Louisiana generally does not permit punitive damages. But if an accident happens on navigable waters, and the plaintiff brings a claim under federal maritime law, a Louisiana jury can award punitive damages, and Louisiana courts then must decide the full panoply of issues that arise in punitive damages cases.  That’s what happened in Warren v. Shelter Mutual Insurance Co.

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Inevitably, when conscientious judges delve into the multi-dimensional issue of excessive punitive damages, they get some things right and other things wrong. Such is the case with the Fourth Circuit’s recent decision in Daugherty v. Ocwen Loan Servicing, LLC. Unfortunately, as a doctrinal matter at least, the erroneous aspects of the decision predominate.  
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800px-Judge_Henry_FriendlyAs early as 1967, Judge Friendly worried about the phenomenon of punitive damages overkill in mass tort litigation. Fifty years later, the problem persists.

Last week, a Philadelphia, Pennsylvania, jury awarded a plaintiff $2.5 million in compensatory damages and $17.5 million in punitive damages—seven times the compensatory damages—in the latest of a large series of cases alleging that Johnson & Johnson subsidiary Ethicon had failed to warn about the risks of its pelvic-mesh device. In previous cases, juries had imposed punitive awards of $5 million, $7 million, and $10 million.
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A bankruptcy judge in the Eastern District of California recently issued a decision that is sure to raise appellate eyebrows.

Concluding in In re Sundquist that the defendant bank had violated the automatic stay by foreclosing on the home of a bankrupt mortgagor and enraged by what it perceived to be heavy-handed behavior both before and after the stay violation, the court awarded the plaintiffs $1,074,581.50 in compensatory damages and ordered the defendant to pay a whopping $45 million in punitive damages—i.e., nearly 42 times the quite substantial compensatory award.

But concerned that such a massive amount of punitive damages would be a windfall to the plaintiffs, the judge ordered the plaintiffs to pay $40 million, minus applicable taxes, to two non-profit organizations whose stated mission is to advance the interests of consumers in litigation and bankruptcy proceedings—the National Consumer Law Center and the National Consumer Bankruptcy Rights Center—and the five California state law schools. Specifically, the judge decided to bestow $10 million each (before taxes) on the two consumer law centers and $4 million each (before taxes) on the five law schools.
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Eye PoppingIn a post a few weeks ago, I reported on a verdict by a federal jury in Atlanta awarding $1 million in compensatory damages and $10 million in punitive damages against the manufacturer of a hip implant. Not to be outdone, on December 14 a state-court jury in California awarded $9.8 million in compensatory damages and an eye-popping $70 million in punitive damages against Johnson & Johnson subsidiary Ethicon in a case alleging defects in a hemorrhoid stapler used to perform surgery on a hemorrhoid suffer.
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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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It seems perfectly obvious, to this writer at least, that by far the most significant factor fueling the drive over the past several decades to ever larger punitive awards is evidence of corporate finances, and jury instructions and arguments that punitive damages should be set on the basis thereof.

Business people sitting next to gorillaThis post will explore the following elements of the issue: (1) Why is financial evidence such a dominating factor in many juries’ punitive damages calculus?  (2)  When and why did this reliance on wealth in setting punishments arise?  (3) What are the economic and legal fallacies that undermine the validity of this practice? and (4) Do the Supreme Court’s decisions in BMW and State Farm provide a viable basis for arguing against the prevailing judicial tolerance of the misuse of such evidence and argument?

While this post is unusually lengthy, the topic is one that requires extended treatment.


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