Citation. 517 U.S. 559, 116 S. Ct. 1589, 134 L. Ed. 2d 809 (1996)
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Brief Fact Summary.
The Petitioner, BMW (Petitioner), sold slightly damaged, new cars for full value and never told the buyers about the damage. The Respondent, Gore (Respondent), purchased one these damaged vehicles and was awarded actual damages, plus $4 million punitive damages.
Synopsis of Rule of Law.
Punitive damages may be imposed to further a state’s legitimate interest in punishing unlawful conduct and deterring its repetition as long as they are not “grossly excessive.”
In 1990, the Respondent purchased a new BMW for $40,000 from an authorized dealer in Alabama. After 9 months he decided to take the car to a detailer to have it shined and cleaned. This specialist informed Respondent that his car had been painted to cover minor damage to the body.
At trial, the Petitioner admitted that it was company policy to repair any damage to vehicles during shipping. If the cost of the repair exceeded 3% of the car’s retail value, it was placed in company service and later sold as used. But, if the cost of repair was less than 3% the car was sold at full retail value.
Actual damages to Respondent were estimated at 10% of the car value based on expert testimony. Punitive damages were determined by estimating that Petitioner had sold approximately 1,000 cars in Alabama for more than they were worth.
On appeal, the Supreme Court of Alabama found Petitioner’s conduct reprehensible and that the punitive damage award would not have a substantial impact on the financial viability of the company. However, the Court found the computation of the amount was in error and reduced the award to $2 million accordingly.
Does an award of $2 million in punitive damages to the purchaser of one car exceed the constitutional limit?
Yes. The award is “grossly excessive” as measured by (i) the degree of reprehensibility of the non-disclosure; (ii) the disparity between the harm or potential harm and (iii) the punitive damage award and the difference between the remedy and the civil penalties authorized or imposed in similar cases.
The non-disclosure caused only minor economic harm to the Respondent and provided no harm to the health and safety of others. Therefore, the reprehensibility was low.
The amount of punitive damages awarded is 500 times the amount of Respondent’s actual damages. In TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443, 113 S.Ct. 2711, the Supreme Court of the United States (Supreme Court) determined that a punitive award 4 times the actual damages was close to being excessive.
The award is substantially greater than statutory fines available in Alabama for a similar action.
The United States Constitution (Constitution) does not guarantee that awards will be fair and cases such as this should be decided and remain in the state courts. The Supreme Court has become overly concerned with “punitive damages that have ‘run wild’.”
A state has the authority to protect its citizens from deceptive trade practices. But one cannot force its rules on another state and thereby punish a company for practices that are legal in another state.
The Supreme Court develops a three-pronged test to measure excessive punitive awards. Each component weighs the nature of the offense and harm caused or potentially caused against the amount awarded. The Supreme Court implied that if the conduct results in public harm, then the outer limit of excessive is raised.