As Mitt Romney memorably explained on the presidential campaign trail in 2012, “Corporations are people, my friend.” Under the law, they have both rights and responsibilities, just like actual humans. But a new case out of the Ninth Circuit Court of Appeals shows that when it comes to some of those more expensive responsibilities, if corporations ignore them long enough, judges will just kind of let them off the hook.
In Wakefield v. Visalus, Lori Wakefield sued a multi-level marketing company, ViSalus, that sold weight loss and fitness supplements. She did so on behalf of a class of thousands of people who were both previously purchasers and sellers of the supplements. When they decided not to participate, ViSalus bombarded them with robocalls to try to get them back—1,850,440 robocalls, to be exact.
When a court awards money damages, it divides the damages into three broad buckets. Statutory damages, as you might guess, are written directly in a statute; Congress fixes the amount, and when a company violates the law, they take the prescribed hit. Statutory damages are different from compensatory damages, which involves a court trying to make someone whole by calculating their actual loss and compensating them for it. Then there are punitive damages, where the amount is literally intended to punish—to put a dent in a company’s bottom line and deter future misconduct.
In the Wakefield case, the ViSalus robocalls violated the Telephone Consumer Protection Act, which bans these sorts of unsolicited phone calls and provides for statutory damages of $500 per call. At trial, a jury thus awarded the plaintiffs $925,220,000: the product of simple, straightforward math.
Over the last 25 years, however, courts have been engaged in a concerted effort to protect companies from punitive damages. Companies have pushed for so-called “tort reform” measures that limit the types of lawsuits people can file and the types of damages they can award—a movement relies upon the narrative that corporations must be protected from the avarice of greedy plaintiff-side attorneys. In a 1995 case, BMW v. Gore, the Supreme Court held that excessive punitive damages violate the Constitution because the corporation or person wouldn’t have received “fair notice” of the severity of the penalty a jury could impose.
Today, a patchwork of state-level caps limits punitive damages awards—sometimes at a 3:1 ratio, for example, or equal to the compensatory damages awarded. However, in most states, juries aren’t told about the cap, so when they award relatively low compensatory and high punitive damages, they think that they’re the ones to send a message to the defendant. Then, after an eye-popping award, like the one a jury imposed on Alex Jones recently, the court just stomps back in and reduces the award to the cap. At every opportunity, the legal system creates more ways for corporations to get out of the obligation to write a check.
Eye-popping as the nearly-ten-figure jury award in Wakefield might seem, it actually doesn’t violate the principle the Supreme Court articulated in BMW, which is that corporations need to be on notice as to how much their bad behavior will cost them. Statutory damages tell a corporation that amount to the penny. The part of the TCPA ViSalus violated has been in effect for ten years. They had no excuse for not knowing what the law was. They simply didn’t follow it.
On appeal, however, ViSalus argued that even if the statutory penalty of $500 was constitutional, the aggregate award was so “severe and oppressive” and disproportionate to its offenses that it was nevertheless unconstitutional. The Ninth Circuit agreed, holding that statutory damages “may become unduly punitive when aggregated,” and it sent the award back to the lower court for reassessment. Statutory damages, in other words, are nondiscretionary and automatic, except when someone breaks the law over and over and over again, at which point statutory damages can magically become as unfair as punitive ones.
This makes no sense whatsoever, particularly in light of the notion that when the legislature makes a clear pronouncement, courts are (supposedly) bound to follow it. The Ninth Circuit deploys a heroic amount of adverbs to buttress this novel conclusion, calling the jury award “obviously unreasonable,” “disproportionately punitive in the aggregate,” “gravely disproportionate,” and “unreasonably related to the legal violation committed.” Again, the takeaway is that if you make a truly staggering amount of calls, you won’t pay a truly staggering award.
Rulings like this are welcome news for corporations, which often treat the costs of fines and settlements as just part of doing business. One study, for example, looked at the largest fines imposed against the largest corporations from 2012 to 2015. Those companies paid $80 billion in out-of-court settlements with various government agencies, but that $80 billion translated into roughly $48 billion in corresponding tax savings over that same time period. (If a company gets hit with a penalty or fine, they can’t deduct that from their taxable income. However, if they do an out-of-court settlement instead, they can deduct those amounts. It’s a neat trick!)
The resulting status quo is pretty grim for anyone who thinks corporations should be held accountable for breaking the law. Regulators impose criminal penalties, but they’re small enough that companies can shrug off those costs routinely. Punitive damages are unconstitutional because they don’t give corporations proper notice of how much their bad behavior will cost. And now, even when Congress sets statutory damages, corporations can now count on the courts to keep them safe from real harm. Here, the Ninth Circuit sent a long, loud message that corporations should just keep breaking the law. There’s no reason to stop behaving badly when bad behavior comes with easily-absorbed consequences.