California Punitives by Horvitz & Levy

  • Prof. Dan Markel Previews Article: “Taxing Punitive Damages”

    Professor Dan Markel of the Florida State University College of Law has a post on Prawsblog previewing his upcoming article on taxation of punitive damages. Here’s his preliminary abstract:

    In this article, we address the important but astonishingly under-examined issues associated with the taxation law and policy related to punitive damages. For the most part, the tax consequences of punitive damages are not on anyone’s minds, and as a result of this blind spot, plaintiffs and their lawyers are likely leaving enormous amounts of money on the table in every case involving punitive damages against defendants whose torts occurred in the context of business operations. Of course, even if we assumed that decision-makers regarding punitive damages were aware of the relevant tax effects, there are still a number of other important issues affecting whether a jurisdiction should make punitive damages a) deductible from defendants’ gross income or non-deductible, and b) taxable gains to the plaintiff.

    This Article examines those issues, and by doing so, spotlights the policy difficulties associated with trying to use tax law to help achieve the goals of current punitive damages law. Contrary to a number of scholars who have flatly endorsed the move to a non-deductibility rule to simply increase the putative “sting” of punitive damages, we explain what that change in taxation would augur for a broad array of policy concerns including federalism, settlement incentives, collusion against third parties, and administrative oversight. Although it is not without its own problems, we suggest that a tax-aware decision-maker might better gross-up the damages to
    take account of one’s marginal tax rate rather than simply make the punitive damages non-deductible. Moreover, because we think a lot of the difficulties associated with the taxation of punitive damages cannot be readily fixed simply by tweaking tax law, we sketch out in the last two parts of the Article a vision for what a more attractive punitive damages regime would look like, and how the tax rules would correspond appropriately.

  • “Through the Looking Glass: A Respose to Professor Dan Markel’s Retributive Damages”

    Professor Sheila B. Scheuerman of the Charleston School of Law has written an essay, posted here on the site of Cornell Law Review’s Legal Workshop, responding to an article by Professor Dan Markel of the Florida State University College of Law. Prof. Markel’s article, mentioned in a few previous posts on this site, proposed that states move away from the current system of punitive damages and adopt an alternate system which he calls “retributive damages.”

    On the Torts Prof Blog, Prof. Scheuerman summaries her critque of Prof. Markel’s proposal:

    First, can the “retributive damages” model properly be considered punitive
    damages? Second, do “retributive damages” avoid the doctrinal problems that have
    plagued punitive damages for decades? In my view, the answer to both questions
    is “no.”

  • Punitive Damages Awards: How Rare Are They?

    Those who oppose legislative or judicial restrictions on punitive damages often argue that punitive damages are rarely awarded. (See, for example, this blog post, or this one, or this book.) I have never quite understood the logic of that argument. Even if punitive damages are rarely awarded, why should we allow them to be imposed arbitrarily in the rare instances when they are imposed? The death penalty is rarely imposed, but no one argues that it can be imposed arbitrarily. Granted, there’s a qualitative difference between deprivation of life and deprivation of property, but you get the point. The debate over punitive damages reform should focus not on the rarity of punitive awards, but on whether unlimited punitive damages are an effective and/or necessary means of deterring harmful conduct.

    A new law review article approaches this issue from a different angle. See The Decision to Award Punitive Damages: An Empirical Study, by Theodore Eisenberg, Michael Heise, Nicole Waters, & Martin Wells. It suggests that the rarity of punitive damages awards has been overstated. Although punitive damages are awarded in less than 5% of all trials, they are awarded in over 30 percent of the trials in which plaintiffs request punitive damages. For intentional torts, that number rises to 60 percent. Another interesting tidbit from this article is that, in personal injury cases, judges award punitive damages at a higher rate than juries, but juries award them at a higher rate in nonpersonal injury cases. The authors say this disparity may be attributable to the routing of different types of cases to judges versus juries.

    Hat tip: Torts Prof Blog.

  • Law Profs Contend Their Statistical Studies Were Misused By the U.S. Supreme Court in Exxon Valdez Case

    Cornell law professors Theodore Eisenberg, Michael Heise, and Martin T. Wells, who have written a number of articles applying statistical analysis to empirical data about civil litigation, have posted a paper on SSRN entitled “Variability in Punitive Damages: An Empirical Assessment of the U.S. Supreme Court’S Decision in Exxon Shipping Co. v. Baker.” The professors contend that Justice Souter improperly used their prior statistical studies to support his majority opinion holding that punitive damages cannot exceed the amount of compensatory damages in cases arising under federal maritime law. Here’s the abstract:

    Abstract:

    Exxon Shipping Co. v. Baker acknowledged what virtually all methodologically
    sound punitive damages research shows. The Supreme Court relied in part on an
    article by the present authors and others to state that empirical studies undercut the most audible criticism of punitive damages and that no mass of runaway punitive awards existed. Paradoxically, the Court simultaneously expressed concern about jury predictability based on a high mean and standard deviation in the punitive-compensatory ratio published in our article. The Court therefore reduced a $2.5 billion punitive award relating to the Exxon Valdez oil spill to $500 million to implement a 1:1 punitive-compensatory ratio and stated that “the constitutional outer limit may well be 1:1.” This article shows that our empirical findings relied on by the Court do not support the unpredictability concern or widely applying the limiting ratio. The high mean and standard deviation are artifacts of not accounting for the key variable that explains punitive awards – the compensatory award. Stratifying the mean and standard deviation of the punitive-compensatory ratio by the level of the compensatory award shows that the ratio is reasonably stable in high award cases and significantly and explicably more variable in low award cases. Basing doctrine on summary statistics that combine these heterogenous [sic] distributions is not statistically supportable. The award reduction in Exxon Shipping may have promoted consistency with other high compensatory award cases but the 1:1 principle the case hints at is not statistically supportable across the broad range of compensatory awards, and could contribute to an inability to tailor punitive awards to the facts and circumstances of particular cases.

  • Punitive Damages, Remunerated Research, and the Legal Profession

    The December 2008 edition of the Stanford Law Review, now available on Westlaw, contains this student note entitled “Punitive Damages, Remunerated Research, and the Legal Profession.” The Westlaw citation is 61 STNLR 711.

    The note, authored by recent Stanford graduate Shireen A. Barday, explores an issue that attracted a lot of attention last summer when Justice Souter, while authoring the majority opinion in Exxon Shipping, included a footnote stating that the court would not rely on academic research that was funded by Exxon. (Footnote 17.) Adam Liptak wrote a New York times piece on that footnote, and Rick Hasen questioned the Supreme Court’s approach on his Election Law Blog.

    Barday’s note observes that medical and scientific journals require authors to disclose their sponsors, but law reviews freely publish articles without requiring any financial disclosure. Barday proposes (1) mandatory financial disclosure requirements for law review submissions, and (2) the creation of a conflicts database that would allow lawyers and judges to track industry funded research. The first proposal seems eminently reasonable, but the second may be a little too ambitious to be realistic.

  • Market Share Liability & Punitive Damages

    The Winter 2008 edition of the Columbia Journal of Law & Social Problems, now available on Westlaw, contains an article entitled “Market Share Liability: the Case for Evolution in Tort Law.” The Westlaw citation is 42 CLMJSP 225.

    The note, authored by Columbia student Andrew B. Nick, is primarily an attack on the California Court of Appeal’s opinion in Magallanes v. Superior Court (1985) 167 Cal.App.3d 878, which held that punitive damages are unavailable in lawsuits based on market-share liability. The article criticizes the reasoning of Magallanes and argues that extending punitive damages to market-share cases “would allow the benefits of punitive damages to be achieved on a truly grand scale.”

    P.S. The name of the Magallanes opinion is misspelled throughout the article. Aren’t law review editors supposed to catch that sort of thing?

  • Law Review Article Discusses Punitive Damages Case Pending Before U.S. Supreme Court

    Things have been pretty quiet on the punitive damages front lately, leaving us no significant case developments to discuss for almost two weeks. But for those of you who are just dying for one last fix of punitive-damages-related analysis before the end of the year, you might want to check out this article in the latest edition of the University of San Francisco Maritime Law Journal: “A Beacon for the Protection of Seamen: the Eleventh Circuit Permits Punitive Damages for the Willful Withholding of Maintenance and Cure in Atlantic Sounding Co. v. Townsend.”

    I don’t have an online link for the article, but you can find it on Westlaw using the citation 20 USFMLJ 237. The article, written by Joshua Hanbury, a third-year law student at the University of Richmond School of Law, provides an in depth discussion of the Eleventh Circuit’s decision in Atlantic Sounding Co. The article was written before the U.S. Supreme Court granted cert. in that case, but this article seems to include more information about the issues than anything I’ve seen even since cert. was granted. For some strange reason, the availability of punitive damages for maintenance and cure violations has not captured the public imagination. Go figure.

    As previously noted, Atlantic Sounding Co. is set for oral argument on March 2.

  • Florida Bar Journal Article: Why Punitive Damages and Criminal Sentences Are Reviewed Differently

    The December 2008 edition of the Florida Bar Journal contains an article entitled “Why Punitive Damages and Criminal Sentences Are Reviewed Differently and What It Means to Your Appeal.” The article is written by Jonathan D. Colan, an assistant U.S. attorney in the Appellate Division of the U.S. Attorney’s Office for the Southern District of Florida and an adjunct professor of issues in appellate law at the University of Miami School of Law. I could not find any online link for the article, but it can be found on Westlaw at 82-DEC FLBJ 30.

    For those who are interested in further comparisons between punitive damages and criminal law, you might want to check out Professor Chris Green‘s article “Punishing Corporations: The Food Chain Schizophrenia in Punitive Damages and Criminal Law.” Prof. Green was a commenter at this site before we decided to disable the comments feature so we wouldn’t have to moderate all the crackpot comments (not from Prof. Green, of course, whose comments were always thoughtful and on point).

  • New Law Review Article on Punitive Damages in Employment Litigation

    Joseph Seiner of the University of South Carolina School of Law has posted an article on SSRN entitled, “The Failure of Punitive Damages in Employment Discrimination Cases: A Call for Change.” Here is an excerpt from the abstract:

    This paper explores the basic foundations of punitive damages in the American judicial system, and examines the goals of providing this form of relief in employment discrimination cases. While public perception suggests that punitive damages have been instrumental in helping to eradicate employment discrimination, the numerical data paint a different picture. After analyzing this data, this paper suggests one alternative way of better achieving the original deterrent purpose behind the addition of punitive damages to Title VII. The paper proposes a three-part framework for analyzing all cases of intentional discrimination and recommends adopting a new scheme for remedial relief under Title VII. The paper then explores the implications of adopting the proposed approach and examines how the proposal fits within the contours of the academic scholarship. The paper concludes by urging that the Congressional intent of deterring unlawful discrimination can more properly be achieved through the proposed form of relief.

    It is refreshing to see a punitive damages law review article that contains empirical data. For all the academic writing in this area, there seems to be a dearth of research into the hard data.

    The solution proposed in Prof. Seiner’s article is to replace punitive damages in employment discrimination cases with “liquidated damages” equal to double the amount of the plaintiff’s actual harm. Liquidated damages would be available in any case of intentional discrimination, without the showing of malice or reckless indifference that Title VII currently requires for punitive damages. Professor Seiner says this would provide for greater deterrence by allowing awards in excess of the current $300,000 cap that Title VII places on punitive damages (which has not been adjusted for inflation in 15 years). He also, notes, however, that the proposal would benefit employers in some cases, because under the current system employers are sometimes subjected to punitive awards that are disproportionate to the plaintiff’s actual harm in cases where the actual harm is small. In any event, the defendant would still be able to defeat a claim for liquidated damages by making a showing of good faith.

    Unlike a lot of academic proposals for reforming punitive damages litigation, this is one that Congress might conceivably enact. But such a proposal would only be enacted if Congress perceived a need for additional deterrence in employment discrimination cases and thought civil damages were the best way to achieve that deterrence. Obviously, those are issues that would generate significant debate.

    Hat tip: Workplace Prof Blog

  • Erwin Chemerinsky Article on Exxon Shipping Co.: “A Narrow Ruling on Punitive Damages”

    Professor Erwin Chemerinsky, the founding dean of the University of California, Irvine, School of Law, has an article in the September 2008 edition of “Trial,” a publication of the American Association of Justice (formerly the Association of Trial Lawyers of America.) The article (subscription required) describes the U.S. Supreme Court’s holding in Exxon Shipping Co. v. Baker. Chemerinsky concludes that the Supreme Court’s reasoning should not have much application outside the maritime context:

    Businesses, and those seeking to limit punitive damages, will attempt to read the Court’s holding broadly and apply it in many different contexts. But the Court was clear that it was dealing only with punitive damages in maritime cases. At most, its reasoning can be applied to other areas of federal common law where punitive damages are allowed.
    Yet there’s no doubt that the case reflects a Court that generally is hostile to punitive damages and wants to impose limits, whether based on due process or common law principles. There’s also no doubt that Exxon Shipping is not the Court’s last word on punitive damages.

    For those who don’t subscribe to Trial, you can find the article on Westlaw with this citation: 44-SEP JTLATRIAL 62.