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Defendants still need to beware of punitive damages in the District of Columbia

Written by Padraic K. Keane. Posted on 03/06/2012.

While the District of Columbia possesses discretion over the imposition of punitive damages, the Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor (although because the District of Columbia is not a state, the analysis is under the Due Process Clause of the 5th Amendment.) See Cooper Indus., Inc. v. Leatherman Tool Group, 532 U.S. 424, 433 (2001). In recent decisions, the D.C. Court of Appeals has shown a willingness to give a broad reading to Supreme Court opinions on punitive damages, and a preference to uphold punitive damages awards that might seem excessive under a strictly arithmetical analysis.

Recent Supreme Court Decisions on Punitive Damages

The issue of punitive damages has come before the Supreme Court numerous times in the past 20 years, and from these cases a modern approach to punitive damages has emerged. In Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1 (1991), the Supreme Court reviewed a punitive damages award of approximately $840,000.00, compared to a compensatory award of approximately $200,000.00. Because the Alabama Supreme Court had applied careful scrutiny to the award, the Haslip Court found the award did not violate the Due Process Clause, and noted further that “[w]e need not, and indeed we cannot, draw a mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case.” Id. at 19.

In TXO Prod. Corp. v. Alliance Res. Corp., 509 U.S. 443 (1993), the Supreme Court reviewed an punitive damages award of $10 million compared to $19,000.00 in compensatory damages. Despite the fact that this resulted in a punitives-to-compensatory ratio of 526:1, the Supreme Court upheld the award. However, in doing so, the Court noted that

While petitioner stresses the shocking disparity between the punitive award and the compensatory award, that shock dissipates when one considers the potential loss to respondents, in terms of reduced or eliminated royalties payments, had petitioner succeeded in its illicit scheme. Thus, even if the actual value of the "potential harm" to respondents is not between $ 5 million and $ 8.3 million, but is closer to $ 4 million, or $ 2 million, or even $ 1 million, the disparity between the punitive award and the potential harm does not, in our view, "jar one's constitutional sensibilities.”

Id. at 462 (internal citations omitted). Thus, the TXO Court– while considering “potential harm,” an un-awarded damage in the lawsuit– endorsed a ratio of as much as 10:1 as being constitutionally appropriate.

In BMW of North Am. v. Gore, 517 U.S. 559 (1996), the Supreme Court set forth three “guideposts” for analyzing punitive damages awards in the context of a punitive ratio of 500:1. Those Gore guideposts are: (1) the degree of reprehensibility of the conduct; (2) the ratio of the punitive damages to the actual harm suffered by the plaintiff; and (3) a comparison of the award to civil or criminal penalties imposed for similar conduct. The Gore Court struck down the punitive award, noting that

The $ 2 million in punitive damages awarded to Dr. Gore by the Alabama Supreme Court is 500 times the amount of his actual harm as determined by the jury. Moreover, there is no suggestion that Dr. Gore or any other BMW purchaser was threatened with any additional potential harm by BMW's nondisclosure policy. The disparity in this case [500:1] is thus dramatically greater than those considered in Haslip and TXO.

Id. at 582. In rejecting the punitive award, the Court made a point to stress that the ratio of 500:1 was not necessarily an automatic disqualifier of a punitive damage award, but that “[w]hen the ratio is a breathtaking 500 to 1, however, the award must surely "raise a suspicious judicial eyebrow." Id. at 583, citing TXO, 509 U.S. at 441. Nonetheless, the Court noted that the most important consideration for the reasonableness of a punitive damages award was the reprensibility of the conduct. Id. at 575.

In State Farm v. Campbell, 538 U.S. 408 (2003), the Supreme Court rejected a punitive award of $145 million in a case where the jury had awarded $1 million in compensatory damages. While analyzing the award via the Gore guideposts, the Court again refused to set an acceptable punitives-to-compensatory ratio, but noted that “[o]ur jurisprudence and the principles it has now established demonstrate, however, that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” Id. at 425 (emphasis added). The Court went on to note that traditionally, statutes punished wrongdoing by authorizing double, triple, or quadruple damages to sanction wrongdoing, and that “[w]hile these ratios are not binding, they are instructive. They demonstrate what should be obvious: Single-digit multipliers are more likely to comport with due process, while still achieving the State's goals of deterrence and retribution, than awards with ratios in range of 500 to 1, or, in this case, of 145 to 1.” Id.

Recent D.C. Court of Appeals Decisions on Punitives

Despite the repeated admonitions of the Supreme Court that double-digit ratios are unlikely to satisfy due process, the D.C. Court of Appeals has demonstrated a willingness to impose high-ratio punitive awards– notwithstanding the guidance from the Supreme Court on the matter.

In Modern Management Co. v. Wilson, 997 A.2d 37 (D.C. 2010), the D.C. Court of Appeals reviewed a punitive damages award with a ratio of 33:1. (The 33:1 ratio represented the actual damages awarded by the jury, prior to those damages being trebled per the controlling statute. Id. at 57, FN 21.) In upholding the punitive award of $3.3 million compared to actual damages of $60,000.00, the Court reviewed the recent Supreme Court guidance on the issue of punitive damages, and noted the admonition that single-digit multipliers were more likely to comport with Due Process. However, the Court took liberties with the ratio approved in TXO. The Court of Appeals commented that the Supreme Court had upheld a ratio of 526:1 in TXO. Id. at 47. This critical conclusion– that the Supreme Court had approved a ratio of 526:1– paved the way for the Court of Appeals to approve the 33:1 ratio, and was misguided.

As noted above, the TXO Court went out of its way to note that it was not approving a 526:1 ratio, but was rather approving a ratio of at most 10:1 when potential harm to the plaintiff was considered. See TXO, 509 U.S. at 462. In fact, the Supreme Court noted in Gore that the ratio at issue in that case– 500:1– was “dramatically greater” than the ratio considered in TXO. Gore, 517 U.S. at 582. The Supreme Court noted in Gore that the state supreme court may have misinterpreted the TXO ruling as approving a 500:1 ratio, and noting that it was a manifestation of Justice Scalia’s concern in TXO that “[a]ny future due process challenge to a punitive damages award could be disposed of with the simple observation that ‘this is no worse than TXO.’" Id. at 583, FN 37 (citing TXO, 509 U.S. at 472 (SCALIA, J., concurring in judgment)).

Further, the concerns that supported the TXO ratio of 10:1– the possibility of potential harm to the plaintiff– were not present in Modern Management. The plaintiff in Modern Management was a disabled woman who was essentially swindled out of her house. The Modern Management court did not find any additional potential harm, but noted that the plaintiff “suffered more than just the financial harm. She not only lost the equity in her home, but she also suffered the emotional harm of being evicted from the home that she had maintained for over twenty-two years, while she was physically, emotionally, and financially vulnerable.” 997 A.2d at 59. Incredibly, the Court went on to note that, "In fairness, however, we must recognize that Wilson, in all likelihood, would have lost her house even if the appellants had not contacted her.” Id. at FN 25. In upholding the punitive award, the D.C. Court of Appeals went far beyond any ratio approved by the Supreme Court, without any consideration of potential future harm– and in a case where the financial harm was likely to have happened at any rate.

More recently, the D.C. Court of Appeals upheld a punitive damages award of $42,677.50 compared to compensatory damages of $1.00 in Howard University v. Wilkins, 22 A.3d 774 (D.C. 2011). In that case, the Court found that the ratio of 42,677:1 was justified because of the small compensatory damages award, as well as the District of Columbia’s “strong interest in deterring [D.C. Human Rights Act] violations . . .” Id. at 783-784. Additionally, the Court noted that had the jury awarded $42,677.00 in compensatory damages, that verdict would be seen as reasonable. Id. At 784. Further, the Court noted that reducing the jury’s punitive award to a single-digit multiplier would result in a punitive award of approximately ten dollars, which would “utterly fail the traditional purposes underlying an award of punitive damages, which are to punish and deter.” Id. (internal citations omitted).

These two most recent decisions by the D.C. Court of Appeals seem to indicate that the Court is unlikely to overturn a punitive damages award purely based on the ratio of punitive to actual damages. In looking to avoid punitive damages, the only Gore guidepost that one can actually control is the first prong, the degree of reprehensibility of conduct. Thus, it is critical that any organization do all it can to avoid any conduct that could be used to find malice at trial. For example, employees should be trained that under no circumstances should internal communications contain any callous or mocking language, and all interactions should be as professional as possible. An often-referenced concept (often referred to as the New York Times test) illustrates this well: before anything is reduced to writing, the author should consider whether he or she would be comfortable if the e-mail would up on the front page of the New York Times? Or, more to the point for legal purposes, in front of a jury?