In a recent decision in In re Paulsboro Derailment Cases, the Third Circuit affirmed the dismissal of a case brought by plaintiffs who alleged that they had been exposed to airborne chemicals following a train derailment. This decision turned on the panel’s conclusion that the plaintiffs had not asserted a valid punitive-damages claim. The decision provides a useful reminder that state-law substantive standards for punitive liability have teeth.
The question on appeal was whether the district court correctly dismissed the plaintiffs’ claims for failure to satisfy the $75,000 amount-in-controversy threshold for federal diversity jurisdiction. The injuries alleged by the plaintiffs were insufficiently severe to support an award of compensatory damages of that magnitude, so jurisdiction turned on whether the plaintiffs had asserted a “good faith and colorable” claim for punitive damages. Like the district court, the court of appeals thought not.
As the court of appeals explained, “a pleading as to punitive damages must be viewed against the backdrop of the governing law regarding the availability of punitive damages.” Under New Jersey law, negligent or even grossly negligent conduct does not give rise to punitive liability. Instead, a plaintiff seeking punitive damages must allege that the defendant acted with actual malice or with reckless indifference to the likelihood of harm.
As the court of appeals explained, “[a] generalized allegation of a naked legal conclusion that someone acted ‘wilfully’ or ‘maliciously’ cannot convert what is otherwise a state-law negligence suit into a federal diversity action for punitive damages.” Instead, the plaintiff must assert facts that support a punitive-damages claim.
Here, the Third Circuit held, the plaintiffs’ allegations of “many failures” by the defendants “did not open the door to punitive damages” because those allegations reflected neither malicious nor reckless conduct. In particular, allegations that “a defendant kn[ew] of a potentially hazardous situation and unsuccessfully t[ook] steps to remedy the situation” are not sufficient. The plaintiff instead must allege “a willful flaunting” of known risks to support punitive damages.
Although this case concerned subject-matter jurisdiction, the Third Circuit’s reasoning should apply equally to a motion to dismiss under Rule 12(b)(6). Punitive damages are often treated as an afterthought—tacked on to the end of the complaint and supported by no more than conclusory allegations that the defendant acted with the requisite culpable intent.
As articulated by the Supreme Court in Twombly and Iqbal, however, the federal pleading standard requires plaintiffs to plead facts giving rise to a plausible claim for relief. It follows that a request for punitive damages should be dismissed unless the plaintiffs’ assertions support a plausible claim that the defendant acted with the required mens rea. When moving to dismiss negligence or strict-liability claims, therefore, it often makes sense to argue that the factual allegations do not satisfy the punitive-liability standard and that the request for punitive damages should be stricken even if the underlying claims survive.
Likewise, unless there is a strategic reason not to do so, defendants facing punitive damages claims should always separately address the punitive-liability standard when they move for summary judgment or seek judgment as a matter of law. Indeed, the failure to argue in a motion under Fed. R. Civ. P. 50(a) that the evidence is insufficient to support punitive damages, even if there is sufficient evidence for compensatory liability, may preclude making such an argument in a post-trial motion or on appeal.