punitive damages after state farm v. campbell · punitive damages after state farm v. campbell: the...

PUNITIVE DAMAGES AFTERSTATE FARM v. CAMPBELL:

THE FIRST YEAR

by David E. Rapoportand Paul D. Richter

I. Background

Eight years ago the United States Supreme Courtinvalidated a state-court punitive damages award onFourteenth Amendment grounds for the first time. BMW ofNorth America v. Gore, 517 U.S. 559 (1996). In Gore, theCourt instructed lower courts reviewing punitive damagesawards to consider three "guideposts":

(1) the degree of reprehensibility of thedefendant’s misconduct (described as the mostimportant guidepost);

(2) the disparity between the actual or potentialharm suffered by the plaintiff and the punitivedamages awarded; and

(3) the difference between the punitive damagesawarded and the civil penalties authorized orimposed in comparable cases.

517 U.S. 559, 575 (1996). These guideposts were mostrecently applied by the Supreme Court in State Farm MutualAuto Insurance Co. v. Campbell, 538 U.S. 408 (2003).

In Campbell, State Farm was hammered by a Utah juryfor bad faith claims handling practices arising out of a tragicthree car collision. The jury found State Farm’s conduct was

so reprehensible that they awarded $145 million in punitivedamages in addition to $2.4 million in compensatory damages.While the trial judge remitted the compensatory damages to$1 million and the punitive damages to $25 million, Campbellv. State Farm Mutual Automobile Insurance Company, 2004UT 34, *3, 2004 Utah LEXIS 62, **3 (Apr. 23, 2004), the UtahSupreme Court reinstated the $145 million punitive damagesaward, in part relying on evidence introduced at the trial thatproved that State Farm had a engaged in a nationwide practiceof unfairly minimizing claims in bad faith. Campbell v. StateFarm Mutual Automobile Insurance Company, 2001 UT 89, 65P.3d 1134 (2001). The United States Supreme Court granteda writ of certiorari and reversed, finding that the $145 millionpunitive damages award violated the Fourteenth Amendment.

Acknowledging the reprehensible conduct committed byState Farm, the Supreme Court ruled that only the conduct thatled to the plaintiff’s individual damages could be considered,not State Farm’s alleged nationwide bad faith practices. 538U.S. at 421-23. The Supreme Court took a dim view of a stateapplying its punitive damages laws to punish a defendant forconduct occurring in some other state, explaining that as ageneral rule:

[States do not have] a legitimate concern inimposing punitive damages to punish adefendant for unlawful acts committed outside ofthe State’s jurisdiction. Any proper adjudicationof conduct that occurred outside Utah to otherpersons would require their inclusion, and, tothose parties, the Utah courts, in the usual case,would need to apply the laws of their relevantjurisdiction.

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538 U.S. at 421-22.

Concerning the maximum ratio of allowable punitive tocompensatory damages, the Court refused to "impose a brightline ratio," explaining instead that there is:

A long legislative history, dating back over 700years and going forward to today, providing fordouble, treble, or quadruple damages to deterand punish. (Citation omitted). While theseratios are not binding, they are instructive. Theydemonstrate what should be obvious: Single-digit multipliers are more likely to comportwith due process, while still achieving theState’s goals of deterrence and retribution ....

538 U.S. at 425 (emphasis added).

The Court made clear that "ratios greater than those wehave previously upheld may comport with due process where aparticularly egregious act has resulted in only a small amountof economic damages" and "that a higher ratio might benecessary where the injury is hard to detect or the monetaryvalue of non-economic harm might have been difficult todetermine." 538 U.S. at 425. On the other hand, the Courtalso explained that when compensatory damages aresubstantial (as in Campbell, where one million dollars incompensatory damages was allowed for the emotional distressof facing the possibility of financial ruin), "then a lesser ratio,perhaps only equal to compensatory damages, can reach theoutermost limit of the due process guarantee." Id. Theoverarching principle is that the "precise award in any case, ofcourse, must be based upon the facts and circumstances of

the defendant’s conduct and the harm to the plaintiff." 538U.S. at 424-25.

II. Punitive Damages Cases Since State Farm v. Campbell

In the wake of State Farm Mutual Auto Insurance Co. v.Campbell, courts have had a busy year reviewing statepunitive damages awards to determine if they comply with thedue process requirements of the Fourteenth Amendment tothe United States Constitution. More than forty opinions havebeen published. Many of these opinions are brieflysummarized in the attached table, Sample of Court ReviewedPunitive Damages Cases Since the United States SupremeCourt Decided State Farm v. Campbell.

The table reveals that:

More than half of the awards, aftermodifications on review, resulted insingle digit (or near single digit) ratios ofpunitive to compensatory damages.

In the highest court-reviewed award, Inre: Exxon Valdez, 296 F. Supp. 2d 1071(D. Alas., Jan. 28, 2004), a staggering$4.5 billion in punitive damages wasallowed, nine times the court calculatedcompensatory damages. This award wasmore than forty times higher than the nextrunner up at $108.5 million. PlannedParenthood of Columbia/Willamette, Inc.v. American Coafition of Life Activists, etal., 300 F. Supp. 2d 1055 (D. Or. Jan.

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28, 2004). The punitive damages in theExxon Valdez case were reduced from $5billion as a result of post-Campbellreview. The case is currently on appealand pending in the United States Court ofAppeals for the Ninth Circuit. It is also aprime candidate for a future review by theSupreme Court of the United States.

In approximately 25 percent of thesampled cases since State Farm, courtshave upheld punitive to compensatorydamages ratios that were much higherthan "single-digit" ratios. These casesseem to fall into two distinct categories: 1 )cases involving one dollar nominalcompensatory damages; and 2) casesinvolving particularly reprehensibleconduct.The resulting punitive damages in thenominal compensatory damages caseshave not been high, and there seems tobe a general consensus in the lowercourts that the ratio aspect of theGore/Campbell analysis does not apply.E.g. Sherman v. Kasotakis, 2004 U.S.Dist Lexis 6743 (N.D. Iowa, Apr. 19,2004); Williams v. Kaufman County, 352F.3d 994 (5th Cir. 2003); Tate v.Dragovich, 2003 U.S. Dist. LEXIS 14353(E.DoPa. Aug. 15, 2003).

In two cases, both involving particularlyreprehensible intentional misconduct,Planned Parenthood ofColumbia/Willamette, Inc. v. AmericanCoalition of Life Activists, et al., 300 F.Supp. 2d 1055 (D. Or. Jan. 28, 2004)and Southern Union Company v.Southwest Gas Corporation, 281 F. Supp.2d 1090 (D. Az. Aug. 1, 2003), largepunitive damages awards with very highpunitive to compensatory damagesrations were upheld. In PlannedParenthood the amount awarded, aspreviously mentioned, was $108.5 millionin punitive damages, which was 206times the amount of the compensatorydamages. In Southwest Gas, the amountawarded was $60 million in punitivedamages, which was 154 times theamount of the compensatory damagesallowed.

In the aftermath of State Farm v. Campbefl, a Statesrights debate rages, although some of this debate requiresreading between the lines. An example is the recent decisionby the Supreme Court of Utah in Campbell vo State FarmMutualAutomobile Insurance Company, 2004 UT 34, *3, 2004Utah LEXIS 62, **3 (Apr. 23, 2004), where it reviewed thepunitive damages award in State Farm v. Campbell after theSupreme Court of the United States remanded the case. StateFarm argued that it was the Utah Supreme Court’s "duty in theface of a remand order" to deliver "unwavering fidelity to theletter and spirit of the mandate," and that "the letter and spiritof the mandate erect[ed] an impenetrable ceiling on the

punitive damages award.., based on a 1 to1 ratio of punitivedamages to compensatory damages." 2004 UT 24, *5. TheUtah Supreme Court rejected this argument, instead remittingthe punitive damages award to $9 million, obviously thehighest "single-digit-ratio"possible. In reaching this conclusion,the Utah Supreme Court artfully disagreed with the UnitedStates Supreme Court on just about every proposition of Utahlaw that the United States Supreme Court ventured into. Theundertone suggests a strong commitment to States’ rights, andminimal compliance with federal meddling into an area of thelaw traditionally occupied by the States.

While various courts have been applying the sameGore/Campbell standards of de novo review and theguideposts, widely divergent results have been reached.Large punitive damages awards have been variously upheld,reduced and taken away.

It is apparent that punitive damages will continue to be amajor factor affecting civil litigation, including aviation litigation,for many years to come.

SAMPLE OF COURT REVIEWED PUNITIVEDAMAGES CASES SINCE THE UNITED STATES SUPREME COURT

DECIDED STATE FARM v. CAMPBELLby David E. Rapoport

CASE

In re Exxon Valdez,296 F. Supp. 2d 1071(D. Alas., Jan. 28,2004).

Planned ParenthoodofColumbia/Willamette,Inc. v. AmericanCoalition of LifeActivists, et al., 300F. Supp. 2d 1055 (D.Or. Jan. 28, 2004).

Southern UnionCompany v.Southwest GasCorporation, 281 F.Supp. 2d 1090 (D.Az. Aug. 1,2003).

ORIGINALPUNITIVEDAMAGES AWARD

$286,787,739.22 incompensatorydamages;$5 billion in punitivedamages.

$526,336 incompensatorydamages;$108.5 million inpunitive damages;The punitivedamages awardswere made againsttwelve individualsand two entities. Theawards againstindividuals rangedfrom a low of $3.5million to a high of $8million.

$390,072.58 incompensatorydamages; $60 millionin punitive damages.

RESULT OFJUDICIAL REVIEWAFTER STATEFARM v.CAMPBELL

Punitive damagesremitted to $4.5billion, the Courtnoting that the totalcompensatorydamages, includingthe amount of theverdict, the amountsof settlements andother factors was$513,147,740.9:1ratio.

$108.5 million inpunitive damagesawards upheld.Approximately 206:1ratio.

$60 million in punitivedamages upheld.Approximately 154:1ratio.

CASE

Rhone-Poulenc Agro,S.A. v. DeKalbGenetics Corp., 345F.3d 1366 (D.C. Cir.Sept. 29, 2003).

TVT Records, et al. v.The Island Def JamMusic Group, et aL,279 F. Supp. 2d 413(S.D.N.Y. Sept. 2,2003).

Union Pacific R.R. v.Barber, 2004 Ark.LEXIS 128 (Ark. Feb.26, 2004).

Romo v. Ford MotorCompany, 113 Cal.App. 4th 738, 6 Cal.Rptr. 3d 793 (5thDist. Nov. 25, 2003).

Bogle v. McClure,332 F.3d 1347 (11thCir. June 6, 2003).

Campbell v. StateFarm MutualAutomobile InsuranceCompany, 2004 UT34, 2004 Utah LEXIS62 (Apr. 23, 2004).

Henley v. PhilipMorris, Inc., 114 Cal.App. 4th 1429, 9 Cal.Rptr. 3d 29 (1st Dist.


$15 million incompensatorydamages;$50 million in punitivedamages.

Approximately $48million incompensationdamages;approximately $108million in punitivedamages.

$5.1 million incompensatorydamages; $25 millionin punitive damages.

$5million incompensatorydamages;$290million inpunitive damages.

$3.5 million incompensatorydamages; $13.3million in punitivedamages.

$1 million incompensatorydamages;$145 million inpunitive damages.

$1.5 million incompensatorydamages;$50 million in punitive

RESULT OFJUDICIAL REVIEWAFTER STATEFARM v.CAMPBELL$50 million punitivedamage award wasupheld.Approximately 3:1ratio.

Punitive damagesremitted to $29.125million.Approximately 6:1ratio.

$25 million in punitivedamages affirmed.Approximately 5:1ratio.

Punitive damageswere remitted to$23,723,287.Approximately 5:1ratio.

$13.3 million punitivedamage awardupheld.Approximately 4:1ratio.

Punitive damageswere remitted to $9million.Approximately 9:1ratio.

Punitive damageswere further remittedto $9 million. 6:1ratio.

CASE

Jan. 20, 2004).

Smith v. FairfaxRealty, Inc., 2003 UT41, P. 3d 1064 (Oct.3, 2003).

Bocci v. KeyPharmaceuticals,Inc., 189 Ore. App.349, 76 P.2d 669(Sept. 10, 2003),mod., 190 Ore. App.407, 79 P.3d 908(Nov. 13, 2003).

Trinity EvangeficalLutheran Church v.Tower InsuranceCompany, 2003 W I46, 261 Wis. 2d 333,661 N.W.2d 789(May 23, 2003).

Suffix, USA, Inc., v.Cook, 128 S.W.3d838 (Ky. App. Feb.27, 2004).

Hollock v. ErieInsurance Exchange,2004 Pa. Super 13,842 A.2d 409 (Jan.22, 2004).


damages.Punitive damagesaward remitted to$25 million by thetrial court.

$1.1 million incompensatorydamages; $5.5million in punitivedamages.

$6,121,648 incompensatorydamages; $57.5million in punitivedamages.

$3.5 million inpunitive damagesbased on a claim of$490,000 incompensatorydamages.

$2.8 million incompensatorydamages and $3million in punitivedamages.

$278,825 incompensatorydamages; $2.8million in punitivedamages.


Compensatorydamages remitted to$1,007,221 ; $5.5million in punitivedamages upheld.5.5:1 ratio.

Punitive damagesremitted to $3.5million. Less than 1:1ratio.

$2.8 million inpunitive damagesupheld.Approximately 10:1ratio.

$3 million in punitivedamages affirmed.Approximately 1 : 1ratio.


CASE

Austin v. SpecialtyTransportationServices, Inc., 2004S.C. App. LEXIS 86(Mar. 29, 2004).

Zhang v. AmericanGem Seafoods, Inc.,339 F.3d 1020 (9thCir. Aug. 7, 2003),cert den., 2004 U.S.LEXIS 1855 (U.S.,Mar. 8, 2004).

McClain v. MetabolifeInternational, Inc.,259 F. Supp. 2d1225(ND. Ala. 2003).

Phelps v. LouisvilleWater Co., 103S.W.3d 46 (Ky. Apr.24, 2003).

Simon v. San PaoloU.S. Holding Co.,Inc., 113 Cal. App.4th 1137, 7 Cal. Rptr.3d 367 (2d Dist. Dec.2, 2003), rev granted,2004 Cal. LEXIS2548 (Cal. Mar. 24,2004).


$1,025,000 incompensatorydamages; $2.6million in punitivedamages.


$668,500 incompensatorydamages awarded tofour plaintiffs; $3.1million in punitivedamages awarded tothese same fourplaintiffs.

$176,362 incompensatorydamages; $2 millionin punitive damages.

$5,000 incompensatorydamages; $1.7millionin punitive damages.

RESULT OFJUDICIAL REVIEWAFTER STATEFARM v.CAMPBELL$2.6 million damagesaffirmed on appeal.Less than 3:1 ratio.


One punitivedamages awardremitted by $550,000to establish amaximum ratio of9:1, the remaining$2.5 million inpunitive damageswere upheld. Lessthan 4:1 ratio.

$2 million in punitivedamages upheld.Approximately 11:1ratio.

$1.7 million punitivedamages awardupheld.Approximately 340:1ratio.

Borne v. Haberhill $424,000 in $1.43 million inGolf & Country Club, compensatory punitive damages

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CASE

Inc., 58 Mass. App.Ct. 306, 791 N.E.2d903 (June 13, 2003).

DiamondWoodworks, Inc. v.Argonaut InsuranceCo., 109 Cal. App.4th 1020, 135 Cal.Rptr. 2d 736 (4thDist. June 13, 2003).

Fritzmeier v. KrauseGentle Corporation,2003 S.D. 112,669N.W.2d 699 (Sept.10, 2003).

Bowen & BowenConstruction Co. v.Fowler, 265 Ga. App.274, 2004 Ga. Ap.LEXIS 2 (Jan. 6,2004).

Shiv-Ram, Inc. d/b/aRamada Inn ofAnniston v. McCaleb,2003 Ala. LEXIS 384(Ala. Dec. 30,2003).

Matthias v. AccorEconomy Lodging,Inc., 347 F.3d 672(7th Cir. Oct. 21,2003).

Jones v. Rent-A-Center, Inc., 281 F.Supp. 2d 1277 (D.Kan. Aug. 20, 2003).


damages; $1.43million in punitivedamages.


$747,115 incompensatorydamages; $995,000in punitive damages.




$10,000 incompensatorydamages; $1.2million in punitivedamages lowered

RESULT OFJUDICIAL REVIEWAFTER STATEFARM v.CAMPBELLupheld. Less than4:1 ratio.

Punitive damagesremitted to $1 million.Less than 2:1 ratio.

$995,000 in punitivedamages upheld.Less than 2:1 ratio.

$500,000 in punitivedamages upheld. 5:1ratio.

$500,000 in punitivedamages affirmed.Approximately 3:1ratio.

$372,000 in punitivedamages affirmed.37:1 ratio.

$290,000 in punitivedamages upheld.29:1 ratio.

CASE

Cra~ v. Ho~ey, 264Ga. App. 344,590S.E.2d 742 (Nov. 25,2003).

Reatta Resources,Inc. v. Wayne Craft,204 Tex. App. LEXlS2193 (5th Dist. Mar.9, 2004).

The Willow Inn, Inc.v. Pubfic ServiceMutual InsuranceCompany, 2003 U.S.Dist. LEXIS 9558(E.D. Pa. July 21,2003).

Jones v. Sheahan,2003 U.S. Dist.LEXIS 19804 (N.Dist.III. Nov. 3,2003).

Disorbo v. Hoy, 343F. 3d 172 (2d Cir.Aug. 29, 2003).

Harrelson v. R J, 2003Ala. LEXIS 339 (Ala.November 7, 2003).


based on statutorycap to $290,000.

$8,801incompensatorydamages;S200,000in punitive damages.

$6,000incompensatorydamages;S200,000in punitive damages.


$25,000 incompensatorydamages; $750,000in punitive damagesagainst twoindividuals.

$400,000incompensatorydamages;S1.275millionin punitivedamages.

$15,000 incompensatorydamages;$75,000 in punitivedamages.


$200,000in punitivedamages upheld.22.1 ratio.

$200,000in punitivedamages affirmed.25:1 ratio.

$150,000 in punitivedamages upheld.75:1 ratio.

$750,000 in punitivedamages remitted to$150,000. 6:1 ratio.

Compensatorydamages remitted to$250,000; punitivedamages remitted to$75,000. Less than1:1 ratio.

$75,000 in punitivedamages awardsupheld. 5:1 ratio.

L~coln v. Case, 340 $500in Punitive damages

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CASE

F.3d 283 (5th Cir.Aug. 7, 2003).

Sherman v.Kasotakis, 2004 US.Dist Lexis 6743 (N.D.Iowa, Apr. 19, 2004).

Stack v. Jaffee, 306F. Supp. 2d 137 (D.Conn. July 30, 2003).

Williams v. KaufmanCounty, 352 F.3d 994(5th Cir. 2003).

Tate v. Dragovich,2003 U.S. Dist.LEXIS 14353(E.D.Pa. Aug. 15,2003).

Liggette Group, Inc.,et aL v. Engle, 853S.2d 434 (Fla. App.May 21,2003).


compensatorydamages; $100,000in punitive damages.

$12,500 awarded toeach of fourindividuals who hadreceived a nominalaward of $1 incompensatorydamages each.


Nominalcompensatorydamages; $15,000 inpunitive damages.

$1 in nominalcompensatorydamages; $10,000 inpunitive damages.

$12.7 million in favorof three plaintiffs in anationwide classaction; $145 billion inpunitive damagesawarded to the entireclass.

RESULT OFJUDICIAL REVIEWAFTER STATEFARM v.CAMPBELLaward remitted to$55,000. 110:1 ratio.

No due processviolation in awarding$12,500 per personin punitivedamages. 12,500:1ratio.

$200,000 punitivedamages awardremitted to $25,000.Less than 13:1 ratio.

$15,000 in punitivedamages upheld.15,000:1 ratio.

$10,000 in punitivedamages upheld.10,000:1 ratio.

$145 billion punitivedamages awardvacated as violativeof due process.Case remanded withinstruction todecertify thenationwide classaction, compensatorydamages awardsreversed on othergrounds.

Roth v. Farner- $25,000 in Punitive damagesBocken Company, compensatory award vacated, case

CASE

2003 S.D. 80,667N.W. 2d 651 (July 16,2003).


damages; $500,000in punitive damages.

RESULT OFJUDICIAL REVIEWAFTER STATEFARM v.CAMPBELLremanded for a newtrial on punitivedamages.

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