Opinion ID: 2516780
Heading Depth: 3
Heading Rank: 3

Heading: The Trial Court Properly Upheld the Jury's Finding of Punitive Damages.

Text: Due to Anderson's successful defamation claim against the Association and Merculief, the jury awarded Anderson $15,000 for emotional distress, $20,000 for reputational harm, and punitive damages totaling $400,000 against the Association and $200,000 against Merculief. The Association and Merculief argue that because of improprieties in Anderson's closing statement, the trial court's instruction of the jury on punitive damages caps, and the excessive nature of the punitive awards, this court should vacate the jury's punitive damages awards and order a new trial on that issue. We disagree and affirm the jury's awards of punitive damages.
The Association and Merculief contend that Anderson's focus in closing argument on punishing the company's corruption was improper and that her closing should have instead focused on punishing the defamatory statements that harmed Anderson. [22] We disagree with appellants' assertion that Anderson's closing statement was improper in this regard. The jury in this case could have found that the motive behind the Association's and Merculief's defamatory statements was that of covering up corruption. We agree with Anderson's argument that the Association and Merculief had a large financial stake in hiding any misconduct. Had the state found reason to investigate financial misappropriations occurring within the Association, the company could have lost its highly lucrative CDQ allocation. Indeed, Merculief made a defamatory statement to Glenn Haight, CDQ manager for the state. Haight testified in deposition that Merculief's allegations that Anderson had falsely accused him and that she had personally and professionally threatened other colleagues led him to conclude that the state should take a hands off approach and not investigate. Thus there was evidence that Merculief and the Association used defamation to hide their misconduct and to safeguard their reputations and their CDQ allocation. The existence of corruption within the Association was therefore an important part of Anderson's theory of defamation, and Anderson's counsel appropriately addressed it in closing argument.
Because the defamatory conduct at issue here took place in 1998, the jury's award of punitive damages is governed by AS 09.17.020. This statute limits punitive damages awards to the greater of three times compensatory damages or $500,000. Subsection (g) of the statute allows an increased award of up to $7,000,000 if the fact finder determines that the conduct proven was motivated by financial gain and the adverse consequences of the conduct were actually known by the defendant or the person responsible for making policy decisions on behalf of the defendant. The statute is silent as to whether the court should inform the jury of the statutory caps or the legal significance of their findings as to motivation. Here, over the Association's and Merculief's objection, the trial court instructed the jury that they could award a maximum of $500,000 in punitive damages, unless they answered yes to special verdict form questions 1 and 2asking separately whether each defendant was motivated by financial gain and knew the adverse consequences of its conductin which case the jury could award up to $7,000,000 in punitive damages. The jury answered yes to both questions 1 and 2 of the special verdict form, and awarded punitive damages of $400,000 against the Association and $200,000 against Merculief. The Association and Merculief argue that, by informing jurors of AS 09.17.020's damages cap provisions, the trial court infringed on their constitutional right to a jury trial on punitive damages. The Association and Merculief assert that article I, section 16 of the Alaska Constitution guarantees them the right to a jury trial to the extent that that right existed at common law, and that the trial court, by informing the jury of the applicable damages caps, interfered with the jury's ability to independently calculate, and ultimately to decide, that issue. They support their position by citing to a number of state court decisions that have found compensatory damages caps unconstitutional under their state constitutions. [23] Other states that have found caps constitutional have done so based on an assumption that the caps will be employed by the trial judge after the jury calculates its award of damages independent of the caps. [24] Subsequent to the briefing in this case we resolved the question of whether the punitive damages caps of AS 09.17.020 are constitutional. In Evans v. State we held that the punitive damages caps are constitutional and do not infringe on the right to trial by jury. [25] That holding controls here. But Evans did not resolve the question whether it is appropriateor constitutionalto instruct a jury as to the existence and the amount of the caps. We proceed to address that question. The trial court here responded to appellants' objection to the cap instruction by giving the following instruction: In giving these instructions to guide you on how punitive damages are to be determined, the court does not intend to express any opinion as to how much money for punitive damages you should award. You may not assume that because the court identifies ranges of damages or explains how to measure the damages that you are required to make an award of a particular amount of punitive damages. The amount of punitive damages to award is entirely within the purview of you, the jury. As Anderson correctly notes, we presume that a jury follows the trial court's instructions. [26] Anderson contends that because the trial court instructed the jury not to use the caps as a gauge for an appropriate award, we should assume that the jury refrained from doing so. We agree with the appellants that instructing the jury on the punitive damages caps was error. Putting the caps before the jury carried a substantial risk of suggesting the range of appropriate punitive awards. [27] Moreover, no countervailing benefit could be gained from the instruction. [28] However, we find that under the circumstances of this case the error does not warrant reversal. Three factors lead to this conclusion. First, this is an issue of first impression in Alaska, and no clear guidance has been available on the issue. Second, the instruction quoted above warned the jury against drawing suggestive inferences from the caps and we normally presume that a jury follows such instructions. [29] And third, the fact that the jury awarded punitive damages totaling $400,000 against the Association and $200,000 against Merculiefwhen their findings as to financial motivation and actual knowledge entitled them to award up to $7,000,000 against eachindicates that the jury did not improperly adjust its award of punitive damages based on the caps instruction.
The trial court instructed the jury to consider the statutory factors set forth in AS 09.17.020(c) in its calculation of punitive damages. Alaska Statute 09.17.020(c) provides that in determining punitive damages, a fact finder may consider: (1) the likelihood at the time of the conduct that serious harm would arise from the defendant's conduct; (2) the degree of the defendant's awareness of the likelihood described in (1) of this subsection; (3) the amount of financial gain the defendant gained or expected to gain as a result of the defendant's conduct; (4) the duration of the conduct and any intentional concealment of the conduct; (5) the attitude and conduct of the defendant upon discovery of the conduct; (6) the financial condition of the defendant; and (7) the total deterrence of other damages and punishment imposed on the defendant as a result of the conduct, including compensatory and punitive damages awards to persons in situations similar to those of the plaintiff and the severity of the criminal penalties to which the defendant has been or may be subjected. The Association and Merculief argue that neither these statutory factors nor common law factors support the jury's punitive damages awards in this case. We disagree and find that under the circumstances of this case, the punitive damages awards upheld by the trial court were not excessive.
With respect to the first and second statutory factors, we believe that a jury could reasonably find that the Association's and Merculief's defamation of Anderson were likely to, and did, cause Anderson serious harm, and that the Association and Merculief must have been aware of this harm. Appellants attempt to minimize the harm suffered by Anderson, [30] while ignoring her severe career and reputational losses. After Anderson reported Merculief's misdealings, Merculief and the Association board spread vicious lies about Anderson, accusing her of stalking Merculief and of personally and professionally threatening colleagues. The evidence supports the conclusion that the appellants made these statements deliberately, in order to get rid of Anderson, destroy her credibility, and hide the extent of ongoing financial misappropriations within the company. In addition, the jury found that the Association and Merculief both acted with financial motives and actual knowledge of the harm that their actions would cause. [31] Whether or not Anderson is able to recoup her financial losses in her new career as a barrister, the Association and Merculief effectively shut her out of the career and field that she had chosen. The trial court was within its discretion to consider this a serious and deliberate harm.
With respect to the third statutory factor, evidence demonstrating that the Association and Merculief expected their behavior to result in financial gain, or at least avoidance of substantial financial loss, supports the jury's finding as to the appellants' motive. Haight, the state director of the CDQ program, testified that Merculief's statements to him about Anderson, her past, and her false allegations convinced him not to investigate the allegations of corruption in the Association. Had the state investigated, the Association could have lost its percentage of the CDQ allocation. According to Anderson: At $228,000 per percentage point of allocation, [the Association] stood to lose a considerable sum if its allocation were reduced. Direct benefits to [the Association's] board members in the form of loans and grants were in the hundreds of thousands of dollars, and administrative, per diem, and travel expenses were substantially in excess of guidelines used for non-profit grants by the state and federal government for an entity of its size. Were the financial misconduct and self-dealing of its board members revealed through Anderson's actions, [the Association] would have been subjected to stricter scrutiny from both state and federal agencies, and the board members stood to lose the lucrative benefits they were providing to themselves. We conclude that there was more than enough evidence here to support the jury's finding of a financial motive.
As to the fourth and fifth factors, while the short duration of the appellants' conduct does not weigh in favor of great punitive damages, their attitude and conduct toward Anderson upon her report of their misconduct does. Merculief's response to Anderson's concerns about his misconduct was to deny the misconduct or to blame Anderson for his own misappropriations. In addition, there is evidence that after it became apparent that Merculief had misappropriated money from the Association, he resisted attempts to collect past overpayments made to him and continued to engage in financial improprieties. Merculief eventually resigned from his presidency after repeated pressure to halt his misappropriations. The board, meanwhile, seemed to do its best to avoid dealing with Anderson's concerns about Merculief. When the board did commission an audit to investigate, it designed the audit to be as narrow as possible and failed to address broader issues of potential financial misdealing identified by Anderson as areas of concern. Further, the evidence indicates that the board's behavior toward Anderson did not change after it discovered that Anderson's concerns about Merculief were well-founded. Even during trial, a board member continued to blame her for being disloyal and falsely accusing Merculief. This board member continued to assert that Merculief had done nothing wrong. Although the board did attempt to collect from Merculief the amounts that he had misappropriated, it did not follow through with these attempts. In fact, it voted to indemnify Merculief for the punitive damages awarded against him. These behaviors indicate an individual and an organization unwilling to admit the misconduct they engaged in or the harm they inflicted upon their employee.
As to the sixth statutory factor, consideration of appellants' financial condition need not reduce the jury's punitive damages awards. While the ratio of punitive damages awarded against Merculief individually$200,000to Merculief's annual salary at the time$70,000may be high in relation to ratios found in previous cases, [32] the jury here knew that the board had voted to indemnify Merculief for any punitive damages assessed against him. The jury's award, then, would have no impact on Merculief's finances. As for the Association, the company is a nonprofit organization and thus earns no profits; however, the Association conceded that its unrestricted assets are an appropriate measure of its wealth. The Association's unrestricted assets in 1999 totaled $4.5 million. The company argues that not all of its unrestricted assets were truly uncommitted at the time of trial and that the court ought to use its actually unrestricted assets of approximately $1.5 million in assessing punitive damages; however, using the stated $4.5 million figure seems at least equally appropriate. Comparing the jury's $400,000 punitive damages award against the Association with the company's stated unrestricted assets at the time of trial, we find that the award was only 8.9% of the Association's unrestricted assets. We have previously upheld punitive damages awards that constituted a greater percentage of a defendant's assets. [33] Thus, the jury's awards here were not excessive on grounds of appellants' financial condition.
Finally, the seventh statutory factor, examining the total deterrence of other damages and punishment imposed on the defendant ... including compensatory and punitive damages awards to persons in situations similar to those of the plaintiff, [34] encompasses the appellants' concern for common law factors in assessing punitive damages. In comparing this jury award to those of past cases, the Association and Merculief treat the two punitive damages awards here as one award of $600,000 against the Association and point out that this court has only once allowed a punitive damages award larger than $600,000. [35] We note, however, that this does not mean that the jury's award here was excessive. Indeed, if we examine the awards as they were madeone award of $400,000 and one of $200,000we see that case law supports awards of this magnitude. [36] The Association and Merculief also argue that we should look for guidance to the United States Supreme Court's three guideposts for determining whether punitive damages awards are excessive: (1) the egregiousness of the conduct at issue, (2) the relation between the actual damages and the punitive award, and (3) whether the defendant received fair notice from statutes or previous cases that it could be subject to a punitive award of the magnitude in issue. [37] We agree and proceed to do so. [38] First, as discussed above, the appellants' deliberate use of defamatory statements to get rid of Anderson and to push her out of her chosen career and industry reasonably constituted egregious misconduct. Next, although AS 09.17.020 creates a normal ratio of 3-to-1 for the relationship between punitive and compensatory damages awards, this court has never enforced a specific ratio with regard to such awards. The statute itself clearly allows awards departing from the 3-to-1 ratio. [39] Moreover, this court has upheld several punitive damages awards where the ratio of punitive to compensatory damages was greater than 3-to-1. In Pluid v. B.K., we upheld a punitive to compensatory ratio of 5-to-1. [40] In Era Aviation, Inc. v. Lindfors , we allowed a ratio of 10-to-1. [41] We upheld a 48.3-to-1 ratio in Norcon v. Kotowski. [42] As we noted in Cameron v. Beard, [t]his court has refused to prescribe a definite ratio between compensatory and punitive damages. Though comparing punitive and actual damage awards is one way to determine if punitive damages are excessive, other factors ... are equally important to the determination. [43] Here, the jury awarded compensatory damages totaling $35,000 on Anderson's defamation claim and Anderson will be entitled to approximately $13,000 for lost wages. The jury's punitive awards of $400,000 and $200,000 result in ratios of 8.33-to-1 and 4.16-to-1 respectively. Given the Association's and Merculief's conduct and motives in this case, we find that those ratios are not excessive. Finally, as to the United States Supreme Court's last criterion, the Association and Merculief did have notice that they could be subject to punitive damages awards of the magnitude here. We have upheld awards of this magnitude and greater in the past. [44] Further, AS 09.17.020 imparts notice that punitive damages may be awarded for malicious acts and that awards of up to $7,000,000 may be permitted where the acts are motivated by financial gain and committed with knowledge of their consequences. Thus, while the jury's awards of punitive damages against the Association and Merculief are relatively high, they are not beyond sustainable limits according to statute, common law, or constitutional standards. Viewed deferentially or de novo, we conclude that the trial court did not err in upholding the jury's determination of punitive damages.