In an important decision, the New Jersey Supreme Court recently interpreted and clarified the New Jersey Punitive Damages Act, establishing that punitive damages may only be awarded to deter the conduct of a specific defendant rather than the general public, and that juries are permitted to consider a defendant’s financial condition at the time of the wrongdoing, even where the defendant may be insolvent at the time of judgment.

In Tarr v. Bob Ciasulli’s Mack Auto Mall, Inc., plaintiff filed suit against her employer and its related entities claiming that she was the victim of pervasive workplace sexual harassment. Although she prevailed at trial, plaintiff was awarded no damages. She was also successful in her appeals, which reached all the way to the N.J. Supreme Court, and the case was retried. Plaintiff again prevailed, this time winning a total judgment, including attorneys fees, of $290,848.73. Defendants then appealed and, after the Appellate Division failed to reach a unanimous decision, the case reached the N.J. Supreme Court a second time.

The first issue before the court was whether the legislature, in enacting the Punitive Damages Act, intended punitive damages to deter only the specific wrongdoer in the lawsuit or whether it intended the deterrent effect of the Act to be aimed more broadly at other potential wrongdoers. In Tarr, defendants objected to the trial court’s jury instruction, authorizing the jury to consider general deterrence, and to plaintiff’s argument that the jury should “send a message to deter this particular defendant and others.” On this point, the court noted that, while at common law general deterrence was a goal of punitive damages, the enactment of the Punitive Damages Act indicated that the legislature was dissatisfied with the indiscriminate results that general deterrence produced. The legislative history of the Act was clear that punitive damages were to be assessed against defendants on an individual basis. Accordingly, the court held that defendants were entitled to a new trial on the amount of punitive damages.

The second issue considered by the court was whether, in assessing punitive damages, the jury was required to consider defendants’ financial condition at the time the defendant committed the wrong or at the time of judgment. Defendants argued that a jury should only be permitted to consider evidence of a defendant’s wealth at the time of judgment, which, given defendant’s alleged insolvency, would make any retrial on punitive damages unnecessary. The court agreed that a defendant’s financial condition at the time of judgment was an important factor, but not the only one. Fairness and reasonableness were also factors to guide the jury. The court thus rejected defendants’ argument, concluding that the Punitive Damages Act did not contemplate an “either-or timing choice.” Rather, the requirement of the Act that jurors consider the “profitability of the misconduct to the defendant” meant that there should be “a nuanced factual examination” of a defendant’s financial position, including an evaluation of its condition at the time of the wrong. The court also held that jurors ought not to be concerned about whether a judgment will be collectible and were entitled to consider “whether defendant purposefully was stripped of assets to avoid a judgment.”

The Tarr decision clarifies the jury’s role in deciding whether to impose punitive damages, and if so, in what amount. Under the Act, punitive damage awards must be uniquely crafted to deter the conduct of the defendants in the lawsuit and the entire financial history of a defendant is relevant, including any efforts it may have employed to become judgment-proof.