Opinion ID: 4164810
Heading Depth: 3
Heading Rank: 1

Heading: The Chapter 41 Cap-Busting Exception Applies.

Text: As a general rule, the Texas Civil Practice and Remedies Code restricts the maximum amount of exemplary damages a trial court may award.18 But this cap does not apply when a plaintiff seeks exemplary damages based on certain felony criminal conduct.19 The court of appeals properly held that this case falls under an exception to the cap, namely securing execution of a document (the indictment) by deception.20 This is a felony under Penal Code section 32.46, which states: “A person commits an offense if, with intent to defraud or harm any person, he, by deception . . . causes another to sign or execute any document affecting property or service or the pecuniary interest of any person.”21 18 See TEX. CIV. PRAC. & REM. CODE § 41.008(b). 19 Id. § 41.008(c). 20 Id. § 41.008(c)(11). 21 TEX. PENAL CODE § 32.46(a) (emphasis added). 9 Bennett and Bonham Corp. argue that an indictment affects a liberty interest but not a pecuniary interest as contemplated by section 32.46. Although the Penal Code does not define “pecuniary interest,” Texas courts have interpreted it to mean a financial or monetary stake in the matter.22 The petitioners contend that because an indictment is a formal accusation of a crime and does not directly affect a person’s monetary interest, it falls outside the exception. The statute, however, does not by its terms require the document in question to “directly” affect a person’s pecuniary interest. Further, while it is true that an indictment is different in kind from financial documents like a bank draft or a promissory note, the statutory text does not require that the complainant have a pecuniary interest in the document itself; rather the document must affect the complainant’s pecuniary interest.23 We agree with the court of appeals that when viewing the evidence in the light most favorable to the jury’s finding,24 there is more than a mere scintilla of evidence that Grant’s pecuniary interest was affected by the indictment. Grant was required to post a $10,000 bond immediately to avoid imprisonment and to hire attorneys to quash the indictment. And if convicted of attempted bribery, he could face up to $10,000 in penalties. The court of appeals correctly applied Chapter 41’s cap-busting exception. 22 See Briones v. State, 76 S.W.3d 591, 595 (Tex. App.—Corpus Christi 2002, no pet.); Goldstein v. State, 803 S.W.2d 777, 791 (Tex. App.—Dallas 1991, writ ref’d). 23 See Lewis v. State, No. 05-09-00299-CR, 2010 WL 4400515, at  (Tex. App.—Dallas Nov. 8, 2010, pet. ref’d). 24 City of Keller v. Wilson, 168 S.W.3d 802, 807 (Tex. 2005) (stating that when conducting a legal-sufficiency review, a court should consider the evidence in the light most favorable to the judgment). 10 2. The Exemplary-Damages Award Is Unconstitutionally Excessive. There is, however, a problem with the court of appeals’ analysis of the award’s constitutionality. The petitioners contend the remitted dual $512,109 exemplary-damages awards are excessive and violate federal due process. We agree. As an overarching premise, exemplary damages further the state’s interest in punishing and deterring unlawful conduct. But this punishment should not be so grossly excessive as to “further[] no legitimate purpose and constitute[] an arbitrary deprivation of property.”25 Therefore, even if the Texas cap on exemplary damages is inapplicable, there remains a federal constitutional check on the award, as explicated by the United States Supreme Court. 26 We must consider three guideposts when reviewing an exemplary-damages award: (1) the degree of reprehensibility of the misconduct; (2) the disparity between the exemplary-damages award and the actual harm suffered by the plaintiff or the harm likely to result; and (3) the difference between the exemplary damages awarded and the civil or criminal penalties that could be imposed for comparable conduct.27 Reviewing the constitutionality of an exemplary-damages award is a question of law we review de novo.28 25 Bennett I, 315 S.W.3d 867, 873 (Tex. 2010) (quoting State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 417 (2003)). 26 See BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 562 (1996) (stating that the Due Process Clause of the Fourteenth Amendment prevents a state from granting a “grossly excessive” punishment); State Farm, 538 U.S. at 418 (setting forth a three-part test for constitutional exorbitancy). 27 State Farm, 538 U.S. at 418. 28 Bunton v. Bentley, 153 S.W.3d 50, 54 (Tex. 2004). 11 We agree with the court of appeals’ analysis of the first guidepost. Evaluating reprehensibility requires consideration of whether: (1) the harm inflicted was physical rather than economic; (2) the tortious conduct showed an indifference to or reckless disregard for the health or safety of others; (3) the target of the conduct had financial vulnerability; (4) the conduct involved repeated actions; and (5) the harm resulted from intentional malice, trickery or deceit.29 There is significant evidence indicating that the petitioners’ conduct satisfies at least the four latter factors. These factors are nonexclusive, and the finding of four of them supports an award of exemplary damages. Similarly, we agree with the court of appeals’ analysis of the third guidepost. This prong requires us to compare the exemplary damages with legislatively authorized civil penalties in comparable cases. Here, because there is no analogous civil penalty for Bennett’s actions, we look to potential criminal penalties, although criminal penalties are viewed as less instructive than potential civil penalties.30 The court of appeals cited various criminal penalties of which Bennett had fair notice, including tampering with or fabricating physical evidence, aggravated perjury before a grand jury, execution of a document by deception, and making a false report to a peace officer or law enforcement employee. These crimes could result in $46,000 in fines and up to twenty-two years of imprisonment. Thus, although there are no comparable civil penalties for Bennett’s conduct, Bennett was on notice that the State had a substantial interest in preventing improper use of the criminal justice system and would punish those who sought to sully it. 29 State Farm, 538 U.S. at 419. 30 Id. at 428. 12 Our disagreement with the court of appeals’ analysis relates to the second guidepost: analyzing the ratio between the exemplary damages awarded and the actual harm suffered by the plaintiff or the harm likely to result. While there is no bright-line rule for the ratio, the United States Supreme Court has indicated that few awards exceeding a single-digit ratio satisfy due process standards.31 In Bennett I, we noted that a ratio above 4:1 “might be close to the line of constitutional impropriety.”32 Here, the ratio is initially troublesome. The compensatory damages total $10,703, and the exemplary damages are $512,109 against each defendant, giving us a ratio of nearly 48:1. In evaluating whether the ratio is excessive, we must ask “whether there is a reasonable relationship between the punitive damages award and the harm likely to result from the defendant’s conduct as well as the harm that has likely occurred.”33 This requires a three-part inquiry, looking at (1) the exemplary damages awarded, (2) the actual damages, defined as the harm that has likely occurred, and (3) “potential damages,” defined by the United States Supreme Court as the harm likely to result from defendant’s conduct.34 For the potential damages here, the burden of proof is on Grant to show to a probability, not merely to a speculation, that he would suffer these damages. 31 Id. at 425. 32 Bennett I, 315 S.W.3d 867, 878 (Tex. 2010) (quoting State Farm, 538 U.S. at 425). 33 TXO Prod. Corp. v. Alliance Res. Corp., 509 U.S. 443, 460 (1993) (emphasis in original). 34 See, e.g., BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 582 (1996) (narrowing the terms “potential” damages and “potential” harm to mean damages/harm likely to result); Philip Morris USA v. Williams, 549 U.S. 346, 354 (2007) (same); State Farm, 538 U.S. at 410 (same); Cooper Indus., Inc. v. Leatherman Tool Grp., Inc., 532 U.S. 424, 440 (2001) (same); United States v. Bajakajian, 524 U.S. 321, 346 (1998) (same); TXO, 509 U.S. at 460 (same). 13 Bennett and Bonham Corp. assert the court of appeals articulated two conflicting standards for determining potential harm: (1) analysis of the harm likely to result from the defendant’s bad acts, versus (2) analysis of the harm that would have ensued if the tortious plan had succeeded. There is no conflict; rather, the latter is an example of the former. The United States Supreme Court clarified as much in Gore, rephrasing “harm likely to result” as “the harm to the victim that would have ensued if the tortious plan had succeeded.”35 The High Court used them interchangeably, not alternatively. Simply put, there is no “objective likelihood” standard for determining potential harm pitted against a “what actually would have happened” standard. Any wording differences are semantic, not substantive. The court of appeals properly articulated that potential harm is the harm likely to result from the defendant’s conduct. But it improperly included the consequences of wrongful imprisonment in its calculations, such as the compensation the State provides to those wrongfully convicted. It figured that if Grant had been wrongfully imprisoned for two years, the statutory minimum for this crime, the State would pay him $160,000 under a statutory compensation scheme available to defendants wrongfully convicted. Similarly, if he received the maximum sentence of ten years’ imprisonment, the State would pay him $800,000, as well as potential lifetime annuity payments. Following this logic, the damages could exceed $1 million. The court of appeals then concluded “the potential damages in this case can be prudently and rationally valued at a minimum of $160,000,” as this is “the minimum amount Grant would have received from the State if he had 35 Gore, 517 U.S. at 581. 14 been wrongfully convicted of attempted bribery and served the minimum sentence available.”36 Therefore, combining the actual and potential damages would total $170,703, making the ratio 5:1. The court of appeals held that this ratio exceeded constitutional limits and reduced the exemplary-damages award to $512,109 against each defendant, resulting in a 3:1 ratio. The court of appeals was right to remit, but the remittitur was not enough. The problem was the court’s consideration of Grant’s possible prison sentence at all. When evaluating potential harm, the court should have looked to the harm likely to result from Bennett’s conduct. Here, there was essentially zero likelihood of imprisonment because the statute of limitations barred the claim against Grant. Therefore, the potential harm analysis should have only focused on the probable damages resulting from the malicious prosecution, not the consequences of wrongful imprisonment. When concentrating solely on the likely harm from malicious prosecution, it is appropriate to consider, for example, that Grant would incur attorney fees in defending himself against criminal charges. It is also fair to consider time taken away from one’s job by having to participate in criminal proceedings. Grant bore the burden to prove the criminal justice system would ultimately fail to resolve this case correctly. He failed to meet this burden, providing no evidence that he could be convicted, let alone imprisoned, exonerated, and fully compensated. Indeed, the statute of limitations barred any claim against Grant, and there was effectively no chance he would be imprisoned. As the court of appeals recognized, “Bennett’s long and hard-fought quest ended nine months later, when both of Grant’s indictments were quashed because the charges had been filed past the statute of 36 Bennett v. Grant, 460 S.W.3d 220, 252 (Tex. App.—Austin 2015). 15 limitations.”37 Grant failed to show imprisonment was likely to result from Bennett’s conduct, and the court of appeals was wrong to consider imprisonment-related damages. We recognize the State’s tremendous interest in preventing malicious prosecution and wrongful imprisonment. But these wrongs are not synonymous, and should not be treated as such. Here, Grant had the burden to prove that imprisonment was likely— an impossible burden given the preclusive effect of limitations. The court of appeals engaged in speculation when making its calculations, contrary to the definition of potential harm provided by the United States Supreme Court. We thus reverse and remand the exemplary-damages award to the court of appeals for a more substantial remittitur.