Hints That Congress Might Halter Damage Awards

By Steven Brostoff, Washington Editor

NU Online News Service, Oct. 1, 3:37 p.m. EDT,Washington?Congress may consider legislation that wouldease the "unfairness" of large punitive damage awards, a seniormember of the House Judiciary Committee said.

Steve Chabot, R-Ohio, who chairs the House JudiciarySubcommittee on the Constitution, said that federal statutoryguidelines for punitive damages would provide potential wrongdoerswith "fair notice" of the potential punishments the United StatesSupreme Court has held is necessary under the due process clause ofthe Constitution.

Specifically, Mr. Chabot said during a Subcommittee hearing,Congress might consider prohibiting the multiple imposition ofpunitive damages by courts in different states for the sameconduct, requiring that punitive damages be directed to the state,protecting small businesses from excessive punitive damages andproviding that judges, not juries, determine the size of punitivedamages.

The hearing focused on the April 7, 2003, Supreme Court decisionin the case of State Farm v. Campbell, in which the courtdetermined that a $145 million punitive damage award, on top of a$1 million compensatory award, was unconstitutional. The caseinvolved a Utah State Farm policyholder involved in a fatalaccident who sued his insurer for bad faith and introducedwitnesses who testified to questionable activity by the company inother jurisdictions.

The high court ruled that the award was based on conduct thatoccurred in other states, and which may have been legal in thosestates, and which bore no relation to the plaintiff's harm.

However, some advocates of punitive damage reform say that somestate courts are not properly applying the holding in StateFarm v. Campbell and other punitive damage cases.

Victor Schwartz, an attorney in the Washington office of Shook,Hardy & Bacon and counsel to the Washington-based American TortReform Association, said that a new phenomenon has occurred sincethe decisions.

"In some states, lower courts either have not grasped themeaning of these decisions or have ignored them," he said intestimony to the subcommittee.

This phenomenon, Mr. Schwartz said, prompts the need forCongress to consider model constitutional guidelines for punitivedamage awards.

The American Legislative Exchange Council, an association ofmembers of state legislatures, has developed a model act that wouldrequire appellate courts to conduct a de novo review of theconstitutionality of punitive damages, he said.

"This means," Mr. Schwartz said, "that lower courts cannot makediscretionary, subjective and non-reviewable decisions aboutwhether punitive damage awards are constitutional."

In addition, he said, the ALEC Model establishes guidelines forwhat evidence a court may or may not consider. For example, Mr.Schwartz said, under the ALEC model, a court could not considerevidence of general wrongdoing.

Congress should also consider, he said, placing reasonablelimits on multiple imposition of punitive damages for the same orsimilar conduct.

Mr. Schwartz said there is a very real danger that withoutlegislation, the limits on punitive damages established by theSupreme Court will be ignored or misunderstood by lower courts.

But Robert S. Peck, president of the Washington-based Center forConstitutional Litigation, and senior director of legal affairs forthe Washington-based Association of Trial Lawyers of America, saidthat the empirical evidence strongly suggests there is noappropriate concern related to punitive damages.

Moreover, he said, Congress has little authority to regulatepunitive damages or enact legislation that might control stateauthority in the realm of punitive damages.

Looking first at the empirical evidence, Mr. Peck said that a1996 Justice Department study found that only three percent ofplaintiffs who won their cases received punitive damage awards, andthe median award was $38,000.

A subsequent study by the National Center for State Courtsconfirmed those findings, he added.

Even in areas such as medical malpractice and product liability,Mr. Peck said, punitive awards tend to be sparse.

One researcher, for example, reviewed 1,300 medical malpracticecases in North Carolina and found only two cases awarding punitivedamages.

As for Congressional authority, Mr. Peck said that the conceptof federalism indicates that the role for Congress in the area ofpunitive damages is very limited.

"In asking for a federal regulatory overlay on punitive damagejudgments, advocates for change are asking Congress to exceed itsconstitutional authority and intrude into a realm that theConstitution reserves to the states," he said.

Indeed, he said, no compelling case can be made that all or moststates violate a defendant's due process rights with respect topunitive damages.

States have laws carefully delineating the necessary proof andlevel of misconduct to permit a punitive damage award, Mr. Pecksaid. Moreover, he said, states have implemented special andspecific jury instructions.

"A case for widespread and longstanding due process violationscannot be made," Mr. Peck said.