Bad enough to punish: The application of the responsibility guidepost in punitive damages cases after BMW v. Gore

Federation of Insurance & Corporate Counsel Quarterly, Fall 1998 by Levy, Barry R, Watson, H Thomas, Cutting, Curt

I.

INTRODUCTION

The debate over punitive damages dates back thousands of years,' but recently it has taken an increasingly high profile in the pages of law reviews and legal journals.2 Despite the continuing debate, there have been few changes in punitive damages law on a national scale. Nearly all jurisdictions continue to allow punitive awards in some form or another.3

Punitive damages are generally allowed for two purposes: (1) to punish wrongdoers for their actions, and (2) to deter future misconduct.4 They are not designed to provide compensation for injury.5 They generally are available only in cases of "very serious [mis]conduct, coupled with a bad state of mind."' The purposes of punitive damages have obvious similarities to the goals of criminal law,7 but the methods for imposing punitive damages generally lack the strict constraints of criminal proceedings.8 For this reason, defendants have challenged punitive damage awards as unconstitutional under a number of constitutional theories.9 Until recently these arguments were largely unsuccessful.lo

In the 1996 landmark case of BMW of North America v. Gore,ll however, the United States Supreme Court altered (and perhaps began leveling) the playing field by holding a state court punitive damage award unconstitutional, the first such decision in several decades.l2 For many years prior to BMW, the Supreme Court had expressed concern for the lack of standards in state-law punitive damages schemes,"3 and had recognized that "the Constitution imposes a substantive limit on the size of punitive damages."'4 But the Court had provided little guidance about what that limit might be.'5 In the few decisions in which the justices directly addressed a constitutional challenge to a punitive damage award, they generally focused on procedural, rather than substantive, concerns. 16

In BMW the Court attempted to "illuminate the character of the standard that will identify constitutionally excessive awards of punitive damages."7 This illumination came in the form of a three-pronged test that focused primarily on the "reprehensibility" of the defendant's conduct." After BMW was issued, critics blasted the multi-factor, reprehensibility-based test for failing to live up to its billing.l9 According to these critics, the Supreme Court's illusory standards offered no meaningful guidance for the lower courts.20

In the years since BMW, courts have tried to understand and apply the three prongs of the Supreme Court's test, with varying degrees of sophistication and success. Much could be written about each of the prongs, or "guideposts" as the Court dubbed them, and the ways lower courts have struggled to apply them. This article focuses on just one guidepost - "reprehensibility."

The Supreme Court described the reprehensibility guidepost as "[p]erhaps the most important indicium of the reasonableness of a punitive damage award ...."2 In this article, we examine how lower courts have applied this guidepost since BMW. Part I provides a general background to BMW and explains how reprehensibility fits within the Court's analytical framework. Part II enumerates the various aggravating and mitigating factors courts use to measure reprehensibility, and offers examples of how courts have applied each factor. Part III discusses the lower courts' struggle to connect the level of reprehensibility with a particular amount of punitive damages. Part IV looks at the immediate effects of BMW in federal and state courts. Finally, Part V contains some concluding remarks. We conclude BMW's reprehensibility test has provided at least some guidance to lower courts already, and we predict it will become increasingly more useful as more cases are decided, providing courts with a larger library of decisions for comparing the level of reprehensibility with the size of the award in a particular case.

II.

BMW v. GORE

A. Facts and Procedural History

In January 1990, Dr. Ira Gore, Jr. bought a new BMW from an authorized dealership in Birmingham, Alabama for $40,750.88.22 He drove the car for nine months without noticing any flaws in its appearance, but decided to take it to a detail shop to make it look "snazzier." He was quite surprised when the employees at the shop told him his new car had already been partially repainted.23

Dr. Gore filed a lawsuit alleging that BMW's failure to disclose the repainting was a suppression of material fact in violation of Alabama law. BMW admitted it had repainted Dr. Gore's car. It also admitted that, since 1983, it had a policy of repairing damaged cars and selling them as new, provided the cost of the repair did not exceed three percent of the car's price. Under this policy, BMW did not even inform its dealers of the repairs. Because the repainting of Dr. Gore's car cost only $601.37, roughly one and half percent of the purchase price, BMW did not disclose the repainting to Dr. Gore or his dealer.

At trial, Dr. Gore presented testimony that his repainted car was worth ten percent less than a new car with the original paint job, a difference of roughly $4,000. Based on this testimony, a jury awarded Dr. Gore $4,000 in compensatory damages. This modest sum would not have attracted much attention, but the jury also awarded a staggering $4 million in punitive damages. Apparently, the jury reached this figure by adopting a formula suggested by Dr. Gore's counsel, who urged the jury to multiply the amount of compensatory damages by the number of repainted cars BMW sold nationwide, approximately 1,000.24