Second Circuit Holds 4:1 Ratio Excessive And Orders Remittitur To 2:1 In Hostile-Environment Case

In late December, the Second Circuit released a significant and interesting decision on excessiveness of punitive damages—and we say that not just because we represented the defendants in the case.

Traffic Cop Blowing WhistleTurley v. ISG Lackawanna, Inc. involved racial harassment of a steel worker by his fellow employees.  The plaintiff alleged that his employer and its parent did not respond adequately to the harassment.  A jury agreed and awarded the plaintiff a total of $1.25 million in compensatory damages—all for emotional distress—and $24 million in punitive damages against the corporate defendants.  The district court determined that the punitive damages were excessive and ordered a remittitur to approximately $5 million.

Although rejecting the defendants’ other arguments, the Second Circuit agreed with defendants that the punitive damages as remitted remained excessive.  The court began by pointing out that before even considering constitutional excessiveness it was obliged to review the amount of punitive damages “under federal common law, pursuant to the federal appellate courts’ supervisory authority over trial courts.”

That is significant, the court explained, because although the three excessiveness guideposts identified in BMW “apply irrespective of whether our review is constitutional or supervisory in nature,” under the court’s supervisory authority “a degree of excessiveness less extreme than ‘grossly excessive’ will support remanding for a new trial or remittitur of damages.”  The Second Circuit further explained that review of the size of punitive awards under the supervisory power is “relatively stringent * * * in order to ensure that such damages are fair, reasonable, predictable, and proportionate, to avoid extensive and burdensome social costs, and to reflect the fact that punitive awards are imposed without the protections of criminal trials.”

The court then articulated the standard of review it employs under its supervisory power, stating that although the district court’s decision to allow a particular amount of punitive damages is reviewable for an abuse of discretion, “the degree of discretion enjoyed by trial courts in these matters is relatively narrow.”

Turning to its common-law review, the court of appeals held that the evidence was sufficient to support the district court’s conclusion that the conduct at issue was “egregious in the extreme” (a conclusion with which we needless to say disagree).  The court continued, however, that “[t]he disparity between the punitive damages award and the already sizable compensation * * * gives us pause.”

Employing language that is apt to be precedential in all future cases within the Second Circuit, the court held:

Where the compensatory award is particularly high, as the one in this case assuredly was, a four‐to‐one ratio of punishment to compensation * * * serves neither predictability nor proportionality.  [T]his is particularly so where the underlying compensation is, as it is in this case, for intangible—and therefore immeasurable—emotional damages.  Imposing extensive punitive damages on top of such an award stacks one attempt to monetize highly offensive behavior, which effort is necessarily to some extent visceral, upon another.

The court continued that its “commitment to reducing arbitrariness in damages awards, reining in excessiveness, and ensuring some degree of proportionality * * * weighs in favor of enforcing a tighter relationship between the harm suffered and the punishment imposed.”

It further explained that “[a] lower award also is necessary to bring the punitive damages in this case into alignment with comparable awards in other cases.”  Noting that “punitive awards for workplace discrimination rarely exceed $1.5 million,” the court stated that “[a] $5 million punitive damages award that is four times higher than the underlying compensation * * * appears to us to be excessive by comparison.”

The court concluded that “a roughly 2:1 ratio of punitive damages to what, by its nature, is necessarily a largely arbitrary compensatory award, constitutes the maximum allowable in these circumstances.”  Anything beyond that, the court explained, would “undermine systemic goals of predictability and proportionality.”

The decision thus draws a very clear line for future cases.  When the conduct is “egregious in the extreme” and the compensatory damages are high, a ratio of 2:1 is likely to be the maximum sustainable.  And if the conduct is not as egregious, even a 2:1 ratio is likely to be too high.

California Court Of Appeal Holds That Plaintiff May Not Collect Both Multiple Damages And Punitive Damages For Same Conduct

Do Not Duplicate StampIn prior posts, we have occasionally adverted to the issue of multiple punishments in the constitutional context.  Just before the new year, a California appellate court issued an unpublished decision in Paletz v. Adaya bearing on a different aspect of the multiple punishment problem.  In Paletz, the Court of Appeal reversed an award of punitive damages as duplicative of an award of statutory penalties, concluding that the plaintiffs were not entitled to collect both forms of punishment for the same course of conduct.

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National Law Journal Recognizes Evan Tager As A “Litigation Trailblazer”

We congratulate our Editor-in-Chief Evan Tager for his inclusion in the National Law Journal’s inaugural list of fifty “Litigation Trailblazers and Pioneers.” The NLJ recognized Evan for, among other things, his groundbreaking efforts to limit punitive damages.  It highlighted his work with Andy Frey in BMW v. Gore, the the seminal case in which the Supreme Court first established the now-familiar guideposts for evaluating the constitutionality of a punitive damages award. We’re proud of Evan!

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Federal District Court Upholds 13:1 Ratio Based On Defendant’s Wealth

We have noticed a disturbing trend recently of courts upholding punitive damages awards that are high multiples of the compensatory damages.  One example is Mitri v. Walgreen Co., in which the U.S. District Court for the Eastern District of California upheld a punitive award that is thirteen times the substantial compensatory award based almost entirely on the fact that the defendant is a wealthy corporation.

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Why Courts Should Not Defer To Phantom Factual Findings When Reviewing Punitive Damages Awards For Excessiveness

HorrorEveryone who follows punitive damages law knows that the Supreme Court has identified three guideposts for determining whether a punitive award is excessive under the Due Process Clause: (i) the degree of reprehensibility of the defendant’s conduct; (ii) the ratio of the punitive damages to the compensatory damages and/or the harm to the plaintiff that was likely to result from the defendant’s conduct; and (iii) the disparity between the punitive damages and the legislatively established penalties for comparable conduct.  The first guidepost in particular requires an assessment predicated on the facts of the case, which the parties will likely have disputed.  How should courts go about resolving those disputes?

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UNANIMOUS EN BANC PANEL OF NINTH CIRCUIT HOLDS THAT TITLE VII CAP OBVIATES NEED TO REVIEW TITLE VII PUNITIVE AWARDS FOR EXCESSIVENESS UNDER BMW GUIDEPOSTS

Boton cuadrado blanco numero romano 7Earlier this year, the Ninth Circuit granted en banc review in Arizona v. ASARCO LLC to consider whether a punitive damages award that is subject to Title VII’s cap of $300,000 could nonetheless be unconstitutionally excessive when the compensatory damages are nominal and the ratio of punitive to compensatory damages accordingly is high.

In a post about the case a few weeks before the argument, I expressed the view that the parties and the courts were focused on the wrong question and that the right question is whether, as a matter of federal common law, a punitive award at the high end of the range is appropriate under the facts of the particular case.   And in a subsequent post, I explained why under that approach the punitive award in ASARCO should be considered excessive.

Yesterday, in an opinion by newly minted Chief Judge Sidney Thomas the en banc Ninth Circuit unanimously held that the concerns underlying the Supreme Court’s due process decisions—that the defendant receive fair notice of the extent of punishment to which it could be subjected and that defendants not be subjected to arbitrary punishments—are fully satisfied by Title VII’s cap.

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SUPREME COURT OF LOUISIANA STRIKES DOWN PUNITIVE DAMAGES AWARD ON RES JUDICATA GROUNDS

Two Bites on a Red AppleThe U.S. Postal Service advertises that “shipping isn’t complicated.”  Taking a page from the Postal Service’s book, the Supreme Court of Louisiana on Tuesday said much the same thing about res judicata.  In a concise unanimous decision, the court reversed an award of punitive damages against Exxon on res judicata grounds.  The court held that a defendant may not be required to relitigate whether its conduct warrants punitive damages after a jury found in its favor on that very question in an earlier case involving the same plaintiff.

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Washington Legal Foundation To Host Webinar On No-Injury Class Actions

Although this doesn’t have anything to do with punitive damages, readers of this blog may find an upcoming webinar sponsored by the Washington Legal Foundation to be of interest.  The webinar, which features my partner Andy Pincus and Jones Day partner Meir Feder (whom I have known for almost as long as I know Andy), will focus on so-called no-injury class actions—i.e., class actions seeking statutory damages for violations that didn’t cause actual injury to the named plaintiff(s) or to the similarly situated members of the putative class.

Andy and Meir will address, in particular, the pending certiorari petition in Spokeo Inc. v. Robins, which presents the question whether Congress may confer Article III standing on a plaintiff who suffered no concrete harm merely by creating a cause of action for statutory damages.  Andy is counsel of record for Spokeo, and Meir filed an amicus brief for Experian Information Solutions in support of Spokeo. 

Sixteen other companies and associations filed a total of nine additional amicus briefs in support of Spokeo, which are available here.  The issue intrigued the Supreme Court enough to invite the Solicitor General to submit a brief setting forth the views of the United States.  That brief has not yet been filed.

The webinar will take place on Tuesday, December 9, from 10:00 to 11:00 EDT.  Readers who are interested in listening in may use this link to register.

Jury Imposes $185 Million Punitive Award Against AutoZone In Individual Pregnancy Discrimination Case

Earlier this week, a federal jury in San Diego imposed a punitive damages award of $185 million against AutoZone in a case alleging pregnancy discrimination and retaliatory discharge.  The punitive damages are a whopping 212 times the $872,000 in compensatory damages that the jury awarded for lost wages and emotional distress.

Set of auto partsNeedless to say, it is exceptionally unlikely that anything close to $185 million will survive post-verdict and appellate review.  I have not yet had the chance to review anything other than media accounts about the case, but based on them a few things about the verdict jump out at me as being relevant to readers of this blog—all of which my colleagues and I have covered in previous posts.

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When Is A 99.6% Reduction Of A Punitive Damages Award Not Enough? When The Original Award Was $9 Billion And There Are Thousands Of Other Plaintiffs Seeking Comparable Awards.

Medical_Insurance_Concept_35162090A jury in the Western District of Louisiana made headlines last spring when it awarded a stunning $9 billion in punitive damages to a plaintiff who contended that the diabetes drug Actos caused his bladder cancer.  Last week, the district court cut the award by 99.6 % to approximately $37 million. Despite the impressive scale of the reduction, in our view the remitted award remains unconstitutionally excessive.  Furthermore, the district court’s lengthy opinion reveals significant errors of reasoning that we hope the Fifth Circuit will correct on appeal.  We address three of them here.

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