Constitutional Requirements for Punitive Damages: Reality, Not Hyperbole—The Real Import of State Farm v. Campbell
In the November 2003 article “ Gore, Cooper Industries, and State Farm v. Campbell—Game, Set, and Match for Exorbitant Punitive Damage Awards, ” author John Kolinski spins the Supreme Court’s decision in State Farm v. Campbell, 123 S. Ct. 1513 (2003) , into one of the most significant “decisions of the past quarter century” that revolutionized the law of punitive damages. Under his interpretation, Campbell becomes the “most powerful tool ever given” to limit discovery, requires “throughout the opinion that the jury must be specifically and meaningfully charged” and orders “lower courts to change dramatically the manner in which punitive damages are litigated.” There is, however, a flaw in Kolinski’s analysis. He has failed to follow his own admonishment about not confusing “zealous advocacy with misstating [the] law,” because his claims find no support in the opinion.1
Contrary to the author’s claims, Campbell is not a watershed decision but rather a fact-bound application of existing precedent that did not fundamentally change the standards the Supreme Court had established seven years earlier in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996). Indeed, as the Court noted in Campbell, it was deciding the case “under the principles outlined in BMW. ” 123 S. Ct. at 1521. In Gore, the Court held that BMW could not be held liable for punitive damages in Alabama for conduct that was lawful in other states. The Court articulated three “guideposts” for judicial review of punitive damage awards: 1) the degree or “reprehensibility” of the defendant’s conduct; 2) the ratio of punitive damages to compensatory damages; and 3) how punitive damages compare to civil or criminal penalties for comparable misconduct.
Gore was the culmination of a quarter-century-long public relations campaign by defendant interests to “rein in” punitive damage awards. While not initially successful in the legislative arena, in large part because empirical scholarly studies demonstrated that there was no truth to the claims of an explosion of cases with skyrocketing awards,2 by the late 1980s the Supreme Court began to grant relief. Beginning in 1988, the Court issued a string of rulings, on first procedural and later substantive due process grounds, holding that punitive damage awards must be scrutinized for excessiveness against safeguards designed to protect defendant rights.3 Campbell is the latest of those decisions.
State Farm v. Campbell
Campbell was a bad faith insurance claim based on State Farm’s refusal to settle an accident claim that invoked the Gore elements of extra-state conduct and large punitive damages, both in terms of the gross amount and in relation to the compensatory damages. The Campbells contended that State Farm not only wrongly handled their case but also that State Farm had been “doing business [that way] for the last 20 years” and they introduced evidence of its nationwide claims practices. The jury awarded, and the Utah Supreme Court approved, punitive damages of $145 million that were 145 times the compensatory damages.
In reversing, the Supreme Court acknowledged that State Farm’s conduct warranted punitive damages but found the Utah court’s analysis flawed because it was based on State Farm’s nationwide activities rather than conduct toward the Campbells or other similar conduct. The Court reiterated its holding in Gore that a state may not punish a party for conduct that may be lawful where it occurred, but did not bar all evidence of extra-state conduct. Similar or the same unlawful conduct may be relevant, regardless of where it occurs.4 The Court specifically noted that even “lawful out-of-state conduct may be probative when it demonstrates the deliberateness and culpability of the defendant’s action in the state where it is tortuous,” so long as “that conduct [has] a nexus to the specific harm suffered by the plaintiff.” Campbell, 123 S. Ct. at 1522.
If the Court had stopped there or concluded that State Farm’s conduct toward the Campbells was simply not egregious enough to warrant a significant punitive award, the opinion would not have been remarkable. The Court, however, delved into the second Gore “guidepost”—the ratio between compensatory and punitive damages. While declining to impose a bright-line limit on punitive damages, the Court noted that few awards over a single-digit ratio will satisfy due process and suggested an inverse linkage between actual damages and punitive damages so that, as actual damages increase, punitive damages would decrease. Id. at 1524.
The Court also considered the third Gore “guidepost”—the comparison to civil or criminal penalties—and looked to Utah state law, which would impose a $10,000 fine for an act of fraud. The Court did not, however, order the punitive damages reduced to that sum. Rather, it somewhat retreated from Gore on this guidepost and discounted the usefulness of considering comparable criminal penalties.
In the end, the Court found that Utah was punishing State Farm for out-of-state conduct that was, for the most part, “lawful where it occurred” and which “bore no relation to the Campbells’ harm.” Id. at 1523, 1524. Finding that the Campbells’ actual damages were “substantial” and likely duplicative of the punitive damages, id. at 1525, it concluded that the punitive damage award of $145 million was “an irrational and arbitrary deprivation of the property of the defendant.” Id. at 1526.
Ratio caps on punitive damages would arbitrary limit punishment, especially in cases of particularly egregious conduct that results in only small actual damages. Inverse linkage of actual and punitive damages ignores the reality that some of the most egregious conduct, warranting the greatest punishment, can result in horrific actual damages and confuses a primary role of punitive damages, punishment for wrongful conduct, with compensation for the injured party. If these were the only considerations affecting the permissible upper limit of punitive damages, the results would be the very arbitrariness that the Court abhors.
The Court, however, eschewed that result by stating, “The precise award in any case, of course, must be based upon the facts and circumstances of the defendant’s conduct and the harm to the plaintiff.” Id. at 1524.
Two lessons seem obvious from Campbell and Gore: Cases involving large punitive awards, either in absolute amount or in ratio to compensatory damages, and/or evidence of out-of-state conduct that may be lawful in those other states, are going to provoke heightened judicial scrutiny. On the other hand, neither Campbell nor Gore addressed jury instructions, discovery or “gatekeeper” issues, or the manner in which trial courts must conduct punitive damage trials. Although largely devoid of any specifics, Mr. Kolinski proclaims that Campbell requires “from this point forward” heightened review of evidence at trial, a de novo review of evidence rulings on appeal, full and specific jury instructions, new restrictions on discovery, and a dramatic change in the way punitive damage cases are tried. His claims do not, however, withstand analysis.
The subject of jury instructions only comes up twice in Campbell. The first time is when the Court explains the reason why it developed the Gore “guideposts,” i.e., because “jury instructions typically leave the jury with wide discretion in choosing amounts” and do little to aid the jury “in assigning appropriate weight” to relevant, as opposed to tangential, evidence. Because of “these concerns, in Gore, supra, we instructed courts in reviewing punitive damages to consider three guideposts.” Id. at 1520.
The second reference is when the Court discusses the relevance of lawful out-of-state conduct and requires that the “jury must be instructed. . . that it may not use evidence of out-of-state conduct to punish a defendant for action that was lawful in the jurisdiction where it occurred.” Id. at 1522. This statement, however, refers to a limiting instruction at the time of the admission of the evidence, not a jury instruction at the conclusion of the case. Comments on the evidence or how the jury might use evidence are not proper in jury instructions at the close of a case; the only authorized circumstances in F.S. §90.107 and Fed. R. Evid. 105 are at the time the evidence is introduced. Thus, while lawful out-of-state conduct may be admissible for the limited purpose of establishing “the deliberateness and culpability of the defendant’s actions (when it has) a nexus to the specific harm suffered by the plaintiff,” it cannot be used to punish the defendant. Of course, unlawful out-of-state conduct remains admissible and probative of culpable conduct. At no time did the Court require full and specific jury instructions “concerning what [the jury] may and may not consider in awarding punitive damages.”
That the Court did not consider jury instruction issues in Campbell should not be surprising. Campbell came before the Court on a claim of excessiveness and error in the judicial application of the Gore guideposts. Nor does it seem likely that the Court will consider such issues in the future.5 Normally the language of jury instructions is a matter of state prerogative and, so long as the instructions cover basic principles, the Court probably will not attempt to delve into specific language. Beyond that, in forging a vigorous de novoreview regimen, the Court evidenced an implicit distrust of juries. It would therefore seem unlikely that the Court would place reliance on jury instructions in any remedial way.
The remainder of Mr. Kolinski’s other meanings are not discussed, mentioned, or referred to in Campbell, Gore, or any of the other Supreme Court decisions. Campbell and other Supreme Court decisions do, however, set forth the types of constitutionally relevant evidence which, a priori, will be admissible in punitive damage trials. It is the very types of evidence that have historically been the basis for punitive damage claims: 1) “tortuous conduct [evidencing] an indifference to or reckless disregard of the health or safety of others”; 2) conduct that causes physical harm; 3) conduct targeting financial vulnerability; 4) repeated misconduct; and 5) evidence of “intentional malice, trickery or deceit.” Constitutionally, not all are required to support an award of punitive damages but the absence of all five will render any award “suspect.” 123 S. Ct.at 1521. The range of conduct that can be considered is not restricted to harms to the plaintiff but can also include evidence of “the magnitude of the potential harm that the defendant’s conduct would have caused to its intended victim if the wrongful plan had succeeded, as well as the possible harm to other victims that might have resulted if similar future behavior were not deterred.” (Emphasis added.) TXO Products Corp. v. Alliance Resource Corp., 509 U.S. 443, 460 (1993); Gore, 517 U.S. at 581. And, it can include “wrongdoing in other parts of the country.” TXO, 509 U.S. at 462 n.2. In the relatively rare business practices tort cases, such as Campbell and Gore, plaintiffs will have to provide proof that out-of-state conduct was unlawful or limit their use of such evidence to proof of in-state deliberateness and culpability and establish a similarity nexus to the harm suffered by the plaintiff, but that is the only limitation that the Supreme Court has placed on the type of evidence that can be used to establish punitive conduct.
As far as discovery issues are concerned, nothing in any of the Supreme Court’s decisions changes the standard rule that allows discovery of all matters relevant to the issues or which appear reasonably calculated to lead to the discovery of admissible evidence. Fla. R. Civ. P. 1.280(b)(1); Fed. R. Civ. P. 26(b)(1). Thus, all discovery efforts designed to uncover or lead to the type of evidence described above continue to be appropriate and enforceable.
Likewise, nothing in any of the Supreme Court’s decisions changes the way punitive damage cases will be tried. In one respect, however, Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424 (2001), does change the burden of work that plaintiffs in punitive damage cases will face. Requiring de novo review means that punitive damage claims will be more protracted as plaintiffs have to prove their punitive damage cases potentially three times, and perhaps more. They will first have to convince a jury of the merits of their claim, then they will have to convince anew the trial court and, most probably, they will also have to again convince anew at least one appellate court. This is the mandated degree of constitutional review that the Supreme Court has imposed to ensure that punitive awards are not excessive or arbitrary. But, beyond this added burden of persuasion, the Supreme Court has not decreed that constitutional safeguards mandate any change in the manner in which punitive damage cases will be tried.
Much has been made about Campbell’s discussion of the amount of punitive damages. Clearly “the punishment should fit the crime,” Gore, 517 U.S. at 575 n.24,but the Supreme Court wisely declined to impose a bright line limit because punitive damages “should reflect ‘the enormity of [the] offense’” and “some wrongs are more blameworthy than others,” Id. at 595. Significantly, in Campbell the Court did not overrule its TXO decision, upholding a punitive damage award 526 times greater than the actual damages, and expressly held that a “particularly egregious act” can justify both a larger gross award and a higher ratio. 123 S. Ct. at 1524. Likewise, in Gore the Court noted that “repeatedly engag[ing] in prohibited conduct” would warrant greater punishment. 517 U.S. at 577. Without question, plaintiffs will face a greater burden to justify punitive damages that are either very large or that have high ratios to actual damages, but the precise award in each case should be fact-specific.
Mr. Kolinski disagrees and claims the Campbell “ratios” are essentially binding. An inflexible rule of that nature would produce arbitrary results and undermine the fundamental principle that the punishment should “fit the crime.” The Supreme Court decisions to date have involved only business practice torts causing essentially economic harm, such as insurance claim practices, false advertising, consumer fraud, and slander of title. The Court has not yet considered claims of widespread reckless manufacturing or marketing causing enormous physical injuries and involving large profiteering from the egregious conduct, such as was the case with the Dalkon Shield, the Ford Pinto, and, the worst of all possible examples, asbestos.6 Nor has the Court considered mega-disaster cases where a single act has caused cataclysmic damages and a jury has imposed mammoth punitive damages, such as the Exxon Valdez calamity.
Rational and just decisions in these cases will require flexible rules, consistent with the purpose of punitive damages, that allow account of the myriad circumstances that can be present. That is precisely what the Court has directed in Campbell when it stated that “because there are no rigid benchmarks that a punitive damages award may not surpass. . . [t]he precise award in any case, of course, must be based upon the facts and circumstances of the defendant’s conduct and the harm to the plaintiff.” 123 S. Ct. at 1524. Decisions of federal appellate courts are already reflecting that flexibility. See, e.g., Matthias v. Accor Economy Lodging, Inc. and Motel 6 Operating L.P., 2003 WL 22389863 (7th Cir. October 21, 2003), holding a punitive award of 37 times actual damages was not excessive in light of the defendant’s willful and wanton conduct and profiteering from its wrongful conduct; Williams v. Kaufman County, 343 F. 3d 689 (5th Cir. 2003), h olding an award of $15,000 in punitive damages not excessive even though there was only $100 in nominal damages.
Imposing an absolute limit in the form of an inflexible ratio would necessarily produce the very arbitrariness that punitive damages cannot constitutionally invoke. Furthermore, while defendants should not be subject to punitive damages solely because of wealth, it makes no societal sense to forge rules that would allow profiteering from wrongful conduct. Although defendant interests decry the unpredictability of punitive damages, it is that very feature that underlies their deterrent effect. Inflexible rules will only encourage the kind of economic calculus that results in decisions to pursue dangerous or unethical conduct rather than corrective safety measures.
The Reality of Punitive Damages in Florida
There seems little likelihood of “excessive” punitive damage awards in Florida.The right to punish punitive conduct, inherent in state’s rights under the federal system, implies the right to limit the punishment, and the Florida Legislature did just that in 1999 by enacting F.S. §768.72 et seq. to impose procedural and substantive limits on punitive damage claims. Thus, in Florida plaintiffs must establish entitlement to punitive damages by clear and convincing evidence;7 punitive damages are limited to intentional misconduct or gross negligence, are generally limited to the greater of three times compensatory damages or $500,000 unless the defendant had a specific intent to harm the plaintiff,8 and are not permitted if the defendant has already been found liable for punitive damages for the same conduct unless the court finds that the prior award was insufficient to punish that behavior. Additionally, in Florida punitive damages cannot financially destroy a defendant.9Where applicable, these provisions have been incorporated into the Florida Standard Jury Instructions. Florida has additionally invested trial courts with remittitur authority, the bases of which closely mimic the Gore guideposts. F.S. §768.74. It is only after surviving this gauntlet that any Florida punitive award would face constitutional Campbell et al. review.
Bad Faith Claims
Mr. Kolinski also claims that Campbell might require legislative correction for Florida bad faith actions. He comes to this conclusion by taking the Campbell requirement for “similarity” out of context and claiming that it is doubtful that it can be reconciled with the “general business practice” exception for bad faith punitive damages contained in F.S. §624.155. To recount, F.S. §624.155 bars claims for punitive damages in bad faith insurance practices unless “the acts giving rise to the [bad faith] occur with such frequency as to indicate a general business practice.” Thus, to recover punitive damages, a plaintiff has to establish not only the insurance company’s bad faith in his or her own case, but also repeated acts of the same misconduct sufficient to establish a general business practice of the defendant. So far, this sounds strikingly similar to the Campbell criteria of “repeated actions.” But Kolinski goes off course by taking what he calls “Campbell’s exceedingly narrow definition” of“similarity” and using that to reach the conclusion that the Florida statute might require “extraneous and dissimilar” evidence. This, he suggests, would be unconstitutional, could not be corrected by courts striking the allegedly offensive language because to do so would violate the constitutional doctrine of separation of powers,10 and therefore may require a legislative amendment. His reasoning is wrong. The Campbell discussion of similarity was in the context of when lawful out-of-state conduct can be constitutionally relevant, not in the context of a limitation on the use of unlawful in-state conduct. Nor was the Campbell description narrow, much less exceedingly so. Campbell defined dissimilar acts as acts “independent from the acts upon which liability was premised.” 123 S. Ct.at 1523. For other acts to be admissible, even out-of-state lawful conduct, Campbell only required “a nexus to the specific harm suffered by the plaintiff.” Id. at 1522. There is nothing in F. S. §624.155 that requires or even allows totally independent acts as a predicate for punitive damages. To the contrary, the statute expressly refers to “the acts giving rise to the violation” which would more than adequately satisfy the “nexus” requirement of Campbell. There is, therefore, nothing that courts or the legislature need to correct.
Punitive damages date back to the Hammurabi Code and are firmly rooted in American jurisprudence. While the subject of much rhetoric, punitive damage awards are rare and the median amount of such awards is very low.11 Nonetheless, they play an important role in encouraging ethical and normative conduct and remain the one way that ordinary citizens can enforce community standards against outrageous and harmful actions. As governmental authority to regulate such conduct continues to be undermined through “deregulation,” juries will increasingly be the last line of “regulation” to reign in unlawful and unethical conduct. That punitive damage awards for such conduct might face increased scrutiny does not subtract from their importance. q
1 Special interest groups echo this interpretation. The National Association of Manufacturers hailed Campbell as “an important breakthrough in our continuing efforts to make judges more aware [that punitive damages] are out of control.” Press Release, Nat’l Assoc. Manf., NAM Hails High Court Ruling. . . (Apr. 7, 2003), www.nam.org; the U.S. Chamber of Commerce extolled it as “a major victory for the business community’s long-standing concern over. . . punitive damage awards,” Press Release, U.S. Chamber of Commerce, Sup. Ct. Limits Size & Appropriateness .. . (Apr. 7, 2003), www.uschamber/nclc/news/alert030407; and, the American Tort Reform Association boasted that it showed that the “plaintiffs’ lawyers’ golden goose. . . is now dead,” Press Release, ATRA, U.S. Supreme Court Action Confirms .. . (May 19, 2003), www.atra.org.
2 See, e.g., U.S. Dep’t of Justice, Bureau of Justice statistics, Tort Trials and Verdicts in Large Counties, 1996 (NCJ 179769) (Aug. 2000) (finding punitive awards in only three percent of cases and a median award of only $38,000); Theodore Eisenberg et al., Juries, Judges, and Punitive Damages: An Empirical Study, 87 Cornell L. Rev. 743 (2002); Neil Vidmar & Mary R. Rose, Punitive Damages by Juries in Florida: In Terrorem and in Reality, 38 Harv. J. Legis. 487 (2001) (finding punitive damage awards in Florida “strikingly low”); Michael L. Rustad, Unraveling Punitive Damages: Current Data and Further Inquiry, 1998 Wis. L. Rev. 15 (“Every empirical study of punitive damages demonstrates that there is no nationwide punitive damage crisis.”); and Stephen Daniels & Joanne Martin, Myth and Reality in Punitive Damages, 75 Minn. L. Rev. 1, 64 (1990) (concluding that claims of a punitive damage crisis were “unfounded, and perhaps manufactured.”).
3 For a full discussion of the Court’s rulings, see Ned Miltenberg and Erwin Chemerinsky, Punitive Damages After Campbell, Smith, and Romo, Trial Magazine 18 (August 2003).
4 See TXO Products Corp. v. Alliance Resource Corp., 509 U.S. 443 (1993), noting that a defendant’s “wrongdoing in other parts of the country” is a factor “typically considered in assessing punitive damages.” Id. at 462 n.2.
5 The only time the Supreme Court considered punitive damage jury instructions, it approved instructions remarkably similar to the Florida Standard Jury Instructions. Pacific Mutual Life Insurance Co. v. Haslip, 499 U.S. 1, 19 (1990). In TXO, which affirmed a punitive award 526 times greater than actual damages, jury instructions were also challenged but the Court held that the issue had not been properly presented below and declined to consider it. 509 U.S. at 464.
6 At the time that it decided Campbell, the Court also issued memorandum decisions in Ford Motor Co. v. Smith, 123 S. Ct. 2072 (mem.) (2003), and Ford Motor Co. v. Romo, 123 S. Ct. 2072 (mem.) (2003), for “further consideration in light of Campbell.” Under established precedent, those decisions are not a determination on the merits. Lawrence v. Chater, 516 U.S. 163 (1996); Florida v. Burr, 496 U.S. 918 (1990).
7 Exceptions from the requirement of clear and convincing evidence exist for actions involving child abuse, abuse of the elderly, abuse of the developmentally disabled, actions under Ch. 400 and actions against defendants under the influence of alcohol or drugs. Fla. Stat. §§68.735, 68.736.
8 Punitive damages not to exceed the greater of four times the compensatory damages or $2,000,000 can be recovered if the defendant was motivated by financial gain and the likelihood of injury was known. See Fla. Stat. §768.73(1)(b).
9 Wransky v. Dalfo, 801 So. 2d 239 (Fla. 4th D.C.A. 2001).
10 It is not a violation of the separation of powers for courts to consider and decide legitimate constitutional challenges. In doing so, they must, to the extent possible, adopt a statutory construction that will uphold, rather than invalidate, the legislation.
11 See supra note 2.
Larry S. Stewart received his law degree with honors from the University of Florida in 1963. He is a past president of the Association of Trial Lawyers of America and the Academy of Florida Trial Lawyers and a past chair of the Trial lawyers Section of The Florida Bar. Mr. Stewart is board certified as a civil trial lawyer by The Florida Bar and the National Board of Trial Advocacy. He practices with Stewart, Tilghman, Fox & Bianchi in Miami, concentrating in personal injury and wrongful death cases, particularly products liability and medical malpractice.