[Congressional Record Volume 143, Number 160 (Thursday, November 13, 1997)]
[Senate]
[Pages S12597-S12599]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HATCH (for himself and Mr. Lieberman):
  S. 1554. A bill to provide for relief from excessive punitive damage 
awards in cases involving primarily financial loss by establishing 
rules for proportionality between the amount of punitive damages and 
the amount of economic loss; to the Committee on the Judiciary.


              The Fairness in Punitive Damages Awards Act

  Mr. HATCH. Mr. President, I rise today to introduce, along with 
Senator Lieberman, the Fairness in Punitive Damages Awards Act. In 
general, this bill limits the amount of punitive damages that may be 
awarded in certain civil actions, primarily financial injury lawsuits, 
to three times the amount awarded to the claimant for economic loss or 
$250,000, whichever is greater.
  These are cases where the claims essentially arise from breach of 
contract or insurance ``bad-faith'' or fraud injuries. The punitive 
damages limitation provision also excludes awards in cases where death, 
loss of limb, bodily harm, or physical injury occur. It generally does 
not encompass products liability and physical harm tort cases--cases 
where supporters of punitive damage awards contend that exemplary 
damages are needed to deter reckless behavior.
  Thus, what sets this bill apart from previous measures is that it has 
been narrowly tailored to address concerns raised by the Administration 
and opponents of punitive damages limitations bills. We hope to attract 
bipartisan support because of the narrow scope of the bill, and, more 
significantly, because the bill addresses a major impediment to 
economic growth--runaway punitive damage awards, particularly in 
financial injury cases.
  It is beyond doubt that our civil justice system is being plagued by 
an epidemic of punitive damage awards. In recent testimony before the 
Judiciary Committee, former Assistant Attorney General Theodore Olson 
noted that throughout the 19th until the mid-20th century, punitive 
damages were quite rare. ``For example, the highest punitive damages 
award affirmed on appeal

[[Page S12598]]

in California through the 1950's was $10,000. But the punitive damage 
landscape began to change dramatically in the 1960's. California's 
record for punitive damage awards affirmed on appeal soared to $15 
million in the 1980's, an increase of 1,500 fold in just 30 years.'' In 
Alabama, according to Olson, an aggregate of only $409,000 in punitive 
damages had been affirmed on appeal during the period 1974-1978. The 
comparable total just 15 years later skyrocketed to $90 million.
  Indeed, punitive damage lawyers have largely succeeded in taking over 
the civil justice compensation system. In 1960, according to a Rand 
study, punitive damages accounted for just 2% of total damages in civil 
cases in San Francisco, California. Thirty years later, according to 
Rand, punitive damages accounted for an amazing 59% of all damages in 
financial injury cases, and an even more amazing 80% in Alabama.
  And the size of these awards is staggering and, I must add, 
irrational. Take the recent CSX Railroad case. Even though a federal 
probe found the railroad blameless in a tank car explosion on CSX owned 
tracks which caused relatively minor harm to some 20 plaintiffs in 
Louisiana, a state jury awarded $2.3 million in compensatory and $2.5 
billion in punitive damages against CSX. Although the Louisiana Supreme 
Court at least temporarily barred this irrational verdict--because 
under Louisiana law no verdict for damages may be made until all the 
underlying claims are decided--a far more common practice is for courts 
to halve or reduce the punitive portion of the award. Of course, half 
of $2.5 billion is still a staggering amount to pay for any private 
entity. From coffee spills at McDonald's to medical malpractice, in the 
words of Morton Kondracke in a recent article in Roll Call, ``trial 
lawyers reap exorbitant profits by trolling for clients and convincing 
juries to sock it to supposedly deep-pocketed defendants. Consumers pay 
the bill as companies pass on their massive insurance premiums through 
higher prices.''

  Indeed, the very efficiency of the American market has been weakened 
by these trends. Certainly, increased litigation and unnecessarily 
large punitive damage awards have increased the price of doing 
business. Undoubtedly, these costs have been passed on to consumers and 
have led to a decrease in productivity and a rise in unemployment. This 
is supported by a fairly recent study done by Representative and law 
professor Tom Campbell and other scholars, under the aegis of Stanford 
University, which demonstrated that in jurisdictions that reform the 
civil liability process--including placing caps on punitive damages--
productivity and employment rise.
  Furthermore, untenable jury verdicts create what Rand calls a 
``shadow effect'' whereby verdicts totaling tens of billions of dollars 
send signals as to what other juries might do. Thousands of cases are 
settled, regardless of their merits, for fear of irrational verdicts. 
As a result of the shadow effect, consumers nationwide have been 
adversely affected through the withdrawal of products, producers, 
services, and service providers from the marketplace, and from 
excessive liability costs passed on to consumers through higher prices.
  But the worst cost to our society is the delegitimization of the 
judicial process as a means of dispute resolution. Litigation today is 
often seen as an unpredictable ``crap shoot,'' where awards are 
rendered--not upon justice--but upon envy (who has the ``deep 
pockets'') or upon blatant emotionalism. So why not sue? Why not spin 
the wheel? Passage of this bill will help to ameliorate this 
misconception and restore faith in our civil justice system--which I 
believe is fundamentally sound.
  Another reason for bipartisan support for this bill, one that I 
anticipate will attract many of our colleagues to the bill, is that we 
have addressed specific concerns which the Administration has expressed 
about previous bills. You may recall that last year when President 
Clinton vetoed the products liability bill, he claimed that the bill 
would protect drunk drivers and terrorists. Our bill will not apply to 
any case where the injury was caused by a person who was committing a 
crime of violence, an act of terrorism, a hate crime, a felony sexual 
offense, or that occurred when the defendant was under the influence of 
alcohol or drugs. These exceptions, combined with the bill's 
qualification that excludes cases where an individual has suffered a 
permanent physical injury or impairment, will ensure that this bill 
will not limit punitive damages in cases where such egregious conduct 
has occurred or where a serious injury has been inflicted.
  Finally, we have included in the bill a provision specifically 
designed to protect small businesses, which form the backbone of Utah's 
and our country's economy. Excessive, unpredictable, and often 
arbitrary punitive damage awards jeopardize the financial well-being of 
many individuals and companies, particularly the Nation's small 
businesses. Under this bill, if the claim for damages is against an 
individual whose net worth is less than $500,000 or against a business 
with less than 25 full-time employees, then punitive damages are 
limited to the lesser of 3 times the economic loss or $250,000.
  Establishing a rule of proportionality between the amount of punitive 
damages awarded and the amount of economic damages would be fair to 
both plaintiffs and defendants. In addition, we will take a step 
towards resolving the constitutional objection, raised by the United 
States Supreme Court last year in BMW of North America v. Gore, to 
punitive damages that are grossly excessive in relation to the harm 
suffered.
  Mr. President, we must restore rationality, certainty, and fairness 
to the award of punitive damages. This bill is an important step in 
that direction. I urge my colleagues to join me in cosponsoring this 
legislation and encourage the Senate to act expeditiously on this 
important bill.
  Mr. President, I ask unanimous consent that the entire text of the 
bill be placed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1554

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Fairness in Punitive Damage 
     Awards Act''.

     SEC. 2. FINDINGS AND PURPOSES.

       (a) Findings.--Congress finds that--
       (1) punitive damage awards in jury verdicts in financial 
     injury cases are a serious and growing problem, and according 
     to a Rand Institute for Civil Justice study in 1997 of 
     punitive damage verdicts from calendar years 1985 through 
     1994 in States that represent 25 percent of the United States 
     population--
       (A) nearly 50 percent of all punitive damage awards are 
     made in financial injury cases (those in which the plaintiff 
     is alleging a financial injury only and is not alleging 
     injuries to either person or property);
       (B) punitive damages are awarded in 1 in every 7 financial 
     injury verdicts overall and 1 in every 5 financial injury 
     cases in the State of California;
       (C) between calendar years 1985 through 1989 and calendar 
     years 1990 through 1994, the average punitive damage verdict 
     in financial injury cases increased from $3,400,000 to 
     $7,600,000;
       (D) between calendar years 1985 through 1989 and calendar 
     years 1990 through 1994, the award of such damages at the 
     90th percentile increased from $3,900,000 to $12,100,000;
       (E) between calendar years 1985 through 1989 and calendar 
     years 1990 through 1994, the total amount of punitive damages 
     awarded increased from $1,200,000,000 to $2,300,000,000, for 
     a 10-year total of $3,500,000,000;
       (F) punitive damages represent a very large percentage of 
     total damages awarded in all financial injury verdicts, 
     increasing from 44 percent to 59 percent during the period 
     analyzed; and
       (G) in the State of Alabama, punitive damages represent 82 
     percent of all damages awarded in financial injury cases;
       (2)(A) punitive damage verdicts are only the tip of the 
     iceberg because only a small percentage of all complaints 
     filed (1.6 percent according to a Department of Justice study 
     in 1995) result in a jury verdict; and
       (B) the Rand Institute of Civil Justice calls the impact of 
     these verdicts on settlements the ``shadow effect'' of 
     punitive damages;
       (3) excessive, unpredictable, and often arbitrary punitive 
     damage awards have a direct and undesirable effect on 
     interstate commerce by increasing the cost and decreasing the 
     availability of goods and services;
       (4) as a result of excessive, unpredictable, and often 
     arbitrary punitive damage awards, consumers have been 
     adversely affected through the withdrawal of products, 
     producers, services, and service providers from the 
     marketplace, and from excessive liability costs passed on to 
     consumers through higher prices;
       (5) excessive, unpredictable, and often arbitrary punitive 
     damage awards jeopardize the financial well-being of many 
     individuals and companies, particularly the Nation's small 
     businesses, and adversely affect government and taxpayers;

[[Page S12599]]

       (6) individual State legislatures can create only a partial 
     remedy to address these problems because each State lacks the 
     power to control the imposition of punitive damages in other 
     States;
       (7) it is the constitutional role of the national 
     Government to remove barriers to interstate commerce and to 
     protect due process rights;
       (8) there is a need to restore rationality, certainty, and 
     fairness to the award of punitive damages in order to protect 
     against excessive, arbitrary, and uncertain awards;
       (9) establishing a rule of proportionality, in cases that 
     primarily involve financial injury, between the amount of 
     punitive damages awarded and the amount of compensatory 
     damages, as 15 States have established, would--
       (A) be fair to both plaintiffs and defendants; and
       (B) address the constitutional objection of the United 
     States Supreme Court in BMW of North America v. Gore 116 S. 
     Ct. 1589 (1996) to punitive damages that are grossly 
     excessive in relation to the harm suffered; and
       (10) permitting a maximum for each claimant recovery for 
     punitive damages of the greater of 3 times the amount of 
     economic loss or $250,000 is a balanced solution that would 
     reduce grossly excessive punitive damage awards by as much as 
     40 percent, according to the Rand Institute for Civil 
     Justice.
       (b) Purposes.--Based upon the powers contained in Article 
     I, section 8, clause 3 and section 5 of the 14th amendment of 
     the United States Constitution, the purposes of this Act are 
     to--
       (1) promote the free flow of goods and services and to 
     lessen burdens on interstate commerce; and
       (2) uphold constitutionally protected due process rights by 
     placing reasonable limits on damages over and above the 
     actual damages suffered by a claimant.

     SEC. 3. DEFINITIONS.

       For purposes of this Act, the term--
       (1) ``act of terrorism'' means any activity that--
       (A)(i) is a violation of the criminal laws of the United 
     States or any State; or
       (ii) would be a criminal violation if committed within the 
     jurisdiction of the United States or any State; and
       (B) appears to be intended to intimidate or coerce a 
     civilian population, to influence the policy of a government 
     by intimidation or coercion, or to affect the conduct of a 
     government by assassination or kidnaping;
       (2) ``claimant''--
       (A) means any person who brings a civil action that is 
     subject to this Act and any person on whose behalf such an 
     action is brought; and
       (B) includes--
       (i) a claimant's decedent if such action is brought through 
     or on behalf of an estate; and
       (ii) a claimant's legal guardian if such action is brought 
     through or on behalf of a minor or incompetent;
       (3) ``economic loss'' means objectively verifiable monetary 
     losses including medical expenses, loss of earnings, burial 
     costs, loss of use of property, costs of repair or 
     replacement, costs of obtaining substitute domestic services, 
     loss of employment, and loss of business or employment 
     opportunities, to the extent such recovery is allowed under 
     applicable Federal or State law;
       (4) ``harm'' means any legally cognizable wrong or injury 
     for which punitive damages may be imposed;
       (5) ``interstate commerce'' means commerce among the 
     several States or with foreign nations, or in any territory 
     of the United States or in the District of Columbia, or 
     between any such territory and another, or between any such 
     territory and any State or foreign nation, or between the 
     District of Columbia and any State or territory or foreign 
     nation;
       (6) ``person'' means any individual, corporation, company, 
     association, firm, partnership, society, joint stock company, 
     or any other entity (including any governmental entity);
       (7) ``punitive damages'' means damage awarded against any 
     person to punish or deter such person, or others, from 
     engaging in similar behavior in the future; and
       (8) ``qualified charity'' means any organization exempt 
     from filing information returns pursuant to section 6033(a) 
     of the Internal Revenue Code of 1986 as that exemption exists 
     on the effective date of this Act.

     SEC. 4. APPLICABILITY.

       (a) General Rule.--
       (1) Civil actions covered.--Except as provided in 
     subsection (b), this Act applies to any civil action brought 
     in any Federal or State court where such action affects 
     interstate commerce, charitable or religious activities, or 
     implicates rights or interests that may be protected by 
     Congress under section 5 of the 14th amendment of the United 
     States Constitution and where the claimant seeks to recover 
     punitive damages under any theory for harm that did not 
     result in death, serious and permanent physical scarring or 
     disfigurement, loss of a limb or organ, or serious and 
     permanent physical impairment of an important bodily 
     function. Punitive damages may, to the extent permitted by 
     applicable State law, be awarded against a person in such a 
     case only if the claimant establishes that the harm that is 
     the subject of the action was proximately caused by such 
     person. Notwithstanding any other provision of this Act, 
     punitive damages may, to the extent permitted by applicable 
     State law, be awarded against a qualified charity only if the 
     claimant established by clear and convincing evidence that 
     the harm that is the subject of the action was proximately 
     caused by an intentionally tortious act of such qualified 
     charity.
       (2) Question of law.--What constitutes death, serious and 
     permanent physical scarring or disfigurement, loss of a limb 
     or organ, or serious and permanent physical impairment of an 
     important bodily function shall be a question of law for the 
     court.
       (b) Exceptions.--
       (1) In general.--The provisions of this Act shall not apply 
     to any person in a civil action described in subsection 
     (a)(1) if the misconduct for which punitive damages are 
     awarded against that person--
       (A) constitutes a crime of violence (as that term is 
     defined in section 16 of title 18, United States Code) for 
     which the defendant has been convicted in any court;
       (B) constitutes an act of terrorism for which the defendant 
     has been convicted in any court;
       (C) constitutes a hate crime (as that term is used in the 
     Hate Crime Statistics Act, Public Law 101-275; 104 Stat. 140; 
     28 U.S.C. 534 note) for which the defendant has been 
     convicted in any court;
       (D) occurred at a time when the defendant was under the 
     influence (as determined pursuant to applicable State law) of 
     intoxicating alcohol or any drug that may not lawfully be 
     sold without a prescription and had been taken by the 
     defendant other than in accordance with the terms of a lawful 
     prescription; or
       (E) constitutes a felony sexual offense, as defined by 
     applicable Federal or State law, for which the defendant has 
     been convicted in any court.
       (2) Question of law.--The applicability of this subsection 
     shall be a question of law for determination by the court. 
     The liability of any other person in such an action shall be 
     determined in accordance with this Act.

     SEC. 5. PROPORTIONAL AWARDS.

       (a) Amount.--
       (1) In general.--The amount of punitive damages that may be 
     awarded to a claimant in any civil action that is subject to 
     this Act shall not exceed the greater of--
       (A) 3 times the amount awarded to the claimant for economic 
     loss; or
       (B) $250,000.
       (2) Special rule.--
       (A) In general.--Notwithstanding paragraph (1), in any 
     civil action that is subject to this Act against an 
     individual whose net worth does not exceed $500,000 or 
     against an owner of an unincorporated business, or any 
     partnership, corporation, association, unit of local 
     government, or organization that has fewer than 25 full-time 
     employees, the amount of punitive damages shall not exceed 
     the lesser of--
       (i) 3 times the amount awarded to the claimant for economic 
     loss; or
       (ii) $250,000.
       (B) Applicability.--For purposes of determining the 
     applicability of this paragraph to a corporation, the number 
     of employees of a subsidiary of a wholly owned corporation 
     shall include all employees of a parent corporation or any 
     subsidiary of that parent corporation.
       (b) Application of Limitations by the Court.--The 
     limitations in subsection (a) shall be applied by the court 
     and shall not be disclosed to the jury.

     SEC. 6. PREEMPTION.

       Nothing in this Act shall be construed to--
       (1) create a cause of action for punitive damages;
       (2) supersede or alter any Federal law;
       (3) preempt or supersede any Federal or State law to the 
     extent such law would further limit the award of punitive 
     damages; or
       (4) modify or reduce the ability of courts to order 
     remittitur.

     SEC. 7. FEDERAL CAUSE OF ACTION PRECLUDED.

       The district courts of the United States shall not have 
     jurisdiction pursuant to this Act based on section 1331 or 
     1337 of title 28, United States Code.

     SEC. 8. EFFECTIVE DATE.

       This Act applies to any civil action described in section 4 
     that is commenced on or after the date of enactment of this 
     Act, without regard to whether the harm that is the subject 
     of the action or the conduct that caused the harm occurred 
     before such date of enactment.
                                 ______