Novel Mathematical Formula to Calculate Punitive Damages

Chamber II of the First Court of Appeals in Civil and Commercial Matters of Bahía Blanca (the “Court”) recently sentenced Banco de Galicia y Buenos Aires S.A. (the “Bank”) to pay AR$ 1,000,000 for punitive damages, plus $ 20,000 for moral damages.

The complaint was filed by one of the Bank’s clients, who had requested a credit card and never received it. The Bank, nevertheless, opened a checking account for the client, and administrative expenses were debited from it. After receiving several claims made by the Bank requiring her to pay debit balances, the plaintiff filed a complaint before the Municipal Office of Information to the Consumer (“O.M.I.C.”)

In the conciliatory hearing, the Bank admitted that debt was unjustified and offered to condone it. The plaintiff alleged that, despite this, she continued to receive claims and that the reports provided to the Argentine Central Bank did not change (she had been qualified as a grade 5 “high risk” debtor).

The plaintiff filed the suit against the Bank so that (i) it was compelled to honor its obligation assumed before O.M.I.C. and inform her current financial situation to the Argentine Central Bank; (ii) the act by which the checking account was opened to be declared void; and (iii) she be awarded damages by the Bank that she estimated at AR$ 70,000 (AR$ 20,000 for moral damages; AR$ 50,000 for punitive damages).

The Bank did not answer the complaint and appeared before the Court afterwards.

The trial court judge dismissed the complaint, and declared that the legal fees and costs had to be paid by plaintiff. The judge considered that resolving on the validity of the act by which the Bank had opened the checking account had become abstract, since the agreement reached at O.M.I.C. had been subsequently approved and understood that the filing of the complaint at that stage was “premature.”

The Court admitted the plaintiff’s appeal and revoked the trial court’s ruling. It considered that the administrative and judicial filings could be made at the same time, because there is no rule that establishes that one must be decided before the other, nor does the final administrative judgment have any influence in the judicial sphere. In this regard, it deemed that the only matter that had become abstract was the cease of erroneous reports to the Central Bank, given that the Bank was no longer providing the wrong information.

The Court pointed out that the Bank had to supply truthful information and established that, in this case, this duty had been breached since the Bank had not informed the opening of the checking account. Although the Court recognized that the opening of a checking account when a credit card is requested is a common banking practice, the credit card contract had not been completed, and this was essential in order to proceed to open the checking account. Additionally, given that this is an agreement, if no consent is given, there is an inherent error that invalidates the deal. Because of it, the Court declared the checking account void.

Regarding moral damages, the Court understood that they were justified due to the “adverse circumstances that plaintiff had to go through, during a very long time, until she was finally able to make her qualification as debtor stop.”

To quantify it, the Court pointed out that the following had to be taken into account: a) the victim’s age; b) their economic, social, cultural conditions; and c) the intensity of the damage. The Court said that moral damages, in order to be a “perfect compensation”, had to represent a “pleasure” to the person that is awarded it, and as such, compensate the anguish suffered. Taking into account that plaintiff was a middle-aged woman, probably middle class it considered that a “pleasure” for her could be represented by the value of the trip for a “long weekend” to a touristic point of the country in good facilities. In this connection, the Court valued the moral damages at AR$20,000, the amount that matched with what had been requested by plaintiff.

Regarding punitive damages, the Court admitted them because it deemed that the Bank’s conduct had been very serious, qualifying it as gross negligence, practically a wilful misconduct, added to its taking advantage of the fact that procedural obstacles substantially reduce the number of filings against it. Plaintiff had requested that they be valued at AR$ 50,000, but the Court emphasized that the consumer cannot and must not value it, since this is not a compensation award, but a preventive penalty established by the judge. This function is the crux in order to be able to quantify for it.

To value its amount, the Court made clear that, firstly, the amount must be high enough for it to achieve its aim of dissuading the offender from repeating its wrongful conduct. In addition, the Court used a mathematical formula that is grounded on the fact that, in these cases, the perpetrator takes into account that the possibility of being sued and sentenced against is low.

The formula takes into consideration the following elements: (i) “C”, the damages caused to the consumer, (ii) “Pc”, the chance of being sentenced to pay for the compensatory damages caused, and (iii) “Pd”, the chance of being sentenced to pay punitive damages.

In this case, as we mentioned above, moral damages had been awarded for AR$ 20,000. The Court considered that “as a maximum, one consumer in fifty that finds him or herself in plaintiff’s position will effectively obtain a ruling in their favor” and having achieved said ruling, “so grotesque was the situation that the plaintiff had to go through until she finally got a ruling in her favor, and so obvious was the Bank’s extremely severe negligence”, that the chances of punitive damages being added to the principal ruling were estimated in 98% (it was not valued in 100% due to the novelty of the institute and the limited number of existing precedents). 

Hence, the Court sentenced the Bank to pay AR$ 1,000,000 for punitive damages, calculated as follows:

     D = C x [(1 - Pc) / (Pc x Pd)]

     D =  AR$ 20,000 x [(1-0.02) / (0.02 x 0.98)]

     D = AR$ 20,000 x [0.98 / 0.0196]

     D = AR$ 20,000 x 50

     D = AR$ 1,000,000