Bad eggs and oil slicks: Making corporate crime pay

October 14, 2011

If courts were able to award appropriate punitive damages that punish wrongdoers at a level tied to a company's financial worth, then businesses big and small would be at risk of being put out of business by punitive damages unconscionable offenses and would be deterred from bad behavior in the first place, according to Judy Feuer Zimet of the Phoenix School of Law in Phoenix, Arizona.

Writing in the International Journal of Private Law, Zimet points out that in many legal cases over the last two decades, companies have repeatedly been fined for breaking environmental and other laws, but have not suffered losses to their profit line that were adequate to deter them from repeating offences. She cites the case of Wright County Farm Eggs and owner Jack Decoster's long list of repeated violations that culminated in 2010 with a national . She also cites the BP, which since 2005 has been held to account for a staggering 760 safety violations that resulted in a mere $373 million in fines.

Meanwhile, BP's annual profits are in the double figure billions of dollars. The serious oil spill in the in 2010 forced the company to create a $20 billion victims' compensation fund. Zimet suggests that had fines for the 759 prior violations been sufficiently punishing, BP might have been more effective in addressing the problems that led to the 2010 spill.

"A punishment that successfully deters future requires an amount sufficient to impact a defendant's financial condition," says Zimet, Current factors used to assess the amount of punitive damages should be reassessed. Courts can better punish and deter wrongdoing by calculating punitive damages based upon a defendant's wealth rather than the relationship between compensatory and punitive damages."

Zimet discusses two cases in which appropriate punitive damages had the desired effect on changing corporate behavior. Two successive cases against motor vehicle manufacturer BMW of North America saw the company accused of fraud after a customer discovered that it had repainted a car yet withheld that information when the car was sold. In this first case, the trial court awarded a mere $4600 in compensatory damages and BMW made no changes to its behavior. A second case saw BMW North America forced to pay $4 million in punitive damages. The company immediately thereafter changed its policy and began reporting refinishing work to new car purchasers. This shows that when the risk of liability is substantial, companies will reform .

"No longer should compensatory damages steer punitive damages," asserts Zimet. "The Supreme Court should replace this factor by a formerly existing factor: determine the financial position of the defendant and its ability to pay."

Explore further: Boston judge cuts penalty in song-sharing case

More information: "Bad eggs and oil slicks: a defendant's wealth is an important factor in properly assessing punitive damages" in Int. J. Private Law, 2011, 5, 1-21

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3 / 5 (3) Oct 14, 2011
Not surprising BMW a foreign company that is competing with American auto makers is substantially fined while American corporations get a slap on the hand. Look what Toyota went through while American automakers were doing as bad or worse.
Consider the reasons behind both; BMW didnt disclose past damages on a vehicle (happens every day all over the USA in Ford, GMC, car lots) they were taught a good lesson. A farmer has been poisoning Americans for years and he gets another slap on the hand.
But who ever said life was fair?
2.3 / 5 (6) Oct 14, 2011
Instead of punitive damages tied to a company's worth, shouldn't penalties be based on harm to others? And many regulations are harmful in that they prevent better safer innovations.

Punitive damages tied to a company's worth sounds like a political handout to trial lawyers.
1 / 5 (4) Oct 14, 2011
great idea, lets wipe out the companies that actually still have employees. F N morons
2.3 / 5 (3) Oct 15, 2011
All American politicians from the President down to the town major are supported and put into power by "campaign donations" and "lobby groups" i.e. INSTITUTIONALIZED AND LEGALIZED BRIBERY AND OWNERSHIP OF POLITICIANS, so to penalized the fat cats and their companies are to bring down the whole "democratic" system. Bluntly: God will visit a brothel first before this will ever happen!
3 / 5 (2) Oct 15, 2011
great idea, lets wipe out the companies that actually still have employees. F N morons
By way of mass layoffs, companies are already doing that themselves. Your proposal to grant immunity to multinational conglomerates will not stave the downward spiral of the working class. Indeed it may likely accelerate joblessness.
Instead of punitive damages tied to a company's worth, shouldn't penalties be based on harm to others? And many regulations are harmful in that they prevent better safer innovations.
This defies the corporate charter, in which a corporation is obliged to externalize as many costs onto the government, environment and populace as possible so as to maximize profit. To hold corporations accountable for their evil would be to redefine the very meaning of the term.
not rated yet Oct 17, 2011
Great idea, let's punish the sociopathic monsters while we still have living children.

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