High Court Rejects Punitive Damage Award As Excessive

Businesses eager to cut the multimillion-dollar costs of consumer lawsuits won a major victory Monday when, for the first time, the Supreme Court invalidated a state punitive-damage award as unconstitutionally excessive.

The justices, dividing 5-4, concluded that an Alabama doctor unhappy with the undisclosed repainting job on his new BMW sedan did not deserve a $2 million punitive award from the manufacturer.

The award was so big - 500 times the value of the doctor’s actual damages - that it violated constitutional limits of fairness, Justice John Paul Stevens declared for the court.

Although Stevens didn’t draw a clear dividing line between excessive and non-excessive punitive awards, he furnished lower-court judges with guidelines for determining when juries overstep constitutional bounds.

He said judges should weigh how reprehensible the defendant’s conduct was, the relationship between the injured person’s actual loss and the amount of the punitive damages, and the differences between the punitive damages and other legal penalties for the same conduct.

In addition, he said, state juries may not impose penalties on defendants for their conduct in other states.

“This is the victory business has been waiting for,” said Steve Bokat, general counsel of the U.S. Chamber of Commerce. It’s “a nail in the coffin of excessive punitive-damages awards.”

But consumer advocate David Vladeck, director of the Public Citizen Litigation Groups, said the ruling does not give business “a get-out-of-jail-free card when they engage in egregious conduct.”