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From the January/February Issue
Bedbugs Bite Guests: Jury Bites Motel 6 for Punitive Damages
The meaning of the U.S. Supreme Court's decision earlier this year in State Farm v. Campbell is hotly disputed. Even though the Court indicated that the ratios it discussed were "not binding," defense counsel in punitive damage cases argue that the Court established a ceiling. Now, a respected federal appellate judge has rebutted that claim in an odd case involving bedbugs in a Chicago motel. This important opinion also suggests that aggressive defense tactics can backfire, providing further justification for a large punitive judgment.
Most people know the saying, "sleep tight and don't let the bedbugs bite." Before World War II, bedbugs were a common household pest, supposedly eliminated by insecticides. When a Chicago motel ignored an infestation of the insects and continued to rent the affected rooms, the bedbugs bit the plaintiffs, who, in turn, made sure that the motel owners felt a jury's bite in the form of punitive damages. In Mathias v. Accor Economy Lodging, Inc., 347 F.3d 672 (7th Cir. 2003), the Seventh Circuit upheld a punitive damages award of $186,000 per plaintiff based on compensatory damages of just $5,000 per plaintiff.
Burl Mathias and Desiree Matthias, siblings, checked into a Chicago Motel 6. The motel, which rented 190 of its 191 rooms that night, assigned the two to a room that had been classified "DO NOT RENT UNTIL TREATED," as had a significant number of other rooms. The two suffered painful and unsightly bites and sued. Accor Economy Lodging, owner of the motel, appealed, arguing that the punitive award was excessive under the U.S. Supreme Court's recent ruling in State Farm Mut. Auto. Ins. Co. v. Campbell, 123 S.Ct. 1513 (2003). It asserted that the Supreme Court had limited punitive damages to a 4:1 ratio to compensatory damages and that $20,000 was the maximum award available against it.
The Seven Circuit rejected the argument in a decision that takes on additional significance because it was authored by Judge Richard Posner, dean of the law-and-economics school of jurisprudence. In answering the claim that there is a "4-to-1 or single-digit-ratio rule," the court found not only that the Supreme Court did not impose a ceiling and observed that "it would be unreasonable to do so." Instead, it held that the Supreme Court merely applied the "standard principle of penal theory" that "‘the punishment should fit the crime' in the sense of being proportional to the wrongfulness of the defendant's action." Even then, heavier punitive damage penalties are merited, the court continued, "when the probability of detection is very low . . . or the crime is potentially lucrative."
Discovery had established that the motel turned down a 1998 extermination contract for $500, failed the following year as the infestation grew to rectify the problem, and began issuing refunds to complaining guests in 2000 as a less expensive alternative to closing the hotel for a period in order to fumigate it. Despite labeling some rooms as too infested to rent, the motel nonetheless placed guests in those rooms. The Seventh Circuit found the motel's behavior outrageous and likely motivated by a profit motive. Moreover, even though the compensable harm was slight, it involved a "difficult to quantify" emotional element that required further compensation through punitive damages. In addition, it observed that the motel took multiple steps to avoid detection of the problem. This led the court to state that a tortfeasor who is "‘caught' half the time he commits torts . . . should be punished twice as heavily in order to make up for the times he gets away." Finally, the resources devoted by the defendant to fight the matter justified a larger award. Taken aback at the aggressiveness of the defense with such modest stakes, the court said the defendant was "investing in developing a reputation intended to deter plaintiffs" and "make it difficult for the plaintiffs to find a lawyer willing to handle their case." Such behavior further justifies a large award, which in this case amounted to a 37.2 to 1 ratio of punitive to compensatory damages.
Robert S. Peck is the President of the Center for Constitutional Litigation, 1050 31st Street, NW, Washington, DC 20007. His phone is 202/944-2874 and his e-mail address is firstname.lastname@example.org