Punitive Damages X 1,000,000,000

Just about a week ago, the 2nd Circuit affirmed a punitive damage award of $1,000,000,000 against a group of defendants from Turkey. The case, Motorola Credit v. Uzan, et al, involved a claim of fraud committed by the defendants in order to induce Motorola and Nokia to loan them about 2 BILLION dollars. According to the opinion, the defendants converted the loan proceeds to their own use, and refused to respond, or to participate meaningfully in the litigation against them. They defied court orders, refused to produce documents, would not show up for depositions, and basically became fugitives from civil justice.

The 2nd Circuit gave some interesting figures about the relationship of punitive damages to proven net worth. Courts have, apparently, approved awards of 37%, 71%, and 18% of a particular defendant's net worth. And, applying Illinois law, noted that multiples of 20 and 75 times compensatory damages had been approved (although I would not be so confident that these multiples would survive in today's courts).

In considering the facts of the case under the now-almost-famous BMW Guideposts, the 2nd Circuit made an illuminating comment --

"...to date, the defendant's financial status has occupied no place in the Supreme Court's due process review"

Thus, the idea that net worth is relevant to a punitive damages is strictly a creature of state law, not a constitutional requirement. Of course, many states do consider net worth to be relevant, but it will be interesting to see if net worth makes its way into the Constitution in the now-pending Exxon Valdez case. At this point, I'm not even sure it was an issue, but that has never really stopped the courts from writing about things. Equally important, though, are cases making their way through the courts where the financial status of the defendant is the sole issue. And, these cases turn on whether the courts will apply the principle that a punitive damage award is meant to punish, not to bankrupt. [Hazelwood v. Ill. Cent. RR., 114 Ill. App. 3d 703, 713 (App. Ct. 1983)].

But, reading BMW, one must conclude that the Court was serious when it said that "the most important indicium of the [award's] reasonableness...is the degree of reprehensibility of the defendant's conduct." 517 U.S. 559, 575. So, maybe there is room to believe that there are cases where the conduct is so reprehensible that putting a company out of business is the right thing to do.