Dateline: July, 2021, Issue 1

Do per diem or lump sum requests yield larger punitive damage awards?

Punitive damages are meant to punish a defendant and deter similar conduct in the future. The U.S. Supreme Court suggests that the ratio of punitive damages to compensatory damages generally should not exceed 9:1 (State Farm Mutual Auto Insurance Company v. Campbell 538 U.S. 408, 425 (2003)). The specific amount of money that punishes a defendant and deters similar conduct, however, is subjective and left to each case's decision-maker.

Conklin (2021) examined whether a lump sum request (for the total amount desired) or a per diem revenue request (asking for a specific number of days of the defendant's revenue) yielded larger punitive damage awards in a product liablity case.

Mock jurors were given case summaries that informed them that (1) the plaintiff was injured by a defective water heater that caused pressure to build, resulting in an explosion, (2) the manufacturer was aware of the defect, but decided not to recall the water heaters reasoning that it would hurt its reputation and that explosions would be rare, and (3) the plaitiff had already received $350,000 which fully compensates the plaintiff for his injuries, including pain and suffering. Half of the mock jurors were informed that the manufacturer was an out-of-state company, while the other half were told the manufacturer was an in-state company. All mock jurors were told that the annual revenue of the manufacturer is $360 million with annual profits of $40 million.

Mock jurors then were told that their job was to decide whether to apply punitive damages against the manufacturer. All mock jurors were asked to award $2 million, though in different ways. The plaintiff's attorney asked half of the mock jurors for $2 million in punitive damages (lump sum request). The other half of the mock jurors were asked for two days worth of the defendant's revenue which they were told was about $2 million (per diem revenue request).

Mock jurors awarded more money, on average, to the per diem revenue request ($1.73 million) than to the lump sum request ($1.56 million). Said differently, tying the award request to the manufacturer's revenue increased punitive damage awards by 10.9%.

Participants also awarded more money, on average, against the out-of-state defendant ($1.87 million) than the in-state defendant ($1.42 million). Punitive damage awards against the out-of-state defendant were 31.7% higher than against the in-state defendant. Said diffrently, the effect on punitive damage awards of the defendant's residence was three times larger than the effect of the kind of request made by the plaintiff's attorney.

In sum, per diem revenue requests and out-of-state defendants independently yield larger punitive damage awards, with defendant residence being a particularly important factor.

Source Conklin, M. (forthcoming 2021). Factors affecting punitive damage awards. Florida Coastal Law Review.
Available at SSRN:  https://ssrn.com/abstract=3615013