During the past couple of months, courts have been busy addressing excessiveness challenges to punitive damages awards. In this post, I discuss two recent decisions. In a second post, I will cover two additional decisions.
This is a class action under the Fair Credit Reporting Act (“FCRA”). In essence, the plaintiffs alleged that TransUnion included in their credit reports an erroneous notification that they are on a government terrorist watch list.
A jury found TransUnion liable and awarded each of the 8,185 class members $984.22 in statutory damages—i.e., damages within a specified range that Congress has provided for as an alternative to compensatory damages, which may be small and difficult to quantify. It also awarded each class member $6,353.08 in punitive damages.
The case involves some interesting standing issues—including one that divided the panel—as well as issues relating to class certification, liability, and the amount of statutory damages. Suffice it to say that the court resolved none of these issues in favor of TransUnion.
But the panel did decide that the punitive damages—which amounted to roughly $52 million—were unconstitutionally excessive. The most notable aspect of its ruling—which may be counted as another victory for the plaintiffs even though the punitive damages were reduced—involved the ratio guidepost.
Focusing on the Supreme Court’s statement in BMW and State Farm that a ratio of 4:1 might be close to the constitutional line, the court held that the jury’s ratio of 6.45:1 was excessive and that “a ratio of 4 to 1 is the most the Constitution permits.” That leaves a still whopping punitive award of more than $32 million.
In allowing that massive aggregate punishment, the court never explained why a lower amount would have been inadequate to achieve the federal interests in deterrence and punishment, as the Supreme Court and many appellate courts have required.
Nor did it even mention, much less attempt to address, the Supreme Court’s admonition in State Farm that “[w]hen compensatory damages are substantial,” a 1:1 ratio “can reach the outermost limit of the due process guarantee.” Indeed, the court distorted that principle by saying instead that “‘[w]hen compensatory damages are substantial,’ a ratio lower than 4 to 1 may be the limit” (emphasis added).
The plaintiff in this case, an African-American, was a production supervisor at a McWane manufacturing plant. After repeated run-ins with other employees, he was terminated. He sued McWane under various state and federal anti-discrimination laws. The jury found McWane liable and awarded the plaintiff $373,514 in economic damages, $2.5 million in non-economic damages, and $13.8 million in punitive damages.
In a lengthy, but unpublished, opinion, the California Court of Appeal rejected all of McWane’s sufficiency-of-the-evidence and new-trial arguments, but agreed with McWane that the punitive damages were unconstitutionally excessive.
Although stating that the 4.8:1 ratio was not “inherently suspect,” the court nonetheless concluded that it was excessive under the circumstances. In particular, it noted that the award of noneconomic damages was “substantially greater than” in any of the cases cited by the plaintiff in support of the punitive award.
At the same time, the Court of Appeal rejected McWane’s argument that “the jury’s substantial award of noneconomic damages supports a punitive damages award no higher than the award for compensatory damages; i.e., a ratio of 1 to 1.” Citing the Second Circuit’s decision in Turley v. ISG Lackawanna, Inc., it held that “where noneconomic compensatory damages and the reprehensibility of the defendant’s conduct are both high, the constitutional limit may exceed a ratio of 1 to 1.”
Following the Second Circuit’s lead, the Court of Appeal ruled that “the reprehensibility of McWane’s conduct supports a two-to-one ratio of punitive to compensatory damages.” It accordingly reduced the punitive damages to $5,747,028.