Monday, February 28, 2011

Monday Outrage [Revised Once]

Punitive damages are a tax write-off. I'm stunned. The idea of punitive damages (P.D.), which are not that easy to get, is to punish a wrong-doer for conduct that is worse than mere negligence. For a more detailed discussion of things like the burden of proof for allowing punitive damages, see here.

The SCOTUS has already placed a cap on P.D. Essentially, the Court said it violates Due Process if the damages are "too high." I find the idea laughable, as P.D. is the jury's way of punishing non-criminal bad conduct. In any case, companies already have a cap to their liability thanks to the Court. Add to that the fact that the P.D. award is tax-deductible, and you have really handicapped the only effective means of discouraging outrageous bad conduct.

Business organizations, of course, love this. It makes being evil more profitable by cutting way down on the risk of actually having to pay for being, well, evil.

Interesting article on the debate over whether P.D. are too high here. Obviously, I'm on the side "no" side. I posted earlier on the case of the woman who was awarded P.D. for the McDonald's coffee being too hot. The Big Lie being sold to people about that case ought to give you pause when you read arguments against P.D. I came across the following propaganda from the Industrial Miners Association of North America. [link].

The Industrial Minerals Association – North America (IMA-NA) opposes a measure in the Obama Administration's 2010 Budget Proposal which aims to eliminate the currently allowed tax deduction for punitive damage payments by individuals and businesses. 
Of course they do. Any attempt to make business less profitable is bad, period. Especially mining, where allowing dangerous conditions to kill employees is just the American way, and no god-damned Socialist Kenyan negro is gonna stop it! Seriously though, take a look at that list. And note that the number and severity of disasters has decreased, on the whole. If you think that was because of the goodness of the hearts of mine owners, and not because of government safety standards and the activities of organized labor, then you are a stupid person. Go now, dummy, and don't come back
The original establishment of this deduction was based on sound legal principles
The sound legal principle of "what harms business is bad."
and a change only will serve to encourage extortionate tactics by personal injury attorneys.
Sayeth the evil trial lawyer: "If you don't pay us a large pile of cash, my client is going to go out and suffer a grievous injury arising from outrageous conduct on your part." Only a sociopath would call demanding a  settlement on behalf of an injured client, under "threat" of actually utilizing the right to the legal process "extortionate tactics." If you didn't do anything wrong, then defend the suit.
For over 20 years, a federal tax deduction has been allowed for damages paid or incurred as ordinary and necessary expenses in managing a business. 
Hm. So, suddenly, 20 years or so ago, the idea of deducting punitive damages became "sound." Am I losing it, or is the idea that punitive damages are considered "ordinary and necessary" fucking crazy?
During this same period of time, tort abuse has escalated dramatically. 
If by "tort abuse" you mean "being held to account for rotten behavior" I agree. However, as used here, I think it means "business actually paying for doing shitty things." 
It is a sad reality, in this the most litigious nation in the world, that paying punitive damages is both ordinary and necessary. 
It is a sad reality, in the wealthiest nation in history, we have the wealthy crying about paying damages for outrageous conduct.  It is also sad that it is ordinary and necessary for business to do things that lead to punitive damage awards. As you now know for the link above, the standard for awarding P.D. is something more than "because we felt like it."
Deductibility of damage awards is one of the few relief mechanisms available to the American business owner who is penalized, appropriately or inappropriately, by the broken American tort system.
You know what else would relieve American business owners from paying P.D.? NOT DOING OUTRAGEOUS THINGS THAT HARM PEOPLE. Oh, and exactly why should a business who is appropriately penalized get the "relief mechanism" of a tax break?
Under the Administration’s plan, not only would damage payments not be deductible, but payments made by insurance companies on behalf of defendants would be taxable as income. 
What?!?!!? You mean in some states you can get INSURANCE to pay for your shitty conduct? That's madness in-of-itself. 
This double blow would increase dramatically the damage done to American businesses, and would add significantly to the number of businesses that simply do not survive an experience with the American tort system.
You mean like the workers who didn't survive their experience with the American business system?
Levying punitive damages should not be treated in the same manner as criminal damages.  This is a well-established and tested truth. 
Because we say it is.
Criminal penalties are precise, whereas punitive penalties are not. 
Wrong. P.D. are, by Supreme Court decree, fixed by ratio to the amount of compensatory damages. Now, when a business is weighing the cost of behaving like a criminal when knowingly or recklessly causing harm, they can calculate the potential P.D. with some degree of confidence. 
Criminal cases must be proved beyond a reasonable doubt, but civil cases are based on a preponderance of evidence. 
In some states. Not in others. 
Criminal penalties are set so that the punishment fits the crime, whereas most states have no limit on the amount of punitive damages that can be awarded. 
But the SCOTUS has limited P.D., so this is misleading.
Finally, criminal offenders are not subject to double jeopardy, whereas civil defendants, in most states, can be sued repeatedly for the same offense.
Also not true. The doctrine of res judicata (loosely - the thing has been adjudicated) bars re-litigation of the same facts by the same parties. Now, if one horrible act injures many people, well, that can result in multiple suits. As it should.
This legal principle which makes a distinction between civil and criminal is appropriate, tested and accepted. 
And if your products/means/methods were also "appropriate, tested and accepted" then you'd have much less to worry about. I assure you, as a lawyer, there are numerous ways the defense can weed out and defeat truly "frivolous" lawsuits. And when P.D. enters into the picture, well, the defenses are even stronger. At least in California. Perhaps other states are even more plaintiff-friendly.
Nothing has changed in the underlying arguments which have established this differentiation.  What has changed is an apparent political will to stimulate and reward a broken tort system which relies on inflicting hardship on American citizens and business owners. 
No, it relies on using the law to secure justice for injured persons. Just because the system is imperfect doesn't mean we should  dramatically reduce the costs of injuring people, or significantly increase the difficulty of actually injured people from getting compensation.
The American Tort Reform Association states that “lawsuits are bad for business…they are also bad for society.  They compromise access to affordable health care, punish consumers by raising the cost of goods and services, chill innovation, and undermine the notion of personal responsibility. 
Of course the ATRA says that, that's what they are there for. Perhaps you want to quote PETA on animal-welfare issues? It as if these effects, if true, are without cause. I'm not going to say the tort system doesn't get abused, I was a tort defense lawyer for fuck's sake. But the idea that what we have is a run-away system where poor, innocent business is victimized by "trial lawyers" is nonsense. And dangerous nonsense, because the real losers in "tort reform" are the ACTUAL victims, that is, the people who are injured and killed by reckless business practice.
The personal injury lawyers who benefit from the status quo use their fees to perpetuate the cycle of lawsuit abuse.”
And business uses their profits to spread propaganda, weaken protections for customers and other victims of their greed and vile conduct, and smear victims and the lawyers who help them to secure their rights in court. The fact that lawyers get compensated for this is not, in fact, a crime.
These same personal injury lawyers will be the real beneficiaries under this proposal.  They will use this new tax to pressure defendants into settlement because penalties paid under settlement will remain deductible. 
If the facts are against you, Mr. Business, you'll do the smart thing and settle. Look, P.D. are not normal, they aren't typically awarded absent a higher burden of proof, and they are awarded by jurors whose job it is to hear the facts. I'd also argue that the "real" beneficiaries of this will be the victims and the people in general.  Perhaps if poisoning people or allowing unsafe conditions that you know, kill them, becomes an actual significant expense that you can't write off of your taxes, maybe just maybe, this will incentivize (sic) business to STOP HURTING AND KILLING PEOPLE.
Defendants thus will be encouraged to waive their right to legal process. 
This is so stupid I can't even respond further. 
This is both illogical and counterproductive to the American system of justice.  Incentives to rightfully defend actions (which are sometimes wrong or unfair) should not be removed. 
Nor should incentives to STOP HURTING AND KILLING PEOPLE.

IMA-NA is a trade association created to advance the interests of North American companies that extract or process minerals used throughout the manufacturing and agricultural industries.  IMA-NA stands ready to participate constructively in this important discussion involving the deductibility of punitive damages.
In other words, IMA-NA will continue to fund efforts to protect business from the consequences of their actions, publish dishonest crap like this, and call it promotion of "personal responsibility."


  1. Well said.

    on a side note you mentioned the McDonald's lady and I remember hearing about the types of burns she suffered it was not oh I burned my legs because the temperature was heated by the microwave beyond boiling so rapidly that it couldn't cool it caused 3rd degree burns or now they say full thickness burns and nerve damage where a girl doesn't want nerve damage. It is that fact alone that she got punitive damages. Had it been made traditionally she would have lost her case hands down one because coffee is expected to be hot and two she was driving recklessly.

    That's a part of the case people didn't realize.

  2. Defiant,
    Please see the link to the McDonald's story in this post, or find it on my blog "One Cup Of Coffee" is the post. The coffee is hotter than normal (normal being what you find on your home coffee-maker) due to company policy, and she wasn't even driving, so that can't be correct about her driving recklessly. Also, the award of P.D. had more than a little to do with McDonald's trial tactics.