Synopsis of Rule of Law. Punitive damage awards in maritime cases shall be capped at a 1:1 ratio measured against compensatory damage awards.
Issue. Whether under maritime law, an award of $2.5 billion in punitive damages is unreasonable when coupled with a compensatory damage award of only $507.5 million?
Â Yes, a punitive award shall be limited to an amount equal to the compensatory damage award (one-to-one ratio).
Discussion. Justice Souter] Typically, a jury determines a punitive damage award, which may be reviewed by a court to ensure its reasonableness. Given that such awards are unpredictable, and courts must be concerned with overall fairness and consistency, a standard must be developed to reach the optimal level of penalty and deterrence in these cases. Citing dicta in State Farm (538 U.S. 408, 425), the Supreme Court notes that despite rejecting a simple mathematical formula as the constitutional line, â€œfew awards exceeding a single digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process…when compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guaranteeâ€ (ellipses added).
Because courts are focused on fairness and eccentrically high punitive verdicts may be deemed unfair, â€œ[a] penalty should be reasonably predictable in its severity, so that even Justice Holmes’s â€œbad manâ€ can look ahead with some ability to know what the stakes are in choosing one course of action or another.â€
The Supreme Court also analogizes to the criminal sentencing system, noting that it is instructive to note that upon discovery that defendants were serving widely disparate sentences, sentencing reform was enacting to provide detailed guidelines. The Supreme Court wishes to do the same here.
Because there are no standard â€œtortsâ€ or â€œinjuryâ€, putting a max cap on punitive awards is untenable, especially because a court will not have the power to revisit and modify the figure routinely. Noting a ratio as the preferable alternative, and finding that the median ratio is less than 1:1 (i.e., compensatory damages exceed punitive damages), the Supreme Court finds that a 1:1 ratio is a fair upper limit in maritime cases.
Note in dictum: â€œA median ratio of punitive to compensatory damages of about 0.65:1 probably marks the line near which cases like this one largely should be grouped.â€
This decision is not a constitutional ruling, because the Supreme Court was sitting as a common law court in its admiralty jurisdiction, so the holding is limited to maritime cases. It remains to be seen how the Court may apply the standards set forth in this case to punitive damage appeals in the future.