Mathias, Burl v. Accor Economy Lodgin , 347 F.3d 672 ( 2003 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 03-1010, 03-1078
BURL MATHIAS and DESIREE MATTHIAS,
Plaintiffs-Appellees/Cross-Appellants,
v.
ACCOR ECONOMY LODGING, INC. and MOTEL 6
OPERATING L.P.,
Defendants-Appellants/Cross-Appellees.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 01 C 6329—Joan Humphrey Lefkow, Judge.
____________
ARGUED SEPTEMBER 3, 2003—DECIDED OCTOBER 21, 2003
____________
Before POSNER, KANNE, and EVANS, Circuit Judges.
POSNER, Circuit Judge. The plaintiffs brought this diversity
suit governed by Illinois law against affiliated entities
(which the parties treat as a single entity, as shall we) that
own and operate the “Motel 6” chain of hotels and motels.
One of these hotels (now a “Red Roof Inn,” though still
owned by the defendant) is in downtown Chicago. The
plaintiffs, a brother and sister, were guests there and were
bitten by bedbugs, which are making a comeback in the U.S.
2 Nos. 03-1010, 03-1078
as a consequence of more conservative use of pesticides.
Kirsten Scharnberg, “You’ll Be Itching to Read This: Bed-
bugs Are Making a Comeback: Blame World Travelers and
a Ban on Certain Pesticides,” Chi. Tribune, Sept. 28, 2003,
p. 1; Mary Otto, “Bloodthirsty Pests Make Comeback: Bug
Infestations Raising Welts, Ire,” Wash. Post, Sept. 2, 2003,
p. B2. The plaintiffs claim that in allowing guests to be
attacked by bedbugs in a motel that charges upwards of
$100 a day for a room and would not like to be mistaken for
a flophouse, the defendant was guilty of “willful and
wanton conduct” and thus under Illinois law is liable for
punitive as well as compensatory damages. Cirrincione v.
Johnson, 703 N.E.2d 67, 70 (Ill. 1998); Kelsay v. Motorola, Inc.,
384 N.E.2d 353, 359 (Ill. 1978); Barton v. Chicago & North
Western Transportation Co., 757 N.E.2d 533, 554 (Ill. App.
2001). The jury agreed and awarded each plaintiff $186,000
in punitive damages though only $5,000 in compensatory
damages. The defendant appeals, complaining primarily
about the punitive-damages award. It also complains about
some of the judge’s evidentiary rulings, but these com-
plaints are frivolous and require no discussion. The plain-
tiffs cross-appeal, complaining about the dismissal of a
count of the complaint in which they alleged a violation of
an Illinois consumer protection law. But they do not seek
any additional damages, and so, provided we sustain the
jury’s verdict, we need not address the cross-appeal.
The defendant argues that at worst it is guilty of simple
negligence, and if this is right the plaintiffs were not entitled
by Illinois law to any award of punitive damages. It also
complains that the award was excessive—indeed that any
award in excess of $20,000 to each plaintiff would deprive
the defendant of its property without due process of law.
The first complaint has no possible merit, as the evidence of
gross negligence, indeed of recklessness in the strong sense
of an unjustifiable failure to avoid a known risk, see Ziarko v.
Nos. 03-1010, 03-1078 3
Soo Line R.R., 641 N.E.2d 402, 405-09 (Ill. 1994) (plurality
opinion); Landers v. School Dist. No. 203, O’Fallon, 383 N.E.2d
645, 647-48 (Ill. App. 1978); Vigortone AG Products, Inc. v. PM
AG Products, Inc., 316 F.3d 641, 645 (7th Cir. 2002) (Illinois
law); Saba v. Compagnie Nationale Air France, 78 F.3d 664, 667-
70 (D.C. Cir. 1996), was amply shown. In 1998, EcoLab, the
extermination service that the motel used, discovered bed-
bugs in several rooms in the motel and recommended that
it be hired to spray every room, for which it would charge
the motel only $500; the motel refused. The next year,
bedbugs were again discovered in a room but EcoLab was
asked to spray just that room. The motel tried to negotiate
“a building sweep [by EcoLab] free of charge,” but, not
surprisingly, the negotiation failed. By the spring of 2000,
the motel’s manager “started noticing that there were re-
funds being given by my desk clerks and reports coming
back from the guests that there were ticks in the rooms and
bugs in the rooms that were biting.” She looked in some of
the rooms and discovered bedbugs. The defendant asks us
to disregard her testimony as that of a disgruntled ex-
employee, but of course her credibility was for the jury, not
the defendant, to determine.
Further incidents of guests being bitten by insects and de-
manding and receiving refunds led the manager to recom-
mend to her superior in the company that the motel be
closed while every room was sprayed, but this was refused.
This superior, a district manager, was a management-level
employee of the defendant, and his knowledge of the risk
and failure to take effective steps either to eliminate it or to
warn the motel’s guests are imputed to his employer for
purposes of determining whether the employer should be
liable for punitive damages. Mattyasovszky v. West Towns
Bus Co., 330 N.E.2d 509, 512 (Ill. 1975); Barton v. Chicago &
North Western Transportation Co., supra, 757 N.E.2d at 556
n. 11; Kennan v. Checker Taxi Co., 620 N.E.2d 1208, 1212-14
4 Nos. 03-1010, 03-1078
(Ill. App. 1993); Restatement (Second) of Torts § 909 (1979);
Restatement (Second) of Agency § 217C (1958). The employer’s
liability for compensatory damages is of course automatic
on the basis of the principle of respondeat superior, since
the district manager was acting within the scope of his
employment.
The infestation continued and began to reach farcical pro-
portions, as when a guest, after complaining of having been
bitten repeatedly by insects while asleep in his room in the
hotel was moved to another room only to discover insects
there; and within 18 minutes of being moved to a third
room he discovered insects in that room as well and had to
be moved still again. (Odd that at that point he didn’t flee
the motel.) By July, the motel’s management was acknowl-
edging to EcoLab that there was a “major problem with bed
bugs” and that all that was being done about it was
“chasing them from room to room.” Desk clerks were
instructed to call the “bedbugs” “ticks,” apparently on the
theory that customers would be less alarmed, though in fact
ticks are more dangerous than bedbugs because they spread
Lyme Disease and Rocky Mountain Spotted Fever. Rooms
that the motel had placed on “Do not rent, bugs in room”
status nevertheless were rented.
It was in November that the plaintiffs checked into the
motel. They were given Room 504, even though the motel
had classified the room as “DO NOT RENT UNTIL
TREATED,” and it had not been treated. Indeed, that night
190 of the hotel’s 191 rooms were occupied, even though a
number of them had been placed on the same don’t-rent
status as Room 504. One of the defendant’s motions in
limine that the judge denied was to exclude evidence con-
cerning all other rooms—a good example of the frivolous
character of the motions and of the defendant’s pertinacious
defense of them on appeal.
Nos. 03-1010, 03-1078 5
Although bedbug bites are not as serious as the bites of
some other insects, they are painful and unsightly. Motel 6
could not have rented any rooms at the prices it charged
had it informed guests that the risk of being bitten by bed-
bugs was appreciable. Its failure either to warn guests or to
take effective measures to eliminate the bedbugs amounted
to fraud and probably to battery as well (compare Campbell
v. A.C. Equipment Services Corp., 610 N.E.2d 745, 748-
49 (Ill. App. 1993); see Restatement (Second) of Torts, supra,
§ 18, comment c and e), as in the famous case of Garratt v.
Dailey, 279 P.2d 1091, 1093-94 (1955), appeal after remand,
304 P.2d 681 (Wash. 1956), which held that the defendant
would be guilty of battery if he knew with substantial cer-
tainty that when he moved a chair the plaintiff would try to
sit down where the chair had been and would land on the
floor instead. See also Massachusetts v. Stratton, 114 Mass.
303 (Mass. 1873). There was, in short, sufficient evidence of
“willful and wanton conduct” within the meaning that the
Illinois courts assign to the term to permit an award of
punitive damages in this case.
But in what amount? In arguing that $20,000 was the
maximum amount of punitive damages that a jury could
constitutionally have awarded each plaintiff, the defendant
points to the U.S. Supreme Court’s recent statement that
“few awards [of punitive damages] exceeding a single-digit
ratio between punitive and compensatory damages, to a
significant degree, will satisfy due process.” State Farm
Mutual Automobile Ins. Co. v. Campbell, 123 S. Ct. 1513, 1524
(2003). The Court went on to suggest that “four times the
amount of compensatory damages might be close to the line
of constitutional impropriety.” Id., citing Pacific Mutual Life
Ins. Co. v. Haslip, 499 U.S. 1, 23-24 (1991), and BMW of North
American, Inc. v. Gore, 517 U.S. 559, 581 (1996). Hence the
defendant’s proposed ceiling in this case of $20,000, four
times the compensatory damages awarded to each plaintiff.
6 Nos. 03-1010, 03-1078
The ratio of punitive to compensatory damages determined
by the jury was, in contrast, 37.2 to 1.
The Supreme Court did not, however, lay down a 4-to-1
or single-digit-ratio rule—it said merely that “there is a
presumption against an award that has a 145-to-1 ratio,”
State Farm Mutual Automobile Ins. Co. v. Campbell, supra, 123
S. Ct. at 1524—and it would be unreasonable to do so. We
must consider why punitive damages are awarded and why
the Court has decided that due process requires that such
awards be limited. The second question is easier to answer
than the first. The term “punitive damages” implies punish-
ment, and a standard principle of penal theory is that “the
punishment should fit the crime” in the sense of being
proportional to the wrongfulness of the defendant’s action,
though the principle is modified when the probability of
detection is very low (a familiar example is the heavy fines
for littering) or the crime is potentially lucrative (as in the
case of trafficking in illegal drugs). Hence, with these quali-
fications, which in fact will figure in our analysis of this
case, punitive damages should be proportional to the
wrongfulness of the defendant’s actions.
Another penal precept is that a defendant should have
reasonable notice of the sanction for unlawful acts, so that
he can make a rational determination of how to act; and so
there have to be reasonably clear standards for determining
the amount of punitive damages for particular wrongs.
And a third precept, the core of the Aristotelian notion of
corrective justice, and more broadly of the principle of the
rule of law, is that sanctions should be based on the wrong
done rather than on the status of the defendant; a person is
punished for what he does, not for who he is, even if the
who is a huge corporation.
What follows from these principles, however, is that puni-
tive damages should be admeasured by standards or rules
Nos. 03-1010, 03-1078 7
rather than in a completely ad hoc manner, and this does
not tell us what the maximum ratio of punitive to compen-
satory damages should be in a particular case. To determine
that, we have to consider why punitive damages are
awarded in the first place. See Kemezy v. Peters, 79 F.3d 33,
34-35 (7th Cir. 1996).
England’s common law courts first confirmed their
authority to award punitive damages in the eighteenth cen-
tury, see Dorsey D. Ellis, Jr., “Fairness and Efficiency in the
Law of Punitive Damages,” 56 S. Cal. L. Rev. 1, 12-20 (1982),
at a time when the institutional structure of criminal law
enforcement was primitive and it made sense to leave cer-
tain minor crimes to be dealt with by the civil law. And still
today one function of punitive-damages awards is to relieve
the pressures on an overloaded system of criminal justice by
providing a civil alternative to criminal prosecution of mi-
nor crimes. An example is deliberately spitting in a person’s
face, a criminal assault but because minor readily deterrable
by the levying of what amounts to a civil fine through a suit
for damages for the tort of battery. Compensatory damages
would not do the trick in such a case, and this for three
reasons: because they are difficult to determine in the case
of acts that inflict largely dignatory harms; because in the
spitting case they would be too slight to give the victim an
incentive to sue, and he might decide instead to respond
with violence—and an age-old purpose of the law of torts is
to provide a substitute for violent retaliation against wrong-
ful injury—and because to limit the plaintiff to com-
pensatory damages would enable the defendant to commit
the offensive act with impunity provided that he was
willing to pay, and again there would be a danger that his
act would incite a breach of the peace by his victim.
When punitive damages are sought for billion-dollar oil
spills and other huge economic injuries, the considerations
8 Nos. 03-1010, 03-1078
that we have just canvassed fade. As the Court emphasized
in Campbell, the fact that the plaintiffs in that case had been
awarded very substantial compensatory damages—$1 mil-
lion for a dispute over insurance coverage—greatly reduced
the need for giving them a huge award of punitive damages
($145 million) as well in order to provide an effective
remedy. Our case is closer to the spitting case. The defen-
dant’s behavior was outrageous but the compensable harm
done was slight and at the same time difficult to quantify
because a large element of it was emotional. And the de-
fendant may well have profited from its misconduct because
by concealing the infestation it was able to keep renting
rooms. Refunds were frequent but may have cost less than
the cost of closing the hotel for a thorough fumigation. The
hotel’s attempt to pass off the bedbugs as ticks, which some
guests might ignorantly have thought less unhealthful, may
have postponed the instituting of litigation to rectify the
hotel’s misconduct. The award of punitive damages in this
case thus serves the additional purpose of limiting the
defendant’s ability to profit from its fraud by escaping
detection and (private) prosecution. If a tortfeasor is
“caught” only half the time he commits torts, then when he
is caught he should be punished twice as heavily in order to
make up for the times he gets away.
Finally, if the total stakes in the case were capped at
$50,000 (2 x [$5,000 + $20,000]), the plaintiffs might well
have had difficulty financing this lawsuit. It is here that the
defendant’s aggregate net worth of $1.6 billion becomes
relevant. A defendant’s wealth is not a sufficient basis for
awarding punitive damages. State Farm Mutual Automobile
Ins. Co. v. Campbell, supra, 123 S.Ct. at 1525; BMW of North
America, Inc. v. Gore, supra, 517 U.S. at 591 (concurring
opinion); Zazú Designs v. L’Oréal, S.A., 979 F.2d 499, 508-09
(7th Cir. 1992). That would be discriminatory and would
violate the rule of law, as we explained earlier, by making
Nos. 03-1010, 03-1078 9
punishment depend on status rather than conduct. Where
wealth in the sense of resources enters is in enabling the
defendant to mount an extremely aggressive defense against
suits such as this and by doing so to make litigating against
it very costly, which in turn may make it difficult for the
plaintiffs to find a lawyer willing to handle their case, in-
volving as it does only modest stakes, for the usual 33-40
percent contingent fee.
In other words, the defendant is investing in developing
a reputation intended to deter plaintiffs. It is difficult
otherwise to explain the great stubborness with which it has
defended this case, making a host of frivolous evidentiary
arguments despite the very modest stakes even when the
punitive damages awarded by the jury are included.
As a detail (the parties having made nothing of the point),
we note that “net worth” is not the correct measure of a
corporation’s resources. It is an accounting artifact that re-
flects the allocation of ownership between equity and debt
claimants. A firm financed largely by equity investors has a
large “net worth” (= the value of the equity claims), while
the identical firm financed largely by debt may have only a
small net worth because accountants treat debt as a liability.
All things considered, we cannot say that the award of
punitive damages was excessive, albeit the precise number
chosen by the jury was arbitrary. It is probably not a
coincidence that $5,000 + $186,000 = $191,000/191 = $1,000:
i.e., $1,000 per room in the hotel. But as there are no puni-
tive-damages guidelines, corresponding to the federal and
state sentencing guidelines, it is inevitable that the specific
amount of punitive damages awarded whether by a judge
or by a jury will be arbitrary. (Which is perhaps why the
plaintiffs’ lawyer did not suggest a number to the jury.) The
judicial function is to police a range, not a point. See BMW
of North America, Inc. v. Gore, supra, 517 U.S. at 582-83; TXO
10 Nos. 03-1010, 03-1078
Production Corp. v. Alliance Resources Corp., 509 U.S. 443, 458
(1993) (plurality opinion).
But it would have been helpful had the parties presented
evidence concerning the regulatory or criminal penalties
to which the defendant exposed itself by deliberately ex-
posing its customers to a substantial risk of being bitten by
bedbugs. That is an inquiry recommended by the Supreme
Court. See State Farm Mutual Automobile Ins. Co. v. Campbell,
supra, 123 S.Ct. at 1520, 1526; BMW of North America, Inc. v.
Gore, supra, 517 U.S. at 583-85. But we do not think its
omission invalidates the award. We can take judicial notice
that deliberate exposure of hotel guests to the health risks
created by insect infestations exposes the hotel’s owner to
sanctions under Illinois and Chicago law that in the aggre-
gate are comparable in severity to that of the punitive dam-
age award in this case.
“A person who causes bodily harm to or endangers the
bodily safety of an individual by any means, commits
reckless conduct if he performs recklessly the acts which
cause the harm or endanger safety, whether they otherwise
are lawful or unlawful.” 720 ILCS 5/12-5(a). This is a
misdemeanor, punishable by up to a year’s imprisonment
or a fine of $2,500, or both. 720 ILCS 5/12-5(b); 730 ILCS
5/5-8-3(a)(1), 5/5-9-1(a)(2). (For the application of the
reckless-conduct criminal statute to corporate officials, see
Illinois v. Chicago Magnet Wire Corp., 534 N.E.2d 962, 963 (Ill.
1989).) Of course a corporation cannot be sent to prison, and
$2,500 is obviously much less than the $186,000 awarded to
each plaintiff in this case as punitive damages. But this is
just the beginning. For, what is much more important, a
Chicago hotel that permits unsanitary conditions to exist is
subject to revocation of its license, without which it cannot
operate. Chi. Munic. Code §§ 4-4-280, 4-208-020, 050, 060,
110. We are sure that the defendant would prefer to pay the
Nos. 03-1010, 03-1078 11
punitive damages assessed in this case than to lose its
license.
AFFIRMED.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—10-21-03