$10 Million Punitive Damages Award Violative of the U.S. Constitution

From the Desk of Melanie Rose:

The U.S. Constitution prohibits a state from depriving a person of life, liberty, or property without due process of law. The U.S. Supreme Court has held that this prohibition is implicated in, and sets limits on, a jury’s award of punitive damages against defendants in civil litigation.  

Claims Pointer:

The Oregon Supreme Court recently concluded that the jury’s award of $10 million against each defendant violated their due process rights under the U.S. Constitution and affirmed a reduction of the awarded punitive damages to $2.7 million per defendant.

Trebelhorn v. Prime Wimbledon SPE, LLC, 372 Or. 27, 544 P.3d 342 (2024).

Facts:

Plaintiff lived in an apartment complex owned and managed by Defendants, Prime Wimbledon SPE, LLC, and Prime Administration, LLC. Plaintiff was walking across a second-story concrete walkway, which connected his apartment building to a parking structure when the walkway gave way under his right foot. Plaintiff fell through the hole up to his thigh, and suffered a meniscus tear in his right knee, eventually requiring surgery.

Plaintiff sued Defendants for negligence and violation of Oregon’s Residential Landlord Tenant Act, claiming $45,597.06 in economic damages and $350,000 in noneconomic damages. Plaintiff also obtained leave to amend his complaint and add a claim for $10,000,000 in punitive damages against each defendant.

Defendants admitted they negligently failed to properly repair or replace cracked concrete on the walkway, patched the walkway in a manner that was insufficient to withstand the weight of a pedestrian, and failed to warn Plaintiff of the defect in the walkway. While they admitted liability for the incident, Defendants denied the extent of Plaintiff’s damages and moved to dismiss the claim for punitive damages, which the trial court denied.

The Jury awarded Plaintiff his full amount of economic damages, $250,000 in noneconomic damages, and $10,000,000 in punitive damages against each Defendant.

On post-verdict review, the trial court reduced the punitive damages award to $2,660,373.54 against each Defendant finding that the amount awarded by the jury would violate Defendants’ Due Process rights.

The Oregon Court of Appeals affirmed the trial court’s decision without opinion.

Law:

The Due Process Clause of the Fourteenth Amendment of the United States Constitution states that no state shall “deprive any person of life, liberty, or property, without due process of law.” U.S. Const. amend. XIV, § 1.

The Due Process Clause prohibits states from imposing “grossly excessive” punitive damages awards. State Farm Mut. Automobile Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003).

Courts are required to consider three “guideposts” when determining whether a punitive damages award is grossly excessive:

• The degree of reprehensibility of the defendant’s misconduct;
• The disparity or ratio between the actual or potential harm suffered by the plaintiff and the punitive damages award; and
• The difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.

Id. at 418 (citing BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 575 (1996)).

Courts consider each guidepost individually, basing the analysis on “the historical facts that a rational juror could find, based on the evidence in the record,” before considering the guideposts together. Goddard v. Farmers Ins. Co. of Or., 344 Or. 232, 262, 268, 179 P.3d 645 (2008).

Under the first guidepost—reprehensibility of the misconduct—courts consider five factors:

• Whether the harm caused was physical as opposed to economic;
• Whether the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others;
• Whether the target of the conduct had financial vulnerability;
• Whether the conduct involved repeated actions or was an isolated incident; and
• Whether the harm was the result of intentional malice, trickery, or deceit, or mere accident.

Campbell, 538 U.S. at 419 (citing Gore, 517 U.S. at 576-77).

When applying these factors, courts may “compare the level of reprehensibility exhibited in various cases, and that comparison may lead” a court to conclude that the “constitutionally permissible limit in a particular case is ‘high’ or ‘low,’ relative to the limit in another case.” Goddard, 344 at 257.

Under the ratio guidepost, a single digit ratio between the actual and potential harm suffered by the plaintiff and the punitive damages awarded is sufficient in all but the most exceptional cases. Goddard, 344 Or. at 259, 275.

Analysis:

The Oregon Supreme Court began its analysis by noting that although Oregon courts are prohibited from re-examining awards of punitive damages under the Oregon Constitution, such a prohibition must yield to the requirements of Due Process under the U.S. Constitution.

Plaintiff argued that Defendants’ conduct placed them at the extreme end of each of the reprehensibility factors. Although acknowledging that a reasonable juror could conclude that Defendants’ conduct fell at the high end of reprehensibility, the court was not convinced that their conduct was at the “’extreme end’ of the range of reprehensible conduct” that would justify the high ratio of punitive damages awarded by the jury.

To aid in application of the reprehensibility factors, the court compared Defendants’ conduct to that of a cigarette manufacturer in Williams v. Philip Morris Inc., 340 Or. 35 (2006), where the Oregon Supreme Court upheld a punitive damages award of $79.5 million.

The defendant in Williams knew for more than two decades that its conduct was damaging the health of a very large group of Oregonians—smokers—and killing members of that group.

In contrast, Defendants in this case were only aware of the need for repairs five years before Plaintiff’s injury, and there was no evidence that their conduct had caused actual harm prior to Plaintiff’s injury. Therefore, Defendants’ conduct did not fall at the extreme end of reprehensibility.

Plaintiff next argued, under the ratio guidepost, that the court should consider potential harm and conclude that Plaintiff could have been more seriously injured or even killed. 

The court, in rejecting that argument, clarified that potential harm must be based on permissible inferences from the evidence and be closely related to the harm actually suffered. Based on the record before it, the court determined there was no basis to infer a potentially catastrophic injury to Plaintiff.

Under the comparable sanctions guidepost, the court agreed with Plaintiff that the comparable sanctions that could have been imposed on the defendants were severe. For example, the fire marshal had the authority to shut down an imminently dangerous apartment complex. Defendants’ complex had 600 units with an average rent of $1,250; if shut down, it would result in a significant amount in lost rents.

Additionally, a $643 per unit monthly enforcement fee for violating Portland’s property maintenance regulations could have easily added up to millions of dollars.

Considering the three guideposts together, the court concluded that although the reprehensibility and comparable sanctions guideposts supported significant punitive damages, the 33:1 ratio was too far beyond the single-digit ratio considered the outer bound of reasonableness in most cases.

Based on this analysis, the court affirmed the decision of the trial court to reduce the $10 million punitive damages award to just under $2.7 million— a 9:1 ratio.

The Big Picture:

The Oregon Supreme Court’s analysis emphasizes the “grading on a curve” nature of punitive damages under the Due Process Clause. Based on Defendants’ reprehensible conduct and the severity of comparable sanctions, the court agreed that significant punitive damages were warranted. However, this was not one of the exceptional cases which would justify exceeding the single digit ratio guidance of the U.S. Supreme Court.