Amicus
News
No.
6. May 20, 1996
The U.S. Supreme Court today handed down its decision in BMW of North
America v. Gore, No. 94-896 (May 20, 1996). The Court reversed a $2
million punitive damage award against BMW for its failure to disclose that
the new car purchased by Dr. Gor e had been damaged by acid rain and repainted.
The Court reversed the , the U.S. Supreme Court reaffirmed the position
it has outlined in earlier cases upholding punitive damage awards under
state tort law within constitutional limits. However, the Court applied
those limits more stringently to awards where the defendant caused only
economic loss though conduct that was not shown to be especially reprehensible,
or even illegal in most states.
A fair reading of the decision suggests that it will have its greatest impact
on commercial disputes, which are a large percentage of punitive damages
cases. The impact on claims based on death or personal injury caused by
a defendants willful or reckle ss disregard for health and safety is minimal.
Although tort reformers have called for congressional action to limit punitive
damages in personal injury cases, such as product liability and medical
malpractice, the Courts decision provided little support for federal legislation.
I.
Extraterritorial Issues: The Court Drew the Line Against Punishing Conduct
that, Unlike Most Tort Causes of Action, Was Lawful Where it Occurred.
The first step in Justice Stevens federal excessiveness inquiry focused
on the scope of Alabamas legitimate interests in punishing BMW and deterring
it from future misconduct. [7-8] As the Court interpreted the evidence in
this case, BMWs nondiscl osure policy was not illegal in many, perhaps most
states. In that circumstance, a State may not impose economic sanctions
on violators of its laws with the intent of changing the tortfeasors' lawful
conduct in other States. [11] The crucial element here is the lawfulness
of BMWs actions. The Court repeatedly emphasized this factor, stating that
Alabama does not have the power, however, to punish BMW for conduct that
was lawful where it occurred and Nor may Alabama impose sanctions on BMW
in order to deter conduct that is lawful in other jurisdictions. [12]
In other circumstances, for example the nationwide marketing of dangerously
defective products, there is no reason to ignore injuries caused in other
states. There is no state in which the sale of unreasonably dangerous products
is legal or has been give n a safe haven.
II.
NOTICE
A.
Misconduct Causing Economic Loss is Not as Reprehensible as Conduct that
Causes Personal Injury
.
Justice Stevens next examined whether BMW was on notice that adopting its
nondisclosure policy could subject it to a large punitive award. In this
respect, the Court pointed out that causing purely commercial loss is less
reprehensible that inflictin g personal injury. Again, the Court indicated
that placing a dangerous product on the market would yield a far different
result. The harm BMW inflicted on Dr. Gore was purely economic in nature.
. . . BMW's conduct evinced no indifference to or reckless disregard for
the health and safety of others.
B.
Repeated Misconduct Can Be Punished By Larger Awards As Long As the Defendant
Had Reason to Know the Conduct Was Prohibited
By the same token, the Court agreed that where a defendant had repeatedly
engaged in prohibited conduct, a large award is warranted because strong
medicine is required to cure the defendants disrespect for the law.[16]
Repeat criminals can be puni shed more severely than first offenders, for
example. However, the punishment is unfair if the defendant did not know,
or at least suspect, that the conduct was unlawful. Again, the Courts view
supports BMWs claim that it had no reason to believe that i ts policy was
fraudulent. In a case involving unreasonably dangerous products or other
well-settled torts, the Gore decision would clearly support a large
punitive award as strong medicine.
C.
The Court Rejected A Bright Line Ratio Between Punitive Damages And Actual
Harm.
The Court also considered the ratio between the punitive damages and the
actual harm inflicted on the plaintiff. Although the Court characterized
the 500 to 1 ratio in this case as breathtaking, the Court again rejected
any notion that there is a m athematical bright line that marks the maximum
punitive award. Indeed, the Court explained that a higher punitive award
would be justified where the a particularly egregious act has resulted in
only a small amount of economic damages. A higher ratio m ay also be justified
in cases in which the injury is hard to detect or the monetary value of
noneconomic harm might have been difficult to determine.
D.
Unlike Most Tort Actions, the Court found BMW had no reason to expect its
activity could result in a large punitive award.
The Court also considered the fact that civil and criminal penalties for
the type of misconduct in this case were relatively slight -- generally
under $10,000 -- so that BMW had no reason to anticipate a liability verdict
of several million dollars. In other areas of tort law, including product
liability, a defendant cannot claim that it had no notice that its actions
could result in a high punitive damage award.
Gore
Decision: No Boost for Tort Reformers
Backers of various bills in Congress to impose limits on tort actions would
welcome some support for their position from the Supreme Court. But the
Courts decision in BMW of North America v. Gore, No. 94-896 (May
20, 1996), provided little le gal ammunition for their cause.
First, and most obviously, the very fact that the Court reversed the award
and laid down specific guidelines for lower courts to apply in such cases
demonstrates that judicial review provides a safeguard against unfair damage
awards. Regardless of whethe r one agrees with the Courts ultimate assessment
of Dr. Gores claim, this is not a system that is broken.
Second, what the Court did not say is also significant. Justice Stevens
majority opinion contains no dire warnings of skyrocketing damage awards.
Nor did the majority suggest that congressional action to protect defendants
might be warranted.
Third, the Court repeatedly emphasized that this case involved commercial
loss caused by a disclosure policy that was not unlawful in most states.
Justice Stevens explained: The harm BMW inflicted on Dr. Gore was purely
economic in nature. . . . BMW's c onduct evinced no indifference to or reckless
disregard for the health and safety of others. Disregard for health and
safety is the usual standard for punitive damages in personal injury actions,
particularly product liability cases.
Finally, the Court addressed the situation in which a jury bases its assessment
of punitive damages not only on the harm to the individual plaintiff but
on similar conduct towards other people across the country. This was impermissible,
the Court stated because Alabama [may not] impose sanctions on BMW in order
to deter conduct that is lawful in other jurisdictions. In product liability
cases, on the other hand, marketing a dangerously defective product is clearly
prohibited in all states.
The Gore decision reaffirmed the availability of punitive damages
within broad constitutional limits while applying those limits more stringently
in cases involving commercial loss. The tort reform bills introduced in
Congress attempt to limit rec overies in personal injury cases, and specifically
exempt claims of commercial loss.
AAJs amicus brief and the text of the courts opinion can be downloaded
from AAJ/NET at www.justice.org in the Courts section. For further
information, please contact Jeffrey White.
Phone: 202-965-3500 x310
FAX: 202-955-0920
E-Mail: jeffrey.white@justice.org
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