538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003)
In 1981, Curtis Campbell was driving with his wife Inez in Cache County, Utah, when he attempted to pass six vans on a two-lane highway.1 This caused an oncoming driver, Todd Ospital, to swerve onto the shoulder, lose control, and collide with a vehicle driven by Robert G. Slawson and his wife, killing Ospital and permanently disabling Slawson.2 Campbell's insurer, State Farm Mutual Automobile Insurance Company, declined settlement offers of the $50,000 policy limit from Slawson and Ospital's estate despite early investigations indicating Campbell's fault and advice from its own adjuster.3
A jury in the underlying tort actions found Campbell 100 percent at fault and returned a judgment of $185,849 against him.4 State Farm refused to pay the $135,849 excess over policy limits or post a supersedeas bond.5 The Campbells then entered an agreement with Slawson and Ospital's estate under which the claimants would not seek satisfaction of the judgment in exchange for the Campbells pursuing a bad-faith action against State Farm, being represented by the claimants' attorneys, and assigning 90 percent of any recovery to them.6
The Campbells sued State Farm for bad faith, fraud, and intentional infliction of emotional distress.7 The trial court bifurcated the case into two phases before separate juries.8 In phase one the jury found State Farm's refusal to settle unreasonable.9 In phase two the jury heard evidence that State Farm's decision was part of a nationwide Performance, Planning and Review policy implemented since 1979 to cap payouts and meet corporate profit goals, including testimony from former Utah employees and experts about practices in multiple states over twenty years.10 The jury awarded $2.6 million in compensatory damages and $145 million in punitive damages.11
The trial court reduced the compensatory award to $1 million and the punitive award to $25 million.12 Both sides appealed.13 The Utah Supreme Court reinstated the $145 million punitive damages award after applying the three guideposts from BMW of North America, Inc. v. Gore and relying on the nationwide evidence, State Farm's wealth, and the statistical likelihood of punishment in only one of 50,000 cases.14 The United States Supreme Court granted certiorari.15
Whether an award of $145 million in punitive damages, where full compensatory damages are $1 million, violates the Due Process Clause of the Fourteenth Amendment?16
The Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor.17 Courts must consider three guideposts when reviewing punitive damages awards.18 The first is the degree of reprehensibility of the defendant's misconduct.19 The second is the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award.20 The third is the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.21
Yes. Applying the Gore guideposts to the established facts shows that the $145 million punitive damages award is grossly excessive and violates due process.22 In 1981 Curtis Campbell attempted to pass six vans on a two-lane highway in Cache County Utah causing Todd Ospital to swerve and collide with Robert Slawson killing Ospital and permanently disabling Slawson. State Farm declined the $50,000 policy limit settlement offers despite early investigations indicating Campbell's fault and its own adjuster's advice.
A jury found Campbell 100 percent at fault and entered a $185,849 judgment. State Farm refused to pay the $135,849 excess or post a supersedeas bond. This led the Campbells to sue for bad faith, fraud, and intentional infliction of emotional distress. The trial court bifurcated the proceedings. In phase two the jury heard evidence of State Farm's nationwide Performance Planning and Review policy. The reprehensibility analysis must be confined to State Farm's conduct toward the Campbells which involved refusing to settle within limits despite clear liability.23
The 145-to-1 ratio greatly exceeds the single-digit ratios that typically satisfy due process especially where the $1 million compensatory award is substantial and already incorporates a punitive element for emotional distress.24 The most relevant civil penalty is a $10,000 fine for fraud which is dwarfed by the punitive award.25 The Utah Supreme Court erred by reinstating the $145 million award after relying on dissimilar out-of-state conduct and State Farm's wealth.26 The facts establish that State Farm's handling of the Campbells' claim merits no praise.27 Yet a more modest punishment would have satisfied legitimate state objectives.28 The Campbells entered an agreement assigning 90 percent of any recovery to Slawson and Ospital's estate after State Farm refused to cover the excess judgment. Phase one of the bifurcated trial found the refusal to settle unreasonable. Phase two introduced extensive evidence of practices over twenty years in multiple states. Due process does not permit punishment for conduct bearing no relation to the harm suffered by the Campbells.29 The compensatory damages of $1 million fully redressed the year-and-a-half period of emotional distress arising from an economic transaction with no physical injuries.30 Because the award is neither reasonable nor proportionate to the wrong committed it constitutes an arbitrary deprivation of property.31
The award of $145 million in punitive damages violates the Due Process Clause of the Fourteenth Amendment.32
Related opinions on this issue
Justice Scalia adheres to the view expressed in his dissenting opinion in BMW of North America, Inc. v. Gore.33 The Due Process Clause provides no substantive protections against excessive or unreasonable awards of punitive damages.34 It is particularly difficult to imagine that due process would require a substantive limit on the size of such awards when the Constitution itself does not limit the size of criminal fines.35
The punitive damages jurisprudence which has sprung forth from BMW v. Gore is insusceptible of principled application.36 He does not feel justified in giving the case stare decisis effect.37 He would affirm the judgment of the Utah Supreme Court.38
Justice Thomas dissents on the ground that the Constitution imposes no constraint on the size of punitive damages awards.39 He would affirm the judgment below because he continues to believe that the Constitution does not constrain the size of punitive damages awards.40 This view is consistent with his position in prior cases addressing the same issue.41
He respectfully dissents from the majority's decision to impose substantive limits derived from the Due Process Clause.42 In his view the Court lacks authority to second-guess state-court judgments on the amount of such awards.43
Justice Ginsburg dissents on the ground that the Court has no warrant to reform state law governing awards of punitive damages.44 The guideposts announced in Gore should not be converted into instructions that begin to resemble marching orders.45 She would leave the judgment of the Utah Supreme Court undisturbed.46
She adheres to the traditional view that the laws of the particular State must suffice until judges or legislators initiate system-wide change.47 The large size of the award indicates why damages-capping legislation may be fitting but does not justify this Court's substitution of its judgment for that of Utah's decisionmakers.48
Whether evidence of a defendant's out-of-state conduct that was lawful where it occurred may be considered in determining the reprehensibility of the defendant's in-state conduct for purposes of punitive damages?49
A State cannot punish a defendant for conduct that may have been lawful where it occurred.50 Lawful out-of-state conduct may be probative when it demonstrates the deliberateness and culpability of the defendant's action in the State where it is tortious.51 That conduct must have a nexus to the specific harm suffered by the plaintiff.52
No. The established facts demonstrate that much of the out-of-state conduct introduced at trial was lawful where it occurred and bore no relation to the Campbells' harm.53 The Utah courts relied on evidence of State Farm's nationwide Performance Planning and Review policy implemented since 1979 including practices in numerous states over twenty years that had nothing to do with third-party automobile insurance claims.54 The Campbells framed the case from opening statements as an opportunity to rebuke State Farm for its nationwide activities.55 Due process requires a nexus between the out-of-state conduct and the specific harm to the plaintiffs.56
The trial court allowed the evidence to show a national scheme.57 The reprehensibility guidepost does not permit courts to expand the scope of the case so that a defendant may be punished for any malfeasance.58 Evidence of dissimilar acts independent from the acts upon which liability was premised may not serve as the basis for punitive damages.59
Evidence of a defendant's out-of-state conduct that was lawful where it occurred may not be considered in determining the reprehensibility of the defendant's in-state conduct for purposes of punitive damages absent a nexus to the specific harm suffered by the plaintiff.60
Whether the three guideposts identified for reviewing punitive damages awards permit reliance on evidence of dissimilar out-of-state practices and a defendant's overall wealth to justify a 145-to-1 ratio between punitive and compensatory damages?61
The three guideposts are the degree of reprehensibility of the defendant's misconduct.62 The disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award is the second.63 The difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases is the third.64 Few awards exceeding a single-digit ratio between punitive and compensatory damages will satisfy due process.65 The wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award.66
No. The established facts show that the Utah Supreme Court relied on dissimilar out-of-state practices, State Farm's massive wealth, and the statistical likelihood of punishment in only one of every 50,000 cases to justify the 145-to-1 ratio.67 The compensatory award of $1 million was substantial and already contained a punitive element for emotional distress arising from an economic transaction with no physical injuries.68 The most relevant civil penalty is a $10,000 fine for fraud.69 Reliance on out-of-state conduct that had no relation to the Campbells' harm violates the requirement that the measure of punishment be both reasonable and proportionate to the amount of harm to the plaintiff.70
The guideposts do not permit such reliance to sustain a ratio of 145 to 1.71
The three guideposts identified for reviewing punitive damages awards do not permit reliance on evidence of dissimilar out-of-state practices and a defendant's overall wealth to justify a 145-to-1 ratio between punitive and compensatory damages.72