A Stitch in Haste

The good news:

AT&T succeeds in overturning $1 million punitive damages award where the consumer's actual damages were $115.05: Today a unanimous three-judge panel of the U.S. Court of Appeals for the Eleventh Circuit issued a decision that reduces the punitive damages award to $250,000. That's still a bit more than a ten-to-one ratio, but the court concluded that it would be difficult to deter AT&T's conduct were the punitive award any smaller.

We need more cases like this, fleshing out the Supreme Court's holding in State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003) on punitive damages. Too many people, especially on Wall Street, seem to think that State Farm says that any punitive damage award greater than ten times the compensatory damages are per se unconstitutional. In fact, it holds neither that nor the converse (i.e., that any punitive damage award less than ten times compensatories enjoys "safe harbor" protection), another often-asserted misconception.

In fact the holding in State Farm was simply this:

Our jurisprudence and the principles it has now established demonstrate, however, that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.

In other words, a punitive damage award in excess of ten times compensatory damages may be subject to a form of "heightened scrutiny," but it is not a per se violation of due process.

In the AT&T case, it appears that, for once, a court got it "just right" in applying State Farm. Limiting the punitive damages to $1,150.50 (i.e., $115.05 times 10) would be meaningless to a company like (the old) AT&T. One million dollars, meanwhile, seemed a bit outrageous to grant a single plaintiff. (Incidentally, the case was about AT&T billing customers on behalf of a 900-number company that was essentially running an illegal lottery over the telephone.)

Businesses, especially large corporations -- even those that misbehave -- need and are entitled to clarity and consistency in the law of punitive damages. The Supreme Court, much to its chagrin, has seen the need to hand down major (i.e., constitutional) principles and guidelines on the subject. It's good to see the lower courts following through -- before the politicians get around to mucking it all up. Since torts are processed in our civil courts, it should be our civil courts -- not legislatures -- that engage in "tort reform."

For Discussion: Was the Supreme Court full of "activist judges" in deciding State Farm? Was the Eleventh Circuit full of "activist judges" when it reduced AT&T's punitive damages?

The bad news:

Relatives of an Oklahoma State basketball player killed in a university plane crash in 2001 were awarded a $1.6 million settlement, a newspaper [The Oklahoman] reported Monday.
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Lawson, a 21-year-old junior guard, was one of 10 men who died Jan. 27, 2001, when an airplane carrying members of the basketball program crashed in a Colorado field on the way back from a basketball game at the University of Colorado.
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Lawson's son, Ramses B. Hereford, received $440,139, his parents, Daniel Lawson Sr. and Phyllis Lawson, each received $223,238 and the remaining money -- nearly $730,000 -- was awarded to attorneys for legal fees and costs, according to court records.

Do the math -- 45% of the award was eaten up by the lawyers. And remember, this case did not go to trial -- the settlement was reached via mediation. Moreover, Hereford was only one of the plaintiffs -- 10 players were killed in all and five other families settled during the same mediation conference as Hereford's. Those other settlements are governed by confidentiality agreements, but there is no reason to suspect that the fee percentages would be much different.

Settlement agreements must always be approved by the judge handling the case. It's too bad that the judge in this case wasn't as scrutinizing as the Eleventh Circuit was in the AT&T case.

For Discussion: Libertarians believe in freedom of contract, so arguably a plaintiff should be free to enter into any contingency fee agreement he sees fit, with any lawyer he chooses. On the other hand, the legal profession is not freely competitive; in fact it is a classic example of a restricted guild. Therefore, clients should, arguably, be entitled to some exogenous protection (e.g., fee caps) from the non-capitalist power of that guild. Which libertarian principle should trump which?

Related Posts:
COX-2 Update: Other.Shoe.Dropping.
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Will Cell Phones Be the Next Product Liability Disaster?

Here are some links regarding lawsuits that libertarians might have opinions on, one way of the other. Open thread -- comment away on any of them.

ITEM: "Sir, you appear to be intoxicated ready for another." Talk about Dram Shop laws!

The company that serves beer at Giants Stadium was slammed for a second time yesterday when a jury added $75 million in punitive damages to the award -- now a staggering $135 million -- for serving suds to a soused fan who left a girl paralyzed in a drunken wreck.

The decision comes a day after the same Bergen County jury ruled that Meadowlands food and drink vendor Aramark had to pay half of a $60 million judgment to cover the girl's living and medical expenses.

That makes $105 million the catering conglomerate must shell out over the 1999 wreck, in which tipsy fan Daniel Lanzaro plowed into a car as the then-2-year-old Antonia Verni and her family were returning from a pumpkin-picking trip.
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Antonia's family argued that Aramark was responsible for the accident, which left her a ventilator-dependent quadriplegic, because it continued to serve Lanzaro after he was extremely intoxicated. The New Jersey man, who is serving a five-year prison sentence, had a blood alcohol level of 0.266, three times the legal limit and equal to some 16 beers.
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Aramark's attorney, Keith Harris, argued that Lanzaro tricked beer vendors into serving him by appearing not to be drunk.
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[The child's lawyer] said he hopes the ruling will change the way beer is sold at stadiums everywhere. "You cannot condone or allow visibly intoxicated people to consume alcohol," he said.

My Take: Dram shop laws are not offensive to libertarian principles per se: run your business negligently, be prepared to pay the price. Far more important is the fact that the claims against the NFL and the Giants were (properly) dismissed. Liability simply cannot be infinitely vicarious, no matter how tragic the incident.

Related Post:
Should Alcohol Be Banned from Stadiums?

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ITEM: "Thank you, unbiased stranger!" Point of Law Forum reports that client lawsuits against Wall Street firms based on claims of biased research are generally failing:

After the 2003 settlement in which 10 Wall Street firms agreed to pay $1.4 billion in fines and restitution over charges of having improperly tilted their stock research to favor underwriting clients, class action lawyers "spen[t] millions of dollars on television and newspaper ads in search of people who lost money on WorldCom and other stocks mentioned in the settlement." But "[s]ecurities-industry arbitration panels have rejected the vast majority of cases decided so far." "'We bet big, and so far we have lost big,' says [a class action lawyer]."

My Take: Remember "cause in fact" and "proximate cause" from first-year torts? Well, news flash: the same principle applies to securities litigation. The client must not only prove that she lost money investing in EvilCorp ("loss causation"), but also that the tainted research caused her to buy EvilCorp stock in the first place ("transaction causation"). Just as "cause in fact" is easy to show, but proximate causation can be more difficult, so too with loss causation and transaction causation. Stick to mutual funds, kids.

UPDATE: Word just came down that class actions against the eye of the storm, former Merrill Lynch analyst Henry Blodget, have been dismissed for exactly the same reason (i.e., no transaction causation).

Related Post:
"The first thing we do, let's kill all the..."

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ITEM: "Have you got anything without Spam in it?" Courtesy of Privacy Spot --

[A] spammer is suing a spamee who complained about all the spam he was receiving. The alleged spammer, a company known as Atriks, is suing Jay Stuler for lost contracts caused by Stuler's allegedly defamatory statements.

Stuler allegedly called Atriks a "notorious spam gang," and the company is listed on the Spamhaus database as a known spammer. Nevertheless, Atriks claims it has complied with the CAN-SPAM Act, and that Stuler's comments therefore amount to defamation. "They apparently are angry that spamming has become difficult for them and blame me," said Stuler.

My Take: A "spamee"? Anyway, "notorious spam gang" is clearly too vague to constitute a defamatory statement. However, the plaintiff spammer also claims that the defendant used the term "criminal." Oops. I smell a settlement.

Related Post:
U.S. & U.K.: Expand War on Spam

I've heard of watchdogs, but "alarm clock dogs"?

All Joyce Grad wanted from her Royal Oak cooperative apartment board was a waiver of its no-pet policy so she could buy a dog to help her cope with debilitating depression. What she got instead was a cold rejection.

But last week, a federal court jury in Detroit sided with the 55-year-old disabled registered nurse in a decision that could solidify the right of mentally ill people to obtain exceptions to no-pet policies in apartment, condominium and cooperative housing complexes.

The verdict, which awarded $14,209 in actual damages and $300,000 in punitive damages to Grad, is believed to be the first federal jury verdict to recognize mental illness as a disability under the federal Fair Housing Act.
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Grad said Tuesday that Lady, through relentless pestering, forces her to get out of bed in the morning, demands to be fed and taken for walks, and helps her to snap back to reality when depression or a panic attack sets in.
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"When I don't want to get up in morning, she gets in my face with her cold wet nose and is unrelenting until I get up," Grad said. "I've trained her that if I don't get up by 7, she is to go to door and bark until help arrives."

Quite a noble dog, to be sure, but what about the law and the verdict?

Mandates regarding handicapped accessibility are a potentially thorny issue for libertarians. On the one hand, more extreme libertarians might reflexively invoke the supremacy of property rights (e.g., "The government shouldn't be able to tell me to make my restaurant handicapped-accessible any more than it should be able to tell me to make it non-smoking."). Others might concede that government buildings should be handicapped-accessible out of a sense of fairness and equity to disabled citizens. Yet another approach might be to argue for a social contract exemption (i.e., those not fully able to participate in the social contract should be exempt from it to the extent of their disability).

The buzzword in the law of the handicapped (e.g., the Americans with Disabilities Act) is usually "reasonable accommodation." The Fair Housing Act provision at issue with the alarm clock dog invokes that same term. It's a compromise doctrine, between the two extremes of no obligation and unlimited obligation. And, if applied properly, it probably makes sense.

But this fact pattern strikes me as different. We typically think of reasonable accommodation questions as being strictly between the disabled individual seeking accommodation and the party asked to provide it (e.g., a property owner). But here another group is being asked to make a "reasonable accommodation" -- Grad's neighbors.

Having a dog in a no-pet complex is one thing; a dog specifically trained to bark non-stop at 7:00am would likely represent quite extreme negative externalities (especially to people like me, who don't need to get up until 7:20am).

Does reasonable accommodation extend to third-parties, such as neighbors? Here's another example, one in which I am admittedly somewhat cold-hearted. Every public bus in New York City is handicapped accessible -- the rear door can be used as a wheelchair lift. Now besides the fact that this apparatus is expensive in and of itself, it also requires the driver to stop the bus, get out of his seat, go to the back of the bus, activate the lift, secure the disabled rider, disable the lift, return to his seat and do the same thing in reverse when the passenger wants to get off. That takes quite a bit of extra time, that slows down the bus and lengthens the trip for every other passenger. All that lost time adds up to quite a hefty "accommodation," one that I personally do not consider "reasonable." Wouldn't it just be easier (i.e., more "reasonable" an "accommodation") to simply provide shuttle buses for the wheelchair-bound and not have them ride regular buses in the first place? (I acknowledge that there are also issues of dignity involved here -- I'm just doing the cold, impersonal math.)

It's one thing to compel two parties in a contract or other interaction to adhere to certain rules and limits, including mandatory reasonable accommodation for the disabled. But it's another issue entirely, one that I think crosses the line, to impose negative externalities on uninvolved third parties, including Ms. Grad's neighbors. The case was wrongly decided and should be reversed on appeal.

In conclusion, let me add two tangential hasty stitches:

1. The punitive-to-compensatory ratio runs afoul of the "ten times" rule safe harbor guideline dictum, whatever the heck it is, of State Farm Mutual Auto Ins. Co. v. Campbell, 538 U.S. 408 (2003). In that case, the Supreme Court held that a punitive-to-compensatory ratio greater than ten is, while not per se unconstitutional, subject to some form of heightened scrutiny. The lower courts are still trying to develop a body of case law around the relatively new State Farm holding. But at the very least, the defendants in this case would seem to have grounds to appeal simply based on the level of punitives.

2. Readers especially interested in handicapped rights law should note the pending Supreme Court case, Spector v. Norwegian Cruise Line, an ADA dispute about what reasonable accommodation for the disabled is owed by foreign cruise ships in U.S. waters. The firm behind SCOTUSblog represents the petitioners -- check out their latest post or here.

Hat tip to Overlawyered.

For Discussion: Any libertarians out there brave enough to argue against the ADA in its entirety?

FUN FACT: President George H.W. Bush described the ADA as his "greatest domestic accomplishment."

Related Post:
On Guns, Parking Lots and the Misrepresentation of "Rights"

If fact patterns like this don't make you want to go to law school, then nothing will:

A woman who won a radio contest that promised the winner "100 grand" sued after the station gave her a candy bar — a Nestle's 100 Grand — instead of $100,000.
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Night host DJ Slick sponsored the station's contest to "win 100 grand," Gill said in the lawsuit. Gill won by listening to the radio show for several hours and being the 10th caller at a specified time.

She went to the radio station the next morning to pick up her prize, but was asked to return later. When she got home, she found that the station manager had left a message explaining she had won a 100 Grand candy bar, not money.
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Later, he offered her $5,000, Gill said. "I said I wanted $95,000 more," she said. "Nobody would watch and listen for two hours for a candy bar."

DJ Slick did not return an e-mail from the Herald-Leader, but he said on his Web site that he had left his job. WLTO and Cumulus declined to comment, identify DJ Slick by his given name or say whether he was fired.

Experts said the radio station could face action by the Federal Communications Commission, which licenses radio stations.
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A prank in Florida led to a similar lawsuit that was settled in 2002. A former waitress claimed Hooters promised to award her a new Toyota car — but instead gave her a toy Yoda.

I have some thoughts, but open thread:

--Is she entitled to the $100,000?

--If so, who should have to pay: the DJ, the radio station, the parent company, or all of them?

--Is this a breach of contract claim or a fraud claim (or can it be both)? (This answer could be important, since a fraud claim can lead to punitive damages; breach of contract claims generally cannot.)

--Should a reasonable person have expected this to be a prank? Does the fact that she made promises to her children matter at all?

--Would it have mattered if the DJ had come clean right away that night rather than misleading the mother until the next morning?

--Would you have accepted the $5,000 settlement, held out for a larger settlement or simply rolled the dice in court for "$100,000 or zero"? Why?

--Is this the sort of problem that the FCC, as the licensing authority, should get involved in?

Comment away — non-lawyer opinions welcome!

Others blogging about this include Goldman's Observations, Conglomerate, This Blog Is Full Of Crap and Day on Torts.

UPDATE: Here's a previous version of a similar incident. Link seems to have died -- too bad.

Anyway, thanks to everyone who chimed in via the comments. I didn't see any unintelligent thoughts -- you should all go to law school! It's rewarding to know that smart people are reading me! :-)

One of the very first rules you learn in law school is "no punitive damages for negligence, only for intentional torts."

Here's a great example why:

Mike Karthauser was walking through the [Bristol, England] city centre to pay some money into the bank when the man jumped out on him.
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"I thought I was going to have my mobile phone stolen, or get stabbed or something. The fear was really building up inside me and I just didn't know what was going to happen.
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Mike said the man in the balaclava told him the stunt was being filmed for use in a programme to be screened on Channel Four.

The man in the balaclava, as well as his employer, are liable for the tort of assault. If there was any physical contact with the victim, then they are also liable for the tort of battery. Both are intentional torts, and (in the U.S. at least) either would entitle the victim not only to compensatory damages (which in this fact pattern would be minimal), but also punitive damages, which could be quite high given the outrageous nature of the misconduct.

Now imagine if there were no such thing as punitive damages. People like these jackasses could go around in their balaclavas scaring the bejeesus out of people in order to make a buck (or, perhaps worse, just for the heck of it) as often as they liked. The threat of a lawsuit, based just on compensatory damages, would be no threat at all. This is what is known as "buying the tort" — tortfeasors knowingly committing torts knowing that even if they get sued, it's "worth it." (In negligence, by contrast, the defendant isn't knowingly doing anything wrong -- that's the very definition of negligence.)

Another recent example was of course the Russell Crowe phone-throwing incident. Telling someone like Crowe that if he throws a phone at someone, then he'll only have to pay their medical bills, might not be an effective deterrent. A punitive damages award is far more likely to get a rich person's attention.

So the next time you hear about an "outrageous" punitive damages award (and yes, sometimes they are outrageous), remember — outrageous is as outrageous does.

Some more thoughts about punitive damages:

--In some jurisdictions punitive damage awards go to the state, like a fine, and not to the plaintiff. I'm ambivalent about such a policy. Any thoughts?

--The threat of criminal charges of course serves a similar purpose as punitive damages, but entails a far more complex legal machinery which, given the higher burden of proof and the potential unwillingness of prosecutors to pursue complaints, might not deter potential tortfeasors the way punitive damages can.

--Punitive damages are also not generally allowed for breach of contract, even when it is "intentional." In fact, in law school they teach you than breaching a contract can sometimes actually be a good thing — a so-called "efficient breach." On the other hand, a malicious breach of contract can often easily be framed as fraud, which is an intentional tort eligible for punitive damages.

(Via Fark.)