Can the Sanctions Fit the Wrong?
In response to Claire's recent post about her ongoing conflict with a Turkish construction company, member Pseudodionysius broaches the topic of punitive damages. There are so many issues wrapped up in the grand question of punitive damages in civil actions, that I can do little more than unpack some of the key elements here.
First, in general it is a mistake to award punitive damages for cases of ordinary negligence, by which one means a situation in which there was a failure to take those precautions that one would expect of a reasonable person in like circumstances. Too many people miss a traffic light, or misread instructions in assembling some new product that it would be a mistake to haul out the heavy lumber against them. Compensatory damages should suffice, leaving the punitive damages for wrongs of a deeper dye.
Second, what counts as wrongs of a deeper dye? The easy case is one in which the particular adverse consequence was the very intention of the party who committed the act. The person who is willing to damage or maim consciously in one case will be prepared to do it again, and hence has to be stopped the first time. Think of the punitive damages as an effort to deter those wrongs of a similar sort that might be committed by others.
Third, need these damages be limited to those cases? The better judgment seems to be no, and the line that is commonly drawn is that between reckless disregard of consequences that are known to be likely to occur and gross negligence in dealing with a particular circumstance. The point of that distinction is that the former has the requisite mental element of knowing about the bad thing that could happen only to be indifferent to its occurrence, so that the actor does not alter his plan of behavior given the knowledge that he or she has. Virtually all legal systems recognize the implicit equivalence between reckless disregard and intentional wrongdoing in cases that deal with fraud and defamation, as well as physical injury cases that involve reckless driving or reckless construction. How this ties into Claire’s case depends on the particular facts, but the correct procedural posture toward her multiple Turkish protagonists could be tricky. However, from this description it is clear that the defendant could not get a summary judgment, i.e. a decision by a court that said that this case was not worth a full trial. It would be a factual dispute in which there is always ammunition on both sides.
Fourth, there are ordinary tort cases in which punitive damages are not appropriate, but for which an accurate reckoning of the actual damages is exceedingly important. The problem here is that there are often multiple layers of damages. For the inner circle, the individuals whose person and property is hit by a car, full damages for their present and future damages seems appropriate. But what of the people who cannot do business with these first tier defendants because of their injury or property destruction? There is no question that these losses are real and significant, but there is a well nigh universal hesitation to award those in the second circle damages, except perhaps in the case of married couples or, less commonly, parents and children. What is done to fill up the void is a system of fines and other sanctions that provide deterrence even if they do not provide compensation. Hence the protection comes in the form of reduced risk of loss rather than protection from loss. The economic logic in these cases is that the transaction costs of sorting out these multiple cases are too high relative to the actual damages, given that these folks can usually mitigate their losses by looking elsewhere for needed services, be it a new caterer or a new physician. Inelegant yes, but durable as well.
Fifth, remember finally that in some cases we do not get to the punitive damage issues because we have insolvent defendants, especially in many cases of street crimes that are clearly eligible. So we have a criminal system whose first rule is this: you can still go to jail for serious wrongs, even if you are broke.
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Comments :
Sep '10
Re: Can the Sanctions Fit the Wrong?
Richard,
Thank you. Even the lawyers I retain can't respond as quickly as you did for $3.47.
Sep '10
Re: Can the Sanctions Fit the Wrong?
One question I forgot to ask: to what extent -- I'm speaking of the US system now -- do contingency fees combined with the possibility of large punitive damage awards undermine the US civil legal system today.
Nov '10
Re: Can the Sanctions Fit the Wrong?
Has there ever been an elegant law?
Aug '10
Re: Can the Sanctions Fit the Wrong?
If the conduct of the wrongdoer is bad enough, it should attract a criminal sanction, which should be deterrent enough.If it's not bad enough to attract such sanction, then neither should it give rise to punitive damages. Is not a consequence of awarding punitive damages in injury cases to impose a higher cost on indemnifiers, which gets passed on to the general body of policy-holders, thereby making insurance ( and by extension the cost of business and normal daily activities such as driving) more expensive? Of course in cases of defamation, assault and other wrongs where an individual is targeted wilfully, and where there is unlikely to be insurance cover it may be appropriate to award punitive damages ( or aggravated and/or exemplary damages as they can be termed in my system). Also where the Defendant (at the behest of the insurer) runs a baseless defence of fraud on the part of the Plaintiff, which does perhaps lead to the passing on of the cost to the policyholders at large,but is still different than awarding additional damages for something entirely outside the control of the insurer .
Re: Can the Sanctions Fit the Wrong?
An interesting fact--I pressed criminal charges against the company, too, but had I not done so, the state, apparently, would not have. It is the person who has been wronged who must press the criminal as well as the civil charges in a case like this. I have no idea what happened to those criminal charges; I never heard another word about it. Finding out would take me so long that although I've earnestly meant to look into it, I've never had the time.
Feb '11
Re: Can the Sanctions Fit the Wrong?
In my experience, the primary purpose of punitive damages in the U.S. system is to influence settlement, not to deter egregious conduct. Because we do not have a loser pay system (where the party who loses the suit pays the other party's cost of litigation), if a there is a limit to the damages that can be awarded, the party responsible for the damages has little incentive to offer to pay the full amount, because the other party is at risk of (a) running up large, uncompensated legal fees and (b) failing to win the full amount or losing outright.
The threat of punitive damages makes the upper limit of damages uncertain, increasing the responsible party's risk and encouraging settlement for the full amount or something closer to the full amount. The problem is that punitive damages act like a lottery, and therefore can skew the incentives too far in the other direction.
Feb '11
Re: Can the Sanctions Fit the Wrong?
Professor Epstein makes the principled case for why we should have punitive damages. But as a practical matter, plaintiffs use the threat of punitive damages to further their private interest (increasing their award) rather than the public interest in deterring misconduct. I therefore contend that any system of punitive damages should include the following procedural elements:
1. Automatic Stay on Appeal. Appealing a case does not automatically stop the other party from collecting its judgment. Normally, you must post a bond in the amount of the judgment to obtain a stay. Punitive damages increase the cost of the bond. This can be avoided by automatically staying collection of the punitive (but not the actual) damages on appeal.
2. Pay Punitive Damages to the State. This would remove the lottery effect on the plaintiff. Allow the plaintiff to retain a fixed share (either absolute dollars or percentage), but the rest goes to the state (just like other penalties).
3. Define How the Jury Must Calculate Punitive Damages. I'm pretty sure a law letting a judge impose any penalty he chose would violate due process. Why is a jury any different?