Mathias v. Accor Economy Lodging
Citation and Court
347 F.3d 672 (7th Cir. 2003), United States Court of Appeals for the Seventh Circuit (Judge Richard Posner)
Facts
The plaintiffs were guests at a Motel 6 in Chicago and were bitten by bedbugs during their stay. Evidence showed that the motel management was aware of a serious bedbug infestation but had concealed it from guests and continued renting the affected rooms to avoid the cost of extermination. The jury awarded 186,000 in punitive damages to each plaintiff (a ratio of approximately 37:1).
Issue
Whether the punitive damages award, though high in ratio to compensatory damages, was constitutionally permissible given the defendant’s conduct.
Holding
Judge Posner upheld the punitive damages award, finding it reasonable in light of the defendant’s deliberate concealment of a known health hazard to maximize profits.
Rule / Doctrine
Punitive damages serve to deter deliberate wrongdoing where the expected gain to the defendant from misconduct exceeds the expected punishment. When a defendant’s profit motive drives concealment of hazards from victims who have low individual damages (making individual suits uneconomical), a higher punitive-to-compensatory ratio is justified to achieve adequate deterrence. The ratio is not per se unconstitutional simply because it appears high in absolute terms.
Significance
Mathias is Judge Posner’s famous economic analysis of punitive damages, providing a deterrence-based justification for high punitive awards when compensatory damages are small relative to the defendant’s gain. It is frequently paired with BMW of North America, Inc. v. Gore and State Farm Mutual Automobile Insurance Co. v. Campbell to explore the constitutional and policy dimensions of punitive damages.