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November 2013

Ninth Circuit Provides Certainty in Calculating Punitive Damages That Could Increase Damage Awards

Pursuant to many federal anti-discrimination statutes, and depending on the circumstances, a prevailing plaintiff is entitled to collect punitive damages.  Contrary to compensatory damages, which are intended to compensate a plaintiff for damages suffered because of discrimination, punitive damages are intended to punish a defendant for particularly egregious violations of an employee’s rights.  Punitive damage awards are unpredictable, as juries have little guidance, other than their own conscience.  Moreover, other than the caps imposed under some statutes, punitive damages are limited only by due process as outlined in the U.S. Constitution.  As a result, assessing potential exposure for these damages can be a daunting task, especially in situations where the plaintiff’s compensatory damages are nominal. 

The U.S. Supreme Court has held that the Constitution requires that punitive damages bear a reasonable relationship to actual damages, and it has highlighted the importance of the ratio of the two numbers to determine the constitutionality of a punitive damage award.  However, it has steadfastly refused to provide any bright-line rule with regard to what multiple of actual damages can constitutionally be awarded as punitive damages.  On October 24, the United States Court of Appeals for the Ninth Circuit, in Arizona v. ASARCO, LLC, No. 11-17464, set forth additional guidance as to the limits of potential liability in these cases, holding that where nominal damages are awarded the highest constitutionally permissible ratio between punitive damages and actual damages is $125,000 - $1. 

In ASARCO, plaintiff Angela Aguilar worked in a copper milling facility owned by defendant ASARCO.  Aguilar alleged that she experienced repetitive and extreme sexual harassment from her supervisor and a co-worker and ASARCO did not take any action to stop the harassment.  Aguilar terminated her employment because of the alleged sexual harassment and filed a Title VII sexual harassment claim, as well as claims for retaliation and constructive discharge.

Following an eight-day trial, the jury found ASARCO liable for sexual harassment, but not for constructive discharge or retaliation.  The jury found Aguilar suffered no financial damages and awarded her only $1 in nominal damages.  In addition to the $1 in nominal damages, the jury awarded $868,750 in punitive damages against ASARCO.  The trial court reduced that award to $300,000 consistent with the cap on punitive damages imposed by 42 U.S.C. § 1981a (b)(3)(D). 

On appeal, the Ninth Circuit determined whether the punitive damage award of $300,000 was unconstitutionally excessive under BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996).  To do so, the Court used the three factors outlined in Gore to determine the constitutionality of the award:  (1) the reprehensibility of the conduct; (2) the ratio of the award to the actual harm inflicted; and (3) civil or criminal penalties that could be imposed.  Although it found that the $300,000 punitive damage award was constitutionally permissible under the first and third factors, the Court held that the ratio of the punitive damages to Aguilar’s actual damages was unconstitutionally excessive.

In reaching its conclusion, the Ninth Circuit cited the Supreme Court, stating the punitive damages award “must bear a reasonable relationship to compensatory damages,” Gore, 517 U.S. at 580, and “few awards exceeding a single-digit ratio between punitive and compensatory damages . . .  will satisfy due process.”  State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 425 (2003). 

Relying on Gore and Campbell, the Ninth Circuit turned to whether the ratio of $300,000 to $1 was constitutionally permissible in this case.  In doing so, it surveyed punitive damage awards approved in other cases.  The Ninth Circuit found punitive damages ranging from $2,500 - $1 to $125,000 - $1.  Based on this range, the Court concluded that a ratio of $300,000 - $1 was unprecedented.  The Ninth Circuit also concluded that due to the egregious nature of the harassment experienced by Aguilar, a ratio of $2,500 - $1 was too low and held that “the highest punitive award supportable under due process is $125,000” because it was the highest ratio that “maintains the required ‘reasonable relationship’ between compensatory and punitive damages.” 

Although the Court did not expressly state that it was creating a bright-line rule establishing the constitutional limit for punitive damage awards, the language used leaves little room for other interpretations.  While this limit provides some measure of certainty, it should be of cold comfort to defendants in the Ninth Circuit.  The “limit” in this case, especially if applied in situations where greater than nominal damages are awarded, quickly leads to breathtaking results.  For example, where a plaintiff is able to prove even $100 in compensatory damages, this decision would support a punitive damages award of up to $12,500,000. 

It remains to be seen how this case will be applied in the future.  Although the Ninth Circuit has established this as the constitutional limit under unique circumstances, future courts considering the issue may tend to view this decision as an implicit approval of the use of any ratio up to and including $125,000 - $1, and approve higher punitive damages than in the past. 

To read the opinion, click here.

For additional information on this case and the application of punitive damages please contact any member of Gordon & Rees’s Seattle Employment Group. 

Employment Law

Sarah N. Turner

Employment Law