Inc. v. Gore BMW of North America

As Justice Scalia would note in his dissenting opinion, the Court's judgment in 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 view as 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 took the 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 thus required 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 new and 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 percent of 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 alleged cost 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 damages as well. BMW subsequently filed a post-trial motion to set aside the punitive damages award, and in this latter action it produced evidence showing that its 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 the months 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.