Colo. Dep’t of Labor & Employment v. Dami Hospitality

July 2, 2018 • Legal Briefs
By David B. Kopel, Ilya Shapiro, Trevor Burrus, & Matthew Larosiere

Is an “excessive” fine constitutional if it’s levied against a corporation? According to the Colorado Department of Labor and Employment, yes it is.

Mrs. Soon Pak manages Dami Hospitality, LLC, a company that runs hotels and motels in Colorado. Pak is a Korean immigrant with minimal proficiency in English. She relies on third‐​party professionals to assist her in maintaining compliance with the myriad of regulations that even native English speakers struggle to understand. Between 2006 and 2014, Dami’s insurance agent failed to renew the company’s worker’s compensation insurance, despite assuring Pak that Dami maintained full coverage.

In 2014, the Labor Department gave notice that Dami’s policy had lapsed, and Pak immediately secured coverage. A few weeks later, the Department imposed a fine of $841,200, including daily penalties the Department had allowed to accumulate for a full eight years before finally giving notice to the company. Put simply, the Department assessed nearly a million‐​dollar fine against a small corporation—which grosses less than a quarter of the total fine—for a violation that was solved immediately after notice was received, with no actual harm done to anyone. This fine is clearly excessive compared to Dami’s violation. To frame it in the worker’s comp context, if an employee is killed on a job, his dependent receives $250,000. That means the Department considers the results of Dami’s lazy insurance agent to be worse than three workplace fatalities.

We disagree. Unwilling to acquiesce to an attempt to justify excessive fines, Cato and the Independence Institute filed and amicus brief in support of Dami before the Colorado Supreme Court, to which the state had taken the case after the Colorado Court of Appeals set aside the fine as unconstitutionally excessive under the Eighth Amendment.

The Department argues that corporations have no Eighth Amendment protection, but this provision an absolute limit on what the government can do. There is no loophole that empowers a government bureau to impose excessive fines on selected defendants due to their organizational structure.

Regardless of who it is assessed against, no government has the lawful power to impose an excessive fine. By arguing that the Excessive Fines Clause can never apply to corporations, the Department is literally claiming the power to fine corporations excessively. The result would be contrary to our constitutional heritage, which comes from historical experience that governments with the power to impose excessive fines harm both people and the rule of law. Imposing an admittedly excessive fine would be a danger to the rule of law, ratifying the state’s ability to ruin persons who do not deserve to be ruined, by definition. The danger of such excessive power does not vanish because their targets have chosen to associate in a corporation. Any fine that is “excessive” necessarily exceeds the powers the people granted to a government bound by the law.

Media Name: dami-cover.jpg
About the Authors
Ilya Shapiro

Director, Robert A. Levy Center for Constitutional Studies, Cato Institute

Matthew Larosiere
Former Legal Associate