United States: Fourth Circuit Issues Mixed-Bag Decision On Punitive Damages In FCRA Cases

Last Updated: September 7 2017
Article by Evan M. Tager

Inevitably, when conscientious judges delve into the multi-dimensional issue of excessive punitive damages, they get some things right and other things wrong. Such is the case with the Fourth Circuit's recent decision in Daugherty v. Ocwen Loan Servicing, LLC. Unfortunately, as a doctrinal matter at least, the erroneous aspects of the decision predominate.  

In Daugherty, Ocwen—a so-called furnisher of information to credit reporting agencies—was held liable for $6,128.39 in compensatory damages and $2.5 million in punitive damages for willfully violating the Fair Credit Reporting Act ("FCRA") by failing to correct inaccurate information about the plaintiff in response to verification requests sent by Equifax, a credit reporting agency.  The Fourth Circuit upheld the liability finding, but held that the punitive damages were unconstitutionally excessive and ordered a new trial unless the plaintiff agrees to accept a reduced award of $600,000.

On reading the opinion, I have some doubts about whether Ocwen's failure to correct the inaccurate information—which appears to have been the result of an innocent mistake—really can be said to rise to the level of "willfulness." But this is not a FCRA blog, so I am going to focus solely on the court's discussion of the amount of punitive damages.

At the outset, the Fourth Circuit overlooked the significance of the fact that the case involves punitive damages imposed under a federal statute in federal court. As my colleague Miriam Nemetz and I reported in this post, the Second Circuit held in Turley v. ISG Lackawanna, Inc.—correctly, we think—that in such situations the court should review the award for excessiveness as a matter of federal common law under its supervisory power.

Under the federal supervisory power, the Second Circuit ruled, "a degree of excessiveness less extreme than 'grossly excessive' will support remanding for a new trial or remittitur of damages." As the court further explained, review of the size of punitive awards under the supervisory power is "relatively stringent * * * in order to ensure that such damages are fair, reasonable, predictable, and proportionate, to avoid extensive and burdensome social costs, and to reflect the fact that punitive awards are imposed without the protections of criminal trials."

In Daugherty, in contrast, the Fourth Circuit overlooked its supervisory authority and instead reviewed the punitive damages solely under the Due Process Clause.  Given some of the other errors in the decision discussed below, it's not clear whether reviewing the punitive award under the supervisory power, rather than under the Due Process Clause, would have made a difference.  But doctrinally, that seems to be the right starting point.

The biggest error in the decision—which appears to be the product of an earlier Fourth Circuit decision cited by the court, Saunders v. Branch Banking & Trust Co.—is the notion that simply because Congress authorized punitive damages in FCRA cases, the standards articulated in BMW and State Farm do not apply with the same rigor as they do in cases involving common-law awards of punitive damages.

For instance, the Fourth Circuit asserted that "the absence of physical harm or danger to health or safety [does] not weigh strongly against a finding of reprehensibility in FCRA cases." And notwithstanding the Supreme Court's statement to the contrary in State Farm, it asserted that "willful violations of the FCRA can support substantial punitive damages even though only one reprehensibility factor, financial vulnerability, is met."

This understanding of the law is flatly wrong. The concerns underlying the due process limits on punitive damages—that the defendant have fair notice of the extent to which it can be punished for its conduct and that the punishment not be arbitrary—are implicated every bit as much by a punitive award imposed under a federal statute as by one imposed in connection with a common-law tort.  The fact that Congress may have authorized punitive damages as part of the federal remedy hardly means that it made a legislative judgment that the conduct is especially reprehensible such that the factors ordinarily consulted in evaluating reprehensibility can be disregarded.

As a result of this conceptual error, the Fourth Circuit felt free to disregard two of the five reprehensibility factors identified in State Farm—whether the harm was physical or only economic and whether the conduct involved a reckless disregard for safety or health.  The court also erred in evaluating two other reprehensibility factors—whether the target of the conduct was financially vulnerable and whether the conduct involved repeated actions or was an isolated incident.

With respect to the financial vulnerability factor, the court mistakenly focused solely on whether the plaintiff was financially vulnerable. But as the Supreme Court suggested in BMW, and as several lower courts have recognized, this factor requires intentional targeting of the plaintiff because of his or her vulnerability—for example, schemes to defraud the elderly or uneducated.  In Daugherty, the defendant did not "target" the plaintiff at all; it simply was negligent—or, in the view of the Fourth Circuit, "reckless"—in failing to correct inaccurate information in response to verification requests sent by a credit reporting agency.

The Fourth Circuit held that the repeated conduct factor was satisfied because the defendant "repeatedly failed to correct Daugherty's erroneous account information over a 17-month period," despite multiple requests and inquiries from Daugherty, the CFPB, and the reporting agency. However, many courts—including the Sixth Circuit in a FCRA case in which Miriam Nemetz and I represented the defendant—have held that this factor "require[s] that the similar reprehensible conduct be committed against various different parties rather than repeated reprehensible acts within the single transaction with the plaintiff." From all appearances, the failure to correct Daugherty's inaccurate information was an isolated incident resulting from the reporting agency's (not the defendant furnisher's) erroneous creation of two separate "tradelines" for the same account.

The court did correctly apply the final State Farm factor, concluding that "there is no evidence that [the defendant] intentionally reported credit information it knew to be misleading."

Notwithstanding its conclusion that only two of the five State Farm factors were present, the Fourth Circuit held that the defendant's "conduct was more reprehensible than the actions at issue in Saunders."  This too reflects a conceptual error.

The relevant universe is not just FCRA cases (and definitely not just FCRA cases decided by the Fourth Circuit), but all cases in which punitive damages may be imposed. Manifestly, a non-intentional violation of the statutory duty to correct inaccurate credit information in response to a verification request is on the far low end of the spectrum of reprehensible conduct.  It distorts the inquiry to compare the conduct only to other FCRA violations and not to more egregious conduct—such as malicious assaults or intentional frauds.

Indeed, it is only because the court considered the conduct to be more reprehensible than that in one other FCRA case that it could justify allowing $600,000 in punitive damages—representing a punitive-to-compensatory ratio of 98:1. That takes me to the next conceptual problem with the court's decision.

The Fourth Circuit observed that "[s]mall awards of actual damages may justify comparatively larger punitive damages, whereas large awards of actual damages ordinarily will require application of a lesser ratio." That is true so far as it goes.  But it hardly means that a close-to-three-digit ratio is warranted when the compensatory damages are small, but not nominal.  After all, the compensatory damages in BMW were only $4,000, yet the Supreme Court gave no inkling in that case that the small size of the compensatory damages could justify anything close to a 100:1 ratio.

That a nearly three-digit ratio is constitutionally impermissible is all the more true in a case like this one. As the Fourth Circuit correctly observed, "the act of misreporting credit information"—or, in this case, failing to correct inaccurate information reported by others—"provides no direct financial benefit to a defendant, so multimillion dollar [punitive] awards are rarely necessary to achieve punishment and deterrence."  But the same is true of a $600,000 exaction that is close to 100 times the compensatory damages.

The court's next conceptual error was in concluding that a 98:1 ratio of punitive to compensatory damages was permissible because the Fourth Circuit had upheld an 80:1 ratio in Saunders.  The court reasoned that "our decision [in Saunders] provided fair notice to defendants that punitive damage awards in FCRA cases appropriately may reflect high, double-digit multipliers of the statutory or compensatory damages awarded."

First, the court inappropriately focused solely on the ratio and ignored the absolute amount of punitive damages. Although an increase in the ratio from 80:1 to 98:1 might seem incremental, the jump from the $80,000 award affirmed in Saunders to the $600,000 allowed by the Fourth Circuit in Daugherty is startling and casts doubt on whether Saunders gave Ocwen adequate notice of its potential liability.

Second, as the Second Circuit recognized in a case involving excessive compensatory damages, "[w]hen courts fail to exercise the responsibility to curb excessive verdicts, the effects are uncertainty and an upward spiral.   One excessive verdict, permitted to stand, becomes precedent for another still larger one.  Unbridled, spiraling, excessive judgments predictably impose huge costs on society."

That observation applies with even greater force in the context of punitive damages. To say that a high ratio in one case provides constitutionally adequate notice of the possibility of an even higher ratio in the next case—ignoring all other cases involving smaller ratios—is to create the very kind of "upward spiral" about which the Second Circuit warned.

One final error that permeates the decision merits mention. Like many other courts, the Fourth Circuit assumed that "adequate deterrence may require consideration of a defendant's financial worth when determining the amount of a punitive award" and accordingly explained that "we look beyond a simple analysis of the mathematical ratio to ensure that the punitive damages award still serves the goals of punishment and deterrence, particularly against wealthy defendants" (emphasis added).

But as my colleague Andy Frey explained in this seminal post, that is a fallacy. Not only is corporate wealth irrelevant to deterrence, but the Supreme Court has never embraced wealth as a factor in any of its punitive damages cases.  Indeed, in State Farm the Court indicated that corporate financial condition "bear[s] no relation to [a punitive] award's reasonableness or proportionality to the harm" and that reliance on corporate wealth would work "a departure from well-established constraints on punitive damages."

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2017. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions