Income-Dependent Punitive Damages

Abstract

Punitive damages have been very salient in the media, preoccupied appellate courts, and fascinated scholars for decades. But although their availability seems undisputed in most common law jurisdictions, their measure remains controversial. In particular, it is unclear whether and how courts and juries should take the defendant’s financial condition into account in assessing punitive damages. The Article puts forward and defends an innovative yet simple method for incorporating this factor into the calculation. Our proposal is based on an adaptation of a criminal law model, known as “day-fines,” which has been primarily used in European and Latin-American legal systems. In brief, if the gravity of the wrong seems to justify an extra-compensatory award, the scope of punitive damages will be determined in several steps. First, the court must determine the gravity of the wrong and translate it into corresponding “severity units.” Next, the court must assess the “unit value”—the wrongdoer’s daily income, broadly defined, or a particular fraction thereof. The product of these two variables constitutes “total damages.” Lastly, if total damages are greater than compensatory damages, the punitive award should equal the difference between total damages and compensatory damages. If total damages are lower than compensatory damages, punitive damages should be nil. We demonstrate that this model is consistent with the twin goals of punitive damages and with the applicable constitutional framework.

Keywords: tort law, remedies, criminal law, due process, retribution, deterrence, law and economics, day fines, punitive damages

JEL Classification: K13, K14