Opinion ID: 2520201
Heading Depth: 2
Heading Rank: 5

Heading: excessiveness of the punitive damage award

Text: ¶ 29 Price also challenges the punitive damage award for excessiveness, although the legal basis for Price's challenge is somewhat unclear. The Smiths argue that Price has not explicitly challenged the award on constitutional grounds and that our review of the award should therefore be limited to the issue of whether the trial judge abused his discretion in denying Price's motion for a new trial under rule 59(a)(5) of the Utah Rules of Civil Procedure on the basis that the punitive damages awarded were excessive. In response, Price argues that it has, in fact, mounted a constitutional challenge to the award and that, in any event, this court must conduct a de novo review of the excessiveness of the award. ¶ 30 Although Price characterizes its challenge to the award of punitive damages as a federal constitutional challenge, Price did not brief the factors that the United States Supreme Court has enunciated for evaluating whether an award of punitive damages is excessive under the Due Process Clause of the U.S. Constitution. See BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996). Price focuses only on the Crookston factors, which were enunciated by this court in the context of a rule 59 motion for new trial on the grounds of excessive damages. Crookston, 817 P.2d at 801-03. Because Price failed to adequately brief the excessiveness issue as a federal constitutional challenge, we evaluate the punitive damage award for excessiveness under the Crookston factors. [12] ¶ 31 Although we evaluate the excessiveness of the punitive award under the Crookston factors, we note that the Crookston factors share at least some similarities with the Gore factors, which are used in evaluating a federal constitutional challenge. See infra notes 13 and 16 and accompanying text. We note also that this court has adopted a de novo standard for reviewing jury and trial court conclusions under the Crookston factors. See Diversified Holdings, 2002 UT 129 at ¶ 5, 63 P.3d 686; Campbell v. State Farm Mut. Auto. Ins. Co., 2001 UT 89, ¶ 13, 65 P.3d 1134 ( Campbell I ), rev'd on other grounds, 538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003). [13] Accordingly, Price's failure to brief excessiveness as a federal constitutional issue does not alter the applicable standard of review. See Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 121 S.Ct. 1678, 149 L.Ed.2d 674 (2001) (holding that federal due process requires de novo review of punitive damage awards appealed on constitutional grounds). ¶ 32 In Crookston, this court enunciated seven factors to be analyzed in evaluating whether a punitive damage award is excessive: (i) the relative wealth of the defendant; (ii) the nature of the alleged misconduct; (iii) the facts and circumstances surrounding such conduct; (iv) the effect thereof on the lives of the plaintiff and others; (v) the probability of future recurrences of the misconduct; (vi) the relationship of the parties; and (vii) the amount of actual damages awarded. 817 P.2d at 808. We will now examine each of these factors.
¶ 33 We first consider Price's wealth. Our cases have determined that a defendant's wealth can be either an aggravating or a mitigating factor in determining the size of a punitive damage award, since punitive damages should be tailored to what is necessary to deter the particular defendant, as well as others similarly situated, from repeating the prohibited conduct. Diversified Holdings, 2002 UT 129 at ¶ 15, 63 P.3d 686; see also Campbell I, 2001 UT 89 at ¶ 23, 65 P.3d 1134. In making this assessment, some courts have compared a punitive damage award with a company's net worth. See, e.g., Cash v. Beltmann N. Am. Co., 900 F.2d 109, 111 n. 3 (7th Cir.1990); Campbell I, 2001 UT 89 at ¶ 23, 65 P.3d 1134. The Seventh Circuit Court of Appeals has held that a typical punitive damage award may be around one percent of the defendant's net worth. Cash, 900 F.2d at 111 n. 3. We have emphasized that although such guidelines may be helpful, in Utah there is no pre-established mathematical formula for such awards. Campbell I, 2001 UT 89 at ¶ 23, 65 P.3d 1134. ¶ 34 Price Development Company was a large owner and operator of commercial shopping malls and retail properties in the intermountain states. Its chairman and CEO, John Price, owned 99.99% of the company. In the court below, Price Development Company's total wealth was found to be in excess of $37 million. This amount was determined after attempting to overcome the obstacles associated with commingled funds and the highly interrelated ownership and operations of various John Price entities, each of which had substantial assets. With Price Development Company valued at $37 million, the $5.5 million punitive damage award represents approximately 15% of the company's wealth. An analysis of the remaining Crookston factors will aid us in determining whether this percentage renders the award excessive under the facts of this case.
¶ 35 This factor requires us to analyze Price's misconduct in terms of maliciousness, reprehensibility, and wrongfulness. Campbell I, 2001 UT 89 at ¶ 27, 65 P.3d 1134. It parallels the reprehensibility factor described by the United States Supreme Court in Gore [14] and recognizes that certain wrongdoings are more egregious and blameworthy than others so as to justify larger awards. See Campbell I, 2001 UT 89 at ¶ 27, 65 P.3d 1134; Gore, 517 U.S. at 575-76, 116 S.Ct. 1589. Deliberate false statements, acts of affirmative misconduct, [and] concealment of evidence of improper motive support more substantial awards, Gore, 517 U.S. at 579, 116 S.Ct. 1589, as do acts involving trickery and deceit. Id. at 576, 116 S.Ct. 1589; Campbell I, 2001 UT 89 at ¶ 32, 65 P.3d 1134. The United States Supreme Court has also stated that economic injury, especially when done intentionally through affirmative acts of misconduct, or when the target is financially vulnerable, can warrant a substantial penalty. Gore, 517 U.S. at 576, 116 S.Ct. 1589. [15] ¶ 36 In this case, the jury found Price liable for breach of its fiduciary duty to the Smiths, breach of partnership agreements, and conversion of partnership assets. Along with the verdict, the trial court entered special findings stating that the jury could have found by clear and convincing evidence a pattern of deceit, failure to disclose and misrepresentation. In particular, the court detailed Price's prolonged, deliberate failure to inform the Smiths of the execution of the contribution agreements and the resulting unavailability of the three options that Price originally gave the Smiths regarding how their interests could be handled in the REIT transaction. The court also detailed Price's conflicting and intentionally misleading calculations of the value of the Smiths' interests in the mall property in the REIT. The calculations given to the Smiths differed significantly from the company's own calculations, which the company did not reveal until six years of litigation had ensued. Additionally, the court detailed Price's acts of financial misconduct, including payment of excessive fees to itself as general partner, commingling funds from different Price-owned properties, and accruing interest to itself on its own capital contributions while denying the Smiths interest on their contributions. ¶ 37 We agree with the trial court that Price's actions amount to affirmative misconduct showing deliberate misrepresentation and disregard of the rights of the Smiths. Price's actions accordingly support a substantial award of punitive damages.
¶ 38 This factor looks to the circumstances surrounding the illegal conduct, particularly with respect to what the defendant knew and what was motivating his or her actions. Campbell I, 2001 UT 89 at ¶ 35, 65 P.3d 1134. Throughout the creation of the REIT, Price was aware of its fiduciary obligations to the Smiths and of the consent clause written into the partnership agreements. Price consciously disregarded its obligations. ¶ 39 Price argues that the motivation for its actions was to benefit the Smiths and everyone involved in the REIT transaction. Price also reasserts that its actions were necessary to save the mall from foreclosure. However, the evidence presented at trial (and not fully marshaled by Price in its brief) was that Price, John Price, and the Price-related entities making up the general partnership all had significant financial incentives to carry out the REIT transaction. These incentives included repayment to Price of $27 million of loans made to the Price-related malls, acquisition of stock holdings in the REIT, elimination of $94 million of John Price's personal guarantees on existing loans for the mall and other properties, and deferral of federal income tax consequences. ¶ 40 With respect to Price's failure to disclose its dealings with the partnership property to the Smiths, Price asserts without elaboration that it avoided responding to the Smiths' inquiries on the advice of legal counsel. As noted by the trial court, substantial evidence was presented at trial that Price did not want the Smiths to interfere with the REIT's formation by filing an adverse claim or a lawsuit prior to January 1994 when the REIT went public. Thus, Price's self-interested actions, made in the face of known fiduciary obligations, support a substantial punitive damage award.
¶ 41 This factor requires us to analyze the actions of Price in terms of their impact on the Smiths and others. Price's misconduct caused the Smiths to lose their partnership interests in the mall. Although this loss was significant, it does not appear from the evidence that it had a devastating impact on the Smiths. Nor did Price's actions have a widespread effect on groups of vulnerable victims. Diversified Holdings, 2002 UT 129 at ¶ 20, 63 P.3d 686; Campbell I, 2001 UT 89 at ¶ 37, 65 P.3d 1134 (The larger the number of people affected, the greater the justification for higher punitive damages.). Therefore, this factor individually does not support a sizeable punitive damage award.
¶ 42 This factor analyzes the likelihood that the defendant will repeat or continue engaging in its wrongful behavior. A high probability of recidivism justifies a higher than normal punitive damage award. Campbell I, 2001 UT 89 at ¶ 41, 65 P.3d 1134 (citing Gore, 517 U.S. at 577, 116 S.Ct. 1589). Price argues that the REIT transaction was a one-time occurrence for the company so that future misconduct under the same circumstances is not foreseeable. The unlikelihood of a future REIT formation, however, does not bar the possibility of future misrepresentations and breaches of duty similar to those of this case. On the other hand, the record does not contain evidence of a pattern of regular deceit or other comparable acts perpetuated by Price in other business dealings or with other parties. See TXO Prod. Corp. v. Alliance Res. Corp., 509 U.S. 443, 462 n. 28, 113 S.Ct. 2711, 125 L.Ed.2d 366 (1993) (noting that courts should look to `the existence and frequency of similar past conduct' (quoting Pac. Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 21-22, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991))).
¶ 43 This factor analyzes the relationship between the parties, looking particularly at the degree of confidence and trust placed in the defendant. Campbell I, 2001 UT 89 at ¶ 44, 65 P.3d 1134. The fiduciary relationship of a general partner to a limited partner is one of loyalty, trust, disclosure, and confidence, calling for the utmost good faith and permitting no unfair benefits to the general partner as against the limited partner. We have stated in past cases that a breach of fiduciary relationship can support a large punitive damage award. Id.; Diversified Holdings, 2002 UT 129 at ¶ 23, 63 P.3d 686. ¶ 44 Price failed as a fiduciary to deal fairly with the Smiths and their partnership interests. The trial court noted in its special findings that, in addition to other inappropriate actions, Price failed to advise the Smiths of the potential conflicts of interest it had in forming the REIT with other Price-related entities. Price also disregarded the consent clause in the partnership agreements which, according to testimony in the record, was drafted in recognition of the Smiths' vulnerability within the partnership structure. The Smiths rightly expected a greater degree of candor and loyalty than they received. This factor weighs strongly in favor of a substantial punitive damage award.
¶ 45 The ratio of punitive to compensatory damages is the final factor for our consideration. This court has not established an absolute ceiling for the ratio of a damages award, [16] and a high ratio is not by itself determinative of excessiveness. Diversified Holdings, 2002 UT 129 at ¶ 24, 63 P.3d 686; Campbell I, 2001 UT 89 at ¶ 49, 65 P.3d 1134. However, the amount of a punitive damage award must bear a reasonable and rational relationship to the actual damages. Crookston, 817 P.2d at 810. [A]n award that falls outside certain parameters will ... elicit more searching judicial scrutiny. Diversified Holdings, 2002 UT 129 at ¶ 24, 63 P.3d 686. We have stated as a matter of flexible guideline that for punitive awards of less than $100,000 a ratio of three to one will generally be justifiable, but for awards greater than $100,000, a somewhat lower ratio is usually appropriate. Id. ¶ 46 The United States Supreme Court recently scrutinized punitive damage awards under federal due process standards. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003) ( Campbell II ). In discussing the issue of ratios between compensatory and punitive awards, the Court cited previous decisions in which it had noted that an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety. Id. at 1524 (citing Haslip, 499 U.S. at 23-24, 111 S.Ct. 1032). While declining to adopt a rigid benchmark that a punitive damage award may not surpass, the Court instructed that few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process. [17] Id. Single-digit multipliers are more likely to comport with due process, while still achieving the State's goals of deterrence and retribution.... Id. ¶ 47 In the present case, the jury awarded the Smiths $5.5 million in punitive damages and $1.1 million in compensatory damages, producing a 5 to 1 ratio. We have already reduced the compensatory award, however, to $1,007,221 by remitting the amount awarded as prejudgment interest. The ratio resulting from this reduction is approximately 5.5 to 1, well within the single-digit ratio discussed by the Supreme Court in Campbell II. ¶ 48 Having concluded our assessment of the case under the Crookston factors, we find that Price's intentionally deceptive business dealings with individuals to whom it owed a fiduciary duty were sufficient to support a $5.5 million punitive damage award. We therefore uphold the punitive damages as awarded by the trial court. We believe that the evidence in the record and our overall analysis support an award of this amount as a serious reprimand for Price's actions to deter future misconduct.