BMW of North America, Inc. v. Gore

PETITIONER: BMW of North America, Inc.
RESPONDENT: Gore
LOCATION: 10th Judicial Circuit Court - Jefferson

DOCKET NO.: 94-896
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: Supreme Court of Alabama

CITATION: 517 US 559 (1996)
ARGUED: Oct 11, 1995
DECIDED: May 20, 1996

ADVOCATES:
Mr. Andrew L. Frey - Argued the cause for the petitioner
Michael H. Gottesman - Argued the cause for the respondent

Facts of the case

After purchasing a new vehicle from an authorized Alabama BMW dealership, Ira Gore, Jr. discovered that his new vehicle had been repainted. He sued BMW's American distributor (BMW), alleging that it committed fraud by failing to inform him that his car had been repainted. The Alabama Circuit Court entered judgment, following a jury verdict, awarding Gore $4,000 in compensatory damages and $4 million in punitive damages. On appeal from the trial judge's denial of BMW's post-trial petition to set aside the punitive damages as 'grossly excessive,' the Alabama Supreme Court ruled that the punitive damages were not so excessive as to violate BMW's Fourteenth Amendment right to due process. Due to a jury calculation error, however, the Alabama Supreme Court reduced Gore's punitive damage award to $2 million. BMW appealed to the Supreme Court.

Question

Assuming that Gore's punitive damage award was grossly excessive, does the Fourteenth Amendment's due process clause protect BMW from paying the award?

Media for BMW of North America, Inc. v. Gore

Audio Transcription for Oral Argument - October 11, 1995 in BMW of North America, Inc. v. Gore

Audio Transcription for Opinion Announcement - May 20, 1996 in BMW of North America, Inc. v. Gore

William H. Rehnquist:

The opinion of the Court in No. 94-896, BMW of North America versus Gore will be announced by Justice Stevens.

John Paul Stevens:

This case comes to us on a writ of certiorari to the Supreme Court Alabama.

In 1990, the respondent the Dr. Gore purchased a new BMW sports sedan from an authorized BMW Dealership.

Nine months later, although he had not noticed any flaws in the appearance of the car, Dr. Gore was informed that parts of the car’s exterior had been repainted, apparently because the car had suffered acid rain damage after it left the factory in Germany.

Dr. Gore filed suit against petitioner, BMW of North America seeking compensatory and punitive damages to BMW’s failure to advice him that the car had been partially repainted.

Compensatory damages are intended to compensate the victim over a wrong, punitive damages are meant to punish wrongful conduct and deter its reputation.

At trial, BMW acknowledged that it had a nationwide policy under which the damage car was sold as new without disclosure of repair if the repairs cost less than 3% of the car’s suggested retail price.

At the time the policy was adapted in 1983, through the date of Dr. Gore’s purchase, BMW’s policy was at least stringent as any State's statutory disclosure requirement.

Thus, for example, eleven State legislatures require disclosure of only pre-sale repairs costing more than 6% of the suggested retail price.

Because refinishing Dr. Gore’s car cost less than BMW’s 3% threshold, the repairs were not disclosed.

In support of his claim for punitive damages, Dr. Gore introduced at trial evidence that BMW had sold as new without disclosure approximately 1000 repaired cars nationwide.

Fourteen of those sales occurred in Alabama.

The jury awarded that Dr. Gore $4,000.00 in compensatory damages and $4 million in punitive damages.

On appeal, the Alabama Supreme Court found that the jury had improperly computed the amount of punitive damages by multiplying Dr. Gore’s compensatory damages by the amount of similar sales in the entire United States.

The court therefore held that BMW was entitled to a reduction and jury award and the $2 million was inappropriate, punitive sanction under the circumstances.

In previous cases we have held that the Due Process Clause of the Fourteenth Amendment prohibits the imposition of a "grossly excessive" award of punitive damages.

We granted certiorari in this case to consider BMW's claim that $2 million sanction imposed in this case is so excessive as to violate its constitutional right to due process.

In an opinion filed with the Clerk today, we reverse the judgment of the Alabama Supreme Court.

We agree with that court that reliance on BMW sales in other States was improper.

No State may punish a defendant for out-of-state conduct that did not affect the State’s residence and that was presumptively lawful where it occurred.

To do so it would interfere with the policy choices of other States.

We therefore consider the constitutionality of this award in light of the conduct which Alabama may legitimately seeks to punish and to deter.

That is the sale of repainted cars in Alabama without disclosure.

Elementary notions of fairness dictate that a person receives notice not only of the conduct that will subject him to punishment but also the severity of the penalty that may be imposed.

Three guide posts each of with indicates that BMW did not receive adequate notice of the magnitude of the sanction Alabama might impose lead us to conclude that the $2 million punitive award for selling this repainted car is grossly excessive.

First, the conduct was only minimally reprehensible.

The harm inflicted was purely economic no one tells that safety has put at risk and there is no evidence that BMW is a repeat offender.

Second, the 500:1 ratio of punitive damages to compensatory damages is unusually large in the absence of particularly egregious conduct.

Third, the punitive award is substantially greater than the statutory fines available in Alabama and elsewhere for comparable misconduct.

Justice Breyer while joining the Court’s opinion has filed a concurring opinion in which Justices O’Connor and Souter join; Justice Scalia has filed the dissenting opinion joined by Justice Thomas; Justice Ginsburg has filed a dissenting opinion in which the Chief Justice has joined.