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Under U.S. Supreme Court precedent, the Fourteenth Amendment of the U.S. Constitution prohibits grossly excessive punitive damages. Whether a punitive damage award is appropriate depends on the circumstances. The Supreme Court established three guideposts for courts when considering punitive damages:
In a case for bad faith, fraud and intentional infliction of emotional distress involving an auto accident, the U.S. Supreme Court said that where $1 million compensatory damages are awarded, punitive damages of $145 million are excessive. The 14th Amendment of the U.S. Constitution prohibits imposing grossly excessive or arbitrary punishments.1
In Roby v. McKesson Corp., the California Supreme Court addressed limits on punitive damages awards in discrimination cases. An employee was harassed, discriminated against and wrongfully terminated based on her medical condition and related disability. In the original trial, the jury found in favor of the plaintiff. The jury awarded her substantial compensatory damages and punitive damages of $15 million against both her employer and the supervisor who harassed her.
The California Supreme Court struck down most of the punitive awards. The due process clause of the 14th Amendment of the U.S. Constitution limits state court punitive awards. According to the court, the rationale for this limit is that someone who commits a wrong must have fair notice “not only of the conduct that will subject him to punishment, but also of the severity of the penalty that a State may impose.” In this case, the California Supreme Court took into account the low level of culpability on the employer’s part and found that, given the facts of the case, the punitive damages could be no greater than the compensatory damages, that is a 1:1 ratio.2
What saved the employer in this case is that most of the blame rested with the supervisor, and the corporation’s culpable conduct was “relatively low.” This 1:1 ratio may not be applied in other circumstances. Unlike the supervisor, the corporation itself did not engage in repeated misconduct. The court explained that there was no evidence that the supervisor’s “actions toward Roby were the product of a corporate culture that encouraged similar supervisory conduct. Rather, they appear to be the isolated actions of a single supervisor, combined with the one-time failure on the part of the employer ... to take prompt responsive action when these events came to its attention.”
1. State Farm Mutual Automobile Ins. Co. v. Campbell, 538 U.S. 408 (2003)
2. Roby v. McKesson Corp., 47 Cal. 4th 686 (2009)