The New York Times, on March 26, 2008, wrote an article about how foreign court’s from around the world view the idea of punitive damages with skepticism and alarm. Most international foreign jurisdictions see the role of civil litigation has having only one objective – to compensate the aggrieved party for losses sustained, not punish the wrongdoer. Punishment, in the eyes of foreign court’s, "should be meted out only by the criminal justice system, with its elaborate due process provisions and disinterested prosecutors."
Punitive damage awards have been a part of the American Civil Justice System for quite some time now, but things are starting to change in this arena of the legal landscape. The Times article points out that, though punitive damages are fairly common in this country, as opposed to the rest of the world, the U.S. courts often reduce or eliminate the award on appeal. Specifically, the U.S. Supreme Court in the Exxon Valdez case reduced the jury’s punitive damage award from $5 billion to $2.5 billion. Additionally, states like Washington have severely limited punitive damage awards by only allowing them under certain circumstances and by statute.
What does all this mean for foreign investment and corporations doing business in the State of Washington?
Businesses and foreign investors should see the State of Washington as a ripe place to do business. Unlike other states in the U.S., we have managed to strike a balance between promoting economic development throughout our State, and sufficiently safeguarding private citizens from wrongful and/or corrupt business practices. This is best exemplified in the number of regulations passed by the Washington State Legislature in regards to Consumer Protection laws and the aggressive enforcement of those regulations by the Washington State Attorney General’s Office headed by Rob McKenna. This is just one example of how the State of Washington, through a balancing of case law, legislation, and enforcement, has been able to extinguish punitive damage awards and still maintain higher standard of protection on behalf of the consumer.
However, is this movement away from the awarding of punitive damages a reflection of some fundamental shift in our judicial system towards a more common philosophy adopted worldwide, or is it based on the fact that a majority of higher level justices’ within our courts’ tend to be more pro-business, than pro-consumer?
Plaintiff Attorney’s would argue that the only way to truly punish a Corporation would be to hit them where it can affect them the most – in their "bottom line." They see it as the ability for a common person to be able to take action without needing to seek assistance from some governmental entity. But if the common person is already being compensated for their loss through remedy awards like general and special damages, then what is the need for punitive damages?
Alternatively, what do companies like WorldComm, Adelphia, Enron, and Arthur Anderson have in common? They all were successfully prosecuted/PUNISHED for wrongful business practices under various applicable federal and state statutes. In the wake of those scandals, many businesses are much more aware of the need to establish, maintain, and update corporate governance policy and procedure programs within their organization. Effective enforcement and prosecution under laws like Sarbanes-Oxley, HIPPA, or FCTPA, for example, can be a strong deterance for any corporation in the United States or abroad to act accordingly or face possible fines/prosecution.
Thus, every corporate attorney should see an urgent need to monitor and discuss corporate governance programs with their clients and encourage a regular evaluation of those programs by the Board of Director’s and/or Officers.
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