December 17, 2014

Second Circuit uses supervisory authority to hold $5 million punitive damages award excessive (Turley v. ISG Lackawanna)

The Second Circuit issued an interesting opinion today that illustrates how a federal appellate court can apply two independent standards when reviewing a punitive damages award for excessiveness.

In this employment discrimination case, a federal jury in New York awarded a total of $1.32 million in compensatory damages and $24 million in punitive damages, broken down between individual and corporate defendants.  The district court concluded that the punitive damages were excessive, and granted a new trial conditioned on the plaintiff's acceptance of a reduction of the punitive damages award to a total of $5 million.  The plaintiff accepted the reduction and the defendant appealed.

On appeal, the Second Circuit affirmed the judgment in all respects except for the amount of punitive damages.  The court began its discussion of that issue by noting that it was required to review the excessiveness of punitive damages pursuant to the federal appellate courts' supervisory authority over the trial courts.  Such authority requires that reviewing courts "exercise relatively stringent control over the size of punitive damages," separate and apart from any obligation to review the award under constitutional due process standards.

The court then went on to explain that federal courts should exercise their common law supervisory authority first, before considering constitutional standards.  Following that approach, the court concluded that the $5 million punitive damages award in this case was still excessive.  The court explained that the award is disproportionate both to the $1.32 million compensatory damages award and to the amount of punitive damages awarded in other comparable cases.  Ultimately, the court determined that any amount in excess of a 2:1 ratio would be excessive.

Having settled on a 2:1 ratio as the maximum permissible under common standards, the court considered whether due process concerns might require an even further reduction.  The court concluded that, in light of the extremely egregious nature of the defendants' conduct, a 2:1 ratio would pass muster under the Constitution.  The court expressly declined to decide whether constitutional principles might permit a higher ratio than 2:1 on the facts of this case. 

This case stands in contrast to the Ninth Circuit's recent decision in the Arizona v. ASARCO case, in which the en banc court reviewed the punitive damages award only under federal due process standards, without even mentioning its separate obligation to review the amount of the award under federal common law.