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Court Gives Guidance on Review of Punitive Damage Awards

The U.S. Supreme Court has, once again, provided guidance on the proper judicial review to be accorded punitive damages awards. In Cooper Inds. v. Leatherman Tool Group, Inc., Dkt. No. 99-2035, which issued on May 14, 2001, the Court reverses a Ninth Circuit affirmance of a jury award of punitive damages.

In a trademark infringement case, a federal jury in Oregon granted Plaintiff Leatherman $50,000 in compensatory damages and $4.5 million in punitive damages (a ratio of 90:1). Cooper’s appealed, arguing that the punitive damages were grossly, i.e., constitutionally, excessive under the standards set by the Supreme Court in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996). The Ninth Circuit’s review of the Award considered these factors, but under an “abuse of discretion” standard. The Supreme Court reversed the Ninth Circuit, but, without considering the constitutionality of the punitive verdict’s size.

Instead, the Court, in an 8-to-1 decision, held that the Ninth Circuit’s review had proceeded under too restrictive a standard. “[C]ourts of appeals,” the majority states, “should apply a de novo standard of review when passing on district courts’ determinations of the constitutionality of punitive damages awards.” Accordingly, the case must be remanded for further review, but the Court adds some commentary on the three Gore guidelines and suggests “that in this case a thorough, independent review of the District Court’s rejection of petitioner’s due process objections to the punitive damages award might well have led the Court of Appeals to reach a different result.” (ed: Justice Ginsburg filed the lone dissent, because she feels “abuse of discretion” is the appropriate standard, as it is for compensatory damage awards. The decision signals a concern that has been long-standing with the Court on the issue of punitive damages. To the extent that some constitutional restraints will be applied in this area, it seems possible that punitive awards in arbitration will be likewise affected. We are planning to deal with this in an upcoming edition of the SAC newsletter.) (SAC Ref. No. 01-22-01)

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