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special to the national law journal James Dabney Miller is a partner in the Washington office of Atlanta-based King & Spalding. Fifteen years ago, Justice Sandra Day O’Connor wrote-quite presciently-in a concurring opinion that federal due process limits on awards of punitive damages would be “worthy of the Court’s attention in an appropriate case.” In a series of cases since then, the court has, sometimes tentatively, brought due process to punitive damages. Now, in State Farm Mutual Automobile Insurance Co. v. Campbell, the court has dropped a judicial bombshell. State Farm was an insurance coverage dispute. A Utah jury returned a verdict of $2.6 million in compensatory damages and $145 million in punitive damages. The Utah trial court cut the compensatory award to $1 million and the punitive award to $25 million. The Utah Supreme Court, bucking the conventional wisdom that large punitive awards are always reduced on appeal, reinstated the original jury verdict of $145 million. The U.S. Supreme Court reversed, finding that the amount of the award, as well as the evidence on which it was based, violated due process. The court remanded for the “proper calculation of punitive damages.” But, just to be sure, the court added the helpful suggestion that “the facts of this case . . . likely would justify a punitive award at or near the amount of compensatory damages”-that is, $1 million. Two aspects of Justice Anthony M. Kennedy’s State Farm opinion, while not entirely new, go well beyond the court’s previous punitive damages decisions. First, the opinion held that few awards that significantly exceed a single-digit ratio between punitive and compensatory damages will satisfy due process. This pronouncement should end the days of punitive damages rioting in the rough-and-tumble of trial courts. True, the plaintiffs’ bar took about 30 seconds post- State Farm to seize on the court’s suggestions that greater ratios might be acceptable in cases of personal injury (as opposed to purely economic harm) or where egregious conduct caused only small harm. There is also the danger that some courts may tack on nine times compensatory damages and call it a day. Still, this is a turning point. The second aspect is that the defendant’s conduct in a state other than the forum state cannot be considered in the context of punitive damages, whether the conduct was lawful or unlawful in the other state, and juries must be instructed of this. The court held that state courts have no interest in punishing bad acts that take place in other states. The court did acknowledge that proof of out-of-state bad conduct may be probative if it shows the “deliberateness and culpability of the defendant’s action” in the forum state, and has a nexus to the specific harm suffered by the plaintiff. But the extraterritoriality holding should dramatically limit the evidence in most punitive damages cases, especially where the defendant is a large, national business enterprise. In particular, it should end plaintiffs’ frequent strategy of placing the enterprise itself on trial, rather than the specific conduct of the enterprise in relation to the plaintiff. Court may return to issue State Farm might not be the Supreme Court’s final case on punitive damages. Kennedy, almost as an aside, noted that “[t]he wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award,” a sentiment the court has wistfully repeated several times in earlier decisions, to little effect on the lower courts. Yet Linda Greenhouse, of the New York Times, immediately described this as the case’s “most significant departure” from the court’s previous punitive damages decisions. Her perception of the case is encouraging. Perhaps the court’s next punitive damages case will decide whether due process permits evidence of a defendant’s wealth or net worth to be put before a jury as probative of the amount of punitive damages that should be awarded. Probably no rule of law is more intuitively correct-or as completely wrong-as the black-letter principle that a jury, in deciding the amount of punitive damages, should, or indeed must, consider the defendant’s wealth. The idea appears to be that a tycoon values a single dollar less than an ordinary person does, and therefore, it takes more dollars to punish a tycoon properly. If nothing else, the idea that tycoons value a single dollar less than the rest of us reflects limited experience with actual tycoons. But this unconstitutionally invites juries to impose punishment based on who the defendants are, rather than what they did. No court would calibrate punishment by, for example, the defendant’s gender or race, because that would be to set punishment based on status, rather than conduct. But the practice of wealth consideration allows exactly that. In studies by Professor Cass Sunstein and his colleagues, they concluded that defendants’ wealth has a significant effect on punitive damages awards, pushing such awards far higher, even when jurors saw equivalent misconduct. The use of defendants’ wealth in punitive damages cases is a deep anomaly in the law. Will the Supreme Court’s next punitive damages case decide whether it violates due process? Certainly, as O’Connor wrote 15 years ago, it is an issue “worthy of the Court’s attention in an appropriate case.”

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