Determining appropriate punitive damages is challenging for judges and juries. What amount is enough to effectively punish wrongdoers — and deter them from committing similar acts in the future — but not so much that the punishment outweighs the crime? Whether working for the plaintiff or the defense, damages experts can help judges and juries understand the details underlying punitive damages to help ensure that the award is appropriate.

Who’s responsible?

Experts consider several questions when building a framework for punitive damages, starting with the person who is responsible.

An expert witness for the defense can break a company into its components, providing jurors with a proper perspective on the division or department most directly responsible for the wrongdoing. Jurors can be shown that the division they have determined to be culpable can be adequately penalized even if the award won’t significantly affect the bottom line of the overall company.

Breaking down a company also can help humanize the defendant. The jurors might begin to see that the defendant isn’t an unfeeling corporate entity but an organization made up of many individuals. Jurors may identify with innocent bystanders — including shareholders and employees — who will be adversely affected by a disproportionate punitive damages award.

A plaintiff’s expert, on the other hand, can help overcome juror resistance by highlighting the layers of financial resources available to a corporate defendant.

What were the profits?

Damages experts also ask how the defendant profited from the alleged wrongdoing. Profits gained as a result of the defendant’s misconduct often play a central role in determining an appropriate award. Jurors, however, might not understand that revenues or sales aren’t the same as profits.

Experts, therefore, demonstrate the actual or expected profits from the misconduct. An expert for the defense will take into account any expenses the defendant incurred as a result of claims that grew out of the transgression, including those associated with recalls or redesigns.

A plaintiff’s expert can highlight costs that the defendant avoided because of its wrongful conduct. Or the expert might show how the defendant could have precluded recall or redesign costs by acting properly.

How deep are the defendant’s pockets?

Another critical question addresses the defendant’s resources. Plaintiffs frequently cite the defendant’s net worth to support their contention that only a large award will prove punitive.

While net worth may give a general idea of the defendant’s ability to pay, the defense’s expert can show jurors that the specific assets that contribute to net worth also must be examined. Experts may advise jurors to consider the form the assets take — for example, the percentage in cash. Fixed and other noncash assets might not be easily converted to cash, or their conversion might even make it difficult, if not impossible, for the business to continue operating.

The plaintiff’s expert, on the other hand, might emphasize the defendant’s ability to generate cash in the near future. A company that has a negative net worth because of high initial costs could produce impressive cash and profits later on.

Also, by the time a particular claim reaches the punitive award stage, the defendant may have already lost judgments for substantial sums. An expert testifying for the defense can explain how these liabilities affect the defendant’s financial statements and overall financial status.

Expertise needed

The issues surrounding punitive damages are complex. If you have a case involving punitive damages — whether you’re counsel for the plaintiff or for the defense — make sure you contact a financial expert.

© 2016