Punitive damages in Oregon are measured against potential harm and not actual harm

The Oregon Court of Appeals this week weighed in on the debate over when punitive damages are so grossly excessive as to violate the US Constitution.  The US Supreme Court, Oregon Supreme Court, and Oregon Court of Appeals have previously ruled that reviewing courts must determine whether an award of punitive damages is excessive under the Due Process Clause of the Constitution, and in doing so must consider, among other things, the ratio between punitive and compensatory damages.  There has been much debate regarding the appropriate ratio, and the US Supreme Court has noted that few punitive damage awards exceeding a single-digit multiple of compensatory damages will satisfy due process. 

The case decided this week involved predatory lending practices.  The the jury awarded $500,000 in punitive damages, 15 times the amount of compensatory damages of approximately $32,000.  The Oregon Court of Appeals ruled that, in determining whether a punitive damages award is excessive, the ratio of punitive damages to compensatory damages may be based upon the harm likely to result from defendant's actions, as opposed to harm actually caused.  Vasquez-Lopez v. Beneficial Oregon, Inc.  In other words, the amount of punitive damages should not be compared to the actual compensatory damages awarded in the case, but rather to the potential compensatory damages that would have likely resulted from defendant's actions.  Although the jury awarded plaintiffs only about $32,000 in compensatory damages, plaintiffs presented evidence that the potential damages from defendant's conduct exceeded $325,000, the amount of interest which defendant would have charged over the life of the predatory loans.  The ratio between the punitive damages and potential damages was only 1.53 to 1, which the court upheld as not excessive.

This ruling means that plaintiffs seeking to recover punitive damages will in the future litigate not only actual damages, but also the scope of potential damages.

In addition to its analysis of punitive damages, the Vasquez-Lopez case has an important impact on the interpretation of arbitration clauses, as noted in this previous post to the Oregon Business Litigation blog.