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Punitive Damages and Valuing Harm

By Alexandra B. Klass. Full text here.

In 2003, the Supreme Court created a presumption that only single-digit ratios of punitive damages to compensatory damages would satisfy substantive due process limits. The Court also created an exception to this presumption, applicable when the defendant’s misconduct results in only a small amount of compensatory damages or when harm is difficult to value. While lower courts have properly departed from single-digit ratios where the compensatory damages are small, they have had more difficulty doing so when harm is difficult to value. This Article proposes that, as a result, lower courts are mechanically—and incorrectly—adhering to a single-digit ratio in cases where the Court’s current framework and the purposes of punitive damages justify departure from that ratio. This Article uses cases involving intentional torts on the one hand, and private party actions involving environmental harm on the other, to illustrate how lower courts have failed to fully implement the exception to single-digit ratios. This Article proposes that, in conducting a due process analysis of punitive damages, courts should focus on the existence of uncompensated harm to either depart from single-digit ratios or calculate punitive damages based on the full amount of harm even if that amount exceeds the compensatory damage award. To avoid “windfalls” to plaintiffs in cases involving harm to public natural resources, state legislatures or state courts should utilize a “split recovery” approach to direct to governmental or nonprofit coffers a significant portion of the punitive damages awarded based on public harm. Such an approach is consistent with due process and still fulfills the purposes of punitive damages.