Thursday, June 26, 2008

Supreme Court Limits Punitive Damages

Well, another "fun" case that just came out from our Supreme Court is the Exxon case. At issue was whether the 2.5 Billion in punitive damages (on top of about 500 million in compensatory damages) was too much. The court said that it was and reduced it to a 1:1 ratio, for about 500 million in punitive damages. Why does this matter? Well, as I briefly touched on before as part of this post, punitive damages are important, particularly against corporations, as a deterrent to quasi-criminal behavior. You can't throw a corporation in jail. You can only hurt its bottom line. And the main way you can do this is with punitive damages. More importantly, it is good when that can be an open ended number, something that could not be quatified in advance. You don't want bean-counters deciding that it would actually be cheaper for a corporation to engage in quasi-criminal behavior and then pay out on the lawsuits than to behave itself. And that is EXACTLY what will happen if you quantify and limit punitive damages.

You want it to be an unknown. You want those bean counters shaking in their wing-tips, worried about what they might have to pay out if the corporation engages in wrongdoing, and by doing so, you deter that quasi-criminal behavior. (Also, another function they serve is helping to cover the cost of attorney fees - we don't generally have a loser-pays system, so what punitive damages often do is cover the attorney fee costs for the plaintiff so that the plaintiff can truly be made whole, as opposed to winning, but only getting 2/3rd of the damages that were inflicted by a defendant actually compensated for, so in that respect, they aren't even a "payday" for a plaintiff - if you lose a million dollars in damages and then are only paid back $600,000, and only after years of litigation, it is hard to say you really did all that well. Throw on enough punitive damages on top of that so, after lawyers fees (usually 1/3rd) are taken out, you only get your money back, you still won't feel all that much of a "winner" if it took years of your life and a lot of sleepless nights just to get back to zero. Punitive damages that pay for attorney fees and then, above that, add a little extra, can make those years and years of fighting at least somewhat compensated for.)

This latest case is a huge blow for that - the limit is tiny - a 1:1 ratio (at least for maritime cases-but expect to see this expanded soon), and now the bean-counters are going to be going crazy about all the wonderful criminal behaviors corporations can now do with impunity.

For further commentary on this, see this link. In particular, it is sad to see the level of idiocy with those who are against punitive damages - see the comments. I won't repeat it here except to note the sheer idiocy of claiming that a corporation doesn't owe damages because "it" didn't do anything, it was its employee that did it. Of course, by that logic, corporations are never responsible for anything - it is all those darn employees that are responsible. Wow, I guess corporations can just fire all of their corporate legal staff - they don't need them - they can never be responsible for actually doing anything!

1 comment:

KFranklinDrumMajor said...

I love your critique of the tendency to absolve a corporation for what "it" didn't do. Funny thing--when it comes time to give corporations individual rights, these same folks want "it" to be able to have free speech, etc.

Thanks for your commentary.