To understand why many federal lawmakers believe punitive-damages awards are out of control, take the case of Ira Gore Jr. and his new, black BMW.
Gore’s BMW has become a popular symbol of America’s litigiousness and high jury awards, like the scalding cup of coffee that led initially to a $2.7 million judgment against McDonald’s. While far from typical examples of personal-injury lawsuits, they shape the debate over how to change the country’s civil-justice system.
At stake are claims by injured people against product manufacturers and other businesses, and the big-money judgments the claims sometimes produce. For consumers, the courts can be the last resort for relief and compensation. But for businesses, state juries can be fickle, arbitrary and financially ruinous.
House and Senate conferees will try to reconcile those competing interests as they hash out divergent bills intended to impose a national standard for personal-injury disputes.
The Supreme Court, meanwhile, has agreed to review whether Gore’s case crossed the line of constitutionality.
In 1990, Gore, a physician in Birmingham, Ala., brought his new BMW 535i four-door to a detailing shop for a “snazzier” look. The shop, Slick Finish, discovered the car had been partly repainted before it was sold to Gore. Gore later found out the refinishing was necessary because the car was damaged by acid rain on its way from the German manufacturer to the U.S. distributor.
Gore sued BMW, and an Alabama jury awarded him $4,000 in compensatory damages and $4 million in punitive damages. (“Punitive damages” refer to money awards over actual damages or compensation for pain and suffering. They are intended to punish malicious and willful misconduct.)
The Alabama jury found BMW guilty of fraud for failing to tell Gore about the paint job, and it based the punitive damages on BMW’s sale of an estimated 1,000 touched-up cars nationwide as new.
The Alabama Supreme Court upheld the jury verdict against BMW of North America but cut punitive damages to $2 million.
“I defy any member of this (Senate) to read the opinion in this case and tell the American people that justice was done,” Sen. Orrin G. Hatch, R-Utah, said during floor debate this month.
“Go ahead and cite your two or three little cases that sound outrageous,” countered Sen. Ernest F. Hollings, D-S.C.
The bill eventually passed by the Senate - after a two-week deadlock and the fractious defeat of proposals by Majority Leader Robert J. Dole, R-Kan., - would cap punitive damages only in cases of faulty products, excluding fraud cases such as Gore’s and many other disputes where punitive damages are far higher than actual damages.
The House version passed earlier would limit punitive damages in all civil cases and prohibit them for manufacturers of drugs and medical devices that have been approved by the Food and Drug Administration.
Andrew Frey, whose law firm is defending numerous companies hit with punitive damages, including BMW, said punitive damages have “a disproportionate impact” even though they are awarded in a small percentage of civil cases.
“Punitive damages are stigmatizing,” he said. “The best corporate citizen worries about them.”