The Colorado Division of Workers Compensation must review whether the fines it levied against a motel for failing to carry workers compensation coverage were excessive and in violation of the Eighth Amendment’s Excessive Fines Clause.

In Colorado Department of Labor & Employment v. Dami Hospitality LLC, the Supreme Court of Colorado in an en banc, 2-1 decision on Monday reversed and remanded a case in which a motel argued that the $841,000 it received was constitutionally excessive.

Denver-based Dami, which owns a motel, allowed its workers compensation coverage to lapse in 2005. After the Colorado Division of Workers Compensation notified the motel of the lapse, it conceded the violation and paid a fine in June 2006. Two months later, the motel’s workers comp coverage lapsed again, and the hotel was without comp insurance from Aug. 10, 2006, through June 8, 2007. The company’s coverage lapsed again between Sept. 12, 2010, and July 9, 2014.

On Feb. 29, 2014, the state issued a notice to Dami regarding the lapse and requested documents to establish that it had maintained coverage during those periods or demonstrated an exemption from the coverage requirement. Dami failed to respond to the initial letter, but in July 2014, it faxed a certificate of workers compensation insurance effective July 2014 through July 2015, but did not provide any other documentation for the other periods of purported noncompliance. Pursuant to Colorado statutes, insurance lapses can result in fines of not more than $250 for an initial violation, or more than $500 for subsequent violations. Because the Division of Workers Compensation found that the motel was without insurance for 1,698 days, based on a graduated fine calculation, the state fined Dami $841,200. Dami argued that its annual payroll was less than $50,000, and that the aggregated fine exceeded its gross annual income, and requested a penalty that was “more reasonable to the size” of the business. The division agreed to reduce the fine by nearly half, to $425,000, the aggregated minimum under the statute, but Dami did not accept the settlement.

The motel filed a petition to review, arguing that it reasonably believed that it was in compliance with the statute, that the division failed to provide timely notice of its noncompliance, and claimed that the fines were constitutionally excessive in violation of the Excessive Fines Clause of the Eighth Amendment. The division declined to address the constitutional argument, and the Industrial Claim Appeals Office dismissed the claims. The Colorado Court of Appeals held that the division abused its discretion by failing to consider “Dami’s specific circumstances.” The division petitioned the Colorado Supreme Court for certiorari, which was granted.

The state’s high court held that the Excessive Fines Clause does afford corporations protection against constitutionally excessive fines, and found that the evaluation of fines should consider the company’s ability to pay the fine. The court noted that the government regularly imposes a wide array of monetary penalties on corporations for the purposes of punishing corporate misconduct and regulatory violations, and that “when the government imposes these punitive sanctions, we hold that it must do so in compliance with the Excessive Fines Clause.”

The court stated that the U.S. Supreme Court has applied a “gross disproportionality” test to evaluate fines, and that the proper standard for determining whether a regulatory penalty amounts to a constitutionally excessive fine in violation of the Eighth Amendment is whether it is grossly disproportional to the gravity of the underlying offense.

Although Dami argued that the proportionality analysis should be applied to the aggregate $841,000 fine, not the daily fines, the Colorado Supreme Court disagreed, noting that the Colorado statutes “explicitly” state that a fine can be imposed for each day of noncompliance with its legal obligations. While the court said it recognized that Dami did not receive notice of noncompliance for several years, resulting in a “staggeringly high-dollar aggregate” of fines, but noted that the responsibility for maintaining that insurance falls on Dami. The court held that it cannot “allow the size of aggregated per diem fines in this case to distort our Eighth Amendment jurisprudence,” stating that the evaluation of whether a fine is excessive must be done with reference to each individual daily fine.

The court, therefore, remanded the case to the Division of Workers Compensation, directing the division to evaluate whether the daily fine imposed on Dami for each day it violated workers compensation laws was constitutionally excessive.

Justice Carlos Samour concurred and dissented in part, agreeing with the ruling in general but dissenting on the high court’s holding that a proportionality analysis must be conducted for each individual fine as opposed to the total fine. “The majority today holds that the Eighth Amendment offers Dami protection against excessive fines,” he said. “I wholeheartedly agree. Unfortunately, the majority opinion, at least in this context, has no teeth because it says that Dami is restricted to challenging the daily fine amount.”

Attorney Daniel Goodwin, who represented Dami, said he agrees with the decision made by the court with regards to corporations not being required to pay excessive fines. However, “that is a general resolution for all future cases of this kind and does absolutely nothing to resolve the case that we have filed,” he said. “In order to make a decision that resolves this case and about a dozen other cases just like it, the court would have had to find that the statute itself was unconstitutional because it allowed excessive fines to be entered and the court didn’t do that. That, in my mind, made the whole decision useless.”