Judicial Review of Large Jury Awards of Non-Economic and Punitive Damages

May 23, 2023
Nicolas Enrique O’Connor

In employment litigation, plaintiffs generally can receive two types of damages, compensatory and punitive. Compensatory damages seek to place the plaintiff in the same position as if she had not been discriminated or retaliated against and can be both economic and non-economic. Economic damages include back pay (e.g., lost wages and bonuses), lost benefits, medical expenses, and front pay, among others, and such damages are typically quantifiable. Non-economic damages are usually awarded in the form of emotional distress damages. While not easily quantifiable and often subjective with no requirement for “objective evidence,” such as medical testimony, damages for emotional distress are still based on the actual harm suffered by the plaintiff herself. In addition to compensatory damages, juries in some cases may also award punitive damages, a class of damages which serve to punish unlawful conduct and to deter similar future conduct. BMW of North Am., Inc. v. Gore, 517 U.S. 559, 568 (1996).

A Court’s Authority to Reduce Jury Awards

However, a jury’s awards of compensatory and punitive damages are subject to judicial review and remittitur, i.e., a reduction of the jury’s damages award which a plaintiff can either accept or reject. If a trial court orders a reduction in damages and the plaintiff rejects that order, she then proceeds to a new trial on damages. If the trial court does not alter the jury’s awards and the defendant appeals, the court of appeals may vacate the award and remand the case for the trial court to reduce the damages. Generally, trial courts and courts of appeals will not reduce a jury’s award of damages unless there is no evidence to support it or it is such a disproportionately large award that it “shocks the conscience.” Courts generally hold that, because emotional distress is subjective, a plaintiff’s or witness’ testimony as to, for instance, the dignitary harm and emotional pain and suffering the plaintiff experienced can alone be sufficient to support awards of non-economic damages even if they comprise the majority or all of the total compensatory damages award. While these emotional and dignitary harms cannot be remedied with the same precision as lost wages, a jury will evaluate the plaintiff’s evidence of her emotional distress and attempt to award a fitting amount in damages.

The past year has provided several examples of courts reducing large awards of non-economic damages. In Diaz v. Tesla, Inc., 598 F. Supp. 3d 809 (N.D. Cal. 2022), the plaintiff’s co-workers called him the N-word, made other racist remarks, and painted racialized graffiti at his workplace; his supervisors took part in the harassment; and management failed to correct any of this abusive behavior, among other discriminatory acts. The plaintiff testified that he suffered from insomnia, weight loss, emotional issues, and intrafamilial problems, developed trust issues, and lost “faith in his fellow humans,” and the jury awarded him $4.5 million in past damages and $2.4 million in future damages. Id. at 836. The court found this $6.9 million award excessive. Because the plaintiff only worked for Tesla for nine months and did not experience physical illness or injury and the award greatly exceeded that in similar cases, the court also found the jury’s $4.5 million award for past damages excessive. The fact that he mostly recovered emotionally once he left Tesla, even though he still has trust issues, warranted “a steep reduction” in future damages. The court concluded that $1.5 million in total compensatory damages was appropriate, a reduction of $5.4 million.

Similarly, in Kingston v. IBM Corp., No. 21-35548 (9th Cir. Aug. 1, 2022), the Ninth Circuit affirmed a verdict finding that IBM had terminated the plaintiff, a Black salesman, for complaining about race discrimination and wage theft. However, while the court left his $5 million award of economic damages intact, it vacated the jury’s award of $6 million in non-economic damages, in part because no other court in Washington had ever upheld awards larger than $1.5 million. On remand, the trial court remitted the non-economic damages award to $1.5 million based on a comparison to the damages awarded in similar cases. Kingston v. IBM Corp., C19-1488 MJP, 5 (W.D. Wash. Dec. 23, 2022).

Constitutionality of Excessive Punitive Damages

Unlike compensatory damages, punitive damages serve to punish and deter egregious conduct, and are evaluated under different standards, although the circumstances which support large awards of non-economic damages may also justify large awards of punitive damages. Because punitive damages are a penalty imposed upon a defendant, rather than compensation for actual damages, there is a constitutional concern that grossly excessive awards of punitive damages constitute arbitrary deprivations of property prohibited by the Excessive Fines Clause of the 8th Amendment and by the Due Process Clause of the 14th Amendment. The Supreme Court has refused to impose a bright line at which punitive damages are excessive, but it has discussed the relevant concerns in BMW of North America v. Gore and in State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003). In State Farm, an insurance customer in Utah sued the company for its mishandling of a personal injury claim arising from an automobile accident. The jury awarded $1 million in compensatory damages and $145 million in punitive damages against State Farm, and the Court discussed the three guideposts it had laid out in BMW to determine whether an award is unconstitutionally excessive:

1) the degree of reprehensibility of the defendant’s misconduct; 2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and 3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases. Id. at 418.

The Court reiterated that the most important factor is the reprehensibility of the misconduct, which requires analyzing whether the misconduct caused physical harm, evinced a reckless disregard of health and safety, targeted a financially vulnerable individual, involved repeated actions, or resulted from intentional malice, trickery, or deceit. Id. at 419. In that case, the Court was concerned that the verdict rested on evidence of State Farm’s conduct nationwide rather than focusing only on its handling of the Utah customer’s claim, and it concluded that the $145 million award of punitive damages was clearly excessive in light of the incredibly large 145-to-1 ratio of punitive to compensatory damages and the existence of only a $10,000 civil penalty for fraud. Even though the Court refused to set a bright-line ratio, it did say that “few awards exceeding a single-digit ratio between punitive and compensatory damages . . . will satisfy due process.”  Id. at 425. Lower courts have thus assumed that a nine-to-one ratio is likely the upper limit of punitive damages. See Masters v. City of Independence, Missouri, 998 F.3d 827, 842 (8th Cir. 2021); Kidis v. Reid, 976 F.3d 708, 716 (6th Cir. 2020).

In Diaz v. Tesla, the court found the jury’s punitive damages award of $130 million to be excessive under the State Farm rationale. The court had ordered a reduction in compensatory damages to $1.5 million, so the punitive award was more than 86 times the compensatory award. The court noted that “intentional [race] discrimination . . . is especially reprehensible and a different kind of harm, a serious affront to personal liberty,” which, given the fact that the United States fought a civil war to advance racial equality, “often results in large punitive awards.”  Diaz, 598 F. Supp. 3d at 842 (quoting Flores v. City of Westminster, 873 F.3d 739, 760 (9th Cir. 2017) and Zhang v. Am. Gen. Seafoods, Inc., 339 F.3d 1020, 1043 (9th Cir. 2003)). The repeated instances of racial abuse, Tesla’s failure to meaningfully discipline any of the perpetrators of this abuse, the plaintiff’s financial vulnerability as an employee of Tesla, plaintiff’s physical symptoms of emotional distress, and Tesla’s attempt to design an employment structure which would allow it to shirk liability all favored finding Tesla’s misconduct particularly reprehensible. However, in the court’s view, even this egregious misconduct could not sustain punitive damages larger than nine times compensatory damages, and the court remitted the punitive damages award to $13.5 million. The plaintiff ultimately rejected this reduced total award of $15 million, opting for a new trial on damages which took place in late March 2023. On April 3, 2023, after this new trial on damages, the new jury awarded the plaintiff $175,000 in non-economic damages and $3 million in punitive damages, about 2.3% of the award he received at the first trial. On May 9, 2023, the plaintiff filed a motion for a new trial, alleging that misconduct by Tesla’s attorneys deprived him of a fair trial. He moved in the alternative to be allowed to accept the $15 million remitted award he rejected in April 2022. On the same day, Tesla filed a motion to reduce the jury’s $3 million award of punitive damages to $1.575 million in order to align the award with the nine-to-one ratio proposed by the court.

In Cole v. Foxmar, Inc., 2022 WL 842881 (D. Vt. Mar. 22, 2022), faced with a 13.9-to-1 ratio of compensatory damages to punitive damages, the court ordered a new trial on damages instead of remitting the jury’s $3 million award of punitive damages. Given the lack of reprehensibility of the defendant’s conduct and the plaintiff’s short employment, the 13.9-to-1 ratio could not be justified and evidenced sufficient prejudice on the part of the jury to require a new trial on damages. On December 16, 2022, a new jury awarded the plaintiff $35,000 in back pay, $20,000 in non-economic damages, and no punitive damages, for a total award of $55,000. The plaintiff is appealing this far smaller jury award. Many other successful plaintiffs in 2022 had their awards of punitive damages reduced or relitigated in a new trial. See, e.g., Nikmanesh v. Wal-Mart Stores, Inc., 2022 WL 1837515 (C.D. Cal. Feb. 25, 2022) ($27.3 million punitive damages award, about 136 times the compensatory damages award, reduced to about $800,000, a 4-to-1 ratio); Ramones v. AR Res., Inc., 2022 WL 1062042 (S.D. Fla. Apr. 8, 2022) (8.75-to-1 ratio reduced to 5.9-to-1 ratio); Saleh v. Pretty Girl, Inc., 2022 WL 4078150 (E.D.N.Y. Sept. 6, 2022) (12-to-1 ratio reduced to 4-to-1); Qorrolli v. Metro. Dental Assocs., D.D.S. – 225 Broadway, P.C., 2022 WL 17689836 (S.D.N.Y. Dec. 15, 2022) (ordering new trial where $2 million punitive damages award was “dozens of times larger than a reasonable compensatory damages award”). But see, e.g., Bell v. O’Reilly Auto Enterprises, LLC, 2022 WL 4016824 (D. Me. Sept. 2, 2022) (declining to reduce $750,000 punitive damages award, a 6.41-to-1 ratio).

Caps on Non-Economic and Punitive Damages

It is worth noting that, in addition to the constitutional and judicially-imposed limitations on the size of awards for non-economic and punitive damages, statutes themselves also impose maximum damages awards. Most notably, when Congress amended Title VII in 1991, it created a $300,000 maximum for combined non-economic and punitive damages, and that cap has remained unchanged since. 42 U.S.C. § 1981a(b)(3). While claims under the Civil Rights Act of 1866, 41 U.S.C. § 1981, (applicable only to race discrimination) and the anti-discrimination and anti-retaliation statutes of some states do not have damage caps, hence permitting the awards described above awarding millions in non-economic and punitive damages, many states’ anti-discrimination statutes have adopted the Title VII damage caps or otherwise imposed their own limitations. Additionally, while federal whistleblower statutes such as the Sarbanes-Oxley Act, 18 U.S.C. § 1514A, do not limit non-economic damages, they often do not permit plaintiffs to recover punitive damages.

Given the breadth of limitations, evidentiary, constitutional, and statutory, restricting a jury’s ability to decide for itself the appropriate manner in which to compensate a plaintiff for her damages, it is important for any individual with potential claims against their employer to seek legal advice to evaluate whether their claims are subject to these fixed caps and to better understand how courts can reduce awards made to successful plaintiffs.

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