In 1996, the U.S. Supreme Court overturned a $2,000,000 punitive damages award in BMW of North America, Inc. v. Gore, 517 U.S. 559, 116 S. Ct. 1589, 134 L. Ed. 2d 809 (1996) [hereinafter BMW], determining the award was grossly excessive and, thus, violated the defendant’s constitutional guarantees of substantive due process. In reaching this conclusion, the Court defined three "guideposts" to steer courts in their review of the excessiveness of punitive damages awards. Although initially skeptical about its impact, tort reform proponents have since become delighted as the BMW ruling has been repeatedly utilized to slash multimillion-dollar punitive damages awards. While some state courts, and most federal courts, have embraced the BMW approach, Illinois appellate courts have yet to utilize the BMW analysis in a majority decision. In a state where no clear guidelines admittedly exist for determining when a punitive damages award is excessive, why have the Illinois courts apparently ignored the BMW ruling? To answer this question, a brief review of the BMW decision is necessary. For comparison, the analysis employed by Illinois courts facing challenges to punitive damages awards will then be explained.
A. Background of BMW
In 1990, Dr. Ira Gore, Jr., purchased a new BMW automobile from an authorized dealer for $40,750.88. After driving the vehicle for approximately nine months, Gore learned that the automobile had been partially repainted by the defendant, the American distributor of BMW automobiles, prior to being transported to the dealership. The cost of the relatively minor paint repair was $601.37. Gore filed an action in an Alabama trintitlement of all the victim’s of a defendant’s misconduct. Id.
Despite the federal court’s assertion, the total potential liability of the defendant should remain an appropriate consideration in evaluating the excessiveness of a particular punitive damages award. Again, one of the State’s legitimate interests in imposing punitive damages is to punish the offender. If different courts are each allowed to impose separate and independent monetary punishments upon find that the jury had improperly calculated the punitive damages award and, accordingly, ordered a remittitur of the punitive damages in the amount of $2,000,000. See Gore v. BMW of North America, Inc., 646 So. 2d 619, 625-29 (Ala. 1994). The United States Supreme Court granted BMW’s petition for certiorari in order "to illuminate `the character of the standard that will identify constitutionally excessive awards’ of punitive damages." BMW, 517 U.S. at, 116 S. Ct. at , 134 L. Ed. 2d at 822, quoting Honda Motor Co. v. Oberg, 512 U.S. , , 114 S. Ct. 2331, , 129 L. Ed. 2d 336, (1994).
On review, the BMW Court first recognized that states have considerable flexibility in determining the level of punitive damages they will allow in any particular case. Accordingly, juries are typically limited in awarding punitive damages only by the requirement that the award be an amount reasonably necessary to vindicate the state’s legitimate interests in punishment and deterrence. The Court observed that a punitive damages award will violate the Due Process Clause of the Fourteenth Amendment only when the award can be fairly categorized as "grossly excessive" in relation to these legitimate interests. BMW, 517 U.S. at , 116 S. Ct. at , 134 L. Ed. 2d at 822. In defining the analysis necessary to determine whether a particular punitive damages award arises to the level of grossly excessive, the Court established three guideposts for a court to consider: (1) the degree of reprehensibility of the defendant’s conduct; (2) the disparity between the harm or potential harm suffered by the plaintiff and his punitive damages award; and (3) the difference between the punitive damages remedy and the civil or criminal penalties authorized or imposed in comparable cases. BMW, 517 U.S. at , 116 S. Ct. at , 134 L. Ed. 2d at 826. A brief discussion of each of the guideposts is necessary for a complete understanding of the BMW analysis.
1. Reprehensibility of Defendant’s Conduct
The BMW court initially stated that the reprehensibility of the defendant’s conduct is perhaps the most important indicator of the reasonableness of a punitive damages award. The Court suggested a hierarchy of reprehensibility, with threats of bodily harm or acts of violence being the most reprehensible, followed by reckless acts, affirmative acts of deceit or trickery, and finally mere negligence. In addition, the Court recognized that a defendant who engages in repeated misconduct is more reprehensible than a first-time offender. The Court also observed that the infliction of economic injury, especially when done through affirmative misconduct or when the victim is financially vulnerable, could be reprehensible conduct and warrant a substantial punitive damages penalty. However, the Court qualified its observation by noting that all acts which cause economic harm are not automatically converted into torts that warrant a significant sanction in addition to compensatory damages. BMW, 517 U.S. at , 116 S. Ct. at , 134 L. Ed. 2d at 826-27.
2. Disparity Between Harm Suffered and Punitive Damages Award ("Ratio")
The second indicator of the reasonableness of a punitive damages award is the disparity between the harm suffered by the defendant and the punitive damages awarded for such harm. Described as the ratio of the punitive damages award to the compensatory damages award, the BMW Court observed that this guidepost was the most commonly cited characteristic of an excessive punitive damages award. The Court noted that it is a long-recognized principle that a punitive damages award must bear a reasonable relationship to the compensatory damages awarded.
In expressing the appropriate ratio, the Court observed that it has repeatedly refused to adopt a simple mathematical formula to calculate an unconstitutional level of an excessive punitive damages award. The Court reasoned that a higher ratio may be appropriate in situations where a particularly egregious act results in a small amount of economic damages, or where the injury is hard to detect or the monetary damages difficult to determine. Despite its insistence that a "mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable" punitive damages award cannot be drawn, the Court did make an effort to note that it had previously stated that a punitive damages award of more than four times the compensatory damages award was "close to the line" of constitutional impropriety. BMW, 517 U.S. at , 116 S. Ct. at , 134 L. Ed. 2d at 830-31, quoting Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 23-24, 111 S. Ct. 1032, , 113 L. Ed. 2d 1, (1991).
3. Sanctions for Comparable Misconduct
The final guidepost set forth by the BMW Court evaluates the difference between the punitive damages award and other available sanctions. This evaluation involves a comparison of the punitive damages award to the civil or criminal penalties that could be imposed for similar misconduct, such as statutory fines or criminal sentences. The Court noted that an appellate court reviewing the excessiveness of a punitive damages award should accord substantial deference to the legislative determinations of appropriate sanctions for the particular misconduct. Also apparent from the BMW Court’s evaluation is that a punitive damages award will not pass the third guidepost evaluation if the reviewing court determines that another, less drastic remedy could achieve the legitimate goal of deterring the misconduct. BMW, 517 U.S. at , 116 S. Ct. at , 134 L. Ed. 2d at 831-32.
The Court evaluated each of the three guideposts in regards to the facts of the case and determined that each guidepost indicated that BMW did not receive adequate notice of the magnitude of the sanction that might be imposed by the State of Alabama for BMW’s fraudulent nondisclosure practice. Accordingly, the Court concluded that the $2,000,000 punitive damages award was grossly excessive. BMW, 517 U.S. at , 116 S. Ct. at , 134 L. Ed. 2d at 826.
B. Punitive Damages in Illinois Prior to BMW
In Illinois, it is well established that punitive damages may be awarded when torts are committed with fraud, actual malice, deliberate violence or oppression, or when the defendant acts willfully, or with such gross negligence as to indicate a wanton disregard of the rights of others. In a case involving one of these specified situations, punitive damages are allowed in the nature of a punishment and as a warning in order to deter the wrongdoer and others from committing similar offenses in the future. Kelsay v. Motorola, Inc., 74 Ill. 2d 172, 186 (1979). Because of this penal nature of punitive damages, such awards are disfavored in the law, and courts are required to exercise caution to ensure that punitive damages are not improperly or unwisely imposed. Kelsay, 74 Ill. 2d at 188.
When a punitive damages award is appropriate in a given case, the amount of the award is a matter for the discretion of the jury. Accordingly, a reviewing court will reduce the punitive damages award only when the amount is clearly excessive. In evaluating a punitive damages awards in regards to its excessiveness, the question is whether the amount is so large that it no longer serves the purposes of imposing punitive damages, namely punishment and deterrence of future misconduct. Hazelwood v. Illinois Cent. Gulf R.R., 114 Ill. App. 3d 703, 711 (1983).
Beyond those principles, however, Illinois courts have admittedly set no clear standards for determining when a punitive damages award is excessive. Hazelwood, 114 Ill. App. 3d at 711. In some cases, the appellate court utilizes a fairly deferential standard of review, stating that a punitive damages award is reversible only when it is apparent that it is the result of passion, partiality, or corruption. See, e.g., Deal v. Byford, 127 Ill. 2d 192, 204 (1989). However, in other cases the appellate court attempts to provide further guidance, setting forth three factors for a court to consider when evaluating the excessiveness of a punitive damages award: (1) the nature and enormity of the wrong; (2) the defendant’s financial status; and (3) the defendant’s potential liability in other cases. See, e.g., Heldenbrand v. Roadmaster Corp., 277 Ill. App. 3d 664, 674 (1996). A brief review of these factors reveals that they are not the equivalent of the three guideposts defined by the United States Supreme Court in BMW.
1. Enormity of the Wrong
Of the three factors utilized by the Illinois Appellate Court to evaluate the excessiveness of a punitive damages award, the first factor is the most similar to any BMW guidepost. The first Illinois factor evaluates the nature and enormity of the defendant’s misconduct in an attempt to ensure that the amount of the punitive damages award reflects the particular egregiousness of the act. In other words, "the punishment should fit the crime." Hazelwood, 114 Ill. App. 3d at 712-13. Like the first BMW guidepost, this factor recognizes that, while all acts of misconduct which give rise to punitive damages awards are willful and wanton, some of the those acts are clearly more reprehensible and, accordingly, the victims are entitled to a larger punitive damages award. See, e.g., Hazelwood, 114 Ill. App. 3d at 712. However, unlike the BMW Court, the Illinois Appellate Court has not defined a spectrum of wrongful acts in an effort to assist the valuation of appropriate punitive damages awards. See BMW, 517 U.S. at , 116 S. Ct. at , 134 L. Ed. 2d at 826-27.
2. Defendant’s Financial Status
The second factor the Illinois Appellate Court has utilized to evaluate the excessiveness of punitive damages awards is the financial status of the defendant. The defendant’s financial status is relevant to the amount of punitive damages awarded because of the overriding purposes of punitive damages—punishment and deterrence. In considering this factor, the Illinois Appellate Court has observed that a punitive damages award must be large enough to punish the offender, otherwise the purpose of the sanction is not served. E.g., Hazelwood, 114 Ill. App. 3d at 713. The consideration of the defendant’s financial status is not necessarily intended as a limitation on punitive damages awards, but rather, it is utilized to inflate awards imposed against wealthier defendants in an attempt to equalize the punishment behind such award. Nevertheless, Illinois courts have observed that a punitive damages award will be deemed excessive if the award is so large it "destroys the defendant." Id.
Notably, the BMW Court did not include the defendant’s financial status as an element in its guidepost approach to determining excessive punitive damages awards. The Court touched only slightly on the topic when it stated that "[t]he fact that BMW is a large corporation rather than an impecunious individual does not diminish its entitlement to fair notice of the demands . . . impose[d] on the conduct of its business." BMW, 517 U.S. at , 116 S. Ct. at , 134 L. Ed. 2d at 832.
3. Defendant’s Potential Liability
The third Illinois indicator of a potentially excessive punitive damages award is the consideration of the punitive damages which have been awarded in prior suits, and the punitive damages which may be granted in the future, against the defendant. E.g., Pickering v. Owens-Corning Fiberglas Corp., 265 Ill. App. 3d 806, 827 (1994). Adapted from the Second Restatement of Torts, this factor takes into consideration the existence of multiple claims by numerous victims of the defendant’s misconduct. See Restatement (Second) of Torts § 908 cmt. e (1977). The Illinois Appellate Court has stated that the defendant’s potential liability is an appropriate consideration in any case where the defendant faces multiple judgments for the same or similar wrongs. Hazelwood, 114 Ill. App. 3d at 714. As the Hazelwood court observed, without a consideration of this factor, the "intolerable" result would be "a stampede to the courthouse, with the swiftest taking home large awards, the slow returning with nothing but their injuries, and the defendant being trampled into bankruptcy." Id. The BMW Court did not advocate a consideration of a similar factor in its guidepost analysis of punitive damages awards.
C. Punitive Damages in Illinois After BMW
In the nearly three years since the BMW decision, Illinois courts of review have yet to utilize the United States Supreme Court’s analysis to evaluate the excessiveness of a punitive damages award. In fact, the only citation to BMW in a published decision of an Illinois reviewing court was by a dissenting justice. See SK Hand Tool Corp. v. Dresser Indus., Inc., 284 Ill. App. 3d 417, 434 (1996) (Buckley, J., dissenting). Interestingly, while most state and federal courts have utilized the BMW analysis to reduce punitive damages awards, the dissenting justice in that case cited BMW in support of affirming a $50,000,000 punitive damages award. SK Hand Tool Corp., 284 Ill. App. 3d at 434 (Buckley, J., dissenting).
In one recent decision, the Illinois Appellate Court utilized a hybrid analysis, combining elements of all the methods previously discussed. See Proctor v. Davis, 291 Ill. App. 3d 265 (1997). In Proctor, the plaintiff lost his left eye after his ophthalmologist inadvertently injected a drug directly into the eye. The plaintiff sued the pharmaceutical manufacturer, alleging that it failed to warn the treating doctors of the adverse effects of the drug. A jury found for plaintiff against the pharmaceutical manufacturer, awarding plaintiff compensatory damages of more than $3 million and punitive damages of more than $124 million. The trial court ordered a remittitur of the punitive damages in the amount of $35 million. Proctor, 291 Ill. App. 3d at 268.
On review, the appellate court initially cited the highly deferential standard that a punitive damages award would be reversed only if "`it is apparent that the award is the result of passion, partiality, or corruption.’" Proctor, 291 Ill. App. 3d at 285, quoting Deal, 127 Ill. 2d at 204. Upon specifically addressing the defendant’s challenge to the excessiveness of the punitive damages award, the appellate court stated that it should consider "the degree of reprehensibility of defendant’s conduct, the relationship between the punitive damage award and the harm caused by the conduct, defendant’s gain from the misconduct, and the financial condition of defendant." Proctor, 291 Ill. App. 3d at 286, citing Haslip, 499 U.S. 1, 111 S. Ct. 1032, 113 L. Ed. 2d 1; Deal, 127 Ill. 2d at 203-04.
In conducting its review, the Proctor court failed to acknowledge the year-old BMW decision. Instead, the appellate court reviewed the excessiveness of the punitive damages award utilizing a combination of factors indicative of a number of methods. The appellate court first considered the reprehensibility of the defendant’s conduct (BMW Guidepost 1), inquiring into whether the defendant’s conduct was so extraordinarily outrageous as to warrant the imposition of significant punitive damages. See Proctor, 291 Ill. App. 3d at 286-87. After answering this question in the affirmative, the appellate court noted a reasonable relationship between the amount of the punitive damages award and the harm caused by the defendant must exist (BMW Guidepost 2). Then, the appellate court continued by comparing the amount of the punitive damages award to the defendant’s financial status (Illinois Factor 2).
The appellate court observed that the remitted punitive damages award was greater than two percent of the defendant’s net worth. Proctor, 291 Ill. App. 3d at 287. Although the appellate court did not find that the punitive damages award was so large it would destroy the defendant (see Hazelwood, 114 Ill. App. 3d at 713), the Proctor court nevertheless determined that a punitive damages award equal to two percent of the defendant’s net worth was "excessive in the extreme." Proctor, 291 Ill. App. 3d at 287. In an attempt to set an appropriate, non-excessive, amount of punitive damages, the appellate court observed that the amount of compensatory damages can be an appropriate measure of punitive damages. Accordingly, the appellate court ordered a further remittitur of the punitive damages award to twice the amount of the compensatory damages. Id. The end result was a judgment granting the plaintiff a combined compensatory and punitive damages award of more than $9.1 million, reduced from the original jury awards of $127.6 million.
D. BMW Guideposts vs. Illinois Analysis
When the appellate court has acknowledged that Illinois lacks clear standards for recognizing an excessive punitive damages award why have Illinois courts been hesitant to adopt the clear guideposts established by the United States Supreme Court in BMW? One answer could be that the BMW guideposts, or their application by subsequent court decisions, do not sufficiently serve the purpose of an excessiveness review—determining whether the punitive damages award is significant enough to punish the defendant and deter similar misconduct, yet not so large that the award outruns those justifications. A comparison of the BMW approach to the Illinois analysis reveals that perhaps the Illinois approach better serves the purposes of an excessiveness review.
Since the BMW decision, some federal courts have suggested that the review of a punitive damages award is now strictly limited to a consideration of the three BMW guideposts. Such an approach eliminates consideration of certain factors previously deemed essential to the evaluation of punitive damages awards by Illinois courts. For instance, Illinois courts have long allowed the consideration of the defendant’s financial status in determining the appropriate level of punitive damages to impose. Pickering, 265 Ill. App. 3d at 823-24. However, at least one federal court applying the BMW analysis has suggested that the defendant’s financial status no longer plays a role in determining the excessiveness of a punitive damages award. Florez v. Delbovo, 939 F.Supp. 1341, 1348-49 (N.D. Ill. 1996). The Florez court reasoned that the defendant’s wealth could not save a punitive damages award determined to be excessive under BMW. Florez, 939 F.Supp. at 1349.
The BMW Court observed that a punitive damages award is unconstitutional only when it is grossly excessive in relation to the State’s legitimate interests of punishment and deterrence. BMW, 517 U.S. at , 116 S. Ct. at , 134 L. Ed. 2d at 822. Even after BMW, the overriding goal of reviewing a punitive damages award for excessiveness is the determination of whether the award is significant enough to punish the offender—for if the award is too small the underlying purpose of punitive damages is not served. See Hazelwood, 114 Ill. App. 3d at 713. Accordingly, a punitive damages award which is so insignificant that a defendant can treat it as an ordinary business expense does not sufficiently punish the defendant or deter his future misconduct. Accord Kelsay, 74 Ill. 2d at 186-87; Hazelwood, 114 Ill. App. 3d at 713. Therefore, the financial status of the defendant remains an important consideration in evaluating a punitive damages awards.
Another factor of the Illinois method of reviewing punitive damages award which is not included in the BMW guideposts, is the consideration of the defendant’s total potential liability. In measuring the appropriate level of a punitive damages award, Illinois courts consider the punitive damages which have been awarded, and may be awarded in the future, against the defendant for similar misconduct. Hazelwood, 114 Ill. App. 3d at 714. Contrarily, federal courts have determined that a particular plaintiff’s punitive damages award is not limited by any awards made to other plaintiffs complaining of the same act of the defendant. See, e.g., In re Brand Name Prescription Drugs Antitrust Litigation, 123 F.3d 599, 608-09 (7th Cir. 1997). The federal courts reasoning is that the right to punitive damages is a right of the individual plaintiff, rather than a collective entitlement of all the victim’s of a defendant’s misconduct. Id.
Despite the federal court’s assertion, the total potential liability of the defendant should remain an appropriate consideration in evaluating the excessiveness of a particular punitive damages award. Again, one of the State’s legitimate interests in imposing punitive damages is to punish the offender. If different courts are each allowed to impose separate and independent monetary punishments upon a defendant for the same misconduct, the resulting liability could arguably be constitutionally excessive. Cf. United States v. Bajakajian, U.S. , 118 S. Ct. 2028, L. Ed. 2d (1998) (evaluating the excessiveness of a drug forfeiture provision under the Excessive Fines Clause of the Eighth Amendment).
In addition, the lack of a consistent method of reviewing punitive damages awards in Illinois may also cause conflicts with the BMW guideposts. For example, similar to the analysis of the second BMW guidepost, the Illinois Appellate Court has stated that a punitive damages award which is disproportionate to the wrong is excessive because the award does not serve the purposes of punitive damages. See Hazelwood, 114 Ill. App. 3d at 713. However, the appellate court has also observed that the amount of punitive damages does not have to be proportionate to the amount of compensatory damages (e.g., Pickering, 265 Ill. App. 3d at 827), which directly conflicts with the approach of the second BMW guidepost. Other conflict arises when some Illinois reviewing courts apply the third BMW guidepost, comparing the punitive damages award to the civil or criminal penalties available for similar misconduct (see, e.g., Heldenbrand, 277 Ill. App. 3d at 674-75), while other courts refuse to conduct such an analysis (see, e.g., Brown v. Farkas, 158 Ill. App. 3d 772, 779-80 (1986)).
Moreover, genuine concerns regarding the BMW "ratio" analysis exist. As previously observed, the United States Supreme Court expressly refused to set a mathematical ratio which would be the dividing line between constitutionally acceptable and unacceptable punitive damages awards. Nevertheless, the Court did bother to observe that it had previously determined that a punitive damages award which was four times the compensatory damages award was close to being unacceptable. BMW, 517 U.S. at , 116 S. Ct. at , 134 L. Ed. 2d at 830-31. Some lower courts have since taken the Court’s observation and utilized it as the appropriate bright line formula to identify an excessive punitive damages award. See Lawyer v. 84 Lumber Co., 991 F.Supp. 973, 977 (N.D. Ill. 1997) (setting constitutional limit of punitive damages at 3 times the compensatory damages); Florez, 939 F.Supp. at 1348 (observing punitive damages award 13 times the compensatory award was more than the 4 to 1 constitutional limit). Such a mechanical mathematical review of a punitive damages award partakes in the "constitutional calculus" the Supreme Court, and the Illinois Appellate Court, have repeatedly rejected. See, e.g., BMW, 517 U.S. at , 116 S. Ct. at__, 134 L. Ed. 2d at 830-31; Hazelwood, 114 Ill. App. 3d at 711.
A final shortcoming of the BMW analysis is that it provides little guidance in identifying an excessive punitivedamages awards for misconduct falling elsewhere on the "hierarchy of reprehensibility." The misconduct involved in BMW resulted in a relatively slight economic harm to a plaintiff who was not financially vulnerable. On the Court’s hierarchy, defendant’s act was the least reprehensible conduct and, accordingly, the Court held that the plaintiff was not entitled to a punitive damages award of 500 times the amount of compensatory damages. BMW, 517 U.S. at , 116 S. Ct. at , 134 L. Ed. 2d at 826-28. While the Court’s analysis easily applies to situations involving minimally reprehensible conduct, it is more difficult to apply to misconduct which is more egregious, particularly if the victim of such conduct does not suffer a high level of compensatory damages. In a case where the compensatory damages are low, perhaps because of the inherent difficulty of valuing subjective injuries such as pain and suffering, a punitive damages award proportioned to the low compensatory damages would have little or no punishment value or deterrent effect. See Cooper v. Casey, 97 F.3d 914, 919-20 (7th Cir. 1996); Schimizzi v. Illinois Farmers Ins. Co., 928 F.Supp. 760, 786 (N.D. Ind. 1996); see also Kelsay, 74 Ill. 2d at 186-87. Obviously, the smaller the plaintiff’s compensatory damages, the higher the ratio of punitive damages to compensatory damages. However, the BMW approach does not provide much guidance to a jury or court trying to set an appropriate level of damages in such a case.
Despite its failure to provide guidance in all cases where punitive damages are appropriate, the BMW decision is binding precedent as an interpretation of constitutional law. However, the BMW decision stands only for the proposition that due process protections require a defendant to be provided fair notice of the magnitude of the punitive damages which may be imposed upon him for a particular act of misconduct. Arguably, state courts are not required to employ the three specific guideposts outlined by the BMW Court if they employ an alternative adequate method of ensuring that a defendant’s due process protections are not violated by an excessive punitive damages award. Illinois courts have long understood the importance of protecting a defendant’s due process rights in cases involving punitive damages awards. See Kelsay, 74 Ill. 2d at 188-89 (recognizing that punitive damages were available in retaliatory discharge cases on a prospective basis only because of the novelty of the cause of action). However, the lack of guidance provided the Illinois courts, and their resulting inconsistent application of the review of punitive damages awards, means that a defendant’s due process rights may not be adequately protected in this state.
Although the BMW guideposts may not ensure an adequate review in every case, the guideposts provide more direction than any Illinois method of review. Therefore, Illinois should define similar guidelines, using the BMW analysis as a benchmark. In addition, the Illinois guidelines should preserve some of the beneficial elements of prior approaches, such as a consideration of the defendant’s financial status and total potential liability. Adopting new guidelines would be beneficial both to the jury, who initially awards punitive damages, and the courts which are responsible for ensuring that any award is not too excessive.
Gregory W. Hoskins was a Law Clerk for Illinois Supreme Court Justice John L. Nickels. He received his Undergraduate Degree in 1985 from the University of Iowa and his Law Degree in 1995 from Northern Illinois University. He may be reached at email@example.com.