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On April 7 the U.S. Supreme Court handed a major victory to corporate defendants, imposing new limits on punitive damages awards in civil litigation. By a 6-to-3 vote in State Farm Mutual Automobile Insurance Co. v. Campbell, the high court overturned a $145 million verdict against an insurer, saying it was out of whack with the $1 million in compensatory damages awarded in the case. Writing for the majority, Justice Anthony Kennedy said that the ratio of punitive damages to compensatory damages should almost never exceed the single digits � a maximum of 9:1, in other words � and that in many cases, punitive damages should not exceed compensatory damages at all. “Single-digit multipliers are more likely to comport with due process, while still achieving the state’s goals of deterrence and retribution, than awards with ratios in the range of 500: 1,” wrote Kennedy. The ruling marks the Supreme Court’s most explicit statement yet about how big is too big for punitive damages. In addition, the Court ruled that neither a defendant’s wealth nor its out-of-state conduct could be a factor in calculating punitive damages. “A defendant should be punished for the conduct that harmed the plaintiff, not for being an unsavory individual or business,” wrote Kennedy. A Defense Treasure Trove The ruling offered the corporate defense bar a near�treasure trove of helpful language for fighting the large liability awards that have fueled an increasingly powerful tort reform movement. “The Supreme Court recognized some time ago that punitive damages had run wild,” says Victor Schwartz, general counsel of the American Tort Reform Association. “Now it has provided a decision that will curb this fundamental violation of due process that has been imposed on many unpopular defendants over the past decade.” The Court has dealt with punitive damages issues seven times in the last ten years, generally imposing ever-tightening limits, but always leaving enough gray areas for both sides to exploit. The decision erases many of those gray areas, especially the 1996 ruling in BMW of North America v. Gore, says Evan Tager, a D.C. partner at Mayer, Brown, Rowe & Maw who helped write a brief in the State Farm case on behalf of the U.S. Chamber of Commerce. “The Court has basically rendered impotent the issue of wealth as a way to jack up awards.” Plaintiffs Bar Unfazed Some plaintiffs lawyers downplay the ruling. “I’m not sure the ruling is terribly relevant” to the vast majority of civil cases in which punitive damages are nonexistent or small, says Robert Peck of the Center for Constitutional Litigation, which represents the Association of Trial Lawyers of America. “I think the Court was mostly trying to signal that it has had enough of these cases, so it gave a little more guidance to lower courts,” he adds. Harvard Law School professor Laurence Tribe, who argued against State Farm in the case before the Court, says, “There is no doubt that the six-justice majority has greatly tightened the noose on punitive damages.” But Tribe holds out hope that higher damages will be allowed in egregious cases. In his majority opinion, Justice Kennedy said the ruling was an elaboration of BMW v. Gore, in which the Court held that judges should consider the reprehensibility of a defendant’s action, as well as the relation to compensatory damages, in determining whether a punitive damage award is excessive. But litigants have been seeking clearer guidance ever since. The recent ruling delivers that guidance with an unusual degree of specificity. The case had its origins in Curtis Campbell’s 1981 suit against State Farm. The insurer had refused to settle a claim stemming from a fatal car accident, and, Campbell argued, left him liable for damages beyond his policy coverage.
A version of this article originally appeared in Legal Times, a sibling publication of Corporate Counsel and a part of American Lawyer Media.

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