IV. BMW Guideposts As Doctrinal Principles

      BMW v. Gore established the constitutional framework currently governing substantive due process review of punitive damages awards. Prior to BMW, the Court explicitly recognized that the Due Process Clause of the Fourteenth Amendment specifically imposed a substantive limit on punitive damages awards. However, the Court dealt with such issues largely on a procedural level. After BMW in 1996, the Court began to look into the sum and substance of such judgments. It was the first case in the Court's history in which it employed a strict application of proportionality review, and it protected a multinational, multibillion dollar corporation: BMW of North America.

A. Fair Notice

      In BMW, the Court evaluated the punitive damages award according to two main principles under the Due Process Clause. First, it assessed the judgment with a procedural due process analysis, specifically honing in on whether the corporation received fair notice. The Court asserted that due process dictates that a person not only receive fair notice of “the conduct that will subject him to punishment, but also of the severity of the penalty that a State may impose.” Thus, a person must have notice of both the conduct that triggers the penalty as well as the harshness of the penalty. While pointing out that the more stringent constitutional protections afforded to criminal defendants are not applicable to civil cases generally, the Court asserted that basic due process safeguards can be triggered in the context of civil penalties. The principle developed under BMW established a fair notice test for reviewing civil penalties. Lower courts are to consider (1) whether the person received fair notice that her conduct will subject her to punishment, and (2) whether she received fair notice of the severity of the penalty that a state may impose for that conduct.

B. “Reasonableness” and the BMW Guideposts

      In BMW, the Court also evaluated the reasonableness of the punitive damages judgment. The Court fashioned a three-part test to serve as “guideposts” for lower courts when evaluating such awards. These guideposts include evaluating (1) the degree of reprehensibility of the defendant's conduct, (2) the ratio of punitive damages to the actual and potential harm that the plaintiff and other conceivable victims suffered, and (3) an inquiry into how punitive damage awards compare with the civil and criminal penalties that had been or could be imposed for comparable misconduct. These principles form the framework of reasonableness review of civil penalties. The three guideposts, although harshly criticized, are both neutral and general and have the ability to transcend the outcome of these types of cases as well as apply to a different civil penalty context.

      1. Degree of Reprehensibility

      The degree of reprehensibility is an important indicator of reasonableness in this framework. Within this guidepost lies the well-established theoretical principle of proportionality: that a punishment issued should fit the crime committed. Some acts are more blameworthy than others and should be treated accordingly. In measuring the degree of reprehensibility, the Court relied heavily on common law jurisprudence and criminal law analogies. To demonstrate how lower courts should evaluate reprehensibility, the Court reiterated certain established principles including that “nonviolent crimes are less serious than crimes marked by violence or the threat of violence” and specific acts such as “trickery and deceit' are ‘more reprehensible than negligence.” The Court also attempted to articulate aggravating factors to use to assess the degree of reprehensibility, including whether the harm was strictly economic or harmful to the health and safety of individuals, and the financial vulnerability of the plaintiff-victim. Clearly, the Court was extracting principles from other contexts and using them to analytically strengthen its judgment.

      Punitive damages are different than collateral consequences because punitive damages are a creature of tort, contract, and civil law while collateral consequences are the result of criminal conduct and criminal law. However, constitutional jurisprudence in this country has mixed the two areas throughout history. For example, forfeiture is governed by civil law and is a civil process but can be initiated (and often is) as the result of criminal conduct. In BMW, the Court cites numerous criminal cases in support of the ratio it advanced under the second guidepost, including Williams v. New York, Miller v. Florida, and Lankford v. Idaho.

      2. Ratio-Proportionality Review

      The second guidepost, the ratio of punitive damages to the actual and potential harm, is the most criticized of the three. It is also the guidepost that has been most modified by subsequent cases. In BMW, the Court hesitated to create a bright-line ratio of compensatory damages to punitive damages. The Court asserted that a 500:1 ratio “rais[ed] a suspicious judicial eyebrow” and was beyond an appropriate range of acceptable punitive awards. However, the standard began to evolve with the Court's judgment in State Farm Mutual Automobile Insurance Co. v. Campbell. In State Farm, the Court found a $145 million punitive damage award against State Farm for a bad faith failure to settle an insurance claim within policy limits grossly excessive and violative of substantive due process. The trial court reduced the judgment to $25 million. Applying BMW's three guideposts, the Utah Supreme Court reinstated the jury's original punitive damages award. Granting certiorari, the Supreme Court invalidated the punitive damages award against the insurance giant as excessive under due process. For the Court, a 145:1 ratio was excessive, whereas 1:1 or 4:1 would satisfy due process. Five years later in Exxon Shipping Co. v. Baker, the Court not only reiterated the principle that excessive punitive damages awards violate due process, but also that a 1:1 compensatory-to-punitive damages ratio is the rule in federal maritime cases. According to the majority, such a ratio protects against unpredictable and arbitrary awards issued for strictly retributive purposes. In essence, Exxon stands for the proposition that the ratio between compensatory and punitive damages is constitutional only if they are equal. This reaches the “outermost limit of the due process guarantee.”

      Today it is quite clear that large punitive damage awards with a small compensatory damage counterpart will no longer be constitutionally permissible. The Court not only applied strict proportionality for the first time, but it also crafted a principle that required strict proportionality review in the constitutional evaluation of civil penalties. Now, civil penalties will be found excessive if the actual and potential harm to plaintiffs were minimal and the civil penalty massive.

      3. Comparative Prong

      The third guidepost assesses sanctions for comparable misconduct. In essence, the Court compares the punitive damages judgment against the criminal or civil sanctions that may have been imposed for similar misconduct in that particular jurisdiction. Within this guidepost lies substantial legislative deference regarding suitable sanctions for conduct at issue in both the civil and criminal contexts. In its analysis the Court also compared civil penalties levied against wrongdoers in other jurisdictions. The statute at issue in BMW was a provision from the Alabama Deceptive Trade Practice Act. The Court looked at other states' statutes including New York's. This permits flexibility in evaluating the fairness of a given state's statutory approach on a particular civil penalty.

      4. Summary

      The Court ultimately found that BMW did not have adequate notice that it could be exposed to such a large judgment. For the Court, the fact that BMW is a “large corporation rather than an impecunious individual” was of no legal consequence. Nor was the statute's existence of relevant import. Instead, without a substantial history of noncompliance and with the national economic interest favoring trade-friendly statutes, the Alabama judgment was determined excessive and therefore violative of due process.

      A number of important matters arise from this new line of case law. First, it appears the Court is resurrecting substantive due process as a means of analysis for civil penalties. Unequivocally, the court looked into the sum and substance of the statutory schema and the facts surrounding the issue. This is quite different from the legislative deference the Court has traditionally given in due process challenges, especially when evaluating judgments affecting economic freedoms.

      Of course, the composition of the Court has changed substantially since BMW. Three of the five Justices in the majority left the Court, including Justices Souter, O'Connor, and Stevens, leaving many on the Court in the dissent. Justice Scalia's dissent primarily rested on the lack of a “principled” decision. Justice Ginsburg's dissent discussed the Court's vague application of substantive due process as the “raised eyebrow test.” The most recent punitive damages case, Exxon Shipping Co. v. Baker, produced an even split among the Justices including a concurrence by Justice Scalia agreeing with the application of precedent but disagreeing with the underlying holding. Because of the uncertainty in the future of this approach with the current composition of the Court, it is important to think of this decision's application in a different civil penalties context in order to adhere to stare decisis.

      Finally and most importantly, the Court developed a set of neutral and general principles that can be used to assess the fairness of civil penalties broadly. Although not frequently referenced outside of the context of punitive damages, the Court has referenced the opinion in BMW in one other setting. To date, the Court has applied the principles in the context of criminal sentencing. Although not directly on point, this demonstrates the potential applicability of the framework. Moreover, the Court utilized much criminal punishment case law to shape its guideposts in BMW. Before applying this framework to occupational licensing restrictions, it is important to note the limitations and critique of these principles.

      5. Critique and Limitations

      The recent punitive damages line of cases has been the subject of extreme criticism. The critique takes two forms: legal and normative. With the more general legal critique, scholars look at the legal effects and implications of the Supreme Court decisions and offer suggestions for reform. The normative critiques, however, compare the protections advanced by the Court for big business and wealthy corporations in the punitive damages setting with the minimal safeguards offered to individuals in the criminal punishment context.

      a. General Critique

      The primary general critique rests on the premise that the Court has failed to develop a doctrine that provides actual guidance to lower courts in their assessment of the reasonableness of punitive damages judgments. The guideposts themselves are described as “contradictory” and “point in no particular direction.” Creative lower courts can easily distinguish the punitive damages line of cases from whatever case they are deciding. Scholars base their opinions on the notion that the first two guideposts are inherently subjective and dependent on the norms of the assessor, versus objective factors that are evaluated independently without the assessor's biases and opinions.

      An additional critique of the case law is that in this context the Supreme Court has become a conservative activist Court, advancing tort reform through its majority decision. Instead of deferring to legislative judgment, “the Court has itself chosen to craft a new jurisprudence of excessiveness to achieve” the end it desired. Simply put, the Court distorted and misused prior precedent to support and legitimize a doctrine that it completely made up.

      Finally, a criticism is levied against the majority opinion as removing the original purpose behind punitive damages, namely retribution and deterrence, from the equation. If deterrence is achieved by the issuance of punitive damages, it is because of the economic loss suffered as a result of the defendant's wrongdoing. Multibillion-dollar companies will not be affected by a judgment that does not hurt their pocketbook. Instead, businesses will begin to include punitive damages in their risk assessments across the board. This effectively reduces risk prevention in the corporate environment. Punishment itself requires the establishment of an upper limit by a legislative body thereby reflecting society's judgment of the wrongful conduct and the type of punishment to subject a wrongdoer to.

      b. Normative

      By limiting punitive damages based on the compensatory award as opposed to using the defendant's resources as a tool in assessing an adequate punishment, the Court permits big business and “wealthy corporations to use the Constitution as a shield to protect them from juries' full expressions of moral outrage.” Moreover, the Court's jurisprudence in this area leads many to question the overall interpretation of substantive due process in the new millennium. One must normatively consider who and what the Constitution protects. Professor Erwin Chemerinsky identifies what he terms a “cruel irony.” “The principle that emerges is that too many years in prison for shoplifting does not violate the Constitution but too much money in punitive damages against a business for ‘manslaughter’ is unconstitutional.”

      In recent punitive damages cases including BMW and State Farm, the Court focused on the ratio between compensatory and punitive damages. The Eighth Amendment jurisprudential analysis pays no attention to the ratio between the state recidivist enhancement and the original punishment for the underlying criminal offense. Proportionality review for actual individuals is virtually nonexistent in noncapital cases, while strict proportionality review is applied to evaluate fairness for big business.

      Another normative critique is based on the fact that the Court reviews punitive damages awards de novo. The reasoning advanced by the Court for de novo review of a punitive damages award is that it is essentially a question of law and not fact. However, when the Court analyzes criminal punishment, it tends to give significant deference to state legislatures. While big business and wealthy corporations have political capital at all levels of government, prisoners and ex-offenders have virtually no political power. Thus, it would seem logical to give equal or greater constitutional protection through application of stricter scrutiny to policies that affect individuals compared to those that affect big business, unless fairness is a right now enjoyed only by wealthy corporations in American jurisprudence.