January 19, 2009

Hudgins v. Southwest Airlines: Arizona Appellate Court Reduces Punitive Damages, Adopts One-to-One Ratio

The Arizona Court of Appeals (Division One) issued this opinion last week, reducing two $4 million punitive damages awards down to $500,000 each, equal to the amount of compensatory damages.

By adopting a one-to-one ratio of punitive to compensatory damages, the court joined a small but growing number of courts around the country that have finally begun to implement the U.S. Supreme Court's statement in State Farm v. Campbell that, in cases involving substantial compensatory damages, the ratio of punitive to compensatory damages should be low, perhaps only one-to-one. (For another example of this trend, see our recent blog post about the Third Circuit's decision in Jurinko. See also the Jet Source and Walker opinions from the California Court of Appeal.) I am working on a short paper about this trend, which I hope to post on this blog some time in the next few weeks.

Aside from the ratio analysis, this opinion contains an interesting statement about the role of the defendant's wealth. The opinion concludes with the statement that the court might have reduced the punitive damages award even further, but decided to stick with a one-to-one ratio because "SWA's wealth warrants a more substantial punitive damages award." That sort of analysis seems directly contrary to the Supreme Court's admonition in Campbell that lower courts should not use wealth to support an otherwise excessive award.

Many lawyers disagree about how to interpret the U.S. Supreme Court's statements about the role of the defendant's wealth in the constitutional analysis of punitive damages for excessiveness. Some defense lawyers take the position that, in light of BMW and Campbell, the defendant's wealth can no longer be considered for any purpose. My personal view is that the Supreme Court has not categorically ruled out consideration of the defendant's wealth for all purposes. I think the Court's statements about wealth leave open the possibility that a jury might be able to consider the defendant's wealth in assessing punitive damages, so long as the end result does not exceed the maximum amount permitted under the guideposts established in BMW v. Gore. But it seems to me that Campbell forecloses the sort of reasoning that the court adopted here, i.e., using the defendant's wealth to uphold an award that would otherwise be excessive under the guideposts. Given that this case is otherwise a win for the defense on the excessiveness issue, however, the defendant may not be interested in challenging the court's analysis on this point.

Hat tip: EvidenceProf Blog.