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The Path of the CaseIn Leatherman, the Ninth Circuit Court of Appeals applied a de novostandard of review to the constitutionality of a $4.5 million punitivedamage award. Using that standard, the Court concluded that the max-imum award consistent with constitutional principles was exactly$500,0001 (Leatherman II).

The Ninth Circuit’s application of the de novo standard came after itwas reversed by the U.S. Supreme Court2 for upholding the $4.5 mil-lion award under the less-demanding “abuse of discretion” standard ofreview (Leatherman I). The circuit court previously had upheld the dis-trict court’s determination that the punitive damage award was consti-tutional and not “grossly excessive” under BMW of North America, Inc.v. Gore.3

Applying the more stringent standard of review on remand, theNinth Circuit not only decided that the punitive damage award wasunconstitutional under Gore. It also took the extraordinary step of itselfcalculating the maximum award consistent with constitutional princi-ples.

The Ninth Circuit’s decision signaled the end of the case’s journeyup and then down its appellate path. But questions for practitionersremain:• Did the decision in Leatherman I foreshadow this result?• What steps should practitioners take to maximize their chances of

preserving a punitive damage verdict on appeal in light ofLeatherman II?

BY HOWARD ANDARI

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APPELLATE COURTS AND PUNITIVE DAMAGE CALCULATIONSAddressing the “Super-Jury” Problem

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A recent case concluded with a punitive damageaward that in today’s legal world is significant, butnot extraordinary. The dispute between the par-ties—manufacturers of competing products—will notbe historically noteworthy for its substance or forits players. But as in many significant cases, thedevil is in the details. And the “devil” for counselinvolved in punitive damage cases is the standardof review applied on appeal.

The impact of Leatherman Tool Group v. CooperIndus. will certainly be felt. Following Leatherman,appellate courts will not only be in the business ofreviewing the constitutionality of punitive damageawards de novo. They also will calculate the “con-stitutionally appropriate” amount of punitive dam-ages from the cold paper record—without the bene-fit of the live courtroom experience.

At minimum, the case opens the door for stateand federal appellate courts to act as “super-juries” and to calculate a “permissible” amount ofpunitive damages.

Given Leatherman, it is vital that counsel makea clear and persuasive record at the trial court levelin order to maximize the chances of preserving apunitive damage award on appeal.

there is no mathematical bright line butindicated that the 90-to-1 ratio of compen-satory to punitive damages was only some-what less “breathtaking” than that invalidat-ed in Gore, and it was impermissibly highgiven the evidence in the record withrespect to the harm or potential harmcaused by Cooper’s conduct.

As to be expected, the Court focusedmost of its attention on the first Gore fac-tor—reprehensibility.

The Court acknowledged that inaddressing reprehensibility, trial courts willhave a somewhat superior vantage over

courts of appeal, and that it must accept theunderlying facts as found by the jury andthe trial court. But the Court noted that thedegree of reprehensibility “ultimatelyinvolves a legal conclusion.”17 Although itcould not “condone Cooper’s conduct,”the Court noted that after conducting anindependent review, “Cooper’s conduct wasmore foolish than reprehensible.”18 As aresult, the Court concluded that the firstGore factor did not support the jury’saward.

Despite this conclusion in light of a denovo review, the next question was of para-mount procedural importance. The Courtconsidered whether to:1. determine the maximum amount of

constitutionally permissible damages or2. remand the case to the district court

with instructions to issue a remittitur inaccordance with the views in its opinionOn that question, there was no clear

Cooper’s size” and concluded “that theaward did not violate Copper’s due processrights” under the federal Constitution.10

On appeal, the Ninth Circuit affirmedthe punitive damages award in an unpub-lished opinion, indicating, “The districtcourt did not abuse its discretion in declin-ing to reduce the amount of punitive dam-ages.”11

Scrutiny of the De Novo StandardThereafter, the U.S. Supreme Court accept-ed Cooper’s petition for a writ of certiorari.It addressed whether the Ninth Circuitreviewed the constitutionality of the puni-tive damage award under the correct stan-dard and whether the award violated theGore criteria.

The Supreme Court concluded that theconstitutionality of the punitive damagesaward merits de novo review, and it remand-ed the case to the Ninth Circuit for a deter-mination of whether the $4.5 million awardwas constitutional using the correct stan-dard of review.12 The Supreme Court reject-ed an argument that de novo review violatesthe Seventh Amendment’s ReexaminationClause, which provides that “no fact triedby a jury shall be otherwise re-examined inany Court of the United States, thanaccording to the rules of common law.”13 Indoing so, the Court indicated that “unlikethe measure of actual damages suffered,which presents a question of historical orpredictive fact, … the level of punitive dam-ages is not really a ‘fact’ ‘tried’ by thejury.”14

It is this determination that may haveencouraged, or possibly foreshadowed, theresult in Leatherman II.15

Leatherman II: Calculating PunitiveDamagesIn reviewing the constitutionality of thepunitive damage award de novo, the NinthCircuit applied the three “constitutionalguideposts” from Gore.16

The Court concluded that the third Gorefactor did not support the jury’s awardbecause Cooper’s conduct would not havelikely resulted in civil penalties in anyamount approaching the $4.5 million puni-tive damage award. Regarding the secondGore factor, the Ninth Circuit observed that

Leatherman I: The Tale of a Corporate MisdeedAs described in Leatherman I and II, bothCooper Industries and Leatherman ToolGroup were tool manufacturers. In the1980s, Leatherman introduced its PocketSurvival Tool (PST), a multifunctionpocket tool that purported to be animprovement on the classic Swiss ArmyKnife.4 In 1995, Cooper designed andmarketed a competing multifunction toolcalled the “ToolZall” that would copy thebasic features of the PST and add a fewadditional features.5

In August 1996, Cooper introduced theToolZall at the National Hardware Show inChicago. There, Cooper used photographsin its posters, packaging and advertisingmaterials that purported to be that of aToolZall, but were in fact a modified PST.When Cooper’s promotional materials werecreated, Cooper had not yet manufactureda ToolZall and decided to create a ToolZall“mock-up” by grinding the Leathermantrademark off a PST and adding fastenersthat were unique to the planned ToolZall.6

Shortly after the trade show, Leathermanfiled suit against Cooper, asserting claims oftrade-dress infringement, unfair competi-tion and false advertising under § 43(a) ofthe Trademark Act of 1946 (Lanham Act)and a common-law claim for unfair compe-tition for advertising and selling an “imita-tion” of the PST.

After a 1997 trial, a jury found thatLeatherman had trade-dress rights in theoverall appearance of the PST and that theoriginal ToolZall infringed on those rights,but that the infringement had not causedany damage to Leatherman.7 With respectto the advertising claims, however, it foundCooper liable for passing off, false advertis-ing and unfair competition; it assessed$50,000 in compensatory damages and$4.5 million in punitive damages.8

After the jury verdict, the district courtconsidered and rejected Cooper’s argu-ment that the punitive damages assessed bythe jury were unconstitutional and “gross-ly excessive” under Gore.9 The court foundthat the punitive damages award “was pro-portional and fair, given the nature of theconduct, the evidence of intentional pass-ing off, and the size of an award necessaryto create deterrence to an entity of

33J A N U A R Y 2 0 0 3 A R I Z O N A AT T O R N E YW W W. A Z B A R . O R G

“The level of punitivedamagesis not really a

‘fact’‘tried’by the jury.”

34 A R I Z O N A AT T O R N E Y J A N U A R Y 2 0 0 3 W W W. A Z B A R . O R G

favor of deferential appellate review.” Id.13.Id. at 437–438. Traditionally, federal courts

did not have any authority to reduce theamount of a jury’s verdict. Kennon v. Gilmer,131 U.S. 29 (1889). However, federal courtsdid traditionally have the power to order anew trial (e.g., when courts found a jury’saward of damages to be excessive). The powerof courts to order a remittitur grew out of theauthority to grant a new trial. Therefore,when trial courts believe the jury’s verdict isexcessive, they may order a new trial unlessthe plaintiff agrees to remit a portion of thejury’s award. Dimick v. Sciedt, 293 U.S. 474,(1935). However, the Seventh Amendmentrequires that the plaintiff be provided theoption of a new trial in lieu of a remittitur ofthe jury’s award. Hetzel v. Prince WilliamCounty, Va., 523 U.S. 208, (1998).

14.Leatherman I, 532 U.S. at 437.15.Justice Ginsberg’s lone dissent critiqued the

majority’s holding that the amount of punitivedamages is not a “fact tried by a jury.” Id. at446. And she argued that the “abuse of dis-cretion” standard of review makes sense for“practical reasons”: “District courts view theevidence not on a cold paper record but inthe living courtroom context.” Id. at 448.Therefore, with respect to Gore’s reprehensi-bility factor, “District courts have an undeni-ably superior vantage over courts of appeal.”Id.

16.Leatherman II, 285 F.3d at 1148–1150.17.Id. at 1150.18.Id. at 1151.19.170 F.3d 1320 (11th Cir 1999). In Johansen,

the Eleventh Circuit considered whether itwas permissible for the district court to reducethe jury’s punitive damage verdict to a maxi-mum constitutional amount without affordingthe plaintiffs an opportunity to elect for a newtrial. Johansen distinguished the districtcourt’s action from a traditional remittiturbecause unlike a remittitur, a constitutionalreduction is a determination that the law doesnot permit the award. Id. at 1331. As such, itwas permissible for the district court to enterjudgment for the maximum constitutionallypermissible award as a matter of law, withoutgiving the plaintiffs an opportunity for a newtrial. Id. According to Johansen, adjusting thepunitive damage verdict to the maximum theConstitution allows is not a reexamination ofany facts, but if the district court exercised itsdiscretion to reduce the verdict lower than theconstitutional maximum for that case, the ver-

dict would then have been “reexamined” andthe plaintiff must be afforded the option toelect a new trial. Id. at 1332, n.20.

20.Leatherman II, 285 F.3d at 1151–1152.Johansen ultimately upheld the district court’sdetermination of the maximum constitutionalaward after consideration of the Gore factors.170 F.3d at 1339. However, Johansen didnote that, “It is unclear to us whether BMWallows an appellate court to determine the‘upper limit’ the constitution permits, orrequires remand to the district court wherethe record is not so ‘cold.’” Id. at 1332, n.21.The Ninth Circuit, however, did not appear tobe tempted to remand because requiring anew trial or remittitur by the lower courtcould ultimately result in an appeal, whichwould then require another evaluation ofwhether the punitive damage award was con-stitutional under a de novo standard.

21.181 F.3d 446, 468 (3rd Cir. 1999).22.Leatherman II, 285 F.3d at 1152. The Third

Circuit in InterMedical Supplies reduced aremitted $50 million punitive damage awardto $1 million after consideration of the Gorefactors. 181 F.3d at 470. The dissent criti-cized the majority because it “substituted itspersonal judgment for a principled reviewfunction over a District Court’s discretion;and without relying on record evidence, it hasreached a bottom line ‘lottery’ figure of$1,000,000 relying only on its own ‘judgmentand experience.’” Id. at 478.

23.See e.g., Hyatt Regency v. Winston & Strawn,907 P.2d 506 (Ariz. Ct. App. 1995).

24.See F.R.C.P. 49; A.R.C.P 49. It is importantto consider the complexity of the case todetermine whether the benefits of special ver-dict forms, or a general verdict with writteninterrogatories, outweigh the potential forconfusion of the jury and inconsistent juryverdicts or answers to interrogatories.

25.See Leatherman I, 532 U.S. at 440, n.14(“While we have determined that the Court ofAppeals must review the District Court’sapplication of the Gore test de novo, it ofcourse remains true that Courts of Appealshould defer to the District Court’s findingsof fact unless they are clearly erroneous.”);Leatherman II, 285 F.3d at 1150 (“Althoughdetermining the ‘degree of reprehensibility’ultimately involves a legal conclusion, we mustaccept the underlying facts as found by thejury and the district court.”).

1. Leatherman Tool Group v. Cooper Indus., 285F.3d 1146 (2002).

2.Cooper Indus. v. Leatherman Tool Group, 532U.S. 424 (2001).

3.517 U.S. 559 (1996).4.Leatherman I, 532 U.S. at 427.5.Id. Although the Cooper product was named

ToolZall, internally it had been referred to asthe “Cooperman” because of its obvious simi-larity to Leatherman’s PST. Leatherman II,285 F.3d at 1148.

6.Leatherman I, 532 U.S. at 427-428.7.Id. at 429. As a result of this finding, howev-

er, the district court entered a judgment per-manently enjoining Cooper from marketingits original ToolZall in the United States or in22 designated foreign counties. That judg-ment was later set aside by the Ninth Circuit.199 F.3d 1009 (9th Cir. 1999).

8.Id. In awarding punitive damages, the juryanswered the following special interrogatoryin the affirmative: “Has Leatherman shown byclear and convincing evidence that by engag-ing in false advertising or passing off, Cooperacted with malice, or showed a reckless andoutrageous indifference to a highly unreason-able risk of harm and as acted with a con-scious indifference to Leatherman’s rights?”

9.517 U.S. at 559.10.Leatherman I, 532 U.S. at 430.11.Id.12.The Supreme Court reiterated that in Gore,

appellate courts were instructed to evaluate apunitive damages award’s consistency withdue process using three criteria: (1) thedegree of reprehensibility of the defendant’smisconduct (“reprehensibility”), (2) the dis-parity between the harm suffered and thepunitive damages award (“ratio”) and (3) thedifference between the punitive damagesawarded by the jury and the civil penaltiesauthorized or imposed in comparable cases(“comparable statutory fines”). Id. at 440.The Court then conceded with respect to“reprehensibility,” trial courts “have a some-what superior vantage over courts of appeal”with respect to issues turning on “witnesscredibility and demeanor.” Id. However, theCourt noted that trial and appellate courtsseem equally capable of analyzing the secondinquiry, and that the third inquiry, which“calls for a broad legal comparison, seemsmore suited to the expertise of appellatecourts.” From this standpoint, the Court con-cluded that “[c]onsiderations of institutionalcompetence therefore fail to tip the balance in

authority (or briefing by the parties). Indeciding to determine the maximum con-stitutional award of punitive damages onthe existing record, the Ninth Circuit wasinfluenced by Johansen v. CombustionEngineering, Inc.19 According to the Court,it was not necessary to remand for a new

trial or remand to the district court forremittitur, because a litigant would not beentitled to any greater award on remandthan the maximum constitutional award ofpunitive damages.20

In determining the appropriate amountof punitive damages, the Ninth Circuit

found itself in an uncomfortable and unfa-miliar position. After quoting a passagefrom InterMedical Supplies v. EBI MedicalSystems21 that “in the last analysis, an appel-late panel, convinced that it must reduce anaward of punitive damages, must rely on itscombined experience and judgment,” the

endnotes

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Ninth Circuit concluded that exactly$500,000 was the maximum constitutionalaward of punitive damages on the existingrecord.22

The Implications of Leatherman IILeatherman II’s implications are not limit-ed to the federal court system. Arizona’sappellate courts have made clear that anyaward of punitive damages must passscrutiny under the federal Constitution.23

Because the Due Process Clause of theFourteenth Amendment prohibits statesfrom imposing “grossly excessive” punish-ments on tortfeasors under Gore, it followsthat Arizona appellate courts will have toapply a de novo review of the constitution-ality of a punitive damage award using theGore criteria.

Given Leatherman II, appellate courtsin Arizona may now act as super-juries andthemselves calculate “constitutionallyappropriate” punitive damages.

To somewhat mitigate the dangersposed by Leatherman II, practitioners maywant to have juries make specific factualfindings on the issue of reprehensibilitythrough special verdict forms or a generalverdict accompanied by written interroga-tories.24 In addition, practitioners alsoshould urge the trial court to make specificfindings of fact regarding reprehensibilityin post-trial rulings on the constitutionalityof the punitive damage award. In doing so,the language from Leatherman I and IIregarding deference to findings of fact bythe trial court and jury may prove to behelpful in preserving and/or maximizingpunitive damage awards.25

Given that appellate courts may nowmore often calculate punitive damageamounts from the cold paper record, mak-ing a coherent and persuasive record onissues surrounding reprehensibilitybecomes more important than ever.

Howard Andari is an attorney in theScottsdale law firm of Thur & O’Sullivan,P.C., practicing exclusively for the last sixyears in the fields of insurance coverage andinsurance bad faith. The statements or opin-ions expressed herein are those of the authorand do not necessarily reflect those of his firm,its directors, partners or employees.