By Horace Cooper
“Wherever the real power in a government lies, there is the danger of oppression.”
James Madison wrote those words in 1788, and his observation about government’s potential to wreak havoc still rings true over 230 years later.
Today, many Americans see excessive civil verdicts as just such an example of oppression.
Given their concerns about overreaching government, the founding fathers devised a system of government that could correct missteps or prevent them from happening altogether — we often refer to that as checks and balances.
One of those checks is the Supreme Court.
The United State Supreme Court has recognized so-called jackpot justice awards as an injustice and has issued rulings designed to curtail this particularly egregious aspect of our judicial system.
In 1996, the Court ruled in BMW of North America, Inc. v. Gore that the “Due Process Clause of the Fourteenth Amendment prohibits a State from imposing a ‘grossly excessive’ punishment on a tortfeasor.” The Supreme Court reaffirmed this basic premise in its 2003 State Farm Mutual Automobile Insurance Co. v. Campbell et al. decision when it found that a $145 million punitive damages award was unconstitutional.
Jackpost Justice Proliferates
Despite guidance from the Supreme Court, jackpot jury awards – with their potential to irreversibly cripple the nation’s economy – still proliferate. In fact, a recent Texas verdict suggests that their size may be increasing.
Last year, a San Antonio jury doled out a staggering $706.2 million award in a trade secrets case. HouseCanary, a six-year-old real-estate startup that has managed to raise $64 million in venture funding to date, won its case after alleging that another company, Amrock, misappropriated data and models used to valuate residential properties. The total judgment is more than 10 times the amount raised by HouseCanary’s investors and is completely unconnected to injury caused by Amrock.
If this award outcome is allowed to stand, it will make a mockery of existing Supreme Court jurisprudence and the protections provided by the Constitution. If left in place, American companies and our economy could be imperiled.
As the Supreme Court noted in State Farm, “To the extent an award is grossly excessive, it furthers no legitimate purpose and constitutes an arbitrary deprivation of property.
Set aside for a moment the fact that HouseCanary’s apparent trade secrets, which were “stolen,” amount to public real estate data, and conventional industry real estate and finance models. Instead, focus on the “guideposts” that are to instruct courts on what constitutes an excessive award. One such guidepost is what the Supreme Court refers to as the “degree of reprehensibility of the defendant’s misconduct.”
Normally a discussion on reprehensibility would assume misappropriation actually occurred in the facts of this case before going forward. This turns out to be an awfully large assumption since, according to HouseCanary’s own expert witness, Amrock’s products contained none of HouseCanary’s supposed trade secrets. Indeed, the very lack of evidence of wrongdoing in this case makes the idea of punitive damages laughable – let alone of this size.
Even if misappropriation could be shown in this case, the notion that such an action meets the Supreme Court’s other standards for reprehensibility is dubious at best. With zero physical harm involved and no claim of any repeated wrongdoing, the alleged incident cannot be considered reprehensible and worthy of punitive damages.
Finally, there would still remain the concern about the disparity between the award and the actual or potential harm suffered, along with the disparity between this award and those of similar cases. With HouseCanary’s own witness testifying that Amrock did not use any trade secrets, and with the award’s value dwarfing HouseCanary’s economic investment, the disparity between the verdict and the apparent “harm” is about 706 million miles wide.
As for the disparity between HouseCanary’s jackpot and similar cases, this outcome is truly unique.
While the award obviously fails to withstand scrutiny, it hardly takes a legal analysis to recognize that a $706 million award handed to a company lacking financial standing over a dispute concerning a $5 million annual contract is obscenely excessive.
The Constitution protects the American people and organizations from excessive damages awards. This principle could be at risk if this historic award somehow stands.
Sometimes trial courts get it wrong, and appellate courts are able to step in. As this case receives another hearing on appeal, the court must be sure not to upend years of sensible jurisprudence regarding excessive damages – as well as the Constitution itself.
Horace Cooper is a Senior Fellow at the National Center for Public Policy Research and taught constitutional law at George Mason Law School.
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