By Peter Huber
Forbes, July 15, 1996, at Pg. 92.
Copyright 1996 by Peter Huber. Electronic copies of this document may be distributed freely, provided that this notice accompanies all copies.
ALABAMA JURIES can still hound BMW. The Supreme Court's May 20 ruling on punitive damages won't stop that. But can BMW elude Alabama juries? That second question will be litigated next.
Anyone who sells newspapers, cars or contraceptives nationwide knows that Alabama juries soak out-of-state defendants, especially people hailing from the land of Yankee or beyond. The problem is that simple.
The solution isn't. Some companies may choose not to sell in Alabama. But they can still end up in Alabama courts, if something sold in Boston gets driven, resold or given away in Birmingham. Other companies may be willing to shoulder Alabama's exorbitant legal overhead in connection with Alabama may expose all their operations anywhere to the xenophobic courts of this one little state.
There aren't any simple legal tools to avoid it. Incorporating in Delaware gets you Delaware law for disputes about corporate governance. Contracts between large companies often contain jurisdiction and "choice of law" provisions that courts will respect. But legal devices like these are all but unenforceable for mass-market products. The accepted legal wisdom is that no ordinary consumer reads or accepts fine print of this kind.
There are limits, however, on state attempts to reach beyond their borders. Federal law cuts in when state laws clash. That's how we find out whether a gay marriage in Hawaii must be given legal effect in Utah.
The Supreme Court thought it was going to resolve something like that in the BMW case. BMW had sold a new car without disclosing touch-up to the paint. That supposedly reduced the value of the car by $ 4,000. BMW had sold 1,000 refinished cars nationwide. An Alabama jury multiplied this times that to arrive at $ 4 million for a single Alabama plaintiff. BMW's refinishing policy, however, was entirely lawful in most other states. Dixie's courts seemed to be reaching beyond their borders.
But Alabama's top court, it turned out, had done some crafty refinishing of the legal paint. It had cut the $ 4 million in half, and had piously insisted that $ 2 million was just right to punish BMW's sale of 14 refinished cars in Alabama alone. The arithmetic was as arbitrary as the original award, but the legal finish was now free of any visible defects.
The U.S. Supreme Court apparently didn't grasp that detail until too late. Twice before the Court had okayed punitive awards that were said to be excessive. The May 20 opinion says nothing legally new. Jumping to $ 2 million from $ 4,000, or perhaps from $ 56,000 (for 14 sales) -- whatever the jump was, it was too much for five of the justices to stomach.
In 1965, in a case pitting an Alabama sheriff against the New York Times, the Supreme Court sharply curtailed libel law nationwide. But that was a First Amendment case. For BMW, the only constitutional hook was "due process." Corporate America just isn't going to find much practical protection in this neck of the Constitution, or in the Supreme Court's new, consult-your-gut standard.
In her dissenting opinion in BMW, Justice Ginsburg hinted at more promising lines of attack. BMW failed to object when the plaintiff baldly asked the Alabama jury to reckon up damages for 1,000 paint refinishings nationwide. BMW finally raised this point with the judge after the verdict. But even then, as Justice Ginsburg noted, BMW "curiously" concedeed that if the nationwide evidence was admissable the jury had the right to multiply damages accordingly.
It's the curiouser case that needs winning. Alabama juries should get the anecdotes, documents, witnesses and engineers that directly bear on Alabama consumers, Alabama conduct and Alabama claims, not a jot more. Not a word about lawful activities in New York, however much Alabama may dislike them. Nothing about BMW's overall income or wealth, which have precious little connection with Alabama. Limiting what goes into Alabama juries will limit what comes out.
These legal technicalities aren't current law. Indeed, an unfortunate footnote in the BMW majority opinion points the other way. But such a rule could evolve quite reasonable under the clauses of the Constitution that requires states to give full respect to each other's laws. The one perfectly clear fact to emerge from the BMW case is that Alabama juries don't.
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