Alert to judges and juries: A Supreme Court ruling this week put a welcome limit on outsized punitive awards against defendants in civil cases.
The decision doesn't deal with the direct compensation often given to plaintiffs for wrongs done to them. Rather, it reins in a troublesome trend of state juries punishing businesses financially beyond all reasonableness. The ruling will help restore public faith in the ability of courts to mete out fair rather than lucrative justice.
The 6-to-3 decision struck down a jury judgment ordering State Farm Mutual Automobile Insurance Company to pay $145 million in punitive damages to a Utah couple who claimed the company should have settled a case in which the husband had injured others in a car accident. The couple didn't want the case to go to trial. The Utah jury awarded them $1 million in compensation.
The Supreme Court decided to address the case's ratio of punitive to compensatory awards - 145 to 1. Justice Anthony Kennedy, who wrote the majority opinion, suggested that such cases should have a maximum ratio in the single digits, based on the Constitution's prohibition against "excessive fines."
As a tool to protect Americans from corporate wrongdoing, punitive damages have their place in the judicial system. Such judgments can serve as disincentives for companies to make decisions that end up hurting consumers.
Many, if not most, punitive awards are reasonable. It's the few giant awards, however, that have cast a pall over the legal system, as well as much of business. In fact, the high court ruled that big companies don't necessarily deserve large punitive verdicts just because of their size and wealth. There are other effective ways to regulate corporate behavior.
One key point, Justice Kennedy wrote, "Punitive damages are not a substitute for the criminal process." When companies engage in criminal behavior, justice can be meted accordingly.
At the same time, ordinary Americans must retain the right to protect themselves from corporate malfeasance, and courts are well advised not to sway the legal pendulum too far in the opposite direction.
The high court's decision will likely ricochet in many pending suits, such as a California court's ruling that Ford Motor company must pay $290 million in a case involving an accident with a SUV - one of the largest punitive-damage verdicts in US history.
The court may have realized the many abuses in tort litigation and decided to lay down a marker for reform. In fact, tort reform at both the federal and state level is needed. State and federal lawmakers should follow the court's lead, and pass laws curbing the excesses in civil judgments.