The Kentucky Court of Appeals upheld but reduced a punitive award to a McDonald’s manager who was duped into a prank forcing a young worker into a strip search. The punitive award against McDonald’s was reduced from $1 million to $400,000. However, the court let stand the $5 million award of punitive damages for 18-year-old worker who was the subject of the search.

McDonald’s liability was due to the fact that it knew of the prank, which had been carried out roughly 30 times previously, but failed to warn and train its employees. The appellate panel found that the company’s actions were “reprehensible” and consistently “placed a higher value on corporate reputation than on the safety of its own employees.”

This is a fascinating case so I am going to quote more extensively from the opinion than usual. Here is the background:

Between 1994 and 2004, an unknown individual placed a series of hoax telephone calls to McDonald’s and other fast food restaurants, pretending to be a police officer. During that time, he convinced restaurant managers, employees, and third parties to conduct strip searches and even sexual assaults at his direction. The caller was successful in accomplishing his perverse hoax more than thirty times at different McDonald’s restaurants alone, including several in Kentucky.

McDonald’s corporate legal department was fully aware of these hoaxes and had documented them. The evidence supports the reasonable conclusion that McDonald’s corporate management made a conscious decision not to train or warn store managers or employees about the calls. The evidence further supports the finding that proper training or warning would have prevented successful repetition of the hoaxes.

On April 9, 2004, eighteen-year-old Louise Ogborn had just finished her afternoon shift as an employee at the Mt. Washington, Kentucky, McDonald’s restaurant when a manager asked her to work a second shift to fill in for an absent employee. She agreed to do so after she finished a meal the restaurant provided to its employees under such circumstances.

Shortly thereafter, an unknown individual telephoned the restaurant and assistant manager Donna Summers answered. The caller falsely identified himself as a police officer and claimed to be investigating a recent theft of a purse or wallet at the restaurant. According to the caller, the perpetrator was a McDonald’s employee. He described a female suspect which Summers believed fit Ogborn. Ogborn was summoned to the office and informed that she was the subject of an “investigation” into this theft. The series of events that unfolded thereafter lasted more than three hours.

At the instruction of the caller, Summers told Ogborn she had two choices: she could be searched in the office by her managers or at the police station after arrest. After speaking with the caller, Ogborn agreed to be searched in the office. In accordance with the caller’s detailed instructions, Ogborn was methodically searched as she was convinced to gradually disrobe. Summers took Ogborn’s clothes, cell phone and other belongings, and removed them from the office. The assistant manager who was to replace Summers for the evening shift, Kim Dockery, soon arrived and provided Ogborn with an apron to cover her, but then returned to management duties outside the office.

The caller then instructed Summers to summon a male employee to sit with Ogborn during the investigation. Following instructions, Summers left the office and returned with a cook, Jason Bradley. Bradley spoke to the caller and after several minutes left the office, informing Summers, in appropriately strong, colloquial language, that the situation was unacceptable. However, he took no further action and returned to his work.

Undaunted, the caller asked Summers if she was married. She responded that although she was unmarried, she was engaged. The caller then instructed Summers to have her fiance, Walter Nix, come to the office and stay with Ogborn. Summers called Nix, who soon arrived.

Without questioning the propriety of doing so, Summers left Nix largely alone in the office with Ogborn, who was still naked but for the apron she held in front of herself. Summers and Dockery periodically, but only briefly, returned to the manager’s office. Nix, acting on the instruction and encouragement of the caller, forced Ogborn to perform a series of humiliating physical acts, conducted a cavity search of her body, engaged in the additional physical assault of spanking her, and ultimately sexually assaulted her. After nearly two hours, Nix left the restaurant and Summers resumed control of the situation. Summers was not aware until later that her fiance had physically and sexually assaulted her employee.

While Ogborn was detained naked in the office and subjected to these searches and assaults, she continuously expressed her strenuous objection to the search, asked for her clothes, and requested permission to leave. Her requests evoked some sympathy from her managers but were ultimately denied.

Summers then brought into the office a McDonald’s maintenance employee, Tom Simms, to take the phone, speak with the caller, and sit with Ogborn. After a while, Simms and several other employees appropriately assessed the call and the caller as a fraud. The hoax having been revealed, the call was terminated. Summers’ supervisor, Lisa Siddons, was called. When Siddons arrived, she called the police.

McDonald’s terminated Summers’ employment. Nix was found guilty and imprisoned on three felony indictments. Summers entered an Alford plea 5 to a misdemeanor charge. David Stewart, a Florida security guard with no affiliation to McDonald’s, was suspected as the hoax caller and was charged with felonies related to the incident at the Mt. Washington McDonald’s restaurant; Stewart was eventually acquitted.

Both Ogborn and Summers underwent counseling. The psychological impact on Ogborn manifested in significant physical and behavioral changes.

Ogborn filed suit against McDonald’s, Summers, and Dockery. McDonald’s responded with a third-party complaint for indemnity against Nix. Summers also filed a cross-complaint against McDonald’s. Seeking to impose liability on the caller, McDonald’s filed a third-party complaint against David Stewart. However, after Stewart was acquitted in his criminal trial, allegations focused on an “unknown” caller. Significantly, McDonald’s did not pursue a third-party claim against the unknown caller.

A lengthy period of discovery revealed substantial evidence that McDonald’s corporate legal department was aware of the many similar previous incidents at its restaurants but chose not to train or warn restaurant employees so as to prevent future incidents. This evidence was presented to the jury.

At the close of the evidence, the jury found for Ogborn and against McDonald’s on Ogborn’s claims of sexual harassment, false imprisonment, premises liability, and negligence. The jury awarded Ogborn $ 1,111,312.00 in compensatory damages and $ 5,000,000.00 in punitive damages.

The jury also found against McDonald’s on Summers’ claim for Intentional Infliction of Emotional Distress (IIED), awarding her $ 100,000.00 in compensatory damages and $ 1,000,000.00 in punitive damages.

On Summers’ claims and Ogborn’s claims the jury apportioned damages 50 percent to McDonald’s and 50 percent to the unknown caller who was a non-settling non-party. No apportionment instruction was submitted to the jury or requested for Stewart. The circuit court entered a judgment imposing all damages awards against McDonald’s without apportionment. This appeal followed.

The claims include false imprisonment, intentional infliction of emotional distress, negligence and other claims. What makes it particularly interesting is that Summers’ actions are vicariously attributed to McDonald’s. Yet, she is able to collect herself for McDonald’s negligence. Moreover, Nix’s criminal conduct does not cut off proximate causation.

What is also striking is the court treatment of the ratio between compensatory and punitive damages in upholding the award.After the Supreme Court intervened in the area of punitive damages, there has been considerable debate of the ratio question and whether it can be greater in cases of personal injury. The Court in this case creates a record to allowing high punitive damages. It distinguished between the cases of Ogborn and Summers in a way that could make for an important precedent for future cases:

“[T]he most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant’s conduct.” Gore, 517 U.S. at 575, 116 S.Ct. at 1599. “This principle reflects the accepted view that some wrongs are more blameworthy than others.” Id. The Supreme Court stated that behaviors marked by violence, the threat of violence, trickery, or deceit were more reprehensible than those behaviors that did not exhibit these markers. Id. at 576, 116 S.Ct. at 1599. Furthermore, “[A] recidivist may be punished more severely than a first offender [because] repeated misconduct is more reprehensible than an individual instance of malfeasance.” Id. at 577, 116 S.Ct. at 1599-1600, citing Gryger v. Burke, 334 U.S. 728, 732, 68 S.Ct. 1256, 1258-1259, 92 L. Ed. 1683 (1948) (explaining that though defendant in Gore was not a recidivist, a pattern of misconduct should be considered as adding to the reprehensibility of a tortfeasor’s conduct).

As is too often true, applying these concepts to a specific fact pattern produces an imperfect fit. In isolation, McDonald’s mere failure to provide its managers with information may not appear to constitute “behavior[] marked by violence, the threat of violence, trickery or deceit.” But McDonald’s personnel were trained to cooperate with police authority. They were not told there was a caveat to that training — the widespread perpetration of a hoax by a caller pretending to be police authority. The Mt. Washington McDonald’s restaurant employees were made vulnerable to “violence, the threat of violence, trickery or deceit” by McDonald’s decision to refrain from training or providing information about the hoax caller. We believe the jury found such behavior reprehensible because the evidence supports a conclusion that McDonald’s consciously placed a higher value on corporate reputation than on the safety of its own employees. And while McDonald’s cannot be accurately called a recidivist, the evidence demonstrated that over a ten-year period McDonald’s repeatedly made this choice.

While Ogborn and Summers were made equally vulnerable by McDonald’s conduct, they were not equally affected by it. In determining reprehensibility, we must also consider the separate impact of McDonald’s conduct on the two employees.

Summers experienced extreme emotional distress upon learning she had been duped into serving as an unwitting accomplice to the hoax, but she was not exposed to physical violence, threat of violence, or restraint. In Ogborn’s case, however, “the proofs show that threats, violence, and imprisonment, were accompanied by mental fear, torture, and agony of mind.” Gore, 517 U.S. at 576 fn. 24, 116 S.Ct. at 1599, quoting Blanchard v. Morris, 15 Ill. 35, 36 (1853). Reprehensibility exists in both cases; however, we cannot escape the fact that, in degree, the reprehensibility is clearly greater in Ogborn’s case.

2. Disparity between actual or potential harm and punitive damages award

In Gore, the Supreme Court simply calls the second guidepost “Ratio” and notes that it is the “most commonly cited indicium of an unreasonable or excessive punitive damages award[.]” Gore, 517 U.S. at 580, 116 S.Ct. at 1601. Since Gore, guidance about “ratio” has been intentionally somewhat nonspecific.

Citing Campbell, supra, the Supreme Court recently said, “the longstanding historical practice of setting punitive damages at two, three, or four times the size of compensatory damages, while ‘not binding,’ is ‘instructive,’ and that ‘[s]ingle-digit multipliers are more likely to comport with due process.'” Philip Morris USA v. Williams, 549 U.S. 346, 351, 127 S.Ct. 1057, 1061-62, 166 L.Ed.2d 940 (2007), citing Campbell, 538 U.S. at 425, 123 S.Ct. 1513. Even more recently, the Court, again citing Campbell, said,

Although “we have consistently rejected the notion that the constitutional line is marked by a simple mathematical formula,” [Gore, 517 U.S.] at 582, 116 S.Ct. 1589, 134 L. Ed. 2d 809, we have determined that “few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process,” State Farm [v. Campbell], 538 U.S. at 425, 123 S.Ct. 1513[.] Exxon Shipping Co. v. Baker, 128 S.Ct. 2605, 2626, 171 L.Ed.2d 570 (2008).

The Supreme Court in Exxon, addressing the “audible criticism in recent decades” that discretion to award punitive damages has “mass-produced runaway awards” said,

although some studies show the dollar amounts of punitive-damages awards growing over time, even in real terms, by most accounts the median ratio of punitive to compensatory awards has remained less than 1:1.

Exxon, 128 S.Ct. at 2624. 21 These studies should tell us that even when we factor in punitive awards of double, treble and quadruple the compensatory award, it is wisdom and common sense that, to quote the Supreme Court, “will cabin the jury’s discretionary authority,” at least in most cases. Philip Morris (USA), 549 U.S. at 352, 127 S.Ct. at 1062. In other words, if all punitive damages awards were plotted on a graph, the resulting bell curve would show the median ratio of 1:1 at the curve’s apex; only the awards at the extremities of the curve would be deemed constitutionally improper solely as a consequence of their deviation from this median ratio.

The ratio of punitive damages to compensatory damages in Ogborn’s case is approximately 4.5:1. In Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991), the Court assessed a 4.2:1 ratio, and “even though a punitive damages award of ‘more than 4 times the amount of compensatory damages’ might be ‘close to the line,’ it did not ‘cross the line into the area of constitutional impropriety.'” Gore, 517 US at 581, 116 S.Ct. at 1602, citing Haslip, 499 U.S. at 23-24, 111 S.Ct. at 1046.

On the other hand, the ratio in Summers’ case is 10:1. The question becomes, is Summers’ award one of those “few awards exceeding a single-digit ratio [that] will satisfy due process”? Campbell, 538 U.S. at 425, 123 S.Ct. at 1524.

Summers argues that “low awards of compensatory damages may properly support a higher ratio than high compensatory awards[.]” Gore, 517 U.S. at 582, 116 S.Ct. at 1602. While Ogborn recovered more than $ 1 million in compensatory damages, Summers recovered only $ 100,000. Although Summers’ compensatory damages award is less than one-tenth the amount recovered by Ogborn, that award is not “low” as that term is used in the passage quoted from Gore.

Gore referred to low awards as those that “resulted in only a small amount of economic damages.” Id. (emphasis supplied). In Exxon, the Court made it clear that it was referring to nominal damages. Citing Gore for this principle, Exxon supplements that citation with another to the Restatement (Second) of Torts, stating, “Thus an award of nominal damages . . . is enough to support a further award of punitive damages, when a tort . . . is committed for an outrageous purpose, but no significant harm has resulted.” Exxon 128 S.Ct. at 2622, quoting Restatement (Second) of Torts § 908, Comment c, p. 465 (emphasis supplied).

Summers did not recover nominal damages. Therefore, her punitive damages award of ten times her award of compensatory damages is constitutionally suspect.

“[T]he most important indicium of the reasonableness of a [*53] punitive damages award is the degree of reprehensibility of the defendant’s conduct.” Gore, 517 U.S. at 575, 116 S.Ct. at 1599. “This principle reflects the accepted view that some wrongs are more blameworthy than others.” Id. The Supreme Court stated that behaviors marked by violence, the threat of violence, trickery, or deceit were more reprehensible than those behaviors that did not exhibit these markers. Id. at 576, 116 S.Ct. at 1599. Furthermore, “[A] recidivist may be punished more severely than a first offender [because] repeated misconduct is more reprehensible than an individual instance of malfeasance.” Id. at 577, 116 S.Ct. at 1599-1600, citing Gryger v. Burke, 334 U.S. 728, 732, 68 S.Ct. 1256, 1258-1259, 92 L. Ed. 1683 (1948) (explaining that though defendant in Gore was not a recidivist, a pattern of misconduct should be considered as adding to the reprehensibility of a tortfeasor’s conduct).

As is too often true, applying these concepts to a specific fact pattern produces an imperfect fit. In isolation, McDonald’s mere failure to provide its managers with information may not appear to constitute “behavior[] marked by violence, the threat of violence, trickery or deceit.” But [*54] McDonald’s personnel were trained to cooperate with police authority. They were not told there was a caveat to that training — the widespread perpetration of a hoax by a caller pretending to be police authority. The Mt. Washington McDonald’s restaurant employees were made vulnerable to “violence, the threat of violence, trickery or deceit” by McDonald’s decision to refrain from training or providing information about the hoax caller. We believe the jury found such behavior reprehensible because the evidence supports a conclusion that McDonald’s consciously placed a higher value on corporate reputation than on the safety of its own employees. And while McDonald’s cannot be accurately called a recidivist, the evidence demonstrated that over a ten-year period McDonald’s repeatedly made this choice.

While Ogborn and Summers were made equally vulnerable by McDonald’s conduct, they were not equally affected by it. In determining reprehensibility, we must also consider the separate impact of McDonald’s conduct on the two employees.

Summers experienced extreme emotional distress upon learning she had been duped into serving as an unwitting accomplice to the hoax, but she was not exposed to physical violence, threat of violence, or restraint. In Ogborn’s case, however, “the proofs show that threats, violence, and imprisonment, were accompanied by mental fear, torture, and agony of mind.” Gore, 517 U.S. at 576 fn.24, 116 S.Ct. at 1599, quoting Blanchard v. Morris, 15 Ill. 35, 36 (1853). Reprehensibility exists in both cases; however, we cannot escape the fact that, in degree, the reprehensibility is clearly greater in Ogborn’s case.

2. Disparity between actual or potential harm and punitive damages award

In Gore, the Supreme Court simply calls the second guidepost “Ratio” and notes that it is the “most commonly cited indicium of an unreasonable or excessive punitive damages award[.]” Gore, 517 U.S. at 580, 116 S.Ct. at 1601. Since Gore, guidance about “ratio” has been intentionally somewhat nonspecific.

Citing Campbell, supra, the Supreme Court recently said, “the longstanding historical practice of setting punitive damages at two, three, or four times the size of compensatory damages, while ‘not binding,’ is ‘instructive,’ and that ‘[s]ingle-digit multipliers are more likely to comport with due process.'” Philip Morris USA v. Williams, 549 U.S. 346, 351, 127 S.Ct. 1057, 1061-62, 166 L.Ed.2d 940 (2007), [*56] citing Campbell, 538 U.S. at 425, 123 S.Ct. 1513. Even more recently, the Court, again citing Campbell, said,

Although “we have consistently rejected the notion that the constitutional line is marked by a simple mathematical formula,” [Gore, 517 U.S.] at 582, 116 S.Ct. 1589, 134 L. Ed. 2d 809, we have determined that “few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process,” State Farm [v. Campbell], 538 U.S. at 425, 123 S.Ct. 1513[.]

Exxon Shipping Co. v. Baker, 128 S.Ct. 2605, 2626, 171 L.Ed.2d 570 (2008).

The Supreme Court in Exxon, addressing the “audible criticism in recent decades” that discretion to award punitive damages has “mass-produced runaway awards” said,
although some studies show the dollar amounts of punitive-damages awards growing over time, even in real terms, by most accounts the median ratio of punitive to compensatory awards has remained less than 1:1.
Exxon, 128 S.Ct. at 2624. 21 These studies should tell us that even when we factor in punitive awards of double, treble and quadruple the compensatory award, it is wisdom and common sense that, to quote the Supreme Court, “will cabin the jury’s discretionary [*57] authority,” at least in most cases. Philip Morris (USA), 549 U.S. at 352, 127 S.Ct. at 1062. In other words, if all punitive damages awards were plotted on a graph, the resulting bell curve would show the median ratio of 1:1 at the curve’s apex; only the awards at the extremities of the curve would be deemed constitutionally improper solely as a consequence of their deviation from this median ratio.

The ratio of punitive damages to compensatory damages in Ogborn’s case is approximately 4.5:1. In Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991), the Court assessed a 4.2:1 ratio, and “even though a punitive damages award of ‘more than 4 times the amount of compensatory damages’ might be ‘close to the line,’ it did not ‘cross the line into the area of constitutional impropriety.'” Gore, 517 US at 581, 116 S.Ct. at 1602, citing Haslip, 499 U.S. at 23-24, 111 S.Ct. at 1046.

On the other hand, the ratio in Summers’ case is 10:1. The question becomes, is Summers’ award one of those “few awards exceeding a single-digit ratio [that] will satisfy due process”? Campbell, 538 U.S. at 425, 123 S.Ct. at 1524.

Summers argues that “low awards of compensatory damages may properly support a higher ratio than high compensatory awards[.]” Gore, 517 U.S. at 582, 116 S.Ct. at 1602. While Ogborn recovered more than $ 1 million in compensatory damages, Summers recovered only $ 100,000. Although Summers’ compensatory damages award is less than one-tenth the amount recovered by Ogborn, that award is not “low” as that term is used in the passage quoted from Gore.

Gore referred to low awards as those that “resulted in only a small amount of economic damages.” Id. (emphasis supplied). In Exxon, the Court made it clear that it was referring to nominal damages. Citing Gore for this principle, Exxon supplements that citation with another to the Restatement (Second) of Torts, stating, “Thus an award of nominal damages . . . is enough to support a further award of punitive damages, when a tort . . . is committed for an outrageous purpose, but no significant harm has resulted.” Exxon 128 S.Ct. at 2622, quoting Restatement (Second) of Torts § 908, Comment c, p. 465 (emphasis supplied).

Summers did not recover nominal damages. Therefore, her punitive damages award of ten times her award of compensatory damages is constitutionally suspect.

3. Sanctions for comparable misconduct

The third guidepost “calls for a broad legal comparison[.]” Cooper Industries, supra, 532 U.S. at 440, 121 S.Ct. at 1688. It compares the punitive damages awarded and the civil or criminal penalties that could be awarded for similar misconduct. Gore, 517 U.S. at 583, 116 S.Ct. at 1603. Once again, the impact of McDonald’s misconduct upon Ogborn differed markedly from the impact it had on Summers.

McDonald’s concealment of information about the hoax calls facilitated all that Ogborn experienced; she was falsely accused of theft, threatened, subjected to a strip-search, and held against her will in a room with several men, one of whom sexually assaulted her. We must consider that both Summers and Nix were convicted of crimes, and Nix is currently serving a sentence on felony sexual assault charges. Considering that criminal convictions resulting in consequential sentences resulted from this case, the punitive damages awarded to Ogborn do not “raise a suspicious judicial eyebrow.” Id., quoting TXO, 509 U.S. at 481, 113 S.Ct. at 2732 (O’Connor, J., dissenting).

By contrast, Summers’ emotional distress was made manifest only when she realized she was not aiding law enforcement but was, instead, facilitating criminal activity. She experienced no violence, imprisonment, or assault. Indeed, a portion of the injury Summers experienced might be fairly attributed to lapses in her own judgment, however psychologically justified. In fact, the jury had already determined that a portion of Ogborn’s injuries were attributable to those lapses.

All of Summers’ injuries were nonphysical in nature; the award of $ 100,000 compensated her IIED claim only. The $ 1,000,000 punitive damages award is extraordinary when compared to other stand-alone IIED cases. For example, in Burgess v. Taylor, 44 S.W.3d 806 (Ky.App. 2001), the plaintiff was awarded $ 50,000 in compensatory damages and $ 75,000 in punitive damages after the individuals who promised to care for the plaintiff’s prized and beloved Appaloosa horses immediately sold them to a slaughterhouse. Id. at 809-10. By contrast with the amount awarded to Summers, the punitive damages award was low both in amount and in its ratio to the compensatory damages. See also Childers Oil Co., Inc. v. Adkins, 256 S.W.3d 19 (Ky. 2008)($61,922 in compensatory damages, $ 50,000 in punitive damages; reversed because of improper jury instruction).

We are additionally struck by the disparity between the two punitive damages awards. Though the harm to Ogborn was greater by all measures, the punitive damages award to Ogborn is substantially smaller than that awarded to Summers, measured as a multiple of the compensation for that harm. Summers’ award is out of all proportion to the harm she suffered relative to that suffered by Ogborn.

C. Punitive Damages Awarded to Ogborn Were Proper

Applying the guideposts set out in Gore, we hold that the punitive damages awarded to Ogborn are not constitutionally excessive.

Summers is a difficult case since it is hard to understand how anyone could fall for such a ridiculous prank. However, we have seen a long line of such pranks, here and here and here.

For her part, Ogborn is reportedly planning to go to law school.

For the full story, click here.