Business groups have been complaining to Congress about soaring punitive-damage jury awards. Yet, businesses themselves are winning a sizable number of these verdicts.
Calls for overhauling the civil justice system date back many years. However, dissatisfaction with high punitive damages did not reach a crescendo until 1989. In that year, the U.S. Supreme Court ruled that the Eighth Amendment, which forbids imposing "excessive fines" and "cruel and unusual punishments," does not apply to awards of punitive damages in private parties' cases. Moreover, the high court refused to fashion a federal one-size-fits-all standard of excessiveness. (Browning-Ferris Industries of Vermont Inc. v. Kelco Disposal Inc., 492 U.S. 257.)
In 1973, Browning-Ferris Industries (BFI), Houston, entered the Burlington, Vt., trash-collection market. For the next seven years, it held a virtual monopoly on roll-off collection services in the Burlington area.
In 1980, Joseph Kelley, a BFI local district manager since its Vermont inception, left the company and opened Kelco Disposal.
Two years later, Kelco held 43 percent of the roll-off market. In an effort to drive Kelco out of business, BFI began drastically reducing its prices through an illegal pricing strategy.
In 1984, Kelco filed suit in federal district court, alleging BFI's unlawful attempt to monopolize the Burlington roll-off market and its illegal interference with Kelco's customer contracts.
The jury found BFI liable for illegal predatory pricing under federal law and interfering with Kelco's contract relations in violation of Vermont tort law. It awarded Kelco $51,000 in compensatory damages and $6 million in punitive damages. Ultimately, the Supreme Court upheld the award in full.
Kelco's victory illustrates a paradox in the current tort-reform debate. Congress has focused on limiting punitive damages in cases where a defective product injures a consumer. A Senate bill would apply only to these product-liability cases, but the House version would limit damages in a wider variety of cases.
The expected compromise will leave open the possibility of large damages in commercial cases - contracts and unfair competition, for example - which are primarily filed by businesses.
Not surprisingly, consumer groups think the solution is unfair. "The business community wants to limit consumer rights but maintain unfettered access to the courts for themselves," said a spokesman for Citizen Action, a consumer lobbying group. "It's just blatant hypocrisy."
Business interests that want to cap punitive damages insist that most companies would gladly trade the opportunity to win higher punitive damages for broader limits on such damages.
"People we represent understand there is a much greater likelihood that you are going to be the victim than the beneficiary of the current system," said a lawyer for businesses who seek punitive-damage limits.
Ironically, punitive-damage awards appear to occur more frequently in lawsuits between businesses than in personal injury claims. After the National Center for State Courts surveyed some 75 local court systems last year, it found that plaintiffs who win contracts cases also receive punitive-damage awards 13 percent of the time. By contrast, plaintiffs win punitive damages in only 4 percent of successful tort cases.
Meanwhile, the median award in contracts cases is nearly 50 percent higher than in tort cases. Punitive damages tend to be higher in financial disputes than in injury cases, according to a representative of the American Bar Association. "The awards can be very high, because businesses are fairly good at documenting their losses," he said, adding that some business litigants have operations so vast that "any type of court award is likely to be very, very high."
These statistics do not go unnoticed. High potential rewards are luring increasing numbers of company litigants to ask for punitive damages. "It's a growing trend," said an attorney who files suits against insurance companies who refuse to pay claims on time. Approximately 25 percent of the lawyer's clients are businesses.
Supporters of punitive damages cite its key role in business litigation. Such damages, they say, send a convincing signal to companies who refuse to play by the rules.