What is it about law professors? They start out like the rest of us lawyers. They usually have the same backgrounds and receive the same legal educations we do. When the rest of us go into practice, we have to back up everything we say with facts, studies, testimony, cases, etc. But the statements of some law professors, because of their positions, are treated as authoritative by law students (who don’t know any better) and to a lesser extent by society. And so some law professors believe that what they say is adequately supported simply because they said it, just as Nixon believed that when the president does something, it is not illegal.

All of these thoughts and more came into mind upon reading a couple of law professors’ op-ed piece in the New York Times about punitive damages. The professors argue that the measure recently approved by the Senate to repeal the deductibility of punitive damages doesn’t go far enough. Repealing the deductibility of punitives has been debated for a while, and we won’t comment on it extensively because that is not the focus of the op-ed piece. In our minds, if a corporation pays out a punitive damages verdict, that money should be deducted from its taxable profit for a very simple reason – because it does not have the money. That’s just reality. So if a company took in $2,000,000 more than it spent in one year and then had to pay out a $2,000,000 punitive damages verdict, the company’s profit that year was zero. It should pay taxes on its real zero profit, not an artificial $2,000,000 profit. Taking away deductibility also means the government collects double taxes on the punitive award: it taxes the amount received by the plaintiff and (because it is no longer deductible) the amount the defendant pays.

The professors think the Senate’s idea won’t work because most cases settle and settlements cannot be easily divided between the amount supposedly paid for punitive damages and the amount paid for compensatory damages. We fail to see why that should matter at all, since the whole point of settlement is to compromise claims of disputed value. However, the professors think that the real “root of the problem” is that jurors make punitive damages awards too low because “jurors tend to believe that punitive damages are not deductible, even though they are.” The professors, being that type of law professor, do not identify any support for this supposed fact from which all their points flow, and we’re skeptical that jurors either believe this or even think about it.

Now maybe it’s unfair to the expect citations in an op-ed piece, so we looked at the profs’ forthcoming law review article on the same topic. Surely their law review article cites something to support its key factual premise. A survey? Jury research? Anything? Bueller?

Nope, like Ferris, factual support for their premise is absent – except for this: “The premise [that jurors do not know punitives are deductible] seems reasonable to us given that most law students (and law professors) we spoke with were surprised to learn that punitive damages incurred in connection with a business are deductible.” Article at 11 n.25.

Oh, that’s reliable – deciding what most jurors believe based on conversations with a few law students and law professors. Call us old-fashioned members of the reality-based community, but we like our policy decisions to be based on a better factual grounds than that. We asked a few people at a Fourth of July fireworks display, and they don’t want the government making policy based on unstructured chats with law students and law professors.

Having made up a problem that they can’t be sure really exists, the profs go on to make up a solution: “why not have plaintiffs’ lawyers make jurors aware of the tax deductibility of punitive damages, and teach them how to adjust their awards to offset the deduction’s effect?”

Why not? Well, there are many reasons why not:

First, of course, plaintiffs’ lawyers are not supposed to be instructing jurors about issues such as deductibility. Jurors should be instructed by the court or perhaps by expert testimony. Although that might seem like nitpicking, it leads into a bigger point:

Second, someone would have to instruct the jury about corporate tax issues, which are often quite complicated. The professors acknowledge that their proposal would require juries to determine the defendant’s marginal tax rate. Sometimes that would be simple; other times it would require extensive, mind-numbing tax and accounting evidence. It would be crazy to waste that much courtroom time to determine one extra factor. And even when the marginal tax rate is known, how it should be used to adjust a punitive damages verdict is also complicated, as the profs acknowledge in their article. Juries have enough to do and should not be taxed more with consideration of this factor.

Third, the whole concept of adjusting punitive damages to calibrate with precision the maximum amount of pain they will inflict on the defendant is wrong headed. Other than allowing juries to consider a defendant’s wealth, which itself is controversial, courts simply don’t permit such evidence, either mitigating or aggravating. Juries never learn if the defendant has insurance covering punitive damages, nor do they hear testimony measuring the actual amount of pain an uninsured punitive award would inflict on a business and its employees.

Fourth, the professors recognize that even plaintiffs’ lawyers don’t make this argument. If our creative colleagues in the plaintiffs’ bar do not make an argument to increase a punitive award, that is pretty good sign the argument is unsound.

Fifth, the only effect of introducing this issue into the case would be increase the amount of money going to individual plaintiffs and their lawyers. The profs recognize that this “is either a good or a bad thing, depending on your perspective.” We’ll put that another way: this is a bad thing for everyone except individual plaintiffs and their lawyers, as no one else would receive a concrete benefit from the change.

Finally, the professors are simply wrong that there is, as they put it, a “problem of underpunishment.” Few people outside of the plaintiffs’ bar and their friends in the academy believe that underpunishment via punitive damages is a problem. The clear recent trend in the law is that the problem is not underpunishment but overpunishment. Courts have been addressing that problem imperfectly by increasing post-trial and appellate scrutiny of punitive damage awards and imposing due process limits, and legislatures have imposed caps on certain punitive damages awards.

The profs’ law review article says that they have been talking with leading lawyers in the plaintiffs’ bar about telling the jury that punitive damages are deductible. Our friends in the defense bar should be prepared for some plaintiff to make this cockamamie argument in a future punitive damages case.