Case of the $2-Million Paint Job : Another step is taken in evolution of law on punitive damages

Is $2 million an excessive award in a lawsuit over an automobile paint job?

Certainly. The U.S. Supreme Court held last week that this levy by an Alabama jury was “grossly excessive” and violated “elementary notions of fairness.” Particularly so because, as the court held, the defendant did nothing wrong. This case represents the first time the high court has rejected a specific punitive damage award as too high and as violating constitutional due-process guarantees.

The decision had been anxiously awaited by both sides in the debate over national tort reform. Is this the victory that businesses have long sought, a limitation on runaway juries and frivolous claims? Probably not. The court’s majority opinion is more a constraint than a useful guideline to state courts on the size or frequency of punitive awards. The tone is tentative and makes clear that the case will not guide most punitive damage awards. “We are not prepared to draw a bright line” or set a mathematical limit on punitive damages, wrote Justice John Paul Stevens.

But neither will plaintiffs’ lawyers draw comfort. In a series of cases over the last several years, the court hinted that some awards may be too large; now it has explicitly stated so and may elaborate on its reasoning in future cases.

Juries in most states can award punitive damages when they find deliberate and malicious wrongdoing. These awards are over and above damages assessed to compensate plaintiffs for their out-of-pocket losses.

The Alabama jury clearly was without foundation when it found BMW of North America liable for millions of dollars because it sold Dr. Ira Gore of Birmingham a car in which panels had been repainted to fix minor shipping damage. (The original award of $4 million was reduced to $2 million by the Alabama Supreme Court.)

Gore sued the German auto maker, claiming he had been deceived and sold a defective product. Yet the company’s standard contract states that minor damage is to be repaired but not necessarily disclosed to buyers. The cost of the repairs to BMW was only $601.

So what does this case mean? It legitimates the contentions that some state courts have permitted outlandish jury awards. At the same time, by demonstrating that the Supreme Court may now redress such excesses, the BMW decision undercuts the need for national legislation to limit damage suits. If the confused product liability bill that President Clinton vetoed earlier this month is indicative of such legislation, court review seems a far wiser approach.