Jodee R. Rankin is a 2019 Judge K.K. Legett Fellow at Washington Legal Foundation who will be entering her third year at Texas Tech University School of Law in the fall.
The Eighth Amendment prohibits excessive bail, excessive fines, and cruel and unusual punishment. Yet while these constitutional limits on governmental powers have protected individuals, the protection of corporations from excessive fines has remained a long-standing question. But, last month, the Colorado Supreme Court, in Colorado Department of Labor and Employment, Division of Workers’ Compensation v. Dami Hospitality, WL 2332246 (Colo. June 3, 2019), concluded that the protections of the Excessive Fines Clause are not so limited—corporations are clearly covered by the text and the purpose of the Eighth Amendment.
The Colorado case involved the owner-operator of a Denver motel, employing four to ten employees at a given time. As an employer, Dami was required to maintain workers’ compensation insurance. When the Division of Workers’ Compensation discovered that Dami’s insurance had lapsed for nearly four years, the Division calculated Dami’s fine under the applicable statutory and regulatory framework. The resulting fine amounted to $841,200.00—an amount that exceeded the motel’s annual income.
Dami, through its registered agent, explained its failure to maintain insurance, informed the Division that it was unable to pay the fine, and requested a penalty more reasonable to the size of the business. The Division responded with a settlement offer of $425,000.00, the minimum per-diem fine allowed by the statute. Dami refused the offer and instead sought review. Despite Dami’s efforts, the Division upheld the fines. Next, Dami appealed to the Industrial Claims Appeals Office (“ICAO”).
The ICAO upheld the Division’s order, but this time Dami’s efforts were not entirely rejected—Dami’s excessive fines argument survived and the matter was remanded back to the Division for review under a standard borrowed from Fourteenth Amendment jurisprudence. Again, the Division upheld the order, so Dami appealed to the court of appeals. The court of appeals assumed that the Excessive Fines Clause applied to corporations but did not decide so. Finding that the Division incorrectly applied the Associated Business Product factors (the borrowed Fourteenth Amendment standard), the court of appeals remanded the order to the Division to recalculate. The Division petitioned for certiorari.
Applicability of the clause
The Colorado Supreme Court examined both the purpose of the clause as well as the appropriateness of applying it to corporations. It found that the clause doesn’t suggest that its protections are limited to natural persons—it’s simply a directive on the government not to impose excessive fines. Arguing that the other clauses of the amendment provide textual clues to the limits of protection afforded by the excessive fines clause, the Division urged that the maxim noscitur a sociis should apply (meaning that the phrase should be informed by its neighboring words). Because the Supreme Court had already rejected that interpretation in Austin v. United States, 509 U.S. 602 (1993), the court instead focused on the purpose of the clause—the prevention of government overreach and abuse of power. The question boiled down to whether the purpose of the clause supported its application to corporations, which turned out to be a straightforward analysis covered succinctly in the court’s opinion.
Contrasting those guarantees that are purely personal and limited to the protection of individuals—such as the privilege against self-incrimination and the right to privacy—with the payment of penalties, the court reasoned that the latter is something a corporation can do and is therefore protected from excessive fines under the clause. The court relied on Hale v. Henkel, 201 U.S. 43 (1906), and reasoned that when a guarantee protects government overreach, constitutional limitations on government power can apply to protect a corporation just as it protects a natural person. Analyzing the text and purpose of the clause closely, the court came to the clear conclusion that corporations are protected by the Excessive Fines Clause.
At the same time Dami was being decided, specifically after oral argument, the U.S. Supreme Court held in Timbs v. Indiana, 139 S. Ct. 682 (2019), that the Excessive Fines Clause is an incorporated protection applicable to the states. Therefore, Colorado’s Division of Workers’ Compensation became subject to its limits.
The gross disproportionality standard
After the court determined that the clause did apply, it considered the appropriate standard. The U.S. Supreme Court, in United States v. Bajakajian, 524 U.S. 321 (1998), described the touchstone of the constitutional inquiry under the Excessive Fines Clause as “the principle of proportionality.” The Colorado Supreme Court followed suit and reasoned that the Bajakajian Court had developed an applicable standard. The Bajakajian gross-proportionality standard involves consideration of the amount of the fine in proportion to the gravity of the offense and includes an evaluation of the essence of the crime/offense, whether the defendant fits into the class of persons at which the statute was directed, and the nature of the harm caused. And although the Supreme Court hasn’t addressed whether the defendant’s ability to pay the fine should be taken into consideration, the Dami court went beyond Bajakajian as it believed the defendant’s ability to pay to be “persuasive evidence” of a fine’s excessiveness.
Despite the long-standing question and lack of doctrinal clarity surrounding whether corporations are protected from excessive fines, the Colorado Supreme Court took a logical and well-reasoned approach that considered the clause’s text and its purpose; an approach that other courts should follow. No loophole in the Eighth Amendment’s text exempts business enterprises from the Excessive Fines Clause’s protection. That constitutional provision provides an explicit limit to the reach and power of the government to penalize, a limit that extends to all who are subjected to its reach.