More on Large Civil Fines for Minor Violations:
By VIKRAM DAVID AMAR AND DAVID REIS
|Friday, Jun. 25, 2004|
This column is Part Two of a two-part series by Professor Amar and guest columnist David Reis on the constitutionality of large civil fines imposed under administrative statutes. - Ed.
In Part One of this two-part series, we began to explore the question: in light of the limitations the U.S. Supreme Court has imposed on jury punitive damage awards given to private plaintiffs in the past decade under the Due Process Clause, are there constitutional constraints on the imposition of civil fines, where some or all of the proceeds go to government coffers?
We used as a vehicle to explore that question a new California Labor Code statute. It allows for penalties of $100 per employee, per pay period (e.g., two weeks) during which a Code violation persists. As a result, even technical, unintentional violations could give rise to a fine of millions of dollars, if the company had a fairly large number of employees. That result seems grossly disproportionate to the actual harm caused by the violation, and therefore potentially unconstitutional, we argued, under the substantive due process principles embodied in recent Supreme Court punitive damage cases.
In this column we want to move beyond federal due process to consider two other possible sources of limitation: the Eighth Amendment's Excessive Fines Clause, and state constitutional provisions. We explore these additional sources for a few reasons. First, substantive due process principles of the kind we wrote about in Part One remain controversial, especially among the Supreme Court's conservative Justices, so the presence of another, less controversial, constitutional principle embodied in constitutional text may be helpful to the litigation.
Second, as recent events continue to remind us, state constitutions can often provide more protection to individuals from government overreaching than does the federal Constitution. Just as state constitutions may protect gay marriage rights more generously than does the Fourteenth Amendment, so too private property protections from state fines may be more generous at the state constitutional level. And state supreme courts have the last word on the meaning of state constitutions.
The Eighth Amendment Excessive Fines Clause - What it Says, and When it Applies
Let's begin with the Excessive Fines Clause argument. The Eighth Amendment to the U.S. Constitution provides that: "Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted." (Emphasis added.)
Remarkably, the Supreme Court did not interpret the Excessive Fines Clause until 1989, in Browning-Ferris Industries, Inc. v. Kelco Disposal, Inc. There, it held that the Clause applies only to fines payable to the government, not to punitive damages between purely private civil litigants. That is, the Clause does not apply "when the government neither has prosecuted the action nor has any right to receive a share of the damages awarded." (This ruling led punitive damage opponents to focus more on the Due Process clause, in a series of cases culminating in State Farm.)
California's new Labor Code provision, discussed above, may implicate the Eighth Amendment even under the limiting Browning-Ferris holding, because some portion (75%) of the fines it imposes is, indeed, payable to the state. But it is still a somewhat open question as to whether the entirety of a fine must be payable into public coffers before the Eighth Amendment is implicated.
Must the Whole Fine Go to the Government to Trigger the Excessive Fines Clause?
How might courts decide this issue? Cases decided in a related context might provide some insight.
A number of states have modified their punitive damage schemes so that the state takes a portion of the punitive damage award received by any plaintiff. (Governor Arnold Schwarzenegger got a lot of publicity this spring for proposing that California do the same thing.) In states where the government takes some of a plaintiff's punitive damage award - so-called "split recovery" states -- defendants have raised the question whether the state's share in the recovery triggers the Eighth Amendment. Lower court decisions are somewhat divided in their responses.
Some courts have focused on the destination of the state's portion of the punitive damages award, holding that where the money goes directly to a state's general fund, the state's interest in the punitive damage award is substantial enough to subject the case to the Excessive Fines Clause. In analyzing other state statutes, a few courts have held that where the state's portion of the award goes to funds administered by the courts for specific (and often remedial) purposes, such as a fund to compensate tort victims, then the state does not have a substantial enough interest in the punitive damage award to invoke the Excessive Fines Clause.
Other courts analyzing these issues have focused not on the destination of the state's portion of the damage award, but rather, the government's involvement in obtaining the award. Some of these courts have held that the Excessive Fines Clause is not implicated where the suit is brought by private plaintiffs (rather than the government) and where the judgment is imposed by a jury (rather than a government agency).
With respect to civil fines - as distinguished from split-recovery punitive damage schemes -- we submit that if at least a significant percentage of a fine is used to generate revenues for the state's general fund, and the plaintiff is acting as a "private attorney general," then there is a strong basis for arguing - even after Browning-Ferris - that the Excessive Fines Clause applies.
Substantive Limits Imposed by the Excessive Fines Clause
But to say that the Clause applies and that it is violated are, of course, two very different things. As one commentator has put the point, the substantive content of the Excessive Fines Clause is evolving: "The doctrine is in flux and generalization is difficult." Nonetheless, over the past decade and a half, we do have a few cases that establish some guiding principles.
First, and importantly, in Austin v. United States, the Supreme Court in 1993 held that the Clause applies to both civil and criminal fines. Therefore, there is no need for a challenger to establish that a fine is "criminal" in order to avail himself of the Clause's protection. But a challenger does need to establish that an ordered payment is itself a "fine." The Court in Austin said that a payment is a fine - implicating the Eighth Amendment - only if it is punitive at least in part; payments that are entirely compensatory and remedial do not constitute fines, and therefore fall outside the Amendment's scope.
As we argued in Part One, payments like those authorized by California's new statute most likely should be characterized as at least partially punitive, because the amount of monies at stake bear little correlation to actual or potential harm suffered by plaintiffs on account of a defendant's violations, and also do not seem to be very related to the expenses incurred in enforcing the substantive prohibitions.
Once a payment is considered a fine, the key question becomes whether it is "excessive." The Supreme Court has, understandably, defined "excessive" in terms of proportionality - is the fine overly large when compared to the conduct giving rise to the fine?
In most of the cases before the Supreme Court so far, this proportionality question has been the key one, and often the Supreme Court has simply remanded that question to the lower courts. Many of the decisions have involved forfeiture of physical assets used during the commission of a wrong - for example, the government's attempt to require forfeiture of a house used to sell drugs, or a car used for prostitution. In such cases, it is hard to know whether a particular sanction is "excessive," because the wrongful conduct does cause harm, but harm that is often hard to measure.
That same problem may arise in some of the applications of a law like California's Labor Code. But in other instances it is hard to deny disproportion. For example, if the Code requires a technical notice to be posted, and the fine for failing to post it runs to the millions - as in the hypothetical we explained in Part One - there's an obvious disproportionality.
We note in this regard that in one recent case - which involved cash rather than real or personal property -- the Supreme Court did find disproportion and excess under the Eighth Amendment. In 1988, in United States v. Bajakajian, the Supreme Court invalidated a civil fine that was deemed to be grossly disproportionate to the gravity of the offense it was designed to punish. In that case, an individual leaving the country took with him his life savings of $357,000 in cash. Federal law required anyone carrying more than $10,000 in cash out of the country to report it to the government (it was lawful to carry the cash out of the country if lawfully reported). The government sought to have the defendant forfeit the entire $357,000.
The Supreme Court ruled against the government, holding that to require forfeiture of the entire amount would be grossly disproportionate to the reporting offense. Writing for the Court, Justice Thomas stated that the "amount of the forfeiture must bear some relationship to the gravity of the offense that it is designed to punish."
What the Eighth Amendment Adds to a Due Process Inquiry
Given that the Eighth Amendment's proportionality idea is embodied in the due process principles we talked about in Part One - indeed, State Farm's requirement that the ratio between the punitive damage award and the actual or possible harm suffered by the plaintiff be considered is an expression of the proportionality idea - one might ask, what does a defendant gain by adding an Eighth Amendment argument? Just this: the backing of people who focus on the Constitution's text and who are troubled by the atextual character of substantive due process analysis.
In this regard, it bears noting that some of the Supreme Court's more conservative Justices - whom one would expect to be no fans of large punitive damage awards - have dissented from the due process cases like State Farm which try to rein in oversized awards, precisely because they disagree with the very idea of ambitious substantive due process doctrine. Justice Scalia, for example, who has been very critical of substantive due process as it applies in the so-called "privacy" line of cases (involving contraception and abortion and homosexual conduct) has also felt the need to be critical of substantive due process in the punitive damage realm.
In short, the doctrine of substantive due process is itself controversial enough that another constitutional basis - like the Eighth Amendment - would always be a welcome addition for a defendant to include if possible.
Another Possible Source of Limits - State Constitutions
Having assessed the Excessive Fines Clause argument as promising, let's also consider possible state constitutional arguments that could be used to attack disproportionate civil fines. California's Constitution provides one potential example.
Almost 20 years ago, in Hale v. Morgan, the California Supreme Court relied on both federal and state constitutional due process analysis to strike unfairly oppressive civil fines. And, as noted above, even if the state court turns out to be wrong on the federal constitutional analysis, its state constitutional analysis will still stand.
In Hale v. Morgan, the California court considered the constitutionality of a civil fine under a statute that prohibited landlords from depriving tenants of utilities in an attempt to evict them. The statute imposed a mandatory fine of $100 per day for each day the tenant was deprived of utilities. Although the tenant's annual rent was less than $800, the fine imposed totaled $17,300 (representing 173 days' of deprivation).
The Court found the penalty unconstitutional because the duration of the penalties was potentially unlimited, no discretion was permitted the trier of fact (regardless of the degree of culpability), the penalty was more severe than those imposed for more serious transgressions by landlords against tenants, and the statute permitted the "occasional experienced and designing tenant to ambush an unknowing landlord converting the single wrongful act of the latter into a veritable financial bonanza."
The California Constitution Would Support a Challenge to the New Code Provision
All of these factors seem equally applicable to any constitutional challenge to California's new Labor Code private attorney general provisions and laws like it. So Hale may provide a strong precedent for the California courts to strike down - or place proportionality limits on -- the new Labor Code provision even if the federal courts choose to do nothing.
Interestingly, California's new Labor Code Private Attorneys General Act is only one of a number of similar statutes currently proliferating nationwide. In light of that fact - and of the clear parallel with U.S. Supreme Court punitive damages precedents -- it seems to us that it's only a matter of time before this issue lands squarely before the nation's highest courts.