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There is a general perception in this country that unreasonable punitive damages awarded by “runaway juries” create serious concern for responsible corporations. Courtroom decisions such as that in the case of BMW v. Gore, 96 S. Ct. 1589 (1996), carry a significant impact on the court of public opinion. But how concerned should businesses be? This article examines data on punitive damages in product liability cases and discusses what factors juries take into consideration when sentencing corporations. Here, at the turn of the millennium, the United States is considered to be a country run amok with lawsuits. Although it is true that the number of filings has risen in American courts in recent years, our forefathers had a higher per capita rate of litigation at some points in the 19th and early 20th centuries than we do now. This fact may be of little comfort, however, to those businesses striving simultaneously for social responsibility and profitability. As Justice Sandra Day O’Connor said in Pacific Mutual Life Insurance Co. v. Haslip, 499 U.S. 1, 45-46 (1991), “Punitive damages are a powerful weapon. Imposed wisely and with restraint, they have the potential to advance legitimate state interests. Imposed indiscriminately, however, they have a devastating potential for harm.” THE LIKELIHOOD OF PUNITIVE DAMAGES What is the actual threat of a runaway punitive damage award by a jury in a product liability case? Today, punitive damages hover around 2.2 percent of successful plaintiff product liability cases (and fewer than four percent of all verdicts). [FOOTNOTE 1]But first, we must analyze the plaintiff’s chance of prevailing at verdict at all. A study of product liability verdicts from 1989 through 1995 found that the plaintiff actually prevailed in only 47 percent of those cases. [FOOTNOTE 2]One study, on Delaware jurors in tort suits against corporations, concluded, “Tort jurors approached their own cases with considerable suspicion about the plaintiff. Indeed, in these personal injury lawsuits, jurors focused most on the plaintiffs in the case rather than on the businesses that were sued.” [FOOTNOTE 3]Thus, the notion that corporations go into the courtroom with two strikes against them is not supported by the data. Businesses are convinced that punitive damages are out of control because of their apparent unpredictability. Nevertheless, cases such as the one involving BMW’s “secret” paint job can make an executive see red. In BMW v. Gore, Alabama physician Ira Gore Jr. discovered that the new $40,000 BMW he had purchased nine months earlier had been damaged and repainted, prior to delivery, without his knowledge. He sued. His complaint asked for $500,000 total in compensatory and punitive damages and costs. Yet the jury found compensatory damages of $4,000 (based on the 10 percent devaluation of the car for having been repainted) — plus punitive damages of $4 million. Outside Alabama, BMW’s conduct was legal. Yet the Alabama jury assessed damages against BMW in the amount of $4,000 for every car in the United States that had been repainted prior to delivery. On appeal, the appellate court reduced the award to $2 million, based on the fact that the jury had made a multiplication error using similar sales in the country, not just those in Alabama. Still, the $2 million punitive damages award was held to be “grossly excessive” by the U.S. Supreme Court. Should damages designed to punish defendants be reserved for instances of grossly inappropriate actions? Is that what the Court was really saying in BMW v. Gore? Given how rarely juries actually award punitive damages (approximately one percent of all product liability lawsuits), it is clear that most juries favorably view the motives and actions of corporations. PUNITIVE DAMAGES: WHAT IS THE FORMULA? The perception that punitive damages, when awarded, are unpredictable is largely inaccurate. In a large empirical study of punitive damages, researchers were able to tell exactly how much juries will award in punitive damages, if they award them at all: The punitive award equals the compensatory award to the .782 power and multiplied by 8.117. In fact, only a handful of punitive awards exceeds the typical statutory cap of three times compensatory damages. The Bureau of Justice Statistics (BJS) study cited in note 1 found punitive awards of more than $1 million were awarded in only one tort case out of every 10 in which punitive damages were awarded at all — in other words, in one case out of 500 tried. None of the million-dollar-plus verdicts were in product liability cases. In fact, in product liability cases, there were no punitive damage awards in excess of $250,000 (BJS at 1134). Moreover, most of the punitive damages were awarded in disputes between corporations, not personal injury cases. If punitive damages are awarded so rarely and are almost always correlated with compensatory awards, why are they perceived as such a threat to corporate defendants? We have only to look at the aberrations to know why. Consider the infamous McDonald’s coffee spill case, Liebeck v. McDonald’s Restaurants P.T.S. Inc., No. CV-93-02419, 1995, WL360309 (D.N.M. Aug. 18, 1994)). In that case, the jury gave the plaintiff $160,000 in compensatory damages and $2.7 million in punitive damages. How did the jurors arrive at the punitive amount? They based it on a day’s worth of corporate coffee profits. This was justified on the basis that the plaintiff was seriously burned after McDonald’s had had hundreds of complaints about coffee burns without taking any action or seeking any advice from a burn specialist. Whether we agree with the jury in that case, its calculated amount had a theory to it — the theory of “degree of reprehensibility.” The U.S. Supreme Court has stated that “perhaps the most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant’s conduct. More specifically, ‘trickery and deceit.’” TXO Products Corp. v. Alliance Resurces, 509 U.S. 443,462 (1993). Perhaps that is the way the jurors in BMW v. Gorefelt — they believed that the attempt to conceal the paint job was deceitful. Again, even if we disagree with the final decision, the severity of the punitive damages had a formula to it. Perhaps the reason that these cases cause the media frenzy that they do is simply because they are aberrations — exceptions to the rule. The general public, given what it knows about the case, finds the punishment too great for the “crime.” Meanwhile, corporations exist in a state of fear of and retribution toward the very public they aim to serve. A recent study points out that critics of the current system argue that the risk of a very large punitive award sometimes drives defendants to settle cases in which they believe the claim is not meritorious, or to settle meritorious claims for far too much. [FOOTNOTE 4] How are business decision-makers and litigants likely to respond to the risks of punitive damage awards? The literature on risk perception and management in business decision making suggests that in assessing risks, most business decision makers focus on worst-case scenarios and will go to great lengths to avoid exposing their companies to very large financial losses or potential bankruptcy. WHEN PUNITIVE DAMAGES ARE PROHIBITED What would happen if punitive damages were unavailable to a jury — and it finds the defendant’s conduct reprehensible? Does this mean that the jury will not punish the “crime” because it cannot award punitives? This does not appear to be the case. Researchers at the University of California, Berkeley, tested the theory. [FOOTNOTE 5]They asked mock jurors to read a case summary and assess compensatory and punitive damages. Where the jurors were not able to assess punitive damages, they inflated the compensatory damages by awarding much more in pain and suffering. Thus, the absence of a punitive alternative actually increased the total dollar amount of the award. Other psychological factors apply as well. The more egregious the defendant’s conduct, the more likely that jurors will award punitive damages. Also, when the plaintiff (as opposed to the state) was the recipient, the award was higher. The theory that juries will be reluctant to reward plaintiffs beyond what the individual plaintiff has suffered in terms of compensatory damages is totally false. Currently, four states do not allow punitive damages: Michigan, Nebraska, New Hampshire and Washington. But take a closer look at what has happened in Michigan. While traditional punitive damages are prohibited in this state, the jury can award “exemplary” damages. Those damages involve pain, suffering, humiliation, outrage and indignity resulting from the defendants’ willful, malicious or wanton conduct. These criteria vary little from those in states with punitive damage allowances. While some researchers argue that states without punitive damages perform just as well on insurance premium standards, [FOOTNOTE 6]perhaps that is because insurance companies know something those state legislatures do not: Juries find a way to punish corporations they perceive as being in the “reprehensible” category, regardless of what the statutory underpinning is. LESSONS FOR CORPORATIONS The research shows that there is good news and bad news for corporations in product liability cases. The good news is that the likelihood that a jury will award any punitive damages is small. The bad news is that juries exhibit a sense of moral justice when it comes to corporations. The reason that most corporations go to verdict without a finding of punitive damages — or inflated compensatory damages — is that they meet the standard for conduct that society will condone. A fine line exists between a jury awarding punishment proportionate to the crime versus sending a message appropriate for prospective similar “criminals” who lurk in the shadows of corporate America. Juries may gain a sense of justification in awarding excessive damages if they believe that they are setting a standard for a safer and more decent society. However, juries do not believe that all corporations should be punished. A corporation’s conduct may not be perfect, but the jury does not automatically suspect that the conduct has been reprehensible; indeed, juries usually want to believe just the opposite. Businesspeople who do business in a forthright manner can assume that their companies will be protected against unreasonable punitive damage awards. The lesson for a corporation is not only to conduct itself in a way that keeps the public trust, but also to convey those efforts in the courtroom. In 99 percent of product liability cases, the jury will find in favor of the corporation — the one it believes is doing its best to be responsible, as well as profitable. Linda S. Crawford teaches trial advocacy at Harvard Law School and consults with defendants nationwide before deposition and trial. Carrie C. McBride provided research for this article. Telephone: (800) 208-6117. ::::FOOTNOTES:::: FN1Bureau of Justice Statistics Special Report, Civil Justice Survey of the State Courts (hereinafter BJS), 1992, July 1995, p. 8. FN2Richman, Gail M., “Current Trends in Products Liability II,” Jury Verdict Research Series, LRP Publications, Horsham, Pa., selected for “Current Trends in Products Liability Verdicts and Settlements,” Practicing Law Institute, Litigation and Administrative Practice Course Handbook Series, PLI No. H4-5241, October 1996, pp. 51-53. FN3Galanter, Marc, “Real World Torts: An Antidote to Anecdote,” 55 Md. L. Rev. 1093, pp. 1110-12. FN4Moller, Erik et al., “Trends in Civil Jury Verdicts Since 1985,” Santa Monica, Calif.: RAND Report MR-694-ICJ, 1997. FN5Anderson, Michelle and MacCoun, Robert, “Goal Conflict in Juror Assessments of Compensatory and Punitive Damages,” Law and Human Behavior, Vol. 23, No. 3, 1999, p. 313. FN6Viscusi, Kip, “The Social Costs of Punitive Damages Against Corporations in Environmental and Safety Torts,” 87 Geo. L. J. 285.

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