Income-Dependent Punitive Damages

Ronen Perry and Elena Kantorowicz-Reznichenko

Punitive damages are sums awarded to tort victims over and above their compensable harm. Despite their relative rarity, they have been very salient in the media, preoccupied appellate courts, and fascinated scholars for decades. This prominence may be attributed, at least in part, to a combination of doctrinal idiosyncrasy and stupefying case outcomes. On the doctrinal level, punitive damages are a civil law remedy which is patently inconsistent with the traditional goals of civil law. From a case outcome perspective, the debate is fueled by “blockbuster awards,” such as a $145 billion award in a class-action brought against tobacco companies in Florida and a $28 billion award in an individual action against Philip Morris in California. While in both cases, as in many others, the extraordinary jury awards were ultimately reduced or overturned, they have surely left a notable mark.

The availability of punitive damages seems undisputed in most common law jurisdictions, but their measure remains controversial. In particular, it is unclear whether and how courts and juries should take the defendant’s wealth into account in assessing punitive damages. This Article puts forward and defends an innovative yet simple method for incorporating this factor into the calculation. The proposal is based on an adaptation of a criminal law model, known as “day-fines,” which has been primarily used in European and Latin-American legal systems. A criminal day-fine model is based on two variables: “number of days” and “daily unit.” The former represents the gravity of the offense; measuring gravity in days makes the monetary sanction conceptually and substantively commensurate with incarceration. The latter reflects the offender’s financial condition. A daily unit usually constitutes a fixed portion of the convicted delinquent’s daily income. The two factors are multiplied to ascertain the total fine.

Building on global criminal law experience, we propose a new model for assessing punitive damages. In brief, if the gravity of the wrong seems to justify an extra-compensatory award, the scope of punitive damages will be determined in several steps. First, the court will determine the gravity of the wrong and translate it into corresponding “severity units” (analogous to the “number of days” in the criminal law model). Next, the court will assess the wrongdoer’s daily income, broadly defined, or a particular fraction thereof. This is the “unit value” (analogous to the daily unit in the criminal law model). The product of these two variables constitutes “total damages.” Lastly, if total damages are greater than compensatory damages in the particular case, the punitive award should equal the difference between total damages and compensatory damages. If total damages are lower than compensatory damages, punitive damages should be nil. In such cases the monetary sanction that would serve the twin goals of punitive damages, deterrence and retribution, is lower than

The Article unfolds in six parts. Part I outlines the development of the law governing punitive damages. Part II analyzes the possible rationales for this unique “middle-ground” doctrine, focusing on deterrence and retribution. Part III considers whether the defendant’s wealth should be considered in assessing punitive damages in light of their underlying goals. Part IV demonstrates how the defendant’s wealth can be integrated into the calculation. It extracts the foundations from European criminal justice systems and adapts the model to American civil law. Part V defends the proposed model from the relevant theoretical perspectives. Lastly, Part VI discusses potential hurdles to the implementation of the new model—constitutional constraints, statutory caps on punitive damages, and the need for special procedural tools.