Punitive Damages: What is the Right Amount?

The Court of Appeals for the Second Circuit recently reviewed the proper standard for awards of punitive damages in Payne v. Jones, Docket No. 09-5201-cv, decided October 3, 2012. The issue on appeal arose after a jury awarded $60,000 in compensatory damages and $300,000 in punitive damages to a plaintiff who had been a victim of assault and battery by a police officer following a confrontation in a hospital emergency room.

The Second Circuit found the $300,000 punitive damage award excessive and subject to remand for a new trial unless the plaintiff accepted a reduced award of $100,000, which it concluded “would more accurately reflect the severity of Jones’s misconduct.” (Slip op. at 2). (The plaintiff accepted the reduced amount, thus bringing the litigation to a conclusion).

As observed by the Court, punitive damage awards are, by their nature, “speculative, arbitrary approximations.” (Slip op. at 13). No objective standard exists, nor is there a mathematical formula applicable to meet the goal of deterring wrongful conduct. With no objective standards to guide them and understandably outraged by the conduct of the defendant (in this case a police officer who had beaten a Vietnam era veteran suffering from severe post traumatic stress disorder as a result of his military service), jurors are free to award punitive damages in any amount. The Court warned of the inherent danger in allowing juries unfettered discretion to assess punitive damages since such judgments set precedent for excessive awards in future cases. It went on to note that unchecked damage awards can cause serious harm to the national economy, bankrupt companies, force companies to reduce workforces, drain municipalities’ treasuries, drive up the costs of insurance premiums and deter individuals and enterprises from undertaking socially desirable activities and risks.

The Court concluded that these societal burdens are not justified by the benefits to individual plaintiffs, pointing out that such awards “have been characterized as ‘a windfall’ of a fully compensated plaintiff.” (Slip op at 15). In some cases, the Court pointed out it is actually the taxpaying public that bears the brunt of an excessive punitive damage award (for example, because of indemnification agreements between municipalities and their employees who may be found liable for such punitive damage awards).

The Court then turned to the issue of how the amount of punitive damages should be determined. Should there be expert witnesses? Should the award of punitive damages be solely within the province of judges? In rejecting both suggestions, it concluded that judges do not necessarily have more expertise than jurors in the economics of awarding punitive damages. It would be catastrophically expensive and impractical for the judicial system, however, to have parties in every tort case retain “expert witnesses” to opine on the issue of punitive damages and how they affect the overall economy. (Slip op. at 17). Accordingly, the Court concluded that the courts should continue to use their own devices, such as a remittitur, to control the amount of punitive damages awarded. However, because such control should not be unbridled, it also considered the standard of review that should guide the appellate court in reviewing punitive damage awards. While the typical formulation of the issue of whether a punitive damage award is excessive is whether the amount of the jury award is “so high as to shock the judicial conscience,” a standard that had been long-employed in the Second Circuit, the Payne Court found that that standard, standing alone, is inadequate in determining whether a punitive damage award is excessive.

The Court looked to the U.S. Supreme Court’s decision in BMW of North America v. Gore, 517 U.S. 559 (1996), for guidance as to how excessive a jury award must be to shock the conscience of the court and constitute a denial of justice. The three guideposts provided by Gore are: (1) the degree of reprehensibility of the defendant’s conduct; (2) the relationship between the harm (the compensatory damage award) and the punitive damage award; and (3) the criminal and civil penalties imposed by the judicial system for the misconduct in question.

With respect to the first factor, reprehensibility of conduct, the Payne Court observed that Officer Jones, against whom the punitive damage award had been levied, became violent only after the plaintiff had kicked him in the groin in response to Jones’ taunt regarding the Marine Corps.

With respect to the second factor, the compensatory damage/punitive damage ratio, the Court found that where the harm to the plaintiff was substantial enough to result in a compensatory damage award large enough to finance a reasonable attorney’s contingency award, a lower punitive damage award ratio is acceptable. In this case, the punitive to compensatory damage award was five to one. The Court concluded, given the substantial amount of the compensatory damage award, that the punitive damage award of five times that amount appeared to be too high.

Finally, the third factor in determining excessiveness is the penalty that would have been imposed by the law for the conduct giving rise to the punitive damages. In this case, Jones’ conduct would only have been an assault misdemeanor and neither a prison sentence nor a fine was mandated as a criminal consequence of such conduct. These facts weighed against a substantial punitive damage award.

Finally, the Court compared punitive damage awards in this case with other cases, finding that the Second Circuit had never approved a punitive damage award against an individual police officer as large as the $300,000 award against Officer Jones. Prior awards in police brutality cases ranged as high as $150,000, where the wrongs at issue were, in the Court’s view, much more egregious than the conduct of Officer Jones. Weighing all of the factors, the Court concluded that a reduction of the punitive damage award to $100,000 was justified.

The Second Circuit Court of Appeals decision in Payne is significant in that it provides further guidance for lower courts within the Circuit (which encompasses New York, Connecticut and Vermont) in considering awards for punitive damages and determining when they are unreasonably high. The appellate court showed itself to be acutely attuned to the interest of society in preventing excessive damage awards, particularly against municipalities, which can be drained of essential resources and which pass on the cost of excessive punitive damage awards to taxpayers.