Why it matters: In a decision that should make employers sit up and take notice, the Ninth U.S. Circuit Court of Appeals approved an award for a Title VII plaintiff of $125,000 in punitive damages – and just $1 in nominal damages. Reviewing the boundaries of due process and existing case law on constitutional damages ratios, the court reduced a lower court’s award of $300,000 down to $125,000. While the court acknowledged that the original $300,000 punitive award was “outside of constitutional limits,” the panel decided on $125,000 because that was the highest ratio approved by a fellow federal appellate court in a survey of discrimination cases. In addition to putting employers on notice that the Ninth Circuit will uphold punitive damages ratios far beyond a single-digit limit – up to 125,000 to 1 – the holding presents an interesting question: How high is the court willing to go? If another federal court were to approve an award with a higher ratio between compensatory and punitive damages, would the Ninth Circuit match it?

Detailed Discussion

A female employee of a copper mining facility alleged that she was subjected to sexual harassment over an 11-month period and that when she complained, she was retaliated against and constructively discharged.

The harassment at ASARCO included a daily proposition by her male supervisor, who often stood close enough to make Angela Aguilar fear for her safety. Despite her repeated complaints, the harassment continued. After transferring to a different work crew, Aguilar dealt with another supervisor who used choice phrases like “your ass is mine” and often yelled at her, snapped his fingers, and threatened her with termination.

After an eight-day trial, a federal jury found ASARCO liable on the sexual harassment claims but not the constructive discharge or retaliation claims. The jury did not award any compensatory damages for Aguilar. Instead, they awarded $1 in nominal damages for the sexual harassment claim and $868,750 in punitive damages.

The trial court reduced the punitive award to $300,000, the statutory maximum under Title VII for an employer of ASARCO’s size. The employer appealed, arguing that the award remained constitutionally excessive.

A three-judge panel of the Ninth Circuit agreed, reducing the $300,000 award to $125,000.

The court reviewed recent case law from the U.S. Supreme Court addressing the constitutionality of punitive damages, beginning with the 1996 decision that changed the landscape, BMW of North America, Inc. v. Gore, where the justices held that an excessive punitive award could violate “[e]lementary notions of fairness enshrined in our constitutional jurisprudence.” The Ninth Circuit then applied the three factors laid out in the Gore decision – the reprehensibility of the defendant’s conduct, the ratio to actual harm inflicted on the plaintiff, and civil or criminal penalties that could be imposed for comparable misconduct – to ASARCO’s conduct.

Citing Gore for the proposition that “the most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant’s conduct,” the panel determined ASARCO’s conduct was repeated and demonstrated “indifference or reckless disregard for Aguilar’s health and safety.” Further, the jury found that the employer acted “with malice…[or] with reckless indifference to the federally protected rights of [Aguilar].”

The company’s actions, therefore, supported substantial damages and the imposition of a very large punitive award, the court said. While the U.S. Supreme Court has held that few awards exceeding a single-digit ratio between compensatory and punitive damages will satisfy due process, the Ninth Circuit emphasized that no bright-line ratio exists and that a higher ratio may be “justified when ‘a particularly egregious act has resulted in only a small amount of economic damages.’ ”

After conducting a survey of discrimination cases and awards across the country, the panel said that affirming the $300,000 in punitive damages would result in the highest approved ratio in a discrimination case since Gore. The highest ratio found by the panel came from the Fifth Circuit, where an award of $125,000 in punitive damages and only $1 in compensatory damages was affirmed. The Ninth Circuit followed suit, reducing the $300,000 award to $125,000.

“Our task in reducing the award is not easy. No bright line ratio has been set by the Supreme Court for cases which are ‘particularly egregious.’ Since nothing compels a particular dollar figure, we conclude that the highest punitive award supportable under due process is $125,000, in accord with the highest ratio we could locate among discrimination cases,” the panel wrote. “We think this is the highest reward which maintains the required ‘reasonable relationship’ between compensatory and punitive damages. This award is nonetheless on the order of the damages cap in Title VII and proportional to the reprehensibility of ASARCO’s conduct.”

To read the opinion in State of Arizona v. ASARCO, click here.