Summary

This paper analyzes 539 punitive damage jury awards of more than $100,000 statewide for the period of 1984-1994 as reported in Jury Verdicts Weekly. We made a closer analysis of 269 cases with jury awards from 1990-1994 that included punitive damages of any amount. Among the findings from analyzing these cases:

1. Total punitive damages awarded, 1984-1994: Over $3 billion. The net amount of punitive damages actually levied following post-trial motions and appeals: $2.5 billion.
2. The average punitive award grew from less than $1 million in 1984 to $6.6 million in 1994.
3. The overwhelming majority of punitive damage awards during the 1990-1994 period were fully upheld by judges or on appeal. Contrary to claims that punitive damage awards are frequently reduced or vacated, our analysis found that more than nine out of ten punitive damage awards survived post-trial motions and appeals without being reduced.
4. Within this limited database, the amount of punitive damages fluctuates widely, providing prima facie evidence that punitive damages are unpredictable and arbitrary. Further research, and a close comparison of similar types of cases, will be required to determine the extent to which punitive damage awards stem from irrational "runaway verdicts" from juries swayed by "passion and prejudice."
5. These figures are conservative, and understate both the number of awards and the total amount of punitive damages levied.

Punitive damages are a prominent feature of tort liability. Spectacular or notorious punitive damage awards, such as the $2.3 million verdict against McDonald's in the spilled hot coffee case, or the $80 million punitive award levied against Hughes Aircraft are fueling the perception that damage awards are, in the words of Supreme Court Justice Sandra Day O'Connor, "out of control."¹Critics argue that punitive damages are wildly unpredictable, as they are largely disproportionate to compensatory damages in many cases, and that the mere potential of being hit with punitive damages acts as a drag on commercial activity.

Trial lawyers, on the other hand, argue that problems associated with punitive damages are largely exaggerated, that punitive damages are rare, and that large punitive damage awards are frequently reduced by trial judges (as happened in the McDonald's hot coffee case) or on appeal. Punitive damages are therefore self-regulating by adapting means to curb their own excesses, trial lawyers argue, and do not merit legislative attention or regulation.

Determining the truth of these claims has been difficult because there is a scarcity of comprehensive data on punitive damage awards. There is no "Bureau of Litigation Statistics," like the Bureau of Labor Statistics, to which one might turn to find complete data. A study sponsored by the Roscoe Pound Foundation, which is closely allied with the plaintiff bar, stated that "the actual number of punitive damage awards in products liability cases is unknown and possibly unknowable because no comprehensive reporting system exists."² In the absence of any data, the debate has proceeded on the level of anecdote and headline-driven perception.

What data does exist tends to focus on civil cases in the federal courts rather than in California state courts. One study of punitive damages in state courts is the Washington Legal Foundation's comparison of punitive awards in business-related cases in four large states (California, Texas, Illinois, and New York) for the years 1968-1971 and 1988-1991. This study found that total punitive damages had grown from less than $800,000 in the first four-year period, to more than $312 million in the later four-year period. While punitive damages in this comparison grew 117 times, Gross Domestic Product (GDP) had only doubled. "The startling fact is," the study concluded, "that the growth of punitive damages has dwarfed the growth in the productive sectors of the economy."³

Another widely-cited study is the RAND Corporation's comparison of punitive damage awards in Cook County, Illinois and San Francisco, California. The most recent iteration of the preliminary figures from this ongoing research project shows a similarly dramatic increase in total punitive damage amounts, and in average punitive damage awards, in both venues. But because this data comes from just two counties, the researchers acknowledge that it is difficult to know whether this trend is also true for other jurisdictions in the two states.⁴

We have attempted to ascertain trends in punitive damages for the state of California as a whole for the last decade. We have employed punitive damage verdicts over $100,000 as reported in Jury Verdicts Weekly. This is the best compilation of data available to researchers. Jury Verdicts Weekly relies on voluntary reporting to compile its case reports, and although Jury Verdicts Weekly captures a great many cases, it cannot be relied upon as a complete and comprehensive database. We must offer the caveat, therefore, that we have no way of knowing whether the cases reported in Jury Verdicts Weekly are representative of all cases, and whether the trends reported in the following analysis would hold true if all cases were known. (For instance, we are aware of two high-profile cases involving large punitive damages in 1994 that were not reported in Jury Verdicts Weekly: Lane v. Hughes Aircraft [an employment discrimination case], whose $80 million punitive damage award was set aside (along with the compensatory award) by the trial judge; and Weeks v. Baker & McKenzie [a sexual harassment suit], whose $7.2 million punitive damage award was reduced to $3.5 million by the trial judge.⁵ Hence, the figures reported here are certain to be conservative.

We identified a total of 539 punitive damage awards of more than $100,000 statewide for the period of 1984-1994. We conducted closer scrutiny of all punitive damage awards for the last five years, 1990-1994, to analyze the pattern of appellate changes to jury verdicts. There were a total of 269 cases with punitive damage awards of all sizes during this later period.

Among the findings of our survey of this data:

• The number of cases in which punitive damages were awarded has been on a slightly declining trend for the past decade. (See Figure 1.)
• Total punitive damages awarded, 1984-1994: Over $3 billion. (See Figure 2.)
• The average punitive award has grown from less than $1 million in 1984 to $6.6 million in 1994.⁶ (See Figure 3.)

Punitive Award and Damage Charts:

 

 

 

 

Comment: the fact that the number of cases that include punitive damage awards has been on a slightly declining trend makes the findings depicted in Figures 2 & 3 more significant; the downward trendline for the number of cases contrasts sharply with the trendlines for the total amount and average amount of punitive damages awarded. In other words, it is possible to hypothesize that although the number of awards may be declining, the risk of being hit with a punitive award of great magnitude is increasing, which may balance out or even outweigh the declining risk of being hit with a punitive award.

• A striking finding is that very few punitive damages awards during the 1990-1994 period were vacated or reduced by judges or on appeal. Of the 269 punitive damage jury awards identified from 1990-1994, only 13 punitive awards were vacated entirely, and only 18 punitive awards were reduced through post-trial motion, appeal, or out-of-court negotiation. In other words, the full punitive award determined by the jury was upheld in 93 percent of cases. Juries awarded a total $1.78 billion in punitive damages during this period. Although some very large awards were vacated or reduced through post-trial motions and appeals, defendants were still liable for a total of $1.16 billion in punitive damages after post-trial motions, appeals, and settlements.

• There is a no consistency in the ratio of punitive damages to compensatory damages in the 1990-1994 sample of cases, thereby supporting the conclusion that punitive damages are unpredictable and arbitrary. The range of punitive awards runs from 710 times compensatory damages,⁷ to .0001 times compensatory damages.⁸ (In one anomalous case, a defendant who was not assessed any compensatory damages was nevertheless hit with $62,000 in punitive damages.⁹ The U.S. Supreme Court has suggested in the Pacific Mutual vs. Haslip case that punitive-to-compensatory damages that exceeded a four-to-one ratio were "close to the line" of being unconstitutional on due process grounds, but has indicated that it prefers to see state legislatures determine through statute what the bounds of punitive awards should be.¹⁰

Although the data in Figure 1 show a slightly declining trend in the number of verdicts that include punitive damages, both the increasing trends depicted in Figures 2 & 3 of the aggregate amount of punitive damages and the size of the average award both invite concern about the extent to which the possibility, however seemingly remote, of large punitive damages casts a chilling effect on the incentives and decision-making of individuals and businesses. To say that "punitive damage jury awards are rare" may be statistically correct, but may not reflect the way the prospect of punitive damage demands in case filings and as a general litigation strategy affect the incentives of contesting parties in calculating litigation risks. Suits such as shareholder "strike suits" often include demands of compensatory and punitive damages in excess of the total capitalized value of a company. Such demands, combined with the unpredictability of a jury verdict, will drive not only the settlement calculus of such suits in the favor of the plaintiffs, but also may profoundly affect the decision-making processes of entrepreneurs in unproductive ways.

Within these inquiries, consideration should be given to those statutory causes of action expressly providing for awards of punitive damages, so as to properly trace the source of punitive damages and assess the possibility that rising punitive damages are not simply the result of judicial innovation, plaintiff bar aggressiveness, or jury sympathy. This would, in turn, suggest that the legislature would be capable of contributing to meaningful reform.

While categorical statements about punitive damages await more complete data, this limited sample establishes with a fair degree of confidence that the size of punitive damage awards is unpredictable, arbitrary, and frequently irrational. The data also suggest that punitive awards are rising far more rapidly than general economic growth or the general price level, suggesting that juries are increasingly prone to "runaway verdicts" generated by "passion and prejudice."¹¹ While punitive awards may be rare, the rapidly increasing size of the average award and the total amount (over $3 billion in aggregate) of punitive damages suggest that concern for their effect on productive economic decision-making is justified. Finally, contrary to trial lawyer claims, most punitive damage awards appear to survive post-trial motions and appeals.

--By Steven Hayward
Research and Editorial Director
for the Pacific Research Institute for Public Policy

* Nothing contained in this briefing is to be construed as necessarily reflecting the views of the Pacific Research Institute for Public Policy or as an attempt to thwart or aid the passage of any legislation.

1. O'Connor, in her dissenting opinion in Pacific Mutual Life Insurance v. Haslip (111 S. Ct. 1032, 1991). In a memorandum in a 1986 case, Justice Lewis Powell criticized punitive damages as being "a disturbingly common phenomenon . . . so arbitrary as to be virtually random," and producing "bizarre results." (Memorandum in the case of Aetna Life Insurance v. Lavoie, excerpted in the Wall Street Journal, March 8, 1995.) The $80 million punitive award in the case of Lane v. Hughes Aircraft was set aside by the trial judge, who described the award as a "runaway verdict," the result of a jury that was "clearly motivated by passion and prejudice."

2. Michael Rustad, "Demystifying Punitive Damages in Product Liability Cases: A Survey of a Quarter-Century of Verdicts," Iowa Law Review, October 1993.

3. George S. Branch, James D. Miller, Stephen M. Turner, Lawrence R. Jerz, and Robert E. Fuller, Punitive Damages Explosion: Fact or Fiction?, Washington Legal Foundation. October 1992.

4. Deborah Hensler and Erik Moller, Trends in Punitive Damages: Preliminary Data from Cook County, Illinois and San Francisco, California, RAND Institute for Civil Justice, DRU-1014-ICJ, March 1995. The report notes that "The views and conclusions expressed [in this preliminary report] are tentative."

5. We have included these two cases in our quantitative analysis.

6. There is a wide variance in both total punitive damages and in the size of average awards year-on-year, partly dependent on one or two extraordinary verdicts. For example, the average punitive award in 1993 was more than $20 million, while in 1989 it was $1.6 million. It should be noted, however, that discarding the largest award each year does not change the general increasing trendlines for either total punitive damages or for the size of the average punitive awards.

7. Garawa vs. U.S. Brass, San Diego County case #63187, in 1993, compensatory damages $67,500, punitive damages, $48 million.

8. Ravindran vs. Children's Hospital, Los Angeles County case # C737-817, in 1994, compensatory damages $110,000, punitive damages $1.

9. Chung vs. Dailey, San Francisco County case #923450, in 1992. Although no compensatory damages were awarded, the jury awarded $92,000 in punitive damages, subsequently reduced to $62,000 on a post-trial motion.

10. The Supreme Court muddied the waters further in the successor case of TXO Production Corp. vs. Alliance Resources Corp., (133 Ct. 2711, 1993), in which a divided court (five separate opinions were filed by the nine justices) upheld a punitive award that was 526 times the compensatory award. The fact that the Court cannot agree on a rationale, or develop the usual "bright-line test" for determining the reasonableness of punitive awards, bolsters the argument that it is up to the legislative branch to sort out the inconsistency and unpredictability of punitive awards.

11. These are Superior Court Judge Malsom Mackey's words from his opinion setting aside the $80 million Lane v. Hughes Aircraft verdict.