Last week, I posted the first installment of a two-part series on recent excessiveness decisions. In this second installment, I discuss two additional excessiveness decisions.
This case involves allegations that Volkswagen used so-called defeat devices to evade federal and state emissions test procedures. After more than 1,000 vehicle owners sued Volkswagen, alleging fraud and California statutory claims, the company entered into two settlements. Ten vehicle owners opted out.
At the ensuing trial, the jury awarded compensatory damages to four plaintiffs in amounts ranging from $582 to $3,133 and found that none of the other plaintiffs was injured. The jury also awarded each of the four injured plaintiffs $25,000 in punitive damages.
Applying the Supreme Court’s three guideposts, the district court (Charles Breyer, J.) held that the punitive awards were unconstitutionally excessive. Citing Ramirez, it noted that “the Ninth Circuit has recently held that a four-to-one ratio was ‘the most the Constitution permits’ in a case involving comparably egregious conduct.”
Judge Breyer rejected the plaintiffs’ contention that the 4:1 benchmark is inapplicable “when the compensatory award is small,” explaining that “Plaintiffs fail to show that the compensatory damages awarded to these Plaintiffs were ‘small.’” He reasoned that “[t]he compensatory damages awards reflected evidence adduced at trial of the actual economic harm Plaintiffs suffered.”
Judge Breyer rebuffed the plaintiffs’ argument that the compensatory damages were small compared to what the jury could have awarded, noting that there is “no precedent … directing courts to consider what compensatory damages a jury might have awarded.”
He also rejected the plaintiffs’ contention that the punitive damages were not disproportionate to their potential harm, including “adverse health effects” from the excessive emissions the vehicles produced. As Judge Breyer correctly explained, “‘potential harm’ refers to unrealized risk from the defendant’s misconduct, not the possibility that the jury might have decided to award higher damages or that Plaintiffs might have won a larger award if they had pursued a different litigation strategy.” Because “[t]he misconduct Plaintiffs complain of succeeded,” he concluded, “[t]here is no need … to try to guess at the harm that [Volkswagen’s] fraud might have caused—the jury evaluated the harm it did cause.”
Judge Breyer found further support for his conclusion that the $25,000 punitive awards were excessive by comparing them to the maximum civil penalty of $2,500 for violations of California’s Unfair Competition Law and Fair Advertising Law.
Accordingly, he reduced each plaintiff’s punitive award to four times the amount of that plaintiff’s compensatory award.
This case involves a wrongful-foreclosure claim. Finding Wells Fargo liable for both common-law claims and violations of the New Mexico Unfair Practices Act (“UPA”), the trial court awarded the plaintiffs $4,221.73 in economic damages, $338,380.61 in attorneys’ fees, $54,143.07 in costs, and $2.5 million in punitive damages.
Concluding that “there were unconstitutional procedural defects” in the punitive award, the New Mexico Court of Appeals reversed and remanded for further proceedings. Although finding it unnecessary to reach Wells Fargo’s argument that the punitive damages were unconstitutionally excessive, the court provided guidance for the trial court’s reconsideration of punitive damages on remand.
The Court of Appeals held that the trial court deprived Wells Fargo of procedural due process by refusing to consider the relationship between the compensatory and punitive damages when arriving at the punitive award. As the court explained, “there must be some rational relationship between the injury in this case and the punitive damages award. The district court was not free to disregard this constraint on its discretion.”
Citing the Supreme Court’s decisions in BMW, State Farm, and Philip Morris USA v. Williams, the court also emphasized that “punitive damages should not exceed the state’s interest in deterrence” and that “[t]he state’s interest is limited to punishing for harm to the plaintiff(s) in the case at bar and deterring the defendant’s conduct within the state.” It further explained that “risk of harm to others, or to the public at large, while sometimes relevant to reprehensibility, is not relevant for any other purpose.”
The Court of Appeals concluded that reversal was required because the trial court failed to apply these limitations. Instead, the trial court “appears to have considered only avoiding an amount of punitive damages that might bankrupt Wells Fargo, rather than considering the amount that would accomplish but not exceed New Mexico’s goals of punishment and deterrence.”
The court inferred from this that the trial court’s punitive award “was aimed at deterring a national company with virtually unlimited assets from nationwide wrongdoing.” This, the Court of Appeals reasoned, “violated Wells Fargo’s right to a process constrained by fair and permissible considerations, namely: punishment for harm to these Plaintiffs, and deterring only conduct in this state.”
Having concluded that a remand was necessary, the Court of Appeals proceeded to “provide guidance on remand by addressing the substantive fairness of a punitive damages award in this context.”
The Court of Appeals rejected the plaintiffs’ argument that Wells Fargo’s conduct “‘require[s] the highest possible award of punitive damages,’” explaining that “this case is not comparable to … cases of brutal physical violence, rape, or racial discrimination.”
Instead, the court deemed the case more comparable to a case involving the fraudulent sale of a mobile home, in which the New Mexico Supreme Court approved a punitive award that was approximately 14 times the $17,000 compensatory award.
The Court of Appeals also rejected the plaintiffs’ contention that the award of attorneys’ fees should be included in the denominator of the punitive/compensatory fraction, which would have yielded a ratio of 6.3:1.
The court explained that it “cannot see the logic of including the fees awarded pursuant to the UPA (for work relating to the UPA violation) as an aspect of the injury to Plaintiffs for purposes of comparison with punitive damages awarded for Plaintiffs’ common law claims.”
While acknowledging that “[e]ven setting aside the attorney fees awarded under the UPA, Plaintiffs’ additional attorney fees and costs in this case are well in excess of $100,000,” the court found there to be an “absence of authority for the proposition that attorney fees should be included as an element of ‘actual damages’ in this context.”
The Court of Appeals accordingly declined to “include [attorneys’ fees and costs] in the denominator of the ratio between punitive damages and actual damages.” Instead, it reasoned that “these fees present a reasonable basis to exceed the presumably constitutionally permissible ‘single digit’ ratio.”
The court concluded its discussion of the ratio guidepost by advising that “[a]nother way that the district court in this case may ensure a rational relationship between punitive damages and compensatory damages is through comparing this case to other, similar cases.” Doing so, it posited, may enable the trial court “to gain a sense of the range of reasonable punitive awards in such cases.”