Wednesday, January 23, 2008, 11:44 PM

Fourth Circuit Upholds ADA Punitive Damage Award

Today in EEOC v. Federal Express Corp. the Fourth Circuit rejected a challenge by FedEx to a punitive damages award in an ADA case. A jury found an ADA violation and awarded the employee $100,000 in punitive damages on top of $8,000 in compensatories. (In the case of an employer with more than 500 employees, the ADA limits the sum of compensatory and punitive damages to $300,000.) On appeal FedEx made two arguments.

First, FedEx argued that the evidence was insufficient to support the punitive damages award. The Fourth Circuit disagreed. The Court concluded that the evidence was sufficient to find that a managerial official of FedEx perceived the risk that his failure to provide the plaintiff with reasonable accommodations would violate the ADA -- and thus that FedEx acted with recklessness. The Court also rejected FedEx's argument that, because it had adopted an ADA compliance policy and an internal grievance policy, it had acted in "good faith." "Unfortunately for FedEx," the Court held, "the mere existence of an ADA compliance policy will not alone insulate an employer from punitive damages. Rather, in order to avoid liability for the discriminatory acts of one of its management officials, an employer maintaining such a compliance policy must also take affirmative steps to ensure its implementation." The Court concluded there was evidence that "FedEx failed to sufficiently take affirmative steps to ensure the implementation of its ADA compliance policy with respect to [plaintiff]."

Second, FedEx argued that the $100,000 punitive award was excessive in amount, in violation of the federal due process clause. The Fourth Circuit held that the 12.5 to 1 ratio between punitives and compensatories didn't render the award excessive as a matter of law. The problem with that ruling: the Supreme Court has indicated that a ratio above single digits fails the reasonable-relationship guidepost of BMW's due process test. Indeed, in State Farm v. Campbell (2003) the Supreme Court said that "few awards exceeding a single-digit ratio between punitives and compensatory damages . . . will satisfy due process" and reiterated that a punitive award of four times compensatory damages was likely to be "close to the line of constitutional impropriety." State Farm also indicated that a higher multiple may be permissible when (i) "a particularly egregious act has resulted in only a small amount of economic damages; (ii) "the injury is hard to detect"; or (iii) "the monetary value of non-economic harm might have been difficult to determine." The Fourth Circuit didn't examine or apply any of these factors in upholding the 12.5 to 1 ratio today.

The Fourth Circuit also found the award reasonable in that it fell well below the ADA's statutory cap. Plaintiffs often argue that a punitive award that falls under a statutory cap is immune to an excessiveness challenge, and the district court in this case may have bought that theory. While the Fourth Circuit didn't go quite so far, the Court plainly relied heavily on the statutory cap as one of the factors supporting the reasonableness of the award. The notion that an award is beyond due process review for excessiveness if it falls within a statutory range is misplaced. See, e.g., Kent v. A.O. White, Jr., Consulting Eng'r, P.C., 559 S.E.2d 731, 736-40 (Ga. Ct. App. 2002) (holding that punitive award that had been reduced by trial court to $250,000 statutory cap remained unconstitutionally excessive and ordering reduction to $85,964). Otherwise a state could set the cap sufficiently high--say, $5 million--and awards below the cap would be immune from challenge no matter how disproportionate they may be in relation to actual damages. In fact, the Supreme Court and Fourth Circuit historically have reviewed criminal sentences, civil forfeitures, taxes, False Claims Act penalties, and other statutorily-based penalties for excessiveness.

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