BMW of North America, Inc. v. Gore, 517 U.S. 559; 116 S. Ct. 1589; 134 L. Ed. 2d 809 (1996)

Facts—Nine months after purchasing a new BMW car for just over $40,000, Dr. Ira Gore Jr. discovered that the car had been repainted. BMW had not revealed this to him or the dealer because it had a policy not to disclose damage in manufacturing or shipping that amounted to less than 3 percent of the car’s value, and the cost of repainting the car had been just over $600. Gore received a judgment from an Alabama jury for $4,000 in compensatory damages (its estimate of the discount that the dealer would have had to give in order to sell the car if its damage had been revealed), and $4 million in punitive damages, an amount the Alabama Supreme Court later reduced to $2 million.

Question—Is the punitive damage award in this case so excessive as to constitute a denial of due process rights under the Fifth and Fourteenth Amendments?

Decision—Yes.

Reasons—J. Stevens (5–4). A state may utilize punitive damages to punish unlawful conduct and deter its repetition. Awards need not be uniform from state to state, and no state has the power to impose its own views on the subject on others. To the extent the original $4 million award was calculated on the basis of the total number of damaged cars sold throughout the United States, the Alabama Supreme Court correctly invalidated it. Due process requires fair notice. In this case, the Alabama award, even when reduced, exceeded three guideposts, namely, “the degree of reprehensibility of the nondisclosure; the disparity between the harm or potential harm suffered by Dr. Gore and his punitive damages award; and the difference between this remedy and the civil penalties authorized or imposed in comparable cases.” As to reprehensibility, the damages suffered were “purely economic in nature,” and were not treated severely in other states. Even the reduced award amounted to a 500 to 1 ratio between compensatory and punitive damages, whereas other cases appeared to range from 4 to 1 to 10 to 1. Comparable maximum fines for such behavior ranged from $5,000 to $10,000. Although unwilling to draw “a bright line marking the limits of a constitutionally acceptable punitive damages award,” this case clearly “transcends the constitutional limit.”

J. Breyer’s concurrence classified the judgment in this case as an example of “arbitrary coercion” and argued that Alabama had not in fact followed rules designed to channel such arbitrary discretion.

J. Scalia’s dissent viewed this decision as a resurrection of “substantive due process” that improperly intruded into state powers without giving states adequate guidance.

J. Ginsburg’s dissent classified the majority decision as presenting “only a vague concept of substantive due process, a ‘raised eyebrow’ test.” Ginsburg further questioned the wisdom of the U.S. Supreme Court attempting to patrol such an area on its own.