Opinion ID: 2510862
Heading Depth: 4
Heading Rank: 2

Heading: The punitive damages cap and allocation statutes are constitutional.

Text: Reust challenges AS 09.17.020(f) and (j) on various constitutional grounds. [57] Subsection.020(f) is one of the punitive damages caps and subsection .020(j) is the allocation provision of the 1997 Alaska tort reform legislation. [58]
Reust contends that applying the tort reform legislation to his case violated the due process clauses of the state and federal constitutions. He asserts that the tort reform legislation applies only to tort causes of action and that, because his claim is for breach of contract, applying the punitive damages cap to his award was arbitrary and irrational. APC responds, correctly, that a plain reading of AS 09.17.020 indicates that it applies to all actions in which punitive damages are awarded. [59] And, as APC notes, Alaska law does not permit punitive damages for breach of contract, except when the conduct constituting the breach is also a tort for which punitive damages are recoverable. [60] This means that Reust's punitive damages award lies in tort, which would place it within the ambit of the tort reform legislation even if the legislation did not apply to punitive damages stemming from breach of contract claims. [61] We are therefore unconvinced by Reust's arbitrariness and irrationality argument. Reust also claims that the statutes capping punitive damages awards and requiring payment of fifty percent of such awards to the state violate due process because they infringe on fundamental rights without a compelling or legitimate purpose. He points out that the United States Supreme Court has treated punitive damages as quasi-criminal. [62] According to Reust, retribution is a legitimate justification for awarding punitive damages between private parties, but it is not a legitimate purpose for Alaska's penal administration. The award here, Reust claims, contains inseparable components for retribution and deterrence. Because the state has no interest in retribution, Reust concludes that it cannot have an interest in his punitive damages award. In Evans ex rel. Kutch v. State we concluded that because interests in unlimited [punitive] damages are merely economic, the State's objectives need only be `legitimate'not `compelling'to justify the State's action. [63] We then concluded that the state's objectives in establishing the punitive damages caps were legitimate. [64] Those objectives are independent of any quasi-criminal nature of punitive damages, [65] and Reust does not challenge the objectives as illegitimate. Accordingly, Reust's claim that the punitive damages caps lack a compelling or legitimate purpose fails. This court was evenly divided in Anderson v. State ex rel. Central Bering Sea Fishermen's Ass'n ( Anderson II ) [66] regarding the constitutionality of AS 09.17.020(j), the statute that allocates fifty percent of punitive damages awards to the state. The court's dispositional opinion discusses the reasons why we now hold that AS 09.17.020(j) does not violate substantive due process: [A]llocating half of all punitive damage awards to the state will reduce the incentive for plaintiffs to pursue punitive damages claims. The statute will also encourage plaintiffs to settle their cases since the state only shares in punitive damages when an award is made. These incentives could reduce both the overall number of punitive damage claims as well as the number of punitive damage claims that actually go to trial. This effect could reasonably be expected to have a moderating influence on liability insurance premiums. Further, the incentive to settle punitive damage claims could reduce the length and complexity of litigation, thereby reducing the overall cost of litigation. The state's expectation that AS 09.17.020(j) will help to fulfill these purposes is at least minimally rational.[ [67] ] The dispositional opinion in Anderson II also concluded that [i]ncreasing state revenues by allocating a portion of punitive damages awards to the state based on the analogy between such awards and civil and criminal fines is a legitimate public policy choice. [68] Dissenting in part, Justice Bryner, joined by Justice Carpeneti, argued that the allocation statute was not minimally rational because the only way that subsection (j) discourages punitive damages claims is by punishing any claimant who files a meritorious claim, successfully pursues it to completion, and receives a factually accurate and lawfully authorized judgment. [69] We do not share this view. It is rational to expect that fewer punitive damages claims will be filed and that more will be settled if the potential payoff is capped or reduced by allocating half of any punitive damages awards to the state. Justice Bryner's partial dissent also argued that [j]ust as cost savings alone do not sustain otherwise arbitrary state action, so revenue earning is not, in itself, a legitimate legislative purpose. [70] But in our view, the state action is not arbitrary here because the objectives of punitive damages are analogous to the objectives of civil and criminal fines. The decision to increase state revenues by allocating a portion of punitive damages awards to the state is therefore legitimate. We hold that AS 09.17.020(j) does not violate substantive due process for the reasons expressed in the dispositional opinion in Anderson II.
Reust argues that the punitive damages caps violate the equal protection clauses of the Alaska and United States Constitutions. He claims that the tort reform legislation discriminates between two classes of litigantsthose who receive full recovery and those whose recovery is capped. This exact argument was presented and rejected in Evans. [71]
Reust argues that the punitive damages cap violates the right to a jury trial provided by the Alaska Constitution. [72] This argument was rejected in Evans, where a majority of this court agreed that [t]he decision to place a cap on [punitive] damages awarded is a policy choice and not a re-examination of the factual question of damages determined by the jury. [73] Reust urges a reconsideration of this conclusion, arguing that [a] constitutional protection cannot be bypassed by allowing it to exist in form but not letting it have an effect in function. We see no compelling reason to revisit Evans's holding on this issue.
Reust claims that the allocation requirement in AS 09.17.020(j) is a taking because it deprives him of a property right in his punitive damages claim. [74] We addressed this issue most recently in Anderson II. [75] The dispositional opinion concluded that AS 09.17.020(j) does not violate the takings clauses of the Alaska Constitution or the Federal Constitution. [76] The opinion gave two reasons. First, it determined that Anderson's claim for punitive damages was only protected property insofar as permitted by AS 09.17.020(j). [77] Anderson's unlitigated claim only became property when it accrued, and a claim cannot accrue before the events that give rise to it occur. [78] Because Anderson's claim accrued after the August 7, 1997 effective date of AS 09.17.020(j), the scope of her claim was defined by existing state law. [79] Thus, AS 09.10.020(j) limited her claimand therefore her property rightto one-half of any punitive damages award. [80] Second, the dispositional opinion pointed to Anderson's reasonable expectations when her claim accrued. [81] It stated that because Anderson's reasonable expectations were controlled by the law in effect when her claim accrued and subsection .020(j) was then in effect, she could not reasonably expect to recover more than half of her punitive damages award. [82] We are persuaded by these arguments and apply them to Reust, whose claim accrued in April 1998, after AS 09.17.020(j) became effective. Reust's brief cites the Colorado Supreme Court's decision in Kirk v. Denver Publishing Co. in support of his argument that AS 09.17.020(j) effects an unconstitutional taking. [83] The court held in Kirk that a Colorado punitive damages allocation statute was a taking because it applied after a final judgment was entered in the plaintiff's case and after the judgment was collected from the defendant. [84] The property interest in the punitive damages award therefore vested before a portion was taken by the state. [85] The dispositional opinion in Evans distinguished Kirk on the ground that the Colorado statute, unlike AS 09.17.020(j), applied after a final judgment was entered in the plaintiff's case. [86] In Anderson II, the dispositional opinion also disagreed with `the implicit conclusion in Kirk that a plaintiff has a greater property interest in a judgment upon a tort claim than the interest recognized by law when the claim accrued.' [87] Most other state supreme courts have upheld against takings challenges statutes that allocate some part of punitive damages awards to governmental entities. [88] In his partial dissent in Anderson II, Justice Bryner, joined by Justice Carpeneti, argued that AS 09.17.020(j) neither redefines nor regulates the permissible scope of unlitigated punitive damages claims; instead, subsection.020(j) attempts to alter the plaintiff's property rights only after the plaintiff's claim accrues and is fully litigated, after the claim proves successful, and after the plaintiff `receives an award.' [89] Justice Bryner pointed to statutory language that specifies the source of forfeiture as `the award' that `a person receives' and that is available for deposit into the general fund of the state. [90] But the intent of the legislature was clearly to allocate a portion of punitive damages awards to the state. [91] Insofar as the Anderson II dispositional opinion's construction of the statutory language avoids a constitutional violation by redefining the permissible scope of unlitigated punitive damages claims, we now adopt that construction. [92] We therefore hold that AS 09.17.020(j) does not result in an unconstitutional taking.