Opinion ID: 76790
Heading Depth: 2
Heading Rank: 2

Heading: AT&T's Motion for Remittitur of the Punitive Damages Award

Text: 25 Given the jury's findings that AT&T acted fraudulently and knowingly collected gambling debts, there was sufficient evidence to justify an imposition of some amount of exemplary damages under state law. 7 However, the fact that some amount of exemplary damages was warranted in this case does not end our inquiry. The Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary punishments on a defendant and creates substantive limits on the amount of punitive damages a state may impose. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003). In determining whether the jury's award crosses this substantive line and is constitutionally excessive, we are required by the Supreme Court to consider three guideposts: (1) the degree of reprehensibility of the defendant's conduct; (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 418, 123 S.Ct. 1513. 26 We review the constitutionality of the jury's punitive damages award de novo. Cooper Indus., Inc., v. Leatherman Tool Group, Inc., 532 U.S. 424, 436, 121 S.Ct. 1678, 149 L.Ed.2d 674 (2001).
27 The reprehensibility of a defendant's conduct is [p]erhaps the most important indicium of the reasonableness of a punitive damages award. BMW of N. Am., Inc., v. Gore, 517 U.S. 559, 575, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996). In conducting this reprehensibility analysis, the Supreme Court has articulated several factors for a court to consider. These factors include: (1) whether the injury caused physical harm; (2) whether the tortious conduct demonstrated an indifference to, or a reckless disregard of, the health or safety of others; (3) whether the target was financially vulnerable; (4) whether the conduct involved repeated actions; and (5) whether the harm was the result of intentional malice, trickery, or deceit. Campbell, 538 U.S. at 419, 123 S.Ct. 1513. 28 The district court found that the first two factors did not apply in this case, while the remaining three were met. We agree with the district court that AT&T's conduct was deceitful and involved repeated actions. We think the trial court was also justified in finding that AT&T intended to target financially vulnerable individuals given the jury's finding of fraud. AT&T's efforts to misleadingly represent gambling debts, which were illegal under Georgia law, as legitimate charges for long distance calls could be deemed by a jury to be designed to exploit customers who were unsophisticated and economically vulnerable. 29 Furthermore, like the trial court, we find little evidence that AT&T made a genuine attempt to shutdown the LMAD line before the events in this case transpired. It was not until AT&T was sued that it revised its 900-number guidelines in April 1992 to prohibit gambling lines for which it provided collection services from advertising or operating in Georgia. Despite the guidelines, Teleline continued to advertise and operate the LMAD game in Georgia for another five months. It was not until September 1992 — after the calls at issue in this case had been made — that Teleline sought to block calls from Georgia residents to LMAD. However, as the district court noted in its order, at the time AT&T instructed Teleline to stop accepting calls from Georgia, Teleline lacked the necessary technology to block calls on AT&T's network. Furthermore, although AT&T told LMAD to stop advertising in Georgia, the company knew that Teleline relied on national advertisements on television that were broadcast within Georgia. 30 Based on the above, we find sufficient evidence for the district court's legal characterization of AT&T's conduct. AT&T collected $287,360.59 in illegal gambling debts for calls placed to the LMAD line. This sort of large-scale corporate malfeasance clearly merited a substantial penalty. 31
32 Although the Supreme Court has resisted establishing a specific ratio beyond which a damage award will violate the Constitution, in practice few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process. Id. at 425, 123 S.Ct. 1513. Obviously, this single-digit multiplier was exceeded in this case to a considerable extent. However, as the Supreme Court has explained, in some situations a higher ratio may be appropriate where a particularly egregious act has resulted in only a small amount of economic damages. Id. (internal quotation marks omitted). Given the small amount of economic damages in this case, the district court believed that AT&T's conduct fell within this exception, since the company's conduct was deceitful, involved repeated illegal acts, and targeted the financially vulnerable. 33 We agree with the district court that a mechanical application of the Supreme Court's single-digit multiplier formula would not adequately take account of the seriousness of AT&T's misconduct. In Johansen v. Combustion Engineering, Inc., 170 F.3d 1320 (11th Cir.1999), we upheld a punitive award of $4.35 million dollars, which was around 100 times the amount of actual damages awarded by the jury, because this amount was justified by the need to deter this and other large organizations from a `pollute and pay' environmental policy. 170 F.3d at 1339. 8 We noted that the defendant in Johansen was a large and extremely wealthy international corporation and that sometimes a bigger award is needed to attract the... attention of a large corporation in order to promote deterrence effectively. Id. at 1338 (internal quotation marks omitted). We later explained that the result in Johansen was motivated by the recognition that the combination of a small damages award and a strong state interest in deterrence of a particular wrongful act may justify `ratios higher than might otherwise be acceptable.' W&O, Inc., 213 F.3d at 616 (quoting Johansen, 170 F.3d at 1338). 34 Like the state interest at issue in Johansen, Georgia's interest in deterring fraud and illegal gambling also justifies a ratio higher than might otherwise be acceptable. Johansen, 170 F.3d at 1338. Reducing the jury's award to an amount not significantly larger than nine times the actual damages awarded in this case would mean that AT&T would receive a sanction of little more than a thousand dollars. Such an amount, levied against a company as large as AT&T, would utterly fail to serve the traditional purposes underlying an award of punitive damages, which are to punish and deter. See Gore, 517 U.S. at 568, 116 S.Ct. 1589 (Punitive damages may properly be imposed to further a State's legitimate interests in punishing unlawful conduct and deterring its repetition.). Therefore, we agree with the district court that this case falls within the exception articulated in Gore. 35
36 The third factor, which is accorded less weight in the reasonableness analysis than the first two guideposts, involves a comparison between the punitive damages award and the `civil penalties authorized or imposed in comparable cases.' Campbell, 538 U.S. at 428, 123 S.Ct. 1513. 37 The district court did not compare the jury's award to any civil judgments for violations of RICO where unlawful gambling has served as the predicate act. It stated that [n]o civil cases involving punitive damages, analyzed under the Gore framework could be located for comparison. Dist. Ct. Order at . Given this lacuna, the trial court relied entirely on comparisons between the jury award and criminal sanctions for violating RICO. In Campbell, the Supreme Court stated that while it is true that [t]he existence of a criminal penalty does have bearing on the seriousness with which a State views the wrongful action, when comparisons to criminal penalties are used to determine the dollar amount of the award, however, the criminal penalty has less utility. 538 U.S. at 428, 123 S.Ct. 1513. The Campbell Court noted that [g]reat 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. Id. Therefore, we are careful to avoid placing too much reliance on the size of criminal penalties in assessing the reasonableness of the jury's award.
38 We believe the facts of this case clearly support a very significant award. AT&T engaged in what amounted to an illegal gambling scheme in the state of Georgia. Without AT&T's decision to participate, the operation could never have succeeded. This fact was forcefully expressed by the president of Teleline, Mr. Lorsch, who testified that: 39 [I]f you couldn't bill or you couldn't collect, there would be no reason to operate the program or have the program. It was — the fact that AT&T would offer billing and collection [that] was the inducement to be in the business. I mean you had the biggest company in the world putting their name on a piece of paper that says, This is a good program, pay for it. 40 Given AT&T's critical role in the operation of the LMAD line, the company deserved to pay a serious penalty for its misconduct. In addition, the punitive award needed to be large enough to deter AT&T's misconduct. See W&O, Inc., 213 F.3d at 616-17 (noting that wealth and size of the defendant could be considered in determining whether the punitive damages award was reasonable) (internal quotation marks and citation omitted). 9 A punitive award that was not much larger than nine times the amount of actual damages, or approximately a thousand dollars, would not effectively punish AT&T for its conduct or serve any deterrent value whatsoever. Clearly, the Supreme Court, in erecting a guidepost that requires considering the ratio of punitive to actual damages, did not intend to prevent juries from levying awards that serve important state interests and provide a meaningful deterrent against corporate misconduct. At the same time, we recognize that one million dollars, in relationship to the amount of harm that occurred in this case, is constitutionally excessive. Although there is no algorithm that yields a precise figure, we are persuaded that an award that was less than $250,000 would not serve as a meaningful deterrent to a corporation like AT&T. An award greater than this amount, however, would prove an unconstitutional windfall. 41 We therefore affirm the district court's denial of AT&T's motion for judgment as a matter of law, but reverse the trial court's denial of AT&T's motion to reduce the punitive award, remanding with directions to the trial court to reduce the punitive damages award to $250,000. 42 AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.