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Mathias v. Accor Economy Lodging, Inc.

United States Court of Appeals, Seventh Circuit
347 F.3d 672 (2003)
ELI5:

Rule of Law:

A punitive damages award with a high ratio to compensatory damages is constitutionally permissible under the Due Process Clause if the defendant's conduct is particularly egregious and results in small, difficult-to-quantify non-economic damages, as the award serves to punish and deter reprehensible conduct that might otherwise be profitable.


Facts:

  • In 1998, an exterminator for Motel 6 discovered bedbugs in several rooms and recommended spraying the entire motel for $500, but the motel refused.
  • Over the next two years, the motel continued to have bedbug infestations, with management acknowledging it was a 'major problem' and they were just 'chasing them from room to room.'
  • The motel manager recommended closing the motel for a full extermination, but her superior refused.
  • Motel 6 employees were instructed to refer to the bedbugs as 'ticks' when speaking to guests.
  • The motel rented out rooms that its staff had specifically placed on a 'Do not rent, bugs in room' status.
  • In November 2000, Burl Mathias and Desiree Matthias were guests at the Motel 6 and were given a room that was on the 'DO NOT RENT UNTIL TREATED' list.
  • Both Burl and Desiree Matthias were bitten by bedbugs during their stay.

Procedural Posture:

  • Burl and Desiree Matthias (plaintiffs) filed a diversity suit against Accor Economy Lodging, Inc. and Motel 6 Operating L.P. (defendants) in the United States District Court for the Northern District of Illinois (trial court).
  • A jury found in favor of the plaintiffs.
  • The jury awarded each plaintiff $5,000 in compensatory damages and $186,000 in punitive damages.
  • The defendants appealed the punitive damages award to the United States Court of Appeals for the Seventh Circuit.
  • The plaintiffs cross-appealed the trial court's dismissal of a separate consumer protection count.

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Issue:

Does a punitive damages award of $186,000 per plaintiff, which is 37.2 times the compensatory damages award of $5,000, violate constitutional due process when the defendant knowingly exposed its guests to a known health hazard for profit?


Opinions:

Majority - Judge Posner

No, the punitive damages award does not violate constitutional due process. A high ratio of punitive to compensatory damages is justified in this case because the defendant's conduct was willful and wanton, the compensatory damages were slight and difficult to quantify, and a substantial award is necessary for punishment and deterrence. The defendant, Motel 6, engaged in outrageous conduct by knowingly renting infested rooms, which amounted to fraud and battery. The Supreme Court's guidance in State Farm v. Campbell suggesting a single-digit ratio is not a rigid cap, especially when compensatory damages are low. Punitive damages serve to punish misconduct that is profitable and may escape detection, ensuring the defendant does not benefit from its wrongdoing. Furthermore, the defendant's wealth is relevant to its ability to mount a costly defense to deter small claims, and the punitive award is necessary to incentivize plaintiffs to bring such suits. The total award is also comparable to the potential regulatory sanction of losing a hotel license, which further supports its reasonableness.



Analysis:

This case provides a significant clarification of the Supreme Court's punitive damages jurisprudence, particularly the guidelines set forth in State Farm v. Campbell. The Seventh Circuit's decision establishes that the 'single-digit ratio' is not a constitutional straitjacket, especially in cases featuring low compensatory damages but highly reprehensible corporate conduct. It powerfully reaffirms the traditional roles of punitive damages: punishment for outrageous behavior and deterrence of profitable misconduct. The opinion provides a strong precedent for future courts to uphold high-ratio punitive damage awards where a defendant's actions involve deceit and a conscious disregard for public health and safety, even if the resulting physical harm is minor.

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