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Civil Justice Memo
No. 15 June 1989


Some Thoughts on Punitive Damages

by Theodore Olson, Gibson, Dunn & Crutcher Washington, D.C.

Whatever our differences of opinion about the American justice system, we could probably all agree that its workings should be rational, predictable, consistent and equitable. The levying of punitive civil damages, I would argue, has become inconsistent with and in fact destructive of all those objectives. Let me try to isolate some of the things that make punitive damages unique, and some of the consequences of those differences.

First and most fundamental, punitive damages are not damages at all, and we are never going to succeed in dealing with the problems they cause until we cease to think of them as such. In our civil justice system, damages have historically performed a restorative or compensatory function. Punitive awards do nothing of the sort. Only after the legal system has provided what it regards as full compensation do punitive damages spring into play. They are levied completely apart from the process by which the court determines who (if anyone) was at fault, whether the conduct harmed anyone, what damage the plaintiff suffered as a result and how much money would be needed to make him or her whole.

If punitive damages are not damages, what are they? They are fines, intended to punish or deter. They may have started as a category of damages because courts of appeal could not reconcile the award that a jury reached with the actual damages done and loosely characterized the excess as "exemplary damages." Whatever their origins, however, punitive damages are now treated as serving only a punitive and deterrent function. This, then, is the second point. Punitive damages are an anomaly in our civil justice system because they import the public function of criminal punishment into what is otherwise thought of as a primarily private system of restorative justice. And—a third point—punitive damages are awarded after trials that do not conform to the procedural safeguards we usually impose in our justice system when criminal punishment is at stake.

The fourth point has to do with the jury. Juries are well constituted to perform as factfinders and determiners of liability. But here they are being given in effect the public function of sentencing—of deciding how high a penalty someone should pay for violating a public standard. Juries are remarkably ill-equipped for that task because they sit in only one case, hear evidence only in that case, and are then given very vague guidance with which to form a judgment. They do not know what punishments are meted out for similar acts or for other improper acts. They therefore pick numbers out of a hat. Our legal system has never accepted this kind of situational justice.

Fifth, making this problem worse, the standards for awarding punitive damages are invariably elastic, subjective and largely ad hoc. No matter what the official legal formulation in any state, whether the standard is described as malice or fraud or reckless conduct or gross negligence, in practice the jury can and will award whatever the plaintiff's lawyer can justify in a powerful closing argument.

So juries are allowed to award pretty much whatever they want, and juries differ. The sixth characteristic follows directly. It is that punitive damage awards are highly unpredictable. While courts of appeals sometimes reduce these awards, they do so inconsistently and almost invariably declare at the outset that the amount of such awards is largely a matter of jury discretion. In one state they have ranged up to a billion dollars, in another state five hundred million, and in a third, one or two million. In the absence of legislated standards, the possibilities are limitless, and so are the inconsistencies.

The seventh feature of punitive damages is that they are driven largely by subjective emotions like anger and sympathy. Jurors are drastically swayed by such factors as the wealth, success, or personal demeanor of a defendant, even how far away the defendant lives from the location of the litigation. The jurors are frequently told to send a message back to such and such a corporate headquarters. After being instructed to set aside emotion, bias, and prejudice, juries are bombarded with arguments that are based almost exclusively on emotion, bias and prejudice.

The eighth characteristic is that punitive damages involve a large dose of retroactivity and ex post facto punishment. Frequently a defendant is punished for an act that was not clearly articulated in advance as something for which punishment would be imposed. Ninth, punitive damages in a business setting usually end up punishing not a corporation or its officers but a set of shareholders. In other words, they punish the wrong people, people who are not responsible for the wrongdoing.

Tenth and finally, as even the supporters of these awards are beginning to admit, punitive damages are being awarded in increasing frequency and in increasing amounts. For example, between 1922 and 1959 the largest punitive damage award in California was $10,000. In the 1960s the largest punitive award was $250,000. In the 1970s the largest was $740,000. Between 1980 and 1986 the record went up to $3,000,000, and in 1988 there were two massive awards, one for $14,000,000 and one for $15,000,000. These awards have been sustained on appeal. The amounts are skyrocketing out of control.

The net result of the convergence of all these characteristics is a capricious, unpredictable, randomly destructive scheme of punishment—the very antithesis, in my view, of a system of due process. The field has been almost entirely ignored by legislatures and has thus been allowed to develop according to the standards of individual courts, which in practice moans largely the standards of juries. The seriousness of the punishment recalls the public functions of criminal law, but the prosecutors are not public officials, who are accountable to the citizenry and have a long tradition of ethics and restraint, but private citizens and lawyers whose only interest is the size of the award they can bring in. The pronouncers of sentence are not judges with a wide experience of the various gradations of wrongdoing, but jurors whose only function is to come up with a punishment for this one case. It would be miraculous if justice, uniformity and fairness were the result.

The due process violation that springs from the awarding of punitive damages without substantive standards has twice been argued before the Supreme Court but not resolved. Officially, BrowningFerris involves a challenge to punitive damages based on a different ground, the Eighth Amendment. That Amendment prohibits excessive fines, as well as cruel and unusual punishment and excessive bail. The Court has not articulated in the past what is meant by "excessive fines" and has never before applied the Eighth Amendment to civil cases. Because the excessiveness of a fine may turn out to hinge on some of the aforementioned due process issues, the absenceofsubstantivestandards issue lurks close beneath the surface in Browning-Ferris.

Punitive damages are punitive fines imposed by the government. Unless they are brought under control, they will continue to be imposed unfairly. By the beginning of July the Court should rule and—one hopes—provide some longneeded guidance to restrain these awards before our entire civil justice system begins to collapse under their unjust weight.

 


Center for Legal Policy.

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SUMMARY:
On May 8 the Manhattan Institute held a conference on "Crime and Punishment in Business Law," with the lead panel on the timely issue of punitive damages. One of the speakers was attorney Theodore Olson, who wrote two of the amicus curiae briefs in the pending Browning-Ferris case. The following are his edited remarks. (More on the conference in later memos).

 


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