The Need for Punitive Damages Reform

Fast Facts:

"... few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process. ... When compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee."

-U.S. Supreme Court Justice Anthony M. Kennedy, majority opinion, State Farm Mutual Automobile Insurance Company v. Campbell

• On April 7, 2003, the U.S. Supreme Court in State Farm Mutual Automobile Insurance Company v. Campbell - invalidated a $145 million punitive damage award in a case in which the defendant was found liable for only $1 million in compensatory damages.
  
  
• The Supreme Court held that this punitive damage award was excessive and in violation of the Due Process Clause of the Fourteenth Amendment, and sent the case back to the Utah Supreme Court for further review.
  
  
• The Supreme Court indicated that punitive damages generally should not exceed a low multiple of compensatory damages. The Court said that in a case like State Farm, any ratio higher than 1:1 likely would be excessive, and that ratios above 4:1 would rarely pass constitutional muster. Double-digit ratios hardly ever would, except in those few cases with small compensatory damages and highly reprehensible conduct.
  
  
• Last Friday, the Utah Supreme Court reduced the punitive award to approximately $9 million in a decision that many believe still does not comply with the U.S. Supreme Court decision.
  
  
• While the U.S. Supreme Court decision made great strides in providing guidelines to rein in excessive punitive damage awards, last week's ruling by the Utah Supreme Court shows that the U.S. Supreme Court decision will mean little if not properly enforced by the lower federal and state courts.
  
  
• Preliminary data indicate that State Farm has reduced the amounts of punitive damages that reviewing courts have upheld. However, State Farm's full potential to bring rationality to punitive damages litigation has yet to be completely fulfilled. Many courts remain reluctant to reduce punitive awards to the low multiples of compensatory damages suggested by State Farm.
  
  
• Despite the State Farm ruling, many business defendants are forced to expend massive resources fighting for due process in appellate courts because trial courts have not uniformly implemented the guidelines outlined in State Farm.
  
  
• The U.S. Chamber Institute for Legal Reform strongly supports the State Farm decision and is engaging (through the National Chamber Litigation Center) in an aggressive litigation strategy of filing amicus briefs in state and federal appellate courts to ensure compliance with the decision. (ILR is amicus curiae in more than a dozen such cases - for a complete case list, log on to: http://www.uschamber.com/nclc/caselist/issues/damages.htm)