Opinion ID: 2430934
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Heading: Are Exemplary Damages Available Against a Municipality Under Texas Law?

Text: While this question is easily asked, the answer necessarily involves several other crucial inquiries, which when examined as a whole will illuminate the proper path to take. This is a case of first impression before this court, even though the various courts of appeals have long been acquainted with the problem. The first question deals with whether or not Gladewater was exercising its governmental or its proprietary powers in its operation of the cemetery. This is important because the Civil Practice and Remedies Code § 101.024 provides that exemplary damages are not authorized by the Tort Claims Act. Provisions of the Tort Claims Act do not apply, however, when the municipality acts in its proprietary capacity as opposed to its governmental capacity. Turvey v. City of Houston, 602 S.W.2d 517, 518 (Tex.1980). Thus, when a tort is committed by an employee when the city is performing a proprietary function, the city is liable. City of Round Rock v. Smith, 687 S.W.2d 300, 302 (Tex.1985). A proprietary function is one intended primarily for the advantage and benefit of persons within the corporate limits of the municipality rather than for use by the general public. Gates v. City of Dallas, 704 S.W.2d 737, 739 (Tex.1986); see generally C. RHYNE, MUNICIPAL LAW § 30-2, at 733 (1957) (if the principal beneficiary is the municipal corporation and its inhabitants, the function is proprietary). Furthermore, the doctrine of nonliability is construed strictly against the municipality. City of Austin v. Daniels, 322 S.W.2d 384, 386 (Tex.Civ.App.Austin 1959), affirmed, 160 Tex. 628, 335 S.W.2d 753 (1960). There are no cases in Texas which have decided whether operation of a cemetery is a governmental or proprietary function, but eight other states have recognized it as a proprietary action. See Spomer v. City of Grand Junction, 144 Colo. 207, 355 P.2d 960, 963 (1960); City of Atlanta v. Rich, 64 Ga.App. 193, 12 S.E.2d 436, 438 (1940); Hovis v. City of Burns, 243 Or. 607, 415 P.2d 29, 30 (1966); Department of Treasury v. City of Evansville, 233 Ind. 435, 60 N.E.2d 952, 956 (1945); City of Hopkinsville v. Burchett, 254 S.W.2d 333, 334 (Ky.1953); Proprietors of Mount Hope Cemetery Assoc. v. City of Boston, 158 Mass. 509, 33 N.E. 695, 698 (1893); War Memorial Hosp. v. Board of County Comm'rs, 73 Wyo. 371, 279 P.2d 472, 475 (1955). After studying these cases and examining similar situations previously deemed proprietary functions in Texas, we agree with the court of appeals' determination that the operation of a municipal cemetery is a proprietary rather than a governmental action. It is clearly a service designed to benefit the inhabitants of Gladewater; therefore, it falls squarely within the general rule. This being decided, the next question is the pivotal one: can exemplary damages be recovered against a municipality which is operating under its proprietary rather than its governmental authority? In 1980, this court recognized that the Tort Claims Act preserved the claimant's common law rights to seek unlimited damages for the negligent acts of a municipality while engaged in a proprietary function. (emphasis added). Turvey v. City of Houston, 602 S.W.2d 517, 519 (Tex. 1980). Gladewater contends that the common law does not support the claim for exemplary damages against the municipality as part of such unlimited damages. Gladewater and the several amicus briefs cite McQuillan on Municipal Corporations § 53.18(a) for the general rule in this country that exemplary damages are not recoverable against municipalities unless expressly authorized by statute. In order to determine whether this precept is correct, we must turn to the case law of other states. Gladewater contends that the general rule of law is basically that a municipal corporation cannot, as a matter of law, be liable for exemplary damages. While it is true that many jurisdictions and cases have so held, there are also a significant number of cases which do not make such a sweeping statement. The case law reveals three distinct ways of dealing with the issue. The first approach is to deny any exemplary damages as a matter of law. At last count, nineteen jurisdictions had cases which cited this general rule. Many of these cases treat denial of the damages in a summary fashion by merely stating that such damages are not recoverable. See, e.g., Gonzalez v. City of Peoria, 537 F.Supp. 793, 797 (D.Ariz.1982); City of Columbus v. Myszka, 246 Ga. 571, 272 S.E.2d 302, 305 (1980); Urban Renewal Agency of Aberdeen v. Tackett, 255 So.2d 904, 905 (Miss.1971). Other cases, however, delve into the reasons behind the general rule. One persuasive reason to deny is because, according to the Restatement (Second) of Torts § 908, the basic rationalization for the award of exemplary damages is to punish the tortfeasor whose wrongful conduct caused the injury and to deter him and others from similar extreme conduct. In City of Newport v. Fact Concerts, Inc., 453 U.S. 247, 267, 101 S.Ct. 2748, 2759, 69 L.Ed.2d 616 (1981), the United States Supreme Court recognized and examined this rationale and thereafter refused to allow exemplary damages under 42 U.S.C. § 1983. While the ruling is not specifically on point with the present case, the Court explained the policy behind this decision by saying: Regarding retribution, it remains true that an award of punitive damages against a municipality punishes only the taxpayers, who took no part in the commission of the tort ... Under ordinary principles of retribution, it is the wrongdoer himself who is made to suffer for his unlawful conduct.... A municipality, however, can have no malice independent of the malice of its officials. Damages awarded for punitive purposes, therefore, are not sensibly assessed against the governmental entity itself.... The other major objective of punitive damage awards is to prevent future misconduct ... [but] it is far from clear that municipal officials, including those at the policymaking level, would be deterred from wrongdoing by the knowledge that large punitive awards could be assessed based on the wealth of their municipality. Id. at 267-68, 101 S.Ct. at 2759-60. Gladewater asserts that these policy reasons remain valid and important considerations and that similar reasoning has been employed by several courts which have denied the recovery of punitive damages. [1] The second type of decisions found across the United States are those which treat the municipal corporation as if it were a non-municipal corporate entity. Thus, the municipality will be held liable if under the circumstances a corporation would be. Several cases have espoused this view, with the best policy analysis coming in Hayes v. State, 80 Misc.2d 498, 363 N.Y.S.2d 986 (Ct. of Claims 1975), where an employee of a state hospital assaulted a mental patient. The court remarked that, considering the myriad of activities performed ... by municipal corporations, it seems obvious that a punitorial award will deter irresponsible and reckless performance of duty on the part of those in responsible and leading executive and administrative positions. Such action is in the interest of the residents of the state who have day to day contact, in dozens of ways, with these public bodies; or to write it more succinctly, is in the interest of public policy. Id. at 995; see also Hennigan v. Atlantic Refining Co., 282 F.Supp. 667, 683 (E.D. Pa.1967) (court allowed exemplary damage recovery where a statute made municipality liable as if any other litigant for exercising proprietary function); Young v. City of Des Moines, 262 N.W.2d 612, 622 (Iowa 1978) (it is apparent that any question going to recovery of exemplary damages versus a municipal corporation is determinable by application of the same legal principles as in cases against private corporations); Dickerson v. Young, 332 N.W.2d 93, 99 (Iowa 1983) (while no recovery of exemplary damages available in a section 1983 claim, there is no reason to bar such damage under state law tort theories such as trespass and conversion). Detractors of such treatment by the courts point out, however, that the shareholders of a corporation are not like citizens of a municipality. This is because shareholders can at least theoretically change the management which employs persons who subject the corporation to exemplary damages. George v. Chicago Transit Authority, 58 Ill.App.3d 692, 15 Ill.Dec. 896, 897-80, 374 N.E.2d 679, 680-81 (1978). Other courts have allowed the municipality to be treated as a regular corporation for the recovery of compensatory damages but denied the same status for exemplary measures. Rannels v. City of Cleveland, 41 Ohio St.2d 1, 321 N.E.2d 885, 887-89 (1975). The third group of cases are those which have been decided upon the facts involved. The courts here do not hold as a matter of law, but allow the particular circumstances to determine the outcome. The facts that have been seen as crucial are the presence or absence of (1) willfullness, malice, recklessness or gross negligence; (2) award of actual damages, and; (3) ratification of, or responsibility for, the conduct by the governing body. Under this particular standard, a great number of courts have denied exemplary damages simply because the proper elements were not alleged or shown. See, e.g., Jackson v. Davis, 530 F.Supp. 2, 5 (E.D.Tenn.1981) (exemplary damages claim dismissed because no evidence of malice, etc.); Adams v. Salina, 58 Kan. 246, 48 P. 918, 919 (1897) (even if exemplary damages were available against municipal corporation, plaintiff first must show presence of actual damages); Holda v. County of Cane, 88 Ill.App.3d 522, 43 Ill.Dec. 552, 563, 410 N.E.2d 552, 563 (1980) (plaintiff could not recover exemplary damages from county absent showing that the municipality ratified, condoned, authorized, or approved of acts of its employees). Thus, these courts have essentially reserved the right to answer the question of exemplary damages to a case with the appropriate facts. Gladewater's contention that the weight of authority manifests a denial of exemplary damages is, therefore, only partially correct. It is true that only a few cases have recognized that the municipality will be liable, but it seems that many of the results were due not to the law, but rather to the facts. As noted before, no Texas Supreme Court opinion has considered the particular issues present in this case. Recently, however, this court addressed a similar issue in Gates v. City of Dallas, 704 S.W.2d 737 (Tex.1986). In Gates, this court held that when a municipal corporation acts in its proprietary capacity, it is to be treated as a private citizen for purposes of recovery of attorney's fees. Gates at 740. While not precisely on point, such a decision echoes the results in the Hayes, Hennigan, Young and Dickerson cases which allowed exemplary damages recovery against a municipal corporation by treating the municipality as a simple corporate entity. Keeping the Gates decision in mind, we must examine the decisions of the courts of appeals which have spoken directly to the issue. Texas courts of appeals have treated the issue of exemplary damages against municipalities in a variety of ways. In Cole v. City of Houston, 442 S.W.2d 445, 451 (Tex. Civ.App.Houston [14th Dist.] 1969, no writ), the plaintiff brought suit against the mayor and the city for wrongful discharge, but the court refused to hear evidence on the exemplary damages issue. The court merely stated the general rule that exemplary damages are not recoverable and cited to several older decisions. The only case cited by the Cole court which in any way supports the general rule it announced is Ostrom v. City of San Antonio, 33 Tex.Civ.App. 683, 77 S.W. 829, 829-30 (San Antonio 1903, writ ref'd). There, in a trespass to land case, the court noted that while exemplary damages may, in the proper cases, be recovered for willful injury to land, the case would be exceptional, indeed, when vindictive or more than compensatory damages can be recovered against a municipal corporation. Ostrom at 829-30. The major feature here is that the Ostrom court, while disallowing exemplary damages on the facts involved, refused to completely foreclose the availability of exemplary damages in an appropriate situation. Another trespass to land situation can be found in City of Katy v. Waterbury, 581 S.W.2d 757, 761 (Tex.Civ.App. Houston [14th Dist.] 1979, no writ) where the city sought to use or construct a roadway across defendant's property and defendant responded with a trespass suit. The Waterbury court ruled that there was no liability for exemplary damages unless there is willfulness, wantonness, malice or gross negligence. (emphasis added). Then the court echoed the Ostrom opinion by saying that municipalities cannot be held liable for exemplary damages except in the most vindictive of circumstances. Id. at 761. Since there was no question of gross negligence raised on the facts, the issue of the propriety of exemplary damages was not before the court. A different standard of conduct was put forth in Moody v. City of Galveston, 524 S.W.2d 583, 590 (Tex.Civ.App.Houston [1st Dist.] 1975, writ ref'd n.r.e.), which was a suit brought for injuries caused by ignition of flammable gas knowingly introduced into the plaintiff's water line with water sold by the defendant (a proprietary function). The issue was raised before the jury but no exemplary damages were awarded, as again there was a lack of gross negligence on the part of the defendant. The court remarked that there must be an entire want of care so as to raise the belief that the acts complained of were the result of conscious indifference to the rights and welfare of others, for exemplary damages to be given. Id. at 590. The final Texas decision on point is San Antonio River Authority v. Garrett Brothers, 528 S.W.2d 266, 279-80 (Tex.Civ. App.San Antonio 1975, writ ref'd n.r.e.), where City and River Authority employees took underhanded actions to halt the development of defendant's subdivision. The court in Garrett specifically disapproved of a 5th Circuit opinion, Peace v. City of Center, Texas, 372 F.2d 649, 650-51 (5th Cir. 1967) which held that exemplary damages were recoverable against a municipality where it is proven that the acts were committed with ... malice or evil intent, or such gross negligence as to be equivalent to such intent. The court also said: We need not here hold that an award of exemplary damages is proper only when authorized by statute. We go no further than to hold that, absent a showing of concurrence in, or ratification of, the acts of the municipal officers by the governing body, an award of exemplary damages against a municipality is not warranted by Texas law. Garrett Brothers at 279-80. Thus it can be seen that Texas courts have not reached a philosophical consensus upon how to evaluate this situation. While Cole follows the denial as a matter of law view, other Texas courts have merely held that the facts involved did not support exemplary damages, without ruling on the merits of the claim. It is therefore the duty of this court to lay this issue to rest. It is our opinion that a synthesis of all the Texas cases reveals the following rule: As a general rule a municipality may not be held liable for exemplary damages; however, if the plaintiff can show that there is intentional, willful, or grossly negligent conduct which shows an entire want of care to his rights and that such conduct can be imputed directly to the governing body of the municipality, exemplary damages may be recovered. Thus, a two-prong test is created. The first prong deals with the culpable state of mind of the actor, while the second prong deals with the imputation of such actions or omissions to the municipal leaders.