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 would ease the “unfairness” of large punitive damage awards, a senior member of the House Judiciary Committee said.

Steve Chabot, R-Ohio, who chairs the House Judiciary Subcommittee on the Constitution, said that federal statutory guidelines for punitive damages would provide potential wrongdoers with “fair notice” of the potential punishments the United States Supreme Court has held is necessary under the due process clause of the Constitution.

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

The hearing focused on the April 7, 2003, Supreme Court decision in the case of State Farm v. Campbell, in which the court determined that a $145 million punitive damage award, on top of a $1 million compensatory award, was unconstitutional. The case involved a Utah State Farm policyholder involved in a fatal accident who sued his insurer for bad faith and introduced witnesses who testified to questionable activity by the company in other jurisdictions.

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

However, some advocates of punitive damage reform say that some state courts are not properly applying the holding in State Farm 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 Tort Reform Association, said that a new phenomenon has occurred since the decisions.

“In some states, lower courts either have not grasped the meaning of these decisions or have ignored them,” he said in testimony to the subcommittee.

This phenomenon, Mr. Schwartz said, prompts the need for Congress to consider model constitutional guidelines for punitive damage awards.

The American Legislative Exchange Council, an association of members of state legislatures, has developed a model act that would require appellate courts to conduct a de novo review of the constitutionality of punitive damages, he said.

“This means,” Mr. Schwartz said, “that lower courts cannot make discretionary, subjective and non-reviewable decisions about whether punitive damage awards are constitutional.”

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

Congress should also consider, he said, placing reasonable limits on multiple imposition of punitive damages for the same or similar conduct.

Mr. Schwartz said there is a very real danger that without legislation, the limits on punitive damages established by the Supreme Court will be ignored or misunderstood by lower courts.

But Robert S. Peck, president of the Washington-based Center for Constitutional Litigation, and senior director of legal affairs for the Washington-based Association of Trial Lawyers of America, said that the empirical evidence strongly suggests there is no appropriate concern related to punitive damages.

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

Looking first at the empirical evidence, Mr. Peck said that a 1996 Justice Department study found that only three percent of plaintiffs who won their cases received punitive damage awards, and the median award was $38,000.

A subsequent study by the National Center for State Courts confirmed 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 malpractice cases in North Carolina and found only two cases awarding punitive damages.

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

“In asking for a federal regulatory overlay on punitive damage judgments, advocates for change are asking Congress to exceed its constitutional authority and intrude into a realm that the Constitution reserves to the states,” he said.

Indeed, he said, no compelling case can be made that all or most states violate a defendant’s due process rights with respect to punitive damages.

States have laws carefully delineating the necessary proof and level of misconduct to permit a punitive damage award, Mr. Peck said. Moreover, he said, states have implemented special and specific jury instructions.

“A case for widespread and longstanding due process violations cannot be made,” Mr. Peck said.