Taming Blockbuster Punitive Damages Awards

50 Pages Posted: 23 Feb 2018  

Benjamin J. McMichael

Vanderbilt University - Owen Graduate School of Management

W. Kip Viscusi

Vanderbilt University - Law School; National Bureau of Economic Research (NBER); Vanderbilt University - Department of Economics; Vanderbilt University - Owen Graduate School of Management; Vanderbilt University - Strategy and Business Economics

Date Written: February 6, 2018

Abstract

Blockbuster punitive damages awards, i.e., those awards exceeding $100 million, attract attention based on their sheer size. While there have been fewer such awards in the last decade, they remain an important presence in the legal landscape. Taking notice of these and other large punitive damages awards, courts and state policymakers have taken steps to both constrain them and render them more predictable. States have enacted punitive damages caps to limit the amount of punitive damages courts can award, but these caps often contain a number of exceptions and apply only to damages under a specific state’s law. At a broader level, the Supreme Court has announced a general limitation on punitive damages under the Due Process Clause of the Fourteenth Amendment, which applies to all cases and contains very few exceptions. Under State Farm v. Campbell, punitive damages awards that exceed the accompanying compensatory award by more than a factor of ten will generally violate due process. However, this limit is substantially higher than the punitive damages caps that some states have put in place.

This Article provides the first empirical analysis of the effect of state punitive damages caps on blockbuster awards and offers the first comparison of the effect of these reforms with the effect of the Supreme Court’s current constitutional doctrine on punitive damages. Understanding the roles of these legal regimes in how the largest punitive damages awards are imposed provides unique insight into how different factors affect courts’ decisions to award punitive damages. Relying on this insight, as well as previously developed empirical evidence, we argue that it is time for a new constitutional doctrine on punitive damages. In particular, we argue that the Supreme Court should incorporate the lessons learned from the different effects of state punitive damages caps to lower the limit placed on punitive damages under the Due Process Clause. For cases involving financial loss, punitive awards more than three times the size of the accompanying compensatory award will generally violate due process. For cases involving severe injuries, such as wrongful deaths, the total value of punitive damages and compensatory damages should not exceed economic estimates of the value of a statistical life, which is an economic deterrence measure. This proposed structure would better achieve the Court’s goal of returning predictability to punitive damages awards, blockbuster and otherwise.

Keywords: State Farm decision, damages caps, blockbuster punitive damages

JEL Classification: K13, K41

Suggested Citation

McMichael, Benjamin J. and Viscusi, W. Kip, Taming Blockbuster Punitive Damages Awards (February 6, 2018). University of Illinois Law Review, Forthcoming; Vanderbilt Law Research Paper No. 18-13. Available at SSRN: https://ssrn.com/abstract=3124542

Benjamin J. McMichael

Vanderbilt University - Owen Graduate School of Management ( email )

401 21st Avenue South
Nashville, TN Tennessee 37203
United States

W. Kip Viscusi (Contact Author)

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States
615-343-7715 (Phone)
615-322-5953 (Fax)

HOME PAGE: http://law.vanderbilt.edu/faculty/viscusi.htm

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Vanderbilt University - Department of Economics

Box 1819 Station B
Nashville, TN 37235
United States
(615) 343-7715 (Phone)
(615) 343-5953 (Fax)

HOME PAGE: http://law.vanderbilt.edu/faculty/viscusi.htm

Vanderbilt University - Owen Graduate School of Management

401 21st Avenue South
Nashville, TN 37203
United States
(615) 343-7715 (Phone)
(615) 343-5953 (Fax)

HOME PAGE: http://law.vanderbilt.edu/faculty/viscusi.htm

Vanderbilt University - Strategy and Business Economics ( email )

Nashville, TN 37203
United States

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