• New Jersey Finds Standard for Punitive Damages in Employment Discrimination Cases
  • May 5, 2003 | Author: John L. Slimm
  • Law Firm: Marshall, Dennehey, Warner, Coleman & Goggin - Cherry Hill Office
  • On June 21, 2002, New Jersey's Appellate Division clarified the standard to be applied for punitive damages claims in employment discrimination cases. In Baker v. National State Bank, 353 N.J. Supra. 145 (App. Div. 2002), the court considered whether a punitive damages award violated due process in light of the standards enumerated by the United States Supreme Court in BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996). The Appellate Division noted that in BMW, supra., the Supreme Court held that a punitive damages award may be so excessive as to violate substantive due process. There, the Court considered a $2 million punitive damages award for misconduct causing $4,000 in compensatory damages, a ratio of 500 to 1. The Court concluded that the punitive damages award "transcended the constitutional limit" and remanded for consideration of three "guideposts" to determine whether the award comported with the principles of fairness. These guideposts to be followed on remand in BMW required a consideration of (1) the degree of reprehensibility of the conduct that formed the basis of the civil suit; (2) the disparity between the harm or potential harm suffered by the plaintiff and the plaintiff's punitive damages award; and (3) the difference between this remedy and other penalties authorized or imposed in comparable cases of misconduct.

    In Baker, the defendant bank argued that its conduct was not so reprehensible as to support an original jury award of $4 million in punitives, which was remitted by the trial court to $1.8 million in punitives. The Baker Court discussed the bank's reprehensible conduct in the context of BMW. The Supreme Court in BMW noted that non-violent crimes were less serious than violent crimes. Also, offenses involving trickery and deceit were more reprehensible. Finally, evidence of repeated prohibited conduct justified more severe punishment. Also, the BMW Court held that purely economic injury could warrant a substantial penalty when the injury was the result of intentional and affirmative misconduct, or when the target was financially vulnerable. However, it did not mean all acts that caused economic harm were sufficiently reprehensible to justify significant sanction in addition to compensatory damages.

    In Baker, the bank's actions did not reach the top of the reprehensibility scale. Its termination of the plaintiffs, although discriminatory, was non-violent and did not involve repeated prohibited conduct. However, the bank's actions did involve trickery and deceit. The bank first decided to terminate the plaintiffs and then provided reasons to justify its decision, including the placement of witnesses' notes into the plaintiffs' personnel files and an explanation which was successfully rebutted at trial. The plaintiffs had poor loan portfolios. The plaintiffs were also told that their positions had been eliminated. That turned out to be false because younger employees were transferred to their branch management positions.

    In Baker, the plaintiffs were awarded damages for emotional pain and suffering and, thus, sustained personal injuries. With respect to financial vulnerability, they struggled financially following their termination and had to reduce their standards of living considerably.

    It should be noted that in Baker, the trial court noted that New Jersey's Punitive Damages Act, N.J.S.A. 2A:15-5.9 to 5.17, excluded LAD cases from its limitation of punitive damages to a five-to-one ratio. Nevertheless, that ratio should be considered a general guideline. In fact, the Supreme Court of New Jersey has held that, although a trial court is not bound by the Legislature's judgment of five times compensatory damages as a normative measure of the limits of proportion in an LAD case, nevertheless, the court can consider the statute's limitation, even in a LAD case.

    In Baker, the bank argued that the relevant compensatory damages for purposes of the ratio were only the emotional pain and suffering awards. That contention was rejected by the Appellate Division. In an employment discrimination case, such damages include back-pay, provided to make the discriminatee whole by reimbursement of the economic loss suffered, and front-pay, provided to compensate the employee for future lost wages attributable to the employer's misconduct. The court held that front-pay shall be given from the date of the verdict to retirement. However, attorney's fees are not part of compensatory damages. LAD specifically includes attorney's fees under a separate section, N.J.S.A. 10:5-27.1, indicating that it is an award in addition to compensatory damages. Therefore, the amount of compensatory damages to be considered when finalizing the ratio in a punitive case consists of the plaintiff's awards for back-pay, front-pay (as awarded by the jury), pain and suffering, and prejudgment interest. In Baker, the ratio of unremitted punitive damages ($4 million) to compensatory damages was roughly 14 to 1; the ratio of remitted punitive damages ($1.8 million) to compensatory damages was approximately 6 to 1. Therefore, the court held that the punitive damages award of $1.8 million (remitted) did not violate the bank's substantive due process rights. The conduct was sufficiently reprehensible to justify the award. Also, the court held that the bank was on notice that it could be liable for an award in that range because N.J.S.A. 10:5-13 provides that a LAD plaintiff may recover punitive damages, and because case law indicated that an employer sued under LAD could pay a punitive damages award in the million dollar range. It is to be noted that New Jersey's LAD has no damages cap. Also, New Jersey's Punitive Damages Act exempts LAD from the punitive damages cap. N.J.S.A. 2A:15-5.14 limits punitive damages to five times the compensatory damages award, or $350,000, whichever is greater.

    Therefore, although the Punitive Damages Act did not apply, nevertheless, it was considered for ratio purposes.

    In our view, the decision of the Appellate Division in Baker should be reviewed by employers when faced with punitive damages claims in LAD cases. This is especially so because, under the New Jersey LAD, there is no damages cap. However, the Baker decision provides guidance and also indicates that trial courts can remit punitive damages awards.