517 U.S. 559, 575, 580-81 (1996)
In January 1990, Dr. Ira Gore, Jr., purchased a black BMW sports sedan for $40,750.88 from an authorized dealer in Birmingham, Alabama.1 The vehicle had been manufactured in Germany by BMW and shipped to the United States, where an independent service company in Brunswick, Georgia, determined that its finish had been damaged by acid rain during transit from Europe and refinished it at a cost of $601.37 before delivery to the Birmingham dealership.2 At the time of the purchase, BMW of North America, Inc., maintained a policy of not disclosing to dealers or customers that a new vehicle had been refinished if the cost of the repairs was less than 3 percent of the suggested retail price, and the refinishing cost for Gore's car amounted to approximately 1.5 percent of that price.3
After driving the car for about nine months, Gore took it to an independent detailer, who informed him that the car had been repainted.4 Gore then filed suit against BMW of North America, Inc., alleging fraud under Alabama law for the failure to disclose the repainting.5 At trial, BMW acknowledged that it had sold approximately 983 refinished cars as new in the United States since 1983, including 14 in Alabama, without disclosing the repairs when the cost exceeded $300 per vehicle.6 The jury awarded Gore $4,000 in compensatory damages, representing the difference in value between the car as delivered and its value had it not been refinished, along with $4 million in punitive damages.7
BMW moved to set aside the punitive damages award, introducing evidence that its nondisclosure policy aligned with the laws of roughly 25 states that required disclosure only for repairs exceeding 3 percent of the suggested retail price.8 The trial court denied the motion.9 On appeal, the Alabama Supreme Court affirmed the judgment but reduced the punitive damages to $2 million after applying factors from Green Oil Co. v. Hornsby and Pacific Mutual Life Insurance Co. v. Haslip, concluding that the jury's award was excessive but that $2 million remained permissible.10 The Supreme Court of the United States granted certiorari to review the case.11
Whether a $2 million punitive damages award exceeds the limit imposed by the Due Process Clause of the Fourteenth Amendment?12
The Due Process Clause of the Fourteenth Amendment prohibits a State from imposing a grossly excessive punishment on a tortfeasor.13 The principle is rooted in the notion of fair notice.14 Three guideposts guide the inquiry.15 The first is the degree of reprehensibility of the defendant's conduct.16 The second is the disparity between the harm or potential harm suffered by the plaintiff and the punitive damages award.17 The third is the difference between this remedy and the civil penalties authorized or imposed in comparable cases.18
Yes. Application of the guideposts to the established facts shows that the award is grossly excessive.19 BMW's conduct involved purely economic harm with no evidence of bad faith or pattern of egregious conduct, indicating low reprehensibility.20 The $2 million award is 500 times the $4,000 compensatory damages, a ratio far exceeding those in prior cases.21 The maximum civil penalty in Alabama is $2,000, making the award vastly disproportionate to authorized sanctions.22
The $2 million punitive damages award exceeds the substantive due process limit and is therefore unconstitutional.23
Related opinions on this issue
Joined by O’connor And Souter, Jj.
Justice Breyer, joined by Justices O’Connor and Souter, concurred in the judgment.24 He wrote separately to emphasize that the Constitution imposes substantive limits on the size of punitive damages awards to prevent arbitrary deprivations of property without due process of law.25 Breyer noted that while the three guideposts provide a useful framework for determining whether an award is grossly excessive, the Alabama standards as applied in this case failed to constrain jury discretion sufficiently when the relevant harm was limited to Alabama-specific conduct totaling approximately $56,000.26
He explained that the reasonable relationship test and other Green Oil factors, as interpreted by the Alabama Supreme Court, provided no meaningful constraint once out-of-state instances were excluded.27 Breyer concluded that the $2 million award was grossly excessive in relation to the state's legitimate interests in punishment and deterrence, overcoming the presumption of validity that would otherwise apply to jury verdicts following fair procedures.28
Joined by Thomas, J.
Justice Scalia, joined by Justice Thomas, dissented from the majority's holding that the award violated due process.29 He argued that the Constitution does not impose any substantive limit on the size of punitive damages awards.30 Scalia maintained that the Due Process Clause provides only procedural protections rather than guarantees against excessive awards.31
He viewed the Court's newly announced guideposts as hopelessly vague and certain to produce unpredictable and inconsistent results across cases.32 Scalia asserted that the decision represented an unwarranted extension of substantive due process doctrine into an area traditionally governed exclusively by state law.33 He would have affirmed the judgment of the Alabama Supreme Court.34
Joined by Rehnquist, C. J.
Justice Ginsburg, joined by Chief Justice Rehnquist, dissented from the majority's imposition of a constitutional limit.35 She contended that the Court should not create a new federal constitutional rule governing punitive damages awards.36 Ginsburg argued that the three guideposts lack roots in constitutional text or history and that review of state jury verdicts is best left to the States to develop their own standards.37
She maintained that the Alabama Supreme Court had already followed this Court's prior instructions in Haslip and TXO when reducing the award.38 Ginsburg concluded that the matter should remain within state control without federal intervention.39
Whether Alabama may impose economic sanctions on violators of its laws with the intent of deterring conduct that is lawful in other jurisdictions?40
No. The established facts show that BMW's nondisclosure policy was lawful in roughly 25 other States.43 The Alabama Supreme Court based its remitted award solely on conduct occurring within Alabama.44 Alabama therefore lacked authority to punish BMW for out-of-state sales that had no impact on Alabama residents.45
Alabama may not use punitive damages to deter conduct that is lawful in other jurisdictions.46
Related opinions on this issue
Joined by O’connor And Souter, Jj.
Justice Breyer joined the Court's opinion addressing extraterritoriality concerns.47 He emphasized that the Alabama standards failed to constrain discretion when applied to the limited Alabama-specific harm of approximately $56,000.48 Breyer explained that the reasonable relationship test and other Green Oil factors provided no meaningful constraint once out-of-state instances were excluded from consideration.49
He concluded that the award was grossly excessive relative to legitimate state interests in punishment and deterrence.50
Joined by Thomas, J.
Justice Scalia rejected the extraterritoriality premise altogether.51 He asserted that the Constitution does not limit state punitive damages awards on any substantive ground.52 Scalia maintained that lawful out-of-state conduct may inform the assessment of a defendant's character and that the Court's new rule represented an unjustified incursion into the province of state governments.53
He would have affirmed the judgment below without imposing federal limits on state awards.54
Joined by Rehnquist, C. J.
Justice Ginsburg maintained that the Alabama Supreme Court had already eliminated any reliance on out-of-state conduct when it reduced the award to $2 million.55 She concluded that the case therefore presented no genuine extraterritoriality issue requiring federal intervention.56 Ginsburg argued that the Alabama court had properly followed this Court's prior instructions and that the matter should remain within state control.57