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The Tennessee tort reform bill passed in 2011 includes a new statute, T.C.A. § 29-39-104, that provides a punitive damages cap for Tennessee civil lawsuits. It also provides for some exceptions to the punitive damages cap (this will be addressed in a later blog post). This statute applies to "all liability actions for injuries, deaths, and losses covered by this act which accrue on or after” October 1, 2011. The entire Tennessee tort reform bill can be found here: http://www.tn.gov/sos/acts/107/pub/pc0510.pdf.
T.C.A. § 29-39-104 made many changes and clarifications to punitive damage law in Tennessee. Today I will address the caps to punitive damage awards that were added. T.C.A. § 29-39-104(a)(5) provides the following:
(5) Punitive or exemplary damages shall not exceed an amount equal to the greater of:
(A) Two (2) times the total amount of compensatory damages awarded; or
(B) Five hundred thousand dollars ($500,000);
As a result, there is a now a cap on punitive damages so the maximum punitive damages award can not exceed two times the total amount of compensatory damages award or $500,000.00, whichever is greater. This cap provides much greater certainty for potential punitive damage awards under Tennessee law. It provides defendants with a greater ability to assess the “worst case scenario” in a case and therefore make more informed decisions about whether to take a case to trial.
Prior to this change in the statute, there was guidance from the United States Supreme Court on the maximum amount of punitive damages that could be awarded. The well known United Supreme Court case of State Farm v. Campbell, 123 S. Ct. 1513 (2003) discussed the upper limits of punitive damages awards that are allowed under the Due Process Clause of the United States Constitution. The United States Supreme Court discussed various factors that are pertinent to determine the appropriate size of a punitive damages award when compared to the amount of compensatory damages. The Court stated:
Nonetheless, because there are no rigid benchmarks that a punitive damages award may not surpass, ratios greater than those we have previously upheld may comport with due process where “a particularly egregious act has resulted in only a small amount of economic damages.” (citation omitted) (positing that a higher ratio might be necessary where “the injury is hard to detect or the monetary value of noneconomic harm might have been difficult to determine”). The converse is also true, however. When compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee. The precise award in any case, of course, must be based upon the facts and circumstances of the defendant's conduct and the harm to the plaintiff.
Id. at 1524. Additionally, the United States Supreme Court specifically declined to impose a specific bright line ratio that a punitive damages award can not exceed. However, the United States Supreme Court stated, that "our Jurisprudence and the principles it has now established demonstrate, however, that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process." (emphasis added) Id. at 1524. The Court went on to state that "single-digit multipliers are more likely to comport with due process, while still achieving the State's goals of deterrence and retribution, than awards with ratios in range of 500 to 1 or, in this case of 145 to 1." Id. at p. 1524. As a result, the United States Supreme Court provided guidance on the acceptable ratio between compensatory damages and punitive damages. Basically a 9 to 1 ratio is at the outer limit of acceptability.
The Tennessee Supreme Court decision of Flax v. DaimlerChrysler Corp., 272 S.W.3d 521 (Tenn. 2008) discussed the State Farm v. Campbell decision in detail. In the Flax case, the jury awarded punitive damages that were in a 1 to 5.35 ratio when compared with the compensatory damages. The Tennessee Supreme Court discussed the various guideposts in the State Farm decision:
The ratio between these two awards is 1 to 5.35. This ratio is not clearly impermissible because it does not exceed a single digit ratio. See Campbell, 538 U.S. at 425, 123 S.Ct. 1513. There is, however, some doubt as to the propriety of a ratio of 1 to 5.35 because the United States Supreme Court has suggested that a ratio of more than 1 to 4 approaches the outer limits of constitutionality. Id.; Gore, 517 U.S. at 581, 116 S.Ct. 1589. The Court has also suggested that a ratio of 1 to 1 may be all that is permissible in cases where compensatory damages are “substantial.” See Campbell, 538 U.S. at 425, 123 S.Ct. 1513. None of these ratios, however, present “rigid benchmarks,” and the United States Supreme Court has thus far declined to adopt any fixed mathematical formula to determine the appropriateness of punitive damages. Id. Instead, the Court has held that “[t]he precise award in any case, of course, must be based upon the facts and circumstances of the defendant's conduct and the harm to the plaintiff.”
(emphasis added) Flax at p. 539. Ultimately, the Tennessee Supreme Court held that with the particular facts and circumstances that were present in the Flax case, a ratio of 1 to 5.35 was appropriate and warranted. Also note, in the United State Supreme Court decision of BMW v. Gore, 116 S.Ct. 1589 (1996) the Court stated “even though a punitive damages award of more than 4 times the amount of compensatory damages might be close to the line, it did not cross the line into the area of constitutional impropriety.” Id. at 1602. As a result, once the ratio reaches 4 to 1, a court should take a critical look at the appropriateness of the punitive damages award under the Due Process Clause.
Under the Tennessee tort reform legislation of 2011, T.C.A. § 29-39-104 provides an even more restrictive maximum ratio of two times the total amount of compensatory damages awarded. Although, in actuality, there could be a much greater ratio because punitive damages are limited to the greater of the two times ratio or $500,000.00. As a result, you could still see an award of $10,000.00 in compensatory damages with a $500,000.00 punitive damages award. However, almost certainly, the State Farm and Flax decisions would require that the award would be reduced to, at a maximum, a 9 to 1 ratio because this award would be unconstitutional for the reasons set forth in those opinions. However, in cases where there is a risk for a large punitive damages award (mainly cases with significant “economic damages” – See Blog post discussing economic damages under the new definition found in T.C.A. § 29-39-101) this new statute effectively provides a cap of two times the compensatory damages award, unless an exception to the cap found in T.C.A. § 29-39-104 applies.
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