New Jersey Supreme Court Rejects Punitive Damages as a General Deterrent

  • April 8, 2008

A unanimous New Jersey Supreme Court has held that an award of punitive damages against an employer under the New Jersey Law Against Discrimination (“LAD”) should not be increased to enhance the general deterrence effect on other employers. The Court also held that in determining the amount of punitive damages, a jury may consider both the employer’s financial condition at the time of the wrongdoing as well as its financial worth at the time of judgment. Tarr v. Bob Ciasulli’s Mack Auto Mall, Inc., No. A-19-07 (N.J. Mar. 27, 2008).

The trial court had concluded the jury may consider “general deterrence” in calculating the amount of punitive damages in order to send a message to deter not only Mack Auto Mall but also other employers from violating the LAD. Accordingly, the jury awarded the plaintiff $85,000 in punitive damages, on top of $25,000 in compensatory damages and over $165,000 in legal fees, for her hostile work environment claim under LAD. The Appellate Division reversed the punitive damages award and held that, in fixing the amount of a punitive damages award, a jury may consider only the award’s deterrent effect on the specific defendant or defendants in the litigation. Tarr v. Ciasulli’s Mack Auto Mall, Inc., 390 N.J. Super. 557 (App. Div. 2007).

The Supreme Court affirmed the Appellate Division’s decision and remanded the case for another trial on damages. Echoing the Appellate Division, the Court held that in enacting the Punitive Damages Act (N.J.S.A. 2A:15-5.9 to -5.17), which governs punitive damages in LAD and other cases, the New Jersey legislature intended punitive awards to focus only on deterrence of the specific defendant as opposed to general deterrence “of others.” The Court emphasized that general deterrence is already inherent in the nature of punitive damages, and punitive damages cannot be enhanced against a specific defendant to further that effect.

The Court also clarified that in calculating punitive damages, a jury is not limited to looking at either the employer’s financial condition at the time of judgment or at the time of the wrongful conduct. The Court observed that the Punitive Damages Act directs a jury to consider, among other things, the financial condition of the employer and the profitability of the misconduct to the employer. The Court also noted a punitive damages award should not exceed an employer’s ability to pay. This, the Court concluded, necessitates consideration of the employer’s financial condition both after and at the time of the wrongful conduct, which in turn necessitates a “nuanced factual examination” by the jury of the employer’s finances. This examination can include consideration of the employer’s finances both at the time of judgment and at the time of the wrongful conduct. The Court determined that this fulfills the dual purposes of punitive damages—deterrence and punishment—while ensuring the award is reasonable.

The New Jersey Supreme Court’s 2004 decision in this case held that a plaintiff in employment discrimination cases can recover all “natural consequences of [the employer’s] wrongful conduct,” including emotional distress and mental anguish damages arising out of embarrassment, humiliation, and other intangible injuries, based only on the plaintiff’s own testimony. Tarr v. Bob Ciasulli’s Mack Auto Mall, Inc., 181 N.J. 70 (2004). The decision was significant because the Court held that evidence such as expert testimony about emotional distress is not necessary to support an award of emotional distress damages under the LAD (the way it may be required in tort litigation). This most recent ruling does not disturb the 2004 holding concerning the standard of proof for emotional distress damages.

The lesson for employers is that the growth of punitive damages awards in New Jersey may be somewhat restrained. Further, an employer may have greater opportunities to point out evidence of a weakened financial condition or other inability to pay a large punitive damages award (although, conversely, a plaintiff may be able to point to evidence of an employer’s ability to pay). However, it remains relatively easy for a plaintiff in New Jersey to show emotional distress damages.

Jackson Lewis attorneys are available to counsel and assist employers in minimizing their exposure to punitive damages and other liability under the LAD and other workplace laws.

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