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“Punitive Damages” by Cass R. Sunstein, Reid Hastie, John W. Payne, David A. Schkade and W. Kip Viscusi. (University of Chicago Press, 285 pages, $35) It must have been an unhappy surprise for the home office of the State Farm Insurance Cos. in July 1996 when a Utah jury awarded $145 million in punitive damages to a couple who claimed that State Farm should have settled a serious car accident claim against them � even though State Farm actually paid the entire claim against them in an amount far in excess of the policy limit. The trial judge cut the punitive damages to $25 million, yet there was another unhappy surprise when the Utah Supreme Court decided that the $145 million verdict was right after all and should be reinstated. Now the U.S. Supreme Court will decide the case, so in the next few months State Farm will learn whether the punitive damages should be $145 million, $25 million, zero dollars, or that maybe another jury should decide the amount of punitive damages from scratch. The law doesn’t come more unpredictable than State Farm’s adventure with punitive damages. A new book for the first time throws light on how juries actually decide punitive damages cases, and it’s a fascinating story. Punitive Damages: How Juries Decide, by Cass Sunstein and his colleagues at several universities (Nobel laureate Daniel Kahneman collaborated on several chapters), is a collection of empirical studies of hundreds of mock jurors who were asked to decide whether to award punitive damages and, if so, how much. The facts of the cases given to the mock jurors were based on real cases, including cases where the courts found no punitive damages could legally be awarded. Punitive Damages is comparable in importance to The American Jury by Harry Kalven and Hans Zeisel, which in 1966 caused a sensation among lawyers with its novel and empirical study of criminal juries. American law has traditionally been short on facts and long on theory. Like The American Jury, this new book is a good antidote because it takes a hard, fact-driven look at the black box of the civil jury and tries to understand its inner workings on decisions about punitive damages. The amount of punitive damages awarded by juries � and affirmed by the courts � has skyrocketed over the past 30 years. Every business in America is threatened by punitive damages, and Sunstein and his colleagues show just how arbitrarily this threat becomes the reality of a jury verdict. Punitive damages are supposedly meant to punish the losing side, and to deter others from wrongdoing � although it is difficult to say exactly what is meant by punishing a corporation. Punitive damages developed only in the 1970s: That’s when plaintiffs lawyers, in the Dalkon Shield IUD and asbestos cases, learned to use defendants’ own internal documents to persuade juries to award huge punitive damages. True, punitive damages in some limited form existed a long time before the Dalkon Shield came along, but the explosion since then has been an example of what the great legal historian F.S.C. Milsom called “the doggedness, always insensitive and often unscrupulous, with which [legal] ideas have been used as weapons.” Against this backdrop, Sunstein and his colleagues set out to understand how juries, or at least mock juries, decide punitive damages cases. While they are candid about the limitations of mock juries, their conclusions are still striking. To begin with, they found that mock jurors could rank a defendant’s conduct on a scale of from one to six with a fair degree of consistency from one juror to another � meaning that jurors shared a common sense of wrong and right. Significantly, this shared moral sense cut across all age, gender, and racial lines. Unfortunately, courts don’t ask jurors to rank a defendant’s conduct. Instead, the courts demand a yes-or-no answer on liability, and here the authors found that jurors simply could not follow the instructions on the law that they were given. Even worse, the authors found a pervasive “hindsight bias” among their mock jurors. Hindsight bias is the tendency to believe that whatever happened had to happen and that any worthy corporate executive could surely have seen it coming. This is crucial for punitive damages cases, which often turn on what corporate defendants knew and when they knew it. The authors conducted a clever “hindsight” study: a group of “citizens” watched a videotape showing a potentially hazardous condition on a railroad and then were asked whether the trains should still keep running. Most of the citizens said, yes, keep the trains running. A group of “jurors” were then shown a horrific train derailment caused by the hazardous condition and were asked if they would award punitive damages. Most of the jurors said, yes, award punitive damages. That’s hindsight bias. The real shocker, though, came when the authors had mock jurors decide the amount of punitive damages. The authors found wild variations in the amount of punitive damages that different mock juries would award after hearing the same case. They ascribe these variations to the mock courts’ failure to give jurors any standard, or modulus, for translating their evaluation of a defendant’s conduct into dollars. The mock juries were consistent in one respect: They imposed “significantly higher punitive damages awards on significantly wealthier defendants.” Surprisingly, having the mock jurors deliberate over the amount consistently made matters worse, compared to the amount each mock juror was inclined to have awarded before deliberating. “The basic result is that deliberation causes awards to increase, and it causes high awards to increase a great deal,” the authors say. It seems that ordinary American jurors, left together in a drab jury room, consistently bid up the amount of punitive damages they award. The authors call this effect “the severity shift,” a phrase destined to become a centerpiece of American legal discourse during this decade. The severity shift is fundamentally inconsistent with our intuition that jury deliberations should restrain extreme verdicts and instead produce consensus-driven, common-sense results. The authors have demonstrated that, in the context of punitive damages, the opposite occurs. “What should be done?” is the final chapter of Punitive Damages, and it is the least interesting. Sunstein (the author of this chapter) suggests that judges should have a larger role in awarding punitive damages, or that perhaps punitive damages should be replaced by administrative penalties imposed by government agencies. His first suggestion is a palliative, while his second would toss us from the frying pan of juries to the fire of bureaucracy. Sunstein and his colleagues should have recognized the necessary implication of their findings: that juries, without the protections of the criminal law, are not suited to the mulcting of corporate defendants, and that the recent innovation of punitive damages should be discarded root and branch. Still, this is a ground-breaking book that will rank with The American Jury in its influence on American law. James Dabney Miller is a partner in the D.C. office of King & Spalding.

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