Case Information
*1 Before P OSNER , K ANNE , and E VANS , Circuit Judges . P OSNER Circuit Judge
. The plaintiffs brought this diversity
suit governed by Illinois law against affiliated entities
(which the parties treat as a single entity, as shall we) that
own and operate the “Motel 6” chain of hotels and motels.
One of these hotels (now a “Red Roof Inn,” though still
owned by the defendant) is in downtown Chicago. The
plaintiffs, a brother and sister, were guests there аnd were
bitten by bedbugs, which are making a comeback in the U.S.
*2
as a consequence of more conservative use of pesticides.
Kirsten Scharnberg, “You’ll Be Itching to Read This: Bed-
bugs Are Making a Comeback: Blame World Travelers and
a Ban on Certain Pesticides,”
Chi. Tribune
, Sept. 28, 2003,
p. 1; Mary Otto, “Bloodthirsty Pests Make Comeback: Bug
Infestаtions Raising Welts, Ire,”
Wash. Post
, Sept. 2, 2003,
p. B2. The plaintiffs claim that in allowing guests to be
attacked by bedbugs in a motel that charges upwards of
$100 a day for a room and would not like to be mistaken for
a flophouse, the defendant was guilty of “willful and
wanton conduct” and thus under Illinois law is liable for
punitive as well as compensatory damagеs.
Cirrincione v.
Johnson
,
Further incidents of guests being bitten by insects and de-
manding and receiving refunds led the manager to recom-
mend to her superior in the company that the motel be
closed while every room was sprayed, but this was refused.
This superior, a district manager, was a management-level
employee of the defendant, and his knowledge of the risk
and failure to take effective steps either to eliminate it or to
warn the motel’s guests are imputed to his employer for
purposes of determining whether the employer should be
liable for punitive dаmages.
Mattyasovszky v. West Towns
Bus Co.
,
The infestation continued and began to reach farcical pro- portions, as when a guest, after complaining of having been bitten repeatedly by insects while asleep in his room in the hotel was moved to another room only to discover insects there; and within 18 minutes of being moved to a third room he discovered insects in that room as well and had to be moved still again. (Odd that at that point he didn’t flee the motel.) By July, the motel’s management was acknowl- edging to EcoLab that there was a “major problem with bed bugs” and that all that was being done about it was “chasing them from room to room.” Desk clerks were instructed to call the “bedbugs” “ticks,” apparently on the theory that customers would be less alarmed, thоugh in fact ticks are more dangerous than bedbugs because they spread Lyme Disease and Rocky Mountain Spotted Fever. Rooms that the motel had placed on “Do not rent, bugs in room” status nevertheless were rented.
It was in November that the plaintiffs checked into the motel. They were given Room 504, even though thе motel had classified the room as “DO NOT RENT UNTIL TREATED,” and it had not been treated. Indeed, that night 190 of the hotel’s 191 rooms were occupied, even though a number of them had been placed on the same don’t-rent status as Room 504. One of the defendant’s motions in limine that the judge denied was to exclude evidence con- cerning all other rooms—a good example of the frivolous character of the motions and of the defendant’s pertinacious defense of them on appeal.
Although bedbug bites are not as serious as the bites of
some other insects, they are painful and unsightly. Motel 6
could not have rented any rooms at the рrices it charged
had it informed guests that the risk of being bitten by bed-
bugs was appreciable. Its failure either to warn guests or to
take effective measures to eliminate the bedbugs amounted
to fraud and probably to battery as well (compare
Campbell
v. A.C. Equipment Services Corp.
, 610 N.E.2d 745, 748-
49 (Ill. App. 1993); see
Restatement (Second) of Torts
,
§ 18, comment c and e), as in the famous case of
Garratt v.
Dailey
,
But in what amount? In arguing thаt $20,000 was the
maximum amount of punitive damages that a jury could
constitutionally have awarded each plaintiff, the defendant
points to the U.S. Supreme Court’s recent statement that
“few awards [of punitive damages] exceeding a single-digit
ratio between punitive and compensatory damages, to a
significant degrеe, will satisfy due process.”
State Farm
Mutual Automobile Ins. Co. v. Campbell
,
The Supreme Court did not, however, lay down a 4-to-1 or single-digit-ratio rule—it said merely that “there is a presumption against an award that has a 145-to-1 ratio,” State Farm Mutual Automobile Ins. Co. v. Campbell , 123 S. Ct. at 1524—and it would be unreasonable to do so. We must consider why punitive damages arе awarded and why the Court has decided that due process requires that such awards be limited. The second question is easier to answer than the first. The term “punitive damages” implies punish- ment, and a standard principle of penal theory is that “the punishment should fit the crime” in the sense of being proportional to the wrongfulness of the defendant’s action, though the principle is modified when the probability of detection is very low (a familiar example is the heavy fines for littering) or the crime is potentially lucrative (as in the case of trafficking in illegal drugs). Hence, with these quali- fications, which in fact will figure in our analysis of this case, punitive damаges should be proportional to the wrongfulness of the defendant’s actions.
Another penal precept is that a defendant should have reasonable notice of the sanction for unlawful acts, so that he can make a rational determination of how to act; and so there have to be reasonably clear standards for determining the amount of punitive damages for particular wrongs.
And a third precept, the core of the Aristotelian notion of corrective justice, and more broadly of the principle of the rule of law, is that sanctions should be based on the wrong done rather than on the status of the defendant; a person is punished for what he does, not for who he is, even if the who is a huge corporation.
What follows from these principles, however, is that puni-
tive damages should be admeasured by standards or rules
*7
rather than in a completely ad hoc manner, and this does
not tell us what the maximum ratio of punitive to compen-
satory damages should be in a particular case. To determine
that, we have to consider why punitive damages are
awarded in the first place. See
Kemezy v. Peters
,
England’s common law courts first confirmed their authority to award punitive damages in the eighteenth cen- tury, see Dorsey D. Ellis, Jr., “Fairness and Efficiеncy in the Law of Punitive Damages,” 56 S. Cal. L. Rev. 1, 12-20 (1982), at a time when the institutional structure of criminal law enforcement was primitive and it made sense to leave cer- tain minor crimes to be dealt with by the civil law. And still today one function of punitive-damages awards is to relieve the pressures on an overloaded system of criminal justice by providing a civil alternative to criminal prosecution of mi- nor crimes. An example is deliberately spitting in a person’s face, a criminal assault but because minor readily deterrable by the levying of what amounts to a civil fine through a suit for damages for the tort of battery. Compensatory damages would not do thе trick in such a case, and this for three reasons: because they are difficult to determine in the case of acts that inflict largely dignatory harms; because in the spitting case they would be too slight to give the victim an incentive to sue, and he might decide instead to respond with violence—and an age-old purpose of the law of torts is to provide a substitute for violent retaliation against wrong- ful injury—and because to limit the plaintiff to com- pensatory damages would enable the defendant to commit the offensive act with impunity provided that he was willing to pay, and again there would be a danger that his act would incite a breach of the peace by his victim.
When punitive damages are sought for billion-dollar oil spills and other huge economic injuries, the considerations *8 that we have just canvassed fade. As the Court emphasized in Campbell , the fact that the plaintiffs in that case had been awarded very substantial compensatory damages—$1 mil- lion for a dispute over insurance coverage—greatly reduced the need for giving them a huge award of punitive damages ($145 million) as well in order to provide an effective remedy. Our case is closer to the spitting case. The defen- dant’s behavior was outrageous but the compensable harm done was slight and at the same time difficult to quantify because a large element of it was emotional. And the de- fendant may well have profited from its misconduct because by concealing the infestation it was able to keep renting rooms. Refunds were frequent but may have cost less than the cost of closing the hotel for a thorough fumigation. The hotel’s attempt to pass off the bedbugs as ticks, which some guests might ignorantly have thought less unhealthful, may have postponed the instituting of litigation to rectify the hotel’s misconduct. The award of punitive damages in this case thus serves the additional purpose of limiting the defendant’s ability to profit from its fraud by esсaping detection and (private) prosecution. If a tortfeasor is “caught” only half the time he commits torts, then when he is caught he should be punished twice as heavily in order to make up for the times he gets away.
Finally, if the total stakes in the case were capped at
$50,000 (2 x [$5,000 + $20,000]), the plaintiffs might well
have had difficulty finanсing this lawsuit. It is here that the
defendant’s aggregate net worth of $1.6 billion becomes
relevant. A defendant’s wealth is not a sufficient basis for
awarding punitive damages.
State Farm Mutual Automobile
Ins. Co. v. Campbell supra
,
In other words, thе defendant is investing in developing a reputation intended to deter plaintiffs. It is difficult otherwise to explain the great stubborness with which it has defended this case, making a host of frivolous evidentiary arguments despite the very modest stakes even when the punitive damages awarded by the jury are included.
As a detail (the parties hаving made nothing of the point), we note that “net worth” is not the correct measure of a corporation’s resources. It is an accounting artifact that re- flects the allocation of ownership between equity and debt claimants. A firm financed largely by equity investors has a large “net worth” (= the value of the equity сlaims), while the identical firm financed largely by debt may have only a small net worth because accountants treat debt as a liability.
All things considered, we cannot say that the award of
punitive damages was excessive, albeit the precise number
chosen by the jury was arbitrary. It is probably not a
coincidence that $5,000 + $186,000 = $191,000/191 = $1,000:
i.e., $1,000 per room in the hotel. But as there are no puni-
tive-damages guidelines, corresponding to the federal and
state sentencing guidelines, it is inevitable that the specific
amount of punitive damages awarded whether by a judge
or by a jury will be arbitrary. (Which is perhaps why the
plaintiffs’ lawyer did not suggest a number to the jury.) The
judiсial function is to police a range, not a point. See
BMW
of North America, Inc. v. Gore
,
But it would have been helpful had the parties presented
evidence concerning the regulatory or criminal penalties
to which the defendant exposed itself by deliberately ex-
posing its customers to a substantial risk of being bitten by
bedbugs. That is an inquiry recommended by the Supreme
Court. See
State Farm Mutual Automobile Ins. Co. v. Campbell
,
supra
,
“A person who causes bodily harm to or endangers the
bodily safety of an individual by any means, commits
reckless conduct if he performs recklessly the acts which
cause the harm or endanger safety, whether they otherwise
are lawful or unlаwful.” 720 ILCS 5/12-5(a). This is a
misdemeanor, punishable by up to a year’s imprisonment
or a fine of $2,500, or both. 720 ILCS 5/12-5(b); 730 ILCS
5/5-8-3(a)(1), 5/5-9-1(a)(2). (For the application of the
reckless-conduct criminal statute to corporate officials, see
Illinois v. Chicago Magnet Wire Corp.
,
A FFIRMED . A true Copy:
Teste:
_____________________________ Clerk of the United States Court of Appeals for the Seventh Circuit USCA-02-C-0072—10-21-03