Mathematical Formulas in Punitive Damage Cases

When it comes to punitive damages the two cases most often cited are the United States Supreme Court cases of State Farm Mutual Automobile Insurance Company v. Campbell, 538 U.S. 408 (2003) and BMW of North American Inc. v. Gore, 517 U.S. 559 (1996). Both of these cases are cited as concluding that the United States Supreme Court has set a mathematical formula regarding the ratio of compensatory damages to punitive damages and holding that that ratio cannot exceed somewhere between 4 to 1 or 9 to 1. The recent case of Lawnwood Medical Center, Inc. v. Sadow, 35 Fla. L. Weekly D655 (Fla. 4th DCA, March 24, 2010) disabuses that notion.

In that case Dr. Sadow, a cardiovascular surgeon, brought suit against Lawnwood Medical Center for breach of contract for intentionally refusing to grant him staff privileges as a cardiovascular surgeon in favor of an exclusive arrangement with his former partner. During the pendency of the litigation, Dr. Sadow amended his complaint to make a claim for slander per se as a result of statements made by a senior executive officer of Lawnwood to other doctors in the community stating that Dr. Sadow was “not qualified to perform surgery on a dog” and informing physicians in the community that Dr. Sadow, as well as members of the medical staff who had approved his credentials and thereafter sued the hospital, were “problem doctors,” were physicians who other doctors “should not refer patients to,” “were not good doctors” and were “bad persons.”

At the conclusion of a jury trial, the jury found that Lawnwood had breached its contract with Dr. Sadow, that Lawnwood had intentionally and maliciously defamed Dr. Sadow, that Lawnwood had specifically intended to harm Dr. Sadow and, in fact, had harmed him by their slanders per se. While the jury found no compensatory damages, it awarded $5 million in punitive damages.

Lawnwood relied for reversal on State Farm and BMW, supra, claiming that those cases precluded an award of punitive damages that was not mathematically consistent with the formulas used in those cases. The Fourth District disagreed and upheld the verdict.

Judge Farmer, speaking for a unanimous Court, analyzed both the State Farm and BMW cases and compared them with TXO Production Corporation v. Alliance Resources Corpation, 509 U.S. 443 (1993). In the latter case, the United States Supreme Court upheld a $10 million punitive damage award juxtaposed with a $20,000.00 compensatory damage award. TXO involved intentional wrongdoing and its opinion was authored by Justice Kennedy who was also the author of the majority opinion in the State Farm case. In that opinion the Supreme Court held:

“It was rational for the jury to place great

weight on the evidence of TXO’s deliberate,

wrongful conduct in determining that a

substantial award was required in order

to serve the goals of punishment and

deterrence.”

 

The Fourth District in Lawnwood cites with approval the opinion of the Supreme Court in the BMW case as follows:

“We have consistently rejected the notion that

the constitutional line is marked by a simple

mathematical formula, even one that compares

actual and potential damages to the punitive

award. Indeed, low awards of compensatory

damages may properly support a higher

ratio than high compensatory awards, if, for

example, a particularly egregious act has

resulted in only a small amount of economic

damages. A higher ratio may also be justified

in cases in which the injury is hard to detect

or the monetary value of noneconomic harm

might have been difficult to determine. It is

appropriate, therefore, to reiterate our

rejection of a categorical approach. Once

again . . . we need not, and indeed we

cannot, draw a mathematical bright-line

between the constitutionally acceptable and

the constitutionally unacceptable that would

fit every case.” [e.s.]

 

This quote from BMW belies the notion that a mathematical formula is appropriate for every case. In fact, a comparison of TXO and BMW makes it clear that it is reprehensibility that is the key question in analyzing whether a punitive damage award is excessive or not.

The Lawnwood case also quotes from State Farm and cited at 660, with approval, the following quote from the State Farm case at 425:

“We decline again to impose a bright-line ratio

which a punitive damages award cannot exceed.

538 U.S. at 425. The Court made clear that ‘ratios

greater than those we have previously upheld

may comport with due process where ‘a particularly

egregious act has resulted in only a small amount

of economic damages.’ [e.s.] 538 U.S. at 425.

State Farm underlined that ‘[t]he precise award

in any case. . . must be based upon the facts

and circumstances of the defendant’s conduct

and the harm to the plaintiff.” [e.s.]

 

The Fourth District in Lawnwood points out that Florida Statute 768.73(1)(a) Fla. Stat. (2009) specifically holds:

“Where the fact finder determines at the time

of injury the defendant had a specific intent

to harm the claimant and determines that the

defendant’s conduct did in fact harm the

claimant, there shall be no cap on punitive

damages.” [e.s.]

The Fourth District points out that Florida has had a long history of supporting punitive damage awards for the purpose of punishment and deterrence. At 661 the court holds:

“This statute gives all who would consider

such misconduct here clear warning that for

intentional and malicious harm they can

lawfully be punished to the extent of their

personal ability to pay. It is apparent to us

that the statute’s provision allowing

punitive damages without proportionality

for intentional, malicious harm satisfies

any BMW and State Farm concern for

fair notice. The Due Process Clause is

thus satisfied by this statute.”

 

This case, according to the jury’s determination, involved a large corporations’ intentional and malicious effort to destroy the character and reputation of a well-respected physician. The jury’s award was a clear reflection of their feeling that this conduct should be both punished and deterred. The Fourth District supports unequivocally that desire. At 662 the Court holds:

To sum up, Florida’s unusually high protection

of personal reputation derives from the common

consent of humankind and has ancient roots.

It is highly valued by civilized people. Our

state constitution and common law powerfully

support it. This is a value as old as the

Pentateuch and the Book of Exodus, and its

command as clear as the Decalogue: ‘Thou

shall not bear false witness against thy

neighbor.’ The personal interest in one’s

own good name and reputation surpasses

economics, business practices or money.

It is a fundamental part of personhood, of

individual standing and one’s sense of worth.

In short, the wrongdoing underlying the

punitive damages in this case has Florida

law’s most severe condemnation, its

highest blameworthiness, its most

deserving culpability. For slander per se,

reprehensibility is at its highest.”

This case argues strongly against the notion that the United States Supreme Court in the State Farm and BMW cases has decreed a bright-line rule which precludes awards of punitive damages that do not meet a mathematical equation. In fact, neither of those cases supports that notion. To the contrary, the overriding principal in punitive damage awards relates to the gravity of the defendant’s conduct which necessitates both punishment and deterrence. The State Farm and BMW cases should be read in the context of their factual underpinnings. Both cases relate to commercial losses where harm was limited to what amounts to property damage without the possibility of extensive personal harm. Those opinions were not intended to impose a mathematical formula of certainty on other kinds of cases and this opinion concludes that citing them for that proposition is unsupported.

Originally published in June 2010