During the past decade, the United States Supreme Court has rejected or refused to consider several constitutional challenges to punitive damage awards. In BMW of North America, Inc. v. Gore, 116 S. Ct. 1589 (1996), however, the Court vacated a punitive damage award and set forth an analytical framework for such challenges. Published cases applying BMW in the year following that decision demonstrate the force of that analytical framework. This article briefly highlights those cases and then sets forth some trends those cases suggest.

II. BMW OF NORTH AMERICA, INC. V. GORE.

The plaintiff claimed that BMW failed to disclose that a new car he purchased had been repainted. 116 S. Ct. at 1593. The United States Supreme Court found plaintiff's $2,000,000 punitive damage award "grossly excessive" when compared to the $4,000 compensatory damage award. Id. at 1598. In doing so, the Court set forth three "guideposts" to determine when punitive damage awards violate Due Process: (1) the reprehensibility of defendant's conduct; (2) the ratio of punitive to actual or potential compensatory damages and (3) sanctions for comparable misconduct. Id. at 1598-1603. Cases applying BMW have more fully delineated these guideposts.

III. CASES APPLYING BMW.

A. The BMW Remand.

On remand, the court noted that plaintiff was "well-to-do" and that BMW's conduct only caused economic harm. BMW of North America, Inc. v. Gore, 1997 WL 233910, *6 (Ala. May 9, 1997). The applicable statutory penalty for fraud--"a meager $2,000"--did not remove BMW's profit, causing the court to almost completely disregarded sanctions for comparable misconduct. Id. at *7. After considering a variety of other factors--including defendant's financial position, plaintiff's litigation costs and other civil actions--the court awarded plaintiff $50,000 in punitive damages, resulting in a 12.5 to 1 ratio of punitive to compensatory damages. Id. at *7-*9.

B. Cases Vacated By The Supreme Court.

The Supreme Court vacated and remanded seven decisions for further consideration in light of BMW.(1) To date, only one decision on remand has been published. See Continental Trend Resources, Inc. v. OXY USA, Inc., 101 F.3d 634 (10th Cir. 1996) (2-1 decision), cert. denied, 1997 WL 155471 (U.S. May 27, 1997). OXY involved tortious interference claims in which the jury awarded plaintiffs $269,000 in compensatory and $30,000,000 in punitive damages. Id. at 635. While plaintiffs only incurred economic injury, defendant's actions "contain[ed] almost all of [BMW's] other indicia of reprehensibility." Id. at 638. Moreover, the jury was "`moved by the repugnancy of'" defendant's conduct, plaintiffs were subject to $1,000,000 in potential losses and defendant's potential profit was nearly $2,000,000. Id. at 639-40. Defendant's conduct could have been "subject to a very large fine" and plaintiffs' legal costs exceeded their compensatory damages. Id. at 641-42. After applying "guidelines that contain no absolutes to facts that provide only imprecise potential damage amounts," the court awarded plaintiffs $6,000,000 in punitive damages (six times plaintiffs' potential damages). Id. at 643.

C. United States Circuit Court Cases.

1. Neibel v. Trans World Assurance Co., 108 F.3d 1123 (9th Cir. 1997).

Plaintiffs claimed misrepresentations by defendant arising out of a investment scheme. Id. at 1125-26. Defendant's actions financially ruined many plaintiffs and, because defendant had received warnings that the scheme was a scam, the conduct was "`particularly reprehensible.'" Id. at 1132. Criminal penalties could have subjected defendant to imprisonment for 20 years. Id. at 1132-33. The punitive ($500,000) and compensatory damages ($87,000) resulted in a 5.75 to 1 ratio, which did not "`raise [our] suspicious judicial eyebrow,'" and the court affirmed. Id. at 1132-33.

2. Hilao v. Estate of Marcos, 103 F.3d 767 (9th Cir. 1996).

Class action where the court found $1,200,000,000 in punitive damages were not excessive in light of more than $750,000,000 "in compensatory damages for the human-rights abuses inflicted on the nearly 10,000 class members." Id. at 781.

3. Cooper v. Casey, 97 F.3d 914 (7th Cir. 1996).

Prison cellmates, who had been beaten and denied medical assistance, brought 42 U.S.C. 1983 claims against prison guards. Id at 915-16. The jury awarded each plaintiff a total of $5,000 in compensatory and $60,000 in punitive damages. On appeal, the court rejected defendants' challenge to the punitive damages. Id. at 919-20. "The smaller the compensatory damages, the higher the ratio of punitive to compensatory damages has to be in order to fulfill the objectives of awarding punitive damages." Id. at 919. The largest punitive damage award against any defendant was $22,500. Id. at 920. In affirming, the court noted that "[n]either the size of the awards nor their ratio to the compensatory damages awarded is out of line with comparable cases." Id.

D. United States District Courts.

1. Benson v. Northwest Airlines, Inc., 1997 WL 122897 (D. Minn. Mar. 18, 1997).

In this disability discrimination case, the jury awarded plaintiff $75,000 in compensatory and $2,542,000 in punitive damages. Id. at *1. On defendant's motion, the court reduced punitive damages to $225,000 to comply with a statutory cap. Id. at *2-*3. After reviewing the BMW guideposts and "all the evidence presented at trial," the $225,000 punitive award was "not grossly excessive." Id. at *3.

2. Scribner v. Waffle House, Inc., 1997 WL 257427 (N.D. Tex. Mar. 7, 1997).

Case involving "severe and pervasive sexual harassment" and "an egregious attempt to suborn perjury." Id. at *1. Opinion, after a trial to the court, details pervasive and graphic harassment, id. at *14-*33, and "fictitious `reasons'" for plaintiff's discharge, id. at *33-*41, and awards plaintiff $687,713 in actual damages, id. at *73. In awarding punitive damages, the court considered defendants': (1) egregious conduct; (2) failure to investigate; (3) ignoring facts; (4) revenue; and (5) similar conduct as well as (6) the ratio of actual to punitive damages in other cases. Id. at *66-*72. In light of defendants' extreme conduct, the court awarded plaintiff $6,300,000 in punitive damages for harassment and $1,149,504 for defamation/tortious interference. Id. *73.

3. Iannone v. Frederic R. Harris, Inc., 941 F. Supp. 403 (S.D.N.Y. 1996).

In this sexual harassment case, the jury awarded plaintiff $62,000 in back pay (later reduced to $23,407), $5,000 in compensatory damages and $250,000 in punitive damages. Id. at 408. The court found that defendant's conduct "was not outrageous" and that the punitive to compensatory damages ratio (50 to 1) was "clearly disproportionate." Id. at 414-15. Moreover, the punitive damages were "more than eighty percent" of the statutory cap. Id. at 415. Accordingly, the court reduced punitive damages to $50,000. Id.

4. Florez v. Delbovo, 939 F. Supp. 1341 (N.D. Ill. 1996).

In this 42 U.S.C. 1981 case, the jury awarded plaintiff $55,000 in compensatory damages, $2500 in punitive damages against one defendant and $750,000 in punitive damages against another defendant. Id. at 1342. On defendants' motion, the court noted that defendants' conduct "was only slightly more reprehensible than the conduct in BMW." Id. at 1348. Moreover, BMW "disfavor[s] consideration of the defendant's financial worth and condition." Id. at 1345. The punitive damages were more than 13 times the actual damages, which was "clearly `beyond the line.'" Id. at 1348. The most analogous statute capped punitive damages at $300,000 and the highest relevant punitive to compensatory damages ratio was 5 to 1. Id. at 1348-49. Accordingly, the court reduced the punitive damage award to $275,000. Id.

5. Hurley v. Atlantic City Police Dep't, 933 F. Supp. 396 (D.N.J. 1996).

Plaintiff's sex-based discrimination claims resulted in a verdict of $575,000 in compensatory and $700,000 in punitive damages. Id. at 401. Through post-trial motions, the court reduced the compensatory damages to $175,000 and sua sponte examined the BMW guideposts, "the intent of the wrongdoer, and the wrongdoer's wealth, as well as any mitigating circumstances." Id. at 425. Applying these factors, the court upheld the $700,000 punitive damage award. Id. at 426.

6. Utah Foam Prods. Co. v. Upjohn Co., 930 F. Supp. 513 (D. Utah 1996).

Plaintiff claimed misrepresentations in a sale and the jury awarded $313,593 in compensatory and $5,500,000 in punitive damages. Id. at 516. Addressing defendant's motion, the court discussed: (1) defendant's misconduct and surrounding circumstances; (2) actual damages; (3) the probability of future misconduct; (4) the relationship of the parties; (5) the impact on plaintiff and others; (6) defendant's wealth; (7) safety concerns and (8) sanctions for comparable misconduct. Id. at 527-32. Those factors showed that the punitive damages "could neither withstand constitutional scrutiny under BMW, nor the `reasonable and rational' scrutiny required under Utah law." Id. at 532. Accordingly, the court reduced the punitive damages to twice the compensatory damages. Id.

7. Schimizzi v. Illinois Farmers Ins. Co., 928 F. Supp. 760 (N.D. Ind. 1996).

Plaintiff claimed that defendant tortiously failed to act in good faith. Id. at 763. The relevant discussion involved $44,432 in actual and $600,000 in punitive damages. Id. at 785. Applying the BMW guideposts and examining comparable cases, the court reduced the punitive damage award to $135,000. Id. at 783-87.

8. Hearn v. General Elec. Co., 927 F. Supp. 1486 (M.D. Ala. 1996).

Following a bench trial, the court held that plaintiffs' demotions and layoffs were gender based. Id. at 1492. One plaintiff received $50,000 for mental anguish while the other received $20,000 and, applying BMW, the court awarded each plaintiff $75,000 in punitive damages. Id. at 1500-01.

9. Park v. First Union Brokerage Servs., Inc., 926 F. Supp. 1085 (M.D. Fla. 1996).

Plaintiff's claims included wrongful termination, defamation and intentional interference. Id. at 1087. An arbitration award gave plaintiff $272,045 in compensatory and $500,000 in punitive damages. Id. Rejecting defendant's challenge to punitive damages, the court found that "[t]his case is not representative of a `grossly excessive' award that cries out for vacatur." Id. at 1090.

10. Geuss v. Pfizer, Inc., 1996 WL 729048 (E.D. Pa. Dec. 17, 1996).

In this disability discrimination case, the jury awarded plaintiff $165,250 in actual and $150,000 in punitive damages. Id. at *1. In addressing defendant's motion, the court found that defendant took actions that appeared "inconsistent with a company acting with malice or reckless indifference." Id. at *10. Defendant's conduct was "far less reprehensible than other cases" where large punitive damages were awarded. Id. at *11. Accordingly, the court reduced the punitive damages to $17,500. Id. at *12.

11. Gregory v. Chemical Waste Management, Inc.,1996 WL779774 (W.D.Tenn.Dec.11, 1996).

Plaintiffs claimed misrepresentation, suppression and bad faith refusal to comply with a contract. Id. at *1. Following a non-jury trial, the court awarded plaintiffs $76,490,352 in compensatory damages (primarily attributable to the contract claim). Id. at *29. In assessing punitive damages, the court found "a well defined plan [by defendant] to cheat Plaintiffs out of money rightfully due them," id. at *25, and that defendant tried to conceal its fraud, id. at *27. Accordingly, and after considering several other factors, the court awarded plaintiffs $15,000,000 in punitive damages, which was roughly three times the royalties defendant failed to pay plaintiffs. Id. at *27.

12. American Laser Prods., Inc. v. National Imaging Supplies Group, Inc.,
      1996 WL 705243 (N.D. Ill. Dec. 4, 1996).

The jury awarded plaintiff $150,000 in compensatory and $100,000 in punitive damages for breach of fiduciary duty. Id. at *1. The court sua sponte held that the punitive damages complied with the BMW guideposts. Id. at *2.

13. Jonasson v. Lutheran Child & Family Servs., 1996 WL 327965
(N.D. Ill. June 12, 1996), aff'd, 1997 WL 273564 (7th Cir. May 22, 1997).

The court addressed jury verdicts for nine plaintiffs in this sex-based harassment case. Plaintiff Jonasson's total award was capped at $200,000, causing the court to award $100,000 in compensatory and $100,000 in punitive damages. Id. at *3. Defendant "failed to properly investigate and react to plaintiffs' claims" and took an "indifferent view toward plaintiffs' rights," making punitive damages proper. Id. The court then sua sponte reviewed other plaintiffs' punitive damage awards. Id. at *4. Finding those awards were "well within the range of the jury's discretion," the court affirmed, resulting in punitive to compensatory damage ratios ranging from 10 to 1 to 1 to 1.5. Id. Those awards were reasonable in light of "(a) the trial evidence; (b) the reduced Jonasson verdict; and (c) the three BMW `guideposts.'" Id.

E. State Appellate Courts.

1. Foremost Ins. Co. v. Parham, 1997 WL 112722 (Ala. Mar. 14, 1997).

Misrepresentation and suppression claims arising out of the purchase of insurance by Massey and the Parhams resulting in the following jury awards:

2. Owens-Corning Fiberglas Corp. v. Rivera, 683 So. 2d 154 (Fla. Dist. Ct. App. 1996), rev. denied, 691 So. 2d 1080 (Fla 1997).

Product liability case against the manufacturer of an asbestos product. Id. at 155. Defendant appealed from a judgment awarding plaintiff $2,045,000 in compensatory and $1,500,000 in punitive damages. Id. BMW required investigating "the level of reprehensibility of a manufacturer's conduct" and the ratio between punitive damages and plaintiff's actual harm. Id. at 156. Because defendant's conduct "was highly deleterious to human health" and the damages "were clearly proportionate," the court affirmed. Id.

3. Walston v. Monumental Life Ins. Co., 923 P.2d 456 (Idaho 1996).

Plaintiff sued for breach of contract, fraud and bad faith arising out of the denial of insurance benefits. Id. at 458. The jury awarded $3,800 for breach of contract, $120,000 for fraud/bad faith and $10,000,000 in punitive damages. Id. The trial court reduced the punitive damages to $3,200,000 and the appellate court affirmed. Id. "Misrepresenting insurance coverage and refusal to pay a claim that any reasonable person would say was due does rise high on the reprehensibility scale." Id. at 467. The ratio of punitive to compensatory damages ("just under 26 to 1") was high but BMW did not "prescrib[e] a mathematical formula." Id. at 468. Moreover, the court approved the trial court's rationale in arriving at the $3,200,000 award (5% of defendant's annual profits). Id. at 466, 468.

4. Wilson v. IBP, Inc., 558 N.W.2d 132 (Iowa 1996), petition for cert. filed (U.S. May 14, 1997).

Considering libel and fiduciary duty claims arising out of a work-related injury, a jury awarded plaintiff $4000 in compensatory and $15,000,000 in punitive damages. Id. at 136. On appeal, the court found defendant "knowingly engaged in a malicious course of conduct." Id. at 148. Future deterrence was "of great importance," while the ratio of punitive to compensatory damages was of "minor significance." Id. After noting defendant's net worth and other factors, the court allowed plaintiff $2,000,000 in punitive damages, yielding a 500 to 1 ratio. Id.

5. Doten v. ACandS, Inc., 1997 WL 118248 (Minn. Ct. App. Mar. 18, 1997).

Tort action against the manufacturer of an asbestos product. Id. *1. Defendant appealed from a judgment awarding plaintiff $240,000 in compensatory and $500,000 in punitive damages. Id. The court found that defendant's policy of concealing the dangers of asbestos "was far more reprehensible" than the conduct in BMW. Accordingly, the court affirmed the punitive damage award. Id. at *9.

6. Mehlman v. Mobil Oil Corp., 676 A.2d 1143 (N.J. Super. Ct. App. Div. 1996), petition for certification granted, 686 A.2d 764 (N.J.).

The jury awarded plaintiff, who claimed he was fired because he raised safety issues, $3,440,300 in compensatory and $3,500,000 in punitive damages. Id. at 1146. In affirming, the court noted the potential physical harm implicated by the safety issues plaintiff raised. Id. at 1165. Moreover, $3,500,000 in punitive damages were necessary "to prevent [defendant] and other companies" from silencing similar objections. Id.

7. Schaffer v. Edward D. Jones & Co., 552 N.W.2d 801 (S.D. 1996).

The jury awarded plaintiff $25,000 in compensatory and $750,000 in punitive damages for fraud and misrepresentation based on the sale of a limited partnership. Id. at 804. On appeal, the court considered the BMW guideposts as well as defendant's intent and financial condition. Id. at 810-14. Although those factors showed that the punitive damages were "indeed generous," they did not shock the court's "collective conscience." Id. at 814. Accordingly, the court affirmed, yielding a 30 to 1 ratio of punitive to compensatory damages.

IV. CONCLUSIONS.

There is a good deal of divergence in the application of BMW which, coupled with the case-by-case nature of that inquiry, make generalizations difficult. However, published cases applying BMW to date suggest the following:

A. BMW results in punitive damage awards being vacated or reduced. More than forty percent of the cases applying BMW have reduced or vacated and remanded punitive damage awards.

B. When applying BMW, federal courts more frequently reduce punitive damages than state courts. Of the fifteen relevant federal court decisions, nearly half have reduced or vacated and remanded punitive damage awards. Of the nine state court decisions, only one third reduced or vacated and remanded such awards.

C. The BMW guideposts are not exclusive; courts have considered a variety of additional factors, including litigation costs, defendant's financial condition, safety concerns and specific and general deterrence.

D. Appellate courts generally decide the BMW issue without remand. Of the sixteen appellate decisions to apply BMW, only two remanded to the trial court. See Patterson v. P.H.P. Healthcare Corp., 90 F.3d 927 (5th Cir. 1996) (race discrimination case where court reduced emotional damages to nominal award and vacated and remanded punitive damage award for further consideration), cert. denied, 117 S. Ct. 767 (1997); VF Corp. v. Wrexham Aviation Corp., 686 A.2d 647 (Md. Ct. Spec. App. 1996) (fraud case where court vacated punitive damage award 30 times compensatory damage award and remanded for further consideration).

E. Where only nominal damages are found, the punitive to compensatory damage ratio may be irrelevant. See Lee v. Edwards, 101 F.3d 805 (2d Cir. 1996) (malicious prosecution case with nominal damages where decision on appeal reduced punitives to provide 75,000 to 1 ratio); Shea v. Galaxie Lumber & Constr. Co., 1997 WL 51655 (N.D. Ill. Feb. 5, 1997) (Title VII case with nominal damages where court let stand punitive damages resulting in a 2,500 to 1 ratio); Southeastern Sec. Ins. Co. v. Hotle, 473 S.E.2d 256 (Ga. Ct. App. 1996) (sex-based harassment case with nominal damages where court affirmed punitive damages resulting in ratios of 45,000 to 1 and 20,000 to 1).

F. Where actual (as opposed to nominal) damages are found:

1. a punitive to compensatory damage ratio of 5 to 1 or less generally will survive BMW scrutiny;

2. in federal court, a punitive to compensatory damage ratio of more than 5 to 1 generally will not survive BMW scrutiny while, in state court, a punitive to compensatory damages ratio of more than 30 to 1 generally will not survive BMW scrutiny;

3. in federal court, where punitive damage awards are reduced, the reduced amount generally will result in a punitive to compensatory damage ratio of 5 to 1 or less; curiously, in state court, the reduced awards have resulted in ratios of 500 to 1 and approximately 100 to 1; and

4. federal courts have been more restrictive in the ratio of punitive damages that are deemed acceptable. The highest ratio of punitive to compensatory damages approved by a federal court is 10.8 to 1. For state courts, the highest ratio is 500 to 1, with four decisions approving ratios greater than 25 to 1.

G. Significant punitive damage awards in discrimination cases and cases implicating physical safety appear most likely to survive a BMW challenge.

H. There is a split in the courts as to whether BMW favors considering a defendant's financial condition, with the majority finding that such information can be considered.

Additional decisions will help more fully delineate the boundaries of BMW and may resolve the apparent divergence between federal and state court decisions. The published decisions to date, however, demonstrate the force of the BMW inquiry and show that many punitive damage awards cannot survive BMW scrutiny.

1. Sperau v. Ford Motor Co., 674 So. 2d 24 (Ala. 1995), vacated, 116 S. Ct. 1843 (1996); American Pioneer Life Ins. Co. v. Williamson, 1995 WL 372051 (Ala. 1995), vacated, 116 S. Ct. 1872 (1996); Continental Trend Resources, Inc. v. OXY USA, Inc., 44 F.3d 1465 (10th Cir. 1995), vacated, 116 S. Ct. 1843 (1996); Apache Corp. v. Moore, 891 S.W.2d 671 (Tex. App. 1994), vacated, 116 S. Ct. 1843 (1996); Union Sec. Life Ins. Co. v. Crocker, 667 So. 2d 688 (Ala. 1995), vacated, 116 S. Ct. 1872 (1996); Life Ins. Co. of Georgia v. Johnson, 684 So. 2d 685 (Ala. 1996), vacated, 117 S. Ct. 288 (1996); Johansen v. Combustion Eng'g, Inc., 834 F. Supp. 404 (S.D. Ga. 1993), aff'd, 67 F.3d 314 (11th Cir. 1995) (mem.), vacated, 116 S. Ct. 1843 (1996), remanded, 98 F.3d 1351 (11th Cir. 1996).

This article was revised from an article originally publshed in the June 30, 1997
issue of The National Law Journal © 1997 NLP IP Company

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