Opinion ID: 2630568
Heading Depth: 2
Heading Rank: 3

Heading: the excessiveness of the punitive damage award

Text: ¶ 12 In Crookston I, we identified seven factors which aid a finder of fact in the first instance and a reviewing court on a motion for a new trial or on appeal in determining the appropriate scope of an award of punitive damages. A jury, trial court, or appellate court must consider (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 recurrence of the misconduct; (vi) the relationship of the parties; and (vii) the amount of actual damages awarded. [5] Crookston I, 817 P.2d at 808. While these factors do not comprise an exclusive list, nor carry decisive weight individually, all factors must be considered, and a justification of a substantial award will generally be couched in terms of one or more of these factors. Campbell, 2001 UT 89 at ¶ 19, 65 P.3d 1134; Crookston v. Fire Ins. Exch., 860 P.2d 937, 940 (Utah 1993) ( Crookston II ); Crookston I, 817 P.2d at 808. ¶ 13 One of the four defendants, Gilbert Turner, has not appealed the trial judge's remittitur; we therefore consider only the level of punitive damages awarded against the remaining three defendants.
¶ 14 The jury awarded $1,750,000 in punitive damages against Knapp; the trial judge remitted the award to $500,000, observing that the resulting ratio of punitive to actual damages of slightly over five to one was appropriate given Knapp's wealth and the likelihood that he would engage in similar conduct in the future if not subjected to a substantial award of punitive damages. While we appreciate the trial judge's careful consideration of the Crookston I factors, we hold that the remitted award with regard to Knapp remains excessive.
¶ 15 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. Campbell, 2001 UT 89 at ¶¶ 23-24, 65 P.3d 1134. Evidence adduced at trial puts Knapp's worth at $5,000,000. While the evidence relating to the wealth of the other defendants was less complete, Knapp appears to be the wealthiest by a significant margin. In setting the remitted award at 10% of Knapp's estimated worth, the trial court intended to send a very strong message regarding future conduct without putting Knapp at risk of bankruptcy. An extremely wealthy defendant may require a larger award of punitive damages to be deterred from further misconduct; we have recently taken the great wealth of a defendant as a factor tending to support a large award of punitive damages. Id. at ¶ 26. The wealth of the defendant in Campbell, however, was of a completely different order of magnitude than that of Knapp. [6] The ratios between punitive and actual damages we have determined to be presumptively appropriate are generally sufficient to ensure that awards of punitive damages both punish and deter the conduct on which defendants' liability is based. See Crookston II, 860 P.2d at 940 (That pattern was considered adequate to provide compensation which would make the victims whole while punishing and deterring the tort-feasors) (citations omitted). The presence of substantial personal or corporate assets is not alone sufficient to require an award that exceeds those ratios. [7]
¶ 16 The jury found Knapp and Turner inflated by $70,000 the purchase price of the property they acquired to sell to Diversified. Within a few weeks after the purchase closed, Diversified learned of the actual price paid by defendants and ultimately instituted the legal proceedings culminating in this appeal. While punitive damages may appropriately be awarded for fraud, the imposition of an award so disproportionate to the actual damages suffered must be justified by more than the mere fact of fraud. Both the United States Supreme Court and this court have recognized that, within the broader class of actions that merit not only actual, but exemplary damages, there is a subset of particularly egregious behaviors that will attract more severe sanctions. We have countenanced awards that appeared disproportionate at first blush when the conduct grounding the defendants' liability was but a particular instance of an invidious pattern affecting victims both numerous and peculiarly vulnerable to the defendants' machinations. See Campbell, 2001 UT 89 at ¶ 27, 65 P.3d 1134; Crookston II, 860 P.2d at 941. While the fraud perpetrated here is sufficient to justify both compensatory and punitive damages, appellant's conduct lacks those additional elements of blameworthiness that would sustain more substantial punitive damages. The victim of Knapp's deceit was not a vulnerable individual, but a corporation, represented in this transaction by two men with substantial experience in both business and real estate transactions. [8] ¶ 17 Behaviors that undermine the efficiency and integrity of the judicial process may also be considered under the rubric of the second Crookston I factor; in Campbell we singled out for censure the defendant's systematic destruction of documents related to its challenged activities and its policy of harassing and exhausting legal opponents. Campbell, 2001 UT 89 at ¶¶ 30-31, 65 P.3d 1134. The facts of the instant case are not suggestive of similar systematic efforts to hinder the litigation process. ¶ 18 The United States Supreme Court has recently distinguished between punitive damage awards that respond to purely economic harms and those aimed at crimes involving actual or threatened violence or deceit. BMW of North America, Inc. v. Gore, 517 U.S. 559, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996). [I]nfliction of economic injury, especially when done intentionally through affirmative acts of misconduct, or when the target is financially vulnerable, can warrant a substantial penalty. But this observation does not convert all acts that cause economic harm into torts that are sufficiently reprehensible to justify a significant sanction in addition to compensatory damages. Id. at 576, 116 S.Ct. 1589 (emphasis added) (citations omitted). Knapp, while certainly guilty of affirmative acts of misconduct, did not target vulnerable victims or otherwise act in a manner sufficiently reprehensible to merit substantial punitive damages. Punitive damage awards should reflect a different degree of culpability for garden-variety fraud as opposed to its more egregious forms.
¶ 19 The third Crookston I factor supplements the second's objective assessment of the defendant's conduct with a more subjective inquiry into what the defendant knew and what was motivating his or her actions. Campbell, 2001 UT 89 at ¶ 35, 65 P.3d 1134. While defendant's motive of making money regardless of legal or professional duties is hardly admirable, there is, again, no evidence of intentions or actions so profoundly reprehensible as to merit punitive damages beyond ordinary measures. In suggesting that the award of punitive damages against Knapp should be further remitted we do not disturb the finding of the jury and the trial court that Knapp's actions were both culpable and reprehensible; we do point out, however, that this degree of culpability and reprehensibility does not merit punitive damages significantly outside the ratios outlined in Crookston I.
¶ 20 Knapp's conduct did not have the widespread effect on groups of vulnerable victims or a devastating impact on the plaintiff that would justify an award outside the range usually deemed adequate for purposes of punishment and deterrence. The larger the number of people affected, the greater the justification for higher punitive damages. Campbell, 2001 UT 89 at ¶ 37, 65 P.3d 1134.
¶ 21 It is on this ground that the argument for a substantial award of punitive damages is most compelling. While the standard of review for this factor, as for all the other factors, remains de novo, the trial court's detailed findings and its privileged position have provided the best argument for assessing substantial punitive damages against Knapp. The trial court found that Knapp demonstrated an incredibly arrogant and uncaring attitude on the stand when asked about the lies and half-truths propounded by Mr. Turner [at] his behest. Moreover, Knapp absented himself from the proceedings once the jury found that punitive damages were warranted; he did not attend the trial during the presentation of evidence or argument related to the amount of punitive damages. While Knapp's absence may bear a benign interpretation, it is certainly equally susceptible to that placed on it by the trial court, that he holds in contempt any legal procedure that would censure his conduct. [9] The trial court was concerned that a smaller award would not penalize Knapp sufficiently to deter him from repetition of his conduct. Knapp does not ordinarily, nor did he in this transaction, hold himself out as a real estate agent. The trial court observed that while Turner's surrender of his real estate license will prevent him from working as an agent, Knapp could continue to engage in real estate transactions despite the outcome of this case. ¶ 22 While it is true that the loss of the capacity to act as a real estate agent will affect Turner more dramatically than Knapp, it does not follow that the outcome of this case will not significantly affect Knapp's professional prospects. A judgment based on fraud will no doubt have some detrimental effect on Knapp's reputation in the relevant business communities as well as on his prospects for putting his recently completed law and business degrees to use. These consequences may give Knapp some pause before he chooses to pursue fraudulent courses of action in the future. In Campbell we considered State Farm's decades-long policy of fraudulent and dishonest policies and the difficulty of altering ingrained policies of corporate culture to be aggravating circumstances helping justify a more substantial award of punitive damages than we would ordinarily allow. Campbell, 2001 UT 89 at ¶ 41, 65 P.3d 1134. While mindful of the trial court's opportunity to observe Knapp and draw legitimate inferences from those observations, we are unconvinced that the possibility of Knapp's recidivism supports a result different from that which an analysis of the other six Crookston factors suggests.
¶ 23 Several aspects of the relationship between plaintiff and defendant can affect the damages assessed against a defendant. The greater the trust reposed in a defendant, the greater will be the justification for a more significant award of punitive damages. Campbell, 2001 UT 89 at ¶ 44, 65 P.3d 1134. The breach of a fiduciary relationship also justifies higher punitive damages. Id. A real estate agent does owe a duty, independent of any implied or express contracts, to be `honest, ethical, and competent' in dealings with purchasers. Hermansen v. Tasulis, 2002 UT 52, ¶ 22, 48 P.3d 235 (quoting Dugan v. Jones, 615 P.2d 1239, 1248 (Utah 1980)). This duty is not a fiduciary duty, however: [u]nder Utah law, the general rule is no fiduciary obligations exist between a buyer and seller of any property. [10] Dugan, 615 P.2d at 1248. Here the client was a corporation represented by two experienced businessmen, not an inexperienced and vulnerable individual. While purchasers of real estate, whether individual or corporate, certainly have a right to expect that sellers and their agent will refrain from fraudulent practices, an experienced purchaser of a commercial property is not in a position of peculiar dependence on the trustworthiness of a seller or agent, a position this factor is intended to vindicate.
¶ 24 The ratio of punitive to compensatory damages does not, by itself, determine whether or not an award is excessive; an award that falls outside certain parameters will, however, elicit more searching judicial scrutiny. Campbell, 2001 UT 89 at ¶ 49, 65 P.3d 1134; Crookston I, 817 P.2d at 810. 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. [11] Crookston I, 817 P.2d at 810. Even after the trial judge's remittitur, all the punitive damage awards in this case exceed $100,000, thus triggering more searching judicial scrutiny. [12] ¶ 25 While our case law identifies the ratios against which awards of punitive damages are to be assessed, the briefs of the parties, as well as the trial court's remittitur, reveal some disagreement as to how the ratio should be calculated. Plaintiff argues that, where there are multiple defendants, the actual damages against which punitive damages are measured should consist of the total fraud damages added to the total negligence damages for all defendants. Using this method, higher awards of punitive damages would be sustained, since the actual damages would be increased by the inclusion of all the defendants' individual negligence awards. [13] ¶ 26 Defendants suggest that the proper measure of actual damages is the award of $71,336 that the jury found to be the result of the defendants' fraudulent actions. [14] Under this model, with the exception of the award against Haws, even the remitted awards exceed or come very near to exceeding the ratios we established in Crookston I. [15] ¶ 27 The trial court relied on yet a third approach in calculating actual damages, suggesting that the actual damages against which a particular defendant's punitive damages should be assessed is the sum of the total fraud damages and the individual negligence damages assessed against that defendant. The remitted awards under this approach, with the exception of Knapp's, are more closely aligned with the presumptive ratios. [16] ¶ 28 The difficulty with plaintiff's theory is that it allows an award of punitive damages to be sustained against an individual defendant that is based in part on the negligence of others. While plaintiff does argue that it sustained the total $210,000 loss the jury awarded in negligence damages, it does not offer, nor would it be easy to offer, an argument for why a higher award of punitive damages against Knapp should be justified by the negligence of three other defendants. When multiple defendants are jointly and severally liable for fraud damages, as they are here, the full amount of that joint and several liability may form the basis of the actual damages against which punitive damages are assessed for each defendant. When multiple defendants are not jointly and severally liable, as they are not for negligence damages, one defendant's liability should not be a predicate for increasing punitive damages assessed against another. ¶ 29 The trial court's inclusion of individual negligence damages as a component of actual damages is also problematic on these facts. The legislature has placed limits on the type of misconduct that will support an award of punitive damages: [p]unitive damages may be awarded only if compensatory or general damages are awarded and it is established by clear and convincing evidence that the acts or omissions of the tortfeasor are the result of willful and malicious or intentionally fraudulent conduct, or conduct that manifests a knowing and reckless indifference toward, and a disregard of, the rights of others. Utah Code Ann. § 78-18-1(1)(a) (Supp.2001) (emphasis added). While simple negligence will not support punitive damages, negligence manifesting a knowing and reckless indifference toward the rights of others will. A determination must be made on the facts of each case whether the negligence complained of is of the sort that will support punitive damages. ¶ 30 Even if defendants' liability had been found to be of that variety which makes punitive damages appropriate, our precedent does not allow duplicative punitive damage awards for the same acts. We have to date disallowed as duplicative the assessment of a statutory penalty of double damages and of general punitive damages when both punitive damage awards [were] based on the same set of facts. Alta Indus. Ltd. v. Hurst, 846 P.2d 1282, 1292 (Utah 1993). In Steenblik v. Lichfield, 906 P.2d 872, 881 (Utah 1995), we again held that a statutory penalty of treble damages coupled with an award of punitive damages was duplicative: [h]owever wrongful his actions, [defendant] followed only one course of conduct. That this conduct persisted over time does not create two sets of facts for which he should be punished twice. [17] Defendants' liability in this case is based entirely on a single transaction, and while that transaction as a whole merits punitive damages, under Utah law each legal category under which defendants' actions can be described does not generally form an independent basis for punitive damages. [18] The trial judge's model for calculating actual damages, while plausible, does not conform with our precedent. ¶ 31 The instruction submitted to the jury regarding punitive damages asked the jury to determine punitive damages globally, rather than in separate amounts for negligence and fraud. [19] In order to calculate the ratio under the seventh Crookston factor, however, it is necessary to determine what quantum of actual damages is to be compared with the punitive damage award. On a motion for new trial or remittitur it will be the task of trial courts to ensure that the measure of actual damages used as a basis for calculating the ratio does not result in a duplicative award. Here, plaintiff's description of defendants' negligence adds nothing to the description of their fraud. Exactly the same transaction and exactly the same behavior are urged as justification for punitive damages under theories of both fraud and negligence. On these facts, the behavior that punitive damages are intended to punish and deter is fully addressed by the award for fraud. Therefore, the appropriate measure of actual damages for the calculation of the punitive damages ratio is the $71,336 awarded for fraud. ¶ 32 It is important to clarify one additional fact with regard to use of the Crookston I ratios. In Crookston I, we observed that if an award of punitive damages falls within accepted ratios the trial court may assume that the award is not excessive. 817 P.2d at 811 (emphasis added). This use of may is permissive, rather than mandatory; a trial judge may allow an award within accepted ratios to stand without offering any detailed explanation for its decision, id., but a trial court is not obliged to allow an award that falls within accepted ratios to stand without further remittitur. The Crookston I ratios offer trial courts a presumptive ceiling, not a presumptive floor; a jury's finding that conduct will support an award of punitive damages does not entitle plaintiffs to an award of three times their actual damages. [20] ¶ 33 Based on the foregoing analysis, we hold that a punitive damage award of $143,000, or approximately two times the amount of fraud damages suffered by the plaintiff, will serve as an adequate punishment and deterrent.
¶ 34 University Properties acted through its employee, Knapp, throughout the transaction of which appellees complain. The acts of its employee are the basis of the company's vicarious liability, and are subject to the same analysis. The chief factor aggravating the award against Knapp, a lack of remorse increasing the likelihood of recidivism, is not directly applicable to a separate corporate entity. A ratio of 1:1 recognizes that defendant's conduct was wrongful. Moreover, a 1:1 ratio based on the total amount of fraud damage for which defendant is jointly and severally liable, not merely on this defendant's portion of that damage, is a significant punishment. An award of punitive damages equal to the fraud damages, $71,336 is adequate to punish and deter University Properties.
¶ 35 Haws' connection to the fraud is more attenuated than that of the other three defendants, and the arguments for a further remittitur with regard to Haws apply with even greater force. The remitted award is, however, within the acceptable ratios we outlined in Crookston I. The fact that an award falls within appropriate ratios is not, by itself, dispositive of the appropriateness of the award, however. While the trial court indicated its belief that an award equal to 25% of a company's net worth is unlikely to result in bankruptcy, this award represents a substantial percentage of Haws' value, and further reduction is required. A punitive damage award of $50,000, while slightly below a 1:1 ratio, will serve to punish and deter Haws while reflecting its lesser participation in the fraud and its lower degree of culpability.