Fifth Circuit Increases the Threat of Punitive Damages in Discrimination Cases

In recent years, both by tort reform legislation and by judicial decisions, the specter of large punitive damage awards has been lessened in most jurisdictions and for most types of claims. Running counter to that trend, however, the Fifth Circuit has held an award of compensatory damages is not a prerequisite to an award of punitive damages either under TITLE VII or under 42 U.S.C. §1981.

In Abner v. Kansas City Southern R.R. Co., eight African American employees filed suit in federal court alleging their employer had subjected them to a racially hostile working environment, in violation of TITLE VII and 42 U.S.C. §1981. Plaintiffs alleged that over a ten-year period they were subjected to racial graffiti, a noose hanging outside a door, racially derogatory comments and threats (both written and spoken), and transfers to unwanted night and weekend shifts when the employees objected to the comments and to other racially motivated activity. The jury found the employer liable, because it caused and/or failed to properly respond to this racially-derogatory behavior. The jury returned a verdict awarding no compensatory damages but awarding each of the eight employees $125,000 in punitive damages — a total of $1,000,000. The district court entered judgment on the verdict, adding $1.00 in nominal damages. The employer appealed after the district court denied its Motion for Judgment as a Matter of Law and, Alternatively, Motion for New Trial.

The Fifth Circuit affirmed the award of $125,000 in punitive damages, holding a punitive damages award under TITLE VII and Section 1981 does not require an award of compensatory damages. The court’s decision was based on the court’s interpretation of the plain language of TITLE VII, the existence of punitive damages caps for TITLE VII claims, the legislative history of the statutes, and the purpose of punitive damages under TITLE VII. The court concluded nothing in the text of the statutes limits an award of punitive damages to cases in which the plaintiff also receives compensatory damages. Thus, it was not necessary for the court to award $1.00 in “ceremonial” damages to each plaintiff for the punitive damages award to be upheld.

Although the Fifth Circuit held an award of compensatory damages is not a prerequisite to an award of punitive damages under federal law, the result would have been different had the lawsuit been brought under state law. In Texas, Chapter 41 of the TEXAS CIVIL PRACTICE AND REMEDIES CODE governs the recovery of punitive damages, including recovery of punitive damages for discrimination under the TEXAS LABOR CODE. Section 41.004(a) of the TEXAS CIVIL PRACTICE AND REMEDIES CODE expressly allows recovery of punitive damages “only if damages other than nominal damages are awarded.” Thus, in Texas, an award of compensatory damages is a prerequisite to any recovery of punitive damages in an employment discrimination case. The Texas Supreme Court has applied this statutory requirement of actual damages to recover punitive damages in two separate decisions.