Professional Documents
Culture Documents
I. COMPENSATORY DAMAGES
A. Basic principles/theory
a. Remedies as the litigator’s toolbox: overly simplistic?
b. Purposes and goals of the law – what it is trying to accomplish (individual justice, corrective justice, economic
incentives, etc.?)
c. Should remedies always just be an “afterthought” or are they instructive on substantive rights?
d. How do the disparate remedies come together in terms of common themes?
i. Conceptions of due process, how they are reflected in remedial scheme
1. From plaintiff’s perspective
2. Limits in terms of protecting DP rights of Ds in terms of what they are entitled to – what are
limits on the courts in terms of what they can take from Ds from the wrongdoer’s
perspective
e. Remedies as a bridge between public law and private law
B. Restoring P to his rightful position
a. The stated goal of compensatory damages
b. Issues:
i. Precise calculation of compensatory damages
ii. The compensatory standard itself
Carey v. Piphus
Facts: P, HS student suspended on suspicion of possession of drugs. Principal suspended w/o
hearing/investigation, P sued for violation of procedural DP. Never established whether
student was properly suspended, but some reason to believe that the suspension was correct
Analysis Substantive requirements of procedural DP (in terms of the suspension) are very low –
as a matter of con law this case is not that illustrative, but issue is how you value
violation of PDP
Array of possible remedies: stems from nominal compensatory injunctive
nominal TRO
• What will the court contemplate in determining damages?
- Is there an inherent value in the deprivation of a constitutional right such that
you don’t have to prove a specific injury or loss in order to justify damages?
◦ “Presumed damages:” court calls it an oddity in tort law (defamation)
virtual certainty of harm ( emotional distress) but difficult to prove
• Nominal damages: even though we need actual harm/injury for compensatory, it is
the case that you could get nominal damages of $1 – won’t please client in every
instance, but will vindicate his right
- Is this worthless to a client? In many instances the predicate for getting
punitive damages might include nominal damages as well (may turn out to be
very lucrative in the end)
• TRO: put the student back in school
Is this worthless to a client? In many instances the predicate for getting punitive
damages might include nominal damages as well (may turn out to be very lucrative in
the end)
• Payment once harm has occurred
• Protection from imminent harm
Disposition
U.S. v. Hatahley
Facts: Agents of government came in against orders, took horses owned by P-Native Americans
and sold them to glue factory
Procedural history: Dispute between district court and appellate court over how we should evaluate the
damages
Modern Remedies F04, pp. 1
Analysis Issue 1: precise calculation of compensatory damages
• Appellate court: says DC pulled numbers out of the air; wants individualized
determination of damages
• Federal Tort Claims Act: no jury
- Raises questions: if a jury came back with a lump sum, it would be much
more difficult to scrutinize the award
• Why does it matter?
- Without precision, awards might be a windfall to some Ps while it would
stop short of restoring others
- Lends legitimacy to the system, even if it is indulging a fiction; it will get us
further in most cases than if we give up at the outset
Compensatory standard itself
Disposition
Court of Appeals reversed/remanded, holding that city’s loss was the amount of money
reasonably spent to create a functionally equivalent facility
Analysis: Just compensation normally = market value of property at the time of the taking, unless
it is too hard to determine
• In this case: value readily ascertainable
Fear of windfall – if new facility is superior and more valuable, any increase in quality
of the facility is a windfall
• Ct of App “solution”: discount for cost of substitute facility to account for its
superior quality TOO ABSTRACT
• Objective measure
When taking occurs, party is entitled to FMV of a property provided it is reasonably
ascertained, not the cost of buying a better replacement
Disposition: Judgment of Ct of App = reversed
c.
Narrowness of takings clause and just compensation jurisprudence:
i. Definition of loss is less generous to victims that what we see in insurance markets
ii. Insurance: replacement value of goods, rather than used value
iii. Fifty Acres: has the city really been put back into its rightful position if it is only given the cheaper cost
of the original landfill?
Trinity Church v. John Hancock Mutual Life Insurance Co. (Mass. 1987)
Facts: Church was a national historic landmark, which was structurally damaged during the
construction of neighboring property owner's building. The damage to church would have
required disassembly and reconstruction. Before church filed its action, neighboring
property owner's representative agreed to waive assertion of a statute of limitations defense.
Church filed its action three days before neighboring property owner's final waiver expired.
Procedural history: Plaintiff church filed an action against defendants, neighboring property owner and others,
d. Timing
i. Overwhelmingly courts find that used value of goods will be sufficient as opposed to full value of
replacement goods
ii. But, fixed rules for timing questions
1. Contract cases: determine value at date of breach
2. Property damage cases: value at time of wrong
6 days after signing contract, P’s lawyer sent D a letter rescinding K because P was about to
have surgery and wouldn’t be able to make payments. Boat had already been ordered and
delivered to D. D refused to issue refund.
Modern Remedies F04, pp. 3
Procedural history: P sued to have refund issued. D counterclaimed, alleging P’s breach of K. D won S/J.
Court has to assess damages.
*D sold the same boat 4 months later to another buyer for same price offered to Ps. Ps
argue that D’s loss on K was recouped, while D argues that but for P’s default, it would
have sold 2 boats and earned 2 profits instead of one. D proved profit, and costs for
storage, upkeep, etc. for period that the boat remained unsold.
Analysis Governed by UCC
How do reliance and expectancy damages diverge?
• Reliance: ability to cover costs that D expended thinking the sale would happen.
D had $674 for storage, upkeep, and finance charges of boat
• Expectancy: recovery of profit, which would have been $2579
Applying UCC code: buyer is entitled to restitution, but recovery is offset to the extent
that seller establishes a right to recovery damages as well
Disposition Ps are entitled to restitution for deposit, less an offset to D for amount comprised of lost
profit and incidental damages
Chatlos Systems, Inc. v. National Cash Register (3rd Cir 1982) – EXPECTANCY DAMAGES IN CONTRACT
Facts: D-Seller made representations about computer system (in terms of capabilities). P was
promised a $200K machine for $46K, which seemed like a great bargain.
Procedural history: Dist Ct found D liable for breach of warranty and consequential damages of $63K. D
appealed, liability judgment was affirmed but court set aside award of consequential
damages, and remanded for recalculation of damages for breach of warranty.
c.
Distinction between tort and contract:
i. Expectancy damages recoverable only in contract
ii. Is the distinction tenable?
1. Argument: in K, you’re seeking to recover an expectancy that is itself a product of what D has
promised. In torts, this is not so. **However – this idea collapses when the tort is a fraud,
because when the tort is a fraud it seems that there is no difference between what one should
theoretically recover based on whether it was a claim based on K or torts
2. A lot of state law has collapsed the distinction when it comes to fraud: Ps can recover the value
of what they were promised regardless of whether they sue in fraud or K
iii. Locating the wrong: in K scenario, there is nothing wrong with promise but with the breach. But for the
breach, the K would have gone forward and P would have gotten expectancy. Whereas in tort, if you
locate the wrong and reverse the wrong then the measure of recovery would instead be as though there
were never any interaction between the parties
E. Consequential damages
Buck v. Morrow (Tex. Civ. App. 1893)
Facts: M leased pasture to Buck for term of 5 years, with provision that after the second year, if M
was going to sell the land, he should compensate B for any/all losses occasioned by the
sale. It was understood that the land was being leased by B to graze cattle. After 2 years,
the land was sold and B was dispossessed.
Alleged that he tried to find another pasture but couldn’t, so he had to graze on the
commons for 5 months, and he had to hire an extra hand ($1.50/day) to look after the cattle
there and round them all up. Also said that he used reasonable diligence in trying to keep
them from straying off, but 15 were lost (valued at $15/each). Also evidence of price for
pasturing the cattle in the pasture that was eventually procured.
Procedural history: Trial court said measure of damages = difference between K price and rental value of
pasture for the unexpired term.
Analysis P may also recover as special damages such extra expense and damage, as are the
natural and proximate result of the breach
Confining damages to difference in K price assumes that P can immediately go into the
market and obtain similar property
Whatever special damage naturally/proximately resulted to P from sale of land and
termination of the lease – whatever may reasonably be supposed to have entered into
the contemplation of the parties at the time of the K – P should recover
• If P can prove the damages were foreseeable, he should recover
Claim for consequential damages, consisting of losses of invested capital suffered as result
of liquidation of companies in which he had an interest, and decline in net worth of another
company in which he had an interest, which he attributes to the losses suffered by the other
companies. Essence of the claim is that at the time D signed agreement (and even before),
it had a special awareness of the companies’ financial plight and their dire need for funds,
which created an obligation to make timely payments of bonus compensation.
Analysis In essence P is trying to parlay D’s knowledge of his/companies’ financial predicament
into a claim that D was required to provide them w/necessary financial capital by
making prompt payment of all amounts due under the Agreement
• Agreement contains no such implicit/explicit undertakings
D is not liable for consequential damages for failure of P’s other business ventures,
unrelated to the K
• Essential claim is for payment withheld although due – consequential damages
stemming from the claim are not compensable
• Where breach of K consists only of failure to pay money, remedy is limited to
principal owed plus damages in the form of interest
• Policy of having an easy and certain measure of damages (any exceptions are
where there was failure to provide a unique article); or else every K dispute would
become enormously complex, w/theories of unrealized profits/opportunities
G. Liquidated damages
Northern IL Gas Co. v. Energy Cooperative, Inc. (Ill. App. Ct. 1984)
Facts: NIG promised to buy naptha from ECI over 10 year period, to convert into natural gas. US
eased price controls on natural gas, because cheaper to buy from drillers and pipeline cos.
NIG stopped buying and ECI sued based on difference between K price and market price of
naptha, plus consequential damages.
Procedural history: Court held that LDC gave non-breaching party the choice of recovering either actual or
liquidated damages. ECI chose actual and jury awarded $305M. NIG argues that LDC
provides exclusive measure of damages.
Analysis ECI’s argument that because it did not make demand for LD, it has option of seeking
actual damages: if non-defaulting party does not wish to demand LD amount, he won’t
be forced to, but it doesn’t create the right to seek greater measure of damages than
those bargained for
UCC §2-719: ECI says under this section, LDC dies not provide exclusive measure of
damages unless it is expressly agreed to be exclusive and is labeled as such
• Court: §2-719 governs limitations of remedies, §2-718 governs LDCs. An LDC is
not a limitation on a remedy, therefore is not subject to §2-719
Disposition Reverse court order striking liquidated damages defense.
H. Victims’ incentives
a. Cooter & Porat: “anti-insurance”
i. Anti-insurance for losses
1. Example: A is buying transmission from B
2. Normally: A buys, B warranties, but B can’t keep track of how A treats the transmission
3. Anti-insurance: add 3rd party, who buys B’s liability. If transmission breaks, then B will have to
pay 3rd party
4. Ideal situation: where parties’ level of effort/care is unverifiable, not directly observable
5. Versus insurance: insurance tends to spread risk, where as anti-insurance makes each party
liable for full risk; produces incentives for everyone to act to the best of their ability
a. Maximizes efficiency within the contract
b. Affects situations where buyer will be able to affect the risk that a product will
malfunction
ii. Anti-insurance for gains
1. Situations where there is a free-rider effect
2. Ex.: lawyers, where one has incentive to not work as hard
iii. Why aren’t liquidated damages sufficient?
1. Buyer has no incentive to help the seller with performance if he is going to get the damages in
any case
2. Ex.: construction contracts – when you are on the receiving end, there are a variety of things
that you can do (ex. making arrangements with other parties), to make sure that all
arrangements come to fruition, that could either assist builder in performance of contract, or
stymie him
iv. Victim reporting problem: if I stand to gain nothing, there is no incentive to report to the third party
(could combat this by instituting delayed compensation or a fee for reporting)
v. Critique:
Procedural history: Jury returned verdict for $2.75M, trial court applied statutory recovery limit and reduced
verdict to $750K. P appeals.
Analysis P’s argument that cap denies right to trial by jury:
• Jury has fact-finding function; judge applies the law – trial court applies remedy’s
limitation only after jury has fulfilled its fact-finding function remedy is a
matter of law
• Cap does not infringe upon the right of jury trial because section does not apply
until after jury has completed its assigned function in the process
Modern Remedies F04, pp. 11
• Jury trial guarantee does not secure rights that do not exist at common law – CL
has never recognized a right to full recovery in tort
P’s argument that cap violates constitutional guarantee of DP: deprived of opportunity
to be hear, creating conclusive presumption that no P’s damages exceed $750K: court
says no – section merely affects parameters of remedy available after merits of claim
have been decided
Disposition Affirmed.
Remittitur of $25,000.
II. RESTITUTION
A. Restitution, generally:
a. Underacknowledged, often fuzzy usage
b. 2 categories:
i. Disgorgement: D’s consequential gain; honing in on D’s conscious wrongdoing, as opposed to looking
at P’s harm suffered
ii. Reversing transactions
c. When will restitution be attractive to P?
i. When there is no other cause of action; restitution as underlying substantive claim
1. Neri v. Retail Marine (pp. 565): P asserts that he conferred benefit on D, and though P did
breach, damages were less than amount of deposit
ii. Where D’s gain > P’s loss (want to bring suit seeking highest recovery possible)
iii. When P is not interested in damages, but in reversing a transaction
iv. Where D is insolvent (trying to get preference in bankruptcy proceeding)
d. Remedial constructs
i. Quasi-contract: implying promise to pay for a certain benefit
ii. Accounting for profits: imposing duty on one party to account for benefit
iii. Constructive trust: impose trust on some identifiable benefit
e. Issues:
i. What does it mean to say P can recover for D’s benefit?
ii. Why would we allow someone to recover something greater than her loss?
iii. How do we measure gain to D?
f. Are restitutionary damages a rejection of the economic view of the law?
i. Want to put resources into highest use
ii. Posner: encourage voluntary transactions; don’t bypass the market
g. Various consequences of D’s wrongful acts
i. D doesn’t profit, so P can only sue for damages
ii. P’s loss equal to D’s gain (ex. rental value): award for compensatory damages and restitution for unjust
enrichment would be the same
iii. D’s gain exceeds P’s loss: P should recover D’s profits; must decide why D should pay damages and
why P should be the one who receives them (criminalize, fine?)
B. Disgorging profits
a. Disgorgement: nearly always referring to award of profits that exceeds the market value of what was taken from P
(like Olwell)
b. Quasi-contract/unjust enrichment
Olwell v. Nye & Nissen Co. (Wash, 1946)
Facts: P owned egg-washing machine, was planning on having it in storage. D used P’s egg
washer w/o P’s knowledge, for 3 years. P offered to sell machine to D for $600; D counter
offered $50, no sale went through, and P sued.
Procedural history: Trial court J/P in the amount of $10/week for period covered by SOL.
Analysis Saving in labor cost which D derived from its use of P’s machine constituted a benefit
• While D benefited from use of machine, P thereby incurred a loss: very essence of
Modern Remedies F04, pp. 16
nature of property is the right to its exclusive use – without it, no beneficial right
remains
• Theory of UE is applicable in such a case
• If D was consciously tortuous in acquiring the benefit, he is also deprived of any
profit derived from his subsequent dealing with it
Disposition Affirmed.
Ct of App upheld injunction but held that the record did not support imposition of a
constructive trust, because D had a 1st Am right to publish unclassified information, and
government’s concession that the book did not divulge any classified intelligence. Limited
recovery to nominal damages and to possibility of punitives if government could prove
tortious conduct.
Analysis Ct of App’s decision denies government an appropriate remedy for D’s wrong, leaving
no deterrence for breaches of security
Constructive trust: protects both government and D from unwarranted risk – trust
remedy simply requires D to disgorge benefits of his faithlessness
Modern Remedies F04, pp. 17
[*What has government been deprived of – right to screen? This seems just
procedural, more Carey-like (in which case only nominal damages are warranted)]
Why not punitive damages?
• Too speculative
• Would require government to divulge classified information at trial
Disposition Reverse Ct of App decision.
Mutual Benefit Life Insurance Co. v. JMR Electronics Corp. (2d Cir. 1988)
Facts: JMR bought life insurance for its owner, but didn’t disclose that he was a smoker. Life
insurance company therefore issued a policy at the non-smoker’s premium rate, but later
found out about the misrepresentation.
Procedural history: Trial court judge granted M’s motion for S/J, dismissed JMR’s counterclaim for proceeds
of the policy, and ordered rescission of insurance policy and return of JMR’s premium
payments, w/interest.
Analysis JMR argued that MBL should just pay out what a smoker would get
• Court: no basis in law. Mutual was induced to issue non-smoker discounted
premium policy to JMR precisely as a result of misrepresentations. Maybe MBL
wouldn’t have issued the policy
• Materiality of misrepresentations: the inquiry is not made so that jury can rewrite
the terms of the insurance to conform to newly disclosed facts, but to make certain
that the risk insured was the risk covered by the policy agreed upon
• Public policy argument: awarding payment would reward those who make
misrepresentations; would have everything to gain and nothing to lose fro making
material misrepresentations
Disposition Affirmed.
Boomer v. Muir (Cal. Ct. App. 1933) – LOSING K WHERE THE BENEFIT CANNOT BE RETURNED
Facts: M was general contractor, B was sub, on a K to build hydro plant. B was to build one dam
for project, and M was to supply B w/materials/equipment. Delays and cost overruns from
the beginning, which each side blamed on the other. Finally, w/B’s dam 95% complete, he
abandoned the work.
K price: $333K
B: received $313K in progress payments, and would have been entitled to another $20K if
he finished the job.
B: spend $571K building as much as he did, not counting any waste that was his own fault.
Would have cost another $29K to finish the job, making a total construction cost of $600K.
Analysis Here, B’s expectance was negative – if K was fully performed, he would have lost
$267K
Court: B could rescind the K and sue for the value of the benefit he had conferred on M
– the value of a nearly finished dam, measured by the cost of building it
• “Boomer rule”: not looking to K price, but costs sunk so far
• Recovery: $258K, difference between what he had spent and what he had already
paid
**Why should Muir have to pay $571K for a benefit he was promised for less than
$333K? Traditional contract law says that K price is supposed to account for risk, i.e.
K allocated to B the risk that the work might cost more than expected
• P seeking restitution rescinds the K and sues in quantum meruit, the common
count for value of services rendered M cannot rely on K price because the K
has been rescinded
- **How helpful/fair is this?
Disposition Jury found Boomer’s withdrawal was justified by Muir’s material breach in failing to
deliver materials. B’s recovery = (amount spent) – (amount already paid) = $258K.
H claimed royalties on a new product, derived from earlier products described in the K. E
denied that it owed any royalty on such products, and refused to pay any royalties accrued
after a certain date, even on the original products, until dispute was resolved.
Procedural history: Trial court held that E owed no royalties on derivative products, but that its refusal to pay
the royalties that it did owe was a substantial breach. Both sides sought to rescind Ks.
Analysis E withholding royalties as leverage in the other dispute – was the conduct sufficiently
culpable to support disgorgement?
Rescission and restitution
• Rescission was warranted: E’s breach was substantial, and damages would be
inadequate (due to nature of Ks and depth of disputes between parties); and
opinion of the court that the parties wouldn’t be able to just resume their
relationship in a productive manner
• Restitution on both sides – contract is being unmade, so restoration of benefits
received under the K should follow
- How much of D’s profits can P recover? Here, court has equitable discretion
– the more culpable D’s behavior, and more direct the connection between
profit/wrongdoing, more likely that P can recover all of D’s profits
- **Court seems to be importing into contract law the law of intentional torts
(supercompensatory measure)
- How much should D be allowed to keep/P be allowed to disgorge? Here, E
did contribute to profits with its packaging, marketing, etc. – that contribution
Modern Remedies F04, pp. 20
should be accounted for and withheld from disgorgement. Apportionment
based on value added by each party
Disposition Remanded for determination of value added, so that E only disgorges profits attributable to
H (recalculation of wrongful profits).
Glendale Federal Bank, FSB v. U.S. – what the book means on pp. 646-7 when it says that the trial court made the
mistake of counting the -$798M twice?
Facts: S&L crisis – government insurance funds did not have enough $ to pay off depositors in
insolvent S&Ls/thrifts. Instead, began arranging for insolvent thrifts to be acquired by
healthy thrifts. To induce healthy thrifts to do this, made promises, including granting
special accounting treatment. If healthy acquired insolvent, it would get to add the
insolvent’s negative net worth as a “positive” asset on its balance sheet (“goodwill”
provision). Later statute banned inclusion of goodwill.
P had positive net worth of $536M, acquired Broward, w/negative net worth of $798M. P
survived by instituting a number of drastic measures, also had to pay higher interest rates,
was on a list of “undercapitalized institutions.”
Procedural history: Trial court found reliance damages of $381M, mostly in extra interest P paid as a result of
impaired capital. Also awarded $528M in restitution – idea was that P had conferred a
benefit of $798M by assuming Broward’s liabilities (minus some fees, and $288M in
benefits to P, principally profits from B’s recovery). Government appealed, P cross-
appealed.
Analysis P was not entitled to expectancy damages – problems of proof when proof of ED
fails, law profits restitution as a fall-back position for the injured party
• P’s acquiring B did not result in government saving the dollar value of B’s net
obligations
• Problem illustrated by this case: granting restitution based on assumption that
non-breaching party is entitled to supposed gains received by breaching party,
when those gains are both speculative and indeterminate
- *Reliance damages provide firmer and more rational basis
Disposition Vacate trial court award of damages, remand for determination of total reliance damages to
which P may be entitled.
A. Overview
a. Purpose of PDs
i. Deterrence (query – is this the same as punishment? Posner argues that you can think about deterrence
as an aspect of punishment; there may be instances where you want to deter but not punish)
1. Damages awards are often substantial, and Ds in these proceedings are not afforded the same
procedural protections as in criminal cases - raises concerns about the manner (imprecise?) in
which PDs are administered
ii. Punish: further a state's legitimate interests in punishing unlawful conduct
iii. Incentive: prospect of punitive damages enables lawyers to take these cases, whereas they might not if
the prospect of recovering a lot wasn't apparent
iv. Posner’s economic rationale for PDs:
1. Damages are sometimes undercompensatory
2. Not all torts are detected: award of punitive damages serves the additional purpose of limiting
the defendant's ability to profit from its fraud by escaping detection and (private) prosecution
3. Criminal justice system is overloaded: PDs give us a civil alternative
b. Critique of PDs:
i. Creates windfall for P: we punish D, but that doesn't mean P should necessarily receive the benefit
ii. Potential for D's ill-gotten gains to differ from P's injuries; may be
overcompensatory in order to sufficiently deter
Gore v. BMW
Facts: P bought BMW; bought it presuming it was new. Turned out that paint job was defective,
but BMW had policy that if value of car was decreased by less than certain percentage, they
would not disclose to purchaser, but market it as new. P took car to paint shop, where he
was told that the car had been repainted. Actual damages: $4,000; original amount of
punitive damages given by the jury: $4M. Calculation: average harm to value of the harm,
multiplied number of cars sold with this type of undisclosed defect (14 of them sold in AL).
Concern that there was evidence brought in based on nationwide conduct (extraterritorial
scope).
Analysis SC sets out 3 guideposts:
• Degree of reprehensibility
- Most important indicia
- Type of harm: economic vs. physical harm
- Whether BMW made any false statements or concealed evidence – malice,
trickery and deceit: court finds no
- Repeated nature of the wrongful conduct: no indication that BMW persisted in
course of conduct after it had been adjudged unlawful on even one occassion
- Financial vulnerability of the target
• Ratio of compensatory to punitive damages
- Whether there is a reasonable relationship between punitive damages award
and harm likely to result from D’s conduct, as well as the harm that actually
occurred
- Controversy: proportionality, but proportional to what?
- Compensatory to punitive = compensatory as the proxy for indicator of harm
- Here – ratio is “breathtaking” (though, no mathematical bright-line)
• Sanctions for comparable misconduct: in AL, violation = $2,000. Fact that the
multi-million dollar penalty prompted a change in policy sheds no light on
question of whether a lesser deterrent would have adequately protected interests of
AL consumers
Disposition Reversed and remanded.
State Farm v. Campbell
Facts: Offer to settle equaled limit of insurance policy ($25K) – often, Ps will agree to settle at
maximum settlement insurance policy, and D has every reason to accept, but insurance
company has interest in not automatically accepting every offer to settle at the maximum of
policy limitation (interests of insured and insurer are different). State Farm took it to trial,
where P was found totally liable, and judgment far exceeded the settlement offer/insurance
policy maximum. Bad faith failure to settle. But, ended up coming through and paying the
Modern Remedies F04, pp. 23
judgment. What is the harm? The 18 month period of uncertainty for Campbells, when
they were told they should “sell their house;” pain and suffering.
Procedural history: Original jury award: $145M in punitives, $2.6M in compensatory. Trial court remitted to
$25M and $1M, respectively.
Analysis Case was incorrectly used as a platform on which to expose/punish perceived
deficiencies of SF’s operations throughout the country (national scheme to meet
corporate fiscal goals by capping payouts on claims company-wide), rather than
conduct directed at Ps specifically
State does not have legitimate concern in imposing PDs to punish D for unlawful
activity outside that court’s jurisdictions
Court declines to impose strict ratio of compensatory to punitives: but in practice, few
awards exceeding a single-digit ratio between punitive and compensatory
damages, to a significant degree, will satisfy due process
Compensatory damages in this case were substantial – the harm was essentially the
economic harm in the 18 month period, the distress/humiliation suffered, which was all
compensated in compensatory damages (which courts says contain this punitive
element)
Wealth of D cannot justify an otherwise unconstitutional damage award – D’s wealth
had little to do w/the actual harm suffered by Ps
Civil penalties inquiry: relevant UT statute imposes a $10K fine; obviously dwarfed by
$145M punitive damages award
Disposition Reversed and remanded.
d. Wealth of D: in Mathias, Posner says that it is relevant, but more in terms of P’s ability to bring a case, get his
day in court (here, two individual Ps were facing a comparatively wealthier D who had a bunch of resources to
put behind its defense and keep people from suing (refers to motions filed, etc. as “frivolous))
e. Reexamination clause:
i. Cooper Industries: when punitive damages are ruled as being unconstitutionally excessive, federal courts
are reviewing jury awards de novo
1. Argument that was made that punitive damages might be different from compensatory damages
– not “facts” in the same way that CD are, that they involve moral considerations, etc., such that
there is no idea that federal court is getting in the way of jury fact-finding
2. Issue of whether it was just a matter of federal procedure, or if it would apply in state courts –
for the latter, it would have to be a constitutional rule
a. State courts: interpret as a constitutional rule, so they are engaged in looking at them
de novo when they are ruled as constitutionally excessive
b. Move from common law to constitutional argument: makes a different for standard of
review (abuse of discretion vs. de novo standard makes a difference!)
c. Changes balance between judges and juries, as well as appellate vs. trial court
d. Ginsburg: brings this out in dissent – in Cooper Industries, is upset that PD award is
less of a fact than pain and suffering, and the idea that appellate courts can now step in
and instead of simply offering up remittitur, now can just remit awards and not give
the option of a new trial
D. Split-recovery schemes:
a. Various state approaches:
i. GA: only applies to products liability cases; after deduction of attorney’s fees and costs of litigation,
75% of PD recovery goes into state treasury. Only one PD award per PL act/omission
ii. AK: 50% of PD award must be placed in state’s general fund
iii. IL: trial court has discretion to apportion PD award between P, P’s attorney, and IL Dept of Human
Services
iv. IN: 75% of PD award must be put into violent crime victims compensation fund
v. IA: jury answers special interrogatories – if it finds that D’s conduct was specifically directed at P, P
gets 100% of PD recovery. If not, then 75% goes to state civil reparations trust fund
vi. MS: P receives 50% of PD award after attorney’s fees, remaining 50% goes to tort victims’
compensation fund, with 26% of that going to legal services for low-income persons fund
vii. OR: 40% of PDs go to prevailing party
viii. UT: after deduction of fees, 50% of awards in excess of $20K go to state general fund
ix. CA: 75% of PD recovery goes to state “general fund,” also has a single recovery limitation
1. Why is this part of a split-recovery bill? Is there any reason for them to go hand in hand
2. If this is a revenue raising scheme, you want it to be once to get the largest award (possibly)
Modern Remedies F04, pp. 25
3. Pitched as something that will raise revenue – potentially in conflict with the idea of tort
reforms as trying to “rein in” excessive jury verdicts?
b. 2 approaches to attorney’s fees
i. Taken from total award, before state takes its share
ii. Taken from amount left over after state takes its share
iii. *CA scheme: attorneys get normal contingency fee (from P’s 25%), plus 25% of 75% put into public
trust essentially collects from the entirety of the award (attempt to bypass the taking issue – recovery
is split from the outset; that way, P technically never had a “right” to the portion allocated to the public
trust)
c. Difficulty of knowing how much money will be collected
i. Punitive damages aren’t wholly predictable – remittitur, appeals, etc., award vs. how much has actually
been paid out
ii. Hard to make it part of budgetary process as short-term budgetary enhancement, when lawsuits have an
unpredictable timeline
iii. Picking up punitive damages as “final judgments” – but, litigation is just the tip of the iceberg
settlement before trial (knowing that you will only get a portion of your punitive damages; settle to “cut
out” the state from the picture); also between jury verdict and end of the appeals process
1. Secret settlements
2. Settlements for similar dollar amounts but, it matters to the D that it’s not labeled “punitive”
(for reasons of reputation, etc.)
3. Collusive/“sham” settlements: first-comer advantage, Ds have an interest in having a relatively
benign case be the first (might work with plaintiff’s counsel)
d. Informing the jury
i. Perhaps shouldn’t be informed because juror who knows that $ will go to the state, then he might feel
more inclined to inflate the judgment (that it will benefit him, as long as jury is going to punish the
company anyway…)
ii. Any states that have considered the issue have prohibited telling the juries
Formosa Plastics Corp. v. Presidio Engineers & Contractors, Inc. (Tx. 1998)
Facts: Formosa was engaged in a large-scale, $1.5B construction expansion project, with $600K
bid for a contract. Presidio received invitation to bid on part of the project, which was
accompanied by certain representations about the foundation job (90 day completion
schedule). Project ended up taking 8 months to complete; Presidio incurred substantial
costs.
Analysis Breach:
• Presidio wasn’t able to schedule concrete delivery when it was supposed to be able
to
• Formosa scheduled mutually exclusive contractors to be in the same place at the
same time
Tort: fraudulent misrepresentation
• Presidio was to be able to set its own schedule and Formosa was to deliver on
target
• Project was to be completed in 90 days
• Presidio alleged that Formosa enticed contractors to make low bids by making
misrepresentations in the bid package regarding scheduling, delivery of materials,
responsibility for delay damages (Formosa indeed admitted that it had secretly set
up its own delivery schedule in order to save money)
Independent tort rule: **Note, pp. 764: Formosa holds that there must be an
independent tort, and there must be tort damages, but the damages need not be
independent from the damages caused by the breach
• “Legal duty not to fraudulently procure a contract is separate and independent
from the duties established by the contract itself” tort damages are not
precluded simply because a fraudulent representation causes only economic loss
Contract case gets pushed into tort territory: based on Formosa’s intent at time
representations were made
• Seemed to be a calculated effort, scheming – employees testify to substantiate the
idea that it was not the case that Formosa made the contract and then decided not
to perform
• Profit motive: Formosa made the representations in order to induce Presidio to
enter into the contract at a low bid price (Formosa was going to be responsible for
things within its control, but Presidio was supposed to be in responsible for factors
outside control of the parties. Formosa knew that there were going to be delays,
and use its superior bargaining power to make Ps finish the work or else go away
and settle for some low amount)
Disposition Affirmed (Presidio chose higher tort recovery, $700K, court affirmed jury finding of fraud
and $10M damage award).
e. What is the purpose being served, if you don’t have to have additional damages for a claim in tort? Don’t want
“repackaged contract claims”
i. What would be a better rule for when we want to apply torts?
ii. Above cases use the “independent tort requirement”
iii. Look at distinction between opportunistic breach and efficient breach? Sounds good in theory, but
difficult in practice (and would juries actually treat them differently?)
Modern Remedies F04, pp. 27
iv. Difficult to tell at what point D decided not to perform its obligations under the K
v. Hold firm to the rule of no punitive damages in Ks, but realizing that you will encounter torts and
contracts together, strictly construe the independence rule?
vi. Tort damages serving as hook for bad faith contract claims?
G. Statutory damages and civil penalties
a. Civil penalties payable to the government: 3 categories
i. Criminal prosecution in disguise: argument is that this should trigger criminal procedural protections
1. Almost a null set
2. If legislature calls something a civil fine, will not decide that this is a criminal prosecution and
give D attendant rights (Supreme Court has been pretty clear)
b. Not a criminal prosecution, but it is punishment: might trigger some kind of procedural protections
i. For a while, seemed to implicate the double jeopardy clause (though very narrowly defined, if not
discarded)
ii. Excessive fines clause implicated: goes back to discussion of applicability of the clause to civil penalties
assessed between private parties – not applicable, but court left question in situation where funds were
going to the state
c. Not a criminal prosecution/punishment, but solely remedial: ordinary civil procedure/administrative schemes
seem to suffice
i. “Remedial” can be defined in a number of ways: preventative, enforcement costs…etc.
d. Notes/issues:
i. Penalties seriously undermine protections of criminal procedure – substantial fines are imposed w/o
them
ii. Court generally upholds such penalties on the ground that they are remedial, not punitive
iii. Court’s current position seems to be that civil penalties are civil and remedial because Congress says so
iv. Court seems to have given up on the civil/criminal line, but has imposed modest limits on the size of
civil fines under the Excessive Fines clause
v. Double-jeopardy cases: where D’s claim is that the civil penalty is punishment for purposes of the DJ
Clause, so government cannot impose a second punishment in a criminal prosecution
e. Statutory damages collected by private parties
i. Private litigants recovering statutory damages
ii. Ex. “Truth in lending act”, copyright infringement, Privacy Act
iii. Area in which statutory damages are proliferating – we need to have a sense as to whether they are
punishment, remedial in purpose; up for grabs whether the whole apparatus of State Farm or BMW
should apply in situations where statutory penalty seems too large
f. How do you argue that statutory damages are different from punitive damages?
i. Ex.: litigant who is able to get damages for every day
ii. Notice: there is arguably a lot more notice that you will incur a fine
1. Arguably, doesn’t bring in same due process claims as a result
2. Counterargument: yes, you may know that you will be fined, but do you know that it could be a
huge amount?
iii. If statute is well-drafted, then you might be able to more effectively structure the limits of the fine –
legislature can set caps, for example
g. Why have statutory damages to begin with?
i. Areas in which harm/damages are difficult to quantify
ii. Enforcement incentive to give to private litigants – private attorneys’ general role
IV. INJUNCTIONS
Co-operative Insurance Society Ltd. v. Argyll Stores (Holdings) Ltd. (HL 1997)
Facts: Safeway decided that number of stores were not longer profitable, so decided to close them.
It was a breach of covenant in their lease, which contained positive obligation to keep the
premises open for retail trade during usual hours of business.
Procedural history: Lower court assessed damages; Court of Appeal reversed, ordering that the covenant be
specifically peformed.
Analysis: Issue: should the store be ordered to continue operating as at a loss?
Disposition: Restore order of trial judge
Notes: Issue of supervision
• Undue hardship on the court; unduly complex for the court to supervise
Punishment for contempt: court calls it quasi-criminal
• As a result, court feels the need to “tread lightly” in awarding the injunction
Why would you want an injunction in this case?
• Other stores – Safeway drew people into the shopping center
• At least wanted a transition; displeased with the decision to simply breach and pack
up/close store
• Court discusses concern that forcing the business to stay when it doesn’t want to
will discourage it from running the store properly, and it’s not the court’s role to
make sure that this happens
ii. What will sway a court w/respect to granting damage/injunctive relief? Take-away point of Ariola and
Argyll
1. Whether money damages are adequate
2. Undue hardship, either for D or court
3. Looking into character/content of D’s action, either at level of intent, or presence of misconduct
in some respect
a. Ex.: Ariola, where D intentionally encroached on P’s property
b. Does this mean that injunction should be granted?
c. What are advantages to giving injunctive relief in this situation? Don’t have to put a
number on the infraction; give the power to the individual property owner – protecting
that entitlement to land at a higher level than simple punitive damages (jury/court-
determined amount)
4. Courts take on more burdens in terms of supervision where stakes are high enough and legal
remedies are shown to be weak enough – look at case and contrast damages with injunctive
relief
d. Cochran v. Tory:
i. Johnny Cochran case where SC has just granted cert. Cochran had been representing Tory in LA policy
shoot-out case; became disaffected w/Cochran’s representation. Tory sent letter saying that if Cochran
paid $10M, he would go public; after publicity of OJ trial, resurfaced making demands again. Tory
mobilized a bunch of people (not other Cochran clients), transported them, gave them food, had them
protest saying Cochran was a crook. Cochran sued for defamation – court issued injunction saying that
Tory and anyone associated w/him could not picket. CA Appeals court affirmed. Issue: whether
permanent injunction in a libel action against an admitted public figure violates first amendment
ii. Rule: “equity will not enjoin a libel”
D. Reparative injunctions
Allegations: voting lists and booths were segregated according to race, also allegations of
voter intimidation.
Procedural history: Ps requested that Court declare that D was not the legally elected JoP, that he be enjoined
from taking office, and new election be called. Trial court characterized practices as
unconstitutional, but held that federal court was powerless/should not exercise power to set
aside a state election, and that there was no way to tell whether the result would have been
different in absence of discrimination – therefore, no harm or injury was shown by the
complainants.
Analysis: Court has expressly recognized the power of a federal court to void a state election
– Hamer v. Campbell
Not blacks alone who suffered, but body politic as a whole; trial court assumed that
all white voters would vote for white candidates, and same for blacks
Georgia authorities insistence that relief was properly denied b/c injunction was
requested after election was over – no such rule; there was no effective relief
available before the election
Disenfranchised voters tried to engage in self-help, but to avail; and the suit was
filed within a few days of election results
Disposition: Reversed and remanded for entry of order setting aside the election and requiring
the calling of a special election
a. No rule precluding the use of injunction to ameliorate the harm of past violations (despite any special rules
governing elections)
Ds also promised that they would remove their swim dock and didn’t. Jury awarded
compensatory damages for breach of K.
Procedural history: Issue on appeal: damages were not the only relief given to Ps – they also got permanent
injunction ordering Ds to remove their swim dock, and got their boat-dock permit after all.
Analysis: Ds argue that injunction has made Ps whole – they have their swim dock and boat
dock permit; therefore, they got the property w/exactly the characteristics that Ds
promised them after all…granting damages too double recovery?
Ps are better off then if there had been no fraud/breach in the first place
Possible that Ps suffered some kind of damages because they had to wait 3 years for
complete fulfillment of terms of sale – but, case wasn’t tried on this theory, no
evidence to show how these damages could be calculated
Winston Research Corp. v. Minnesota Mining & Manuf. Co. (9th Cir. 1965)
Facts: Division of MMMC developed improved precision tape recorder/reproducer. Later, Winston
developed similar machine. M alleged that W machine was developed by former M
employees, using confidential info that they had acquired. Sued for damages and injunction.
Procedural history: District Ct. found that employees based W’s development program on same approach as they
used in developing M’s machine. Found that the approach was not a trade secret of M.
Particular embodiment of the general concepts in M machine was a trade secret, and
employees had used them improperly in developing the W machine.
Granted injunction against disclosing any trade secrets for 2 years after judgment, but denied
damages. Both sides appealed M says injunction should have been longer/permanent.
Analysis: Dist. Ct. premised its decision on determination that trade secrets would have been
fully disclosed shortly – record supports this finding
Shellmar rule versus Conmar rule – W’s argument would bar any injunction at all
once there is public disclosure, and M’s argument would require injunction in
perpetuity regardless; DC verdict was compromise
Modern Remedies F04, pp. 35
DC’s approach was sound
Public policy argument: permanent injunction would subvert public interest in
allowing technical employees to make full use of their knowledge/skill in fostering
R&D, while no injunction at all would leave faithless employee unpunished
Appropriate injunctive period is that which competitors would require after
public disclosure to develop a competitive machine
Damages issue: DC was right not to award – since W didn’t sell any of its
machines, there was no profit to be disgorged, and evidence as to future profits was
highly speculative at best
Two-year injunction deprived W of any benefit it might have gained from
advantages and shielded M from any potential harm from W’s competition
Disposition: Affirmed.
Notes: Nothing illegal about reverse-engineering after product is out for sale
W comes in before the four years elapse and takes about 14 months to get product
to possible sale
Permanent injunction: contrast with preliminary injunction – entered into as part of
the judgment, but does not mean that it is perpetual
Perpetual injunction: goes on forever; M wanted it, and that would mean that W is
forever banned
Court rejects extremes, comes up w/2 year injunction compromise: trade secrets are
not perpetually protected; once on the market competitors could develop the
product by RE
D primarily takes issue with the scope of the injunction; claims that the single violation
found by court involved only the actions of one store manager, and doesn’t warrant such
broad injunctive relief.
Analysis: Equal Pay Act, FLSA, and ADEA cases all establish that nationwide/companywide
injunction is only appropriate when facts indicate company policy or practice in
violation of the statute
Not present in this case
Disposition: Remand for further consideration of scope
e. Scope of injunction:
i. Should bigger companies be more insulated from company-wide injunctions (i.e. need more injunctions
because they have, for example, more branches?)
ii. FRCP 65(d): concerns injunctions against violating law – says the order has to be specific and not just
reference the complaint or the law that forbids the enjoined act (can’t just tell D: “obey the law”)
iii. But, the “obey the law”-type clauses are common
F. Preliminary injunctions
MD Court of Appeals affirmed 10 day order, but reversed 10 month order on the ground that
period of time was unreasonable and it was arbitrary to assume the clear/present danger of
civil disturbance/riot would persist for 10 months.
Analysis: 1st Am issue: procedure provides for ex parte issuance, but not where there is no
showing that it is impossible to serve/notify opposing parties and give them an
opportunity to participate
Presumption against prior restraints of expression
No justification in this case for not notifying Ds
Importance of adversary proceeding w/both parties participating
Order must be narrow – tailored as precisely as possible to exact needs of case
Disposition: Reversed.
Notes: No reason/explanation as to why there was no notice – under FRCP 65, TRO would
be reversed
Case constitutionalizes the rule that was inherent in FRCP 65, and rule that was in
place in most states because they had state law equivalents – holding isn’t really
momentous
TROs aren’t appealable – only way court reaches a decision on this is because it’s
piggybacked on the question of the permanent injunction
Why might litigants dispense with notice?
Substantive standard: 4 part test seems to collapse into one question – is the free
speech resulting in an irreparable danger that must be precluded before notice can
be given?
Trial: found that state and KC SD were liable for violation because they operated a
segregated school system. Dist Ct issued remedial order, goal of eliminating vestiges of
state imposed segregation; ordered range of quality education programs for all students.
U.S. v. Virginia
Facts: VMI case – issue is sufficiency of the Women’s Institute
Analysis: Violation in this case: categorical exclusion of women from extraordinary
educational opportunity afforded men
VA didn’t eliminate policy – left it untouched
Schools not comparable
Rightful position
Remedy doesn’t offer any cure for opportunities/advantages withheld from women
who want a VMI education and can make the grade – doesn’t match the
constitutional violation
Concurring Violation is not the exclusion of women, but the maintenance of an all-men’s
(Rehnquist) school w/o providing any institution for women
Remedy shouldn’t necessarily require admission of women to VMI or creation of a
VMI clone for women
Sufficient remedy for two institutions offering same quality of education and same
overall caliber
Notes: What is the standard? Are we restoring Ps to rightful position to the same extent as
Modern Remedies F04, pp. 42
when we are discussing damages, or is there an alternative articulation?
• Proponents of broad equitable remedial discretion have not yet succeeded in
articulating a separate type of standard
• Seems as though there is more controversy in this regard when it comes to
injunctions rather than damages – why? Because the decisions here are being made
by judges, not juries
- Courts also retain jurisdiction (though Thomas suggests that courts just make
narrow injunctions and get out of the business of ongoing jurisdiction and
supervision)
- Judge is going to have to articulate reasons and standard; juries don’t have to,
and keeps further scrutiny out of the decisions
d. Prison cases
Hutto v. Finney
Facts: At issue: punitive isolation – number of prisoners held for indeterminate period of time in
empty, windowless cells, receive <1,000 calories per day
Procedural history: District Ct. found conditions unconstitutional, as violating 8th and 14th Am. Instead of
fashioning a detailed remedy of its own, DC directed the Dept. of Corrections to start
improving conditions and filing reports on progress – when progress was unsatisfactory,
given a 2nd chance. Later found substantial improvements, removed its supervisory
jurisdiction.
Court concluded that constitutional violations had not been cured – entered order that placed
limits on number of men/cell, required that each have a bunk, discontinuation of poor diet,
30 days max isolation sentence. Court of Appeals affirmed.
Ds appeal portion of order that mandates 30 day maximum isolation sentence, arguing that
DC thus held that indeterminate sentences always constitute C/U punishment.
Analysis: DC didn’t consider the length of sentence in a vacuum
DC had given Department repeated opportunities to remedy; based on the history of
the litigation, court was justified in entering a comprehensive order to insure against
the risk of inadequate compliance
Interdependence of the conditions producing the overall violation – the 30 day limit
will help correct the conditions
Disposition: Affirmed
Dissent (Rehnquist) The majority decision doesn’t comply w/Milliken II
Court doesn’t find that confinement under the conditions described becomes
unconstitutional on the 31st day – needs other justifications, otherwise its just a
prophylactic order
Not remedial – doesn’t restore victims
Distinguishes between prison and school systems: students can receive special
instruction in later grades
Need to let state and local authorities manage their own affairs
Notes Court’s intervention in this area – how can it be characterized? More narrowly-tailored
fact-specific remedy that the court is getting at: court has authority to address each
element contributing to the violation
• “Interdependence of the conditions producing the violation”
Lewis v. Casey
Facts: Class action by AZ prisoners complaining that inadequate law libraries and legal assistance
in state prisons interfered w/their right of access to the court under Bounds.
Procedural history: District Court made findings w/respect to two incidences of Bounds violation, both involving
illiterate prisoners, but entered an injunction regulating details of law libraries in every
prison in the system.
Analysis: Doctrine of standing – role of courts to provide relief to claimants who have/will
Modern Remedies F04, pp. 43
imminently suffer actual harm
Not the role of courts to shape institutions of government
Remedy must be limited by the wrong
Actual injury to only one P: failure of prison to provide special services that he
would have needed, in light of his illiteracy, to avoid dismissal of his case
Another P was “unable to file a legal action”
Two instances are patently inadequate basis for conclusion of systemwide
violation/imposition of systemwide relief
DC failed to give sufficient substantial deference to legitimate penological interests
asserted by prison authorities
Failed to give authorities sufficient opportunity to propose their own remedy
Too intrusive
Concurring Trial itself was overreaching – abuse of discretion for DC to aggregate the discrete
(Souter, Ginsburg) problems in individual prisons and treat them as if they prevailed throughout the
system
Notes In some respects, on the question of scope of the remedy, court is basically unanimous –
not sufficient to justify system-wide relief
• Doesn’t matter whether it is brought as a class action – still looking to specific
instances of harm
• Concern raised over the appropriateness of prophylactic remedies: do the harms
suggest that harms are widespread or will be unless the court intervenes?
• Similar to Humble Oil – court won’t issue injunction against destroying evidence in
a case; same logic question of whether you want to issue such a dramatic
remedies
Real fight: is there imminent harm in this area?
• Is the concurrence in this case reconcilable with the dissent in Jenkins? How does
the prison situation relate to school desegregation?
- Is it easier to isolate discrete violations of the law here? Could argue that the
school segregation issue is more multifaceted, more dynamics at work. But, in
Hutto, there is the idea of “interdependence of the conditions producing the
violation”
• How might the remedies in the school context be different from the prison context?
Rehnquist in Hutto says that school context is different because students can have
their positions improved, ex. be given special instruction – some kind of reparative
element
- Is this possible in the prison context: could be forward looking, and affect
prisoners going forward, but …?? Majority’s concern?
H. Modifying injunctions
1977 – problems of Charles St. Jail still unresolved; DC ordered Ds to renovate another
existing facility as a substitute detention center. Ct of Appeals agreed, ordered that CSJ be
closed unless plan was presented to create a constitutionally adequate facility for pretrial
detainees
Court entered into formal consent decree regarding jail design, but construction was delayed
and in the meantime population exceeded estimates. Ds were ordered to build a larger jail.
DC granted a request for modification to increase new prison’s capacity. DC refused to
grant a subsequent request to allow double bunking. Held that separate cell for each detainee
has always been important element of relief sought in the litigation.
Disposition: Swift’s “grievous wrong” standard does not apply to requests to modify consent decrees
stemming from institutional reform litigation.
Adopt flexible standard, under which party seeking modification must establish that a
significant change in facts/law warrants revision of the decree and that proposed
modification is suitably tailored to changed circumstances
District Court found that hiring hall system was neutral on its face but had discriminatory
practices, creating substantial racial disparities. Found that Ps failed to prove that
associations or contractors were aware of discrimination, and failed to show intent to
discriminate by employers are a class.
But, held that employers/TA violated statutes and could be ordered to help provide a
remedy. Ct of Appeals affirmed. Ds appeal.
Analysis: Issue: whether party not subject to liability for violating the law may nonetheless be
assessed proportionate share of costs of implementing a decree to assure
nondiscriminatory practices on part of another party which was properly enjoined
Disposition:
Notes: Why are the employers considered the “innocent 3rd party?”
• Court says that they had no way to know of the discriminatory nature of the lists
created by unions because the just followed the unions’ orders and used the lists.
When viewed as a class, employers weren’t aware of the discrimination. But it
would be difficult to prove that every single employer knew of it
• Employers might have violated Title VII but employees would have had to exhaust
administrative remedies
Given “innocence” of employers, court is unanimous on the point that such parties can
only have smaller, ancillary burdens placed on them – cannot be assessed proportionate
share of burden
a. Combining Court’s stated rules w/factual results of cases, law seems to be that innocent 3 rd parties can be affected
substantially, but not to the point of being restructured, by orders to defendants who violated the law. Innocent
third parties may also be subjected to minor and ancillary orders themselves
i. Schoolchildren who are involuntarily reassigned under the remedy approved in Milliken, or the taxpayers
in Jenkins
1. School children: effect would be substantial. Very likely that it would be restructuring
2. Taxpayers: argument that it is unlikely to be restructuring
ii. Statewide education officials who did not participate in local segregation but can be helpful in devising
remedies: officials could be held to a reporting requirement in the sense that they probably already hold
these duties. Assuming there was no restructuring necessary (ex. reallocation of resources), then they
should participate in remedies
iii. Title company holding assets beneficially owned by one of the defendants: burdening company might
burden others, whose assets are also being held
iv. Developers engaged in construction pursuant to an allegedly illegal permit, where wrongdoing is
charged only against the officials who issued the permit: developer is acting legally under an illegal
permit – would probably be affected substantially
v. Sheriff in suit to enjoin an eviction, where real parties in interest are L/T, and the sheriff is routinely
executing a writ: sheriff appears to just be doing his job and following an order to execute a writ
V. ATTORNEYS’ FEES – MAIN TENSION IS BETWEEN TWO COMPETING CHARACTERIZATIONS OF FEE SHIFTING (P’S
RIGHTFUL POSITION VS. INCENTIVE-BASED)
District Ct held that objections were insubstantial, litigation was fairly complex but short,
risk of nonpayment was moderate, and class counsel devoted a fair amount of time to the
case, but not a great amount compared to the size of the settlement. Followed approach of
other jurisdictions, concluding that fees in the range of 6-10% and even lower are common
in megafund cases ($75M-$200M +); larger fees in these context constitute a windfall.
c. Competing approaches to calculating fee awards in common fund rules: again, between lodestar and percentage
of recovery
i. SC: lodestar in federal fee-shifting cases
ii. Each circuit in common fund cases and each state in all cases has had to choose
iii. Percentage of recovery has no relation to the work required – may produce fees that are absurdly small
or large
iv. Synthroid: views ex ante approach as a way to avoid both problems of lodestar and arbitrariness of
picking percentage of recovery after the fact
1. Auctions have their own problems: what if there are too few bidders? Complexity of bids in
high-recovery cases, severing of the attorney-client relationship
d. Class-counsel auctions (cited to in Synthroid)
i. Firms submit “bids,” but also make predictions on what can be accomplished in terms of recovery, will
have to substantiate that with what they’ve gotten in previous cases
ii. Judge isn’t to pick the lowest bid, but the “best” bid
iii. Drawback to always having these auctions: severs the attorney-client relationship because clients aren’t
allowed to choose their representation
1. Attenuated concern in the class action context, but there is still the concern when it comes to the
lead plaintiff
Modern Remedies F04, pp. 51
2. A real market enthusiast could say that it’s not even a true market, because it’s essentially a
simulation, therefore not a true market signal
3. Practical concern: adds in a substantial upfront delay
e. Amendments to FRCP Rule 23
i. 23(g): asks court to consider factors that go to the ability of the counsel seeking to represent the class –
interests of the class; gives judges broader authority
ii. Judges do have authorization to get involved w/respect to ex ante fee agreements in auction-type setups
D. Fee awards and ethical considerations
Evans v. Jeff D. (1986)
Facts: Ps – handicapped children; Ds – governor and other public officials. Complaint alleged
deficiencies in education and health services provided. Complaint sought injunctive relief
and costs/attorney’s fees, no damages.
Procedural history: One week before trial, Ds presented Ps w/new settlement proposal, offered virtually all the
injunctive relief sought in the complaint. But the offer also included provision for waiver by
Ps of any claim to fees or costs. Parties conditioned waiver on approval by the District
Court. Johnson, Ps’ “next friend” (?) filed motion requesting DC to approve the settlement
except for the provision.
Ct of App invalidated the fee waiver, left rest of the settlement standing. Rational – when
attorney’s fees are negotiated as part of a class action settlement, conflict frequently exists
between class lawyers’ interest in compensation and class members’ interest in relief
Analysis: Rule 23(e) (requiring court approval of any settlement of a class action) does not give
the court power to modify a proposed consent decree and order its acceptance over
either party’s objection
• Question – did DC have a duty to reject the proposed settlement?
• Johnson: ethical duty was to serve his clients loyally – no duty to seek a statutory
fee award; because the proposal to settle the merits was more favorable than the
probable outcome of the trial, Johnson’s decision to recommend acceptance was
consistent w/ethical standards
ISSUE: whether Fees Act requires DC to disapprove a stipulation seeking to settle a
civil rights class action under R23 when the offered relief equals/exceeds probable
outcome at trial, but is expressly conditioned on waiver of statutory eligibility for
attorney’s fees
• A general ban against negotiated waivers of attorney’s fees in exchange for
settlement on the merits would impede vindication of civil rights, by reducing the
attractiveness of settlement
ISSUE: did DC abuse its discretion in this case by approving a settlement which
included a complete fee waiver?
• No
Disposition: Judgment of Ct of App is reversed.
Dissenting Decision will make it more difficult for civil rights Ps to obtain legal assistance
(Brennan, Congressional intent: authorized fee awards in order to encourage private actions, that in
Marshall, the long run provide effective public enforcement of the law
Blackmun) • Provide economic incentives for lawyers to represent “private attorneys general” to
protect the public interest
• Not just “another remedy”
• PROPER ISSUE: whether permitting negotiated fee waivers is consistent
w/Congress’ goal of attracting competent counsel, not whether they are inconsistent
with the availability of fees as remedy for individual plaintiff
Once fee waivers are permitted, Ds will seek them as a matter of course, since it is a
logical way to minimize liability – this would have the opposite effect of what Congress
wanted, so waivers should be prohibited
Judicial policy favoring settlement cannot possibly take precedence over express
congressional policy to create incentives for lawyers to devote time to civil rights cases
Parties can negotiate the fee – Ds liability is not totally uncertain, risk is not that great –
power incentives still remain for Ds to seek settlement
Would permit simultaneous negotiations of fees and merit claims
Modern Remedies F04, pp. 52
Class discussion
Eisen I: Ct of App: “death knell doctrine” = because P claimed only $70 in individual
damages, it was economically impossible for the case to proceed on his behalf individually.
SC later overturned “death knell.”
Eisen II: opinion on whether the case should proceed as class action – rejected emphasis on
ratio between P’s claim and claim of the class, and though notice might be a problem, the
court could hold hearings to determine whether it could devise some practical means to
decide the case on a class basis.
On remand, DC concluded that case could proceed on behalf of all people who had
bought/sold an odd lot between 5/1962 and 6/1966. Ds appeal.
Analysis 6M members of the class; 2.25M can be easily identified; reside in every state of US
and most foreign countries. Damages are now estimated at $120M
Action was “hopelessly unmanageable” – J. Tyler resorted to “fluid recovery” to try
and salvage it
• FR Court basically thinks it can’t work in this case
• As a class action this case is unmanageable
Even if amended Rule 23 could be read to permit this procedure, the courts would have
to reject it as an unconstitutional violation of the requirement of DP
Disposition As a class action, the case is dismissed w/o prejudiced to continuance of claims asserted as
P’s alleged individual rights against Ds.
a. How it works: don’t contact all possible class members – determine huge recovery, pay that into the
court, which later decides how to compensate potential Ps w/that money (advantage: one of the main
requirements of class action under (b)(3) for money damages: must notify all potential Ps – fluid
recovery would relieve this burden on P)
b. How can you just have a damages determination? Substitute “class as a whole,” then send out as much
notice as practicable to biggest claimants, have trial on the merits for those who have been notified, then
figure out how to notify the rest in a way that will get as many class members as possible
c. Eisen I: disapproved of fluid class recovery
i. FCR: procedural innovation; to avoid expense of processing individual claims, DC planned to
order Ds to reduce their commissions below the competitive level until all illegal overcharges
had been refunded by discounting
ii. Court recognized that discounts would not necessarily go to class members who had paid the
overcharges, and that there would be no relationship between any class member’s earlier
damage and subsequent discount
iii. Court nonetheless thought that some of the class members who had paid overcharges would
benefit from subsequent discounts, or that in any event, class that received the discounts would
be similar to class that paid the overcharges
iv. Generally not an issue anymore, after the 2nd Circuit’s swift rejection
d. Consumer context (as opposed to mass tort context): why can you move away from the model of
individuated damages?
i. Practical idea that D has records
White firefighters moved to intervene in the fairness proceedings, and later filed for
injunction against enforcement of consent decrees. Both rejected, and later affirmed on
appeal.
Different group of white firefighters (current Ps) brought suit alleging violation of rights in
Modern Remedies F04, pp. 57
employment decisions. District Ct denied motions, holding that promotion of blacks was
required by consent decrees – city was not guilty of illegal racial discrimination because
they had to promote blacks.
11th Cir reversed holding that white firefighters were not parties/privies to consent decrees,
therefore independent claims of discrimination were not precluded. SC granted cert.
Analysis Principle of Anglo-American law: one is not bound by a judgment in personam in a
litigation in which he is not designated as a party or to which he has not been made a party
by service of process everybody should have his day in court
Court doesn’t agree that this is an impermissible collateral attack (it was argued that they
had an opportunity for timely intervention but didn’t do it)
Joinder, rather than knowledge of the lawsuit and opportunity to intervene, is the method by
which potential parties are subjected to jurisdiction of the court – better to place burden on
litigating party to bring in other parties, rather than putting duty on other parties to
intervene when the acquire knowledge of the lawsuit
Disposition Affirm 11th Cir holding.
Dissent (Stevens, The fact that one of the effects of a decree is to curtail the job opportunities of nonparties
Brennan, Marshall, does not mean that the nonparties have been deprived of legal rights or that they have
Blackmun) standing to appeal from that decree without becoming parties
D, insurance company, and Ps’ lawyers got together to try and put together a “global
settlement (GSA)” Agreed on a $1.525B settlement, both insurance companies would pay
in court-determined proportion. Ps’ counsel also insisted on “Trilateral Settlement
Agreement” as a hedge against the possibility that the GSA would fail – insurers would
pay $2B to D to defend against all the claims if the GSA didn’t win court approval.
New group of Ps sought class certification, with only right being that to sue D upon
development of asbestos-related injury in the future, on basis of shared necessity to obtain
insurance funds sufficient for compensation.
Procedural history: DC granted provisional certification. But as part of the GSA, claimants seeking
compensation would have to settle with a trust established to process and pay class member
claims, provided for ADR in case negotiations failed. DC approved the settlement.
On appeal, 5th Cir affirmed as to class certification and adequacy of settlement. Court
approved certification on “limited fund” rationale, based on threat to the ability of other
members of the class to receive full payment for their injuries from D’s limited assets.
After court decided Alchem, 5th Cir had to reconsider, but affirmed. SC granted cert.
Analysis Limited fund class action characteristics: justified with reference to a "fund" with a
definitely ascertained limit, all of which would be distributed to satisfy all those with
liquidated claims based on a common theory of liability, by an equitable, pro rata
distribution
• Court cautions against a liberal application of Rule 23(b)(1)(B), under
- Rules Enabling Act (tension between the limited fund class action's pro rata
distribution in equity and the state law rights of individual tort victims at law)
- 7th Am: certification of a mandatory class followed by settlement of its action
for money damages obviously implicates the Seventh Amendment jury trial
rights of absent class members
- Due process of principle of not binding parties to in personam litigation to
which they are not made a party (everyone should have his own day in court)
Modern Remedies F04, pp. 58
- **General tension between representative suits and “day in court” principle
In settlement-only class actions the procedural protections built into the Rule to
protect the rights of absent class members during litigation are never invoked in an
adversarial setting
• Special attention needs to be paid to justifications given for certifying settlement-
only class
• DC/Ct of App “uncritically” adopted figures agreed upon by the parties in defining
the limits of the fund and demonstrating its inadequacy; instead of undertaking
independent evaluation of potential insurance funds, just accepted the $2B
Trilateral Agreement figure as maximum that the insurance companies could be
required to pay to tort victims
• Issue of equity among members of the class:
- Did not include Ps who settled w/D with a reservation of rights to sue (ex.
upon development of asbestos-related injury)
- Fairness of the distribution of the fund among class members: settlement was
deficient
◦ Class divided into holders of present and future claims requires division
into homogenous sub-classes under Rule 23(c)(4)(B), with separate
representation to eliminate conflicting interests of counsel (they have
different interests – presently injured want money now, whereas
exposure-only victims just want a fund for the future)
◦ Class included those exposed to Fibreboard's asbestos products both
before and after 1959: policy w/one insurance co. expired in 1959,
therefore this class had more valuable claims and therefore disparate
interests w/other members of class
• Fund was too small: D was essentially allowed to retain its entire net worth
Disposition Reversed and remanded.
Dissent (J. Breyer) Huge scale of asbestos litigation: trying these cases would have immense transaction
costs
Asbestos case: tort litigation, case suited to the courts and not the legislature. It is a
problem of scale, and when the legislature doesn’t do anything about it, then judges
can/should aggressively search for ways to avoid delay and denial of justice (and here,
district courts may take advantage of experience that appellate courts do not have)
Alternative to class-action settlement is not a fair opportunity for each potential
plaintiff to have his or her own day in court: high litigation costs, long delays,
limitation on amount of resources available for payment might mean that Ps don’t
actually have a realistic alternative
Conditions are satisfied
• Inadequacy: valuation came about as a result of arms-length bargaining between D
and insurance companies
• Equitable treatment: dividing into subclasses has to be balanced against the
wisdom of letting in additional counsel
• Whole of inadequate fund to be devoted to overwhelming claims: basic purpose is
substantial satisfaction of claims, not literal – the rule can be relaxed somewhat
Notes Could you ever certify a mandatory settlement class under Rule 23(B)(1)(b) torts case
Whether punitive damages can be distinguishable from this framework
What happened:
• Money that is coming into the fund: Fibreboard is going to have to contribute
$10M to the fund, but all but $500,000 is going to come from other insurance
proceeds
• Settlement: F, Continental, and Pacific are going to establish this trust of money,
process and pay asbestos wrongful death and PI claims out of it
• What is at stake: F and its insurers are trying to buy “global peace;” trying to
settle, once and for all: pending claims and all future claims
- In the backgrounds: separate litigation, F against its insurers for what their
exposure is – whether or not insurers are going to be on the line for this
- Settlement amount that F has with its insurers is contingent on these
proceedings, how much insurance companies are on the hook for
Rule 23: requirements under 23(a) – numerosity, common questions of law and fact,
typicality, and adequate representation
Modern Remedies F04, pp. 59
• 23(b), and you can bring under b-1, b-2, b-3
• b-3: each individual can decide whether to opt out of the class obviously they
don’t want this because they want the settlement to be mandatory, if people are
allowed to opt out then “global peace” is not possible
• b-2: declaratory/injunctive relief class action
• b-1: (B)(1)(b); idea of a limited fund
- Historical example: piece of land that you will distribute, or trust that needs to
be distributed
- Reason for doing this is that if you let the first individual come forward and
take his full share, then you will eventually run out giving out the 1st award
will impede others’ claims being satisfied
- *Court: takes root of analysis looking at the history under (B)(1)(b) comes
up w/historical examples and tries to glean what the court calls the “defining
characteristics” of a limited fund
(B)(1)(b) limited fund analysis
• Insufficiency of funds
• Whole fund is dedicated to claims at issue
• Claimants are treated equitably among themselves:
Arguments on both sides: majority/dissent differ on whether requirements are met
• Controversy: total liability and total assets of the fund
- We don’t know how much total liability is: varying exposure, and issue of
present/future claimants
- Question here is whether the upper limit of the fund could be set by the parties
themselves, or it has to be set externally? Worried about collusion between
Ps’ counsel and D
◦ Dissent isn’t worried about this: interests of F and insurance companies
are actually adversarial – no fear of collusion here, and add in that that
what you have to do to value that is that litigation is pending, and in this
situation parties come together and discount against the risk of losing
• Whole fund is dedicated to claims at issue:
- Majority says it won’t decide whether D has to put itself into insolvency.
They are hesitant about saying that the only way you will have a limited fund
is if D forces itself into bankruptcy. Hinges more on the fact that in this case
there are so many other problems that it doesn’t have to reach the conclusion
• Claimants are treated equitably amongst themselves: two concerns how many
people are coming to the table, and once they’re there, what do the slices look
like?
- Here, there are subclasses:
◦ Pre- and post-1959 claims with some of the claims much more valuable
◦ Presently injured and future possible injuries
◦ Inventory claims that are part of the fund and those outside the fund
**Problem that the attorney handling the pending (current injury
claims, the ones valued at twice as much) was also handling the
Global Settlement Agreement and pending claims were dependent on
this
Breyer’s response (dissent): DC made numerous findings of fact as to
competency of the attorney and fairness hearing under Rule 23(e)
- Dissent:
◦ Decides that this is getting into the legal merits. Also takes a very
practical view – at some point there has to be limits on the “subclassing”
d. Amar/Reis (I)
i. Issue: are large civil fines for minor violations unconstitutional?
ii. CA statute: Labor Code Private Attorneys General Act of 2004
1. Provides for private right of action for any alleged Labor Code violation
2. For violations where there is no specific statutory penalty, law imposes new penalties
of $100 per employee per pay period for initial violation and $200 for each subsequent
3. Money is distributed: 25% to Ps, with remainder being divided up, 50% to state
treasury and 25% to fund educating employees/employers about rights/responsibilities
under the labor code
4. Employer w/1000 employees: fine for one-year non-compliance could be up to $3
million
a. If this was a punitive damage, it would clearly be ruled unconstitutional
b. No cap on maximum fine
iii. Legal inquiry: punitive or remedial?
1. Statutes like CA legislation are not geared toward reasonable damages estimates
punitive
2. Loosely tied, if at all, to any actual harm to employees because they apply to technical
violations that cause no actual harm
a. Draws parallel to liquidated damages law
b. Not good-faith ex ante estimates
3. Don’t compensate government for a loss (ex. if government incurred costs enforcing
the statute)
a. Don’t involve government action at all – by nature, as private attorney’s
general suits
4. Applying Supreme Court “guideposts” of Gore
a. Reprehensibility: the statute leaves no discretion for making this sort of
judgment
b. Ratio: whatever the ratio, a $3M fine for statutory violation that causes little
if any harm would probably fail the constitutional standard
c. Relative severity of other penalties that can be imposed for D’s conduct – this
prong is less clear
i. If you were to bring a lawsuit for this kind of violation, it probably
wouldn’t get very far
ii. What happens when there are no other sanctions for the violations in
question? Could argue that this is why you need statutes like this…
iii. But, comparing the statute to sanctions for other employer
misconduct for which there is sanction
e. Amar/Reis (II)
i. 8th Am Excessive Fines clause:
1. Issue of whether the whole fine has to go to the government in order to trigger the
clause
a. Looking to split-recovery schemes for guidance:
Modern Remedies F04, pp. 63
i. Some courts look to destination of the funds: ex. when it goes to
state’s general fund, state’s interest is substantial enough to trigger
the clause
ii. Others look to government’s role in obtaining the award: some
courts have held that clause is not implicated where suit is brought
by private Ps as opposed to government, or where judgment is
imposed by jury rather than government agency
b. When is the clause violated?
i. Austin: doesn’t have to be criminal, but it does have to be a fine, and
a payment has to be punitive at least in part to be a fine (i.e. not
compensatory/remedial)
ii. Is it excessive? Usually SC has just remanded that question to the
lower courts, but there is notion of proportionality in terms of what
is being punished
f. State constitutional provisions
i. Hale v. Morgan: CA SC relied on federal and state constitutional due process analysis to strike
unfairly oppressive civil fines
1. CA court considered fine against landlord who used deprivation of utilities in an
attempt to evict tenant – the fine was $100/day, and even though the rent in question
was <$800, the fine was $17,300
2. Court found penalty unconstitutional because the duration was potentially unlimited,
no discretion was permitted the trier of fact, penalty was more severe than those
imposed for more serious transgressions by Ls against Ts, and could create windfall
for an experienced T against an unknowing L
3. This probably gives room for state constitutional attack on the CA Labor Code Private
AG’s Act
I. Class actions and punitive damages
Punitive damages non-opt-out class under Rule 23(b)(1)(B), of U.S. residents who
smoke/smoked Ds’ cigarettes and were diagnosed w/a variety of illnesses. Excludes those
who have obtained judgments/settlements against Ds, against whom Ds have obtained
judgments, people who are members of another tobacco certified class, persons who should
have first reasonably realized they had the disease prior to 4/9/1993, and persons whose
diagnoses or reasonable basis for knowledge predates their use of tobacco.