How to Punish Corporate Wrongdoers to Deter Bad Behavior

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ScienceDaily (Oct. 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.

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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 bad behavior.

"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."

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