Whenever a state high court agrees to consider whether a punitive award is excessive, it is big news.  So we were pleased to see the Wisconsin Supreme Court making some good news when it reduced the punitive damages award from $1 million to $210,000 in Kimble v. Land Concepts, Inc., __ N.W.2d __, 2014 WL 1584454 (Apr. 22, 2014). 

Even better, the court correctly interpreted several aspects of the Supreme Court’s reprehensibility, ratio, and comparative-fines guideposts that often give courts trouble.  See BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996); State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003).

Wooden Mallet and flag Of Wisconsin (clipping path included)Kimble involved a title company that concealed the absence of an easement providing access to a parcel of land and refused to defend the owner’s title when the lack of access was discovered.  The absence of an easement contributed to the owner losing a sale, although the property later sold after the owner purchased an easement providing access for $40,000.  Following trial, the plaintiffs were awarded $29,738.49 for their legal expenses in securing the easement and $1,000,000 in punitive damages. 

After granting discretionary review, the Wisconsin Supreme Court started on the right foot by noting that a punitive award is excessive not only when it is disproportionate to the defendant’s wrongdoing but also when it “is more than necessary to serve the purposes of punitive damages.” 

We often have argued that, when a lesser award would serve the state’s interest in punishment and deterrence, then the award must be reduced to that lesser amount because anything more violates due process.  Too often courts fail to recognize this substantive limit on the amount of a punitive award.

Having identified the relevant inquiry, the court next analyzed State Farm’s reprehensibility factors, concluding that none were present.  It then took a further step that courts sometimes omit, placing the conduct at issue on a spectrum of reprehensibility—a broader inquiry that incorporates the ratio guidepost and includes a comparison of the conduct at issue with the conduct and ratios in other cases in which punitive damages have been imposed.  Too often, courts merely track through the State Farm factors in rote fashion without giving any consideration to how the conduct compares to punishable conduct in other cases.  

The most significant part of the Kimble opinion, however, is the court’s treatment of the ratio guidepost.  This is a somewhat complex and controversial part of the excessiveness inquiry, and we’ve previously devoted an entire webinar to the issue.  In Kimble, the court got the general framework correct: Few cases involve the type of extremely reprehensible conduct required to justify a ratio higher than 9:1 and, in the average case in which punitive damages are warranted, a ratio of 4:1 marks the constitutional limit. 

Although Kimble did not mention it, one final category is necessary to complete the framework:  When the conduct is not particularly reprehensible (relative to other punishable conduct) and the compensatory damages are substantial (usually $100,000 or more), then a ratio of 1:1 (or lower) may mark the outer limit of due process.

As courts have begun to understand and enforce these general categories establishing permissible ratios between compensatory and punitive damages, the fight often shifts to what “compensatory damages” should be included in the denominator of the ratio.  The plaintiffs in Kimble asked the court to use $1,300,000, the sale price of the parcel, contending that that amount represents the “potential harm” they would have suffered if they had been unable to sell the property. 

The court correctly recognized, however, that potential harm should not be included in the denominator when it is speculative and bears no relationship to the defendant’s wrongdoing.  And that is just what the sale price was, because there never was a question that plaintiffs could sell the property so long as they acquired the necessary easement.  The court accordingly determined that the punitive damages should be compared to the actual harm to the plaintiffs—the approximately $30,000 in attorneys’ fees incurred by the plaintiff as a result of the defendants’ conduct, plus the $40,000 that it cost to acquire the easement. 

In arriving at the denominator, the court declined to consider evidence that was not in the trial-court record, but did consider evidence—the cost of the easement—that was submitted in support of the post-trial motions but that was not presented to the jury.  The Alabama Supreme Court (and hence the U.S. Supreme Court) likewise considered post-trial evidence in BMW.  Other courts have refused to consider evidence that was not before the jury.

Having chosen a reasonable denominator, the Wisconsin Supreme Court concluded that the resulting ratio of punitive to compensatory damages—around 14:1—was “problematic.”  Analyzing U.S. Supreme Court precedent as well as its own punitive-damages jurisprudence, the court held that “there is no especially egregious conduct supporting a high ratio punitive damages award” and that “a ratio of approximately 3:1, below the ratio we upheld in [a prior case], and just below the constitutional ‘line’ mentioned by the Supreme Court in BMW” is the constitutional maximum in this case.  Accordingly, it reduced the punitive damages to $210,000. 

As it happens, the Kimble opinion is unlikely to have a lasting impact in Wisconsin, as the state has recently enacted legislation capping punitive damages at the greater of $200,000 or twice the compensatory damages recovered by the plaintiff.  See Wis. Stat. § 895.043(6).  The court’s reasoning, however, will remain useful in cases not involving Wisconsin law as an example of the correct application of several contested aspects of due-process review.