Limitations on Punitive Damages - Assignment Example

Memorandum PAGE 1 A - State the law and business or ethics and business issue, as a question. Explain how this issue relates to both law and business or law and ethics. “Should punitive damages against corporations be limited?” The legal aspect of this issue stems from corporate liability laws and the business aspect from the fact that corporate entities are the target. As regards relevancy to ethics, corporate liability is supposed to function as an ethics compliance mechanism. B - Why is this issue significant to the legal/ethical environment of business? Why is this issue significant to you? The selection of this issue was predicated on its significance to both business and ethics, on the one hand, and its somewhat controversial nature on the other. From the business perspective, the issue is important because the absence of limitations on punitive damages has the potential to wreak economic havoc by driving corporation after corporation out of the marketplace and, in so doing, discouraging business investments. From the ethical perspective, the issue is important both as regards corporations and consumers. As far as corporations are concerned, liability laws are intended to regulate corporate behaviour and ensure responsibility for their products and towards their customers. The threat of punitive damages arguably contributes to greater ethical compliance where corporations are concerned. Where consumers are concerned, however, the ethics of the issue assumes a very different hue. This is because consumers are becoming increasingly litigation minded and, indeed, more and more are seeking to profit by suing corporations and from punitive damage awards. A cap or limitation on the amount of damages which can be rewarded will curtail this tendency and contribute to the re-affirmation of punitive damages as a regulatory mechanism designed to ensure corporate responsibility. Added to the aforementioned, the issue is of particular significance to me since my father and I have corporate business interests in the United States. C - What steps did you follow to research this issue? Be specific as to how you did the research, and include citations of all websites visited. (Note: Search engines are not websites.) Even while recognizing that it is not a credible source which can possibly be included in this study, I commenced the research by accessing the Wikipedia website. The reason for doing so is that the said website provides concise overviews of topics, giving readers a sense of both sides of an argument. Reading through Corporate Liability and Punitive Damages on Wikipedia provided me with a good introduction to the topic and helped me identify possible search terms (Wikipedia, 2008). Following Wikipedia, I logged onto Google and executed a search for “corporate liability punitive damages.” Close to a quarter of a million results were returned. One of these was an article linked to a website titled Palm Beach Bar (http://plambeachbar.org). An exploration of the website proved that it relevant and valuable, as was the case with two other websites located via the same method, Overlawyered (http://www.overlawyered.com) and SSRN (http://papers.ssrn.com). Reliance on internet sources alone, however the reliability of the websites, would have impossible unjustifiable limitations on the range and scope of available information. Accordingly, relevant information was also collected from Ebsco Business Journals. http://www.palmbeachbar.org/members/July%20August01_Ted.pdf, last visited 20 March, 2008 http://www.ebscohost.com, last visited 20 March, 2008 http://www.overlawyered.com/2006/08/ted_on_the_return_of_the_coffe.html http://ssrn.com, last visited 20 March, 2008 http://en.wikipedia.org/wiki/Corporate_liability, last visited 20 March, 2008 http://www.lectlaw.com/files/leg19.htm, last visited 25 March, 2008 D - Which was the most helpful website that you visited, and why? Include citation. The most helpful website was Palm Beach Bar. The website has a published article on corporate liability and punitive damages entitled “Punitive Damages of a Corporation” (Babbitt, 2008). The article is highly informative as it clearly defines the concept, clarifies the conditions for liability and discusses several cases of punitive damages. It effectively provides readers with both a clear understanding of the issue and guides them towards a comprehension of the arguments both for and against punitive damages. It is largely because the article directly addresses the concerns of this memorandum that Palm Beach Bar has been selected as the most useful website. http://www.palmbeachbar.org/members/July%20August01_Ted.pdf, E - Evaluate the web sites you are using for pages two and three. Be specific in your evaluation of these web sites, as to how they contributed to your research. As Wikipedia has been mentioned, it will be included in this evaluation alongside Overlawyered, Palm Beach Bar, SSRN and Ebsco Business Journals. Evaluations will be out of a possible five, with 0 being the weakest score and 5 the highest. Wikipedia: The website earns a 1 in terms of contribution to the memorandum. While it contributed to the researcher’s understanding of the topic, the fact is that it remains a non-credible source of information and, therefore, impossible to rely upon or use. Overlawyered: This website earns a 4. It is a specialized legal database and provides users with free access to full-text articles on a wide variety of legal topics, including punitive damages. A quick read through the articles helped clarify the points for and against limiting punitive damages. Palm Beach Bar: This website earns a 5. The reason lies in that it is very well organized, user-friendly and written in layman terms despite its professionalism. One of the articles located on the website presented the issue and the controversy which surrounds it in very precise and concise terms. This means that it gave readers a clear understanding of the controversy surrounding punitive damages but in a very concise manner. SSRN: This website earns a 4. It provides readers with a wide collection of authoritative and credible legal and business articles, amongst which is one which discusses the controversy surrounding punitive damages. The author of this article, Weissman (2007), argues that were corporations to adhere to higher ethical standards and to force ethics compliance upon their employees, there would not be a punitive damages problem. This study provides the memorandum with a fresh look at the issue and an ethics-based discussion of it. Ebsco Business Journals: This website earns a 3. Even though it has numerous articles on the topic, a couple of which were used in the writing of the report, the fact remains that the website is much less valuable than those cited in the above. It is less valuable in terms of its specific relations to the memorandum’s focus. For example, even though multiple articles were located, many only mentioned the concept of corporate liability rather than discuss it in any detail. PAGE 2 – PRO AND CON ARGUMENTS Arguments for limitation of punitive damages 1. The first argument in favour of the placement of limitations on punitive damages is economics-based. Evans (1999) focuses on the liability of HMOs and warns, through the citation of facts and figures, that were consumers allowed to sue HMO’s for multi-million dollar payouts, the economy will be irrevocably harmed. The cap on damages does not simply function to protect the economy and specific industries therein but, from the ethical perspective, it ensures that consumers do not employ this particular legal mechanism for self-aggrandizement. Indeed, the imperatives of placing limits on punitive damages stem from consumer abuse of the system and the subsequent impact that the said abuse may have on the economy (Evans, 1999). http://www.ebscohost.com 2. The second argument in favour of limitations is related to the preceding one but more concerned with the ethics of the issue. Reporting on the Griffin v Starbucks case, Frank (2006) raises the question of the amount in punitive damages awarded to the plaintiff. While there is no denying the fact that a Starbucks employee split coffee on the plaintiff’s foot, causing second degree burns, a compensation exceeding $300,000 appears excessive. Punitive damages should be limited to the financial losses which may result from the injury and should not include any supposed psychological distress payments. The excessive nature of the payout only encourages consumers to exploit corporations and, in so doing, exert a deleterious impact on the economy (Frank, 2006). Punitive damages should be limited in order to prevent consumers from unethically exploiting the system. http://www.overlawyered.com/2006/08/ted_on_the_return_of_the_coffe.html 3. The third argument in favour of limitations is that stakeholders ultimately carry the cost. As Siegel (2006) points out, payments are usually carried by consumers and by the companies shareholders. In relation to the first, excessive payouts may be compensated for by raising product prices and, in relation to the second, shareholders experience dwindling returns on their investments. The implication here is, and as the legal system is beginning to realize, that the failure to limit punitive damages harms consumers and small individual investors. It harms them even more when considering that there is a direct correlation between increased litigations and excessive payouts (Siegel, 2006). Therefore, in order to protect consumers and small individual investors, it is important to limit damages. http://www.ebscohost.com Arguments against limitation of punitive damages 1. The first argument for not limiting punitive damages is that it forces corporate responsibility. As Babbit (2008) explains, when corporations are placed in the position where they will pay for any harm which comes to consumers from the use of their products or services, they will do what they can to limit the possibilities of harmful outcomes. The threat of substantial and indeterminate financial payouts in the form of punitive damages forces corporation to exercise social responsibility (Babbit, 2008). http://www.palmbeachbar.org/members/July%20August01_Ted.pdf 2. The second argument for not limiting punitive damages is that it functions as an effective mechanism for consumer protection. As Parloff (2004) writes through specific reference to tobacco lawsuits and punitive damages, the payouts may have been excessive but they are justifiable. For decades the tobacco companies knew that their product was addictive and had highly negative consequences to the health but kept that information from the public. Indeed, consumers were encouraged to smoke without being given the full picture. They made their purchase decision while in the dark and without having all the information necessary to make an informed decision. Within this context, huge payouts are justifiable and may serve as a deterrent for similar actions by other corporations (Parloff, 2004). The implication here is that the absence of limitations is an effective deterrent against corporations concealing vital information concerning product use from consumers. http://www.ebscohost.com 3. The third argument against limitations is that the threat of unlimited punitive damages will encourage corporations to enforce employee ethics compliance (Weissman, 2007). In many instances, as in the Starbucks case, corporations are liable for punitive damages because of the action which their employees take. Their on the job behaviour can harm members of the public. A case in point would be a corporate driver driving under the influence and causing a road accident. When corporations find themselves responsible for their employees actions they will enforce much more stringent ethics guidelines and institute strict compliance mechanisms (Weissman, 2007). In other words, the absence of limitations has the potential to positively influence the evolution of more ethically-minded corporations. http://ssrn.com PAGE 3 – My Position As stated in the introductory section to this memorandum, caps should be placed on punitive damages. While the arguments against this are impossible to easily dismiss, the argument for caps are stronger. The placement of limitations may enforce stricter ethics compliance and incite a heightened sense of social responsibility among corporate entities but the aforementioned objectives can still be satisfied within the context of capped punitive damages. More importantly, uncapped punitive damages are ethically controversial and economically harmful. Punitive damages have a positive influence on corporate ethics and social responsibility. Corporations have, countless times in both the past and the present, withheld vital information concerning the harmful effects of products on its users. Tobacco corporations are a case in point (Parloff, 2004). Despite their awareness of the addictive and harmful nature of their product, they failed to disclose this information to the public and the consequence was, while they profited, smokers lost their health and, in many instances, their lives were cut short (Siegel, 2006). Punitive damages ensure that corporations pay a heavy price for their failure to disclose product information. Therefore, punitive damages encourage corporations to adhere to the principles of social responsibility and to abide by ethics guidelines. The placement of limitations on punitive damages does not mean that punitive damages will no longer force ethics compliance and encouraged a heightened sense of corporate social responsibility. This is because the limitations advocated within the context of this argument are limitations which accurately reflect the extent of the damage caused but no more. They will be significant and fair but they will not be excessive and unjust. Within the context of a capped punitive damages’ environment, consumers will not be able to exploit the legal system for their own self-aggrandizement. As Siegel (2006) argues, the size of court-awarded punitive damages have only served to encourage the evolution of a litigation-minded society in which consumers exploit the slightest opportunities to sue corporations to the tune of hundreds of thousands or, possibly, several millions of dollars. The Starbucks case is conclusive evidence for this since the punitive damages awarded far exceed the extent of the injury suffered by the consumer in question. Limitations will, in other words, counter the tendency to unethically exploit the system for the purposes of personal enrichment. As argued in the foregoing, the placement of limitations is an ethical response to the ever-increasing consumer tendency to exploit the system, irrespective of the consequences of doing so to the economy. Limiting punitive damages to compensation for the financial losses incurred from an incident/accident will preserve the function of punitive damages as a mechanism for ethics compliance while negating the tendency to exploit it as an instrument for self-aggrandizement. Limitations are, in other words, the perfect strategy for balancing economic interests against consumer rights. Bibliography Babbitt, T. Punitive damages of a corporation Palm Beach Bar. Palm Beach Bar. Available at: http://www.palmbeachbar.org/members/July%20August01_Ted.pdf Evans, M. (1999) Litigation against HMOs could dent the economy. Industry Week, 248(19) Available at Ebsco Business Journals: http://www.ebscohost.com Frank, T. (2006) Ted on the return of the coffee tort. Overlawyered. Available at http://www.overlawyered.com/2006/08/ted_on_the_return_of_the_coffe.html Parloff, R. (2004) Tobacco’s month of living dangerously. Fortune, 150(11), 137-142. Available at Ebsco Business Journals: http://www.ebscohost.com Siegel, A.M. (2006) The court against the courts: Hostility to litigation as an organising theme in the Rehnquist Court’s jurisprudence. Texas Law Review, 84(5), 1097-1202. Available at Ebsco Business Journals: http://www.ebscohost.com Weissman, A. (2007) Rethinking corporate criminal liability. Indiana Law Journal, 82(2), Available at Social Science Research Network: http://ssrn.com Wikipedia (2008). Corporate liability. Available at Wikipedia: http://en.wikipedia.org/wiki/Corporate_liability Read More