Thursday, September 28, 2006

What to do about punitive damages?

Today on NPR there was a discussion of an upcoming Supreme Court case involving punitive damages (sometimes known as "exemplary damages" -- meaning "to make an example of"). Actually, there has been a lot of fear-mongering about it by conservative politicians, who proclaim that businesses cannot be profitable if punitive damages are not capped. They also point to the unfairness of only the one plaintiff in the case getting the financial windfall, when multiple parties are harmed by wrongful behavior.

Firstly, punitive damages may only be awarded to a prevailing Plaintiff if it can be shown that a Defendant acted intentionally, willfully or wantonly in harming the Plaintff. There are some such tortious actions which are also criminal, but not all. Whether or not such acts are criminal should not matter. Such acts should be punished for the good of society. There are some torts that are committed intentionally or with such reckless disregard for the health, safety or financial well-being of others in pursuit of profit that it is important to give juries the ability to "send a message" to similarly-minded persons. When such actions are discovered and proven in court, society (via juries) must be able to take action to curb such behavior. Punitive damages are the only viable solution.

It is also important to know that there are people out there who will "do the math" and count up the potential profit versus the potential risk of loss. If punitive damages are limited, there is a greater risk "bean counters" will calculate how to maximize profit -- even if it means that they harm others. Remember, first they have to be found out; second, someone has to file a lawsuit; third, it has to go to trial; fourth, the Plaintiff(s) have to prevail; fifth, there must be a finding that the harm done was sufficient to award punitive damages (usually by clear and convincing evidence); and sixth, the jury must award the punitive damages. Even after all that, an appellate court must uphold the award. In many cases, jury awards are reduced (as in the famous McDonald's spilled coffee case).

The question then is: how do we assess damages in such a way as to maximize the benefit to the harmed parties and to society? My idea is not to limit punitive damages. It is important to hold wrongdoers accountable; sometimes this can only be done with large damage awards.

I would agree that when it is shown that multiple parties are harmed, that all members of the class should receive some compensation (rather than only to the winner of the "race to the courthouse"). However, because part of the harm is also societal, then society should receive some of the benefit. As an example, there have been cases involving dumping of chemicals into drinking water by corporate entities. In such cases, the actual damages are bad enough (however, proving actual damages may only yield a small number), but the harm to society is incalculable. It is my suggestion that a part of punitive damage awards should be awarded to the state and federal government for court administration and indigent legal assistance. That way, both individuals and society are compensated for civil wrongs.

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