Archives for April 2016

The winds of tort reform have had some effect on Nevada, but it has been limited on claims for defamation, as seen in Chapter 42 of the Nevada Revised Statutes.  Under NRS 42.005(1), punitive damages–damages awarded to punish deliberate and especially reprehensible conduct–normally are capped at $300,000 for recovery under $100,000, and 3 times the recovery for amounts over $100,000.  There are exceptions to this rule, though, and defamation is one of them. NRS 42.005(2)(e).

The language of NRS 42.005(1) generally attempts to fit in with the United States Supreme Court’s prior holdings on punitive damages.  A popular line of attack on punitive damages is that the court’s award of them eventually crosses the line from being intended to punish the defendant and transforms into an unlawful taking under the Fourteenth Amendment’s due process clause.  While NRS 42.005 has not been updated since 1995, its language generally aligns with the United States Supreme Court’s guideposts on the award of punitive damages.

The U.S. Supreme Court’s Constraints on Punitive Damages

The Supremes’ trend line on punitive damages has been downward for roughly two decades.  In 1996, the United States Supreme Court noted that it previously upheld a punitive to actual damages ratio of up to 10-to-1, and that a 4-to-1 ratio before the court in another case was “close to the line” (although ultimately proper), but the 500-to-1 presently before the court ratio violated the Fourteenth Amendment’s due process clause. BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996).  Less than a decade later–virtually the blink of an eye in the glacial realm of Supreme Court jurisprudence–the high court revisited this issue in State Farm v. Campbell, 538 U.S. 408 (2003).  In State Farm, the ratio at issue was a $145 million punitive damages award based on $1 million in damages.  While lower than the 500-to-1 ratio in BMW, the court rejected it out of hand.  It also led the Supreme Court to be more explicit about what it considered a proper damages ratio that would satisfy the Fourteenth Amendment’s due process clause:

The [BMW] Court further referenced a long legislative history, dating back over 700 years and going forward to today, providing for sanctions of double, treble, or quadruple damages to deter and punish. While these ratios are not binding, they are instructive. They demonstrate what should be obvious: Single-digit multipliers are more likely to comport with due process, while still achieving the State’s goals of deterrence and retribution, than awards with ratios in range of 500 to 1, [as in BMW], or, in this case, of 145 to 1.

(Internal citations omitted.)

This leads to the Supreme Court’s 2008 decision in Exxon Shipping Company v. Baker, which arose from the Exxon Valdez crash and oil spill of 1989. 554 U.S. 471 (2008).  In that case, the Supreme Court revisited the issues from BMW and State Farm, delving yet again into the question of punitive damage ratios.  The Supreme Court stated that there is a maximum 1:1 punitive damages ratio…in maritime cases.  While the Supreme Court did explicitly qualify its holding as applicable only to maritime cases, its proclamation that a 1:1 ratio was “a fair upper limit” in any circumstances would qualify as what Scott Adams calls a “linguistic kill shot” – a set of words that changes or ends a debate.  Despite the narrow applicability of the 1:1 ratio in Exxon, the fact that it existed changed the terms of engagement for parties disputing punitive damages; its creep into other bodies of law, just like the expansion of the death of presumed irreparable harm following eBay Inc. v. MercExchange L.L.C.,  547 U.S. 388 (2006), was as certain as the 1:1 ratio that the Supreme Court committed to paper.

So what does this mean for Nevada’s ostensibly unlimited punitive damages for defamation under NRS 42.005(2)(e)?

How the U.S. Supreme Court’s Rulings Bear on Punitive Damages for Defamation in Nevada

After BMW and State Farm, the Nevada Supreme Court had occasion to consider how the Fourteenth Amendment’s due process clause interacted with an award of punitive damages in a defamation case.  In Bongiovi v. Sullivan, a patient considering plastic surgery met with numerous doctors, including the parties, creating the facts for a defamation claim.  122 Nev. 556, 138 P.3d 433 (2006).  According to the court’s opinion, on two separate occasions, the defendant doctor told the prospective patient that the plaintiff doctor had recently killed a woman while performing the same procedure she was considering. Sullivan prevailed at trial, and the jury awarded actual damages of $250,000, and an additional award of $250,000 in punitive damages.  Bongiovi appealed the jury’s verdict.

Acknowledging both BMW and State Farm, the Nevada Supreme Court supplanted its own punitive damages analysis with the United States Supreme Court’s:

Although Nevada’s standard for excessiveness varies only slightly from the federal standard, its variation makes it necessary to analyze a punitive damages award under both standards because there may be instances where an award would not be deemed excessive under Nevada’s standard but would nonetheless violate a litigant’s due process rights, or vice versa. Therefore, in the interest of judicial economy and because the standards are similar, we conclude that Nevada’s standard for excessiveness should be replaced with the federal standard for excessiveness. By adopting the federal standard in Nevada, the necessity for both a state and federal review for excessiveness is obviated. Accordingly, the proper standard for reviewing excessiveness of a punitive damages award in Nevada is the federal standard’s three guideposts previously stated.

Based on this federal precedent, the Bongiovi court upheld the $250,000 punitive damages award, finding that the jury could have awarded three times that amount even under NRS 42.005(1)(a).  This decision did not present the Nevada Supreme Court with the opportunity to test the upper limits of a single-digit ratio that exceeded three times the plaintiff’s actual damages under the Fourteenth Amendment’s due process clause.  While the Nevada Supreme Court edged closer to this issue in Prestige of Beverly Hills, Inc. v. Weber, 2012 Nev. Unpub. LEXIS 422 (2012), an unpublished decision, it does not seem to have yet conclusively addressed this issue.

Consequently, the seemingly unlimited punitive damages allowed under NRS 42.005(2)(e) are subject to those that the due process clause would enforce upon them.  As seen in Bongiovi, though, this would not necessarily limit a significant punitive damages award.  As a recent example, Hulk Hogan’s invasion of privacy case against Gawker, arising from the unauthorized distribution of his sex tape, yielded a $115 million verdict for his actual damages, and a punitive damages award of $25 million.  (As of this writing, Gawker is in the midst of post-verdict motions and stated that it intends to appeal the verdict.)  It is not automatic that the due process clause will arise as an obstacle to sustaining an award of punitive damages.  Instead, it can even be used as a shield to protect such an award on appeal; even the Exxon case can be useful to show the constitutional soundness of a punitive damages award that is a fraction, rather than a multiple, of a damages award.

Like everything in life, something that sounds too good to be true likely is.  The prospect of unlimited punitive damages is no doubt appealing to many lawyers and parties.  While the due process clause may not whittle down many or even most punitive damages awards, it does stand as a limiting force on the otherwise “unlimited” punitive damages allowed for defamation under NRS 42.005(2)(e).