Impact of State Farm Mut. Auto. Ins. Co. v. Campbell, on Mississippi Practice
By: Wells Marble & Hurst, PLLC
www.wellsmar.com
State Farm Mutual Automobile Insurance Company v. Campbell, 123 S.Ct. 1513 (2003), is the third significant opinion addressing the constitutionality of punitive damage awards by state courts, following BMW of North Am, Inc. v. Gore, 517 U.S. 559 (1996) and Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424 (2001).
Campbell was significant in three respects: the Court determined that, (1) “in practice, few awards exceeding a single‑digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process . . . . While these ratios are not binding, they are instructive. They demonstrate what should be obvious: Single‑digit multipliers are more likely to comport with due process, while still achieving the State's goals of deterrence and retribution, than awards with ratios in range of 500 to 1, Gore, 517 U.S. at 582, or, in this case, of 145 to 1.” Campbell, 123 S.Ct. at 1524; (2) “lawful out‑of‑state conduct may be probative when it demonstrates the deliberateness and culpability of the defendant's action in the State where it is tortious, but that conduct must have a nexus to the specific harm suffered by the plaintiff. A jury must be instructed, furthermore, that it may not use evidence of out‑of‑state conduct to punish a defendant for action that was lawful in the jurisdiction where it occurred.” Id. at 1522-23 (citations omitted); (3) “the wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award. The principles set forth in Gore must be implemented with care, to ensure both reasonableness and proportionality.” Id. at 1525-26 (internal citations omitted).
Therefore, Campbell raises at least three important concerns for the practicing attorney: (1) How Mississippi courts will apply the guidelines relating to the ratio of compensatory awards versus punitive awards; (2) what impact will the decision have on “other acts” and/or “pattern and practice” discovery; and, (3) whether evidence of net worth is still relevant and/or admissible in consideration of punitive damage awards.
First, it is difficult to determine how Mississippi courts will apply the ratios in Campbell. Neither the Mississippi Supreme Court nor the Mississippi Court of Appeals have had the opportunity to address Campbell.[1] Other courts, however, have used Campbell to reduce awards of punitive damages. See, e.g., Romo v. Ford Motor Company, 6 Cal. Rptr. 3d 793 (Cal. Ct. App. 2003)(upon application of Campbell factors, $290 million punitive damage award reduced to $23 million); Daka, Inc. v. McCrae, 839 A.2d 682, 700-01 (D.C. 2003)(vacated punitive damage award of $4,812,500.00, noting that “an award . . . that multiplies the sum awarded for compensatory damages ($187,500.00) by more than a factor of five will bear a very heavy burden of justification”); Liggett Group, Inc. v. Engle, 853 So.2d 434, 469 (Fla. App. 2003)(court vacated award of $145 billion, and remarked that “awarding the GNP of several European countries is error”); Henley v. Philip Morris Inc., 9 Cal. Rptr. 3d 29, 73 (Cal. Ct. App. 2004)(holding a 6:1 ratio was the maximum award permitted by the Constitution, despite what the court deemed the defendant’s “extraordinarily reprehensible conduct”).
To predict what ratio might be constitutionally permissible, it is necessary to look not only to the size of the compensatory award, but also the make-up of that compensatory award. The Supreme Court stated that because there are “no rigid benchmarks that a punitive damages award may not surpass, ratios greater than those we have previously upheld may comport with due process where a particularly egregious act has resulted in only a small amount of economic damages.” Campbell, 123 S.Ct. at 1524 (citations omitted)(emphasis added). This indicates that where compensatory damage awards are large and may include non-economic damages, even a 1:1 ratio may be constitutionally impermissible. Conversely, where the economic damages are small but there is a significant non-economic component, punitive damage awards may, in fact, exceed the “single-digit multiplier.” In fact, the Fifth Circuit has applied this concept to the awarding of nominal damages and punitive damages. See Williams v. Kaufman County, 352 F.3d 994, 1016 (5th Cir. 2003)(ratio analysis cannot be applied effectively in cases where only nominal damages have been awarded, for example, actions seeking vindication of constitutional rights are more likely to result in nominal damages and strict proportionality would defeat the ability to award punitive damages at all). Therefore, the basis for the compensatory damage award must be analyzed before a challenge to the punitive damage award is considered. Smaller awards are more likely to exceed the single-digit multiplier if there is not a significant non-economic component to the compensatory award.
The second area where Campbell may have a significant impact on litigation is in discovery. In Campbell, the Supreme Court reasoned that before evidence of other “reprehensible acts” may be admissible, it must be ascertained that the conduct complained of was both unlawful and rationally related to the claims asserted by the plaintiff; that is, evidence of other acts would be inadmissible in the consideration of punitive damages if the act was lawful where it occurred and/or the act was tangentially related to the complained of conduct. Many defendants have argued that this language effectively limits the scope of broad based “pattern and practice” discovery normally pursued by plaintiffs. So far, however, this argument has not proven particularly effective.
Finally, Campbell may have an impact on what evidence is considered by the jury in the calculation of punitive damages. In Mississippi the net worth of a defendant has been used as a “starting point” in determining the amount of punitive damages to be awarded. Because the Court has determined that punitive damages, when appropriate, are to be awarded with some logical ratio with the compensatory damage award,“the wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award. The principles set forth in Gore must be implemented with care, to ensure both reasonableness and proportionality.” Campbell, 123 S.Ct. at 1525-26 (internal citations omitted). Thus, the Court appears to have discarded the wealth of the defendant as a factor in considering punitive damages; only the ratio of compensatory and punitive damages will warrant consideration. This issue, however, has not progressed to either the Court of Appeals or the Supreme Court.
[1] While several cases involving punitive damages have been heard by the appellate courts, they did not apply Campbell, instead relying on Mississippi law to strike punitive damage awards. See, e.g.,Community Bank v. Courtney, 2004 WL 1277167, *7 (Miss. June 10, 2004)(“We find there is insufficient evidence in this case to support a jury charge on the issue of punitive damages”).
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