As long as your business is in great financial condition, due process doesn’t really apply to you, so says a California appellate court this week. In Bullock v. Philip Morris, the court upheld a punitive damage award which was sixteen times larger than the compensatory award. The court found that the reprehensibility of the tobacco company’s conduct in the 1950s, coupled with their relative financial resources, permitted the trial court to determine that in addition to $850,000 in compensatory damages, the plaintiff would recover $13.8 million in punitive damages. To say this is excessive would be an understatement, but it’s also in direct contradiction to existing U. S. Supreme Court precedent.

In almost every instance, punitive damages cannot exceed compensatory damages by more than a single digit ratio, the Supreme Court declared in State Farm Mut. Automobile Ins. Co. v. Campbell, 538 U.S. 408 (2003). While declining to create an artificial, specific bright-line rule, the Court held in that case that a key part of analyzing any punitive damage award is the ratio between the compensatory damages and the punitive damages, and that “in practice, few awards exceeding a single-digit ratio…will satisfy due process.” Id. at 425. In addition, two other guideposts are relevant: the reprehensibility of the defendant’s misconduct and the difference between punitive damages and civil penalties authorized or imposed in comparable cases. The dissenting judge in Bullock did not take issue with the majority’s determination that the misconduct was reprehensible compared to other cases, and there are no comparable penalties or cases on point.

However, while an award for punitive damages can take into account the financial condition of Philip Morris, the dissent points out that it is irrelevant as to whether a compensatory damages award itself is “small” or “substantial” in determining the ratio guidepost. Only in California, perhaps, is nearly a million dollars in damages insubstantial by any stretch of the imagination. After all, the Supreme Court held in State Farm that $1 million was indeed a substantial compensatory award.

When a substantial compensatory award is made, the ratio between it and punitive damages is supposed to be generally smaller than when the compensatory award is small. Where a compensatory award is substantial, the dissent points out the Supreme Court held that a ratio of 1 to 1 can “reach the outermost limit of the due process guarantee.” State Farm at 425. The dissent concludes that because of the reprehensible conduct of the defendant, damages at the upper end of the single digit ratio are justified. But anything beyond that violates due process.

If there are no limits to what punitive damages can be levied against a defendant merely because they can afford to pay them, juries would be empowered to bankrupt corporations even though the relative harm to the plaintiff in compensatory damages does not demand such a result. If a ratio of 16 to 1 is acceptable for misleading a plaintiff about the danger of smoking, why not 20 to 1 or 100 to 1? This is why the Supreme Court laid out a clear and unambiguous test for analyzing punitive damages awards in State Farm, and why this California appellate court is wrong.

The case will likely be appealed to the California Supreme Court.