Prof. Dr. Paul D. Carrington, LL.B. (Harvard)
Punitive Damages - The American Tradition Of Private Law1
The first thing for European lawyers to understand about American law is that the distinction between public and private law is in America seldom noticed. American judicial institutions, unlike those in most other countries, were not designed merely to resolve civil disputes, but were fashioned for the additional purpose of facilitating private enforcement of what in other nations would generally be regarded as public law. This purpose reflects widespread mistrust of the political institutions and government officials upon whom American citizens would have to depend if private law enforcement were not available, as generally it is. That shared mistrust has ancient roots and is reflected in state and federal constitutional provisions assuring the weakness and ineptitude of American political institutions other than courts,2 and in the habit of Americans, observed in 1835 by the French observer de Tocqueville,3 to litigate issues they care most about. As a consequence of these conditions, substantial reliance for the regulation of business is placed on private plaintiffs. Much regulation is done ex post the regulated business conduct in the form of civil money judgments rather than ex ante in the form of official approval or disapproval. It is provided by lawyers serving as private attorneys general. Its aim is to keep business executives alert to the risks their business decisions may impose on others.
Although it has roots in earlier times,4 this tradition of reliance on private regulation of business dates in America from the era of industrialization in the 19th century. An important 19th century example is the federal antitrust law providing for treble damages.5 The authors of that legislation recognized that the United States Department of Justice, then a mere fledgling, was at best an erratic mechanism for the enforcement of laws protecting small business from big business. The big commercial trusts that were the targets of that regulatory scheme were politically powerful institutions able to intimidate and subvert public enforcement often enough to make defiance profitable and enforcement demoralizingly uneven. Congress made the assessment that if it wanted the antitrust law enforced, it would have to rely primarily on private lawyers advising and representing the smaller businessmen whom the law was intended to protect. To provide them with an adequate incentive to take on their bigger adversaries, a bounty or prize was to be paid in the form of treble damages, an institution not unknown to English and Roman traditions. This bounty assures that a good case will yield sufficient proceeds to compensate the plaintiff's lawyer as well as the plaintiff. And it adds a deterrent effect. Any firm contemplating a violation of the antitrust laws must reckon not merely on the prospect of fighting off the federal government, but also of fighting off private plaintiffs and private lawyers who will be very difficult to influence or intimidate, except of course by paying what they demand.
In the United States today, private law enforcement is the primary method of enforcing the securities laws, the consumer protection laws, the civil rights laws, antitrust laws, and the environmental laws. While there are state and federal governmental agencies also having responsibilities in those fields, it is private plaintiffs represented by private lawyers who do most of the enforcement of those forms of business regulation.6 Damages actions are also the primary means of enforcing standards of professional conduct for doctors, lawyers, accountants, and members of other professions.
Dependence of Americans on claims for compensation for harms to protect them from corporate wrongdoing in some measure relates with the rights of American businessmen to constitutional protection from excessive regulation by bureaucracy. For example, the Supreme Court of the United States in 2002 held that businesses selling prescription drugs have a constitutional right to speak the extends to at least some forms of misleading advertising about their products without prior approval by the Food and Drug Administration.7 The decision invalidates in part the United States Food-and-Drug Laws first enacted in 1908 to inhibit false claims for medicines.8 What the Court did not do, however, is insulate businesses from liability for fraud in actions brought by private citizens represented by contingent fee lawyers and aggregated in class actions. Without private enforcement, Americans would be exposed to fraud in the sale of food and medicine by firms exercising their constitutional right to free speech while engaging in consumer fraud.
1 An earlier version of this paper was presented to the 41st Bitburger Gespräche of Stiftung Gesellschaft fur Rechtspolitik, January 8-11, 2003 and has been published in the record of those proceedings.
2 On the deficiencies of American legislatures, see ROBERT A. DAHL, HOW DEMOCRATIC IS THE AMERICAN CONSTITUTION? (New Haven 2001). It was just the best they could do in the 18th century. CAROL BARKIN, A BRILLIANT SOLUTION: INVENTING THE AMERICAN CONSTITUTION (New York 2002).
3 1 DEMOCRACY IN AMERICA: THE REPUBLIC OF THE UNITED STATES OF AMERICA AND ITS POLITICAL INSTITUTIONS REVIEWED AND EXAMINED 306. This work was published in Paris in two volumes in 1835. It was promptly translated by Henry Reeves and republished in a single volume by A. S. Barnes & Co. in New York.
4 Exemplary and treble damages have English origins going back to the 13th century, and probably Roman origins of an earlier time. 1 LINDA L. SCHLUETER & KENNETH R. REDDEN, PUNITIVE DAMAGES 3 (2d ed Charlottesville 1989); BARRY NICHOLAS, INTRODUCTION TO ROMAN LAW 210 (Oxford 1975). And see , e,g, Huckle v. Money, 95 Eng. Rep. 768 (K. B. 1763).
5 Act of July 2, 1890, 26 Stat. 209. A judicial response of the same era was set in motion by an 1889 flood that destroyed the city of Johnstown, Pennsylvania and was caused by the failure of a dam erected for recreational uses by very wealthy notables who took no responsibility for the consequences. The outcry resulted in new judge-made law imposing strict liability on the owners of bursting dams. The rapid evolution of the case law is described by Jed Handelsman Sugarman, The Floodgates of Strict Liability: Bursting Reservoirs and the Adoption of Fletcher v. Rylands in the Gilded Age, 110 YALE L. J. 333 (2000). The story of the flood is told by DAVID G. MCCULLOUGH, THE JOHNSTOWN FLOOD (New York 1968).
6 CARL T. BOGUS, WHY LAWSUITS ARE GOOD FOR AMERICA: DISCIPLINED DEMOCRACY, BIG BUSINESS AND THE COMMON LAW 141-43 (New York 2001).
7 Thompson v. Western States Medical Center, 122 S. Ct. 1497 (2002).
8 The specific provision at issue in Thompson was the promotion of "compounded drugs" made by local pharmacists and not approved by the FDA as required by 21 U. S. C. §353a enacted as §503 of the Food & Drug Administration Modernization Act of 1997, 111 STAT. 2328.