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ST. LOUIS-The drive to curb excessive punitive damage awards likely will gain momentum after a federal appellate panel's recent ruling that a punitive damage award 250,000 times actual damages is unconstitutional.
The Dec. 19 decision marks the first time a federal appeals court has ruled that a punitive damage award can be so large in comparison to actual damages that it violates the Constitution's guarantee of substantive due process.
Some consumer groups, though, view the 8th U.S. Circuit Court of Appeals' decision as an assault on common law.
In the case, Thaddeus C. Pulla vs. Amoco Oil Co., Mr. Pulla, who was a supervisor in Amoco's Des Moines, Iowa, credit card operation, sued Amoco for invasion of privacy. A U.S. District Court jury had awarded him only $2 in actual damages for past and future pain and suffering and $500,000 in punitive damages.
Amoco appealed, and the three-judge appellate court panel told the lower court to reconsider the punitive award.
"While the Constitution does not impose any precise formula or ratio between the amount of punitive and actual damages, the amount of punitive damages must bear 'some proportion' and a 'reasonable relationship' to the harm that actually occurred," wrote retired U.S. Supreme Court Justice Byron White, who was asked to serve on the appeals court panel.
"In this case, given the limited offensiveness of Amoco's actions and the unlikelihood of any serious potential harm from its conduct, we hold that the 250,000:1 ratio between punitive and actual damages is excessive, unreasonable and violative of due process," he wrote in the 8th Circuit decision.
Mr. Pulla's attorney has requested that the 8th Circuit review the case "en banc." No decision has been made on the request.
The case began when Mr. Pulla-then 48-was demoted, though he continued to receive the same pay, and was replaced by a 45-year-old woman. Mr. Pulla sued under the Age Discrimination in Employment Act in 1991.
He later amended his complaint, alleging that Amoco had violated state tort law by invading his privacy.
This new charge stemmed from the action of a co-worker who had to cover for Mr. Pulla when he took two months of sick leave in 1991. The co-worker, angered at the extra burden, checked Mr. Pulla's personal credit cards for the days he called in sick and found that he'd used the cards at restaurants and bars on those days off.
She reported this to her supervisor, who told her never to do such a thing again.
The supervisor then had another employee print out the record and gave it to a human resources representative, who in turn filed the information in Mr. Pulla's personnel file. Mr. Pulla was later required to provide a doctor's note whenever he took sick leave.
A U.S. District Court jury awarded Mr. Pulla $1 in actual damages for past pain and suffering and $1 for actual damages in future pain and suffering before awarding him the $500,000 in punitive damages.
Justice White noted that four factors determine whether a punitive damage award is reasonable for purposes of due process: the harm inflicted on the plaintiff; the reprehensibility of the defendant's conduct; the likely potential harm to others arising from the conduct in question; and the defendant's wealth. He wrote that the factors must be taken in "totality," meaning that the presence or absence of any one cannot justify or deny the constitutionality of a punitive damages award.
Justice White said the court "justified the $500,000 punitive damages award by reasoning that '(were) Amoco or others similarly situated to be undeterred from intruding on the privacy of employees' credit cards to check up on their use of sick leave or for any other purpose, the aggregate invasion of privacy into sensitive matters would be enormous indeed.' In so doing, the District Court focused on the hypothetical result of future such actions, and did not pinpoint any evidence connected to the actual search of Pulla's credit card records," he wrote.
The lower court also failed to "scrutinize correctly the punitive damages award by reference to the level of the offensiveness of Amoco's conduct." There was no evidence that pulling Mr. Pulla's credit card files reflected a company policy or practice, wrote Justice White. Absent that evidence, "we must view this event as a one-time occurrence justifying a limited award of damages," he wrote.
Finally, the District Court failed to take into consideration the "limited actual harm" suffered by the plaintiff, he wrote.
Theodore J. Boutrous, a partner in the Washington law firm Gibson, Dunn & Crutcher, hailed the decision as "the first time that a federal court of appeals has struck down a punitive damage award as unconstitutionally excessive. "
He noted that the Supreme Court suggested years ago that "grossly excessive" punitive damages might violate the Constitution, but until last month no appeals court had actually held that an award was so large, excessive and arbitrary that it actually violated the Constitution.
"I think it will add momentum (to the drive to re-examine punitive damages), particularly in the federal and state courts. Having a federal court strike down an award in an opinion written by Justice White addressing some of the most difficult issues that the courts have confronted, will provide a basis for other courts to examine punitive damages wards more closely and strike them down when they are excessive," said Mr. Boutrous.
"I think this case is a milestone because it provides a blueprint to trial and appellate courts for evaluating punitive damage awards. It provides a very straightforward process they should use in evaluating these cases," said Lori S. Nugent, a partner in the Chicago firm Blatt, Hammesfahr & Eaton.
"One of the things trial level courts have struggled with for years is how should they evaluate these awards. There haven't been meaningful guidelines," Ms. Nugent said.
While the 8th Circuit decision doesn't draw a bright line, it does provide discussion of each of the factors, she said.
"It shows when a trial court is required to make a record of its rationale justifying a punitive award, any logical leaps or biases of the court become apparent. When a record of the rationale exists, it may be successfully challenged on appeal because the biases and logical leaps are out in the open," she said.
"I think that what it shows is that the 8th Circuit and former Justice White were following closely what the Supreme Court had previously held-that excessive punitive damages would violate the due process clause," said Sherman Joyce, president of the American Tort Reform Assn. in Washington.
"They determined that the type of egregious conduct that was present in the earlier cases (reviewed by the Supreme Court) was not present here."
Consumer groups took a diametrically opposite view.
"We obviously are troubled that an appellate court would totally eliminate the ability of a jury in this case to enforce community values by awarding punitive damages. But that being said, it does seem that the facts of the case are somewhat particular and peculiar and, so far, there's no Supreme Court cases or authority that says an appellate court can completely strike the award," said Joe Belluck, a staff attorney with Public Citizen in Washington.
"This seems to be a pretty extreme use of the appellate court's authority. I guess what's most troubling to us is that we feel we are basically witnessing the death of the common law in the United States.
"It's happening in state legislatures and in Congress; it's happening in courts that are trying to pre-empt injury claims with federal regulation such as motor vehicle safety standards; and now we see it happening at the appellate courts," Mr. Belluck said.
Another attorney for a consumer activist group was not so pessimistic.
"This is how the civil justice system works, this is how it operates. Awards are given by juries that are subject to judicial review. Here you have a case where the appellate court simply thought it did not pass constitutional muster," said Rich Vuernick, legal policy director for Citizen Action in Washington.
"It's of concern that a court would step in where juries have heard all the facts and have made a decision based on the facts before them and strike the awards down on constitutional grounds. It's not earth shattering and not insignificant, it's somewhere in the middle," according to Mr. Vuernick.
Thaddeus C. Pulla vs. Amoco Oil Co., 8th U.S. Circuit Court of Appeals; Nos. 94-4001, 95-1047, Dec. 19, 1995.