abandon as to be considered willful.' Practitioners are cautioned to follow whatever state court decisions have outlined, as well as the suggestions contained in the State Farm and earlier Supreme Court decisions. Until further decisions concerning pleadings are rendered, pleaders beware.

Lawrence Goldhirsch is trial counsel to Weitz & Luxenberg, PC in New York, 212-558-5500.

Recently, the U.S. Supreme Court ruled that any award of punitive damages designed to punish out-of-state conduct would not be permitted because it violated the Due Process Clause of the 14th Amendment. State Farm Mutual Automobile Insurance Co. v. Campbell, __US__, 2003 WL 1791206 (decided April 7, 2003). This decision will effect broad changes in current product liability law with respect to punitive damages; however, the most important immediate change to practitioners will be in pleading.

In product liability cases, the allegation that the plaintiff is entitled to punitive damages must usually be contained in another cause of action, eg, negligence, fraud, or breach of warranty. Punitive damages are recoverable for tortious conduct that involves malice, oppression, or acts that are wanton or reckless. Often, plaintiffs will try to establish evil intent by showing that there was a 'public wrong,' ie, the defendant undertook a wide-scale course of conduct that affected not only the plaintiff in the lawsuit but others as well. Where those 'others' are persons outside the plaintiff's state, State Farm probably requires proof that such conduct was tortious.

In addition, if the egregious conduct is perpetrated on individuals other than the plaintiffs, the plaintiffs may not recover for that conduct. With the Supreme Court ruling that this conduct, especially out of state, is inadmissible, attorneys must reconsider how to plead a punitive damages clause in a product case.

In those forums that prohibit separate causes of action for punitive damages, the allegation for punitive damages should still be pleaded together with a 'classical' cause of action, eg, negligence, warranty or strict liability. Under other Supreme Court decisions, attorneys should not allege a specific dollar amount for punitive damages unless the forum requires it. The allegation should merely state that 'plaintiff is entitled to punitive damages in a sum to be set by the jury.' If the forum requires an amount to be pleaded, I suggest using a phrase demanding a 'multiple of 10 times the compensatory damages' or just a calculation of 10 times whatever is demanded for compensatory damages. This allegation should, of course, be modified in those cases where the compensatory damages may be nominal, where a particularly egregious act has resulted in only a small amount of economic damages, where the injury is hard to detect or the monetary value of noneconomic harm might be difficult to determine.

In State Farm, the Supreme Court also reaffirmed that the most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendants' conduct. Thus, an allegation should be made as to whether the punitive damages are being sought for an economic harm or physical harm, if the conduct evinced an indifference to or a reckless disregard of the health or safety of others or if the target of the conduct is plaintiff's financial vulnerability. The allegation should also be made as to whether or not the conduct involved repeated action, was an isolated incident or if the harm was the result of intentional malice, trick or deceit.

The Court also prohibited out-of-state acts that had nothing to do with the plaintiffs as being the basis for punitive damages. In product cases, often the manufacturer is out of state. Therefore, attorneys should also allege that the out-of-state conduct was tortious in the place where it occurred. To escape constitutional prohibitions, it must be further alleged that the conduct had a nexus to the harm suffered by the plaintiff.

Last but not least, the factual basis of the claim for punitive damages must be alleged. It is insufficient to state merely that 'defendant's conduct was so egregious as to warrant punitive damages.' The attorney must state that the acts alleged were done 'willfully, recklessly or with such abandon as to be considered willful.' Practitioners are cautioned to follow whatever state court decisions have outlined, as well as the suggestions contained in the State Farm and earlier Supreme Court decisions. Until further decisions concerning pleadings are rendered, pleaders beware.

Lawrence Goldhirsch is trial counsel to Weitz & Luxenberg, PC in New York, 212-558-5500.