Thank you for sharing!

Your article was successfully shared with the contacts you provided.
There is a general perception in this country that unreasonable punitive damages awarded by “runaway juries” create serious concern for responsible corporations. Cases such as BMW of N. Am. v. Gore, 517 U.S. 559 (1996), in which punitive damages of $4 million were awarded, carry a significant impact on the court of public opinion. However, the likelihood that punitive damages will be awarded in product liability cases is small because most juries find that corporations meet the standard for conduct that society will condone. 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 4 percent of all verdicts). SeeBureau of Justice Statistics Special Report, “Civil Justice Survey of the State Courts,” July 1995. 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. SeeRichman, Gail M., “Current Trends in Products Liability II,” Jury Verdict Research Series, LRP Publications, Horsham, Pa. 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.” SeeGalanter, Marc, “Real World Torts: An Antidote to Anecdote,” 55 Md. L. Rev. 1093, pp. 1110-12. 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. ‘BMW’ Nevertheless, cases such as the one involving BMW’s “secret” paint job can make an executive see red. In BMW, 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? Given how rarely juries actually award punitive damages (approximately 1 percent of all product liability lawsuits), it is clear that most juries favorably view the motives and actions of corporations. 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 study cited above 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. Moreover, most of the punitive damages were awarded in disputes between corporations, not personal injury cases. DEGREE OF REPREHENSIBILITY 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 indiciumof 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 Resources, 509 U.S. 443 (1993). Perhaps that is the way the jurors in BMWfelt — 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. SeeMoller, Erik et al., “Trends in Civil Jury Verdicts Since 1985,” Santa Monica, Calif.: RAND Report MR-694-ICJ, 1997. 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. 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. The author teaches trial advocacy at Harvard Law Schooland consults with defendants nationwide.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.