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AT LONG LAST, the business community has won an influential court opinion that excessive punitive damage awards violate the Constitution.
Last month, a panel of the 8th U.S. Circuit Court of Appeals ruled that a punitive damage award can be so large in comparison to actual damages that it violates the guarantee of substantive due process that courts have long found in the Constitution (BI, Jan. 8).
We hope other courts nationwide follow the 8th Circuit's guidance and limit businesses' exposure to runaway punitive awards, which drive up the cost of goods and services.
Ultimately, though, we believe the Supreme Court also must adopt this interpretation if these awards are to be truly reduced.
In the case before the 8th Circuit, Thaddeus C. Pulla vs. Amoco Oil Co., a man sued his employer for invasion of privacy.
A U.S. District Court jury awarded him $2 for pain and suffering but $500,000 in punitive damages, or 250,000 times more than actual damages.
The appeals court panel ordered the lower federal court to reconsider the amount of punitive damages that were awarded.
"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 serves on the panel. "We hold that the 250,000-to-1 ratio between punitive and actual damages is excessive, unreasonable and violative of due process."
It's about time.
Businesses have long argued that excessive punitive awards were unconstitutional. Courts-including the Supreme Court-have hinted as much but have avoided actually ruling on this contentious issue. Many decided that as long as the award had been subject to judicial review it was appropriate.
Now, however, an influential jurist and court have ruled that the judicial review was flawed and spelled out a process by which the court should assess the reasonableness of the punitive award.
We hope other courts, including the Supreme Court, follow the 8th Circuit's guidance on this important issue.
Indeed, the high court has an excellent chance to apply this reasoning in a case now before it, BMW vs. Gore, in which an automaker was hit with a punitive award 1,000 times greater than actual damages for a flawed paint job.
Though the punitive award was halved on review, even that award size appears to have been arbitrarily selected and is still 500 times greater than the actual damages were.
We hope the justices of the high court finally use this opportunity to bring greater fairness to the tort system. Thankfully, the 8th Circuit and a former colleague have shown them the way.