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

Issue: Whether a $2 million punitive damages award to the purchaser of one car exceeds the constitutional limit created by the Due Process Clause of the 14th Amendment which prohibits a State from imposing a “grossly excessive” punishment on a tortfeasor.

Facts: Gore purchased a BMW sports sedan for forty thousand dollars from an authorized BMW dealer in Alabama. Nine months later, he found his car had been repainted by BMW and sued for suppression of a material fact and asked for $500,000 in compensatory and punitive damages.

BMW acknowledged that it had a nationwide policy that if a car was damaged in the course of manufacturing and the cost of repairing the damage exceeded 3 percent of the car’s retail price, the car would be sold as used. If the repair cost did not exceed 3 percent of the suggested retail price, it would be sold as new without advising the dealer that any repairs had been made. The cost of repainting Gore’s car was only 1.5 percent of the retail price.

Gore asserted that the repainted car was worth less than a car which had not been refinished. He showed $4,000 of actual damages. For punitive damages, Gore introduced evidence of BMW selling 983 refinished cars since 1983 (only 14 were sold within Alabama) without disclosing that the cars had been repainted.

Procedural Posture: The jury returned a verdict for $4,000 in compensatory damages and $4 million in punitive damages. The Alabama Supreme Court rejected BMW’s claim that this exceeded the constitutionally permissible amount but did find the jury miscalculated the damages and held that “a constitutionally reasonable punitive damages award in this case is $2 million.”

Holding: The punitive damage award was grossly excessive and exceeds the constitutional limit.

Reasoning: Gore argued that the large punitive damages award was necessary to induce BMW to change the nationwide policy that it adopted in 1983. However, by attempting to alter BMW’s nationwide policy, Alabama would be infringing on the policy choices of other states. One state cannot impose economic sanctions on violators of its laws with the “intent of changing the tortfeasor’s lawful conduct in other States.”

In addition, the Court gave three guideposts for reviewing punitive damages:

1. the degree of reprehensibility of the defendant’s misconduct,
2. the ratio of punitive damages to actual damages (here it is 500 to 1 which does not bear a “reasonable relationship.”), and
3. the difference between punitive damages awarded by the jury and civil penalties authorized or imposed in comparable cases (here, Alabama’s Legislature authorizes a maximum $2,000 penalty of $2,000 through its Deceptive Trade Practices Act. In Alabama, there were only 14 violations).

Scalia’s Dissent (Thomas joined): The Constitution does not make excessive punitive damages any concern of the Court. There is no federal guarantee (even in the 14th Amendment) that a damages award actually be reasonable. “By today’s logic, every dispute as to evidentiary sufficiency in a state civil suit poses a question of constitutional moment, subject to review in this Court. That is a stupefying proposition.