Decision: In State of Arizona v. Asarco, an en banc Ninth Circuit panel held that a $300,000 punitive damages verdict in a sexual harassment case in which only nominal damages were awarded comported with due process. The plaintiffs in the underlying case successfully established liability for sexual harassment under Title VII; the jury awarded no compensatory damages, $1 in nominal damages and $868,750 in punitive damages. After trial, the district court denied the defendant’s motion for judgment as a matter of law, but capped the punitive damages award at $300,000 pursuant to 42 U.S.C. § 1981a. A three-judge panel for the Ninth Circuit vacated the $300,000 punitive damages award, finding the ratio between the punitive and nominal damages excessive. The Ninth Circuit agreed to rehear the case.

On rehearing, the Ninth Circuit unanimously upheld the $300,000 punitive damages award, concluding: “Here, Aguilar has asserted a claim under a statute, Title VII, which includes a carefully crafted provision, § 1981, that imposes a cap on punitive damages.” The court explained that Title VII “clearly sets forth the type of conduct, and mind-set, a defendant must have to be found liable for punitive damages.” It also “sets a cap on certain types of compensatory damages, combined with punitive damages,” which is graduated to the size of the employer, topping out at $300,000 for the largest employers. As such, Title VII puts employers on notice about the largest possible awards, while “dramatically reduc[ing] the chance of random, arbitrary awards, because the statute articulates the degree of culpability that a defendant must have before being subject to liability and restricts damages awards to a range between $0 and $300,000.” The court concluded that “[w]hen a statute narrowly describes the type of conduct subject to punitive liability, and reasonably caps that liability, it makes little sense to formalistically apply a ratio analysis devised for unrestricted state common law damages awards.”

Impact: In light of the Ninth Circuit’s decision, employers should be aware that their potential exposure when sued under Title VII may be the entire amount up to the punitive damages cap, irrespective of the amount of compensatory or nominal damages awarded. To minimize the amount of any potential liability for punitive damages in Title VII cases, employers should consider reviewing their anti-discrimination policies to ensure there is a clear process for reporting, documenting and investigating discrimination complaints so that such complaints can be addressed in a timely and organized fashion.