The Second Circuit issued an interesting opinion today that illustrates how a federal appellate court can apply two independent standards when reviewing a punitive damages award for excessiveness.

In this employment discrimination case, a federal jury in New York awarded a total of $1.32 million in compensatory damages and $24 million in punitive damages, broken down between individual and corporate defendants.  The district court concluded that the punitive damages were excessive, and granted a new trial conditioned on the plaintiff’s acceptance of a reduction of the punitive damages award to a total of $5 million.  The plaintiff accepted the reduction and the defendant appealed.

On appeal, the Second Circuit affirmed the judgment in all respects except for the amount of punitive damages.  The court began its discussion of that issue by noting that it was required to review the excessiveness of punitive damages pursuant to the federal appellate courts’ supervisory authority over the trial courts.  Such authority requires that reviewing courts “exercise relatively stringent control over the size of punitive damages,” separate and apart from any obligation to review the award under constitutional due process standards.

The court then went on to explain that federal courts should exercise their common law supervisory authority first, before considering constitutional standards.  Following that approach, the court concluded that the $5 million punitive damages award in this case was still excessive.  The court explained that the award is disproportionate both to the $1.32 million compensatory damages award and to the amount of punitive damages awarded in other comparable cases.  Ultimately, the court determined that any amount in excess of a 2:1 ratio would be excessive.

Having settled on a 2:1 ratio as the maximum permissible under common standards, the court considered whether due process concerns might require an even further reduction.  The court concluded that, in light of the extremely egregious nature of the defendants’ conduct, a 2:1 ratio would pass muster under the Constitution.  The court expressly declined to decide whether constitutional principles might permit a higher ratio than 2:1 on the facts of this case.

This case stands in contrast to the Ninth Circuit’s recent decision in the Arizona v. ASARCO case, in which the en banc court reviewed the punitive damages award only under federal due process standards, without even mentioning its separate obligation to review the amount of the award under federal common law.

Yesterday, the New York Law Journal published an op-ed (subscription required) criticizing a recent decision on punitive damages from the Second Circuit.

The decision in question is Payne v. Jones. A jury awarded $60,000 in compensatory damages and $300,000 in punitive damages against a police officer who assaulted the plaintiff.  The defendant appealed to the Second Circuit, which concluded that any punitive damages award over $100,000 would be excessive in light of the reprehensibility of the defendant’s conduct. 

The op-ed criticizes the opinion for, among other things, creating confusion about the appropriate standard of review.  The op-ed suggests the Second Circuit gave insufficient deference to the district court.

I agree with the op-ed that the opinion contains an unnecessarily complicated discussion of the standard of review, but I do not agree that the court gave insufficient deference to the district court.  The Second Circuit cited a 1978 case for the proposition that the traditional standard of review is whether the amount of the award “shock[s] the judicial conscience.”  The court then stated that the traditional standard is “informed” by the due process principles contained in the Supreme Court’s BMW v. Gore opinion. The Second Circuit noted, however, that BMW involved a federal court reviewing a state court punitive damages award, and that a federal court can overturn a state court punitive damages award only if it violates the Due Process Clause, whereas a federal court has broader supervisory powers over a district court.  In other words, a federal appellate court can second-guess a district court’s ruling on the amount of punitive damages even when there is no due process violation.  The court then went on to explain why the award was excessive under the BMW standards.  

Curiously, the Second Circuit did not cite the governing Supreme Court precedent on the standard of review issue: Cooper v. Leatherman.  In that case, the Supreme Court held that appellate courts must apply a de novo standard of review to a lower court’s ruling on the excessiveness of a punitive damages award under BMW v. Gore.  Lower courts have held that Cooper v. Leatherman applies regardless of whether the punitive damages award was rendered in state court or federal court.   Indeed, the Second Circuit itself has repeatedly held that de novo review applies to a district court’s ruling on excessiveness of punitive damages. One such case involved the same sort factual scenario as Payne – an assault and battery by a police officer, DiSorbo v. Hoy.  So there was no need for the Second Circuit to engage in a lengthy discussion of the standard of review.  It should have just followed Cooper (and its own prior decisions) and applied de novo review.  Undoubtedly, it would have reached the same ultimate conclusion and found the award excessive.

Thanks to Richard Montes and Ben Shatz for calling the opinion and the op-ed to my attention.

An opinion from the U.S. Court of Appeals for the Second Circuit last week affirms a trial court ruling that a jury’s $1.6 million punitive damages award, on top of a compensatory award of about $280,000 (a 5.7:1 ratio between punitive and compensatory damages), was excessive, in violation of federal due process principles.

The appellate court noted that the tort (termination of plaintiff’s employment in retaliation for complaints of workplace discrimination) was apparently part of a pattern of corporate conduct, but (1) the conduct reflected a “moderate level of reprehensibility; (2) the tort did not result in physical injury; (3) the punitive award was on top of a “substantial” compensatory award; and (4) the punitive damages far exceeded a potential statutory fine of up to $250,000 for malicious discriminatory practices. Accordingly, the Court of Appeals affirmed the district judge’s order reducing the punitive award to $190,000 (less than a 1:1 ratio).

This result seems to be consistent with the conclusion reached by University of Iowa College of Law professor N. William Hines (see article discussed in our recent post) that trial court and appellate court judges are, in the professor’s words, “faithfully implementing the evolving due process guideposts to catch and correct excessive punitive damages awards. “