In Pacific Mutual Life Insurance Co. v. Haslip, the United States Supreme Court expressed serious concern that punitive damages had “run wild” and warned that “unlimited jury [or judicial] discretion . . . in the fixing of punitive damages may invite extreme results that jar one’s constitutional sensibilities.” The Court “threw a lasso around the problem” in BMW of North America, Inc. v. Gore, identifying three constitutional guideposts for courts to apply in evaluating whether a punitive damage award is unconstitutionally excessive. A few years later, in State Farm Mutual Automobile Insurance Co. v. Campbell, the Court “tightened the noose considerably,” cautioning that “in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” These decisions and others from the Court (as well as statutory limits on punitive damages) have restrained “skyrocketing” punitive damages and improved the predictability and fairness of punitive awards.
This Article examines a conflict between one of the key guideposts identified by the Court in Gore and Campbell—the ratio between the actual or potential harm suffered by the plaintiff (as determined by the jury) and the punitive damages award—and the inclusion of extracompensatory damages (e.g., attorney fees and expenses and judgment interest) in the ratio denominator. Extracompensatory damages are primarily intended to achieve a social, moral, or other purpose, and represent the transaction costs of the civil justice system. They do not compensate the plaintiff for actual or potential harm and are not determined by the jury. The availability of such awards, and their amounts, are decided as a matter of law by the judge after a jury’s assessment of the defendant’s conduct and the plaintiff’s actual harm. A few courts, however, have treated such extracompensatory damages as legally equivalent to damages meant to compensate for the harm itself, mixing apples and oranges into a purée to support otherwise disproportionate punitive damages ratios.
Whether extracompensatory damages are considered in the Gore ratio guidepost has constitutional and practical significance. For example, if a jury awards a modest $50,000 in actual damages but $1 million in punitive damages, the resulting 20:1 ratio would far exceed the presumptive single-digit ratio limit expressed by the Court in Campbell. But, if the court adds an additional $200,000 in attorney fees to the compensatory damages denominator, the double-digit ratio drops to 4:1 and is less constitutionally suspicious. Inclusion of prejudgment interest, which is set at statutory rates in some states that far exceed inflation, can have an even more significant effect on the constitutional calculus. For example, an Oklahoma appellate court upheld a $53.6 million punitive damage award where actual damages were $750,000; the award included $12.5 million in prejudgment interest to reach a 4:1 ratio. Without prejudgment interest, the 70:1 ratio between the punitive and actual harm damages should have led to a different result.
