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Chapter 6

SMG LA 245 Chapter Notes - Chapter 6: Prima Facie, Actual Malice, Punitive Damages

Course Code
SMG LA 245
David Randall

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Tort Law
Personal Jurisdiction: a courts authority to bind the defendant to its
Jurisdiction a courts power to hear a case
Summons: courts written notice that a lawsuit has been filed against the
A tort is a violation of a duty imposed by civil law
A person who commits a tort (usually, the defendant)
Three purposes of tort law:
To provide incentives for good conduct and disincentives for bad conduct,
To provide compensation for victims of injuries, and
To serve society's sense of fairness by requiring that wrongdoers
compensate those they harm
Tort remedies
The purpose of tort remedies is to restore the plaintiff to the position she
was in before the tort occurred
Single recovery principle
Requires that a damage award to the plaintiff must satisfy all of plaintiff's
damages claims against the defendant
Actual/compensatory damages
Purpose is to make the plaintiff “whole” by compensating plaintiff for the
actual, direct harm she suffered, e.g.
Medical expenses
Lost wages
Pain and suffering
Cost to repair or replace property
Loss in market value of damaged property
Punitive/exemplary damages
Purpose is to-
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Punish the defendant for its outrageous conduct, and
Deter others from similar conduct
No more than 9x the cost
EQUITABLE RELIEF is LESS COMMON (layers take 30-33%)
To determine whether punitive damages are reasonable a court must
The reprehensibility of the defendant's conduct,
The ratio between the harm suffered and the reward, and
The difference between the punitive award and civil penalties used in similar cases
State Farm v. Campbell, 528 U.S. 408 (2003)
Facts: State Farm turned down offer to settle tort claim against Campbell for
$50k, the limit of Campbell’s policy, because even if it last at trial, its exposure
was capped at $50k. Jury assessed damages of $185k against Campbell, $135k
more than his policy limit. He argued State Farm should have accepted the $50k
settlement. State Farm paid the entire $185k judgment, but Campbell then sued
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for fraud and intentional infliction of emotional distress. A jury awarded him
$1mm compensatory and $145mm punitive damages
Issue: What is the limit on punitive damages?
U.S. Supreme Court held that punitive damages should generally not be more
than nine times greater than the amount of compensatory damages, and a trial
and a trial court may not use the defendant’s wealth to justify unreasonably high
punitive damages
Campbell suffered only minor economic harm from State Farm’s failure to
accept the settlement, not physical injuries
Judgment reversed, and case remanded
Punitive damages are awarded in approximately 1.00%-2.00% of all tort
cases that go to judgment
Awarded in about 6% of all cases that plaintiffs win
Appellate courts have broad discretion to review punitive damages awards and
often reduce them
Taxability of tort damages1
Damages for plaintiff’s “personal physical injuries or physical sickness” are
excluded from plaintiff’s income
In other words, they are not taxable to the plaintiff
Before amendment to IRC § 104(a)(2) in 1996, damages for any injuries were
excluded from plaintiff’s income
There is considerable litigation over what constitutes a physical injury
Generally, a physical injury requires “observable bodily harm”
IRC § 104(a)(2) does not treat emotional as a physical injury or physical sickness
Damages for plaintiff’s non-physical injuries (e.g. property, lost wages, lost
profits) are generally included in plaintiff’s income
Punitive damages are generally included in plaintiff’s income
In other words, punitive damages and damages for non-physical injuries are
taxable to the plaintiff
Equitable relief (ben)
Court-ordered remedy used where money damages cannot adequately
compensate plaintiff for the harm suffered
E.g. temporary restraining orders, preliminary and permanent injunctions
Allocating liability
Tort plaintiffs often sue every possible defendant on every conceivable
theory and start picking through them to find the one with both liability and
sufficient resources to pay damages
Intent Continuum
Actual intent
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