High Court Nullifies Punitive-Damage Award

The News & Observer Raleigh, NC

Copyright 2996

Tuesday, May 21, 1996

News

High court nullifies punitive-damage award

From Staff and Wire Reports

WASHINGTON – Businesses eager to cut the multimillion-dollar costs
of consumer lawsuits won a major victory Monday when, for the first
time, the Supreme Court invalidated a state punitive-damage award as
unconstitutionally excessive.

The justices, dividing 5-4, ruled that an Alabama doctor unhappy with the undisclosed repainting job on his new BMW did not deserve a $2 million punitive award from the manufacturer.

The award was so big – 500 times the value of the doctor’s actual damages – that it violated constitutional limits of fairness, Justice John Paul Stevens declared for the court.

When civil juries award damages to compensate injured people, they sometimes add punitive damages to punish defendants for flagrant misconduct and to deter similar behavior.

Highly publicized multimillion-dollar awards of punitive damages in personal injury cases have spurred businesses to launch legislative and courtroom campaigns to curb the size of the awards.

Although Stevens didn’t draw a clear dividing line between excessive and non-excessive punitive awards, he furnished lower-court judges with analytical guidelines for determining when juries overstep constitutional bounds.

He said judges should weigh:

– How reprehensible the defendant’s conduct was.

– The relationship between the injured person’s actual loss and the amount of the punitive damages.

– And the differences between the punitive damages and other legal penalties for the same conduct.

In addition, he said, state juries may not impose penalties on defendants for their conduct in other states.

The ruling might not have been the total victory business people wanted, but it was a victory nonetheless, North Carolina lawyers said.

“It’s at least a small victory for business because it shows the Supreme Court will look into this area,” said James Blount Jr., a partner at the Raleigh law firm Smith Anderson Blount Dorsett Mitchell & Jernigan.

Cecil Harrison, a partner at Poyner & Spruill in Raleigh, noted that the decision differed from several previous ones in which big jury awards were upheld.

“It marks the first time in a number of years that the Supreme Court has taken a different view of punitive damages by actually finding them excessive,” he said.

Plaintiff’s lawyers didn’t like the decision. But one North Carolina lawyer said it is too early to determine what effect the ruling will have.

“You just don’t know how broadly to interpret it,” said Wade Byrd, a Fayetteville lawyer who’s president-elect of the N.C. Academy of Trial Lawyers. “It’s disturbing that the Supreme Court has apparently taken a case which heretofore has been reserved for the jury, trial judge and the state supreme courts.”

The case decided by the court, BMW of North America vs. Gore, arose when Dr. Ira Gore of Birmingham complained that his new $40,000 BMW had been partly repainted to cover acid-rain damage that occurred during transit.

He said he made the discovery when he drove his car into Slick Finish in 1990 to get his BMW to look even “snazzier than it normally would appear.” Leonard Slick, the owner of Slick Finish, told Gore his car had been repainted. Gore, saying he felt “cheated and misled,” sued.

His lawyer produced evidence that about 1,000 other BMWs were sold with similar undisclosed paint jobs. In its defense, BMW said refinished vehicles retain their value and cited its policy of not disclosing repairs valued at less than 3 percent of the manufacturer’s suggested retail price.

A jury awarded Gore $4,000 to compensate him for a 10 percent loss of value – plus $4 million in punitive damages, an amount the Alabama Supreme Court later reduced to $2 million.

Stevens’ opinion was joined by Sandra Day O’Connor, Anthony Kennedy, David Souter and Stephen Breyer. The dissenters – Antonin Scalia, Clarence Thomas, Ruth Bader Ginsburg and Chief Justice William Rehnquist – said the court should have left the issue to the states. Sixteen states, including North Carolina, have placed ceilings on punitive awards.

Congress recently passed a measure limiting federal awards of punitive damages to consumers injured by defective products. But President Clinton vetoed it.