Title: American Pioneer Life Ins. Co. v. Williamson

State: alabama

Issuer: Alabama Supreme Court

Document:

704 So. 2d 1361 (1997)
AMERICAN PIONEER LIFE INSURANCE COMPANY and Jerry Curtis
v.
Freddy J. WILLIAMSON.
1921796.

Supreme Court of Alabama.
September 5, 1997.
Stanley A. Cash and Walter J. Price III of Huie, Fernambucq & Stewart, Birmingham, for appellants.
W. Michael Atchison and Jeffrey E. Friedman of Starnes & Atchison, Birmingham, for appellee.
COOK, Justice.
This case is on remand from the United States Supreme Court for reconsideration of the punitive damages award in light of BMW of North America, Inc. v. Gore, 517 U.S. 559, 116 S. Ct. 1589, 134 L. Ed. 2d 809 (1996). On original deliverance, this Court affirmed a compensatory award for Freddy Williamson against American Pioneer Life Insurance Company and its employee Jerry Curtis in the amount of $250,000 and affirmed a punitive *1362 damages award against American Pioneer and Curtis conditioned on Williamson's acceptance of a reduction of that award from $3,000,000 to $2,000,000. See American Pioneer Life Ins. Co. v. Williamson, 681 So. 2d 1040 (Ala.1995). On remand, we re-affirm the compensatory award; we also re-affirm the punitive damages award, but, upon our reconsideration of that award in light of the United States Supreme Court's opinion in BMW, we condition our affirmance on the plaintiff's acceptance of a further reduction of the punitive damages award to $750,000.
In BMW, supra, the jury awarded $4,000 in compensatory damages and $4,000,000 in punitive damages against BMW for fraudulently failing to disclose to Dr. Ira Gore that the BMW automobile he was purchasing had been repainted. On appeal, this Court ordered a reduction of the $4,000,000 punitive award to $2,000,000. See BMW of North America, Inc. v. Gore, 646 So. 2d 619 (Ala. 1994). The United States Supreme Court vacated our $2,000,000 judgment, partly because that Court concluded that BMW had not received "fair notice not only of the conduct that [would subject it] to punishment but also of the severity of the penalty that [this] State [would] impose." 517 U.S.  at 574, 116 S. Ct.  at 1598. The Supreme Court also cited three guideposts a court should use to scrutinize a punitive damages award for excessiveness: the degree of reprehensibility; the ratio between the punitive damages award and the compensatory damages award; and a comparison of the punitive damages award to the civil or criminal penalties that could be imposed for comparable misconduct. 517 U.S.  at 574-576, 116 S. Ct.  at 1598-99.
The first and most important factor to be considered is the degree of reprehensibility of the conduct of the defendant. Considering this factor helps ensure that the punitive damages award is not "`grossly out of proportion to the severity of the offense.'" 517 U.S.  at 576, 116 S. Ct.  at 1599. The second factor to be considered is the ratio of the punitive damages award to the harm inflicted. 517 U.S.  at 580, 116 S. Ct.  at 1601. In setting out this factor, the Supreme Court was quick to state that it has "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." 517 U.S.  at 582, 116 S. Ct.  at 1602, citing TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443 at 458, 113 S. Ct. 2711 at 2720, 125 L. Ed. 2d 366 (1993). The Supreme Court pointed out that the ratio of punitive damages to actual damages in BMW was 500 to 1. 517 U.S.  at 583, 116 S. Ct.  at 1603. This ratio, coupled with the fact that "there [was] no suggestion that Dr. Gore or any other BMW purchaser was threatened with any additional potential harm by BMW's nondisclosure policy," resulted in an unjustified great disparity between the actual damages and the punitive damages awarded. 517 U.S.  at 582, 116 S. Ct.  at 1602. A third critical factor to be considered with regard to the question of excessiveness is the potential imposition of criminal or civil penalties for comparable misconduct. 517 U.S.  at 583, 116 S. Ct.  at 1603. The Supreme Court determined that the maximum statutory civil penalty in Alabama for violations similar to those committed by BMW was $2,000, leaving much disparity between the civil penalty and the $2,000,000 punitive damages award sanctioned by this Court in its first opinion in this case.
In the BMW case, on remand from the United States Supreme Court, we addressed the concerns of that Court as follows:
BMW of North America, Inc. v. Gore, 701 So. 2d 507, 509 (Ala.1997) (BMW II).
With regard to the requirement that a defendant have notice of the conduct that will result in a large punitive damages penalty, as well as knowledge of the severity of that penalty, we wrote on remand:
"(Emphasis added [in BMW II].)
BMW II, 701 So. 2d  at 510 - 511.
On remand in BMW II, this Court ordered a remittitur of the punitive damages award from $2,000,000 to $50,000. As we did in that case, we will now reevaluate the punitive damages award in this present case in light of the United States Supreme Court's decision in BMW and our subsequent opinion in BMW II on remand. The facts of this case, as stated in our earlier opinion, are as follows:
American Pioneer Life Ins. Co. v. Williamson, 681 So. 2d 1040, 1041 (Ala.1995). According to the evidence, the forfeiture-of-commissions clause was invoked without any investigation on the part of APL to determine if Williamson had "induced" the client to replace the APL policy. 681 So. 2d  at 1043-44. The forfeiture-of-commissions clause invoked by APL read:
See 681 So. 2d  at 1042. (Emphasis added.) After his commissions were terminated, Williamson sued APL, alleging breach of contract and fraud. He was awarded compensatory damages and punitive damages.
First, we will consider the degree of reprehensibility of APL's conduct. This factor was cited by the United States Supreme Court in BMW as perhaps the most important factor for a court to consider when reviewing an award for excessiveness. The degree of reprehensibility is also one of the Green Oil factors. Green Oil Co. v. Hornsby, 539 So. 2d 218 at 223 (Ala.1989). In considering the reprehensibility of APL's conduct, we note that the damage suffered by Williamson was economic and did not endanger his health or safety.
Continental Trend Resources, Inc. v. OXY USA Inc., 101 F.3d 634 (10th Cir.1996). Here, the economic harm was the forfeiture of commissions on insurance policies that Williamson, an obviously experienced insurance agent, was to receive as he continued to service policies already in place. Because Williamson was no longer actively selling policies for APL, his commissions from APL would, no doubt, have declined over time, even if the forfeiture provision had not been invoked. In addition, although Williamson argued at trial that APL had treated 12 other agents similarly with regard to forfeiture of commissions, the trial judge directed a verdict for APL as to Williamson's "pattern and practice" allegations. American Pioneer *1366 v. Williamson, 681 So. 2d  at 1045. The granting of the directed verdict is not challenged on appeal. Certainly, the degree of reprehensibility of APL's actions would be seen as much greater if Williamson had proven that American Pioneer had treated other agents similarly. We find that APL's actions against Williamson were reprehensible enough to justify a punitive damages award; however, considering APL's conduct in light of the guideposts set out in BMW, we conclude that the $2,000,000 punitive damages award merits further reduction.
Next, we compare the punitive award to the compensatory award. This second guidepost set out in BMW is also a Green Oil factor. The originally remitted punitive award of $2,000,000 is 8 times the $250,000 compensatory damages award. The United States Supreme Court, in BMW, reiterated that there is no exact mathematical formula for determining when a punitive damages award is excessive. 517 U.S at 582, 116 S. Ct.  at 1602. We, too, have rejected the adoption of a mathematical formula:
BMW II, 701 So. 2d  at 513. However, considering the low degree of reprehensibility in this case, the 8:1 ratio suggests a further reduction would be appropriate.
In our original opinion in this case, we noted that "in 1992 APL's total assets were valued at $49,787,497 and that the company had just over $7,000,000 in surplus cash reserves". American Pioneer, 681 So. 2d  at 1045. Any punitive damages award should remove any profit realized by APL as a result of its misconduct. Any punitive damages award should also sting a company with assets valued at just under $50,000,000 ($7,000,000 of which is held in surplus cash reserves), but should not prevent APL from meeting its obligations to its insureds. APL's financial position or its ability to pay a large award should not, however, result in an affirmance of an unjustified award "simply because the defendant has the ability to pay it." BMW II, 701 So. 2d  at 514. The $2,000,000 punitive award originally affirmed in this case constitutes approximately 4% of APL's net worth, but 28% of its cash reserves. In our original opinion, we stated:
American Pioneer Life Ins. Co. v. Williamson, 681 So. 2d 1040 (Ala.1995). While APL could, no doubt, pay the $2,000,000 award without significant hardship, its actions were not nearly as reprehensible as the misconduct in Northwestern Mutual Life Insurance Co. v. Sheridan. The comparison of the two cases supports a further reduction of the $2,000,000 award.
In our original opinion, we also observed that "there have been no other civil awards against APL for the same conduct and no criminal sanctions for its conduct."[1] 681 So. 2d  at 1046. While the existence of other civil awards or criminal sanctions for the same conduct as existed in this case could support a remittitur, the evidence does not establish that there has been any other civil or criminal punishment for APL's conduct here.
Despite the fact that the record does not suggest an amount relating to the cost of litigation, we recognize that litigation costs *1367 are high in protracted cases such as this one. Nevertheless, "where other Green Oil factors do not support a large punitive damages award, substantial litigation costs borne by the plaintiff will not alone justify the award." BMW II, 701 So. 2d  at 514.
Considering all of the foregoing factors, we make the following observations and findings: A reduction of the punitive damages award from $2,000,000 to $750,000 would leave an award more than adequate to remove any profit realized by APL as a result of its actions. A $750,000 award would represent approximately 1% of the net worth of APL at the time of the wrongful conduct. A $750,000 punitive damages award, in our opinion, would also make APL very reluctant to repeat its conduct in the future and, thus, would thereby meet the objective of encouraging deterrence of future wrongful conduct. Green Oil, 539 So. 2d  at 222. A $750,000 award would represent approximately 11% of APL's cash surplus reserves and would not, in our opinion, impair APL's ability to conduct business with its insureds. By reducing the $2,000,000 punitive award to $750,000, the ratio of punitive damages to compensatory damages is reduced from 8:1 to 3:1, which is in line with the degree of reprehensibility discussed above. That portion of the judgment based on the jury award of $250,000 in compensatory damages is affirmed. The punitive damages award is affirmed, conditioned on Williamson's filing a remittitur of that award to $750,000 within 28 days of the release of this opinion; if he does not file such a remittitur within that time, the judgment will be reversed and this cause will be remanded for a new trial.
AFFIRMED IN PART; AFFIRMED CONDITIONALLY IN PART.
SHORES and KENNEDY, JJ., concur.
HOOPER, C.J., and MADDOX, HOUSTON, BUTTS, and SEE, JJ., concur in the result.
HOUSTON, Justice (concurring in the result).
I concur in the result. See my special opinion in BMW of North America, Inc. v. Gore, 701 So. 2d 507, 516 - 523 (Ala.1997) (Houston, J., concurring in the result).
HOOPER, C.J., and MADDOX and SEE, JJ., concur.
[1]  These are additional factors to be considered under Green Oil, 539 So. 2d  at 223-24.