United States: Is 2:1 The New 1:1?

Last Updated: August 9 2018
Article by Evan M. Tager and Andrew L. Frey

Over the years, we have reported on many cases in which courts adhered to the Supreme Court's guidance in State Farm (and Exxon Shipping Co. v. Baker) that, when compensatory damages are "substantial, a 1:1 ratio of punitive to compensatory damages may be the maximum that due process allows. Recently, however, two state courts deviated from that trend and held that a 2:1 ratio was the constitutional maximum.

In Rieger v. Giant Eagle, Inc., the Ohio Court of Appeals (Eighth District) reversed a trial court's decision declaring Ohio's 2:1 cap on punitive damages unconstitutional as applied in that case.

Illustrating the aphorism that no good deed goes unpunished, the jury in this case found the defendant supermarket liable for $121,000 in compensatory damages and $1,198,000 in punitive damages after the plaintiff was struck by a motorized shopping cart that the defendant had provided to an elderly customer who, unbeknownst to the defendant, was suffering from dementia.

After the verdict, the plaintiff filed a motion pointing out that under Ohio law the punitive damages would have to be reduced to twice the compensatory damages, or $242,000, and arguing that, as applied, the Ohio statute violated the Ohio Constitution. The trial court granted the motion, holding that the Ohio cap was unconstitutional as applied because a punitive award of $242,000 would be "insufficient to deter" the defendant's "future conduct and punish it as that conduct relates to the safety of [its] customers."

The court did not say which provision of the Ohio Constitution application of the cap would violate; nor did it try to distinguish the Ohio Supreme Court's decision in Arbino v. Johnson & Johnson upholding the cap against facial constitutional challenges—including the argument that the jury trial right is violated by capping punitive damages at an amount below what the jury is entitled to impose.

In defending the trial court's ruling on appeal, the plaintiff, like the trial court, made no effort to identify which constitutional provision would be violated by application of the cap. Instead, she argued only that the jury's verdict was not excessive under the Supreme Court's guideposts.

For its part, the defendant contended that the plaintiff and trial court had addressed the wrong question and that the only relevant question is whether application of the cap to reduce a punitive award below the constitutional maximum violates some specific provision of the Ohio Constitution. Nevertheless, the Ohio Court of Appeals went along with the way in which the plaintiff framed the issue and evaluated whether the jury's award was unconstitutionally excessive—thereby effectively treating the due process excessiveness analysis as setting a constitutional floor as well as a constitutional ceiling.

Noting that "Giant Eagle does provide the benefit of the use of motorized shopping carts to its disabled customers, and Rieger did not make any reference as to what Giant Eagle could have done differently to prevent future incidents," the Ohio Court of Appeals concluded that "Giant Eagle's conduct was [not] so reprehensible that the application of the punitive damages cap to the instant case is unconstitutional."

Put another way, "the $1,198,000 punitive damages award is unconstitutionally excessive" and nothing more than the 2:1 ratio dictated by the statutory cap is constitutionally permissible. "As a result, the punitive damages cap * * * is constitutional as applied to the instant case."

The defendant did not contend that the statutory cap was itself too high in the circumstances of this case and that the punitive damages therefore should have been further reduced to the amount of the compensatory damages (or lower). Accordingly, the decision is not necessarily indicative of a judicial resistance to applying the Supreme Court's guidance in State Farm and Exxon Shipping.

The second case that resulted in reduction of a punitive damages award to a 2:1 multiple of the compensatory damages is Kuhlman v. Ethicon Endo-Surgery LLC. The case arose out of a claim that the plaintiff was injured during surgery as a result of manufacturing defects in defendant's hemorrhoidal stapler.

The jury awarded the plaintiff $525,000 in economic damages and $8 million in past and future noneconomic damages; it also awarded her husband $1.3 million for past and future loss of consortium. After finding that the defendant acted with malice, the jury then imposed punitive damages of $70 million.

In an unpublished opinion, the California Court of Appeal rejected the defendant's arguments for a new trial as well as its contention that the evidence was insufficient to satisfy California's standard for the imposition of punitive damages. The court agreed with the defendant, however, that the punitive damages award was unconstitutionally excessive.

The court began by noting that although it had already concluded that "substantial evidence supports the jury's finding that Ethicon acted with conscious disregard of the safety of others by failing to ensure [that] the force to fire of manufactured Staplers fell within the design specifications, * * * there was no evidence [that] Ethicon intended to cause injury or that Ethicon knowingly sold Staplers with excessive force to fire." It continued that "when it received reports of problems with Staplers, Ethicon did not ignore them. Instead, it had an established system in place to investigate individual reports and to review aggregate reports for trends—a system which led to two voluntary recalls."

After reciting the facts of other personal-injury cases that resulted in large punitive awards, the court held that "[t]he degree of reprehensibility of Ethicon's conduct does not approach that of the defendants in these cases." Accordingly, it concluded, "Ethicon's degree of reprehensibility, while not negligible, is only moderate."

Turning to the ratio guidepost, the Court of Appeal acknowledged that "[t]he United States Supreme Court has "suggested that a ratio of one to one might be the federal constitutional maximum in a case involving relatively low reprehensibility and a substantial award of noneconomic damages" (internal quotation marks and ellipses omitted). And it also acknowledged that "Plaintiffs' compensatory damages are substantial—nearly $10 million (only about $500,000 of which was economic damages)."

Nevertheless, and with no explanation other than an unadorned quotation to the California Supreme Court's statement that "[i]n enforcing federal due process limits, an appellate court does not sit as a replacement for the jury but only as a check on arbitrary awards," the Court of Appeal held that "the constitutional maximum in this case is two times the compensatory damages award, approximately $19.6 million."

Although the net result is a "savings" of $50 million, the outcome is legally unsatisfying. There can be no serious question that the massive compensatory damages satisfy the deterrent objective of punitive damages in their own right. In view of the size of the compensatory damages, the finding of "only moderate reprehensibility" should have dictated reducing the punitive damages to the amount of the compensatory damages—and probably well below it.

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