BMW of North America,Inc.v.Gore
Supreme Court of the United States,1996
517 U.S.559,116 S.Ct.1589,134 L.Ed.2d 809
JUSTICE STEVENS delivered the opinion of the Court.
The Due Process Clause of the Fourteenth Amendment prohibits a State from imposing a “grossly excessive” punishment on a tortfeasor.TXO Production Corp.v.Alliance Resources Corp.,509 U.S.443 (1993).The wrongdoing involved in this case was the decision by a national distributor of automobiles not to advise its dealers,and hence their customers,of predelivery damage to new cars when the cost of repair amounted to less than 3 percent of the car’s suggested retail price.The question presented is whether a $2 million punitive damages award to the purchaser of one of these cars exceeds the constitutional limit.
I
In January 1990,Dr.Ira Gore,Jr.(respondent),purchased a black BMW sports sedan for $40,750.88 from an authorized BMW dealer in Birmingham,Alabama.After driving the car for approximately nine months,and without noticing any flaws in its appearance,Dr.Gore took the car to “Slick Finish,” an independent detailer,to make it look “snazzier than it normally would appear.” Mr.Slick,the proprietor,detected evidence that the car had been repainted [to repair damage done by acid rain while the car was in transit from Germany].Convinced that he had been cheated,Dr.Gore brought suit against petitioner BMW of North America (BMW),the American distributor of BMW automobiles.Dr.Gore alleged,inter alia,that the failure to disclose that the car had been repainted constituted suppression of a material fact….
At trial,BMW acknowledged that it had adopted a nationwide policy in 1983 concerning cars that were damaged in the course of manufacture or transportation.If the cost of repairing the damage exceeded 3 percent of the car’s suggested retail price,the car was placed in company service for a period of time and then sold as used.If the repair cost did not exceed 3 percent,however,the car was sold as new without advising the dealer that any repairs had been made.Because the $601.37 cost of repainting Dr.Gore’s car was only about 1.5 percent of its suggested retail price,BMW did not disclose the damage or repair to the Birmingham dealer….
[Dr.Gore asserted that his repainted car was worth less than a car that had not been refinished.At trial,he used the testimony of a former BMW dealer,who estimated that the value of a repainted BMW was approximately 10 percent less than the value of a new car that had not been damaged and repaired,$4000 in this case.To support his claim for punitive damages,Dr.Gore introduced evidence that since 1983 BMW had sold 983 refinished cars as new,including 14 in Alabama,without disclosing that the cars had been repainted before sale at a cost of more than $300 per vehicle.Using the actual damage estimate of $4,000 per vehicle,Dr.Gore argued that a punitive award $4 million would provide an appr-o priate penalty for selling approximately 1,000 cars for more than they were worth.In defense of its disclosure policy,BMW argued that it was under no obligation to disclose repairs of minor damage to new cars and that Dr.Gore’s car was as good as a car with the original factory finish.It disputed Dr.Gore’s assertion that the value of the car was impaired by the repainting and argued that this good-faith belief made a punitive award inappropriate.BMW also maintained that transactions in jurisdictions other than Alabama had no relevance to Dr.Gore’s claim.
The jury returned a verdict finding BMW liable for compensatory damages of $4,000,and assessing $4 million in punitive damages.The trial judge denied BMW’s post-trial motion to set aside the punitive damages award,holding,among other things,that the award was not “grossly excessive” and thus did not violate the Due Process Clause of the Fourteenth Amendment.BMW had filed a posttrial motion and introduced evidence that established that its nondisclosure policy was consistent with the laws of roughly 25 States defining the disclosure obligations of automobile manufacturers,distributors,and dealers.The most stringent of these statutes required disclosure of repairs costing more than 3 percent of the suggested retail price;none mandated disclosure of less costly repairs.Relying on these statutes,BMW contended that its conduct was lawful in these States and therefore could not provide the basis for an award of punitive damages.The Alabama Supreme Court reduced the award to $2 million on the ground that,in computing the amount,the jury had improperly multiplied Gore’s compensatory damages by the number of similar sales in all States,not just those in Alabama.]
II
Punitive damages may properly be imposed to further a State’s legitimate interests in punishing unlawful conduct and deterring its repetition.In our federal system,States necessarily have considerable flexibility in determining the level of punitive damages that they will allow in different classes of cases and in any particular case.Most States that authorize exemplary damages afford the jury similar latitude,requiring only that the damages awarded be reasonably necessary to vindicate the State’s legitimate interests in punishment and deterrence.Only when an award can fairly be categorized as “grossly excessive” in relation to these interests does it enter the zone of arbitrariness that violates the Due Process Clause of the Fourteenth Amendment.For that reason,the federal excessiveness inquiry appropriately begins with an identification of the state interests that a punitive award is designed to serve.We therefore focus our attention first on the scope of Alabama’s legitimate interests in punishing BMW and deterring it from future misconduct.No one doubts that a State may protect its citizens by prohibiting deceptive trade practices and by requiring automobile distributors to disclose presale repairs that affect the value of a new car.But the States need not,and in fact do not,provide such protection in a uniform manner.Some States rely on the judicial process to formulate and enforce an appropriate disclosure requirement by applying principles of contract and tort law.Other States have enacted various forms of legislation that define the disclosure obligations of automobile manufacturers,distributors,and dealers.The result is a patchwork of rules representing the diverse policy judgments of lawmakers in 50 States.
That diversity demonstrates that reasonable people may disagree about the value of a full disclosure requirement.Some legislatures may conclude that affirmative disclosure requirements are unnecessary because the self-interest of those involved in the automobile trade in developing and maintaining the goodwill of their customers will motivate them to make voluntary disclosures or to refrain from selling cars that do not comply with self-imposed standards.The legislatures that do adopt affirmative disclosure obligations may take into account the cost of government regulation,choosing to draw a line exempting minor repairs from such a requirement….
We think it follows from these principles of state sovereignty and comity that a State may not impose economic sanctions on violators of its laws with the intent of changing the tortfeasors’ lawful conduct in other States.Before this Court Dr.Gore argued that the large punitive damages award was necessary to induce BMW to change the nationwide policy that it adopted in 1983.But by attempting to alter BMW’s nationwide policy,Alabama would be infringing on the policy choices of other States.To avoid such encroachment,the economic penalties that a State such as Alabama inflicts on those who transgress its laws,whether the penalties take the form of legislatively authorized fines or judicially imposed punitive damages,must be supported by the State’s interest in protecting its own consumers and its own economy.Alabama may insist that BMW adhere to a particular disclosure policy in that State.Alabama does not have the power,however,to punish BMW for conduct that was lawful where it occurred and that had no impact on Alabama or its residents.Nor may Alabama impose sanctions on BMW in order to deter conduct that is lawful in other jurisdictions.
III
Elementary notions of fairness enshrined in our constitutional jurisprudence dictate that a person receive fair notice not only of the conduct that will subject him to punishment,but also of the severity of the penalty that a State may impose.Three guideposts,each of which indicates that BMW did not receive adequate notice of the magnitude of the sanction that Alabama might impose for adhering to the nondisclosure policy adopted in 1983,lead us to the conclusion that the $2 million award against BMW is grossly excessive: the degree of reprehensibility of the nondisclosure;the disparity between the harm or potential harm suffered by Dr.Gore and his punitive damages award;and the difference between this remedy and the civil penalties authorized or imposed in comparable cases.We discuss the consideration in turn.
Degree of Reprehensibility
Perhaps the most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant’s conduct.As the Court stated nearly 150 years ago,exemplary damages imposed on a defendant should reflect “the enormity of his offense.” This principle reflects the accepted view that some wrongs are more blameworthy than others.Thus,we have said that “nonviolent crimes are less serious than crimes marked by violence or the threat of violence.” Similarly “trickery and deceit,” are more reprehensible than negligence….(https://www.daowen.com)
In this case,none of the aggravating factors associated with particularly reprehensible conduct is present.The harm BMW inflicted on Dr.Gore was purely economic in nature.The presale refinishing of the car had no effect on its performance or safety features,or even its appearance for at least nine months after his purchase.BMW’s conduct evinced no indifference to or reckless disregard for the health and safety of others.To be sure,infliction of economic injury,especially when done intentionally through affirmative acts of misconduct,or when the target is financially vulnerable,can warrant a substantial penalty.But this observation does not convert all acts that cause economic harm into torts that are sufficiently reprehensible to justify a significant sanction in addition to compensatory damages.Dr.Gore contends that BMW’s conduct was particularly reprehensible because nondisclosure of the repairs to his car formed part of a nationwide pattern of tortious conduct,Certainly,evidence that a defendant has repeatedly engaged in prohibited conduct while knowing or suspecting that it was unlawful would provide relevant support for an argument that strong medicine is required to cure the defendant’s disrespect for the law.Our holdings that a recidivist may be punished more severely than a first offender recognize that repeated misconduct is more reprehensible than an individual instance of malfeasance….
….We do not think it can be disputed that there may exist minor imperfections in the finish of a new car that can be repaired (or indeed,left unrepaired)without materially affecting the car’s value.There is no evidence that BMW acted in bad faith when it sought to establish the appropriate line between presumptively minor damage and damage requiring disclosure to purchasers.For this purpose,BMW could reasonably rely on state disclosure statutes for guidance.In this regard,it is also significant that there is no evidence that BMW persisted in a course of conduct after it had been adjudged unlawful on even one occasion,let alone repeated occasions.
Finally,the record in this case discloses no deliberate false statements,acts of affirmative misconduct,or concealment of evidence of improper motive,such as were present in [other cases].We accept,of course,the jury’s finding that BMW suppressed a material fact which Alabama law obligated it to communicate to prospective purchasers of repainted cars in that State.But the omission of a material fact may be less reprehensible than a deliberate false statement,particularly when there is a good-faith basis for believing that no duty to disclose exists.That conduct is sufficiently reprehensible to give rise to tort liability,and even a modest award of exemplary damages does not establish the high degree of culpability that warrants a substantial punitive damages award.Because this case exhibits none of the circumstances ordinarily associated with egregiously improper conduct,we are persuaded that BMW’s conduct was not sufficiently reprehensible to warrant imposition of a $2 million exemplary damages award.
Ratio
The second and perhaps most commonly cited indicium of an unreasonable or excessive punitive damages award is its ratio to the actual harm inflicted on the plaintiff.The principle that exemplary damages must bear a “reasonable relationship” to compensatory damages has a long pedigree.Scholars have identified a number of early English statutes authorizing the award of multiple damages for particular wrongs.Some 65 different enactments during the period between 1274 and 1753 provided for double,treble,or quadruple damages.Our decision in both Pacific Mt.Life Ins.Co.v.Haslip and TXO endorsed the proposition that a comparison between the compensatory award and the punitive award is significant....
In Haslip we concluded that … the proper inquiry is “whether there is a reasonable relationship between the punitive damages award and the harm likely to result from the defendant’s conduct as well as the harm that actually has occurred….
The $2 million in punitive damages awarded to Dr.Gore by the Alabama Supreme Court is 500 times the amount of his actual harm as determined by the jury.Moreover,there is no suggestion that Dr.Gore or any other BMW purchaser was threatened with any additional potential harm by BMW’s nondisclosure policy.The disparity in this case is thus dramatically greater than those considered in Haslip and TXO.
Of course,we have consistently rejected the notion that the constitutional line is marked by a simple mathematical formula,even one that compares actual and potential damages to the punitive award.Indeed law awards of compensatory damages may properly support a higher ratio than high compensatory awards,if,for example,a particularly egregious act has resulted in only a small amount of economic damages.A higher ratio may also be justified in cases in which the injury is hard to detect or the monetary value of noneconomic harm might have been difficult to determine.It is appropriate,therefore,to reiterate our rejection of a categorical approach.Once again,“we return to what we said … in Haslip: ‘We need not,and indeed we cannot,draw a mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case.We can say,however,that a general concern of reasonableness … properly enters into the constitutional calculus.’” In most cases,the ratio will be within a constitutionally acceptable range,and remittitur will not be justified on this basis.When the ratio is a breathtaking 500 to 1,however,the award must surely “raise a suspicious judicial eyebrow.”
Sanctions for Comparable Misconduct
Comparing the punitive damages award and the civil or criminal penalties that could be imposed for comparable misconduct provides a third indicium of excessiveness.As Justice O’Connor has correctly observed,a reviewing court engaged in determining whether an award of punitive damages is excessive should“accord ‘substantial deference’ to legislative judgments concerning appropriate sanctions for the conduct at issue.” … [The Court noted that the maximum civil penalty authorized by the Alabama Legislature for a violation of its Deceptive Trade Practices Act is $2,000.]
The sanction imposed in this case cannot be justified on the ground that it was necessary to deter future misconduct without considering whether less drastic remedies could be expected to achieve that goal.The fact that a multimillion dollar penalty prompted a change in policy sheds no light on the question whether a less deterrent would have adequately protected the interests of Alabama consumers.In the absence of a history of noncompliance with known statutory requirement,there is no basis for assuming that a more modest sanction would not have been sufficient to motivate full compliance with the disclosure requirement imposed by the Alabama Supreme Court in this case.
IV
We assume,as the juries in this case and in the Yates [a 1993 Alabama case arising out of the same BMW policy] found,that the undisclosed damage to the new BMW’s affected their actual value.Notwithstanding the evidence adduced by BMW in an effort to prove that the repainted cars conformed to the same quality standards as its other cars,we also assume that it knew,or should have known,that as time passed the repainted cars would lose their attractive appearance more rapidly than other BMW’s.Moreover,we of course accept the Alabama courts’ view that the state interest in protecting its citizens from deceptive trade practices justifies a sanction in addition to the recovery of compensatory damages.We cannot,howeve r,accept the conclusion of the Alabama Supreme Court that BMW’s conduct was sufficiently egregious to justify a punitive sanction that is tantamount to a severe criminal penalty.The fact that BMW is a large corporation rather than an impecunious individual does not diminish its entitlement to fair notice of the demands that the several States impose on the conduct of its business.Indeed,its status as an active participant in the national economy implicates the federal interest in preventing individual States from imposing undue burdens on interstate commerce.While each State has ample power to protect its own consumers,none may use the punitive damages deterrent as a means of imposing its regulatory policies on the entire Nation.As in Haslip,we are not prepared to draw a bright line marking the limits of a constitutionally acceptable punitive damage award.Unlike that case,however,we are fully convinced that the grossly excessive award imposed in this case transcends the constitutional limits.Whether the appropriate remedy requires a new trial or merely an independent determination by the Alabama Supreme Court of the award necessary to vindicate the economic interests of Alabama consumers is a matter tha t should be addressed by the state court in the first instance.
The judgment is reversed,and the case is remanded for further proceedings not inconsistent with this opinion.
It is so ordered.