LITIGATING A GERMAN TORT DISASTER IN THE U.S.: The Difference Punitive Damages Make

The recent $3 billion award in a smoker's suit against Philip Morris in Los Angeles has brought forth the usual cries from both sides of the tort reform debate in America.

Consumer groups warmly greeted the decision, since, in their view, only mega-punishment can control Big Business. Business groups, on the other hand, see the verdict as yet more evidence that plaintiffs' lawyers abuse the current rules of discovery and cross-examination to stoke naive juries into a vigilante-like frenzy.

In the midst of this heated debate, it is worth stepping back and taking a hard look at what the fuss is all about. Both sides agree on one thing: at the heart of the matter are punitive damages. They make up the vast bulk of the headline-grabbing decisions and they are what force Big Business to settle cases.

Furthermore, both sides would agree that punitive damages have risen like a rocket in the past twenty years. At one time, the specter of a punitive damage award of $100,000 was considered science fiction. Last July, a Florida jury handed out a punitive damage award of over $160 billion against the tobacco industry.

As with most things in life, it is probably the case that punitive damages are a good thing, when taken in moderation. To see what I mean, it is worth looking at what happens to victims of corporate wrongdoing in countries that do not have punitive damages. Take, for example, Germany.

Like the United States, Germany has a tort system that allows people to sue for negligence, and even strict liability, with respect to consumer products. However, Germany, like the rest of Europe, does not allow victims of accidents–even accidents caused by gross negligence–to sue for punitive damages.

In 1998, an intercity express train crashed near Hanover, in a town called Eschede. It was traveling at approximately 120 mph, and 101 people were killed and 88 injured. The cause of the accident seems to be the wheels of the high-speed train, which were a new design (intended to be more quiet) and were allegedly put into service without adequate testing.

A criminal investigation has revealed credible evidence that there was gross negligence involved in the crash, and four engineers are being charged by the state prosecutor for their role in allowing the defective wheels onto the train. The charges are serious, and if convicted the engineers will probably receive a year's probation (a tough sentence by German standards).

Meanwhile, Deutsche Bahn (DB), the operator of the train, has offered 30,000 Deutschmarks (approx. $15,000) to the estate of each of the deceased, mostly as compensation for pain and suffering during the deceased's moments before death. DB, however, denies wrongdoing.

But many of the victims' families have angrily rejected DB's offer as inadequate. They have organized a group called "Self-Help Eschede" and they have contacted a lawyer who is planning to help them sue DB and Thyssen, the company that made the wheels, in the United States.

If the rail disaster had taken place in the U.S., or if the defendants were U.S. corporations, the idea of suing in the U.S. would, of course, be unexceptional. Moreover, a successful plaintiff could expect to win far more than $15,000 or even $150,000, in damages — at least judging by other U.S. suits against corporations accused of gross negligence in a fatal crash.

In America, pain and suffering damages are higher than in Germany, and in addition to pain and suffering, a case involving gross negligence—with criminal charges—would generate large punitive damages.

But what makes the Eschede case interesting is that the accident did not happen in the U.S.. Nor are the defendants American companies. The train wheels were not designed or manufactured in the U.S.. And almost all the victims are German citizens. Indeed, the only contact between the defendants and the U.S., it seems, is that they do business in the U.S. and therefore have assets there.

One might ask, then: what does this case have to with American tort law? Why should it be heard in an American court, under American law, by an American judge, with an American jury, tried by American lawyers?

A U.S. judge might ask just these questions. Moreover, the doctrine of forum non conveniens empowers defendants to request American courts to dismiss a case if the plaintiff's suit should be handled in another jurisdiction. Thus, a judge who believed this case belonged in Germany, could send it back to Germany.

Nevertheless, the lawyer for the Eschede families thinks he has a precedent in which American courts allowed German companies to be sued by Germans for wrongful acts done in Germany that violated American tort law. That precedent is the Holocaust slave labor case — about which I wrote an earlier column — which was just settled for $6 billion last month.

Granted, the slave labor case was a class action that had some Americans in the class. But the vast majority of the plaintiffs, although not Germans, live in Europe and have no connection with the U.S.. Furthermore, the complaints were based on American law, even though the slavery took place in Europe.

Moreover, while the German defendant corporations in the slave labor case did raise the forum non conveniens objection in their various motions, they were also so worried about the cases that they settled them. Had they been confident of a forum non conveniens dismissal, they presumably would not have settled.

Obviously, the slave labor cases were unique. But they were also regular lawsuits, based in law: if they were just political bluffs, I don't think the lawyers for the defendants would have advised them to settle.

Based on this analysis, it is worth reflecting on why the slave labor suits were brought in the U.S. and not Germany.

I can think of three reasons. First, the organizations interested in pursuing the suits were based in the U.S..

Second, the substantive U.S. law under which the suits were brought—especially the federal Alien Torts Claims Act—is highly advantageous to plaintiffs, especially when compared to the tort law of Germany, which is only moderately pro-plaintiff.

Third, the damage rules that determine how much money a plaintiff receives if she wins her suit are much more generous in the U.S. than in Germany. In this regard, the most important difference between American and German damages is the availability in the U.S. of punitive damages, which made the payout from the slave labor cases potentially huge.

This last point, concerning punitive damages, cannot be overstated in relation to the Eschede rail disaster suit. However, I think it would be a mistake to assume that the reason why punitive damages matter so much to German plaintiffs is just the fact that punitive damages increase the amount of money a successful plaintiff receives.

Punitive damages also give a victim a way to "get back" at the person who wronged them. In America, punitive damages are not available in cases of simple negligence. They are available only if the defendant acted with malice or gross negligence.

Punitive damages are not awarded often, and when they are, it is for acts that go beyond mere human error. They are supposed to be awarded when the defendant not only hurt the plaintiff, but did so in a way that expressed disdain or contempt for the plaintiff. Punitive damages, one might say, are the plaintiff's chance to get revenge—through the court, and through the medium of money.

Seen in this regard, it is easy to see why the families of the victims of DB's apparent gross negligence feel that they deserve a forum in which they can punish the company that killed their loved ones, just as much as the slaves of Nazi Germany felt that they deserved a forum where they could punish the companies who stole their labor and their freedom.

Germany does not have such a forum: it does not have punitive damages and it does not have corporate criminal responsibility. Instead, all that Germany is offering the families of the victims of Eschede is the prospect of four individual criminal prosecutions of low-level employees and $15,000. For the families who want to sue in the US, this is not enough.

According to the leader of "Self Help Eschede," DB's insistence on its own lack of wrongdoing and the state prosecutor's refusal to go after top DB management were, together, the last straw for the plaintiffs: "DB will not concede that they are guilty. . . . I would gladly do without the money, but [a suit for punitive damages] is the only way for us to pursue satisfaction . . . ."

The lawyers for the families will argue that it is precisely the opportunity for satisfaction and not just compensation that makes punitive damages necessary in a case like the Eschede crash. They will also contend that, since the satisfaction the victims crave can only be had in a legal system that permits punitive damages, they should be allowed to bring their lawsuit in American — as long as they can find some minimum contacts between the German defendants and the U.S..

Needless to say, the Eschede case will face many hurdles before it reaches an American jury, if it ever does. But the fact that these German families are desperate to reach an American courtroom allows us to see our tort system through their eyes.

For the Eschede families, as for the slave laborers who fought to bring their cases to the U.S., the chance to argue about punitive damages is about more than just an opportunity to make a lot of money. It is a chance–perhaps their only chance–to achieve a degree of justice.

Sometimes compensation is not what the victims of especially heinous torts really want. Sometimes what they want is satisfaction.

That is something which our system of punitive damages, despite its problems, can deliver, however imperfectly. Even as we criticize particular decisions, we should remember what punitive damages do, and be grateful that we have them.