Will Massachusetts Follow the Pack or Buck the Trend?

On October 13, 2011, a jury in Essex County, Massachusetts, awarded $20.6 million to the estate of a woman who broke her neck and died after going down an inflatable pool slide head first, an award that included $18 million in punitive damages based on the alleged gross negligence of the defendant toy retailer. The plaintiff in that case alleged that the defendant failed to test to ensure that the slide complied with a Consumer Product Safety Commission regulation applicable to pool slides. The defendant denied that the regulation applied to inflatable pool slides, and argued that it in good faith relied on a reputable agency, which certified that the slide complied with all applicable regulations. The jury found that the defendant was grossly negligent and subsequently levied a punitive damages award more than seven times the amount of the compensatory damages that it awarded.

More than 18 months later, the Massachusetts Supreme Judicial Court, on May 6, 2013, heard oral arguments on whether the $18 million punitive damages award withstood constitutional muster, including whether punitive damages based on gross negligence should be evaluated differently from punitive damages based on willful, wanton and reckless conduct as articulated by the United States Supreme Court (Supreme Court). Massachusetts is in the small minority of states that permits punitive damages based on gross negligence, and further has not enacted statutory restrictions or court-mandated limitations on such awards.

While the Supreme Court has not yet established a brightline rule with respect to the awarding of punitive damages, it has established three guideposts in determining the constitutionality of punitive damages awards: (1) “the degree of reprehensibility of the defendant’s conduct,” (2) the ratio of the punitive damages award to the “actual harm inflicted on the plaintiff” and (3) a comparison of “the punitive damages award and the civil or criminal penalties that could be imposed for comparable misconduct.” BMW of N. America, Inc. vs. Gore, 517 U.S. 559, 575, 580, 583 (1996). The most important guidepost is the “degree of reprehensibility of the conduct,” with gross negligence at one end of the spectrum and malice at the far opposite end. Id. at 575-576. The Supreme Court subsequently established “gross negligence” as “the least blameworthy conduct triggering punitive liability.” Exxon Shipping Co. v. Baker, 554 U.S. 471, 512 (2008).

The seven states in addition to Massachusetts that permit punitive damages awards based on gross negligence place heightened standards on such awards consistent with the Supreme Court’s increasingly stringent guidelines. For example, in Florida, punitive damages are permitted when a “defendant engages in conduct … with such gross negligence as to indicate a wanton disregard for the rights of others.” W.R. Grace & Co.-Conn. v. Waters, 638 So. 2d 502, 503 (Fla. 1994) (emphasis added).

The Florida Supreme Court has articulated that the character of negligence necessary to sustain an award of punitive damages must be of “a gross and flagrant character, evincing reckless disregard of human life, or of the safety of persons exposed to its dangerous effects … or that reckless indifference to the rights of others which is equivalent to an intentional violation of them.” Id. (emphasis added).

The Florida Supreme Court recognized that the above definition “appears to be in line with the weight of authority as to the character of negligence necessary to be shown to sustain criminal liability.” Carraway v. Revell, 116 So. 2d 16, 20 (1959) citing Mr. Chief Justice Brown in Cannon v. State, 107 So. 360, 363 (1926). The court went on to recognize that “conduct can exist which is termed gross negligence which will not justify the imposition of punitive damages.” Carraway, 116 So. 2d at 21. In other words, gross negligence and “culpable negligence giving rise to punitive damages are not necessarily synonymous.” Carraway, 116 So. 2d at 21.

In Kentucky, while gross negligence is the least culpable conduct used as the basis for punitive damages, such conduct must have “the same character of outrage justifying punitive damages as willful and malicious misconduct in torts where the injury is intentionally inflicted.” Peoples Bank of N. Ky., Inc. v. Crowe Chizek & Co. LLC, 277 S.W.3d 255, 268 (Ky. Ct. App. 2008). Additionally, in Mississippi, punitive damages are permitted if the plaintiff proves that the defendant acted with “gross negligence which evidences a willful, wanton or reckless disregard for the safety of others.” Miss. Code Ann. § 11- 1-65(3)(a). The Mississippi Supreme Court has articulated that “[p]unitive damages may be recovered for a willful and intentional wrong, or for such gross negligence and reckless negligence as is equivalent to such a wrong.” Seals v. St. Regis Paper Co., 236 So. 2d 388, 392 (1970) (emphasis added).

New Mexico allows a plaintiff to recover punitive damages so long as the wrongdoer’s conduct is willful, wanton, malicious, reckless, oppressive, grossly negligent, or fraudulent and in bad faith. Madrid v. Marquez, 131 N.M. 132, 135 (N.M. Ct. App. 2001) citing Sanchez v. Clayton, 877 P.2d 567, 573 (1994). Recognizing that punitive damages are in the nature of punishment, New Mexico courts recognize that “it is necessary that there be some evidence of a culpable mental state, whether recklessness or ‘utter indifference.’” Gonzales v. Sansoy, 103 N.M. 127, 130 (N.M. Ct. App. 1984).

In North Carolina, punitive damages may be awarded in negligence cases for “wanton or gross acts”; however, such “outrageous behavior” requires “evidence of ‘insult, indignity, malice, oppression or bad motive.’” Rogers v. T.J.X. Cos., 329 N.C. 226, 230 (N.C. 1991); Mazza v. Medical Mut. Ins. Co., 311 N.C. 621, 626 (N.C. 1984). In Texas, the Texas Supreme Court recognized the “constitutional fence around exemplary damages” constructed by the Supreme Court, and understood that they “must police [the fence] to prevent the ‘acute danger of arbitrary deprivation of property.’” Bennett v. Reynolds, 315 S.W.3d 867, 885 (2010). The Texas Supreme Court further accepted the Supreme Court’s disapproval “of awards ‘that dwarf the corresponding compensatories.’” Id.

The second Gore guidepost is the ratio between compensatory and punitive damages awards. The Supreme Court has held that a punitive damages award four times the amount of compensatory damages is “close to the line [of] constitutional impropriety.” Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 23-24 (1991). Subsequently, the Supreme Court reasoned that “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.” State Farm, 538 U.S. at 424-425.

Additionally, in Exxon Shipping Co. v. Baker, the Supreme Court held that an “acceptable standard can be found in the studies [that] reflect the judgments of juries and judges in thousands of cases as to what punitive awards were appropriate in circumstances reflecting the most down to the least blameworthy conduct, from malice and avarice to recklessness to gross negligence.” 554 U.S. at 512 (2008). The “data in question put the median ratio for the entire gamut at less than 1:1, meaning that the compensatory award exceeds the punitive award in most cases.” Id.

The Supreme Court further determined that “few awards exceeding a single-digit ratio [9:1] between punitive and compensatory damages, to a significant degree, will satisfy due process.” Exxon, 554 U.S. at 501 citing State Farm, 538 U.S. at 425. “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.

In a well-functioning system, [the Supreme Court] would expect that awards at the median or lower [levels] would roughly express jurors’ sense of reasonable penalties in cases with no earmarks of exceptional blameworthiness within the punishable spectrum [such as cases] without intentional or malicious conduct.” 554 U.S. at 512-513.

The Supreme Court has warned against “judicially derived standards [that] leave the door open to outlier punitivedamages awards,” and has stressed that “the judiciary [cannot] wash its hands of a problem it created, simply by calling quantified standards legislative.” Exxon, 554 U.S. at 507-508. Consistent with the above reasoning, states that permit punitive damages based on gross negligence have legislatively and judicially limited such awards to the lowest end of the spectrum.

For example, in Florida, punitive damages are capped at three times the amount of compensatory damages for the most egregious conduct, and plaintiffs must proffer “clear and convincing evidence” to support same. Fla. State. Ann. § 768.73(1)(a); In re Std. Jury Instructions in Civil Cases – Report No. 09-01 (Reorganization of the Civil Jury Instructions). Additionally, the Illinois Supreme Court has articulated that when “there is no evidence that the defendant had an intentional, premeditated scheme to harm [the plaintiff[ … this places defendant’s conduct on the low end of the scale for punitive damages, far below those cases involving a defendant’s deliberate attempt to harm another person.” Lawlor, 2012 IL 112530, P62 (Ill. 2012) (emphasis added); Slovinski v. Elliot, 237 Ill. 2d 51, 64 (2010).

Kentucky has established an “upper limit [for] a punitive damage[s] award equal to four times the compensatory damages,” for the most egregious conduct. McDonald’s Corp. v. Ogborn, 309 S.W.3d 274, 301-302 (Ky. Ct. App. 2009). Additionally, plaintiffs may recover punitive damages only with proof of clear and convincing evidence of the conduct giving rise to such damages. Ky. Rev. State. § 411.184(2).

The North Carolina Supreme Court held that the North Carolina statute limiting punitive damages to three times the compensatory damages or $250,000, whichever is greater, was in line with the Supreme Court limitations on awards of punitive damages. Rhyne v. K-Mart Corp., 358 N.C. 160, 184-185 (2004) citing N.C. Gen. Stat. § 1D-25. Citing the Supreme Court’s recognition that “there was a long legislative history of ‘providing for sanctions of double,  treble, or quadruple damages to deter and punish,’” the North Carolina Supreme Court found that “limiting the punitive award [to] three times the compensatory award is in line with the standards suggested by the Supreme Court to prevent grossly excessive awards.” Rhyne, 358 N.C. at 184-185 citing State Farm, 538 U.S. at 425.

In Texas, punitive damages may not exceed an amount equal to the greater of (1) two times the amount of economic damages, plus an amount equal to any noneconomic damages found by the jury, not to exceed $750,000, or (2) $200,000. Tex. Civ. Prac. & Rem. Code § 41.008. Additionally, punitive damages are permitted only if the plaintiff proves by clear and convincing evidence that the harm complained of resulted from fraud, malice or gross negligence. Tex. Civ. Prac. & Rem. Code § 41.003.

Of the states that permit punitive damages based on gross negligence, Massachusetts is the only one that has not yet enacted statutory restrictions or court-mandated limitations as articulated by the Supreme Court in BMW v. Gore and its progeny. From capping damages at three times the exemplary damages for the most egregious conduct, to requiring clear and convincing evidence for the awarding of such damages, to restricting damages based on the least culpable conduct to a ratio of 1:1 or less with compensatory damages, other states have set strict parameters for punitive damages based on gross negligence. The Massachusetts Supreme Judicial Court’s decision whether to limit punitive damages based on gross negligence, expected in summer or early fall 2013, will have a significant effect on potential liability exposure in the Commonwealth for all defendants.