High Court To Rule On Punitive Damages

Posted: December 06, 1988

WASHINGTON — An insurance company refused to pay a $20,000 benefit to a Mississippi man whose leg was amputated. A jury later sided with the amputee, awarded the $20,000 - and added $1.6 million to punish the firm for what it said was misconduct.

A jury in Minnesota awarded $3.3 million to a service station attendant who was seriously hurt when the metal rim of a truck tire exploded in his face. The jury then awarded an additional $12.5 million - later reduced to $4 million - to penalize the manufacturer for what jurors saw as indifference to safety.

In a case of illegal price-slashing, a Vermont jury assessed Browning- Ferris Industries, the offending company, a $6 million penalty - more than 100 times the amount of damages that resulted from the offense.

Yesterday, the Supreme Court agreed to review the Vermont price-cutting case as a vehicle for resolving a legal question in which corporations and consumers have a large stake:

Can punitive damages be so large that they amount to "excessive fines," which are barred by the Eighth Amendment to the Constitution?

The Supreme Court, while declining last year on narrow, procedural grounds to review the Mississippi case and thus provide an answer, said the constitutionality of huge punitive awards "is a question of some moment and difficulty."

All but five states - Louisiana, Massachusetts, Nebraska, Washington and New Hampshire - permit punitive damages to be added to compensation in private civil suits as a means of punishing flagrantly offensive conduct and preventing it from recurring.

Multimillion-dollar awards of punitive damages - especially against large corporations - have become commonplace in the last two decades, causing some states to limit them and others to consider restrictive legislation.

Consumer groups have welcomed the trend, calling it is an effective method of curbing dangerous or antisocial conduct. But businesses argue that jurors unjustly focus on the wealth of defendant corporations and, in the manner of Robin Hood, take from the rich and give to the poor.

Without legislative guidelines or a constitutional limitation, "jurors are free to transfer vast amounts of money from defendants to plaintiffs . . . on the basis of mistake, bias, caprice or the irresistible lure of a large corporation's 'deep pockets,' " lawyers for Browning-Ferris said in briefs to the court.

Browning-Ferris, one of the nation's largest waste collection corporations, asserted that $6 million in punitive damages was "wildly excessive" - especially since the jury awarded only $51,146 as compensation for losses caused by the company's price-slashing tactics.

The awards went to Kelco Disposal Co., a small Burlington, Vt., firm owned by a former BFI district manager.

In upholding the punitive damage assessment, a federal appeals court suggested that a defendant's wealth is a legitimate factor for a jury to consider. The $6 million punitive award "is not inconsistent with punitive damages levied in other jurisdictions against large companies," the appeals court said.

Kelco attorneys said the $6 million punitive award sent an important message to businesses everywhere: "Predatory pricing intentionally designed to destroy a small local competitor is wrong, so don't do it."

But a brief filed by the National Association of Manufacturers said large punitive awards have had a "devastating" impact on U.S. industry, forcing two manufacturers into bankruptcy and dramatically increasing prices of some widely used health products.

"The effect of these burdens on manufacturers has been felt as a 'tax' on every product purchased by consumers," the manufacturers' group said.

In other action yesterday, the court:

* Agreed to decide if it is legal for the Justice Department to rely on advice from the American Bar Association in recommending federal court nominees. The justices will hear arguments from two Washington interest groups - one liberal and one conservative - opposed to the lawyer organization's heavy influence in the nominating process.

* Agreed in a case from Alabama to hear a Reagan administration appeal aimed at limiting recovery of lawyers' fees for people who win disputes with the government over Social Security benefits.

* Refused in a California case to bar police from conducting roadside sobriety tests by setting up checkpoints at unannounced locations.

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