NCPA - National Center for Policy Analysis


June 2, 2004

California Gov. Arnold Schwarzenegger's new budget will try to raise nearly $500 million by taking 75 percent of the punitive damages that California juries award to plaintiffs in injury cases. Eight other states already have similar "split-recovery" laws, which give part of punitive awards to state funds or specific programs.

Gov. Schwarzenegger's proposal will also limit lawyer fees in injury cases and protect defendants from multiple trials for similar conduct.

Punitive damages, unlike compensatory damages, punish defendants who engage in "egregious wrongdoing." While the revenues from punitive awards would be a windfall for California's budget, some legal experts are critical of such plans:

  • The Colorado Supreme Court struck down one split-recovery law as an unconstitutional taking of private property.
  • Allowing a single punitive award against a defendant for multiple instances of bad conduct "would all but incentivize misconduct by major corporations," says James C. Sturdevant, president of Consumer Attorneys of America.
  • If a juror knows that an award will be used to alleviate a tax burden, he may be more likely to approve a larger than normal sum, according to Victor Schwartz of the American Tort Reform Association.

Supporters of the proposed legislation claim that punitive damages should compensate those who were unconnected to a particular lawsuit but were still harmed by the defendant.

A review by California's Legislative Analyst's Office said that collecting $200 million from punitive awards was a more realistic estimate than the $500 million that Schwarzenegger expects.

Source: Adam Liptak, "Schwarzenegger Sees Money for State in Punitive Damages," New York Times, May 30, 2004.


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