An archive of Howard J. Bashman's monthly columns about appellate litigation, with other of his writings thrown in for good measure
Punitive Damages: Must State Courts Provide De Novo Review on Appeal?
By Howard J. Bashman
Monday, August 13, 2001
Few topics in the law are more controversial than punitive damages. Many plaintiffs' lawyers and consumer advocates maintain that punitive damages are necessary to prevent wealthy corporations from engaging in and benefiting from conduct that is intentionally wrongful or recklessly indifferent to the rights of others. Many large corporations and defense attorneys counter that the size and frequency of punitive damage awards have skyrocketed out of control and that punitive damages fail to provide economically optimal deterrence.
Within the past ten years, the Supreme Court of the United States has issued five significant punitive damages rulings. In the first two decisions, the Supreme Court rejected due process challenges to an Alabama state court punitive damages award of $840,000 against an insurance company and a West Virginia state court punitive damages award of $10 million against an oil and gas developer. See Pacific Mut. Life Ins. Co.
, 499 U.S. 1 (1991); TXO Prod. Corp.
v. Alliance Res. Corp.
, 509 U.S. 443 (1993).
In 1994, the Supreme Court considered an Oregon state court punitive damages award of $5 million returned against the manufacturer of an all-terrain vehicle. See Honda Motor Co.
, 512 U.S. 415 (1994). Oregon's state Constitution provided that "the right of trial by jury shall be preserved, and no fact tried by a jury shall be otherwise re-examined in any court of this State, unless the court can affirmatively say there is no evidence to support the result." The Supreme Court of Oregon construed that provision to prohibit any excessiveness inquiry.
The U.S. Supreme Court ruled that "Oregon's denial of judicial review of the size of punitive damages awards violates the Due Process Clause of the Fourteenth Amendment." The U.S. Supreme Court's ruling in Oberg
did not specify what standard of review state appellate courts should apply in determining whether a punitive damages award is unconstitutionally excessive. On remand, the Supreme Court of Oregon ruled that the $5 million punitive damages award was within the range that a rational juror would be entitled to award and again upheld the award; this time, the U.S. Supreme Court denied review. See Oberg
v. Honda Motor Co.
, 888 P.2d 8 (Or. 1995), cert. denied
, 517 U.S. 1219 (1996).
In 1996, the U.S. Supreme Court for the first time struck down a punitive damages award as unconstitutionally excessive. See BMW of N. Am., Inc.
, 517 U.S. 559 (1996). A doctor in Alabama purchased a luxury car that had been damaged by acid rain during shipment from Germany. BMW repainted the car upon its arrival in the United States but did not disclose such repairs to new car purchasers. The doctor sued BMW for fraud. He alleged actual damages of $4,000 and sought punitive damages. An Alabama state court jury found BMW liable for $4,000 in compensatory damages and $4 million in punitive damages. On appeal, the Supreme Court of Alabama reduced the punitive damages award to $2 million.
Asserting that the $2 million punitive damages award remained unconstitutionally excessive, BMW sought further review in the U.S. Supreme Court. The U.S. Supreme Court reversed, explaining that "we are fully convinced that the grossly excessive award imposed in this case transcends the constitutional limit."
The Supreme Court in Gore
announced three guideposts for lower courts to follow in determining whether a punitive damages award is unconstitutionally excessive. First, a court should examine the degree of reprehensibility of the defendant's conduct. Second, a court should examine the ratio between the punitive damages awarded and the actual or potential harm to the plaintiff. Third, a court should compare the punitive damages award and the civil or criminal penalties that could be imposed for similar misconduct.
Most recently, on May 14, 2001, the Supreme Court addressed the standard of review that a federal appellate court should apply when considering a defendant's argument that unconstitutionally excessive punitive damages have been imposed. See Cooper Indus., Inc.
v. Leatherman Tool Group, Inc.
, 121 S. Ct. 1678 (2001). The jury in an Oregon federal district court awarded to the plaintiff $50,000 in compensatory damages and $4.5 million in punitive damages on a state law unfair competition claim. The trial court considered and rejected the defendant's post-judgment motions challenging the punitive damages as excessive.
On appeal, the U.S. Court of Appeals for the Ninth Circuit employed the abuse of discretion standard in reviewing the trial court's rejection of the defendant's excessiveness challenge. Perceiving no abuse of discretion, the Ninth Circuit affirmed. Defendant Cooper Industries sought U.S. Supreme Court review to resolve a disagreement among federal appellate courts over the proper appellate standard of review to be applied when deciding whether a punitive damages award is unconstitutionally excessive.
The conflict in question involved the Philadelphia-based U.S. Court of Appeals for the Third Circuit, which was one of the first federal appellate courts to provide de novo review of a jury's award of punitive damages for unconstitutional excessiveness. See Inter Med. Supplies, Ltd.
v. EBI Med. Sys., Inc.
, 181 F.3d 446 (3d Cir. 1999), cert. denied
, 528 U.S. 1076 (2000). In that business tort case, a New Jersey federal district court jury awarded the plaintiffs $48 million in compensatory damages and more than $100 million in punitive damages. On post-judgment motions, the district court reduced the punitive damages award to $50 million. The defendant appealed to the Third Circuit and argued that the $50 million award remained unconstitutionally excessive.
The Third Circuit panel ruled 2-1 that "[i]n punitive damages cases we must be informed by the Supreme Court's jurisprudence and, as noted above, that jurisprudence counsels intensive [appellate] review." Circuit Judge Dolores K. Sloviter wrote the majority opinion, in which visiting Senior Eighth Circuit Judge Frank J. Magill joined.
Based on its independent, intensive review, the majority concluded that "the proper, reasonable punitive damages award is no more than $1 million." In a dissent that the majority opinion characterized as "passionate," Senior Circuit Judge Leonard I. Garth criticized the ruling as "ignor[ing] our precedential standard of review . . . under which we are obligated to give additional deference to the district court's experience and judgment except where the award shocks the conscience or when the district court has abused its discretion."
The Third Circuit's approach triumphed in Cooper Indus.
when the Supreme Court ruled 8-1 that federal appellate courts should consider de novo whether punitive damages are unconstitutionally excessive. The Supreme Court further held that a jury's award of punitive damages does not constitute a finding of fact, and therefore the Constitution's Seventh Amendment does not preclude de novo federal appellate reexamination of whether such an award is unlawfully excessive.
The ruling in Cooper Indus.
does not expressly require that state appellate courts provide de novo appellate review when a defendant challenges a state court punitive damages award as unconstitutionally excessive. Indeed, the opinion does not discuss whether de novo review is constitutionally mandated, in which case it would clearly apply to state courts, or is simply an exercise of the Supreme Court's power to announce procedural rules governing federal appellate courts, in which case it would not bind state courts.
The state appellate courts of Pennsylvania currently review the alleged excessiveness of a punitive damages award under the abuse of discretion standard. See Kirkbride
v. Lisbon Contractors, Inc.
, 555 A.2d 800, 803-04 (Pa. 1989); Sprague
, 656 A.2d 890, 927-28 (Pa. Super. Ct. 1995), appeal denied
, 670 A.2d 142 (Pa. 1996). In the three months since the U.S. Supreme Court decided Cooper Indus.
, the only state court of last resort to consider whether that decision requires state appellate courts to exercise de novo review of excessiveness challenges to punitive damages awards is the Supreme Court of Alabama. See Horton Homes, Inc.
, No. 1000346, 2001 WL 792730 (Ala. July 13, 2001).
In Horton Homes
, Alabama's highest court held that given the Cooper Indus.
decision, and given state legislation passed in 1987 mandating de novo appellate review of punitive damages (which the Alabama Supreme Court declared unconstitutional in 1991), the court would henceforth apply de novo review. Chief Justice Roy Moore, in dissent, argued that Cooper Indus.
did not require state appellate courts to provide de novo appellate review of excessiveness challenges to punitive damages awards.
As the U.S. Supreme Court recognized in Cooper Indus.
, "[i]t is possible that the standard of review . . . will affect the result of the Gore
analysis in only a relatively small number of cases." The Supreme Court explained that Cooper Indus.
was one of those rare cases in which "a thorough, independent review of the District Court's rejection of petitioner's due process objections to the punitive damages award might well have led the Court of Appeals to reach a different result."
Although Cooper Indus.
does not expressly mandate that state appellate courts exercise de novo review of the excessiveness of a punitive damages award, the decision does explain that the U.S. Supreme Court considers itself to have conducted de novo appellate review of the excessiveness of the punitive damages award that the Alabama Supreme Court upheld in Gore. Thus, in those rare instances where de novo appellate review of the excessiveness of a punitive damages award produces a result that differs from abuse of discretion review, the result a state appellate court reaches applying the abuse of discretion standard would be subject to reversal by the U.S. Supreme Court. Of course, the Supremacy Clause of the U.S. Constitution requires state appellate courts to enforce the due process clause so as to reach the same result that the U.S. Supreme Court would reach. See Sims
, 385 U.S. 538, 543-44 (1967).
Also noteworthy is an action the U.S. Supreme Court took within weeks of its Cooper Indus.
ruling. In a case arising from a California state appellate court, the U.S. Supreme Court granted certiorari, vacated the state court's judgment, and remanded for further consideration in light of Cooper Indus. See San Paolo U.S. Holding Co.
, 121 S. Ct. 2190 (2001). The Supreme Court only does this when there is a reasonable probability that reconsideration would produce a different result on remand. See Lawrence
, 516 U.S. 163, 167 (1996) (per curiam).
For these reasons, I conclude that state appellate courts either should exercise de novo review of punitive damages awards or, in exercising abuse of discretion review, should specify that de novo review would produce the same result.
The Third Circuit has proposed an amendment to Local Appellate Rule 35.3 clarifying that recused active judges are not counted as voting against rehearing en banc petitions. My April 2001 column advocated this change.
Whether federal appellate courts may lawfully designate certain opinions as non-precedential arose again recently, this time in a dissent written by Fifth Circuit Judge Jerry E. Smith from the denial of rehearing en banc. Circuit Judges Edith H. Jones and Harold R. DeMoss, Jr. joined in the dissent. See Williams
v. Dallas Area Rapid Transit
, No. 00-10361, 2001 WL 716949 (5th Cir. June 26, 2001) (Smith, J., dissenting from denial of reh'g en banc). My December 2000 column questioned the constitutionality of non-precedential federal appellate rulings.
On May 9, 2001, President Bush renominated, and on July 20, 2001 the U.S. Senate confirmed, recess appointee Roger L. Gregory to a life-tenured judgeship on the U.S. Court of Appeals for the Fourth Circuit. My March 2001 column questioned the constitutionality of recess appointments to the federal judiciary.
This article is reprinted with permission from the August 13, 2001 issue of The Legal Intelligencer © 2001 NLP IP Company.