On May 20, 1996, the United States Supreme Court engaged in its own version of tort reform by striking down the punitive damages award of two million dollars in the BMW of North America v. Gore case. Unfortunately, this case represents an example of two of the worst trends in public policy: expansion of the federal government’s intrusion on the states and judicial usurpation of legislative authority. While the BMW case was proceeding to the Supreme Court, the Ohio legislature was considering a broad tort reform proposal that would dramatically alter the state’s personal injury lawsuit system. On October 28, after more than 20 months of legislative tinkering, Governor George Voinovich signed the tort reform bill into law.

There is plenty of evidence that our society has become too litigious and that lawsuit abuse is extremely costly to consumers, businesses, and professionals. According to a recent study, the estimated direct cost to Americans of our civil litigation system is $132 billion per year. Over the past two decades, the average jury award has more than tripled. American companies pay liability insurance premiums that are 20 percent to 50 percent higher than those paid by foreign companies. And, of course, incidents like the one concerning the spilled McDonald’s coffee are reported regularly in the press.

Personal injury lawsuits have historically been regulated at the state level. The result of the BMW case, however, was that punitive damages in personal injury lawsuits became an issue to be dealt with at the federal level. To make matters worse, it was not the elected representatives who addressed the issue but unelected federal judges.

The plaintiff in the BMW case purchased what he believed to be a new BMW automobile. Apparently, the car was repainted when the original paint job was damaged during transportation or manufacture. BMW had a policy of selling a car as new if the cost of any such repair did not exceed three percent of the car’s suggested retail price. When the plaintiff discovered his car had been repainted, he sued BMW. The jury returned a verdict finding BMW liable for economic (out of pocket) damages of $4,000, Additionally, the jury held BMW liable for four million dollars in punitive damages because it found BMW’s policy of selling a repainted car as new to be “gross, oppressive or malicious” fraud. The Alabama Supreme Court reduced the punitive damage award, holding that “a constitutionally reasonable punitive damages award” in the case was two million dollars.

The majority opinion for the U.S. Supreme Court, written by Justice John Paul Stevens, conceded that “punitive damages may properly be imposed to further a state’s legitimate interests in punishing unlawful conduct and deterring its repetition.” According to Stevens, “States necessarily have considerable flexibility in determining the level of punitive damages that they will allow” in any particular case. However, Stevens noted that when an award is “grossly excessive” in relation to the state’s interests it enters the “zone of arbitrariness that violates the Due Process Clause of the Fourteenth Amendment.” Stevens concluded that while the court is “not prepared to draw a bright line marking the limits of a constitutionally acceptable punitive damages award,” it was fully convinced that the “grossly excessive award” in the BMW case “transcends the constitutional limit.”

Justice Antonin Scalia, in a dissent joined by Justice Clarence Thomas, pointed out that at the “time of adoption of the Fourteenth Amendment,” it was well understood that punitive damages represented “the assessment by the jury, as the voice of the community, of the measure of punishment the defendant deserved.” Scalia said that the majority’s decision is “really no more than a disagreement with the community’s sense of indignation or outrage expressed in the punitive damage award” of the jury as reduced by the Alabama Supreme Court. He also noted that nothing in the due process clause gives the U.S. Supreme Court “priority over the judgment of state courts and juries” with regard to punitive damages, and concluded that the “Constitution provides no warrant for federalizing yet another aspect of our Nation’s legal culture (no matter how much in need of correction it may be), and the application of the Court’s new rule of constitutional law is constrained by no principle other than the Justices’ subjective assessment of the ‘reasonableness’ of the award in relation to the conduct for which it was assessed.”

Justice Ruth Bader Ginsburg, in a separate dissenting opinion joined in by Chief Justice William Rehnquist, wrote that the majority “unnecessarily and unwisely ventures into territory traditionally within the States’ domain, and does so in the face of reform measures recently adopted or currently under consideration in legislative arenas.” Ginsburg included an appendix to her opinion listing 14 states that have capped punitive damage awards. Additionally, at least three other state legislatures were considering caps on punitive damages at the time of the BMW decision. Ohio’s was one of those reform proposals then under consideration.

The Ohio legislature’s broad tort reform proposal includes a wide array of changes in the personal injury lawsuit system, including provisions aimed at limiting the number of frivolous lawsuits and placing caps on noneconomic (commonly known as “pain and suffering”) as well as punitive damages. Since its introduction in early 1995 by Ohio Representative Pat Tiberi, a Republican from Columbus, the bill has been widely debated in the legislature and the media.

While the legislative process is never pretty, it does permit various interested parties to present their viewpoints. The Ohio legislature heard from trial attorneys and former personal injury suit plaintiffs advocating status quo in the tort system. They claimed there was no lawsuit crisis and that juries should determine the amount of compensation that injured plaintiffs receive. On the other side, the legislature heard from small business owners, farmers, professionals, like accountants, physicians, and dentists, and many others who testified how the threat of lawsuit abuse and huge jury awards affect their businesses. The legislature also heard from representatives of the Ohio Bar Association and state judges giving their input on how the proposed changes would affect the courts and the parties to personal injury lawsuits. Some polls showed that as many as 80 percent of Ohioans thought that the personal injury lawsuit system needed reform.

The bill as introduced capped punitive damages to an amount not to exceed the amount to economic damages. Economic damages, commonly known as “out of pocket” damages, like lost wages and medical bills, were not in any way limited in the proposed legislation. Punitive damages are meant to punish the defendant and, generally, are awarded only when the defendant’s conduct is found to be willful or wanton. By capping punitive damages to the amount of economic damages, the Ohio legislature was attempting to tie the extent of the punishment to the actual harm done.

When the bill emerged from the conference committee (which had the task of ironing out the differences between the House and Senate versions), it limited punitive damages to the lesser of three times the amount of compensatory damages, or $100,000, when the defendant is an individual or employer with 25 or fewer employees. For larger employers the cap is three times compensatory damages, or $250,000, whichever is greater. When Voinovich signed the bill into law, the elected officials of Ohio, who are accountable to the citizenry, had finally passed significant tort reform.

The importance of maintaining state sovereignty over such matters was recognized by our Founders. As James Madison wrote in Federalist 51, “In the compound republic of America, the power surrendered by the people, is first divided between two distinct governments, and then the portion allotted to each, subdivided among distinct and separate departments. Hence a double security arises to the rights of the people.” Both of those features—respect for the division of power between state and federal governments and the separation of powers —were disregarded in the BMW case. The intended function of federal courts is to apply the law as it comes to them from the legislature. The U.S. Supreme Court disagreed with the state of punitive damage law in Alabama, so it followed its own agenda for punitive damages. In doing so, the Supreme Court disregarded the separation of powers by taking the issue from the legislative branch and establishing itself, an elite group of unelected judges, as king in the realm of punitive damages. Furthermore, the Court disregarded the notion of limited federal government by deciding the issue at the federal level despite the fact that state legislatures, like Ohio’s, were establishing their own rules with regard to personal injury lawsuits, generally, and punitive damages, specifically. By taking issues away from the state legislatures—be it abortion, gay rights, or, now, tort reform—the Court endangers our liberties, and calls into question the fundamental concept of federalism and the very foundation of our government structure, representative democracy.