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

BMW of North America, Inc. v. Gore

No. 94-896

Argued October 11, 1995
Decided May 20, 1996
517 U.S. 559

CERTIORARI TO THE SUPREME COURT OF ALABAMA

Syllabus

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 predelivery 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 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 459 -- also 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. Haslip, 499 U.S. 1, 23 -- because $2 million is substantially greater than Alabama’s applicable $2,000 fine and the penalties imposed in other States for similar malfeasance, and because none of the pertinent statutes or interpretive decisions would have put an out-of-state distributor on notice that it might be subject to a multimillion dollar sanction. Moreover, in the absence of a BMW history of noncompliance with known statutory requirements, there is no basis for assuming that a more modest sanction would not have been sufficient. Pp. 583-585.

(f) Thus, BMW’s conduct was not sufficiently egregious to justify the severe punitive sanction imposed against it. Whether the appropriate remedy requires a new trial or merely an independent determination by the Alabama Supreme Court of the award necessary to vindicate Alabama consumers’ economic interests is a matter for that court to address in the first instance. Pp. 585-586.

646 So.2d 619, reversed and remanded.

STEVENS, J., delivered the opinion of the Court, in which O’CONNOR, KENNEDY, SOUTER, and BREYER, JJ., joined. BREYER, J., filed a concurring opinion, in which O’CONNOR and SOUTER, JJ., joined, post, p. 586. SCALIA, J., filed a dissenting opinion, in which THOMAS, J., joined, post, p. 598. GINSBURG, J., filed a dissenting opinion, in which REHNQUIST, C.J., joined, post, p. 607.