Wade Clark Mulcahy LLP

The Pennsylvania Supreme Court recently upheld a Superior Court ruling which held that punitive damages in the amount of $2.8 million dollars was not unconstitutional, endorsing a “per-defendant” approach of calculating the ratio of punitive to compensatory damages.  In <em>The Bert Company d/b/a <a href="https://www.wcmlaw.com/wp-content/uploads/2023/07/Northwest-1.pdf">Northwest</a> Ins. Services v. Matthew Turk, et al.</em>, Defendants Matthew Turk, First National Insurance Agency, LLC, First National Bank, and FNB Corporation appealed the Superior Court’s order, which held that a jury’s award of punitive damages was constitutional. The Supreme Court upheld that order, endorsing the “per-defendant” approach of calculating the punitive to compensatory damages ratio.

Plaintiffs allege defendants Turk and First National poached plaintiff Northwest’s employees, who were under non-solicitation agreements with First National. Turk and First National allegedly sought both to acquire key employees and their books of business and to takeover Northwest’s business.  When the jury in the case ultimately found in favor of Northwest, it granted a verdict of $250,000 in compensatory damages and $2.8 million in punitive damages. The jury split the damages among the four Defendants, with amounts of between $300,000 and $1.5 million being allocated to each.   The Defendants argued the constitutionality of the jury’s award of punitive damages to Northwest. Namely, they argued the Due Process Clause of the Fourteenth Amendment to the US Constitution prohibits, as grossly excessive, the punitive damages awarded, on the grounds that the aggregate ratio of punitive to compensatory damages was 11.2 to 1, which, the Defendants alleged, was an unconstitutionally excessive award.

The Defendants’ argument was that in calculating this ratio, the trial court should have aggregated all punitive damages imposed. The trial court, however, computed the ratio using the amount of punitive damages assessed against each Defendant compared to the compensatory damage imposed on that defendant—it had adopted a “per-defendant” approach. Both the Superior Court and the Supreme Court ultimately endorsed this approach, with the Supreme Court holding that the per-defendant approach assesses the individualized impact intended by the punitive damages award, which better accounts for the impact of the award on a defendant’s right to due process, as is required in analyzing an award’s constitutionality.

The Supreme Court also noted that although it was endorsing a per-defendant approach, the 11.2 ratio that would come from a per-judgment approach would not be per se unconstitutional under the US Supreme Court’s decision in <em>State Farm Mutual Automobile Ins. Co. v. Campbell</em>, 538 U.S. 408 (2003). The Supreme Court held that the <em>State Farm </em>decision did not state that any ratio over 10 to 1 is unconstitutional—rather, the <em>State Farm </em>decision stated that higher ratios should trigger closer judicial scrutiny.

In generally endorsing the trial court’s approach, the PA Supreme Court highlighted that the U.S. Supreme Court has warned against setting a “bright-line” or concrete limit on punitive damages.  A single digit ratio test of State Farm is non-binding.

Thanks to Erin Gallagher for her assistance with this post.  Should you have any questions, please contact <a href="tbracken@wcmlaw.com">Tom Bracken</a>.