American Civil Litigationand Dispute Resolution University of Insubria, Como, Italy Jeffrey W. Stempel William S. Boyd School of Law University of Nevada, Las Vegas
Segment5 Class Actions Punitive Damages Final Examination
Class Actions Image: digitalart / FreeDigitalPhotos.net
Class Actions • Controlled by Fed. R. Civil Procedure 23 (and similar state court rules) • Sets Minimum qualities necessary for class action • 1. Numerosity • too many litigants to join individually • 2. Commonality of claims of class members • 3. Typicality of named plaintiff’s claim and those of class as a whole • 4. Adequacy of the named plaintiff and counsel to represent the class
Types of Class Actions • Declaratory – Establish Status or Rights (Rule 23(b)(1)) • (A) When risk of inconsistent judgments affecting class members that would establish “incompatible standards of conduct • (B) When individual judgments would affect class members’ interests and “substantially impair or impede” their ability to protect those interests.” • Injunctive – Order Defendant(s) to do something or refrain from doing something (Rule 23(b)(2)) • Party opposing class has acted or refused to act on grounds that apply generally to the class
Types of Class Actions (con’t) • Damages (Rule 23(b)(3)) • Requires reasonable notice to class members that they may “opt out” of the class • Plaintiffs with potentially large individual claims tend to opt out and sue individually • Plaintiffs with small claims tend to remain in the class
Current Class Action Debate in USA • Are Plaintiff Class Lawyers “Unfaithful Servants” of the Class? • Due to attorney control of strategy, tactics, settlement in the absence of a traditional “paying” client? • The problem of the professional named plaintiff or the unsophisticated named plaintiffs and class • Congressional Reaction/Political Debate • Private Securities Litigation Reform Act of 1995 • Also required more specific pleading of securities class action claims • Class Action Fairness Act of 2004 • Increased restrictions on use of class actions in federal courts
Concern Over Class Settlements • Too Little for the class members and too much for lawyers? • Courts are required to approve class action settlements • But in practice, fear that many judges simply “rubber stamp” class settlements to conclude potentially complex, time-consuming cases • Also problems of intra-class conflicts • e.g., currently injured vs. future claimants
Tort Class Actions • Historically, class action device thought to be rarely appropriate for tort claims • Commentary to this effect by Rule 23 drafter in notes to 1966 Amendments to Rule 23, citing article by then-Professor Jack Weinstein, now a federal judge in N.Y. • But then came the “mass torts” of the 1970s to the present • Agent Orange (1980s)(presided over by Judge Weinstein) • Asbestos (first wave in 1980s; second wave in 2000s) • Pollution (1970s forward) • Drug Product Liability (1970s forward)
Punitive Damages • Origins Unclear • But Reasonably Well Established in the USA by the mid-1800s (e.g., Seymour v. McCormick)(U.S. Sup. Ct. 1850)(dealing with lower court opinion imposing punitive damages) • Permits a Verdict Winner to Recover Additional “Exemplary” or “Punitive” damages in addition to compensatory damages
Purposes and Rationale of Punitive Damages • To Punish the Defendant/Tortfeasor for bad conduct beyond mere negligence • To Deter the Defendant/Tortfeasor from similar bad conduct in the future • To Deter Others from similar bad conduct in the future • (Implicitly) to allow victim to be made more “whole” than would otherwise be the case because of special circumstances • Sub-silentio Recovery of Counsel Fees/Expense?
How Bad Must the Conduct Be? • Controlled by State Law • No Federal Law (except for Constitutional Limits) • Standard Varies With Each State • But all require more than mere negligence • A few states permit if conduct is grossly negligent • Most require that conduct be intentionally in disregard of victim’s rights. • Reckless disregard may be sufficient
Policing Punitive Damages • All states require proof of the required bad conduct by “clear and convincing” evidence • Beyond the norm of proof by a “preponderance” of the evidence • But not as demanding as “beyond a reasonable doubt” standard used in criminal cases • Punitive damages jury verdicts given special scrutiny by trial judges • Trial court punitive judgments subject to de novo review on appeal • Rather than deferential standard of affirming trial court fact finding unless “clearly erroneous”
Additional Controls on Punitive Damages • Bifurcation of trial • Trial first on liability, compensatory damages before consideration of punitive damages • Restricting discovery regarding defendant wealth and certain information regarding defendant conduct until/unless plaintiff prevails on liability generally and obtains a compensatory damage award
How Much is Too Much? • Historically, punitive damages were assessed according to whether the amount was reasonable in light of • The Wrongfulness of the Conduct • The Amount of Compensatory Damage Done • Common Law outside limit of 30-40 times compensatory damages • The Defendant’s Wealth • Rationale was that a modest punitive award would not deter a wealthy defendant • What amount of $$$ award deters Bill Gates?
The U.S. Supreme Court Enters the Punitive Damages Arena • Until 1980s, Punitive Damages considered issue of state law only • U.S. Supreme Court, responding to business defendant concerns, begins to examine whether large punitive damages are: • Excessive punishment in violation of Eighth Amendment to Constitution; • Violation of defendant’s right to Due Process of law (guaranteed in Fourteenth Amendment)
The Court Takes Control (or Meddles) With Punitive Damages • 1990s – Court, after flirting with issue during prior decade, decides in several cases that unreasonably large awards violate due process. • Crazy Cases Make Bad Law? • BWM v. Gore (1996) • Dr. Ira Gore, not the former V.P. and Nobel winner • Automaker deceit about touched up paint job • $4,000 compensatory damages; $4 million punitive damages, reduced to $2 million on appeal • Vacated and remanded by U.S. Supreme Court
21st Century Supreme Court Cases • Campbell v. State Farm Insurance (2004) • $145 million punitive award, $1 million compensatory damages for insurer bad faith • Court vacates award because jury was allowed to consider bad insurer acts in other states, with other product lines • Court states general rule: where compensatory award significant, 9:1 is maximum punitive damages ratio although “reprehensibility” of defendant conduct most important factor overall • On remand, Utah Supreme Court enters $9 million punitive judgment; U.S. Supreme Court declines to review
21st Century Supreme Court Cases • Exxon v. Baker (2008) • Reduces $ 5 billion punitive judgment in case of $ 500 million compensatory damages to 1:1 ratio in action related to infamous Exxon Valdez oil spill • But decided on basis of maritime law (not Constitution) • Williams v. Philip Morris (2007) • Court initially vacates and remands $79.5 million punitive judgment on $ 821,000 compensatory damages in tobacco liability case • Oregon Supreme Court reinstates award in 2008 • U.S. Supreme Court grants review in 2008 and then changes its mind, dismisses certiorari as “improvidently granted” in 2009
Liebeck v. McDonald’s Image: Roadsidepictures / flickr.com http://www.flickr.com/photos/roadsidepictures/236614443/
Liebeck v. McDonald’s Restaurants • What happened? • What did she ask for before she got a lawyer? • How much did the jury award her? • How much was the damage award eventually reduced to? • How was it covered in the press?
Las Vegas Review-Journal, May 8, 2010, at 1A. Las Vegas Review-Journal, May 8, 2010, at 6A. Las Vegas Review-Journal, May 6, 2010, at 1A.
Las Vegas Review-Journal, May 9, 2010, at 2B. Las Vegas Review-Journal, May 8, 2010, at 1A.