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PUNITIVE DAMAGES RULES CHANGE

By: William A. Dreier
March 2007

In one recent week, both the United States Supreme Court and an Appellate Court in New Jersey reached the same result to limit a defendant’s exposure to punitive damages. On February 20, 2007, the United States Supreme Court decided Phillip Morris USA v. Williams. In that case, the trial judge had reduced a punitive damage jury verdict of $79.5 million to $32 million. The original verdict was reinstated by the Oregon Appeals Court, and after several intermediate appeals, the United States Supreme Court reversed the punitive damage award. The Court ruled that such damages may not be based on the jury’s desire to punish defendants for harm to non-parties in the case, which would constitute an unconstitutional taking of property without due process. The Court however, did not address whether the punitive damages relating to the harm to the individual parties would be excessive, as the amount would no doubt be recomputed after the new trial ordered by the Court.

On February 26, 2007, the New Jersey Appellate Division decided Tarr v. Bob Ciasulli’s Mack Auto Mall. There, the plaintiff sued her former employer for sexual harassment. The jury awarded her $25,000 in compensatory damages and $85,000 in punitive damages. The Court reversed the punitive damage award, concluding that the jury should not have been instructed that a purpose of punitive damages was “general deterrence,” even though such a consideration could be read into the New Jersey Punitive Damages Act. The Court reasoned that “[A]n award that is enhanced to deter others who could be completely unconnected with plaintiff or with defendant’s wrong-doing can be viewed as a windfall for plaintiff and excessively punitive toward defendant.”

The factors set forth in New Jersey’s Punitive Damages Act, N.J.S.A. 2A:15-5.9 to 5.17, contain no limitations such as set forth in these two cases and focus generally upon the misconduct of the defendant. The provision in the Act for judicial review at the trial level, N.J.S.A. 2A:15-5.14a, focuses upon punishment of the defendant and the need to deter the defendant from repetition of the conduct. This is the same standard that New Jersey case law required that appellate judges apply in reviewing such an award. It is now clear that both the statute and common law must be reinterpreted to focus solely on the relationship between the plaintiff and defendant.

Practically, these cases should ameliorate some problems defendants face in having multiple awards to protect the public as well as the individual plaintiff against future conduct, or to punish the defendant for past conduct. Astronomic awards bolstered by juries’ attempts in successive cases to award total damages to protect the public have imposed multiple punishments for the same offense, and are now unconstitutional. Although punitive damages do serve some salutary purposes, they present an irrational element to the extent that they posit that a fully-compensated plaintiff should be compensated further. As a result of these decisions, at least the overlapping punishment aspect of punitive awards should be eliminated.