Inc. v. Gore BMW of North America

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 justified by 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 notice of the severity of the damages it might incur for its action in repainting the cars without notifying dealers or customers. By the three "guideposts" or indicums of excessiveness applied by the Court, it was found that the company had not been given such fair notice.

First was "the degree of reprehensibility of the defendant's conduct," which the 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 the ratio 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 civil or 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 or not "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."