source: Caselaw Access Project

author: Justice Scalia

license: Public Domain

text:
    PACIFICARE HEALTH SYSTEMS, INC., et al. v. BOOK et al.
    No. 02-215.
    Argued February 24, 2003
    Decided April 7, 2003
    Scalia, J., delivered the opinion of the Court, in which all other Members joined, except Thomas, J., who took no part in the consideration or decision of the case.

      William, E. Grauer argued the cause for petitioners. With him on the briefs were Christopher R. J. Pace, James W. Quinn, Jeffrey S. Klein, Edward Soto, and Gregory S. Coleman.

      Joe R. Whatley, Jr., argued the cause for respondents. With him on the brief were Charlene P. Ford and James B. Tilghman, Jr.

      Briefs of amici curiae urging reversal were filed for the Chamber of Commerce of the United States by Evan M. Tager, Miriam R. Nemetz, and Robin S. Conrad; for the National Association of Manufacturers et al. by Miguel A Estrada, Andrew S. Tulumello, Jan S. Amundson, Quentin Riegel, and Stephanie Kanwit; and for the Washington Legal Foundation by Christopher Landau, Ashley C. Parrish, Daniel J. Popeo, and Richard A Samp.

      Briefs of amici curiae urging affirmance were filed for the National Association of Consumer Advocates by Craig Jordan; for Public Citizen, Inc., by Scott L. Nelson and Brian Wolfman; and for Trial Lawyers for Public Justice by F. Paul Bland, Jr.

   Justice Scalia

delivered the opinion of the Court.

In this case, we are asked to decide whether respondents can be compelled to arbitrate claims arising under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U. S. C. § 1961 et seq., notwithstanding the fact that the parties’ arbitration agreements may be construed to limit the arbitrator’s authority to award damages under that statute.

I

Respondents are members of a group of physicians who filed suit against managed-health-care organizations including petitioners PacifiCare Health Systems, Inc., and Pacifi-Care Operations, Inc. (collectively, PacifiCare), and United-Healthcare, Inc., and UnitedHealth Group Inc. (collectively, United). These physicians alleged that the defendants unlawfully failed to reimburse them for health-care services that they had provided to patients covered by defendants’ health plans. They brought causes of action under RICO, the Employee Retirement Income Security Act of 1974 (ERISA), and federal and state prompt-pay statutes, as well as claims for breach of contract, unjust enrichment, and in quantum meruit. In re: Managed Care Litigation, 132 F. Supp. 2d 989, 992 (SD Fla. 2000).

Of particular concern here, PacifiCare and United moved the District Court to compel arbitration, arguing that provisions in their contracts with respondents required arbitration of these disputes, including those arising under RICO. Ibid. Respondents opposed the motion on the ground that, because the arbitration provisions prohibit an award of punitive damages, see App. 107, 147, 168, 212, respondents could not obtain “meaningful relief” in arbitration for their claims under the RICO statute, which authorizes treble damages, 18 U. S. C. § 1964(c). See Paladino v. Avnet Computer Technologies, Inc., 134 F. 3d 1054, 1062 (CA11 1998) (holding that where a remedial limitation in an arbitration agreement prevents a plaintiff from obtaining “meaningful relief” for a statutory claim, the agreement to arbitrate is unenforceable with respect to that claim).

The District Court denied petitioners’ request to compel arbitration of the RICO claims. 132 F. Supp. 2d, at 1007. The court concluded that given the remedial limitations in the relevant contracts, it was, indeed, “faced with a potential Paladino situation .. . , where the plaintiff may not be able to obtain meaningful relief for allegations of statutory viola- . tions in an arbitration forum.” Id., at 1005. Accordingly, it found the arbitration agreements unenforceable with respect to respondents’ RICO claims. Id., at 1007. The Eleventh Circuit affirmed “for the reasons set forth in [the District Court’s] comprehensive opinion,” In re: Humana Inc. Managed Care Litigation, 285 F. 3d 971, 973 (2002), and we granted certiorari, 537 U. S. 946 (2002).

II

Petitioners argue that whether the remedial limitations render their arbitration agreements unenforceable is not a question of “arbitrability,” and hence should have been decided by an arbitrator, rather than a court, in the first instance. They also claim that even if this question is one of arbitrability, and is therefore properly within the purview of the courts at this time, the remedial limitations at issue do not require invalidation of their arbitration agreements. Either way, petitioners contend, the lower courts should have compelled arbitration. We conclude that it would be premature for us to address these questions at this time.

Our decision in Vimar Seguros y Reaseguros, S. A. v. M/V Sky Reefer, 515 U. S. 528 (1995), supplies the analytic framework for assessing the ripeness of this dispute. In Vimar, we dealt with a bill of lading concerning a shipment of goods from Morocco to Massachusetts. Upon receipt of the goods, the purchaser discovered that they had been damaged, and, along with its insurer (Vimar), filed suit against the shipper. The shipper sought to compel arbitration, relying on choice-of-law and arbitration clauses in the bill of lading under which disputes arising out of the parties’ agreement were to be governed by Japanese law and resolved through arbitration before the Tokyo Maritime Arbitration Commission. Vimar countered by arguing that the arbitration clause violated the Carriage of Goods by Sea Act (COGSA), 46 U. S. C. App. § 1300 et seq., and hence was unenforceable. 515 U. S., at 531-532. In particular, Vimar claimed that “there is no guarantee foreign arbitrators will apply COGSA”; that the foreign arbitrator was likely to apply rules of Japanese law under which respondents’ liability might be less than what it would be under COGSA; and that this would violate “[t]he central guarantee of [COGSA] § 3(8). . . that the terms of a bill of lading may not relieve the carrier of obligations or diminish the legal duties specified by the Act.” Id., at 539.

Notwithstanding Vimar’s insistence that the arbitration agreement violated federal policy as embodied in COGSA, we declined to reach the issue and held that the arbitration clause was, at least initially, enforceable. “At this interlocutory stage,” we explained, “it is not established what law the arbitrators will apply to petitioner’s claims or that petitioner will receive diminished protection as a result. The arbitrators may conclude that COGSA applies of its own force or that Japanese law does not apply so that, under another clause of the bill of lading, COGSA controls.” Id., at 540. We farther emphasized that “mere speculation that the foreign arbitrators might apply Japanese law which, depending on the proper construction of COGSA, might reduce respondents’ legal obligations, does not in and of itself lessen liability under COGSA §3(8),” nor did it provide an adequate basis upon which to declare the relevant arbitration agreement unenforceable. Id., at 541 (emphases added). We found that “[wjhatever the merits of petitioner’s comparative reading of COGSA and its Japanese counterpart, its claim is premature.” Id., at 540.

The case at bar arrives in a similar posture. Two of the four arbitration agreements at issue provide that “punitive damages shall not be awarded [in arbitration],” App. 107, 147; one provides that “[t]he arbitrators . . . shall have no authority to award any punitive or exemplary damages,” id., at 212; and one provides that “[t]he arbitrators . . . shall have no authority to award extra contractual damages of any kind, including punitive or exemplary damages ... ,” id., at 168. Respondents insist, and the District Court agreed, 132 F. Supp. 2d, at 1000-1001, 1005, that these provisions preclude an arbitrator from awarding treble damages under RICO. We think that neither our precedents nor the ambiguous terms of the contracts make this clear.

Our cases have placed different statutory treble-damages provisions on different points along the spectrum between purely compensatory and strictly punitive awards. Thus, in Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U. S. 765, 784 (2000), we characterized the treble-damages provision of the False Claims Act, 31 U. S. C. §§ 3729-3733, as “essentially punitive in nature.” In Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U. S. 477, 485 (1977), on the other hand, we explained that the treble-damages provision of § 4 of the Clayton Act, 15 U. S. C. § 15, “is in essence a remedial provision.” Likewise in American Soc. of Mechanical Engineers, Inc. v. Hydrolevel Corp., 456 U. S. 556, 575 (1982), we noted that “the antitrust private action [which allows for treble damages] was created primarily as a remedy for the victims of antitrust violations.” (Emphasis added.) And earlier this Term, in Cook County v. United States ex rel. Chandler, ante, at 130, we stated that “it is important to realize that treble damages have a compensatory side, serving remedial purposes in addition to punitive objectives.” Indeed, we have repeatedly acknowledged that the treble-damages provision contained in RICO itself is remedial in nature. In Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483 U. S. 143, 151 (1987), we stated that “[b]oth RICO and the Clayton Act are designed to remedy economic injury by providing for the recovery of treble damages, costs, and attorney’s fees.” (Emphasis added.) And in Shearson/American Express Inc. v. McMahon, 482 U. S. 220, 241 (1987) we took note of the “remedial function” of RICO’s treble-damages provision.

In light of our case law’s treatment of statutory treble damages, and given the uncertainty surrounding the parties’ intent with respect to the contractual term “punitive,” the application of the disputed language to respondents’ RICO claims is, to say the least, in doubt. And Vimar instructs that we should not, on the basis of “mere speculation” that an arbitrator might interpret these ambiguous agreements in a manner that casts their enforceability into doubt, take upon ourselves the authority to decide the antecedent question of how the ambiguity is to be resolved. 515 U. S., at 541. In short, since we do not know how the arbitrator will construe the remedial limitations, the questions whether they render the parties’ agreements unenforceable and whether it is for courts or arbitrators to decide enforceability in the first instance are unusually abstract. As in Vimar, the proper course is to compel arbitration. The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.

Justice Thomas took no part in the consideration or decision of this case.

       Contrary to respondents’ contention, the prohibition in Dr. Manual Porth’s contract against an arbitrator’s awarding “extracontractual” damages is likewise ambiguous. This language might mean, as respondents would %ave it, that an arbitrator is prohibited from awarding any damages other than for breach of contract. Brief for Respondents 20-21. But it might only mean that an arbitrator cannot award noneconomic damages such as punitive or mental-anguish damages. See 3 D. Dobbs, Law of Remedies: Damages-Equity-Restitution § 12.1(1), p. 8 (2d ed. 1993) (“Punitive damages and mental anguish damages are thus considered ‘extra-contractual,’ and usually denied in pure contract cases”).

       If the contractual ambiguity could itself be characterized as raising a “gateway” question of arbitrability, then it would be appropriate for a court to answer it in the first instance. But we noted just this Term that “the phrase ‘question of arbitrability’ has a ... limited scope.” Howsam v. Dean Witter Reynolds, Inc., 537 U. S. 79, 83 (2002). Indeed, we have “found the phrase [question of arbitrability] applicable in the kind of narrow circumstance where contracting parties would likely have expected a court to have decided the gateway matter, where they are not likely to have thought that they had agreed that an arbitrator would do so, and, consequently, where reference of the gateway dispute to the court avoids the risk of forcing parties to arbitrate a matter that they may well not have agreed to arbitrate.” Id., at 83-84. Givedn our presumption in favor of arbitration, Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U. S. 1, 24-25 (1983), we think the preliminary question whether the remedial limitations at issue here prohibit an award of RICO treble damages is not a question of arbitrability.


author: Justice Kennedy Justice Scalia, Justice Thomas, Justice Ginsburg,

text:
    STATE FARM MUTUAL AUTOMOBILE INSURANCE CO. v. CAMPBELL et al.
    No. 01-1289.
    Argued December 11, 2002
    Decided April 7, 2003

      Kennedy, J., delivered the opinion of the Court, in which Rehnquist, C. J., and Stevens, O’Connor, Souter, and Breyer, JJ., joined. Scalia, J., post, p. 429, Thomas, J., post, p. 429, and Ginsburg, J., post, p. 430, filed dissenting opinions.

      Sheila L. Birnbaum argued the cause for petitioner. With her on the briefs were Barbara Wrubel, Douglas W. Dunham, and Ellen P. Quackenbos.

      Laurence H. Tribe argued the cause for respondents. With him on the brief were Kenneth Chesebro, Jonathan S. Massey, Roger P Christensen, and Karra J. Porter.

      Briefs of amici curiae urging reversal were filed for the Alliance of American Insurers et al. by Mark F. Horning, Charles G. Cole, and Bennett Evan Cooper; for the American Council of Life Insurers by William F. Sheehan and Victoria E. Firma; for the American Tort Reform Association by Roy T. Englert, Jr., and Alan E. Untereiner; for the Business Roundtable by Malcolm E. Wheeler; for the Chamber of Commerce of the United States by Andrew L. Frey, Andrew H. Schapiro, Evan M. Tager, and Robin S. Conrad; for Common Good by Philip K. Howard, Robert A. Long, Jr., and Keith A Noreika; for the Defense Research Institute by Patrick Lysaught; for Ford Motor Co. by Theodore J. Boutrous, Jr., Miguel A Estrada, John M. Thomas, and Michael J. O’Reilly; for the Health Insurance Association of America et al. by Robert N. Weiner and Nancy L. Perkins; for the International Mass Retail Association et al. by Daniel H. Bromberg, Robert J. Verdisco, David F. Zoll, and Donald D. Evans; for the National Association of Manufacturers by Carter G. Phillips, Gene C. Schaerr, Richard D. Bernstein, Stephen B. Kinnaird, Jan S. Amundson, and Quentin Riegel; for the National Conference of Insurance Legislators by Patrick Lynch; for the Product Liability Advisory Council, Inc., by
        Victor E. Schwartz and Leah Lorber; for the Washington Legal Foundation et al. by Arvin Maskin, Daniel J. Popeo, and Paul D. Kamenar; and for A. Mitchell Polinsky et al. by Dan M. Kahan.

      Briefs of amici curiae urging affirmance were filed for the State of Minnesota et al. by Mike Hatch, Attorney General of Minnesota, and by the Attorneys General for their respective States as follows: M. Jane Brady of Delaware, Robert A. Butterworth of Florida, Richard P Ieyoub of Louisiana, J. Joseph Curran, Jr., of Maryland, Mike Moore of Mississippi, Jeremiah W. (Jay) Nixon of Missouri, Mike McGrath of Montana, Frankie Sue Del Papa of Nevada, W. A Drew Edmondson of Oklahoma, Hardy Myers of Oregon, and Sheldon Whitehouse of Rhode Island; for the Association of Trial Lawyers of America by Jeffrey Robert White; for the California Consumer Health Care Council, Inc., by Eugene R. Anderson and Daniel Healy; for Certain Leading Social Scientists et al. by Paul M. Simmons and William M. Shernoff; and for Keith N. Hylton by Garry B. Bryant.

      Briefs of amici curiae were filed for Abbott Laboratories et al. by Walter Dellinger; for DeKalb Genetics Corp. by Seth P. Waxman and David W. Ogden; and for the Truck Insurance Exchange et al. by Ellis J. Horvitz, S. Thomas Todd, and Mary-Christine Sungaila.

   Justice Kennedy

delivered the opinion of the Court.

We address once again the measure of punishment, by means of punitive damages, a State may impose upon a defendant in a civil case. The question is whether, in the circumstances we shall recount, an award of $145 million in punitive damages, where full compensatory damages are $.1 million, is excessive and in violation of the Due Process Clause of the Fourteenth Amendment to the Constitution of the United States.

I

In 1981, Curtis Campbell (Campbell) was driving with his wife, Inez Preece Campbell, in Cache County, Utah. He decided to pass six vans traveling ahead of them on a two-lane highway. Todd Ospital was driving a small car approaching from the opposite direction. To avoid a head-on collision with Campbell, who by then was driving on the wrong side of the highway and toward oncoming traffic, Ospital swerved onto the shoulder, lost control of his automobile, and collided with a vehicle driven by Robert G. Slusher. Ospital was killed, and Slusher was rendered permanently disabled. The Campbells escaped unscathed.

In the ensuing wrongful death and tort action, Campbell insisted he was not at fault. Early investigations did support differing conclusions as to who caused the accident, but “a consensus was reached early on by the investigators and witnesses that Mr. Campbell’s unsafe pass had indeed caused the crash.” 65 P. Bd 1134, 1141 (Utah 2001). Campbell’s insurance company, petitioner State Farm Mutual Automobile Insurance Company (State Farm), nonetheless decided to contest liability and declined offers by Slusher and Ospital’s estate (Ospital) to settle the claims for the policy limit of $50,000 ($25,000 per claimant). State Farm also ignored the advice of one of its own investigators and took the case to trial, assuring the Campbells that “their assets were safe, that they had no liability for the accident, that [State Farm] would represent their interests, and that they did not need to procure separate counsel.” Id., at 1142. To the contrary, a jury determined that Campbell was 100 percent at fault, and a judgment was returned for $185,849, far more than the amount offered in settlement.

At first State Farm refused to cover the $135,849 in excess liability. Its counsel made this clear to the Campbells: “ ‘You may want to put for sale signs on your property to get things moving.’ ” Ibid. Nor was State Farm willing to post a su-persedeas bond to allow Campbell to appeal the judgment against him. Campbell obtained his own counsel to appeal the verdict. During the pendency of the appeal, in late 1984, Slusher, Ospital, and the Campbells reached an agreement whereby Slusher and Ospital agreed not to seek satisfaction of their claims against the Campbells. In exchange the Campbells agreed to pursue a bad-faith action against State Farm and to be represented by Slusher’s and Ospital’s attorneys. The Campbells also agreed that Slusher and Ospital would have a right to play a part in all major decisions concerning the bad-faith action. No settlement could be concluded without Slusher’s and Ospital’s approval, and Slusher and Ospital would receive 90 percent of any verdict against State Farm.

In 1989, the Utah Supreme Court denied Campbell’s appeal in the wrongful-death and tort actions. Slusher v. Ospital, 777 P. 2d 437. State Farm then paid the entire judgment, including the amounts in excess of the policy limits. The Campbells nonetheless filed a complaint against State Farm alleging bad faith, fraud, and intentional infliction of emotional distress. The trial court initially granted State Farm’s motion for summary judgment because State Farm had paid the excess verdict, but that ruling was reversed on appeal. 840 P. 2d 130 (Utah App. 1992). On remand State Farm moved in limine to exclude evidence of alleged conduct that occurred in unrelated cases outside of Utah, but the trial court denied the motion. At State Farm’s request the trial court bifurcated the trial into two phases conducted before different juries. In the first phase the jury determined that State Farm’s decision not to settle was unreasonable because there was a substantial likelihood of an excess verdict.

Before the second phase of the action against State Farm we decided BMW of North America, Inc. v. Gore, 517 U. S. 559 (1996), and refused to sustain a $2 million punitive damages award which accompanied a verdict of only $4,000 in compensatory damages. Based on that decision, State Farm again moved for the exclusion of evidence of dissimilar out-of-state conduct. App. to Pet. for Cert. 168a-172a. The trial court denied State Farm’s motion. Id., at 189a.

The second phase addressed State Farm’s liability for fraud and intentional infliction of emotional distress, as well as compensatory and punitive damages. The Utah Supreme Court aptly characterized this phase of the trial:

“State Farm argued during phase II that its decision to take the case to trial was an ‘honest mistake’ that did not warrant punitive damages. In contrast, the Camp-bells introduced evidence that State Farm’s decision to take the case to trial was a result of a national scheme to meet corporate fiscal goals by capping payouts on claims company wide. This scheme was referred to as State Farm’s ‘Performance, Planning and Review,’ or PP & R, policy. To prove the existence of this scheme, the trial court allowed the Campbells to introduce extensive expert testimony regarding fraudulent practices by State Farm in its nation-wide operations. Although State Farm moved prior to phase II of the trial for the exclusion of such evidence and continued to object to it at trial, the trial court ruled that such evidence was admissible to determine whether State Farm’s conduct in the Campbell case was indeed intentional and sufficiently egregious to warrant punitive damages.” 65 P. 3d, at 1143.

Evidence pertaining to the PP&R policy concerned State Farm’s business practices for over 20 years in numerous States. Most of these practices bore no relation to third-party automobile insurance claims, the type of claim underlying the Campbells’ complaint against the company. The jury awarded the Campbells $2.6 million in compensatory damages and $145 million in punitive damages, which the trial court reduced to $1 million and $25 million respectively. Both parties appealed.

The Utah Supreme Court sought to apply the three guideposts we identified in Gore, supra, at 574-575, and it reinstated the $145 million punitive damages award. Relying in large part on the extensive evidence concerning the PP&R policy, the court concluded State Farm’s conduct was reprehensible. The court also relied upon State Farm’s “massive wealth” and on testimony indicating that “State Farm’s actions, because of their clandestine nature, will be punished at most in one out of every 50,000 cases as a matter of statistical probability,” 65 P. 3d, at 1153, and concluded that the ratio between punitive and compensatory damages was not unwarranted. Finally, the court noted that the punitive damages award was not excessive when compared to various civil and criminal penalties State Farm could have faced, including $10,000 for each act of fraud, the suspension of its license to conduct business in Utah, the disgorgement of profits, and imprisonment. Id., at 1154-1155. We granted certiorari. 535 U. S. 1111 (2002).

II

We recognized in Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U. S. 424 (2001), that in our judicial system compensatory and punitive damages, although usually awarded at the same time by the same decisionmaker, serve different purposes. Id., at 432. Compensatory damages “are intended to redress the concrete loss that the plaintiff has suffered by reason of the defendant’s wrongful conduct.” Ibid, (citing Restatement (Second) of Torts §903, pp. 453-454 (1979)). By contrast, punitive damages serve a broader function; they are aimed at deterrence and retribution. Cooper Industries, supra, at 432; see also Gore, supra, at 568 (“Punitive damages may properly be imposed to further a State’s legitimate interests in punishing unlawful conduct and deterring its repetition”); Pacific Mut. Life Ins. Co. v. Haslip, 499 U. S. 1, 19 (1991) (“[Pjunitive damages are imposed for purposes of retribution and deterrence”).

While States possess discretion over the imposition of punitive damages, it is well established that there are procedural and substantive constitutional limitations on these awards. Cooper Industries, supra; Gore, supra, at 559; Honda Motor Co. v. Oberg, 512 U. S. 415 (1994); TXO Production Corp. v. Alliance Resources Corp., 509 U. S. 443 (1993); Haslip, supra. The Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor. Cooper Industries, supra, at 433; Gore, 517 U. S., at 562; see also id., at 587 (Breyer, J., concurring) (“This constitutional concern, itself harkening back to the Magna Carta, arises out of the basic unfairness of depriving citizens of life, liberty, or property, through the application, not of law and legal processes, but of arbitrary coercion”). The reason is that “[elementary notions of fairness enshrined in our constitutional jurisprudence dictate that a person receive fair notice not only of the conduct that will subject him to punishment, but also of the severity of the penalty that a State may impose.” Id., at 574; Cooper Industries, supra, at 433 (“Despite the broad discretion that States possess with respect to the imposition of criminal penalties and punitive damages, the Due Process Clause of the Fourteenth Amendment to the Federal Constitution imposes substantive limits on that discretion”). To the extent an award is grossly excessive, it furthers no legitimate purpose and constitutes an arbitrary deprivation of property. Haslip, supra, at 42 (O’Connor, J., dissenting) (“Punitive damages are a powerful weapon. Imposed wisely and with restraint, they have the potential to advance legitimate state interests. Imposed indiscriminately, however, they have a devastating potential for harm. Regrettably, common-law procedures for awarding punitive damages fall into the latter category”).

Although these awards serve the same purposes as criminal penalties, defendants subjected to punitive damages in civil cases have not been accorded the protections applicable in a criminal proceeding. This increases our concerns over the imprecise manner in which punitive damages systems are administered. We have admonished that “[pjunitive damages pose an acute danger of arbitrary deprivation of property. Jury instructions typically leave the jury with wide discretion in choosing amounts, and the presentation of evidence of a defendant’s net worth creates the potential that juries will use their verdicts to express biases against big businesses, particularly those without strong local presences.” Honda Motor, supra, at 432; see also Haslip, supra, at 59 (O’Connor, J., dissenting) (“[T]he Due Process Clause does not permit a State to classify arbitrariness as a virtue. Indeed, the point of due process — of the law in general — is to allow citizens to order their behavior. A State can have no legitimate interest in deliberately making the law so arbitrary that citizens will be unable to avoid punishment based solely upon bias or whim”). Our concerns are heightened when the decisionmaker is presented, as we shall discuss, with evidence that has little bearing as to the amount of punitive damages that should be awarded. Vague instructions, or those that merely inform the jury to avoid “passion or prejudice,” App. to Pet. for Cert. 108a-109a, do little to aid the decisionmaker in its task of assigning appropriate weight to evidence that is relevant and evidence that is tangential or only inflammatory.

In light of these concerns, in Gore, supra, we instructed courts reviewing punitive damages to consider three guideposts: (1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases. Id., at 575. We reiterated the importance of these three guideposts in Cooper Industries and mandated appellate courts to conduct de novo review of a trial court’s application of them to the jury’s award. 532 U. S. 424. Exacting appellate review ensures that an award of punitive damages is based upon an “‘application of law, rather than a decisionmaker’s caprice.’” Id., at 436 (quoting Gore, supra, at 587 (Breyer, J., concurring)).

III

Under the principles outlined m BMW of North America, Inc. v. Gore, this case is neither close nor difficult. It was error to reinstate the jury’s $145 million punitive damages award. We address each guidepost of Gore in some detail.

A

“[T]he most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant’s conduct.” Gore, 517 U. S., at 575. We have instructed courts to determine the reprehensibility of a defendant by considering whether: the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident. Id., at 576-577. The existence of any one of these factors weighing in favor of a plaintiff may not be sufficient to sustain a punitive damages award; and the absence of all of them renders any award suspect. It should be presumed a plaintiff has been made whole for his injuries by compensatory damages, so punitive damages should only be awarded if the defendant’s culpability, after having paid compensatory damages, is so reprehensible as to warrant the imposition of further sanctions to achieve punishment or deterrence. Id., at 575.

Applying these factors in the instant case, we must acknowledge that State Farm’s handling of the claims against the Campbells merits no praise. The trial court found that State Farm’s employees altered the company’s records to make Campbell appear less culpable. State Farm disregarded the overwhelming likelihood of liability and the near-certain probability that, by taking the case to trial, a judgment in excess of the policy limits would be awarded. State Farm amplified, the harm by at first assuring the Campbells their assets would be safe from any verdict and by later telling them, postjudgment, to put a for-sale sign on their house. While we do not suggest there was error in awarding punitive damages based upon State Farm’s conduct toward the Campbells, a more modest punishment for this reprehensible conduct could have satisfied the State’s legitimate objectives, and the Utah courts should have gone no further.

This case, instead, was used as a platform to expose, and punish, the perceived deficiencies of State Farm’s operations throughout the country. The Utah Supreme Court’s opinion makes explicit that State Farm was being condemned for its nationwide policies rather than for the conduct directed toward the Campbells. 65 P. 3d, at 1143 (“[T]he Campbells introduced evidence that State Farm’s decision to take the case to trial was a result of a national scheme to meet corporate fiscal goals by capping payouts on claims company wide”). This was, as well, an explicit rationale of the trial court’s decision in approving the award, though reduced from $145 million to $25 million. App. to Pet. for Cert. 120a (“[T]he Campbells demonstrated, through the testimony of State Farm employees who had worked outside of Utah, and through expert testimony, that this pattern of claims adjustment under the PP&R program was not a local anomaly, but was a consistent, nationwide feature of State Farm’s business operations, orchestrated from the highest levels of corporate management”).

The Campbells contend that State Farm has only itself to blame for the reliance upon dissimilar and out-of-state conduct evidence. The record does not support this contention. From their opening statements onward the Campbells framed this case as a chance to rebuke State Farm for its nationwide activities. App. 208 (“You’re going to hear evidence that even the insurance commission in Utah and around the country are unwilling or inept at protecting people against abuses”); id., at 242 (“[T]his is a very important case. . . . [I]t transcends the Campbell file. It involves a nationwide practice. And you, here, are going to be evaluating and assessing, and hopefully requiring State Farm to stand accountable for what it’s doing across the country, which is the purpose of punitive damages”). This was a position maintained throughout the litigation. In opposing State Farm’s motion to exclude such evidence under Gore, the Campbells’ counsel convinced the trial court that there was no limitation on the scope of evidence that could be considered under our precedents. App. to Pet. for Cert. 172a (“As I read the case [Gore], I was struck with the fact that a clear message in the case . . . seems to be that courts in punitive damages cases should receive more evidence, not less. And that the court seems to be inviting an even broader area of evidence than the current rulings of the court would indicate”); id., at 189a (trial court ruling).

A State cannot punish a defendant for conduct that may have been lawful where it occurred. Gore, supra, at 572; Bigelow v. Virginia, 421 U. S. 809, 824 (1975) (“A State does not acquire power or supervision over the internal affairs of another State merely because the welfare and health of its own citizens may be affected when they travel to that State”); New York Life Ins. Co. v. Head, 234 U. S. 149, 161 (1914) (“[I]t would be impossible to permit the statutes of Missouri to operate beyond the jurisdiction of that State ... without throwing down the constitutional barriers by which all the States are restricted within the orbits of their lawful authority and upon the preservation of which the Government under the Constitution depends. This is so obviously the necessary result of the Constitution that it has rarely been called in question and hence authorities directly dealing with it do not abound”); Huntington v. Attrill, 146 U. S. 657, 669 (1892) (“Laws have no force of themselves beyond the jurisdiction of the State which enacts them, and can have extra-territorial effect only by the comity of other States”). Nor, as a general rule, does a State have a legitimate concern in imposing punitive damages to punish a defendant for unlawful acts committed outside of the State’s jurisdiction. Any proper adjudication of conduct that occurred outside Utah to other persons would require their inclusion, and, to those parties, the Utah courts, in the usual case, would need to apply the laws of their relevant jurisdiction. Phillips Petroleum Co. v. Shutts, 472 U. S. 797, 821-822 (1985).

Here, the Campbells do not dispute that much of the out-of-state conduct was lawful where it occurred. They argue, however, that such evidence was not the primary basis for the punitive damages award and was relevant to the extent it demonstrated, in a general sense, State Farm’s motive against its insured. Brief for Respondents 46-47 (“[E]ven if the practices described by State Farm were not malum in se or malum prohibitum, they became relevant to punitive damages to the extent they were used as tools to implement State Farm’s wrongful PP&R policy”). This argument misses the mark. Lawful out-of-state conduct may be probative when it demonstrates the deliberateness and culpability of the defendant’s action in the State where it is tortious, but that conduct must have a nexus to the specific harm suffered by the plaintiff. A jury must be instructed, furthermore, that it may not use evidence of out-of-state conduct to punish a defendant for action that was lawful in the jurisdiction where it occurred. Gore, 517 U. S., at 572-573 (noting that a State “does not have the power... to punish [a defendant] for conduct that was lawful where it occurred and that had no impact on [the State] or its residents”). A basic principle of federalism is that each State may make its own reasoned judgment about what conduct is permitted or proscribed within its borders, and each State alone can determine what measure of punishment, if any, to impose on a defendant who acts within its jurisdiction. Id., at 569 (“[T]he States need not, and in fact do not, provide such protection in a uniform manner”).

For a more fundamental reason, however, the Utah courts erred in relying upon this and other evidence: The courts awarded punitive damages to punish and deter conduct that bore no relation to the Campbells’ harm. A defendant’s dissimilar acts, independent from the acts upon which liability was premised, may not serve as the basis for punitive damages. A defendant should be punished for the conduct that harmed the plaintiff, not for being an unsavory individual or business. Due process does not permit courts, in the calculation of punitive damages, to adjudicate the merits of other parties’ hypothetical claims against a defendant under the guise of the reprehensibility analysis, but we have no doubt the Utah Supreme Court did that here. 65 P. 3d, at 1149 (“Even if the harm to the Campbells can be appropriately characterized as minimal, the trial court’s assessment of the situation is on target: ‘The harm is minor to the individual but massive in the aggregate’”). Punishment on these bases creates the possibility of multiple punitive damages awards for the same conduct; for in the usual case nonparties are not bound by the judgment some other plaintiff obtains. Gore, supra, at 593 (Breyer, J., concurring) (“Larger damages might also ‘double count’ by including in the punitive damages award some of the compensatory, or punitive, damages that subsequent plaintiffs would also recover”).

The same reasons lead us to conclude the Utah Supreme Court’s decision cannot be justified on the grounds that State Farm was a recidivist. Although “[o]ur holdings that a recidivist may be punished more severely than a first offender recognize that repeated misconduct is more reprehensible than an individual instance of malfeasance,” Gore, supra, at 577, in the context of civil actions courts must ensure the conduct in question replicates the prior transgressions. TXO, 509 U. S., at 462, n. 28 (noting that courts should look tó “ ‘the existence and frequency of similar past conduct’ ” (quoting Haslip, 499 U. S., at 21-22)).

The Campbells have identified scant evidence of repeated misconduct of the sort that injured them. Nor does our review of the Utah courts’ decisions convince us that State Farm was only punished for its actions toward the Camp-bells. Although evidence of other acts need not be identical to have relevance in the calculation of punitive damages, the Utah court erred here because evidence pertaining to claims that had nothing to do with a third-party lawsuit was introduced at length. Other evidence concerning reprehensibility was even more tangential. For example, the Utah Supreme Court criticized State Farm’s investigation into the personal life of one of its employees and, in a broader approach, the manner in which State Farm’s policies corrupted its employees. 65 P. 3d, at 1148, 1150. The Campbells attempt to justify the courts’ reliance upon this unrelated testimony on the theory that each dollar of profit made by underpaying a third-party claimant is the same as a dollar made by underpaying a first-party one. Brief for Respondents 45; see also 65 P. 3d, at 1150 (“State Farm’s continuing illicit practice created market disadvantages for other honest insurance companies because these practices increased profits. As plaintiffs’ expert witnesses established, such wrongfully obtained competitive advantages have the potential to pressure other companies to adopt similar fraudulent tactics, or to force them out of business. Thus, such actions cause distortions throughout the insurance market and ultimately hurt all consumers”). For the reasons already stated, this argument is unconvincing. The reprehensibility guidepost does not permit courts to expand the scope of the case so that a defendant may be punished for any malfeasance, which in this case extended for a 20-year period. In this case, because the Campbells have shown no conduct by State Farm similar to that which harmed them, the conduct that harmed them is the only conduct relevant to the reprehensibility analysis.

B

Turning to the second Gore guidepost, we have been reluctant to identify concrete constitutional limits on the ratio between harm, or potential harm, to the plaintiff and the punitive damages award. 517 U. S., at 582 (“[W]e have consistently rejected the notion that the constitutional line is marked by a simple mathematical formula, even one that compares actual and potential damages to the punitive award”); TXO, supra, at 458. We decline again to impose a bright-line ratio which a punitive damages award cannot exceed. Our jurisprudence and the principles it has now established demonstrate, however, that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process. In Haslip, in upholding a punitive damages award, we concluded that an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety. 499 U. S., at 23-24. We cited that 4-to-l ratio again in Gore. 517 U. S., at 581. The Court further referenced a long legislative history, dating back over 700 years and going forward to today, providing for sanctions of double, treble, or quadruple damages to deter and punish. Id., at 581, and n. 33. While these ratios are not binding, they are instructive. They demonstrate what should be obvious: Single-digit multipliers are more likely to comport with due process, while still achieving the State’s goals of deterrence and retribution, than awards with ratios in range of 500 to 1, id., at 582, or, in this case, of 145 to 1.

Nonetheless, because there are no rigid benchmarks that a punitive damages award may not surpass, ratios greater than those we have previously upheld may comport with due process where “a particularly egregious act has resulted in only a small amount of economic damages.” Ibid.; see also ibid, (positing that a higher ratio might be necessary where “the injury is hard to detect or the monetary value of non-economic harm might have been difficult to determine”). The converse is also true, however. When compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee. The precise award in any case, of course, must be based upon the facts and circumstances of the defendant’s conduct and the harm to the plaintiff.

In sum, courts must ensure that the measure of punishment is both reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered. In the context of this case, we have no doubt that there is a presumption against an award that has a 145-to-l ratio. The compensatory award in this case was substantial; the Campbells were awarded $1 million for a year and a half of emotional distress. This was complete compensation. The harm arose from a transaction in the economic realm, not from some physical assault or trauma; there were no physical injuries; and State Farm paid the excess verdict before the complaint was filed, so the Campbells suffered only minor economic injuries for the 18-month period in which State Farm refused to resolve the claim against them. The compensatory damages for the injury suffered here, moreover, likely were based on a component which was duplicated in the punitive award. Much of the distress was caused by the outrage and humiliation the Campbells suffered at the actions of their insurer; and it is a major role of punitive damages to condemn such conduct. Compensatory damages, however, already contain this punitive element. See Restatement (Second) of Torts § 908, Comment c, p. 466 (1977) (“In many cases in which compensatory damages include an amount for emotional distress, such as humiliation or indignation aroused by the defendant’s act, there is no clear line of demarcation between punishment and compensation and a verdict for a specified amount frequently includes elements of both”).

The Utah Supreme Court sought to justify the massive award by pointing to State Farm’s purported failure to report a prior $100 million punitive damages award in Texas to its corporate headquarters; the fact that State Farm’s policies have affected numerous Utah consumers; the fact that State Farm will only be punished in one out of every 50,000 cases as a matter of statistical probability; and State Farm’s enormous wealth. 65 P. 3d, at 1153. Since the Supreme Court of Utah discussed the Texas award when applying the ratio guidepost, we discuss it here. The Texas award, however, should have been analyzed in the context of the reprehensibility guidepost only. The failure of the company to report the Texas award is out-of-state conduct that, if the conduct were similar, might have had some bearing on the degree of reprehensibility, subject to the limitations we have described. Here, it was dissimilar, and of such marginal relevance that it should have been accorded little or no weight. The award was rendered in a first-party lawsuit; no judgment was entered in the case; and it was later settled for a fraction of the verdict. With respect to the Utah Supreme Court’s second justification, the Campbells’ inability to direct us to testimony demonstrating harm to the people of Utah (other than those directly involved in this case) indicates that the adverse effect on the State’s general population was in fact minor.

The remaining premises for the Utah Supreme Court’s decision bear no relation to the award’s reasonableness or proportionality to the harm. They are, rather, arguments that seek to defend a departure from well-established constraints on punitive damages. While States enjoy considerable discretion in deducing when punitive damages are warranted, each award must comport with the principles set forth in Gore. Here the argument that State Farm will be punished in only the rare case, coupled with reference to its assets (which, of course, are what other insured parties in Utah and other States must rely upon for payment of claims) had little to do with the actual harm sustained by the Campbells. The wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award. Gore, 517 U. S., at 585 (“The fact that BMW is a large corporation rather than an impecunious individual does not diminish its entitlement to fair notice of the demands that the several States impose on the conduct of its business”); see also id., at 591 (BREYER, J., concurring) (“[Wealth] provides an open-ended basis for inflating awards when the defendant is wealthy .... That does not make its use unlawful or inappropriate; it simply means that this factor cannot make up for the failure of other factors, such as ‘reprehensibility,’ to constrain significantly an award that purports to punish a defendant’s conduct”). The principles set forth in Gore must be implemented with care, to ensure both reasonableness and proportionality.

C

The third guidepost in Gore is the disparity between the punitive damages award and the “civil penalties authorized or imposed in comparable cases.” Id., at 575. We note that, in the past, we have also looked to criminal penalties that could be imposed. Id., at 583; Haslip, 499 U. S., at 23. The existence of a criminal penalty does have bearing on the seriousness with which a State views the wrongful action. When used to determine the dollar amount of the award, however, the criminal penalty has less utility. Great care must be taken to avoid use of the civil process to assess criminal penalties that can be imposed only after the heightened protections of a criminal trial have been observed, including, of course, its higher standards of proof. Punitive damages are not a substitute for the criminal process, and the remote possibility of a criminal sanction does not automatically sustain a punitive damages award.

Here, we need not dwell long on this guidepost. The most relevant civil sanction under Utah state law for the wrong done to the Campbells appears to be a $10,000 fine for an act of fraud, 65 P. 3d, at 1154, an amount dwarfed by the $145 million punitive damages award. The Supreme Court of Utah speculated about the loss of State Farm’s business license, the disgorgement of profits, and possible imprisonment, but here again its references were to the broad fraudulent scheme drawn from evidence of out-of-state and dissimilar conduct. This analysis was insufficient to justify the award.

>

An application of the Gore guideposts to the facts of this case, especially in light of the substantial compensatory damages awarded (a portion of which contained a punitive element), likely would justify a punitive damages award at or near the amount of compensatory damages. The punitive award of $145 million, therefore, was neither reasonable nor proportionate to the wrong committed, and it was an irrational and arbitrary deprivation of the property of the defendant. The proper calculation of punitive damages under the principles we have discussed should be resolved, in the first instance, by the Utah courts.

The judgment of the Utah Supreme Court is reversed, and the ease is remanded for further proceedings not inconsistent with this opinion.

It is so ordered.

Justice Scalia,

dissenting.

I adhere to the view expressed in my dissenting opinion in BMW of North America, Inc. v. Gore, 517 U. S. 559, 598-599 (1996), that the Due Process Clause provides no substantive protections against “excessive” or “'unreasonable’” awards of punitive damages. I am also of the view that the punitive damages jurisprudence which has sprung forth from BMW v. Gore is insusceptible of principled application; accordingly, I do not feel justified in giving the case stare deci-sis effect. See id., at 599. I would affirm the judgment of the Utah Supreme Court.

Justice Thomas,

dissenting.

I would affirm the judgment below because “I continue to believe that the Constitution does not constrain the size of punitive damages awards.” Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U. S. 424, 443 (2001) (Thomas, J., concurring) (citing BMW of North America, Inc. v. Gore, 517 U. S. 559, 599 (1996) (Scalia, J., joined by Thomas, J., dissenting)). Accordingly, I respectfully dissent.

Justice Ginsburg,

dissenting.

Not long ago, this Court was hesitant to impose a federal check on state-court judgments awarding punitive damages. In Browning-Ferris Industries of Vt., Inc. v. Kelco Disposal, Inc., 492 U. S. 257 (1989), the Court held that neither the Excessive Fines Clause of the Eighth Amendment nor federal common law circumscribed awards of punitive damages in civil cases between private parties. Id., at 262-276, 277-280. Two years later, in Pacific Mut. Life Ins. Co. v. Haslip, 499 U. S. 1 (1991), the Court observed that “unlimited jury [or judicial] discretion ... in the fixing of punitive damages may invite extreme results that jar one’s constitutional sensibilities,” id., at 18; the Due Process Clause, the Court suggested, would attend to those sensibilities and guard against unreasonable awards, id., at 17-24. Nevertheless, the Court upheld a punitive damages award in Haslip “more than 4 times the amount of compensatory damages, . . . more than 200 times [the plaintiff’s] out-of-pocket expenses,” and “much in excess of the fine that could be imposed.” Id., at 23. And in TXO Production Corp. v. Alliance Resources Corp., 509 U. S. 443 (1993), the Court affirmed a state-court award “526 times greater than the actual damages awarded by the jury.” Id., at 453; cf. Browning-Ferris, 492 U. S., at 262 (ratio of punitive to compensatory damages over 100 to 1).

It was not until 1996, in BMW of North America, Inc. v. Gore, 517 U. S. 559, that the Court, for the first time, invalidated a state-court punitive damages assessment as unreasonably large. See id., at 599 (Scalia, J., dissenting). If our activity in this domain is now “well established,” see ante, at 416, 427, it takes place on ground not long held.

In Gore, I stated why I resisted the Court’s foray into punitive damages “territory traditionally within the States’ domain.” 517 U. S., at 612 (dissenting opinion). I adhere to those views, and note again that, unlike federal habeas corpus review of state-court convictions under 28 U. S. C. §2254, the Court “work[s] at this business [of checking state courts] alone,” unaided by the participation of federal district courts and courts of appeals. 517 U. S., at 613. It was once recognized that “the laws of the particular State must suffice [to superintend punitive damages awards] until judges or legislators authorized to do so initiate system-wide change.” Haslip, 499 U. S., at 42 (Kennedy, J., concurring in judgment). I would adhere to that traditional view.

► — I

The large size of the award upheld by the Utah Supreme Court in this case indicates why damages-capping legislation may be altogether fitting and proper. Neither the amount of the award nor the trial record, however, justifies this Court’s substitution of its judgment for that of Utah’s competent de-cisionmakers. In this regard, I count it significant that, on the key criterion “reprehensibility,” there is a good deal more to the story than the Court’s abbreviated account tells.

Ample evidence allowed the jury to find that State Farm’s treatment of the Campbells typified its “Performance, Planning and Review” (PP&R) program; implemented by top management in 1979, the program had “the explicit objective of using the claims-adjustment process as a profit center.” App. to Pet. for Cert. 116a. “[Tjhe Campbells presented considerable evidence,” the trial court noted, documenting “that the PP&R program . . . has functioned, and continues to function, as an unlawful scheme ... to deny benefits owed consumers by paying out less than fair value in order to meet preset, arbitrary payout targets designed to enhance corporate profits.” Id., at 118a-119a. That policy, the trial court observed, was encompassing in scope; it “applied equally to the handling of both third-party and first-party claims.” Id., at 119a. But cf. ante, at 423-424, 427 (suggesting that State Farm’s handling of first-party claims has “nothing to do with a third-party lawsuit”).

Evidence the jury could credit demonstrated that the PP&R program regularly and adversely affected Utah residents. Ray Summers, “the adjuster who handled the Campbell case and who was a State Farm employee in Utah for almost twenty years,” described several methods used by State Farm to deny claimants fair benefits, for example, “falsifying or withholding of evidence in claim files.” App. to Pet. for Cert. 121a. A common tactic, Summers recounted, was to “unjustly attac[k] the character, reputation and credibility of a claimant and mak[e] notations to that effect in the claim file to create prejudice in the event the claim ever came before a jury.” Id., at 130a (internal quotation marks omitted). State Farm manager Bob Noxon, Summers testified, resorted to a tactic of this order in the Campbell case when he “instructed] Summers to write in the file that Todd Os-pital (who was killed in the accident) was speeding because he was on his way to see a pregnant girlfriend.” Ibid. In truth, “[t]here was no pregnant girlfriend.” Ibid. Expert testimony noted by the trial court described these tactics as “completely improper.” Ibid.

The trial court also noted the testimony of two Utah State Farm employees, Felix Jensen and Samantha Bird, both of whom recalled “intolerable” and “recurrent” pressure to reduce payouts below fair value. Id., at 119a (internal quotation marks omitted). When Jensen complained to top managers, he was told to “get out of the kitchen” if he could not take the heat; Bird was told she should be “more of a team player.” Ibid, (internal quotation marks omitted). At times, Bird said, she “was forced to commit dishonest acts and to knowingly underpay claims.” Id., at 120a. Eventually, Bird quit. Ibid. Utah managers superior to Bird, the evidence indicated, were improperly influenced by the PP&R program to encourage insurance underpayments. For example, several documents evaluating the performance of managers Noxon and Brown “contained explicit preset average payout goals.” Ibid.

Regarding liability for verdicts in excess of policy limits, the trial court referred to a State Farm document titled the “Excess Liability Handbook”; written before the Campbell accident, the handbook instructed adjusters to pad files with “self-serving” documents, and to leave critical items out of files, for example, evaluations of the insured’s exposure. Id., at 127a-128a (internal quotation marks omitted). Divisional superintendent Bill Brown used the handbook to train Utah employees. Id., at 134a. While overseeing the Campbell case, Brown ordered adjuster Summers to change the portions of his report indicating that Mr. Campbell was likely at fault and that the settlement cost was correspondingly high. Id., at 3a. The Campbells’ case, according to expert testimony the trial court recited, “was a classic example of State Farm’s application of the improper practices taught in the Excess Liability Handbook.” Id., at 128a.

The trial court further determined that the jury could find State Farm’s policy “deliberately crafted” to prey on consumers who would be unlikely to defend themselves. Id., at 122a. In this regard, the trial court noted the testimony of several former State Farm employees affirming that they were trained to target “the weakest of the herd” — “the elderly, the poor, and other consumers who are least knowledgeable about their rights and thus most vulnerable to trickery or deceit, or who have little money and hence have no real alternative but to accept an inadequate offer to settle a claim at much less than fair value.” Ibid, (internal quotation marks omitted).

The Campbells themselves could be placed within the “weakest of the herd” category. The couple appeared economically vulnerable and emotionally fragile. App. 3360a-3361a (Order Denying State Farm’s Motion for Judgment NOV and New Trial Regarding Intentional Infliction of Emotional Distress). At the time of State Farm’s wrongful conduct, “Mr. Campbell had residuary effects from a stroke and Parkinson’s disease.” Id., at 3360a.

To further insulate itself from liability, trial evidence indicated, State Farm made “systematic” efforts to destroy internal company documents that might reveal its scheme, App. to Pet. for Cert. 123a, efforts that directly affected the Campbells, id., at 124a. For example, State Farm had “a special historical department that contained a copy of all past manuals on claim-handling practices and the dates on which each section of each manual was changed.” Ibid. Yet in discovery proceedings, State Farm failed to produce any claim-handling practice manuals for the years relevant to the Campbells’ bad-faith case. Id., at 124a-125a.

State Farm’s inability to produce the manuals, it appeared from the evidence, was not accidental. Documents retained by former State Farm employee Samantha Bird, as well as Bird’s testimony, showed that while the Campbells’ case was pending, Janet Cammack, “an in-house attorney sent by top State Farm management, conducted a meeting ... in Utah during which she instructed Utah claims management to search their offices and destroy a wide range of material of the sort that had proved damaging in bad-faith litigation in the past — in particular, old claim-handling manuals, memos, claim school notes, procedure guides and other similar documents.” Id., at 125a. “These orders were followed even though at least one meeting participant, Paul Short, was personally aware that these kinds of materials had been requested by the Campbells in this very case.” Ibid.

Consistent with Bird’s testimony, State Farm admitted that it destroyed every single copy of claim-handling manuals on file in its historical department as of 1988, even though these documents could have been preserved at minimal expense. Ibid. Fortuitously, the Campbells obtained a copy of the 1979 PP&R manual by subpoena from a former employee. Id., at 132a. Although that manual has been requested in other cases, State Farm has never itself produced the document. Ibid.

‘As a final, related tactic,” the trial court stated, the jury could reasonably find that “in recent years State Farm has gone to extraordinary lengths to stop damaging documents from being created in the first place.” Id., at 126a. State Farm kept no records at all on excess verdicts in third-party cases, or on bad-faith claims or attendant verdicts. Ibid. State Farm alleged “that it has no record of its punitive damage payments, even though such payments must be reported to the [Internal Revenue Service] and in some states may not be used to justify rate increases.” Ibid. Regional Vice President Buck Moskalski testified that “he would not report a punitive damage verdict in [the Campbells’] case to higher management, as such reporting was not set out as part of State Farm’s management practices.” Ibid.

State Farm’s “wrongful profit and evasion schemes,” the trial court underscored, were directly relevant to the Camp-bells’ case, id., at 132a:

“The record fully supports the conclusion that the bad-faith claim handling that exposed the Campbells to an excess verdict in 1983, and resulted in severe damages to them, was a product of the unlawful profit scheme that had been put in place by top management at State Farm years earlier. The Campbells presented substantial evidence showing how State Farm’s improper insistence on claims-handling employees’ reducing their claim payouts ... regardless of the merits of each claim, manifested itself ... in the Utah claims operations during the period when the decisions were made not to offer to settle the Campbell case for the $50,000 policy limits— indeed, not to make any offer to settle at a lower amount. This evidence established that high-level manager Bill Brown was under heavy pressure from the PP&R scheme to control indemnity payouts during the time period in question. In particular, when Brown declined to pay the excess verdict against Curtis Campbell, or even post a bond, he had a special need to keep his year-end numbers down, since the State Farm incentive scheme meant that keeping those numbers down was important to helping Brown get a much-desired transfer to Colorado.. .. There was ample evidence that the concepts taught in the Excess Liability Handbook, including the dishonest alteration and manipulation of claim files and the policy against posting any superse-deas bond for the full amount of an excess verdict, were dutifully carried out in this case. . . . There was ample basis for the jury to find that everything that had happened to the Campbells — when State Farm repeatedly refused in bad-faith to settle for the $50,000 policy limits and went to trial, and then failed to pay the ‘excess’ verdict, or at least post a bond, after trial — was a direct application of State Farm’s overall profit scheme, operating through Brown and others.” Id., at 133a-134a.

State Farm’s “policies and practices,” the trial evidence thus bore out, were “responsible for the injuries suffered by the Campbells,” and the means used to implement those policies could be found “callous, clandestine, fraudulent, and dishonest.” Id., at 136a; see id., at 113a (finding “ample evidence” that State Farm’s reprehensible corporate policies were responsible for injuring “many other Utah consumers during the past two decades”). The Utah Supreme Court, relying on the trial, court’s record-based recitations, understandably characterized State Farm’s behavior as “egregious and malicious.” Id., at 18a.

I > — I

The Court dismisses the evidence describing and documenting State Farm’s PP&R policy and practices as essentially irrelevant, bearing “no relation to the Campbells’ harm.” Ante, at 422; see ante, at 424 (“conduct that harmed [the Campbells] is the only conduct relevant to the reprehensibility analysis”). It is hardly apparent why that should be so. What is infirm about the Campbells’ theory that their experience with State Farm exemplifies and reflects an overarching underpayment scheme, one that caused “repeated misconduct of the sort that injured them,” ante, at 423? The Court’s silence on that score is revealing: Once one recognizes that the Campbells did show “conduct by State Farm similar to that which harmed them,” ante, at 424, it becomes impossible to shrink the reprehensibility analysis to this sole case, or to maintain, at odds with the determination of the trial court, see App. to Pet. for Cert. 113a, that “the adverse effect on the State’s general population was in fact minor,” ante, at 427.

Evidence of out-of-state conduct, the Court acknowledges, may be “probative [even if the conduct is lawful in the State where it occurred] when it demonstrates the deliberateness and culpability of the defendant’s action in the State where it is tortious....” Ante, at 422; cf. ante, at 419 (reiterating this Court’s instruction that trial courts assess whether “the harm was the result of intentional malice, trickery, or deceit, or mere accident”). “Other acts” evidence concerning practices both in and out of State was introduced in this case to show just such “deliberateness” and “culpability.” The evidence was admissible, the trial court ruled: (1) to document State Farm’s “reprehensible” PP&R program; and (2) to “rebut [State Farm’s] assertion that [its] actions toward the Campbells were inadvertent errors or mistakes in judgment.” App. 3329a (Order Denying Various Motions of State Farm to Exclude Plaintiffs’ Evidence). Viewed in this light, there surely was “a nexus” between much of the “other acts” evidence and “the specific harm suffered by [the Camp-bells].” Ante, at 422.

Ill

When the Court first ventured to override state-court punitive damages awards, it did so moderately. The Court recalled that “[i]n our federal system, States necessarily have considerable flexibility in determining the level of punitive damages that they will allow in different classes of cases and in any particular case.” Gore, 517 U. S., at 568. Today’s decision exhibits no such respect and restraint. No longer content to accord state-court judgments “a strong presumption of validity,” TXO, 509 U. S., at 457, the Court announces that “few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” Ante, at 425. Moreover, the Court adds, when compensatory damages are substantial, doubling those damages “can reach the outermost limit of the due process guarantee.” Ibid,.; see ante, at 429 (“facts of this case ... likely would justify a punitive damages award at or near the amount of compensatory damages”). In a legislative scheme or a state high court’s design to cap punitive damages, the handiwork in setting single-digit and 1-to-l benchmarks could hardly be questioned; in a judicial decree imposed on the States by this Court under the banner of substantive due process, the numerical controls today’s decision installs seem to me boldly out of order.

* * *

1 remain of the view that this Court has no warrant to reform state law governing awards of punitive damages. Gore, 517 U. S., at 607 (Ginsburg, J., dissenting). Even if I were prepared to accept the flexible guides prescribed in Gore, I would not join the Court’s swift conversion of those guides into instructions that begin to resemble marching orders. For the reasons stated, I would leave the judgment of the Utah Supreme Court undisturbed.

       By switching the focus from the ratio of punitive to compensatory damages to the potential loss to the plaintiffs had the defendant succeeded in its illicit scheme, the Court could describe the relevant ratio in TXO as 10 to 1. See BMW of North America, Inc. v. Gore, 517 U. S. 559, 581, and n. 34 (1996).

        TXO Production Corp. v. Alliance Resources Corp., 509 U. S. 443, 462, n. 8 (1993), noted that “[ujnder well-settled law,” a defendant’s “wrongdoing in other parts of the country” and its “impressive net worth” are factors “typically considered in assessing punitive damages.” It remains to be seen whether, or the extent to which, today’s decision will unsettle that law.


author: Justice Stevens Justice Ginsburg,

text:
    CLACKAMAS GASTROENTEROLOGY ASSOCIATES, P. C. v. WELLS
    No. 01-1435.
    Argued February 25, 2003
    Decided April 22, 2003

      Stevens, J., delivered the opinion of the Court, in which Rehnquist, C. J., and O’Connor, Scalia, Kennedy, Souter, and Thomas, JJ., joined. Ginsburg, J., filed a dissenting opinion, in which Breyer, J., joined, post, p. 451.

      Steven W. Seymour argued the cause for petitioner. With him on the briefs was Andria C. Kelly.

      Irving L. Gornstein argued the cause for the United States et al. as amici curiae urging reversal. With him on the brief were Solicitor General Olson, Deputy Solicitor General Clement, Philip B. Sklover, Lorraine C. Davis, and Robert J. Gregory.

      Craig A. Crispin argued the cause and filed a brief for respondent.

      Briefs of amici curiae urging affirmance were filed for the American Federation of Labor and Congress of Industrial Organizations by Jonathan P. Hiatt, James B. Coppess, and Laurence Gold; for the Lawyers’ Committee for Civil Rights Under Law et al. by Barbara R. Amwine, Thomas J. Henderson, Michael L. Foreman, Daniel B. Kohrman, Melvin Radowitz, Vincent A Eng, Dennis C. Hayes, and Judith L. Lichtman; and for the National Employment Lawyers Association et al. by Merl H. Wayman and Jenifer Bosco.

   Justice Stevens

delivered the opinion of the Court.

The Americans with Disabilities Act of 1990 (ADA or Act), 104 Stat. 327, as amended, 42 U. S. C. § 12101 et seq., like other federal antidiscrimination legislation, is inapplicable to very small businesses. Under the ADA an “employer” is not covered unless its work force includes “15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year.” § 12111(5). The question in this case is whether four physicians actively engaged in medical practice as shareholders and directors of a professional corporation should be counted as “employees.”

I

Petitioner, Clackamas Gastroenterology Associates, P. C., is a medical clinic in Oregon. It employed respondent, Deborah Anne Wells, as a bookkeeper from 1986 until 1997. After her termination, she brought this action against the clinic alleging unlawful discrimination on the basis of disability under Title I of the ADA. Petitioner denied that it was covered by the Act and moved for summary judgment, asserting that it did not have 15 or more employees for the 20 weeks required by the statute. It is undisputed that the accuracy of that assertion depends on whether the four physician-shareholders who own the professional corporation and constitute its board of directors are counted as employees.

The District Court, adopting the Magistrate Judge's findings and recommendation, granted the motion. Relying on an “economic realities” test adopted by the Seventh Circuit in EEOC v. Dowd & Dowd, Ltd., 736 F. 2d 1177, 1178 (1984), the District Court concluded that the four doctors were “more analogous to partners in a partnership than to shareholders in a general corporation” and therefore were “not employees for purposes of the federal antidiscrimination laws.” App. 89.

A divided panel of the Court of Appeals for the Ninth Circuit reversed. Noting that the Second Circuit had rejected the economic realities approach, the majority held that the use of any corporation, including a professional corporation, “ ‘precludes any examination designed to determine whether the entity is in fact a partnership.’” 271 F. 3d 903, 905 (2001) (quoting Hyland v. New Haven Radiology Associates, P. C., 794 F. 2d 793, 798 (CA2 1986)). It saw “no reason to permit a professional corporation to secure the ‘bést of both possible worlds’ by allowing it both to assert its corporate status in order to reap the tax and civil liability advantages and to argue that it is like a partnership in order to avoid liability for unlawful employment discrimination.” 271 F. 3d, at 905. The dissenting judge stressed the differences between an Oregon physicians’ professional corporation and an ordinary business corporation, and argued that Congress’ reasons for exempting small employers from the coverage of the Act should apply to petitioner. Id., at 906-909 (opinion of Graber, J.).

We granted certiorari to resolve the conflict in the Circuits, which extends beyond the Seventh and the Second Circuits. 536 U. S. 990 (2002).

I — l I — (

“We have often been asked to construe the meaning of ‘employee’ where the statute containing the term does not helpfully define it.” Nationwide Mut. Ins. Co. v. Darden, 503 U. S. 318, 322 (1992). The definition of the term in the ADA simply states that an “employee” is “an individual employed by an employer.” 42 U. S. C. § 12111(4). That surely qualifies as a mere “nominal definition” that is “completely circular and explains nothing.” Darden, 503 U. S., at 323. As we explained in Darden, our cases construing similar language give us guidance on how best to fill the gap in the statutory text.

In Darden we were faced with the question whether an insurance salesman was an independent contractor or an “employee” covered by the Employee Retirement Income Security Act of 1974 (ERISA). Because ERISA’s definition of “employee” was “completely circular,” 503 U. S., at 323, we followed the same general approach that we had previously used in deciding whether a sculptor was an “employee” within the meaning of the Copyright Act of 1976, see Community for Creative Non-Violence v. Reid, 490 U. S. 730 (1989), and we adopted a common-law test for determining who qualifies as an “employee” under ERISA. Quoting Reid, 490 U. S., at 739-740, we explained that “‘when Congress has used the term “employee” without defining it, we have concluded that Congress intended to describe the conventional master-servant relationship as understood by common-law agency doctrine.’ ” Darden, 503 U. S., at 322-323.

Rather than looking to the common law, petitioner argues that courts should determine whether a shareholder-director of a professional corporation is an “employee” by asking whether the shareholder-director is, in reality, a “partner.” Brief for Petitioner 9,15-16, 21 (arguing that the four shareholders in the clinic are more analogous to partners in a partnership than shareholders in a corporation and that “those who are properly classified as partners are not ‘employees’ for purposes of the anti-discrimination statutes”). The question whether a shareholder-director is an employee, however, cannot be answered by asking whether the shareholder-director appears to be the functional equivalent of a partner. Today there are partnerships that include hundreds of members, some of whom may well qualify as “employees” because control is concentrated in a small number of managing partners. Cf. Hishon v. King & Spalding, 467 U. S. 69, 79, n. 2 (1984) (Powell, J., concurring) (“[A]n employer may not evade the strictures of Title VII simply by labeling its employees as ‘partners’”); EEOC v. Sidley Austin Brown & Wood, 315 F. 3d 696, 709 (CA7 2002) (Easterbrook, J., concurring in part and concurring in judgment); Strother v. Southern California Permanente Medical Group, 79 F. 3d 859 (CA9 1996). Thus, asking whether shareholder-directors are partners — rather than asking whether they are employees — simply begs the question.

Nor does the approach adopted by the Court of Appeals in this case fare any better. The majority’s approach, which paid particular attention to “the broad purpose of the ADA,” 271 F. 3d, at 905, is consistent with the statutory purpose of ridding the Nation of the evil of discrimination. See 42 U. S. C. § 12101(b). Nevertheless, two countervailing considerations must be weighed in the balance. First, as the dissenting judge noted below, the congressional decision to limit the coverage of the legislation to firms with 15 or more employees has its own justification that must be respected— namely, easing entry into the market and preserving the competitive position of smaller firms. See 271 F. 3d, at 908 (opinion of Graber, J.) (“Congress decided ‘to spare very small firms from the potentially crushing expense of mastering the intricacies of the antidiscrimination laws, establishing procedures to assure compliance, and defending against suits when efforts at compliance fail’ ” (quoting Papa v. Katy Industries, Inc., 166 F. 3d 937, 940 (CA7), cert. denied, 528 U. S. 1019 (1999))). Second, as Darden reminds us, congressional silence often reflects an expectation that courts will look to the common law to fill gaps in statutory text, particularly when an undefined term has a settled meaning at common law. Congress has overridden judicial decisions that went beyond the common law in an effort to correct “ ‘the mischief’ ” at which a statute was aimed. See 503 U. S., at 324-325.

Perhaps the Court of Appeals’ and the parties’ failure to look to the common law for guidance in this case stems from the fact that we are dealing with a new type of business entity that has no exact precedent in the common law. State statutes now permit incorporation for the purpose of practicing a profession, but in the past “the so-called learned professions were not permitted to organize as corporate entities.” 1A W. Fletcher, Cyclopedia of the Law of Private Corporations §112.10 (rev. ed. 1997-2002). Thus, professional corporations are relatively young participants in the market, and their features vary from State to State. See generally 1 B. Bittker & J. Eustice, Federal Income Taxation of Corporations and Shareholders ¶ 2.06 (7th ed. 2002) (explaining that States began to authorize the creation of professional corporations in the late 1950’s and that the momentum to form professional corporations grew in the 1970’s).

Nonetheless, the common law’s definition of the master-servant relationship does provide helpful guidance. At common law the relevant factors defining the master-servant relationship focus on the master’s control over the servant. The general definition of the term “servant” in the Restatement (Second) of Agency §2(2) (1957), for example, refers to a person whose work is “controlled or is subject to the right to control by the master.” See also id., § 220(1) (“A servant is a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other’s control or right to control”). In addition, the Restatement’s more specific definition of the term “servant” lists factors to be considered when distinguishing between servants and independent contractors, the first of which is “the extent of control” that one may exercise over the details of the work of the other. Id., § 220(2)(a). We think that the common-law element of control is the principal guidepost that should be followed in this case.

This is the position that is advocated by the Equal Employment Opportunity Commission (EEOC), the agency that has special enforcement responsibilities under the ADA and other federal statutes containing similar threshold issues for determining coverage. It argues that a court should examine “whether shareholder-directors operate independently and manage the business or instead are subject to the firm’s control.” Brief for United States et al. as Amici Curiae 8. According to the EEOC’s view, “[i]f the shareholder-directors operate independently and manage the business, they are proprietors and not employees; if they are subject to the firm’s control, they are employees.” Ibid.

Specific EEOC guidelines discuss both the broad question of who is an “employee” and the narrower question of when partners, officers, members of boards of directors, and major shareholders qualify as employees. See 2 Equal Employment Opportunity Commission, Compliance Manual §§605:0008-605:00010 (2000) (hereinafter EEOC Compliance Manual). With respect to the broad question, the guidelines list 16 factors — taken from Darden, 503 U. S., at 323-324 — that may be relevant to “whether the employer controls the means and manner of the worker’s work performance.” EEOC Compliance Manual §605:0008, and n. 71. The guidelines list six factors to be considered in answering the narrower question, which they frame as “whether the individual acts independently and participates in managing the organization, or whether the individual is subject to the organization’s control.” Id., §605:0009.

We are persuaded by the EEOC’s focus on the common-law touchstone of control, see Skidmore v. Swift & Co., 323 U. S. 134, 140 (1944), and specifically by its submission that each of the following six factors is relevant to the inquiry whether a shareholder-director is an employee:

“Whether the organization can hire or fire the individual or set the rules and regulations of the individual’s work
“Whether and, if so, to what extent the organization supervises the individual’s work
“Whether the individual reports to someone higher in the organization
“Whether and, if so, to what extent the individual is able to influence the organization
“Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts
“Whether the individual shares in the profits, losses, and liabilities of the organization.” EEOC Compliance Manual §605:0009.

As the EEOC’s standard reflects, an employer is the person, or group of persons, who owns and manages the enterprise. The employer can hire and fire employees, can assign tasks to employees and supervise their performance, and can decide how the profits and losses of the business are to be distributed. The mere fact that a person has a particular title — such as partner, director, or vice president — should not necessarily be used to determine whether he or she is an employee or a proprietor. See ibid. (“An individual’s title . . . does not determine whether the individual is a partner, officer, member of a board of directors, or major shareholder, as opposed to an employee”). Nor should the mere existence of a document styled “employment agreement” lead inexorably to the conclusion that either party is an employee. See ibid, (looking to whether “the parties intended that the individual be an employee, as expressed in written agreements or contracts”). Rather, as was true in applying common-law rules to the independent-contractor-versus-employee issue confronted in Darden, the answer to whether a shareholder-director is an employee depends on “ ‘all of the incidents of the relationship . . . with no one factor being decisive.’ ” 503 U. S., at 324 (quoting NLRB v. United Ins. Co. of America, 390 U. S. 254, 258 (1968)).

III

Some of the District Court’s findings — when considered in light of the EEOC’s standard — appear to weigh in favor of a conclusion that the four director-shareholder physicians in this case are not employees of the clinic. For example, they apparently control the operation of their clinic, they share the profits, and they are personally liable for malpractice claims. There may, however, be evidence in the record that would contradict those findings or support a contrary conclusion under the EEOC’s standard that we endorse today. Accordingly, as we did in Darden, we reverse the judgment of the Court of Appeals and remand the case to that court for further proceedings consistent with this opinion.

It is so ordered.

Justice Ginsburg,

with whom Justice Breyer joins, dissenting.

“There is nothing inherently inconsistent between the coexistence of a proprietary and an employment relationship.” Goldberg v. Whitaker House Cooperative, Inc., 366 U. S. 28, 32 (1961). As doctors, performing the everyday work of petitioner Clackamas Gastroenterology Associates, P. C., the physician-shareholders function in several respects as common-law employees, a designation they embrace for various purposes under federal and state law. Classifying as employees all doctors daily engaged as caregivers on Clacka-mas’ premises, moreover, serves the animating purpose of the Americans with Disabilities Act of 1990 (ADA or Act). Seeing no cause to shelter Clackamas from the governance of the ADA, I would affirm the judgment of the Court of Appeals.

An “employee,” the ADA provides, is “an individual employed by an employer.” 42 U. S. C. §12111(4). Where, as here, a federal statute uses the word “employee” without explaining the term’s intended scope, we ordinarily presume “Congress intended to describe the conventional master-servant relationship as understood by common-law agency doctrine.” Nationwide Mut. Ins. Co. v. Darden, 503 U. S. 318, 322-323 (1992) (internal quotation marks omitted). The Court today selects one of the common-law indicia of a master-servant relationship — control over the work of others engaged in the business of the enterprise — and accords that factor overriding significance. Ante, at 448. I would not so shrink the inquiry.

Are the physician-shareholders “servants” of Clackamas for the purpose relevant here? The Restatement defines “servant” to mean “an agent employed by a master to perform service in his affairs whose physical conduct in the performance of the service is controlled or is subject to the right to control by the master.” Restatement (Second) of Agency §2(2) (1957) (hereinafter Restatement). When acting as clinic doctors, the physician-shareholders appear to fit the Restatement definition. The doctors provide services on behalf of the corporation, in whose name the practice is conducted. See Ore. Rev. Stat. Ann. §58.185(1)(a) (1998 Supp.) (shareholders of a professional corporation “render the specified professional services of the corporation” (emphasis added)). The doctors have employment contracts with Clackamas, App. 71, under which they receive salaries and yearly bonuses, Tr. of Oral Arg. 8, and they work at facilities owned or leased by the corporation, App. 29, 71. In performing their duties, the doctors must “compl[y] with . . . standards [the organization has] established.” Id., at 66; see Restatement, ch. 7, tit. B, Introductory Note, p. 479 (“[Fjully employed but highly placed employees of a corporation . . . are not less servants because they are not controlled in their day-to-day work by other human beings. Their physical activities are controlled by their sense of obligation to devote their time and energies to the interests of the enterprise.”).

The physician-shareholders, it bears emphasis, invite the designation “employee” for various purposes under federal and state law. The Employee Retirement Income Security Act of 1974 (ERISA), much like the ADA, defines “employee” as “any individual employed by an employer.” 29 U. S. C. § 1002(6). Clackamas readily acknowledges that the physician-shareholders are “employees” for ERISA purposes. Tr. of Oral Arg. 6-7. Indeed, gaining qualification as “employees” under ERISA was the prime reason the physician-shareholders chose the corporate form instead of a partnership. See id., at 7. Further, Clackamas agrees, the physician-shareholders are covered by Oregon’s workers’ compensation law, ibid., a statute applicable to “personfe]... who .. . furnish services for a remuneration, subject to the direction and control of an employer,” Ore. Rev. Stat. Ann. §656.005(30) (1996 Supp.). Finally, by electing to organize their practice as a corporation, the physician-shareholders created an entity separate and distinct from themselves, one that would afford them limited liability for the debts of the enterprise. §§ 58.185(4), (5), (10), (11) (1998 Supp.). I see no reason to allow the doctors to escape from their choice of corporate form when the question becomes whether they are employees for purposes of federal antidiscrimination statutes.

Nothing in or about the ADA counsels otherwise. As the Court observes, the reason for exempting businesses with fewer than 15 employees from the Act, was “to spare very small firms from the potentially crushing expense of mastering the intricacies of the antidiscrimination laws, establishing procedures to assure compliance, and defending against suits when efforts at compliance fail.” Ante, at 447 (quotation from Papa v. Katy Industries, Inc., 166 F. 3d 937, 940 (CA7 1999)). The inquiry the Court endorses to determine the physician-shareholders’ qualification as employees asks whether they “ac[t] independently and participate] in managing the organization, or . . . [are] subject to the organization’s control.” Ante, at 449 (quoting 2 Equal Employment Opportunity Commission, Compliance Manual § 605:0009 (2000)). Under the Court’s approach, a firm’s coverage by the ADA might sometimes turn on variations in ownership structure unrelated to the magnitude of the company’s business or its capacity for complying with federal prescriptions.

This case is illustrative. In 1996, Clackamas had 4 physician-shareholders and at least 14 other employees for 28 full weeks; in 1997, it had 4 physician-shareholders and at least 14 other employees for 37 full weeks. App. 55-62; see 42 U. S. C. § 12111(5) (to be covered by the Act, an employer must have the requisite number of employees “for each working day in each of 20 or more calendar weeks in the current or preceding calendar year”). Beyond question, the corporation would have been covered by the ADA had one of the physician-shareholders sold his stake in the business and become a “mere” employee. Yet such a change in ownership arrangements would not alter the magnitude of Clack-amas’ operation: In both circumstances, the corporation would have had at least 18 people on site doing the everyday work of the clinic for the requisite number of weeks.

The Equal Employment Opportunity Commission’s approach, which the Court endorses, it is true, “excludes from protection those who are most able to control the firm’s practices and who, as a consequence, are least vulnerable to the discriminatory treatment prohibited by the Act.” Brief for United States et al. as Amici Curiae 11; see 42 U. S. C. §§ 12111(8), 12112(a) (only “employees’' are protected by the ADA). As this dispute demonstrates, however, the determination whether the physician-shareholders are employees of Clackamas affects not only whether they may sue under the ADA, but also — and of far greater practical import— whether employees like bookkeeper Deborah Anne Wells are covered by the Act. Because the character of the relationship between Clackamas and the doctors supplies no justification for withholding from clerical worker Wells federal protection against discrimination in the workplace, I would affirm the judgment of the Court of Appeals.

       See, e. g., 29 U. S. C. § 630(b) (setting forth a 20-employee threshold for coverage under the Age Discrimination in Employment Act of 1967 (ADEA)); 42 U. S. C. § 2000e(b) (establishing a 15-employee threshold for coverage under Title VII of the Civil Rights Act of 1964).

       The dissenting judge summarized Oregon’s treatment of professional corporations as follows:
      “In Oregon, a physicians’ professional corporation, like this one, preserves the professional relationship between the physicians and their patients, as well as the standards of conduct that the medical profession requires. Or. Rev. Stat. §58.185(2). Further, ‘a shareholder of the corporation is personally liable as if the shareholder were rendering the service or services as an individual’ with respect to all claims of negligence, wrongful acts or omissions, or misconduct committed in the rendering of professional services. Or. Rev. Stat. § 58.185(3) (emphasis added). A licensed professional also is jointly and severally liable for such claims, albeit with some dollar limitations. Or. Rev. Stat. §58.185(4)-(9). Ordinary business corporation rules apply only to other aspects of the entity, apart from the provision of professional services. Or. Rev. Stat. § 58.185(11). A professional corporation’s activities must remain consistent with the requirements of the type of license in question, Or. Rev. Stat. § 58.205, and it may merge only with other professional corporations, Or. Rev. Stat. § 58.196, so the provision of professional services — with its attendant liabilities — must remain at the heart of a R C. like this defendant.
      “Additional special rules apply to professional corporations that are organized to practice medicine, none of which apply to ordinary business corporations. A majority of the directors, the holders of the majority of shares, and all officers except the secretary and treasurer must be Oregon-licensed physicians. Or. Rev. Stat. §58.375(l)(a)-(c). The Board of Medical Examiners is given express statutory authority to require more than a majority of shares, and more than a majority of director positions, to be held by Oregon-licensed physicians. Or. Rev. Stat. § 58.375(l)(d) & (e). The Board of Medical Examiners also may restrict the corporate powers of a professional corporation organized for the purpose of practicing medicine, beyond the restrictions imposed on ordinary business corporations. Or. Rev. Stat. §58.379. Lastly, Or. Rev. Stat. §§58.375 through 58.389 contain impediments to the transfer of shares and other corporate activities.” 271 F. 3d, at 907-908 (opinion of Graber, J.) (footnote omitted).

       The disagreement in the Circuits is not confined to the particulars of the ADA. For example, the Seventh Circuit’s decision in EEOC v. Dowd & Dowd, Ltd., 736 F. 2d 1177 (1984), concerned Title VII, and the Second Circuit’s opinion in Hyland v. New Haven Radiology Associates, R C., 794 F. 2d 793 (1986), involved the ADEA. See also Devine v. Stone, Leyton & Gershman, P. C., 100 F. 3d 78 (CA8 1996) (Title VII case).

       In Reid, 490 U. S., at 738, the ownership of a copyright in a statue depended on whether it had been ‘“prepared by an employee within the scope of his or her employment’ ” within the meaning of the Copyright Act of 1976.

        Darden described the common-law test for determining whether a hired party is an employee as follows:
      “‘[W]e consider the hiring party’s right to control the manner and means by which the product is accomplished. Among the other factors relevant to this inquiry are the skill required; the source of the instrumen-talities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party.’” 503 U. S., at 323-324 (quoting Community for Creative Non-Violence v. Reid, 490 U. S. 730, 751-752 (1989), and citing Restatement (Second) of Agency §220(2) (1958)).
      These particular factors are not directly applicable to this case because we are not faced with drawing a line between independent contractors and employees. Rather, our inquiry is whether a shareholder-director is an employee or, alternatively, the kind of person that the common law would consider an employer.

       The meaning of the term “employee” comes into play when determining whether an individual is an “employee” who may invoke the ADA’s protections against discrimination in “hiring, advancement, or discharge,” 42 U. S. C. § 12112(a), as well as when determining whether an individual is an “employee” for purposes of the 15-employee threshold. See § 12111(5)(A); see also Brief for United States et al. as Amici Curiae 10-11; Schmidt v. Ottawa Medical Center, P. C., 322 F. 3d 461 (CA7 2003). Consequently, a broad reading of the term “employee” would — consistent with the statutory purpose of ridding the Nation of discrimination — tend to expand the coverage of the ADA by enlarging the number of employees entitled to protection and by reducing the number of firms entitled to QVornnfi An

       The EEOC’s manual states that it applies across the board to other federal antidiscrimination statutes. See EEOC Compliance Manual § 605:0001 (“This Section discusses coverage, timeliness, and other threshold issues to be considered when a charge is first filed under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967 (ADEA), the Americans with Disabilities Act of 1990 (ADA), or the Equal Pay Act of 1963 (EPA)” (footnote omitted)).

       For example, the EEOC considers whether the work requires a high level of skill or expertise, whether the employer furnishes the tools, materials, and equipment, and whether the employer has the right to control when, where, and how the worker performs the job. Id., § 605:0008.

       As the Government has acknowledged, see Tr. of Oral Arg. 19, the EEOC’s Compliance Manual is not controlling — even though it may constitute a “body of experience and informed judgment” to which we may resort for guidance. Skidmore v. Swift & Co., 323 U. S., at 140; see also Christensen v. Harris County, 529 U. S. 576, 587 (2000) (holding that agency interpretations contained in “policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law[,] do not warrant Chevron-style deference”).

       The EEOC asserts that these six factors need not necessarily be treated as “exhaustive.” Brief for United States et al. as Amici Curiae 9. We agree. The answer to whether a shareholder-director is an employee or an employer cannot be decided in every case by a ‘“shorthand formula or magic phrase.’” Nationwide Mut. Ins. Co. v. Darden, 503 U. S. 318, 324 (1992) (quoting NLRB v. United Ins. Co. of America, 390 U. S. 254, 258 (1968)).

       For example, the record indicates that the four director-shareholders receive salaries, Tr. of Oral Arg. 8, that they must comply with the standards established by the clinic, App. 66, and that they report to a personnel manager, ibid.