Opinion ID: 901080
Heading Depth: 2
Heading Rank: 3

Heading: Amount of punitive damages award

Text: [¶ 42.] Farner contends that the punitive damages awarded by the jury$500,000are excessive and the result of passion and prejudice. Farner contends the punitive damages award violates the due process clause of the United States Constitution. [¶ 43.] We have previously indicated that, in order to overturn a jury's award of punitive damages, the amount `must be so excessive as to strike mankind, at first blush, as being, beyond all measure unreasonable and outrageous, and such as manifestly shows the jury to have been actuated by passion, partiality, prejudice or corruption. In short, the damages must be flagrantly outrageous and extravagant[.]' Leisinger v. Jacobson, 2002 SD 108, ¶ 9, 651 N.W.2d 693, 696 (quoting Flockhart v. Wyant, 467 N.W.2d 473, 479 (S.D.1991)). [¶ 44.] Additionally, although states have discretion to impose punitive damages to punish and deter, it is well established that there are procedural and substantive constitutional limitations on these awards. State Farm v. Campbell, ____ U.S. ____, 123 S.Ct. 1513, 1519, 155 L.Ed.2d 585 (2003) (additional citations omitted). The Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor. Id. at 1519-20. Thus, [p]unitive damages awards must comply with the due process clause's `general concern for reasonableness.' Pulla v. Amoco Oil Co., 72 F.3d 648, 658 (8th Cir.1995) (quoting TXO Prod. Corp. v. Alliance Resources Corp., 509 U.S. 443, 458, 113 S.Ct. 2711, 2720, 125 L.Ed.2d 366 (1993)(additional citation omitted)). Our standard of review is de novo. [4] [¶ 45.] [E]lementary notions of fairness enshrined in our constitutional jurisprudence dictate that a person receive fair notice not only of the conduct that will subject him to punishment, but also of the severity of the penalty that a state may impose. Campbell, ____ U.S. at____, 123 S.Ct. at 1520 (quoting BMW of North America, Inc. v. Gore, 517 U.S. 559, 574, 116 S.Ct. 1589, 1598, 134 L.Ed.2d 809 (1996)). To the extent an award is grossly excessive, it furthers no legitimate purpose and constitutes an arbitrary deprivation of property. Campbell, ____ U.S. at ____, 123 S.Ct. at 1520 (citing Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 42, 111 S.Ct. 1032, 1056, 113 L.Ed.2d 1 (1991) (O'Connor, J., dissenting)). [¶ 46.] Out of concerns that punitive damage awards may be imposed indiscriminately and may be awarded in grossly excessive amounts, the Supreme Court has developed three guideposts to assist courts in reviewing punitive damage awards: 1) the degree of reprehensibility of the defendant's misconduct, 2) the disparity between the harm (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. Campbell, ____ U.S. at____, 123 S.Ct. at 1520 (citing Gore, 517 U.S. at 575-86, 116 S.Ct. at 1599-1604). See also Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 440,121 S.Ct. 1678,1687, 149 L.Ed.2d 674, 689 (2001). [¶ 47.] We have previously applied a five-factor test in determining whether punitive damages are appropriate or excessive, analyzing the amount allowed in compensatory damages, the nature and enormity of the wrong, the intent of the wrongdoer, the wrongdoer's financial condition, and all of the circumstances attendant to the wrongdoer's actions. See Leisinger, 2002 SD 108 at ¶ 19, 651 N.W.2d at 700. We herein incorporate our five factor analysis with the three guideposts outlined by the Supreme Court. See Campbell, ____ U.S. at____, 123 S.Ct. at 1520-26. [¶ 48.] The first guidepost requires us to examine the degree of reprehensibility of the defendant's misconduct. Id. at 1520 (citing Gore, 517 U.S. at 575, 116 S.Ct. at 1599). In applying this guidepost, we consider whether: the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident. Campbell, ____ U.S. at____, 123 S.Ct. at 1521. [¶ 49.] We have previously indicated that in examining the intent of the wrongdoer we determine `the degree of reprehensibility of the defendant's conduct,' which is viewed as probably the most important indication of the reasonableness of the punitive damage award. Veeder v. Kennedy, 1999 SD 23, ¶ 54, 589 N.W.2d 610, 621 (quoting Schaffer v. Edward D. Jones & Co., 1996 SD 94, ¶ 32, 552 N.W.2d 801, 812 ( Schaffer II ) (citing Gore, 517 U.S. at 575, 116 S.Ct. at 1599)). Under this analysis we have recognized the principle that some wrongs are more blameworthy than others. See Schaffer II, 1996 SD 94 at ¶ 32, 552 N.W.2d at 811. Trickery and deceit are more reprehensible than negligence. Id. (citing Gore, 517 U.S. at 576, 116 S.Ct. at 1599) Of a more serious nature would be those acts which result in injury to persons through `indifference to and reckless disregard for the health or safety of other[s].' Veeder, 1999 SD 23 at ¶ 54, 589 N.W.2d at 621 (quoting Gore, 517 U.S. at 576, 116 S.Ct. at 1599). [¶ 50.] In reviewing these facts as they apply to the offensiveness of Farner's conduct, we find the Eighth Circuit case of Pulla, 72 F.3d at 660, helpful. In Pulla, a co-employee examined Pulla's credit card records upon a belief that Pulla was abusing sick leave. The employee photocopied the records and forwarded them to his supervisor who in turn forwarded them to Human Resources where they were ultimately placed in Pulla's personnel file. The Eighth Circuit Court of Appeals found this conduct was of limited offensiveness and ultimately reversed the punitive damages award for failing to pass constitutional muster. In finding that the trial court misapplied the offensiveness prong to the punitive damage award, the court focused on the fact that there was no evidence that the conduct reflected a company policy or practice. [¶ 51.] In this case, the evidence indicates that Farner's initial intrusion was not intentional. The Pochop package was opened in the ordinary course of business, it was addressed to Farner's business address and was not addressed to Roth, personally and confidentially. After the initial inadvertent intrusion, Schmidt discovered a transcript of the termination meeting between himself, Roth and Cy Farner. He went on to read and photocopy the package and disseminated it to Farner's vice president of sales who in turn disseminated it to Farner's president. There was additional evidence that a letter from the law firm to an attorney in West Des Moines, Iowa concerning Roth's age discrimination claim was received, opened and placed in Roth's personnel file. [¶ 52.] However, there is no evidence that the conduct reflected a company policy or practice. Farner's actions were limited to two incidents involving mail addressed to Roth at Farner's business address which was not marked personal and confidential. Farner's tortious acts grew out of one employee's conduct and his dissemination of a transcript of a tape recording of a termination meeting which had been secretly recorded and which involved that employee and the head of the company. Like the Pulla Court, we find this conduct of limited offensiveness justifying a limited award of punitive damages. Pulla, 72 F.3d at 661. [¶ 53.] Furthermore, although Roth contends that Farner's actions harmed his age discrimination suit, the majority of the items in the package, including the contents of the transcript of the termination meeting, were either already within the knowledge of Farner's employees or would have been discoverable by Farner in that lawsuit. Additionally, we note that Roth did not appeal the trial court's judgment on the jury verdict in favor of Farner on his age discrimination claim. [¶ 54.] In analyzing the offensiveness of the conduct, we must look to whether the punitive damages award jars one's constitutional sensibilities. Id. at 660. In this case, the harm caused to Roth was economic as opposed to physical. Farner put no one's health or safety at risk and the evidence indicates Farner's conduct was limited to two isolated incidents. Although Farner's fraudulent concealment indicates it engaged in conduct of trickery and deceit, Roth was fully compensated for the damages he suffered as a result of Farner's invasion of his privacy. See Campbell, ____ U.S.____, 123 S.Ct. at 1521, 155 L.Ed.2d 585 (indicating [i]t should be presumed a plaintiff has been made whole for his injuries by compensatory damages, so punitive damages should only be awarded if the defendant's culpability, after having paid compensatory damages, is so reprehensible as to warrant the imposition of further sanctions to achieve punishment or deterrence.) (citing Gore, 517 U.S. at 575, 116 S.Ct. 1589, 134 L.Ed.2d 809). A defendant should be punished for the conduct that harmed the plaintiff, not for being an unsavory individual or business. Id. at 1523. [¶ 55.] Accordingly, based on the above, we find that the first guidepost, or reprehensibility guidepost, weighs in favor of a finding that the punitive damages awarded in this case were excessive and fail to meet the due process clause's general concern for reasonableness. Pulla, 72 F.3d at 658. [¶ 56.] The second guidepost requires us to consider the disparity between the harm (or potential harm) suffered by the plaintiff and the punitive damages award. Campbell, ____ U.S. at____, 123 S.Ct. at 1520 (citing Gore, 517 U.S. at 575, 116 S.Ct. at 1601). In the past, when considering the amount allowed in compensatory damages, we have indicated [t]he amount of punitive damages must bear a reasonable relationship to the compensatory damages. Grynberg, 1997 SD 121 at ¶ 38, 573 N.W.2d at 504 (additional citation omitted). However, we have also indicated ratio comparisons are of limited value and there is no precise mathematical ratio between compensatory and punitive damages. Id. [¶ 57.] Likewise, the Supreme Court has indicated the relevant constitutional line is `inherently imprecise,' rather than one `marked by a simple mathematical formula.'  Cooper, 532 U.S. at 434-35, 121 S.Ct. at 1684 (quoting United U.S. v. Bajakajian, 524 U.S. 321, 336, 118 S.Ct. 2028, 2037, 141 L.Ed.2d 314 (1998) and Gore, 517 U.S. at 582,116 S.Ct. at 1602). [¶ 58.] The Supreme Court recently reconfirmed this view in Campbell, ____ U.S. at____, 123 S.Ct. at 1524, by declining to impose a bright-line ratio which a punitive damages award cannot exceed. However, the Supreme Court went on to indicate that in practice, few awards exceeding a single digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process. Id. [¶ 59.] In this case, the mathematical ratio between punitive and compensatory damages is twenty to one. We have previously expressed concern of ratios expressing a smaller disparity. See Leisinger, 2002 SD 108 at ¶ 20, 651 N.W.2d at 700 (addressing 9 to 1 ratio) and Grynberg, 1997 SD 121 at ¶ 38, 573 N.W.2d at 505 (addressing 13-1/2 to 1 ratio). See also Schaffer II, 1996 SD 94 at ¶ 28, 552 N.W.2d at 810-11 (addressing 30 to 1 ratio). However, we proceed to analyze the disparity between the harm (or potential harm) suffered by the plaintiff and the punitive damages awarded. See Campbell, ____ U.S. at____, 123 S.Ct. at 1524 (indicating [t]he precise award in any case, of course, must be based upon the facts and circumstances of the defendant's conduct and the harm to the plaintiff). [¶ 60.] In reviewing this guidepost, as it applies to the facts in this case, we again find the Pulla case helpful. 72 F.3d at 652-53. In comparing the disparity between actual and punitive damages the Pulla court indicated that while a `shocking disparity' in the ratio between an award of punitive and actual damages may suggest that the punitive damages award is unconstitutional, the existence of potential damages and/or the reprehensibility of a defendant's conduct may overcome any such disparity. Pulla, 72 F.3d at 659. Moreover, not only does the presence of these factors justify a large punitive damages award, but their absence also can counsel against a large award.  Id. (emphasis added). [¶ 61.] In finding that the trial court misapplied the harm prong to the punitive damage award, the Pulla court indicated that the potential harm inquiry could not overlook the actual events and focus on potential victims of similar hypothetical torts.  Pulla, 72 F.3d at 659. Under this analysis, the court held that because Pulla had failed to produce any evidence that the defendant had put any other individual's privacy at risk, the potential harm from the search of his credit cards could only be analyzed as the search affected him. Id. at 660. [¶ 62.] The Pulla Court relied upon the United State's Supreme Court case of TXO in analyzing the potential harm of the tortious conduct. See Pulla, 72 F.3d at 659-60. In TXO, the United State's Supreme Court, in a plurality decision, indicated that in determining whether the punitive damage award bore a reasonable relationship to actual damages: It is appropriate to consider the magnitude of the potential harm that the defendant's conduct would have caused to its intended victim if the wrongful plan had succeeded, as well as the possible harm to other victims that might have resulted if similar future behavior were not deterred. TXO, 509 U.S. at 460, 113 S.Ct. at 2722 (emphasis in original). [¶ 63.] Furthermore in defining the possible harm to other victims, the Court quoted with approval a passage from an opinion issued by the West Virginia Court of Appeals: For instance, a man wildly fires a gun into a crowd. By sheer chance, no one is injured and the only damage is a $10 pair of glasses. A jury reasonably could find only $10 in compensatory damages, but thousands of dollars in punitive damages to teach a duty of care. We would allow a jury to impose substantial punitive damages in order to discourage future bad acts. Id. at 459-60, 113 S.Ct. 2711 (quoting Garnes v. Fleming Landfill, Inc., 186 W.Va. 656, 661, 413 S.E.2d 897, 902 (1991)). [¶ 64.] In Pulla, the Eighth Circuit Court of Appeals indicated that under this standard, the touchstone is the potential harm that would have likely resulted from the dangerousness inherent in defendant's actual conduct. Pulla, 72 F.3d at 659 (emphasis added). [¶ 65.] In applying this standard to the facts in this case there is no evidence that the conduct reflected a company policy or practice or that Farner put anyone else's privacy at risk. As a result, the dangerousness inherent in Farner's conduct, i.e., the potential harm from opening, copying and disseminating Roth's mail, must be viewed from how these actions affected Roth, personally. [¶ 66.] As indicated above, most of the contents of the Pochop package were either in the possession of Farner and its employees or discoverable in the age discrimination cause of action. Additionally, Roth did not appeal the judgment on the jury's verdict for Farner on his age discrimination claim. Accordingly, we find that there was an unlikelihood of serious potential harm and limited actual harm to Roth. [¶ 67.] Therefore, applying the rationale of the Pulla Court, we find that in this case, the combination of the shocking disparity between compensatory and punitive damages awarded, combined with the lack of potential and actual harm and the low degree of reprehensibility of the defendant's conduct, counsel against a substantial punitive damages award. [¶ 68.] Additionally, in regard to determining if the amount awarded in punitive damages is reasonable and proportionate to the amount awarded in compensatory damages, the Supreme Court has indicated that sanctions of double, treble, or quadruple damages may be sufficient to meet the State's goals of deterrence and retribution in imposing punitive damages against a tortfeasor. See Campbell, ____ U.S. at ____, 123 S.Ct. at 1524. When compensatory damages are substantial, then a lesser ratio, perhaps equal to compensatory damages can reach the outermost limit of the due process guarantee. Id. [¶ 69.] In determining that a lesser ratio between compensatory and punitive damages was warranted in Campbell, the Supreme Court noted that, based on the substantial compensatory damage award, the Campbells were completely compensated for the economic harm caused by the defendant. Id. Additionally, the Supreme Court noted that the compensatory damage award, which compensated the Campbells for their emotional distress, indignation, outrage and humiliation, contained a punitive element. Id. [¶ 70.] In this case, there was a substantial compensatory damage award of $25,000. The evidence indicates that Roth suffered only minor economic injuries. Furthermore, Roth's damages, as supported by the evidence, consisted of emotional distress, including feelings of anger, betrayal and devastation. Accordingly, not only was Roth completely compensated for his economic injuries by the large compensatory damage award, but we find also that the compensatory damages in this case contained a punitive element. See Campbell, ___ U.S. at___, 123 S.Ct. at 1525 (quoting Restatement (Second) of Torts § 908, Comment c, p. 466 (1977) (indicating that where compensatory damages include an amount for emotional distress, such as humiliation or indignation... [,] there is no clear line of demarcation between punishment and compensation and a verdict for a specified amount frequently includes elements of both)). [¶ 71.] Based on the above, we find that this second guidepost, or harm guidepost, indicates the punitive damages award was unreasonable and disproportionate to the potential harm and the actual harm experienced by Roth and a lower ratio between compensatory and punitive damages is warranted. [¶ 72.] We have previously indicated that a defendant's net worth is a guideline for assessing the amount of punitive damages. See Schaffer II, 1996 SD 94 at ¶ 36, 552 N.W.2d at 813 (citation omitted). Therefore, we have held that a defendant's financial resources are an appropriate yardstick for determining punitive damages. Id. However, in this case, where we have determined that the reprehensibility and harm guideposts counsel in favor of a lower punitive damages award, we need not address the wrongdoer's financial condition and the effect of the punitive damages award on Farner. See id., 1996 SD 94 at ¶ 37, 552 N.W.2d at 813 and Grynberg, 1997 SD 121 at ¶ 45, 573 N.W.2d at 506. The wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award. Campbell, ___ U.S. at ___, 123 S.Ct. at 1525 (citing Gore, 517 U.S. at 585, 116 S.Ct. at 1604). [¶ 73.] The third guidepost calls for us to analyze the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases. Campbell, ___ U.S. at ___, 123 S.Ct. at 1520 (citing Gore, 517 U.S. at 575, 116 S.Ct. at 1603). In the past, we have considered whether there were other sanctions available, either civil or criminal, when taking into consideration all other relevant circumstances of the case. See Veeder, 1999 SD 23 at ¶ 58, 589 N.W.2d at 622 (referencing Grynberg, 1997 SD 121 at ¶ 46, 573 N.W.2d at 507 and Schaffer II, 1996 SD 94 at ¶ 39, 552 N.W.2d at 814). [¶ 74.] In this case, we note that the legislature has repealed the statute of the criminal code dealing with opening letters without authority. See SDCL 22-21-2, SL 1976 § 21-3. However, under federal law, knowingly and willfully obstructing the passage of mail carries a fine or imprisonment of up to six months. See 18 USCA § 1701. Additionally, some courts have held that 18 USC § 1708, which prohibits the theft of mail and provides for a fine or imprisonment of up to five years, applies to conversion of misaddressed mail. See United States v. Palmer, 864 F.2d 524, 528 (7th Cir.1988). [¶ 75.] We conclude that both the reprehensibility and harm guideposts, as applied to the facts in this case, indicate that the punitive damages award violates the due process clause's general concern for reasonableness. Pulla, 72 F.3d at 658. We recently reconfirmed our view that, [p]unitive damages must not be so oppressive or so large as to shock the sense of fair-minded persons. Leisinger, 2002 SD 108 at ¶ 23, 651 N.W.2d at 701 (quoting Schaffer II, 1996 SD 94 at ¶ 27, 552 N.W.2d at 810). In this case, where there was a substantial compensatory damage award containing a punitive element which fully compensated Roth for the harm caused, we find a punitive damages award at or near the amount of compensatory damages is justified. See Campbell, ___ U.S. at ___, 123 S.Ct. at 1526. [¶ 76.] Therefore, we hold that the punitive damages awarded$500,000was unreasonable and disproportionate to the harm caused and the wrong committed. This case is remanded for a new trial on punitive damages. In order to properly calculate a punitive damage award, the jury should be instructed in accordance with this opinion regarding the three guideposts outlined by the United States Supreme Court. See Campbell, ___ U.S. ___, 123 S.Ct. 1513,155 L.Ed.2d 585. See also Cooper, 532 U.S. 424, 121 S.Ct. 1678, 149 L.Ed.2d 674, Gore, 517 U.S. 559, 116 S.Ct. 1589, 134 L.Ed.2d 809, and Pulla, 72 F.3d 648.