BMW of North America, Inc. v. Gore
517 U.S. 559 (1996)

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OCTOBER TERM, 1995

Syllabus

BMW OF NORTH AMERICA, INC. v. GORE

CERTIORARI TO THE SUPREME COURT OF ALABAMA No. 94-896. Argued October 11, 1995-Decided May 20,1996

After respondent Gore purchased a new BMW automobile from an authorized Alabama dealer, he discovered that the car had been repainted. He brought this suit for compensatory and punitive damages against petitioner, the American distributor of BMW's, alleging, inter alia, that the failure to disclose the repainting constituted fraud under Alabama law. At trial, BMW acknowledged that it followed a nationwide policy of not advising its dealers, and hence their customers, of pre delivery damage to new cars when the cost of repair did not exceed 3 percent of the car's suggested retail price. Gore's vehicle fell into that category. The jury returned a verdict finding BMW liable for compensatory damages of $4,000, and assessing $4 million in punitive damages. The trial judge denied BMW's post-trial motion to set aside the punitive damages award, holding, among other things, that the award was not "grossly excessive" and thus did not violate the Due Process Clause of the Fourteenth Amendment. See, e. g., TXO Production Corp. v. Alliance Resources Corp., 509 U. S. 443, 454. The Alabama Supreme Court agreed, but reduced the award to $2 million on the ground that, in computing the amount, the jury had improperly multiplied Gore's compensatory damages by the number of similar sales in all States, not just those in Alabama.

Held: The $2 million punitive damages award is grossly excessive and therefore exceeds the constitutional limit. Pp. 568-586.

(a) Because such an award violates due process only when it can fairly be categorized as "grossly excessive" in relation to the State's legitimate interests in punishing unlawful conduct and deterring its repetition, cf. TXO, 509 U. S., at 456, the federal excessiveness inquiry appropriately begins with an identification of the state interests that such an award is designed to serve. Principles of state sovereignty and comity forbid a State to enact policies for the entire Nation, or to impose its own policy choice on neighboring States. See, e. g., Healy v. Beer Institute, 491 U. S. 324, 335-336. Accordingly, the economic penalties that a State inflicts on those who transgress its laws, whether the penalties are legislatively authorized fines or judicially imposed punitive damages, must be supported by the State's interest in protecting its own consumers and economy, rather than those of other States or the entire Nation. Gore's award must therefore be analyzed in the light of conduct that


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occurred solely within Alabama, with consideration being given only to the interests of Alabama consumers. Pp.568-574.

(b) Elementary notions of fairness enshrined in this Court's constitutional jurisprudence dictate that a person receive fair notice not only of the conduct that will subject him to punishment but also of the severity of the penalty that a State may impose. Three guideposts, each of which indicates that BMW did not receive adequate notice of the magnitude of the sanction that Alabama might impose, lead to the conclusion that the $2 million award is grossly excessive. Pp.574-575.

(c) None of the aggravating factors associated with the first (and perhaps most important) indicium of a punitive damages award's excessiveness-the degree of reprehensibility of the defendant's conduct, see, e. g., Day v. Woodworth, 13 How. 363, 371-is present here. The harm BMW inflicted on Gore was purely economic; the presale repainting had no effect on the car's performance, safety features, or appearance; and BMW's conduct evinced no indifference to or reckless disregard for the health and safety of others. Gore's contention that BMW's nondisclosure was particularly reprehensible because it formed part of a nationwide pattern of tortious conduct is rejected, because a corporate executive could reasonably have interpreted the relevant state statutes as establishing safe harbors for nondisclosure of presumptively minor repairs, and because there is no evidence either that BMW acted in bad faith when it sought to establish the appropriate line between minor damage and damage requiring disclosure to purchasers, or that it persisted in its course of conduct after it had been adjudged unlawful. Finally, there is no evidence that BMW engaged in deliberate false statements, acts of affirmative misconduct, or concealment of evidence of improper motive. Pp. 575-580.

(d) The second (and perhaps most commonly cited) indicium of excessiveness-the ratio between the plaintiff's compensatory damages and the amount of the punitive damages, see, e. g., TXO, 509 U. S., at 459also weighs against Gore, because his $2 million award is 500 times the amount of his actual harm as determined by the jury, and there is no suggestion that he or any other BMW purchaser was threatened with any additional potential harm by BMW's nondisclosure policy. Although it is not possible to draw a mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case, see, e. g., id., at 458, the ratio here is clearly outside the acceptable range. Pp. 580-583.

(e) Gore's punitive damages award is not saved by the third relevant indicium of excessiveness-the difference between it and the civil or criminal sanctions that could be imposed for comparable misconduct, see, e. g., Pacific Mut. Life Ins. Co. v. Has lip, 499 U. S. 1, 23-because


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Full Text of Opinion

Primary Holding
If actual damages amount to only $4,000, a punitive damages award of $2 million violates due process because it is so disproportionate.
Facts
Gore found out several months after buying a new BMW that it had been repainted before it was sold to him. This reduced the value of the car by about 10 percent from the $41,000 that he had paid an Alabama dealership for it. Gore's car had been repainted under a nationwide BMW policy that allowed new cars damaged in manufacture or transport to be repaired without notice to dealers if the cost of the repair was no greater than three percent of the suggested retail price. Fourteen similar cars had been sold in Alabama and about 1,000 across the U.S.

In his fraud claim, Gore sought $4,000 in actual damages and $4 million in punitive damages on the basis that it represented $4,000 for each of the 1,000 similarly repainted cars. When a jury granted Gore these damages, BMW argued that they were constitutionally excessive. The Alabama Supreme Court ultimately cut the damages award in half because it ruled that the jury had improperly used national sales rather than Alabama sales in making its damages calculation.

Opinions

Majority

  • John Paul Stevens (Author)
  • Sandra Day O'Connor
  • Anthony M. Kennedy
  • David H. Souter
  • Stephen G. Breyer

States may not impose punitive damages that are designed to alter the conduct of a tortfeasor in other states, since this would interfere with state sovereignty and comity. It thus would be inappropriate for one state to award punitive damages based on the defendant's conduct across all states, since this conduct is not unlawful in other states. Each state is entitled to make its own policy determinations in this area, and defendants may not be required to comply with the strictest set of rules.

Three factors are used in evaluating whether a punitive damages award is grossly excessive: the degree of reprehensibility of the defendant's conduct, the ratio of the actual harm to the punitive damages, and the availability of additional criminal or civil sanctions for the wrongdoing. The harm caused by the defendant was merely economic and was not intentional or reckless. The 500 to 1 ratio between punitive and actual damages was spectacular in view of the lack of potential harm to other consumers. Alabama state law imposed penalties of $2,000 for similarly deceptive business conduct, and other states would impose a maximum of $10,000.

Dissent

  • Antonin Scalia (Author)
  • Clarence Thomas

State courts rather than the federal courts should have authority over determining a punitive damages award. Due process requires only that a jury has the authority to decide punitive damages, and a judge may review that award only for general reasonableness. Substantive fairness should not be part of the review, and due process should be limited to the procedural ability to appeal the award.

Dissent

  • Ruth Bader Ginsburg (Author)
  • William Hubbs Rehnquist

Concurrence

  • Stephen G. Breyer (Author)
  • Sandra Day O'Connor
  • David H. Souter

Case Commentary

To determine whether the size of a punitive damages award is appropriate, a court should balance the severity of the harm or potential harm against the scale of the award. Public harms merit a greater amount of punitive damages than private harms. In this case, however, what BMW did was legal in other states, so the state rendering the judgment unfairly trespassed on their rights by punishing a car manufacturer for practices that were illegal only in its territory. The power to protect citizens from deceptive business practices does not extend so far.

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