State Farm v. Campbell: Curtailment of Punitive Damages?

Vague jury instructions affording broad discretion, unrestrained passion and prejudice overshadowing reason, and permissive state court judges substantially approving disproportionate awards have all conspired to undermine the principled application of BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996), by state courts. (Justice Antonin Scalia's dissent in Campbell deemed Gore “insusceptible of principled application.”) Writing for the 6-3 majority, Justice Anthony Kennedy opined: “The Utah Supreme Court sought to apply the three guideposts we identified in Gore.” (emphasis added) Continued unpredictable state punitive damage awards arising out of inconsistent application of the Gore guideposts led the Court's majority to define applicable constitutional standards further and offer what is hoped will be a greater measure of predictability to would-be litigants. No doubt, Campbell has afforded corporate defendants significant tools for curtailing runaway exemplary damages. Still, amid the defendants' celebrations (remember that similar euphoria followed Gore), uncertainty remains. In fact, Justice Ruth Bader Ginsburg's dissent cautioned that Campbell “takes place on ground not long held.” In short, it may be too soon for defendants to celebrate.

What is certain is that substantive due process offers defendants a compelling argument: that disproportionate punitive judgments constitute an arbitrary deprivation of property by failing to provide defendants with fair notice of punishable conduct and fair notice of the gravity of the penalty. Specifically, Campbell affords defendants:

• a presumption that compensatory awards alone render a plaintiff whole;
• exclusion of lawful and unlawful out-of-state conduct as a basis for in-state punishment;
• omission of dissimilar acts as a source of punishment. (For specific arguments on this point, see the Amicus Curiae brief of the Washington Legal Foundation and Allied Educational Foundation, written by Weil, Gotshal & Manges' Arvin Maskin, Konrad Cailteux, and Joanne McLaren.);
• a propensity for realizing single-digit ratios of punitive to compensatory damages;
• exclusion of a defendant's net worth as a source of a punitive judgment;
• de novo appellate review, as enunciated in Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424 (2001); and
• continued application of the three Gore guideposts.

Accordingly, the benefits of the Court's ruling may be felt immediately. In fact, 2 weeks after Campbell, in Key Pharmaceuticals, Inc. v. Edwards, 123 U.S. 1781 (April 21, 2003), the Court vacated a decision of the Court of Appeals of Oregon that had affirmed a 44:1 ratio of punitive to compensatory damages.