Punitive Damages in Nevada

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The following abstract explores the law regarding punitive damages in Nevada

Introduction

Punitive damages are not designed to compensate a party, but are awarded for the sake of example and by way of punishing the defendant.  NRS 42.010(1).  By assessing the gravity of the injury, punitive damages serve as a vehicle for a community to express outrage or distaste for a defendant’s misconduct while warning others that such wrongdoing will not be tolerated.  Ace Truck v. Kahn, 103 Nev. 503, 506, 746 P.2d 132, 134 (1987).  Allowing punitive damages provides a benefit to society by punishing undesirable conduct that is not punishable by the criminal law.  Id.  Therefore, the party whose conduct was so outrageous as to merit punishment by means of punitive damages is obligated to bear the burden of paying the award, which effectuates the goals of punishment of and deterrence.  New Hampshire Ins. Co. v. Gruhn, 99 Nev. 771, 774, 670 P.2d 941, 943 (1983).

COMPENSATORY DAMAGES ARE A CONDITION PRECEDENT TO AN AWARD OF PUNITIVE DAMAGES

Courts do not award punitive damages as a matter of right to an injured litigant, but only in addition to compensatory damages as a means of punishing the wrongdoer for his conduct and deterring others from acting in a similar fashion.  Siggelow v. Phoenix Ins. Co., 109 Nev. 42, 45, 846 P.2d 303, 305 (1993).  As such, awarding compensatory damages is a prerequisite to awarding punitive damages.  City of Reno v. Silver State Flying Serv., Inc., 84 Nev. 170, 180, 438 P.2d 257, 264 (1968); Alper v. Stillings, 80 Nev. 84, 86, 389 P.2d 239, 240 (1964).  However, punitive damages do not need to have a fixed relationship to the compensatory damages award.  Midwest Supply, Inc. v. Waters, 89 Nev. 210, 213, 510 P.2d 876, 879 (1973).  The underlying public policy of punitive damage awards focuses on concerns unrelated to the compensatory entitlements of the injured party.  Ace Truck, 103 Nev. at 506, 746 P.2d at 134.

Statutory Definitions Regarding Punitive Damages

A plaintiff may recover punitive damages in addition to compensatory damages for the sake of example and by way of punishing the defendant.  NRS 42.005(1).  The plaintiff has the burden of proving by clear and convincing evidence that the defendant has been guilty of (1) oppression, (2) fraud, or (3) malice, express or implied.  Id.  If a party claims punitive damages, a trier of fact shall make a finding of whether such damages will be assessed, and a subsequent proceeding must be conducted before the same trier of fact to determine the amount of damages to be assessed.  NRS 42.005(3).

Oppression

Oppression is the despicable conduct that subjects a person to cruel and unjust hardship with the conscious disregard of a person’s rights.  NRS 42.001(4).  Conscious disregard means the knowledge of the probable harmful consequences of a wrongful act and a willful and deliberate failure to act to avoid those consequences.  NRS 42.001(1).

Fraud

Fraud is the “intentional misrepresentation, deception or concealment of a material fact known to the person with the intent to deprive another person of his rights or property or to otherwise injure another person.”  NRS 42.001(2).

Malice, expressed or implied

“Malice, express or implied means conduct that is intended to injure a person or despicable conduct which is engaged in with a conscious disregard of the rights or safety of others.”  NRS 42.001(3).  In interpreting the statutory expression “malice, express or implied,” Nevada adopts California’s rule of statutory interpretation.  Craigo v. Circus-Circus Enter., Inc., 106 Nev. 1, 3, 786 P.2d 22, 23 (1990).  As such, express malice is established by express or direct evidence going to prove the actual existence of the hatred and ill will; whereas implied malice refers to the fictive malice of the law.  Id. at 3-4, 23.  Consistently, the Nevada Supreme Court has declared that malice relating to punitive damage awards refers only to malice in fact.  Id. at 3, 23.

Punitive Damages Must Arise out of Tort and not a Contractual Relationship

A punitive damages award must be based upon a cause of action sounding in tort.  Sprouse v. Wentz, 105 Nev. 597, 602, 781 P.2d 1136, 1138-39 (1989).  Ordinary breaches of contract cases do not warrant an award of punitive damages.  Great Am. Ins. Co. v. Gen. Builders, Inc., 113 Nev. 346, 354, 934 P.2d 257, 263 (1997).  In particular, one may not recover punitives for misrepresentation made in the performance of a contract, but must prove that injuries actually resulted from the fraud and not from the breach of the contract.  Clark v. Lubritz, 113 Nev. 1089, 1096, 944 P.2d 861, 865 (1997) (citations omitted).  The injuries must be entirely separate from those suffered because of a breach.  Id.  However, where a fiduciary duty arises out of a contract, the injuries resulting from a breach of that duty is a separate tort upon which punitive damages may be based.  Id. at 1098, 866-67.  However, when an award of contractual damages is sufficient, punitive damages should not be awarded.  Great Am. Ins. Co., 113 Nev. at 354-55, 934 P.2d at 263.

NEVADA FAVORS GIVING PUNITIVE DAMAGE INSTRUCTIONS TO THE JURY

Nevada’s modern trend is to give the punitive damage instruction more readily to the jury than in the past, and to allow the jury to decide if exemplary damages are warranted in a particular case.  The judge, of course, still must decide if the evidence meets the threshold necessary to give the instruction.

The Nevada Supreme Court holds that the allowance or denial of punitive damages rests entirely in the discretion of the trier of fact.  Caple v. Raynel Campers, Inc., 90 Nev. 341, 344, 526 P.2d 314, 336 (1974).  In fact, a jury could reasonably conclude whether evidence establishes malice in fact that sufficiently allows punitive damages.  Leslie v. Jones, 92 Nev. 391, 393, 551 P.2d 234, 235 (1976).  That is, a jury could determine whether a particular defendant consciously and deliberately disregarded a plaintiff’s rights.  Id.  Moreover, the Nevada Supreme Court states that an award of punitive damages is entirely within the province of the jury to allow.  Bull v. McCuskey, 96 Nev. 706, 711, 615 P.2d 957, 961 (1980).  Notably, before Nevada adopted the federal guideposts (in Bongiovi v. Sullivan, 122 Nev. 556, 138 P.3d 433 (2006)), the Nevada Courts would only adjust jury awards for punitive damages when evidence introduced at trial proved that the amount would financially destroy or annihilate the defendant.  Id.  Other than this occurrence, the subjective nature of punitive damage awards rested entirely within the discretion of the jury.  Id.  However, Nevada abrogated the financial annihilation exception and now adheres to the federal guideposts to determine when punitive damages are excessive.  Ace Truck and Equip. Rentals, Inc. v. Kahn, 103 Nev. 503, 508, 746 P.2d 132, 135-36 (1987) (“A defendant’s being financially annihilated or the jury’s being improperly influenced by passion and prejudice are certainly matters of concern to which the courts must be sensitive in reviewing punitive damages, but neither consideration provides, in itself, a satisfactory rule to be followed generally in judging the question of excessiveness”) abrogated by Bongiovi, 122 Nev. 556, 138 P.3d 433.

Imposition of Post Judgment Interest on Punitive Damages is Proper

Nevada has held that pre-judgment interest does not accrue on punitive damages because a plaintiff is never entitled to punitive damages as a matter of right. Ramada Inns v. Sharp, 101 Nev. 824, 711 P.2d 1 (1985). The Nevada Supreme Court later expanded this rule to apply to post-judgment interest on punitive damages. Ainsworth v. Combined Ins. Co., 105 Nev. 237, 774 P.2d 1003 (1989).  However, NRS 17.130 provides for interest to accrue on a judgment as of the date the complaint was served, although interest on certain parts of a judgment, such as damages not incurred until after the complaint was served, accrues as of the date those damages were actually sustained.  See NRS 17.130.

The purpose of post-judgment interest is to compensate the plaintiff for the loss of the use of the money awarded in the judgment.  Powers v. United Servs. Auto Ass’n, 114 Nev. 690, 705, 962 P.2d 596, 605 (1998) (citations omitted).  In Powers, the jury award included compensatory damages and punitive damages, which cumulatively comprised of the judgment in favor of the plaintiff.  Id.  On appeal, the plaintiff argued that every aspect of a judgment entered by the court should be treated the same, and that interest should accrue on punitive damages as of the date the judgment is awarded.  Id.  Revisiting its holding in Ainsworth, the Nevada Supreme Court recognized that a defendant whose conduct was egregious enough to warrant the imposition of punitive damages should not be given preferential treatment and be allowed to make money during the appellate process on what has been ordered to be paid to the plaintiff.  Id. at 705, 606.  Therefore, by abrogating Ainsworth, the Court held that punitive damage awards should accrue post-judgment interest as of the date the judgment was entered.  Id. at 706, 606.

No Punitive Damages if Tort-feasor is Deceased

Punitive damage claims do not survive the death of a tortfeasor and cannot be sought from the deceased tortfeasor’s estate.  Allen v. Anderson, 93 Nev. 204, 207, 562 P.2d 487, 189 (1977).  Nevada recognizes that punitive damages are inflicted for deterring a culprit in the future.  Id. at 208, 489.  In the case of a deceased tortfeasor, imposing an award of punitive damages can no longer serve as a punishment because when the reason for a rule ceases to exist, the rule itself becomes insignificant and extinguishes by the disappearance of the reason.  Id. at 208, 490.

Moreover, family members of a deceased tortfeasor cannot be found vicariously liable for punitive damages.  Id.  Although NRS 41.440 imposes vicarious liability upon other family members for damages proximately resulting from negligence or willful misconduct, punitive damages do not result under the statute.  Id. at 209, 490.  Again, punitive damages are raised, not as a proximate result of the wrongdoer’s conduct, but rather, by law and are intended to punish the wrongdoer.  Id.  However, keep in mind that some jurisdictions allow punitive damages to survive the deceased because such awards act as a general deterrence and serve the overall public good.  See Haralson v. Fisher Surveying, Inc., 31 P.3d 114, 116-17 (Ariz. 2001) (citations omitted).

SITUATIONS THAT REQUIRE A UNIQUE ANALYSIS FOR DETERMINING PUNITIVE DAMAGES

Insurance bad faith

Punitive damages are not available for a cause of action sounding solely in contract.  NRS 42.010(1); Amoroso Constr. v. Lazovich & Lazovich, 107 Nev. 294, 298, 810 P.2d 775, 777 (1991).  NRS 686A.310 imposes statutory duties on insurers, that is, noncontractual duties imposed by law.  NRS 686A.310.  Thus, an insurer who fails to deal fairly and in good faith with its insured may give rise to a cause of action in tort for breach of an implied covenant of good faith and fair dealing.  U.S. Fidelity & Guar. Co. v. Peterson, 91 Nev. 617, 620, 540 P.2d 1070, 1071 (1975).  As such, a jury may award punitive damages against an insurer who acts in bad faith because the action is rooted in tort, not contract law.  NRS 42.005(2)(a).  Specifically, if an insurer violates a provision of NRS 686A.310 and if its conduct involves oppression, fraud, or malice, a trier of fact could award punitive damages.  Pioneer Chlor Alkali Co., Inc. v. Nat’l Union Fire Ins Co., 863 F.Supp. 1237, 1250 (D. Nev. 1994).

Bad Faith is not a Prerequisite for Punitive Damages.

When sufficient evidence supports an insurance company’s bad faith, the Plaintiff must still present facts that support a showing of oppression, fraud, or malice in order to recover punitive damages.  Peterson, 91 Nev. at 620.  In other words, a finding of bad faith does not automatically entitle a Plaintiff to recover punitive damages.  McCaa v. Mass. Mut. Life Ins. Co., 330 F. Supp. 2d 1143, 1149 (D. Nev. 2004).

For example, in McCaa, Mass Mutual discontinued benefit payments for seven months.  Id.  However, Mass Mutual later awarded the insured $10,000 in back benefits for five of the seven months and continued to pay the insured partial benefits of $2,000 per month.  Id.  Because Mass Mutual continued to pay partial benefits under the policy, the Court found that even if it acted in bad faith, it seems highly unlikely that the insured could recover punitive damages.  Id.

Moreover, NRS 42.005(5) specifically states that, “[f]or the purposes of an action brought against an insurer who acts in bad faith, the [statutory definitions of oppression, fraud, or malice] are not applicable and the corresponding provisions of the common law apply.”  NRS 42.005(5).  Despite the bad faith exclusion, the common law definitions appear to resemble the statutory definitions.  In particular, the Court referred to the NRS 42.005 statutory definitions in McCaa and recognized that proving that Mass Mutual acted with oppression, fraud, or malice would not be an easy task.  Id.  To further illustrate these similarities, Nevada’s case law intertwines the statutory and common law definitions for oppression and malice.

Common Law Meaning of Oppression for Insurance Bad Faith

In awarding punitive damages against insurers, the Nevada Supreme Court defines oppression as a “conscious disregard for the rights of others which constitutes an act of subjecting plaintiffs to cruel and unjust hardship.”  Ainsworth, 104 Nev. at 590, 763 P.2d at 675.  Strikingly similar to the statutory definition, the common law definition of oppression recognizes that a “conscious disregard” may support an award of punitive damages.  Id. at 591, 675.  Thus, despite the language of NRS 42.005(5) excluding insurance bad faith from the statutory definitions, it appears that the common law meaning of oppression mirrors the statute.

For instance, in Ainsworth, the insurance company refused to provide any payment after the insured suffered a stroke and was comatose for seven days.  Id.  The insured had paid premiums for thirteen years and his wife requested payment for $9,600, five times within eighteen months.  Id.  In the court’s opinion, the insurance company’s obstinate and unjustified refusal to pay constitutes oppression as contemplated by the statute.  Id.  Specifically, the evidence established that the insured was in desperate need of funds, and the insurer had reason to know of their dire circumstances.  Id.  Therefore, the insured was entitled to punitive damages because insurance company had consciously and deliberately ignored the insured’s rights to the payment of benefits.  Id. at 591-93, 675-76.

Common law Meaning of Malice

For insurance bad faith, malice involves actual hatred or ill will, or the desire to successfully injure, vex, annoy or harass.  McCaa, 330 F. Supp. 2d at 1149.  Although the common law definition of malice varies slightly from the statutory definition, the Nevada Supreme Court appears to link malicious intent to an insurance company denying or refusing to pay a claim.  See Id.  Specifically, the Court recognized that it has difficulty constructing a factual situation where an insurer who commits bad faith could have done so with a malicious intent, but did not deny or refuse to pay a claim.  Id.  Therefore, arguably, for an insurer to act with such ill-will toward an insured or subject an insured to cruel and unusual hardship, it must deny or refuse to pay the claim.  Id.

NRS 41.035 WAIVES SOVEREIGN IMMUNITY FROM PUNITIVE DAMAGES

The purpose of enacting NRS 41.035 was to waive sovereign immunity.  State v. Eaton, 101 Nev. 705, 710 P.2d 1370 (1985).  Specifically, the Legislature reacted to the trend of Nevada case law moving toward an abolition of the doctrine of sovereign immunity.  See Rice v. Clark Cty., 79 Nev. 253, 382 P.2d 605 (1963).  Accordingly, NRS 41.035 waives immunity within limits and imposes a ceiling upon the recovery allowable to a claimant, rather than awaiting further judicial action upon the subject.  State v. Silva, 86 Nev. 911, 914, 478 P.2d 591, 593 (1970).  The apparent legislative thrust was to waive immunity and, correlatively, to strictly construe limitations upon that waiver.  Id.

NRS 41.035(1) provides:

An award for damages in an action sounding in tort brought under NRS 41.031 or against a present or former officer or employee of the state or any political subdivision, immune contractor or state legislator arising out of an act or omission within the scope of his public duties or employment may not exceed the sum of $50,000, exclusive of interest computed from the date of judgment, to or for the benefit of the claimant.  An award may not include any amount as exemplary or punitive damages.

See NRS 41.035(1).

Arguably, NRS 41.035 precludes any punitive damages against a political subdivision of the state. See NRS 41.035; See also Frank Briscoe Co. v. Cty. of Clark, 643 F. Supp. 93 (D. Nev. 1986) (aff’d 857 F.2d 606 (9th Cir. 1988)).  Punitive or exemplary damages against individual defendants are authorized under federal common law in civil rights actions, including those litigated pursuant to Section 1983.  Smith v. Wade, 461 U.S. 30 (1983).  However, municipalities are generally immune from punitive damage awards under Section 1983.  See City of Newport v. Fact Concerts, Inc., 453 U.S. 247 (1981).

Possible Defenses to Punitive Damages

Excessive Punitive Damages

In Nevada, a plaintiff may recover punitive damages in addition to compensatory damages, but punitive damages may not exceed three times the amount of compensatory damages if such damages are equal to or exceed $100,000.  NRS 42.005(1) (a).  To determine whether a punitive damages award is excessive, this Court considers numerous factors including the defendant’s financial position, culpability, and extent to which this culpability offends one’s sense of justice.  Evans v. Dean Witter Reynolds, Inc., 116 Nev. 598, 614, 5 P.3d 1043, 1053 (2000).

Although states have considerable flexibility in determining the level of punitive damages, the Due Process Clause of the Fourteenth Amendment prohibits grossly excessive or arbitrary awards.  Bongiovi v. Sullivan, 122 Nev. 556, 138 P.3d 433, 451 (2006) (citation omitted).  Specifically, a person must receive fair notice, not only of the conduct that will subject them to punishment, but also of the severity of the penalty that a State may impose.  BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 560 (1996).  For these reasons, the federal excessiveness inquiry begins with identifying the State’s legitimate interests in punishment and deterrence and requiring that damages are reasonably necessary to achieve those purposes.  Gore, 517 U.S. 559, 568 (1996).

A State may properly be impose punitive damages to further its legitimate interests in punishing unlawful conduct and deterring its repetition.  Id.  In Gore, respondent purchased a new BMW automobile from an authorized Alabama dealer, but later discovered that the car had been repainted.  Id. at 559.  BMW’s nationwide policy was to not notify dealers, and hence their customers, of pre-delivery damage to new cars when the cost of repair did not exceed 3% of the car’s suggested retail price.  Id.  Respondent brought suit that failing to disclose the repair constituted fraud and a large punitive damages award was necessary to induce BMW to change the nationwide policy.  Id. at 572.  The court held that such an attempt to alter a nationwide policy would infringe on the policy choices of other States and testimony revealed that approximately 60% of the vehicles refinished were sold in states where failure to disclose the repair was not an unfair trade practice.  Id. at 572-73.  Therefore, economic penalties that a State inflicts must be supported by the State’s interest in protecting its own consumers and its own economy.  Id. at 571.

Nevada Adopts the Federal Guideposts

To protect against grossly excessive or arbitrary awards, Nevada recently adopted three federal guideposts to determine when a punitive damages award has violated due process.  Bongiovi, 138 P.3d at 451–52.  The three guideposts are: (1) the degree of reprehensibility of the defendant’s conduct; (2) the ratio of the punitive damage award to the actual harm inflicted on the plaintiff; and (3) how the punitive damages award compares to other civil or criminal penalties that could be imposed for comparable misconduct.  Id. at 452.  Therefore, Nevada’s previous recognition that the wealth of a defendant is directly relevant to the size of an award, which is meant to deter the defendant from repeating his misconduct as well as punish him for his past behavior is no longer controlling.  See Ainsworth, 104 Nev. at 593, 763 P.2d at 677.

The standard of review for the guideposts is de novo to ensure that an award of punitive damages derives from an application of law rather than a decision maker’s whim.  State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 418 (2003) (citations omitted) (hereinafter State Farm).  Courts assume that the jury believed all the evidence favorable to the prevailing party and drew all reasonable inferences in that party’s favor.  Bongiovi, 122 Nev. at 451.  Thus, courts will not disturb or overturn an award of punitive damages if it is supported by substantial evidence of oppression, fraud, or malice.   Id.

Degree of Reprehensibility

The most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant’s conduct.  Gore, 517 U.S at 575.  This reflects the accepted view that some wrongs are more blameworthy than others are.  Id.  To determine the reprehensibility of the defendant’s conduct, courts consider whether: (a) the harm caused was physical as opposed to economic; (b) the tortious conduct evinced an indifference to or reckless disregard of the health or safety of others; (c) the target of the conduct had financial vulnerability; (d) the conduct involved repeated actions or was an isolated incident; and (e) the harm was the result of intentional malice, trickery, or deceit, or mere accident.  State Farm, 538 U.S. at 419.  Even though the existence of any one of these factors weighing in favor of a plaintiff may be insufficient to sustain a punitive damages award, the absence of all of them renders any award suspect.  Id.  Presumably, compensatory damages make a plaintiff whole for injuries suffered, but courts will award punitive damages when the defendant’s culpability is so reprehensible as to warrant the imposition of further sanctions to achieve punishment or deterrence.  Id.

Emotional and Economic Harm

Infliction of economic injury, especially when done intentionally through affirmative acts of misconduct, or when the target is financially vulnerable, can warrant a substantial penalty.  Gore, 517 U.S. at 576.  Moreover, conduct causing emotional as well as economic harm can be more reprehensible than conduct causing purely economic harm.  In re Exxon Valdez, 472 F.3d 600, 614 (9th Cir. 2006).

Traditionally, punitive damages consider the effects of the tortfeasor’s conduct on the victim’s mentality, not just the victim’s pocketbook.  Id. at 615.  In Exxon, a relapsed alcoholic caused a giant oil tanker to run aground and spill 11 million gallons of crude oil into the waters of Prince William Sound and Lower Cook Inlet.  Id. at 615-16.  The court recognized that the mental distress caused by the oil spill to the fishermen and property owners economically justified a higher level of reprehensibility, especially because the disruption was entirely foreseeable.  Id. at 615.  Interestingly, the court compared the how Exxon victims were forced to change the way they make a living to a BMW owner who claims mental distress because their car was scratched during shipment without their knowledge.  Id.  By doing so, the court held that Exxon’s reprehensibility goes considerably beyond the mere careless imposition of economic harm.  Id.

Duty to Mitigate Harm

Reprehensibility should be discounted if defendants act promptly and comprehensively to ameliorate any harm they cause in order to encourage such socially beneficial behavior.  Id. at 613 (citations omitted).  For example, Exxon spent approximately $493 million to compensate many people after the oil spill through a voluntary claims program and other settlements.  Id. at 619.  Not to mention Exxon promptly engaged in cleanup efforts.  Id.

Ratio of Punitive Damage Award to Actual Harm

Single digit multipliers are more likely to comport with due process, while still achieving the State’s goals of deterrence and retribution.  State Farm, 538 U.S. at 425.  However, no concrete constitutional limits exist on the ratio between harm, or potential harm, to the plaintiff and the punitive damages award.  Gore, 517 U.S. at 582.  Accordingly, low awards of compensatory damages may properly support a higher ratio than high compensatory awards if a particularly egregious act has resulted in only a small amount of economic damages.  Id.  Likewise, a higher ratio may be justified when the injury is hard to detect or the monetary value of non-economic harm might be difficult to determine.  Id.  Consequently, the Supreme Court has declined to impose a bright-line ratio that a punitive damages award cannot exceed because constitutionality is not marked by a simple mathematical formula.  State Farm, 538 U.S. at 424.

Instead, the test is whether there is a reasonable relationship between the punitive damages award and the harm likely to result from the defendant’s conduct as well as the harm that actually has occurred.  TXO Prod. Corp. v. Alliance Res. Corp., 509 U.S. 443, 460 (1993).  If the harm is egregious, the damages should be much greater.  Id.  Even though the reasonable ratio is indeterminate, the numerator is the harm likely to result from the defendant’s conduct while the denominator is the amount of punitive damages.  In re Exxon Valdez, 270 F.3d 1215, 1243 (9th Cir. 2001).

Constitutionally Permissible Ratios before Adopting the Federal Guideposts.

A greater ratio of punitive damages to the amount of compensatory damages may be appropriate where the injury is primarily personal.  Swinton v. Potomac Corp., 270 F.3d 794, 818 (2001) (quoting Deters, 202 F.3d at 1273).  In Swinton, the court found that a 28 to 1 ratio was not excessive because, on numerous occasions, the Defendant directed highly offensive language at the Plaintiff, an employee, and failed to combat any racial harassment in the workplace.  Id. at 799, 819.  Because the Plaintiff received an $8.50 per hour wage, the jury could only award him $5,612 in back pay and $30,000 in emotional distress, roughly totaling $35,600 in compensatory damages.  Id.

However, the personal distress and indignity that the Plaintiff endured was difficult to calculate, so the court took into consideration that the defendant was a multi-million dollar company with net sales exceeding $90 million.  Id. at 818.  In light of these factors, the Court found that the $1,000,000 punitive damages award was reasonably related to the actual harm that is, the fact that the workplace was replete with racial and ethnic slurs forcing the Plaintiff to quit.  Id. at 819.  Furthermore, the 28 to 1 ratio did not jar constitutional sensibilities because the jury based their calculations to advance the twin goals of punitive damages: “punishing unlawful conduct and deterring its repetition.”  Id.

With the implementation of the federal guideposts, the Supreme Court has only struck down punitive damages involving rather large ratios

To determine whether a ratio complies with due process, the Supreme Court considers the: (1) substantiality and completeness of the compensatory award, (2) essentially economic nature of the harm, (3) likelihood that the punitive award duplicated the compensatory, and (4) defendant’s prompt settlement of compensatory damages.  State Farm, 538 U.S. at 426.  The goal is to ensure that the measure of punishment is both reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered.  Id.  On only two occasions, did the Supreme Court strike down rather large punitive damages award, one a “breathtaking 500 to 1” and the other 145 to 1.  Id.; Gore, 517 U.S. at 573.  Similarly, the Court questioned a 90 to 1 ratio, but declined to rule on its constitutionality.  Cooper Indus., Inc. v. Leatherman Tool Group, 532 U.S. 424, 429 (2001).

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. Id. at 425.  In State Farm, the compensatory award was substantial and complete because the Plaintiffs were awarded $1 million for a year and a half of emotional distress.  Id. at 426.  Moreover, the harm was economic because the defendant, State Farm, declined to settle the plaintiff’s claims for the $50,000 policy limit, and State Farm paid the excess verdict before the complaint was filed.  Id. at 408.  However, the court held that the outrage and humiliation the Plaintiffs suffered because of State Farm were already reflected in the compensatory award rendering the $145 million punitive award duplicative.  Id.  Therefore, a 1 to 1 ratio ensured that the measure of the punishment was both reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered.  Id. at 426.

Single-digit ratios frequently comport with due process requirements in the Ninth Circuit.

Despite the Supreme Court’s refusal to establish a firm numerical limit to the ratio, controlling authority implies a punitive damages ceiling at 9 times the compensatory damages for conduct done with vile intentions.  See Id. at 425, In re Exxon, 472 F.3d at 614.  Where significant economic damages and egregious behavior exists, single-digit ratios greater than 4 to 1 may be constitutional.  Planned Parenthood of the Columbia/Williamette Inc. v. Am. Coalition of Life Activists, 422 F.3d 949, 962 (9th Cir. 2005).  Maintaining this rough benchmark, the Ninth Circuit recently adjusted an excessive punitive damages award.  Bains LLC v. ARCO Prod. Co., 405 F.3d 764, 776 (9th Cir. 2005).  Specifically, in Bains the plaintiff suffered substantial economic damages totaling $50,000 in compensatory damages.  Id. at 769.  In addition, the jury awarded $5 million to the plaintiff for Arco’s racial discrimination.  Id.  Relying on the 9 to 1 ratio, the court held that a ceiling of $450,000 in punitive damages was more appropriate, not $5 million.  Id.  Furthermore, comparing other civil penalties, the court indicated that any ratio between 6 to 1 and 9 to 1 would be constitutional.  Id. at 776-77.

Conversely, the Ninth Circuit upheld a $2.6 million punitive damage award to a $360,000 compensatory damage award in a racial discrimination case.  Zhang v. Am. Gem Seafoods, Inc., 339 F.3d 1020, 1044 (9th Cir. 2003).  Because the court was not aware of a Supreme Court or Ninth Circuit case that disapproved of a single-digit ratio between punitive and compensatory damages, the court declined to hold that the 7 to 1 ratio was constitutionally excessive.  Id.

Upholding yet another single digit ratio, the Ninth Circuit concluded that punitive damages to harm ratio of 5 to 1 would not violate due process standards.  In re Exxon, 472 F.3d at 624.  In Exxon, the court found that Exxon’s conduct of putting in command a person not competent to perform a giant oil tanker was particularly egregious and involved significant economic damages.  Id. at 624.  Nonetheless, on appeal the ratio of 8.93 to 1 bordered on the presumption of constitutional questionability.  Id. at 623.  Because Exxon’s conduct was not intentional and the company immediately took steps to ameliorate the harm, the court held that anything more than a ratio of 5 to 1 would violate due process.  Id. at 624.

Where there are significant economic damages, but the behavior is not particularly egregious, a ratio of up to 4 to 1 serves as a good proxy for the limits of constitutionality.  Planned Parenthood, 422 F.3d at 962 (citing see, e.g., State Farm, 538 U.S. at 425).  In Hangarter, the Plaintiff, a chiropractor, purchased an “own occupation” disability insurance policy from the Defendant.  Id. at 1003-04.  Eight years later, Plaintiff filed for total disability based on severe recurrent shoulder, arm, and neck pain.  Id.  Unfortunately, the Defendants terminated Plaintiff’s benefits claiming that she did not qualify for total disability because she was earning income.  Id. at 1005.  Relying on State Farm, the Defendants argued that the same 1 to 1 ratio should equally apply here instead of the 2.6 to 1 because their conduct was not invidious.  Id. at 1014.  The court differentiated from State Farm by highlighting the fact that the punitive damages were not duplicative, the Defendants conduct was illegal in all U.S. jurisdictions, and a legally sufficient nexus existed between the Defendant’s widespread corporate policies and terminating the Plaintiff’s benefits.  Id. at 1015.  Thus, the 2.6 to 1 ratio was well within the Supreme Court’s range for constitutional punitive damage awards.  Id.

Punitive Damages Awarded for Violation of Duty Stemming from a Special Relationship

A court may award punitive damages where the wrong involves some violation of duty springing from a relation of trust or confidence.  Kapelanski v. Johnson, 390 F.3d 525, 534 (7th Cir. 2004).  In Kapelanski, the plaintiff and the defendant entered into an investment relationship where the plaintiff invested in ATMs and an Offshore Trading Program (“OTP”).  Id. at 529.  Upon agreement, the plaintiff invested $310,500 in ATMs and an additional $100,000 for the OTP.  Id.  However, when the plaintiff requested information on the investments such as proof of purchases, locations and serial numbers, the defendant refused to respond.  Id.  Subsequently, the plaintiffs filed suit for fraud and breach of fiduciary duty against the defendant.  Id.  Because the court found the defendant guilty of willfully defrauding the plaintiffs for large sums of money, the 3.3 to 1 ratio was constitutionally permissible.  Id. at 534.  In fact, the court reasoned that the ratio was not only a single digit, but also a low one at that.  Id.

Comparability to Similar Civil or Criminal Penalties

The third guidepost involves comparing the punitive damages award and the civil or criminal penalties that could be imposed for comparable misconduct.  Gore, 517 U.S. at 583.  Yet, when the comparable civil penalties are not particularly informative, there is no need to dwell on this guidepost.  State Farm, 538 U.S. at 428.  Traditionally, the Ninth Circuit has not attempted to quantify legislative penalties because, unlike jury verdicts, legislative judgments do not represent an individualized assessment of reprehensibility.  In re Exxon, 472 F.3d at 624.  Instead, the Ninth Circuit has only looked to whether or not the misconduct was dealt with seriously under state civil or criminal laws.  Id. (citing see, e.g., Planned Parenthood, 422 F.3d at 963).

Undoubtedly, Nevada protects her citizens by prohibiting wrongful deprivations of property.  Nev. Constr. art. 1, § 8, cl. 5 (1864).  The most relevant criminal sanction under Nevada law for the wrong done to the Thitcheners appears to be a $10,000 fine for an invasion of the home.  NRS 205.067(2).

COMPARATIVE NEGLIGENCE AS AN AFFIRMATIVE DEFENSE TO PUNITIVE DAMAGES

When a jury attributes some fault to the plaintiff that reduces compensatory damages, some defendants argue that an award of punitive damages should be reduced by the same percentage of fault.  Jacob A. Stein, Stein on Personal Injury Damages Treatise § 4.42 (3rd ed. 2007).   Under Nevada law, where comparative negligence bars recovery of compensatory damages, punitive damages are not available, as there has been no award of compensatory damages.  NRS 42.005.  In a case where comparative negligence is asserted as a defense, the judge shall instruct the jury that:

(2)(a) The plaintiff may not recover if his comparative negligence or that of his decedent is greater than the negligence of the defendant or the combined negligence of multiple defendants.

(b) If the jury determines the plaintiff is entitled to recover, it shall return:

(1) By general verdict the total amount of damages the plaintiff would be entitled to recover without regard to his comparative negligence; and

(2) A special verdict indicating the percentage of negligence attributable to each party remaining in the action.

(3) If a defendant in such an action settles with the plaintiff before the entry of judgment, the comparative negligence of that defendant and the amount of the settlement must not thereafter be admitted into evidence nor considered by the jury. The judge shall deduct the amount of the settlement from the net sum otherwise recoverable by the plaintiff pursuant to the general and special verdicts.

NRS 41.141(2),(3).

According to the plain language of subsection (3) of the statute, the net sum otherwise recoverable by the plaintiff pursuant to the general verdict appears to refer to the total amount of compensatory damages as assessed by the trier of fact, and the special verdict indicating the percentage of negligence attributable to each party remaining in the action.  Coughlin v. Hilton Hotels Corp., 879 F.Supp. 1047, 1050 (D. Nev. 1995).  Given that compensatory damages are a prerequisite to punitive damages, the impact of the language in provided in NRS 42.005 (the punitive damages statute), must be considered in conjunction with comparative negligence.  Id. at 1051.  As such, the Nevada Supreme Court holds that the language “compensatory damages awarded” in NRS 42.005(1) refers to the reduced compensatory damages award a plaintiff receives according to Nevada’s comparative negligence statute.  Id.  Specifically, the phrase “compensatory damages awarded,” within the meaning of NRS 42.005 limiting punitive damages to three times the amount of compensatory damages awarded, referred to reduced compensatory damages award plaintiff was to receive according to Nevada’s comparative negligence statute, which required deduction of amount of settlement with settling defendant.  NRS 41.141(2), (3); NRS 42.005(1)(a).Therefore, an “award” represents a remedy recoverable in accordance with an order for judgment because it is not enough that actual damages may have been suffered in order for punitive damages to be awarded.  Id. at 1052.

Conversely, other jurisdictions argue against reducing punitive damages by comparative fault.  Stein Treatise § 4:42 (citing Godbersen v. Miller, 439 N.W.2d 206 (Iowa 1989); Amoco Pipeline Co. v. Montgomery, 487 F.Supp. 1268 (W.D. Okla. 1980)).  Specifically, where the defendant’s liability for punitive damages is based on conduct that represents or approaches intentional wrongdoing, reducing the punitive award because of plaintiff’s negligence is contrary to the well-accepted principle that contributory negligence is not a defense to an intentional tort.  Id.  In addition, because the purposes of the punitive award are to inflict punishment on the defendant and deter it and others from engaging in similar conduct in the future, those purposes would be diluted if the plaintiff’s negligence were to reduce the size of the award.  Id. Therefore, reducing a defendant’s punitive liability is usually rejected in these jurisdictions because it would partially defeat the object of the punitive award.  Id.

CONCLUSION

Punitive or exemplary are recognized in almost all jurisdictions as proper in tort cases when public policy requires assessment of such damages to deter conduct characterized as fraudulent, malicious, oppressive, wanton, or reckless.  Compensatory damages must be awarded before punitive damages are authorized and, depending on the jurisdiction, punitive damages may not survive the deceased tortfeasor.  However, a plaintiff is never entitled to punitive damages as a matter of right.  Instead, the subjective nature of punitive damages demands that its allowance or denial rests entirely in the discretion of the trier of fact.

Although punitive damages are limited to three times the compensatory damages (NRS 42.005(1)(a)), Nevada has adopted the federal guideposts in determining whether punitive damages are excessive.  As such, the longstanding recognition that the wealth of a defendant is directly relevant to the size of an award has been abrogated.  Specifically, Nevada previously maintained that a punitive damages award that financially destroys or annihilates a defendant is considered excessive.  See Ainsworth, 104 Nev. at 593, 763 P.2d at 677.

Overall, depending on the particular fact pattern, punitive damages are only awarded to punish a defendant and to deter a defendant and others from committing similar acts in the future.  In theory, punitive damages could potentially improve efficiency by correcting for compensatory awards that do not fully reflect the amount of harm done.  Therefore, the plaintiff has the burden of proving by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice in fact.

 

See elements for other claims at the Nevada Law Library

About the Author

Jay Young is a Las Vegas, Nevada attorney. His practice focuses on business law, business litigation, and acting as an Arbitrator and Mediator. Peers have named him an AV-Rated Lawyer, Best Lawyers, a Top 100 Super Lawyers in the Mountain States multiple years, and to the Legal Elite and Top Lawyers lists for many years. Mr. Young has been appointed a part time Judge, a Special Master to the Clark County, Nevada Business Court, as an arbitrator by the Nevada Supreme Court. He has been appointed as an arbitrator or mediator of well over 250 legal disputes from business disputes to personal injury matters. He has been named Best Lawyers for Arbitration. Mr. Young is a respected author of ten books, including A Litigator’s Guide to Federal Evidentiary Objections, A Litigator’s Guide to the Federal Rules of Evidence, and the Federal Court Civil Litigation Checklist.
Mr. Young can be reached at 702.667.4868 or at jay@h2law.com.