BMW v. GORE
After purchasing a new vehicle from an authorized Alabama BMW dealership, Ira Gore, Jr. discovered that his new vehicle had been repainted. He sued BMW's American distributor (BMW), alleging that it committed fraud by failing to inform him that his car had been repainted. The Alabama Circuit Court entered judgment, following a jury verdict, awarding Gore $4,000 in compensatory damages and $4 million in punitive damages. On appeal from the trial judge's denial of BMW's post-trial petition to set aside the punitive damages as 'grossly excessive,' the Alabama Supreme Court ruled that the punitive damages were not so excessive as to violate BMW's Fourteenth Amendment right to due process. Due to a jury calculation error, however, the Alabama Supreme Court reduced Gore's punitive damage award to $2 million. BMW appealed to the Supreme Court.
Assuming that Gore's punitive damage award was grossly excessive, does the Fourteenth Amendment's due process clause protect BMW from paying the award?
Legal provision: Due Process
Yes. In a 5-to-4 decision, the Court held that while a state may impose punitive damages to further its interest in deterring unlawful conduct, the Fourteenth Amendment's due process clause prohibits states from imposing grossly excessive punishments on tort-feasors. In the present case, the punitive damage's excessive nature is indicated by the 500 to 1 ratio between the jury's punitive and actual damage awards, the relatively insignificant amount of damage, and the lack of statutory fines that remotely parallel the present award's magnitude. BMW's due process rights were also violated because it could not have possibly anticipated, nor did it receive fair notice, that it might face such a severe punishment.
Argument of Andrew L. Frey
Chief Justice Rehnquist: We'll hear argument now in Number 94 896, BMW of North America v. Ira Gore.
Mr. Frey: Thank you, Mr. Chief Justice, and may it please the Court--
When an automobile comes off the assembly line it has to be transported to the location where it's distributed.
In the course of that happening, it sometimes suffers some damage and BMW, like other manufacturers, has means at hand to restore the car to factory condition as best they can using the same techniques that would be used in the factory if the same incident happened in the factory parking lot.
The question arises, when this happens, whether or under what circumstances there might be an obligation or it might be good business practice to inform the dealers and prospective purchasers of the automobile that there has been work done on a repair or refinishing work.
Now, BMW looked at this question in 1983, and the way they went about that was to examine the various State laws that were on the books then that addressed the subject and to comply with the strictest of those laws, which was to make disclosure, or at least not to sell without disclosure, any car that had had repairs or refinishing that exceeded in cost 3 percent of the manufacturer's suggested retail price.
Unknown Speaker: Mr. Frey--
Mr. Frey: --I'm sorry.
Justice O'Connor: Mr. Frey, I guess Alabama at the time did not have a statute--
Mr. Frey: That's correct.
Justice O'Connor: --in effect dealing with the subject.
Mr. Frey: That's correct.
Justice O'Connor: And do you question whether Alabama courts could properly find some award of punitive damages here for at least the conduct--
Mr. Frey: Well, I--
Justice O'Connor: --that occurred in Alabama at that time?
Mr. Frey: --I do question it, although I'm not questioning it in this case.
Justice O'Connor: It's not before us in this case, is it?
Mr. Frey: See, I believe that what you have here is actually a species of malum prohibitum and not malum in se.
Justice O'Connor: But we take it on the assumption that--
Mr. Frey: The conduct is punishable--
Justice O'Connor: --punitive damages could be awarded--
Mr. Frey: --In Alabama.
Justice O'Connor: --in Alabama--
Mr. Frey: Yes, that's correct.
Justice O'Connor: --at the time this incident occurred.
Mr. Frey: At the time of the sale of this car.
Justice O'Connor: Now, do we also assume that it would be perfectly proper during the course of trial for evidence to be admitted on the existence and frequency of similar conduct outside of Alabama to show a course of conduct or the defendant's state of mind or something of that sort?
Mr. Frey: Again, we are not challenging that.
I have difficulty where the evidence is not relevant.
I question its relevance here to any legitimate purpose question.
Justice O'Connor: Well, haven't there been many cases, including ones decided by this Court, where evidence--
Mr. Frey: Yes.
Justice O'Connor: --of other similar conduct outside the jurisdiction has been admitted?
Mr. Frey: Absolutely, and there's no question, for instance, if it were admissible for Rule 404(b) kind of purposes under the Federal Rules of Evidence--
Justice O'Connor: Well, just admissible to prove the intent--
Mr. Frey: --Right, now if intent--
Justice O'Connor: --and the egregiousness of the injury.
Mr. Frey: --That's true, and I think my problem with it, and it may not be a constitutional problem, it's a kind of rule 403 problem, that it's highly prejudicial in a case like this, where it was agreed that there was a policy and there was no question of intent--
Justice O'Connor: Well, again, do we assume--
Mr. Frey: --You can assume--
Justice O'Connor: --here that the evidence of conduct out of State properly was admissible?
Mr. Frey: --You can assume that, yes.
That's what the Alabama supreme court held--
Justice O'Connor: Okay.
Mr. Frey: --and we're not challenging that.
Justice O'Connor: Does this case boil down to kind of a fluke because it was submitted to the jury on this multiplier theory instead of... what if the jury... what if it had not been presented to the jury that way, and just the egregiousness of what happened to the plaintiff here, and the fact that similar instances occurred elsewhere, it was a standard practice of the company, could the jury properly have awarded the 4 million in punitives based on conduct in Alabama alone?
Mr. Frey: No.
I'm going to argue that they couldn't, but that is a different argument.
There are two separate issues in this case.
The first issue is whether BMW was punished for non Alabama conduct, conduct to which Alabama law does not extend, but punished under Alabama law; if so, whether that was improper--
Justice O'Connor: Well--
Mr. Frey: --and if so, whether inadequate remedy was--
Justice O'Connor: --I know you are, but is that because this case has peculiar facts?
I mean, could--
Mr. Frey: --This case I think, Justice O'Connor, highlights what is more submerged in a lot of other cases, product liability, or mass tort, or consumer fraud cases where you have nationwide conduct, which is the invitation to the jury to punish the defendant not only for the conduct that was done in the State or to the plaintiff, or plaintiffs in the case, but to punish them for their national conduct.
Justice Ginsburg: --But Mr. Frey, that came in only because a lawyer said it in summation.
No judge charged it.
No Alabama law permitted it.
It was an impermissible summation.
There was no objection to what the lawyer said.
The source for that notion that you could multiply by all the incidents came from an unobjected to lawyer's summation--
Mr. Frey: On any--
Justice Ginsburg: --and the Alabama supreme court said it's dead wrong.
You're not supposed to compute the size of the remedy on that basis so you can't trace that error to any flaw in the Alabama law.
Mr. Frey: --Well, I'm not... except for the unconstitutionality of the holding of the Alabama supreme court, I'm not sure that I am, but I don't accept your premise that there was not a proper objection.
Justice Ginsburg: Where was the objection... I didn't see it... to the lawyer's summation?
Mr. Frey: --No, it wasn't during the summation, but what happened was there was a motion in limine.
During the motion in limine, counsel for BMW, who had just been through the Yates trial, said, Your Honor, I know what they're going to do with this.
They're going to improperly invite the jury to punish on the basis of sales outside of Alabama, and the law in those States is different.
It's not the same as Alabama.
A lot of these States have statutes.
That was one of the objections that was made.
I can give you the page of the transcript.
Justice Ginsburg: Mr. Frey, there was no objection after the lawyer made that statement in summation, and isn't it common--
Mr. Frey: The court had already ruled that that was a permissible use of the evidence.
Justice Ginsburg: --Well, perhaps we won't... I don't want to detract you on this any longer--
Mr. Frey: No.
No, but I think--
Justice Ginsburg: --but you can give me the place in the record where the judge makes an error of law in saying it's proper for the jury to take into account the... to use as a multiplier sales in other States.
Mr. Frey: --Well, I think you'd have to look at page 451 to see our argument, of the transcript... the Clerk's record, I'm sorry, and then at 585 to 591 of the Clerk's record, but I believe that what happened here was that we said this improper use is going to be made and in fact Mr. Bolt, counsel for Dr. Gore, said they wanted to use it on damages.
Now, I understand that there are different ways in which it can be used, but because the Yates trial had already been held, and it had been used precisely in the way it was used here, and that was called to the attention of the court, I can't see that we had to do more, and besides--
Justice Ginsburg: But Mr. Frey, even if you were right about what the record would reveal, and even if we can pass over that there was no objection to the statement that was made, the Alabama supreme court itself said, such evidence may not be considered in setting the size of the civil penalty.
Mr. Frey: --I agree, and I am willing to accept that as the premise and proceed to the question, which is really the question we presented, whether the use of that evidence to set the size of the civil penalty was properly remedied by the reduction of the punitive damages award from 4 million to 2 million.
Justice Souter: May I just ask you one question before you get into that?
You have argued, as I recall, that one of the aspects of the error was that Alabama was allowing the jury to punish for conduct which was lawful in the States in which it took place and that, as I understand it, is premised on your statement that when BMW adopted its 3 percent cost policy it was complying with the most stringent of out of state laws.
Mr. Frey: I don't... I believe it is true... the situation is this.
There were statutes--
Justice Souter: Well, let me just tell you what my question is, then--
Mr. Frey: --Okay.
Justice Souter: --My question is, in those States in which... which had adopted this 3 percent rule, is it also the case, as counsel on the other side have claimed, that the common law fraud action was preserved and any plaintiff in any of those other States could still have brought a common law fraud action based upon repairs, undisclosed repairs, even though they did not amount to 3 percent of the cost?
Mr. Frey: Well, the answer to that is, the action might not have been dismissed for lack of jurisdiction or preemption, but the action would have been, I believe, bound to fail.
Now, let me say this.
First of all, at the time of the sale of the car to Dr. Gore, there had not been a single suit brought anywhere in the United States on the theory that not disclosing paint refinishing is fraud... by the manufacturer is fraud at all, let alone in a State that had a statute that says here is the standard under our Deceptive Trade Practices Act, and then you comply with that standard and then we're going to go ahead and not only find you liable for any damage that may have been suffered but find you... but punish you.
Now, there are... we cite in our brief a case from Louisiana which held that because the amount of the refinishing exceeded the statutory threshold, there was a cause of action, and I have a case from Wisconsin that was--
Justice Souter: Did you understand the court's reasoning to be that had it not exceeded it would have been no fraud cause of action?
Mr. Frey: --I think that was implicit--
Justice Souter: Okay.
Mr. Frey: --in the fact that their decision turned on whether or not it exceeded it.
Justice Souter: Is there... I take it that is the extent of the out of state discussion of the subject.
Mr. Frey: There's a case called Tesh v. Best Motors, decided by the court of appeals in Wisconsin on August 15, 1995, and the cite I have is 1995 Westlaw 478413, which is to the same effect.
That is, it turned on that--
Now, let me make the point, to my mind there is something slightly Kafkaesque about saying, this is the standard, more than 3 percent, you must disclose less than 3 percent.
It's not material, which is what the current Alabama statute says, and then turning around and solely on the evidence of compliance with that statute... solely on the evidence of conduct that complies with that statute, no separate evidence of fraudulent intent except what you infer from the conduct... holding somebody liable for fraud and punitive damages.
Justice Souter: Well, it's not... why is it Kafkaesque?
I mean, can't a State simply say, look, we're not going to provide the administrative machinery of the State to go after these dealers unless the dereliction reaches a certain point, but if any individual who has been defrauded wants to go after them for the amount of his loss, the individual is free to do it?
Mr. Frey: Well, I guess... I guess my problem with this is that if virtually every State that has considered this conduct has found that there... that in a statute, has set a statutory threshold... those statutes are passed to balance the interests of consumers, and having information that's important to them, with the interests of the business community in doing business free from restrictions that may increase costs or have other adverse effects.
Now, you know, it seems to me that... it's hard to say that this conduct is malum in se, and remember, the only evidence--
Justice Souter: Well, it may be hard to say, but do you... are you saying or would you argue that the courts of Alabama should have instructed the jury that so long as the damage did not reach this 3 percent threshold that as a matter of law it could not be considered as--
Mr. Frey: --No.
Justice Souter: --Okay.
Mr. Frey: We're not saying that to this Court.
Justice Souter: So aren't you then making a jury argument to us?
Mr. Frey: --No.
The argument... on this particular point, the argument about the lack of any notice that this conduct was unlawful, and there was no notice in any judicial decision, any statute, or any regulation anywhere in the United States that this conduct would be considered fraud, but the only argument I'm making here is that that bears on the reprehensibility of the conduct when you're assessing whether it's excessive.
Now, for purposes of my argument about extraterritorial punishment, it does not matter, because the problem here is that Alabama law was applied, and I think nobody can dispute that this case was decided only under Alabama law.
Alabama law was applied to conduct that Alabama had no business regulating.
Justice Ginsburg: Mr. Frey, I think that that argument is not genuinely in the case, and let me tell you why.
There's a statement made by the lawyer.
It's not in the judge's charge.
The Alabama supreme court says that was wrong.
The jury determined liability.
The Alabama supreme court then... we think, after a thorough and painstaking review of the record, 2 million is an apt award, and that's what we set.
Shouldn't we, as a Federal court, give the Alabama supreme court the respect of assuming that once it recognized the extraterritorial computation was no good, it then set what it considered a permissible award without regard to any extraterritorial multiplier?
Mr. Frey: Well, but the issue we're raising is that we believe the Constitution prohibits it from doing that, and the reason we believe that--
Justice Ginsburg: Let's just assume that the Alabama supreme court said the jury has determined liability.
We, as judges, are determining amount, and the amount we as judges arrive at has nothing to do with multiplier based on out of state sales, it has to do with what happened inside Alabama and the amount we set for that is 2 million.
Mr. Frey: --All right, and my answer to that is, what is wrong with that is that that is first of all not what they did.
It's not what Alabama law calls for them to do.
It is very clear under Alabama law that what they do is, they reduce the punishment to the largest amount that is constitutionally permissible.
That is not the same as having a de novo determination by the court of what the punishment should be.
I would agree with Your Honor that if the court had determined the punishment de novo, that we would not have an objection based on what happened before the jury, but Alabama law is clear that you defer to the jury.
Our problem is, you're deferring to a jury which the Alabama court itself recognized imposed punishment on an unconstitutional basis.
Justice Souter: Let me ask a question which is an alternative, or rests on the alternative of Justice Ginsburg's premise.
Let's assume that they did indeed... that whatever is left on that verdict rests upon a consideration of out of state conduct.
Why isn't the answer to that that in fact Alabama was not punishing anything other than Alabama conduct?
On the analogy with the argument which is common in the enhanced damage area in criminal law, we say, well, the enhanced penalty is not a further punishment for prior crimes which may be considered, and why do we not look at the Alabama rule as simply saying Alabama says if you've done it in other States, you better watch it here, because we're going to sock you hard as a result of it?
Mr. Frey: I have no problem... I think this was Justice O'Connor's question in the beginning.
I'm not here saying that Alabama cannot consider that conduct to enhance the punishment that should be imposed for every plaintiff who sues, not just Dr. Gore, and it's an issue I want to talk about which is very important that I'm afraid I'm not going to get to, but... but you have to decide... there is a difference... the Witte case that Justice O'Connor wrote for the Court last year recognized that there is a difference between punishing for the tort that is being adjudicated and enhancing the punishment for that based on other conduct, and punishing for the other conduct.
Now, the Alabama supreme court was quite clear, and I don't see how anybody could fail to conclude each additional sale that took place outside of Alabama was punished an additional 4,000 by this jury.
Justice Souter: Was it punished, or was it used as a measure for enhancement in punishing the Alabama--
Mr. Frey: It was used... in my view, you cannot let that kind of a subterfuge conceal the fact that the more activity which presumptively we have to assume was lawful in other States that was engaged in, the larger the punishment that Alabama is imposing on the defendant.
Now, there is a problem with that, it seems to me.
The problem is, the reality is, and the Alabama supreme court recognized this, that what happened here was that the punishment was being measured by... in order to take away the profits.
This was the express purpose, take away the profits that BMW made in New Jersey or Hawaii or California from selling cars that for all we know were perfectly lawfully sold in accordance with the law of that State.
Justice O'Connor: --Well, the Alabama supreme court did grant a remittitur, and how do we know that what it did in granting the remittitur is somehow unconstitutional, and are you relying on the Due Proces Clause--
Mr. Frey: Well, I have--
Justice O'Connor: --or the Commerce Clause, or what?
Mr. Frey: --Well--
Justice O'Connor: What principle is it--
Mr. Frey: --Okay--
Justice O'Connor: --that tells us what they did in granting the remittitur was unconstitutional?
Mr. Frey: --I have two separate arguments, and I need to be clear about this.
The first argument has to do with the remedy if there was a constitutional violation in the way the punishment was measured.
Is the remittitur to the constitutionally maximum amount an adequate remedy?
And I'd like to read to the Court from a case called Hicks v. Oklahoma at 447 U.S. 345, where the Court said, had the members of the jury been correctly instructed in the this case, they could have imposed any sentence of not less than 10 years.
That is, they could have imposed a sentence of less than the one they did.
Then the Court said, it is argued that all that is involved in this case is the denial of a procedural right of exclusively State concern.
Where, however, a State has provided for the imposition of criminal punishment in the discretion of the trial jury, it is not correct to say that the defendant's interest in the exercise of that discretion is merely a matter of State procedural law.
Justice Ginsburg: But Mr. Frey, I keep coming back to where the State has.
There was nothing in Alabama statute law.
There was nothing in the judge's charge that permitted the size of the civil penalty to be set by the number of incidents all over the country.
The Alabama supreme court said that was wrong, and then it said, we are determining the size of a verdict that would be permissible without regard to that--
Mr. Frey: No, but Your Honor, it's... there is a vast difference, and this Hicks case makes it clear, between determining the verdict that is proper for this conduct, and determining the largest constitu--
Justice Ginsburg: --The Hicks case relied, as you read it, on a judge's charge.
There was no source of Alabama law.
There was no authoritative Alabama law--
Mr. Frey: --If the jury had not believed, and had not punished for non Alabama sales, it presumably... we don't know for sure, but the best evidence is that it would have imposed a punishment of 56,000 if it--
Justice Ginsburg: --I'm forgetting what the jury does.
Mr. Frey: --No, but you can't--
Justice Ginsburg: I'm asking why we don't owe the Alabama supreme court the respect of saying that when it recognized that what the jury did was impermissible, it then substituted a figure that it thought a proper construction of the law, not permit--
Mr. Frey: --No, what... it substituted a figure that it thought was the largest figure that... the largest amount that a jury could punish BMW.
When that happens, what happens is the right to have the jury determine the punishment is wiped out, because this jury would have picked a smaller number.
Justice Souter: --And conversely you're saying what is left is still a punishment for extraterritorial conduct and that's wrong, whether it's 2 million or 2.
Mr. Frey: No.
If it were reduced to 56,000, that would expunge the effect of the extraterritorial punishment.
Justice Souter: Because there wouldn't be any extraterritorial punishment.
Mr. Frey: That wouldn't... there would not be any.
Justice Souter: Yes, but so long as there's some extraterritorial punishment--
Mr. Frey: We are saying that we are still subject to extraterritorial punishment.
Justice O'Connor: --And do you rely on the Due Process Clause or the Commerce Clause?
Mr. Frey: --No, the Due Process--
Justice O'Connor: I have yet to hear your theory.
Mr. Frey: --No.
We rely on the Commerce Clause for the proposition that it's wrong to punish us, that Alabama cannot project its law outside of Alabama to do what Dr. Gore said, which is to force BMW to stop its conduct everywhere.
For that we rely on the Commerce Clause, the Due Process Clause, and the Full Faith and Credit Clause.
On the question of remedy, I think we rely on the proposition which is implicit in the Due Process Clause that if there is a violation of your Federal constitutional rights, ordinarily, barring exceptional circumstances, you're entitled to an appropriate remedy that expunges the effect of that violation, and that's what we're asking for here, and we say the reduction to 2 million does not expunge the effect, and I think you'll see when you look at the Hicks case or the death penalty cases, where a jury imposes the death penalty--
Chief Justice Rehnquist: Well, they're criminal cases.
I'm not so sure the same standards carry over from criminal cases to a civil case.
Mr. Frey: --Well, it might not, although certainly we're dealing with punishment here.
Justice O'Connor: But can't a State court in a criminal case consider conduct that occurs out of State at the time of imposing sentence--
Mr. Frey: Absolutely.
Justice O'Connor: --to determine the sentence range?
Mr. Frey: Absolutely.
We have no problem with that.
I want to be completely clear about that.
What they cannot do is punish for that conduct if they don't have jurisdiction over that conduct.
Justice Kennedy: Mr. Frey, I'm glad we've come to this point, because I think it's a very important issue that we haven't considered in these punitive damages cases before.
What would happen if the Alabama resident went to Tennessee, bought his car there, and then came back to Alabama?
What measure... and he sues in Alabama court under Alabama law?
Mr. Frey: I think the Constitution would permit the application of either Alabama or Tennessee law in that circumstance.
I don't have a problem with that.
Justice Kennedy: Well, could Alabama count the sales both in Tennessee and in Alabama?
Mr. Frey: You mean one sale, and say--
Justice Kennedy: No.
Could it count all... could it take into account all of the sales under this alleged fraudulent--
Mr. Frey: --No, no, no, because... no, it can't do that, because it has no interest... it cannot take into account sales to residents of Tennessee or Illinois or some place that are made in Tennessee.
Justice Kennedy: --But why not, if Alabama residents are going there to buy their cars?
Why couldn't they say, well, we'll take Tennessee sales plus Alabama sales, or if we have the--
Mr. Frey: --Well, because I think the--
Justice Kennedy: --If we have the metropolitan area around the District of Columbia--
Mr. Frey: --Well, in Healy v. Beer Institute people were going to New York to buy the beer because it was cheaper.
The Court said, well, that doesn't give Connecticut the right to enact a system which affects the prices that are going to be charged in New York.
Justice Kennedy: --But it seems to me that what we would have to do if we adopted your rule is to have a jurisprudence of apportionment something like our interstate tax jurisprudence.
Mr. Frey: Well, the apportionment issue is very important, and it relates to a different question, which is our excessiveness argument.
Remember, even if the Court were to disagree with us on everything we've been talking about so far and were to accept 2 million as a de novo punishment set by the Alabama supreme court that expunged any error that may have occurred, there is the second issue in this case, which is, is 2 million too much for what happened to Dr. Gore?
Justice Ginsburg: And that aspect--
Justice Kennedy: --Well--
Justice Ginsburg: --is not quirky.
There was a question raised, this is an ordinary... this is a strange case.
It will never happen again, presumably, because trial judges will be instructed by the Alabama supreme court's absolutely clear statement such evidence may not be considered in setting the size of the civil penalty, so this is not going to be repeating the issue in Alabama.
Mr. Frey: I can't agree... well, in the narrow sense that it comes up here, that's true, but in the broader sense the question would be, is the defendant, for instance, entitled to have the jury told that they can't punish for conduct that occurs outside--
Justice Ginsburg: But the one issue... your second issue is the one that will be a continuing one.
Is 2 million too much for this kind of injury?
But the other one you would be asking us to make a correction that the Alabama supreme court has already made--
Mr. Frey: --Well--
Justice Ginsburg: --an issue as far as I can see it which will never repeat in this jurisdiction, and--
Mr. Frey: --Oh, it will repeat in a slightly different form where it's less obvious what's happening, in the form that is common in product liability cases, for instance, where the argument is made that there are so many thousands of people around the country who have bought this product, or been injured by it, or so many thousands... and the jury will be invited to punish for that without any kind of explicit mathematical formula, and that will raise a different problem, but the first step on that particular road is this case.
Justice Ginsburg: --I did--
--Wouldn't every defense lawyer be able, then, to tell the judge, the trial judge please instruct the jury that such evidence may not be considered in setting the size of the civil penalty?
Mr. Frey: Well, if the Court would hold that, I think that would be extremely valuable in the development of the law.
Justice Ginsburg: Well, that's the marching orders that the Alabama supreme court has given.
Mr. Frey: Well, it is less clear, and I can tell you from looking at this litigation around the country that this problem recurs in a slightly more insidious or less, you know, obvious form than it recurred in this case, but--
Justice Breyer: Could you just say a word about excessiveness?
That is, as I see it, and I thought that was probably in this case--
Mr. Frey: --It is.
Justice Breyer: --you have 4,000 of damage of economic nature.
A company is going to have to pay 2 million in punitives.
I take it the total amount of evidence of this kind of conduct in Alabama amounts to 56,000, so I suppose the underlying question which some people complain about is that juries are free to transfer possibly the entire gross national product, or some significant portion thereof, under a standard that has no limit.
I'm not saying I buy that argument.
Mr. Frey: All right.
Justice Breyer: But the problem... the problem is, is there not some Federal limitation and then, of course, it raises, what?
What is the standard, federally--
Mr. Frey: --The first part--
Justice Breyer: --that could be possible to prevent tremendous transfers of property on minimal evidence of significant harm?
Mr. Frey: --The first part of the problem, Justice Breyer, is not a problem any more because the Court has decided in Haslip and in TXO and in Honda that there does exist a substantive due process limit.
Justice Breyer: But what, is the question.
Mr. Frey: Now, I understand the question is what, and I think there are... the nature of the inquiry inherently cannot be reduced to a mathematical formula.
You have to consider the reprehensibility of the conduct, other civil penalties, and in this case I think it's extremely important that the penalties provided under the Deceptive Trade Practices Act for fraud in selling automobiles is 2,000 if it's a civil penalty, or treble damages plus attorney's fees in a private action.
There is a fascinating question about whether the denominator of the fraction, when you're looking at the reasonable relationship between the punishment and the wrong, is the plaintiff's own injury, or potential injury, or whether it's all 14.
I wish I had the chance to talk about this, because there's a procedural due process as well as a substantive due process aspect to this question, but I haven't got the time, so I think I'd better reserve what I have left for rebuttal.
Argument of Michael H. Gottesman
Chief Justice Rehnquist: Very well, Mr. Frey.
Mr. Gottesman, we'll hear from you.
Mr. Gottesman: Thank you, Mr. Chief Justice, and may it please the Court--
I'd like to begin by rehearsing a little bit more the procedural posture in which this case got to the Alabama supreme court, because it bears heavily on this first question that's presented in the petitioner's brief.
As Mr. Frey explained, before the trial, BMW moved to bar the admission of these... the evidence of out of state sales, and the judge denied that motion, and BMW now concedes that that denial was correct, the evidence was in fact admissible.
The parties went to trial.
They were admitted, and then in closing argument counsel made the unfortunate statement which the Alabama supreme court thought created an improper issue for the jury.
BMW did not, as Justice Ginsburg observed... BMW did not object to that.
If it had objected to that, under Alabama law, as the supreme court has told us it is in Alabama, the Judge either would have had to give a corrective instruction to the jury which said, look only at Alabama sales, or, if the judge had refused to give that correction, they would have been entitled to a new trial, not to a remittitur.
Under Alabama law, if there is a judicial error that affected the outcome, Alabama will not remit, it will give the defendant a new trial.
Now, because BMW didn't--
Chief Justice Rehnquist: Does the supreme court of Alabama insist that an objection be made during the course of argument?
That's a very difficult thing to do, to stand up in the middle of your opponent's argument to the jury and object.
Mr. Gottesman: --Well, you can do it either then or at the end, but they do, Your Honor.
I'll give you the cites to two cases in which Alabama says that unless the counsel says something that's uncorrectible, and they've made it clear that's an appeal to racial bias, or that kind of thing, unless it is uncorrectible, the failure to object to it means that you have waived the right to a new trial or to appeal from it.
There's the Alabama--
Justice O'Connor: Is that true even where there has been a motion in limine in advance of the argument and the issue is resolved?
Mr. Gottesman: --Yes, because the motion in limine was only to the admissibility of the documents, not to... it did not address--
Justice O'Connor: Well, what if a motion in limine addressed or should be interpreted to address counsel's argument as well?
Mr. Gottesman: --Well, it didn't--
Chief Justice Rehnquist: Well, suppose it did.
Mr. Gottesman: --Okay.
Justice O'Connor: Do you think Alabama law would then not permit a new trial?
Mr. Gottesman: Well, I guess I don't know the answer to that.
I would give the Court reference to Alabama Power, 342 Southern 2d, at 327, and Southern Life, 518 Southern 2d at 77, where the court explains its practice respecting the failure to object to counsel's statements.
Now, BMW understood that because it had not objected it could not move for a new trial on this ground, and it did not.
It moved for a new trial on that the judge erred in admitting the evidence, because there they had gotten the ruling from the judge and they were challenging it.
But on this issue, they realized that they couldn't move for a new trial because they hadn't objected.
They had waived it.
What they did instead is, they were fortunate that Alabama has a very generous remittitur practice.
The defendant in any case where punitives has been awarded can ask for a post judgment hearing, put in any evidence that it wants, and say, on the basis of this evidence, please reduce the verdict, and they invoked that, and in this post judgment hearing for the first time they introduced the evidence that only 14 of these 983 cars were Alabama cars.
They had... before the jury they had made no reference to the location of these cars at all.
There was no reference by either party to where these 983 cars were sold, and the only point that BMW made in response to counsel's statement which the Alabama supreme court was unhappy with was, there's nothing wrong with those 983 cars.
They're just as good as any other car, so you shouldn't punish us for them.
But now, in the remittitur proceeding, they did make an issue of the geography.
They did put in the fact that only 14 of those 983 cars were Alabama cars, and they asked the Alabama courts to reduce the punitive damage verdict--
Justice Stevens: May I ask, Mr. Gottesman, in the remittitur proceeding did they also bring out the fact that in a lot of States these sales would not have been unlawful?
Mr. Gottesman: --Well, they made the argument.
It is not a fact.
They made the argument that in a lot of States there are statutes that--
Justice Stevens: There's no evidence that they would have been unlawful in any State, is there?
Mr. Gottesman: --That they would have been unlawful?
Justice Stevens: If there's a presumption of innocence, we would presume--
Mr. Gottesman: Right.
Justice Stevens: --all these sales were lawful.
Mr. Gottesman: That's right, and the Alabama supreme court said--
Justice Stevens: And that was brought out at the remittitur hearing.
Mr. Gottesman: --Right.
The Alabama supreme court said there's no evidence of whether they are unlawful or not in other States, so they brought that out at the remittitur hearing as well.
Now, the Alabama supreme court was in this case in a peculiar posture.
Justice Stevens: Let me just be sure I understand.
You say there's no evidence one way or another.
Did they at least have before them the fact that there are all these statutes out there that do have this 3 percent standard in them?
Mr. Gottesman: Yes, that there were--
Justice Stevens: That wasn't--
Mr. Gottesman: --At the time they adopted the policy, 15 States had those statutes.
At the time of the trial in this case, 25 States had those statutes.
Justice O'Connor: --Including Alabama by the time of trial--
Mr. Gottesman: No.
Justice O'Connor: --is that right?
Mr. Gottesman: --Well, Alabama by the time of trial, but after the sale in this case.
Justice O'Connor: Right, which--
Mr. Gottesman: But the Alabama statute--
Justice O'Connor: --makes it particularly--
Mr. Gottesman: --Well, except that the Alabama supreme court has construed that statute not to preempt the common law fraud action.
Justice Souter: --I was going to say, in your brief you make the claim that in your... of course, you could still have common law fraud in Alabama.
Do I remember correctly that you also made the statement that there is no... there is at least no reason to believe that there couldn't have been a common law fraud action in any of the other States with the limits?
Mr. Gottesman: Yes.
That is, with the possible exception of one of those statutes, they don't contain safe harbor language in them.
They don't say, if you comply with this statute that means that you can't be sued under the common law--
Chief Justice Rehnquist: Well, it's really a matter of statutory interpretation--
Mr. Gottesman: --Yes, of course.
Chief Justice Rehnquist: --in each State which has some--
Mr. Gottesman: That's correct, Your Honor.
Chief Justice Rehnquist: --I would think it would be very difficult to generalize one way or the other in the absence of decided cases.
Mr. Gottesman: Well, of course, that's right, and Your Honor, the Alabama supreme court said as far as we're concerned, we don't think you should consider the sales out of State at all in determining the amount.
That's relevant to the culpability, but not to the amount of--
Justice Stevens: Why is it relevant to culpability?
Would you explain that?
Does it show that they were honorable or dishonorable if they're complying with the law throughout the country?
Mr. Gottesman: --Well, the... it's... they haven't shown that they complied with the law.
Justice Stevens: I thought you said to me a moment ago there was no example of a case anywhere in the States that reached the same result as the Alabama court did in this case.
Mr. Gottesman: No, I... there's no case.
I'm talking about--
Justice Stevens: So if you presume that the conduct is innocent unless proven guilty, there's no proof that they violated the law anywhere else.
Mr. Gottesman: --No, that's right.
Justice Stevens: Right.
Now then, in that regard, what is the relevance of the out of state conduct?
Mr. Gottesman: Well, they concede it's relevant.
The Alabama supreme court--
Justice Stevens: Well, everybody concedes it.
I'm still curious, why is it--
Mr. Gottesman: --The relevance is that it goes to show the, among other things we have a--
Justice Stevens: --A lot of lawful transactions.
Mr. Gottesman: --Pardon?
Justice Stevens: It goes to show 983 lawful transactions.
Mr. Gottesman: But it also goes to show why they... that it is a nationwide policy, that--
Justice Stevens: Right.
Mr. Gottesman: --they are reluctant to change it, that they are making a profit off of the--
Justice Stevens: Why should their interest in either changing it or maintaining it be the business of the Alabama court?
Mr. Gottesman: --Well, Your Honor, at best--
Justice Stevens: I don't understand.
Why does Alabama have any authority to tell them what policy to follow in New York?
Mr. Gottesman: --It doesn't.
It doesn't have... Alabama has to be Alabama regarding--
Justice Stevens: Right.
Mr. Gottesman: --in determining the amount of punitive damages.
In determining the quality and the character of the party before them and how it should be punished for its Alabama behavior, just--
Justice O'Connor: But admittedly it was applied here by the jury, as has been determined by the Alabama supreme court, in a way that directly tried to affect the conduct of BMW in other States.
Mr. Gottesman: --That's correct, and now I want to come back to where I was on the procedural posture.
If they had objected, they would have been entitled to a new trial.
They didn't object, and the Alabama supreme court said you're asking us to give you a remittitur for this.
We agree with you, the counsel shouldn't have said that, and we agree with you that the likely thing the jury did was to do this arithmetic computation, and therefore you're entitled to a remittitur.
Now, the question... and now, it said, we are going to redetermine the amount of punitive damages, and the question is, did that remove... we'd still have the second question, which is, is their own redetermination excessive, but did that remove the taint, as BMW calls it, of the jury's consideration of the out of state sales?
Now, in their--
Justice Scalia: Did they say that they're going to recompute the amount, or... you're in direct disagreement here with your--
Mr. Gottesman: --Yes, and I--
Justice Scalia: --colleague, Mr. Frey, who says that it's clear under Alabama law that what the remittitur amounts to is a reduction of the verdict to the maximum constitutionally permissible amount.
Mr. Gottesman: --All right, and that's exactly where--
Justice Scalia: You dispute that.
Mr. Gottesman: --We do, and I've advised Mr. Frey that we would, because our brief didn't, and it's reading his reply brief that made us realize the following mistake.
The court in this case did not say it's reducing to the maximum.
On page 21a of its opinion, in the appendix, 21a, it said, we hold that a constitutionally reasonable punitive damage award in this case is 2 million.
Now, those are the words it used.
It didn't say maximum, it didn't not say maximum.
It's not clear what they meant by that.
In their brief, Mr. Frey and BMW said that, well, look at other Alabama cases where the court has said that our practice is to reduce to the maximum that would be constitutionally permissible, and they cited a case called Big B, and there are other cases to the same effect.
Now, we went back, after reading their reply brief, and read each of those cases that has said we're reducing to the maximum.
Each of them is a case where the trial was error free.
The only thing that was being complained about was that the amount the jury brought in exceeded the maximum amount that could be justified for punishment and deterrence, what are called in the jargon mere excessiveness cases, and in that context the Alabama supreme court has said, when the only problem we have is that the jury's verdict is higher than could be justified, we reduced to the maximum that would be justified, and the inference was drawn in BMW's brief... and as I say, and I apologize for this, we acquiesced in it... that that must be what they did here as well.
But this case is unique in that it is a case where we don't have an error free trial, but because they didn't object, they're not entitled to the new trial they would automatically be entitled to.
Justice Scalia: But why... if the Alabama court does what you suggest, if only in the pure excessiveness cases they reduce it to the constitutional maximum, but in error cases they reevaluate on their own, there is simply no explanation for the term, constitutionally reasonable punitive damages award.
The court would have simply said, we hold that a reasonable punitive damages award in this case is 2 million--
Mr. Gottesman: Well, I--
Justice Scalia: --and that a remittitur of the 4 million jury verdict is appropriate.
They don't say that.
They say, we hold that a constitutionally reasonable punitive damages award.
Mr. Gottesman: --Yes.
Justice Scalia: Why is the adverb there?
Mr. Gottesman: Well, I think the adverb is there because they're saying that what made this one constitutionally unreasonable was the consideration of out of state conduct.
What makes it constitutionally reasonable is that we have determined the award without considering the out of state conduct.
I believe that that's the meaning of it.
It's... I don't mean to claim that I can tell you with absolute certainty that Alabama did not use a maximum here.
What I'm saying is, it's not at all clear that because they do in those other cases they did here.
Two things are striking.
One is that they didn't say... this language is pretty standard in their cases, we reduce to the maximum amount, and we don't find it here.
And the second thing is that when we realized this and followed up on it we found one other Alabama case where, because of peculiarity of posture, the court had before it a remittitur where there was error.
The error in that case was found to be genuine bias by the jury.
That case was the Harmon case at 525 Southern 2d 411, and it seems clear from the face of that opinion that in that case where there was a tainted jury verdict Alabama supreme court did not remit to the maximum possible amount but to something less than that, because it said, since this was a tainted award, the plaintiff, if it rejects this remittitur, will not be bound to this as the maximum that it can seek, so they plainly didn't think they were imposing the maximum.
Justice Ginsburg: Mr. Gottesman, if we don't know what operation the Alabama supreme court in fact performed, on a remittitur there are three, at least three positions, the highest a jury could award, the least that a jury, reasonable jury would award, and what the court itself thinks is reasonable.
We don't know which of those three choices.
Do we make an assumption, or do we remand to the Alabama supreme court and say, tell us what you did?
Mr. Gottesman: Well, in the case that we cite in this section of our brief, Clemons v. Mississippi, this Court had a similar problem.
It didn't know exactly what the State court had done as between two alternatives, one of which would have been constitutionally okay, and the other of which would have been constitutionally troublesome, and what the Court did in that case is say, now, if this is what you did, court, it was okay, but if this is what you did, it wasn't, and we remand for further proceedings consistent with this opinion, and that would certainly be an option.
That is, if the Court thinks that a maximum would have tainted the award but that a redetermination would not, it could say that.
I think it would be dangerous to try to conclude from this language that you know which of these choices the Alabama supreme--
Justice Kennedy: Well, do you agree with the Alabama supreme court that the jury could not use the number of similar acts that a defendant committed in other jurisdictions as a multiplier?
Mr. Gottesman: --Certainly, in the absence of evidence that it's unlawful in those States, we would agree that they--
Justice Kennedy: And is that because of interstate commerce concerns or due process concerns?
Mr. Gottesman: --I think due process concerns--
Justice Kennedy: Well... well--
Mr. Gottesman: --but I want to be clear what we're agreeing to--
Justice Kennedy: --on interstate... does interstate commerce enter into the calculus?
Suppose Alabama enacted a statute saying that an auto company that defrauded consumers in Alabama had to disgorge all of its national profits, would that be constitutional?
Mr. Gottesman: --For conduct that didn't... did or did not occur in Alabama?
Justice Kennedy: Well, the sale occurs in Alabama, they do business in Alabama, but the measure of disgorgement is profits nationwide.
Mr. Gottesman: You know, we have a... there's a grossly excessive test under the Due Process Clause that this Court's--
Justice Kennedy: What about... is there any interstate commerce objection to the statute that I hypothesize?
Mr. Gottesman: --There might be, Your Honor.
I don't... you know, it's not this case, but it might or it might not.
I could see a problem if a State did that.
Justice Kennedy: In other words, you're not sure whether or not there is an interstate commerce problem.
Mr. Gottesman: I think the answer is I would not be sure... Alabama removed it by saying you can't... Alabama went further than both we and BMW thinks the Constitution requires.
Alabama said that we are not allowed to consider the out of state sales in determining the amount.
Justice Kennedy: Well, let's just--
Mr. Gottesman: Now, we agree that Alabama--
Justice Kennedy: --Let's just assume that either a statute, and of course then we'll next get to the fact that our hypothetical jury instruction considers out of state conduct as a multiplier in fixing the amount of the award, or out of state profits as being part of the sum that must be disgorged to this plaintiff.
Are there not interstate commerce concerns with such measures of damages?
Mr. Gottesman: --There might well be, Your Honor.
Justice Kennedy: And how do you... well--
Mr. Gottesman: Alabama has absolutely foolproof protections against that happening.
Alabama, uniquely among the States--
Justice Kennedy: --Well, if you say there might well be, then I take it you concede the surface plausibility or reasonable content to the proposition that Alabama may not punish by way of damages for acts that have occurred out of State.
Mr. Gottesman: --Stated that way, I agree with it, yes.
Alabama at least without a determination that it's unlawful in another State, Alabama can't.
The reason I'm putting that--
Justice Scalia: Ah... ah... ah... ah... ah, that's a big qualifier you just threw in there.
Mr. Gottesman: --Yes, of course.
Yes, of course, and in this case--
Justice Scalia: I don't think Justice Kennedy had that qualifier in mind.
Mr. Gottesman: --Well, here's my--
Justice Scalia: I didn't hear it in his question.
Mr. Gottesman: --Yes, I understand, but here's my concern.
Suppose this case had not been filed in Alabama but because perhaps they couldn't get in personam jurisdiction, and so it were filed in New Jersey.
If the issue were whether New Jersey, applying Alabama law, would be allowed to award punitive damages or not, that's an interesting question.
Ordinarily, one State doesn't punish conduct in another State.
Justice Scalia: Well, it certainly does in criminal cases where--
Mr. Gottesman: It takes account of out of state--
Justice Scalia: --where recidivist criminals--
Mr. Gottesman: --Of course.
Justice Scalia: --are punished more severely if they've committed crimes not only in that jurisdiction but in other jurisdictions.
Mr. Gottesman: Of course, and that's the point I'm making, is that while Alabama can't say, we want to punish you for what you did in Texas, Alabama can say that in determining the quality and character of your actions in Alabama--
Justice Scalia: How bad a person you are.
Mr. Gottesman: --Exactly... we can look to the conduct that you've engaged in in other States just as this Court has held that the Due Process Clause allows that in sentencing by a State in a... or by a Federal court, for that matter, in a criminal case.
Justice Souter: But implicitly you're relying, I guess, so far as analogies go, on the fact that in the criminal enhancement field we... at least there is no authority to the effect that it would be proper for a State to say, we will set our punishment for conduct in this State by multiplying a... you know, a particular term of years for every similar act that took place elsewhere.
Mr. Gottesman: Well, in some sense, that's what a recidivist statute does.
It doesn't do exactly that--
Justice Souter: Well, if it does it like that--
Mr. Gottesman: --You know, the three strikes you're out statutes are going to--
Justice Souter: --Yes.
Mr. Gottesman: --give a greatly increased punishment because of actions--
Justice Souter: But it's harder... it's not a kind of a multiplier punishment.
Mr. Gottesman: --It may be much more than a multiplier.
Unknown Speaker: Do we really have--
Chief Justice Rehnquist: --How much of our jurisprudence in the recidivist statutes do you think is dependent on the Double Jeopardy Clause, which of course doesn't have any applicability to a civil proceeding.
Mr. Gottesman: Well, of course, Your Honor, but both due process and double jeopardy apply to the criminal proceedings, and to the extent that courts are allowed to do this in sentencing in a criminal case, it would seem to follow a fortiori that--
Chief Justice Rehnquist: Yes, but perhaps the reason that the courts have said that you're not sentencing again for the same conduct in a recidivist statute is because there would be a double jeopardy problem if you were, and you're not bound down by the double jeopardy clause in a civil proceeding.
Mr. Gottesman: --Well, I think that's right.
I want to be--
Justice Kennedy: And it's not only double jeopardy, it's the problem that a State can't really, consistent with known juris prudential postulates, divide up a sentence and say, well now, you serve this part of your sentence in Nevada, and this part of your aggravated sentence back in California, where you committed the crime, but we can do that under the Commerce Clause.
We can do that with apportionment.
We do it with interstate taxes all of the time.
Mr. Gottesman: --Well, you know, I don't think the Court should take too much counsel from what I say about this, because since in this case Alabama has removed all these issues from the consideration--
Justice Scalia: I'm saying, do we have to grapple with all of this?
Mr. Gottesman: --No, Your Honor.
Justice Scalia: I thought that both you and--
Mr. Gottesman: Yes.
Justice Scalia: --your opponent concede that these out of state things should not have been considered by the jury.
I mean, I thought that that's--
Mr. Gottesman: Right.
Justice Scalia: --for purposes of punishing those acts separately.
Mr. Gottesman: --That's right, absolutely.
That's why... and therefore, since I--
Justice Ginsburg: But Mr. Gottesman, there is another multiplier that is alive.
The other, I quite agree the Alabama supreme court has said, that's wrong, you don't do it, but this one 2 million, if you just take account of the 14 other in Alabama--
Mr. Gottesman: --Okay.
Justice Ginsburg: --Does every plaintiff get the 2 million, and what about the other States?
How tolerable is a single award of 2 million when you consider that that 2 million can be replicated again and again and again?
Mr. Gottesman: Okay, let me address that, Your Honor, because... and thank you for bringing me to that.
There are two things I want to say about that.
Number 1, the Alabama court knew and had... was entitled to find that there were many, many, many more than 14 cars that had been sold in Alabama.
They told us that they did a thorough and painstaking review of the record in arriving at the award.
Now, I can't tell you for sure, because they didn't tell us what the elements were that led them to the 2 million, but this record gives a basis for believing that there were hundreds of cars in Alabama that were sold that were repainted.
I'll come to that in a second.
And then secondly, I'll address the other implications that would flow even if it were only 14.
Incidentally, as to the question of whether everybody can do the same thing, the answer is no.
Alabama... remember that punitive damages are not just to punish for past acts, but to deter future acts.
Alabama had a practice that was on going, and so it needed to have a penalty large enough to deter the practice from continuing.
Justice Stevens: Do you think that it was... in your brief, you argue that it was appropriate to deter the nationwide policy.
Have you abandoned that position?
Mr. Gottesman: If we said that... I don't believe--
Justice Stevens: You've said it over and over again.
You said over and over again that this--
Mr. Gottesman: --Oh, I'm sorry, yes--
Justice Stevens: --this jolt was necessary to change a national policy.
Mr. Gottesman: --Well, because--
Justice Stevens: Do you adhere to that position?
Mr. Gottesman: --If they would not stop in Alabama--
Justice Stevens: You don't know whether they would have or not.
There's no evidence that even if they knew they were liable for compensatory damages they wouldn't have changed their policy.
There isn't anything one way or the other on that point.
Mr. Gottesman: --Well, that's right... it's always true, when you have to set punitive damages--
Chief Justice Rehnquist: Well, the respondent says that BMW had stopped shipping cars to Alabama by the time of this trial.
Mr. Gottesman: --Well, that's right.
They didn't put this before the jury.
In the post judgment hearing they put on testimony that--
Chief Justice Rehnquist: Well, does that make it--
Mr. Gottesman: --immediately prior to this trial a phone call was made saying, don't send cars to Alabama.
There are two things to be said about that.
One, that... as that testimony developed, it became clear that cars would continue to come into Alabama, because dealers trade cars all the time.
They're all linked into a computer network, and when a customer wants a particular kind of car, you trade.
The testimony was, our dealers trade lots of cars, and this record shows a lot of interstate trades, and the witness was then asked, well... this was a phone conversation, this changed policy.
It was just a phone conversation... don't do it.
The witness was then asked, well, what change did you make to assure that these repainted cars wouldn't then just get traded back into Alabama from one dealer to another, and he said, we did nothing about that.
What's most interesting... so at best what they were saying was, okay, we've been caught.
We promise from now on we will reduce the amount of fraud that we commit in Alabama, because what they weren't willing to say is, we will disclose, because they couldn't just disclose in Alabama without disclosing nationwide.
There was no way they... even when they wanted to fix this problem, they couldn't fix it by disclosing it in Alabama because, since they knew cars came from other States, they'd have to disclose in other States as well, and they didn't want to do that.
And so the first argument we made, and I want to defend the court here today on the ground it itself used, which is, it didn't consider the out of state at all, but the first argument we made in our brief is that they were entitled to look at the out of state conduct in this case, because BMW had constructed an engine that was a nationwide engine and couldn't figure out a way to tailor it so that it wouldn't do harm to Alabama.
Justice Stevens: --Well, there's no evidence they couldn't figure out a way to do it.
Mr. Gottesman: Well, except--
Justice Stevens: The one phone call doesn't discuss all possibilities that--
Mr. Gottesman: --Well, but it--
Justice Scalia: --executives might think of faced with this problem.
Would be unwilling to do it, is what you mean.
You don't even have that--
--They'd have problems nationwide doing it this way, that they're not going to stop in Alabama alone.
You don't even have evidence they were unwilling to do it.
Mr. Gottesman: --Well, at least--
Justice Stevens: You just have this one phone call, they got a problem in Alabama, this is the way we'll try to solve our Alabama problem.
Mr. Gottesman: --That's right.
Justice Stevens: That's all that shows.
Mr. Gottesman: But recall that they were trying to solve the Alabama problem, and even then they couldn't find a way to do it, right--
Chief Justice Rehnquist: Well--
Mr. Gottesman: --so they didn't proffer... they certainly didn't proffer a way to do it.
Chief Justice Rehnquist: --How many 2 million awards can Alabama give in a case like this--
Mr. Gottesman: Well--
Chief Justice Rehnquist: --against BMW?
Mr. Gottesman: --It can only once deter them.
It has deterred them, right.
They have stopped, so there is no longer a--
Justice Breyer: You would deter them with a judgment of a billion dollars--
Mr. Gottesman: --Yes, sure.
Justice Breyer: --Fine.
So does that mean they can award 2 billion?
Mr. Gottesman: No.
Justice Breyer: Or 5... my question, really, I want to get you back--
Mr. Gottesman: Yes.
Justice Breyer: --to what you were about to say.
You were saying, number 1, there's evidence of hundreds of cars.
Mr. Gottesman: Yes.
Justice Breyer: All right, and you have two prongs to it, and I want to hear what you have to say, and what I'm thinking in my mind, though I'm not adopting it, is, is there some procedural aspect of due process that says when there is no obvious relationship between damages and minimal harm, when historically it can't be justified, at least the court has a procedural obligation to explain some rational theory, maybe a little stronger than a legislature, maybe the same, maybe weaker.
And the second thing is, is there any such theory here, whether you say hundreds, or whether you say two, or whether you say one.
Mr. Gottesman: Okay.
Justice Breyer: Those are the... that's the excessive part that's--
Mr. Gottesman: Okay.
Justice Breyer: --bothering me, and I think you were going to discuss--
Mr. Gottesman: Right, I do.
I want to address both those.
Here's what the record shows about the number of cars.
Plaintiffs got discovery from BMW of the records of repainting that they still had.
Remember, this thing had been going on for 9 1/2 years, and so on the record it was explained to the court, we only got discovery for portions where, you know, particular places where they had them.
What they got were 5,856 repainted cars... that's in the record... of which, 983 involved repainting that cost more than 300, and counsel said, now, we don't want to... to the jury, we don't want to bombard you with 6,000 of these, so we'll give you the 983 that are more than 300 of repainting, and that's where... of those 983, 14 were Alabama cars, so we don't... there's no evidence as to how many of the other 6... roughly 5,000 were Alabama or not.
But beyond that, there's a very important thing in the record.
Justice Breyer: --explain, assume that's so.
Mr. Gottesman: Right.
Justice Breyer: Okay.
Mr. Gottesman: Okay, now--
Justice Breyer: Still, isn't there some obligation on a court under the Due Process Clause... and I'm not buying this.
I'm putting it for you to discuss... a procedural obligation under this kind of circumstance... the people who are paying this judgment did not intentionally cause harm, the people who are paying it.
There is purely economic harm.
Mr. Gottesman: --Yes.
Justice Breyer: It is fairly small in amount compared to the amount of damages.
Mr. Gottesman: For this one person.
Justice Breyer: Is there not an obligation to explain some rational theory?
That would be the theory I'm asking you to discuss.
Mr. Gottesman: Well, let me explain the rational theory, and I leave it to the Court whether the Court wants to say the Due Process Clause requires that.
There is no case that has said that in the past.
The Court could say we want that, and--
Justice Breyer: But we would say it if that's the law, presumably, and what I want to know is--
Mr. Gottesman: --But I do want to tell you that they could rationally get there if they in fact did the thorough and painstaking review that they claim they did.
There is evidence in the record, and it's cited in our brief, that 2 to 3 percent of all the cars that come to this country from BMW have to be repainted.
Now, we don't have the universe of all the sales in Alabama, but we do have the evidence of the sales by the dealer who sold Dr. Gore his car.
His testimony, and it's at page 297 of the trial transcript, is that he sold 300 to 400 BMW's a year.
Now, 2 to 3 percent of that would be 6 to 12 cars a year at that one dealer.
For 9 1/2 years this practice continued, from January of '83 to July of '92.
Nine and a half years' time, 6 to 12, would be something between 57 and 114 cars for that one dealer.
The record also shows in Plaintiff's Exhibit 13 that there were at least four other dealers in Alabama that were BMW dealers.
Justice Stevens: --Are you including the repainting jobs less than 300?
Mr. Gottesman: Yes.
Justice Stevens: Yes.
Justice Breyer: I've got the point.
On that theory--
Mr. Gottesman: Okay.
Justice Breyer: --then wouldn't a rational connection be to take the total global amount of conceivable damages and divide by the number of potential lawsuits, and then you'd have a number, and that would be this person's rational share on such a theory.
I'm saying, I don't know what that number would come to, but isn't there an obligation, at least to articulate the theory?
Mr. Gottesman: Well, I don't think it's right... and my time is up, Your Honor.
May... so I'm not sure I can finish.
Chief Justice Rehnquist: Answer the question briefly.
Mr. Gottesman: In fraud cases, very few people sue.
If you're going to divide it up and say each person only gets a fraction, then the defrauder will never be brought to a halt.
The profit will never be taken out.
Rebuttal of Andrew L. Frey
Chief Justice Rehnquist: Thank you, Mr. Gottesman.
Mr. Frey, you have a minute remaining.
Mr. Frey: Thank you.
I would like, then to... first of all, on this waiver argument, which is brand new, it's not made in the brief in opposition, was not made in the merits brief, we'd like an opportunity to submit a post argument brief.
That's the first half of Mr. Gottesman's argument.
I'd like to answer Justice Breyer's question with a procedural reason why it violates due process not to divide, as you suggested, and to allow Dr. Gore to collect the full amount, and that reason comes... you can see it from the first issue in Phillips Petroleum v. Shutts, which was the standing of the defendant to complain about the plaintiffs, jurisdiction over the plaintiffs.
What you have here is a one way class action under which, if BMW wins, it gets no credit.
It won the Yates case on punitive damages, zero punitive damages.
Now along comes Dr. Gore, and BMW loses the Dr. Gore case, and the jury imposes the full punishment necessary to deter the entire conduct everywhere in the United States.
That is manifestly unfair to BMW, because what it does not allow for is the fact that every other jury that hears this might find that there is no punishable conduct.
Chief Justice Rehnquist: Thank you, Mr. Frey.
The case is submitted.
Argument of Speaker
Mr. Speaker: The opinion of the Court in No. 94-896, BMW of North America versus Gore will be announced by Justice Stevens.
Argument of Justice Stevens
Mr. Stevens: This case comes to us on a writ of certiorari to the Supreme Court Alabama.
In 1990, the respondent the Dr. Gore purchased a new BMW sports sedan from an authorized BMW Dealership.
Nine months later, although he had not noticed any flaws in the appearance of the car, Dr. Gore was informed that parts of the car’s exterior had been repainted, apparently because the car had suffered acid rain damage after it left the factory in Germany.
Dr. Gore filed suit against petitioner, BMW of North America seeking compensatory and punitive damages to BMW’s failure to advice him that the car had been partially repainted.
Compensatory damages are intended to compensate the victim over a wrong, punitive damages are meant to punish wrongful conduct and deter its reputation.
At trial, BMW acknowledged that it had a nationwide policy under which the damage car was sold as new without disclosure of repair if the repairs cost less than 3% of the car’s suggested retail price.
At the time the policy was adapted in 1983, through the date of Dr. Gore’s purchase, BMW’s policy was at least stringent as any State's statutory disclosure requirement.
Thus, for example, eleven State legislatures require disclosure of only pre-sale repairs costing more than 6% of the suggested retail price.
Because refinishing Dr. Gore’s car cost less than BMW’s 3% threshold, the repairs were not disclosed.
In support of his claim for punitive damages, Dr. Gore introduced at trial evidence that BMW had sold as new without disclosure approximately 1000 repaired cars nationwide.
Fourteen of those sales occurred in Alabama.
The jury awarded that Dr. Gore $4,000.00 in compensatory damages and $4 million in punitive damages.
On appeal, the Alabama Supreme Court found that the jury had improperly computed the amount of punitive damages by multiplying Dr. Gore’s compensatory damages by the amount of similar sales in the entire United States.
The court therefore held that BMW was entitled to a reduction and jury award and the $2 million was inappropriate, punitive sanction under the circumstances.
In previous cases we have held that the Due Process Clause of the Fourteenth Amendment prohibits the imposition of a "grossly excessive" award of punitive damages.
We granted certiorari in this case to consider BMW's claim that $2 million sanction imposed in this case is so excessive as to violate its constitutional right to due process.
In an opinion filed with the Clerk today, we reverse the judgment of the Alabama Supreme Court.
We agree with that court that reliance on BMW sales in other States was improper.
No State may punish a defendant for out-of-state conduct that did not affect the State’s residence and that was presumptively lawful where it occurred.
To do so it would interfere with the policy choices of other States.
We therefore consider the constitutionality of this award in light of the conduct which Alabama may legitimately seeks to punish and to deter.
That is the sale of repainted cars in Alabama without disclosure.
Elementary notions of fairness dictate that a person receives notice not only of the conduct that will subject him to punishment but also the severity of the penalty that may be imposed.
Three guide posts each of with indicates that BMW did not receive adequate notice of the magnitude of the sanction Alabama might impose lead us to conclude that the $2 million punitive award for selling this repainted car is grossly excessive.
First, the conduct was only minimally reprehensible.
The harm inflicted was purely economic no one tells that safety has put at risk and there is no evidence that BMW is a repeat offender.
Second, the 500:1 ratio of punitive damages to compensatory damages is unusually large in the absence of particularly egregious conduct.
Third, the punitive award is substantially greater than the statutory fines available in Alabama and elsewhere for comparable misconduct.
Justice Breyer while joining the Court’s opinion has filed a concurring opinion in which Justices O’Connor and Souter join; Justice Scalia has filed the dissenting opinion joined by Justice Thomas; Justice Ginsburg has filed a dissenting opinion in which the Chief Justice has joined.