## Facts

- Dr. Ira Gore, Jr. bought a new BMW in Alabama for about \$40,750.
- A detailer later found evidence the car had been repainted; the repainting resulted from acid-rain damage repaired for \$601.37 (about 1.5% of suggested retail price).
- BMW had a nationwide policy to sell repaired cars as “new” without disclosure when repair costs did not exceed 3% of suggested retail price.
- Gore sued BMW under Alabama law for fraudulent suppression based on the nondisclosure of repainting.
- Gore presented evidence that a refinished car was worth about 10% less than an undamaged car and that BMW had sold 983 refinished cars as new nationwide (14 in Alabama) without disclosure.
- A jury awarded Gore \$4,000 in compensatory damages and \$4 million in punitive damages; the trial court upheld the award.
- The Alabama Supreme Court reduced punitive damages to \$2 million after concluding the jury improperly relied on BMW’s nationwide conduct beyond Alabama.
- The U.S. Supreme Court reviewed whether the \$2 million punitive award was constitutionally excessive under the Fourteenth Amendment.

## Issues

1. Whether a \$2 million punitive damages award, in relation to \$4,000 compensatory damages, was “grossly excessive” and thus violated the Due Process Clause of the Fourteenth Amendment.
2. What constitutional standards govern judicial review of punitive damages awards for excessiveness, including limits on using out-of-state conduct to justify punishment.

## Decision

- The Court held that the \$2 million punitive damages award was grossly excessive and violated the Due Process Clause.
- The Court reversed the judgment and remanded for further proceedings consistent with its opinion.
- The Court articulated three constitutional “guideposts” for reviewing punitive damages: reprehensibility, ratio to actual or potential harm, and comparison to authorized sanctions for similar misconduct.
- The Court concluded Alabama could not justify a large punitive award by relying on BMW’s conduct affecting consumers outside Alabama.

## Legal Principles

- The Due Process Clause prohibits punitive damages that are grossly excessive or arbitrary in relation to a state’s legitimate interests in punishment and deterrence.
- A state’s punitive award must be supported by the state’s interest in protecting its own consumers and economy, and may not punish a defendant for lawful or separately regulated conduct in other jurisdictions.
- Constitutional review of punitive damages is guided by:
  - The degree of reprehensibility of the defendant’s conduct (the primary indicator of reasonableness).
  - The ratio between punitive damages and actual or potential harm to the plaintiff (no single formula controls, but large disparities require close judicial scrutiny).
  - The disparity between the punitive award and civil or criminal penalties authorized for comparable misconduct (relevant to fair notice of severity).

- Fair notice requires that a defendant have notice both of what conduct is punishable and of the magnitude of penalties that may be imposed for that conduct.

## Conclusion

The Court held that Alabama’s \$2 million punitive damages award, imposed for a relatively small, purely economic injury and unsupported by comparable statutory penalties or a strong showing of reprehensibility, was grossly disproportionate and therefore unconstitutional under the Fourteenth Amendment’s Due Process Clause.


BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996)