Finding The Proper Ratio For Punitive Damages

On Friday, the Ninth Circuit took another run at determining due process limits on punitive damages in Southern Union v. Irvin. The court previously vacated a punitive award in excess of 153 times compensatory damages [see S. Union Co. v. Sw. Gas Corp., 415 F.3d 1001, 1009 (9th Cir. 2005)], but defendant appealed again after Southern Union accepted the trial court's remittitur to $4 million in punitive (just over ten times compensatory damages).

As Judge Noonan described the jury's findings in his dissent, "Irvin, the chairman of the Arizona Corporation Commission, worked determinedly for a period of four months to promote the merger of an Arizona utility company with another utility and to defeat a merger proposed by Southern Union over $100 million more beneficial to the Arizona company" in exchange for a "bribe" that was never paid, because Southern Union filed suit.

Using the Supreme Court's three touchstones from State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003) - “(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases” - the Ninth Circuit concluded that a three-to-one ratio was the constitutional maximum in the case before it.

Since there were no comparable penalties to evaluate, reprehensibility and disparity between the harm and the punitive award were the court's focus. The identity of the plaintiff seems to have been a key factor for the court. Southern Union, the Ninth Circuit noted, was not "some poor struggling person," so the harm was "inflicted upon a very large company." Other limiting factors included the isolated nature of the wrongdoing; the roughly $400,000 compensatory damages award, which the court termed "substantial;" and the evidence, which showed plaintiff had misused his power and position of public trust, but did not prove he had financially benefited.

Having remanded the case once for determination of punitive damages, the Ninth Circuit concluded it need not remand the case again, and just set the punitive damages figure ($1,185,217.14) itself, at a three-to-one ratio to compensatory damages.

In his concurrence, Judge Reinhardt advocated taking account of a defendant's relative worth when determining appropriate ratios, with wealthier defendants supporting higher ratios in order to carry out the deterrence and punishment functions of punitive damages. For his part, Judge Noonan dissented, viewing the trial judge as better suited than the court of appeals for determining the appropriate punitive damages amount.

Although the Ninth Circuit did approve a three-to-one ratio, in a footnote the court found it "worth noting" that in Exxon Shipping Co. v. Baker, ___ U.S. ___, ___, 128 S. Ct. 2605, 2633 (2008), found a one-to-one ratio a "fair upper limit" as a matter of maritime (rather than consitutional) law. That Exxon Shipping carries weight even beyond the maritime context is something many defense lawyers believe should occur, including Reed Smith's Paul Kerrigan in his Exxon Shipping article for the International Association of Defense Counsel (IADC). Which raises an interesting, if unanswerable, question: without Exxon Shipping, would the Ninth Circuit have approved a ratio for punitives greater than three-to-one?

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Life Sciences Legal Update - December 30, 2008 1:57 PM
The Third Circuit delivered a Christmas present Dec. 24, issuing an opinion - albeit "not precedential" - that reduced a 3.13:1 ratio for punitive damages down to a 1:1 ratio. Hat tip to law.com for catching the decision. Jurinko v. Medical Protective...
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