Petitioner
BMW of North America, Inc.
Respondent
Dr. Ira Gore, Jr.
Petitioner's Claim
That a $2 million punitive damages award imposed on it by an Alabama jury wasgrossly excessive, and violated the company's rights to due process under the Fourteenth Amendment.
Chief Lawyers for Petitioner
Michael C. Quillen, Samuel M. Hill
Chief Lawyers for Respondent
Andrew L. Frey, Evan M. Tager
Justices for the Court
Stephen Breyer, Anthony M. Kennedy, Sandra Day O'Connor, David H. Souter, John Paul Stevens (writing for the Court)
Justices Dissenting
Ruth Bader Ginsburg, William H. Rehnquist, Antonin Scalia, Clarence Thomas
Place
Washington, D.C.
Date of Decision
20 May 1996
Decision
That the punitive damages award was grossly excessive, and therefore exceededthe constitutional limit.
Significance
As Justice Scalia would note in his dissenting opinion, the Court's judgmentin BMW was in part a response to a glut of cases against businesses involving large punitive damage awards. The Court's decision, in spite of the fact that it was by a narrow 5-4 margin, signalled a shift toward placing a limit on such actions, which many in the country had come increasingly to viewas excessive.
In January of 1990, Dr. Ira Gore, Jr., purchased a black BMW sports sedan for$40,750.88 from a Birmingham, Alabama BMW dealer. Nine months later, he tookthe car to a detailing salon, where he was informed that the vehicle had been previously repainted. Gore, who had purchased the car new, took action against the American distributor for the German car manufacturer, BMW of North America, Inc. In his suit, he demanded $500,000 in compensatory and punitive damages, plus costs.
BMW, in the ensuing trial, noted that it had a nationwide policy, which it had adopted in 1983, regarding vehicles that were damaged in transport and thusrequired repainting. If the cost of the damage were greater than 3 percent of the suggested retail price, the company sold the car as used; if it were less than 3 percent, however, as in Gore's case, they sold the vehicles as newand did not advise dealers that they had repainted them. Gore presented the testimony of a former BMW dealer, who estimated the damage as about 10 percentof the retail cost, or some $4,000. Gore further produced evidence indicating that since 1983, BMW had sold 983 similarly repainted cars as new--14 of them in Alabama--and that therefore the company's penalty should be the allegedcost of his own damages multiplied by the number of cars, a figure of $4 million.
The jury determined that the company's policy of nondisclosure constituted "gross, oppressive, or malicious fraud," and found BMW liable not only for Gore's compensatory damages of $4,000, but for the $4 million in punitive damagesas well. BMW subsequently filed a post-trial motion to set aside the punitive damages award, and in this latter action it produced evidence showing thatits policy was in line with the laws of roughly half the states in the Union.Furthermore, the company's legal counsel pointed out, its nondisclosure policy had not been found unlawful up to the time Gore filed his action. (In themonths preceding the Gore trial, however, another Alabama jury, in the case of Yates v. BMW of North America, Inc. [1993] found that the policy constituted fraud.)
The post-trial motion was denied by the trial judge, who did not find the punitive damages award excessive. BMW appealed the case to the Alabama Supreme Court, which affirmed the judgment of the lower court. But the court did reduce the level of punitive damages to $2 million after it found that the jury had improperly computed the figure.
Three "Indicums of Excessiveness"
The Supreme Court ruled, 5-4, that even the lowered punitive damages figure was excessive. Speaking for the Court in an opinion joined by Justices O'Connor, Kennedy, Souter, and Breyer, Justice Stevens outlined a three-part test whereby the determination of excessiveness was made.
The economic penalties imposed by the state, Stevens began, must be justifiedby an interest in protecting its citizens and economy. Therefore Gore's reference to events that occurred outside Alabama--the repainting of cars other than the 14 within his own state--was not relevant to the case at hand. What was relevant, Justice Stevens said, was whether BMW had been given fair noticeof the severity of the damages it might incur for its action in repainting the cars without notifying dealers or customers. By the three "guideposts" orindicums of excessiveness applied by the Court, it was found that the companyhad not been given such fair notice.
First was "the degree of reprehensibility of the defendant's conduct," whichthe Court found lacking. Repainting the car may have constituted economic harm to Gore, but it in no way threatened his safety. In the second test--of theratio between compensatory damages and punitive damages--the Court found that Gore was making an excessive demand, since the $2 million punitive damage claim exceeded the $4,000 in compensatory damages by a factor of 500. Last came the test of the difference between the punitive damage award and the civilor criminal punishment that BMW could incur for its alleged misconduct. The maximum fine in Alabama in this instance was only $2,000, which further highlighted the excessiveness of the punitive damages claim.
Therefore the Court reversed the ruling of the lower court. As to whether ornot "the appropriate remedy" would require a new trial, the High Court expressly left that matter up to the Alabama Supreme Court. Justice Breyer, in a concurring opinion, examined the standards applied by the Alabama courts, and found that they were vague and "provided no significant constraints or protection against arbitrary results."
Punitive Damages Running Wild
Justice Scalia filed a dissenting opinion, in which Justice Thomas joined. "Today," he said, "we see the latest manifestation of the Court's recent and increasingly insistent "concern about punitive damages that `run wild.'" This,however, was not a matter of the Court's concern, the justice stated, since the Constitution makes no reference to that particular manner. Furthermore, Scalia found the Court's precedent for its judgment lacking. Such precedents were relatively recent, and had occurred in rapid succession over a short period of time such that they were "too shallowly rooted to justify the Court's recent undertaking."
Nor did the Court offer anything useful, in Scalia's words, to lower courts whereby they might make more fair judgments of punitive damages in the future.Alabama was acting fully within its powers in the judgment, and the case didnot properly warrant the Court's attention. Scalia concluded by stating, "Bytoday's logic, every dispute as to evidentiary sufficiency in a state civilsuit poses a question of constitutional moment, subject to review in this Court. That is a stupefying proposition."
Justice Ginsburg likewise dissented, in an opinion in which Chief Justice Rehnquist joined. In her view, the Court was "unwisely ventur[ing] into territory traditionally within the States' domain." The states themselves already hadmeasures in place to deal with such matters, and as evidence she produced along list of state regulations of punitive damage awards. In the case of Alabama, its own supreme court had put still further controls on the levels of punitive damages, and therefore its judgment should be allowed to stand.
Related Cases
BMW of North America, Inc.
Respondent
Dr. Ira Gore, Jr.
Petitioner's Claim
That a $2 million punitive damages award imposed on it by an Alabama jury wasgrossly excessive, and violated the company's rights to due process under the Fourteenth Amendment.
Chief Lawyers for Petitioner
Michael C. Quillen, Samuel M. Hill
Chief Lawyers for Respondent
Andrew L. Frey, Evan M. Tager
Justices for the Court
Stephen Breyer, Anthony M. Kennedy, Sandra Day O'Connor, David H. Souter, John Paul Stevens (writing for the Court)
Justices Dissenting
Ruth Bader Ginsburg, William H. Rehnquist, Antonin Scalia, Clarence Thomas
Place
Washington, D.C.
Date of Decision
20 May 1996
Decision
That the punitive damages award was grossly excessive, and therefore exceededthe constitutional limit.
Significance
As Justice Scalia would note in his dissenting opinion, the Court's judgmentin BMW was in part a response to a glut of cases against businesses involving large punitive damage awards. The Court's decision, in spite of the fact that it was by a narrow 5-4 margin, signalled a shift toward placing a limit on such actions, which many in the country had come increasingly to viewas excessive.
In January of 1990, Dr. Ira Gore, Jr., purchased a black BMW sports sedan for$40,750.88 from a Birmingham, Alabama BMW dealer. Nine months later, he tookthe car to a detailing salon, where he was informed that the vehicle had been previously repainted. Gore, who had purchased the car new, took action against the American distributor for the German car manufacturer, BMW of North America, Inc. In his suit, he demanded $500,000 in compensatory and punitive damages, plus costs.
BMW, in the ensuing trial, noted that it had a nationwide policy, which it had adopted in 1983, regarding vehicles that were damaged in transport and thusrequired repainting. If the cost of the damage were greater than 3 percent of the suggested retail price, the company sold the car as used; if it were less than 3 percent, however, as in Gore's case, they sold the vehicles as newand did not advise dealers that they had repainted them. Gore presented the testimony of a former BMW dealer, who estimated the damage as about 10 percentof the retail cost, or some $4,000. Gore further produced evidence indicating that since 1983, BMW had sold 983 similarly repainted cars as new--14 of them in Alabama--and that therefore the company's penalty should be the allegedcost of his own damages multiplied by the number of cars, a figure of $4 million.
The jury determined that the company's policy of nondisclosure constituted "gross, oppressive, or malicious fraud," and found BMW liable not only for Gore's compensatory damages of $4,000, but for the $4 million in punitive damagesas well. BMW subsequently filed a post-trial motion to set aside the punitive damages award, and in this latter action it produced evidence showing thatits policy was in line with the laws of roughly half the states in the Union.Furthermore, the company's legal counsel pointed out, its nondisclosure policy had not been found unlawful up to the time Gore filed his action. (In themonths preceding the Gore trial, however, another Alabama jury, in the case of Yates v. BMW of North America, Inc. [1993] found that the policy constituted fraud.)
The post-trial motion was denied by the trial judge, who did not find the punitive damages award excessive. BMW appealed the case to the Alabama Supreme Court, which affirmed the judgment of the lower court. But the court did reduce the level of punitive damages to $2 million after it found that the jury had improperly computed the figure.
Three "Indicums of Excessiveness"
The Supreme Court ruled, 5-4, that even the lowered punitive damages figure was excessive. Speaking for the Court in an opinion joined by Justices O'Connor, Kennedy, Souter, and Breyer, Justice Stevens outlined a three-part test whereby the determination of excessiveness was made.
The economic penalties imposed by the state, Stevens began, must be justifiedby an interest in protecting its citizens and economy. Therefore Gore's reference to events that occurred outside Alabama--the repainting of cars other than the 14 within his own state--was not relevant to the case at hand. What was relevant, Justice Stevens said, was whether BMW had been given fair noticeof the severity of the damages it might incur for its action in repainting the cars without notifying dealers or customers. By the three "guideposts" orindicums of excessiveness applied by the Court, it was found that the companyhad not been given such fair notice.
First was "the degree of reprehensibility of the defendant's conduct," whichthe Court found lacking. Repainting the car may have constituted economic harm to Gore, but it in no way threatened his safety. In the second test--of theratio between compensatory damages and punitive damages--the Court found that Gore was making an excessive demand, since the $2 million punitive damage claim exceeded the $4,000 in compensatory damages by a factor of 500. Last came the test of the difference between the punitive damage award and the civilor criminal punishment that BMW could incur for its alleged misconduct. The maximum fine in Alabama in this instance was only $2,000, which further highlighted the excessiveness of the punitive damages claim.
Therefore the Court reversed the ruling of the lower court. As to whether ornot "the appropriate remedy" would require a new trial, the High Court expressly left that matter up to the Alabama Supreme Court. Justice Breyer, in a concurring opinion, examined the standards applied by the Alabama courts, and found that they were vague and "provided no significant constraints or protection against arbitrary results."
Punitive Damages Running Wild
Justice Scalia filed a dissenting opinion, in which Justice Thomas joined. "Today," he said, "we see the latest manifestation of the Court's recent and increasingly insistent "concern about punitive damages that `run wild.'" This,however, was not a matter of the Court's concern, the justice stated, since the Constitution makes no reference to that particular manner. Furthermore, Scalia found the Court's precedent for its judgment lacking. Such precedents were relatively recent, and had occurred in rapid succession over a short period of time such that they were "too shallowly rooted to justify the Court's recent undertaking."
Nor did the Court offer anything useful, in Scalia's words, to lower courts whereby they might make more fair judgments of punitive damages in the future.Alabama was acting fully within its powers in the judgment, and the case didnot properly warrant the Court's attention. Scalia concluded by stating, "Bytoday's logic, every dispute as to evidentiary sufficiency in a state civilsuit poses a question of constitutional moment, subject to review in this Court. That is a stupefying proposition."
Justice Ginsburg likewise dissented, in an opinion in which Chief Justice Rehnquist joined. In her view, the Court was "unwisely ventur[ing] into territory traditionally within the States' domain." The states themselves already hadmeasures in place to deal with such matters, and as evidence she produced along list of state regulations of punitive damage awards. In the case of Alabama, its own supreme court had put still further controls on the levels of punitive damages, and therefore its judgment should be allowed to stand.
Related Cases
- Pacific Mutual Life Insurance Co. v. Haslip, 499 U.S. 1 (1991).
- TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443, 454 (1993).
- Yates v. BMW of North America, 642 So. 2d 937 (1993).
- Honda Motor Co. v. Oberg, 512 U.S. 415 (1994).
Further Readings
- Biskupic, Joan, and Elder Witt, eds. Congressional Quarterly's Guide to the U.S. Supreme Court, 3rd ed. Washington, DC: Congressional Quarterly, Inc., 1996.
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