BMW of North America v. Gore
517 U.S. 559 (1996)

  • Gore bought a new car from BMW. A few months later, he learned that the car had been repainted.
    • BMW later admitted that when cars got damaged during manufacture, they sometimes fixed the damage and repainted the car.
      • BMW estimated that the damage to the car had been about $600.
      • BMW did not disclose the fact that the car had been damaged to the dealer or Gore.
  • Gore sued, claiming that BMW had suppressed a material fact during the sale of the car.
    • He asked for $4M in compensatory and punitive damages!
      • Gore figured that BMW had sold 1000 repainted cars, and a damaged, repainted BMW was worth $4k less than a fresh one.
  • The Trial Court awarded Gore $4M in damages. BMW appealed.
  • The Alabama Supreme Court affirmed, but lowered the award to $2M. BMW appealed.
    • The Alabama Supreme Court found that BMW’s conduct was “reprehensible” and that $4M was not a substantial amount compared to the company’s overall profits.
  • The US Supreme Court reversed and found the damages to be excessive.
    • The US Supreme Court found that the excessively high punitive damages in this case violated the Due Process Clause of the 14th Amendment.
      • The Court found that in order to be a valid exercise of a State’s police powers, damages must be reasonably necessary to vindicate the StateÕs legitimate interest in punishment and deterrence.
    • The Court suggested a three-part test in determining whether a damage award violated due process:
      • The degree of reprehensibility of the defendantÕs conduct.
      • The ratio or harm to the compensatory damages awarded.
      • A comparison of the punitive damages award to civil or criminal penalties that could be imposed for comparable misconduct.
  • Since BMW is a multi-national corporation, the costs of the judgment would have been borne by people not likely to be Alabama residents, while the benefits would be given to Alabama residents. Is it fair for Alabama to do that?