Opinion ID: 1542810
Heading Depth: 1
Heading Rank: 2

Heading: Punitive Damages Analysis

Text: A. In reviewing appellants' constitutional challenge to the punitive damage awards in this case, we think it is useful to revisit and distill the legal principles and guidance gleaned from the relevant Supreme Court cases. The Due Process Clauses of the Fifth [11] and Fourteenth Amendments prohibit a State from imposing a grossly excessive civil punishment upon a tortfeasor. [12] The Supreme Court has had several opportunities to consider due process challenges to punitive damage awards. From these cases, we glean several illuminating principles and concerns which have guided the Supreme Court's review of punitive damage awards. These principles include the concern that: 1) courts conduct a meaningful and adequate review of a jury's punitive damage award both at the trial and appellate level to ensure that the award is the product of a process that is entitled to a strong presumption of validity; 2) the award punishes truly reprehensible conduct; 3) the punitive damage award has some relation to the harm suffered by the plaintiff and evidences reasonableness and proportionality, although there is no bright-line ratio, to ensure that the award is not grossly out of proportion to the severity of the offense; and 4) the award advances a State policy concern such as protection of the public by deterring the defendant or others from doing such wrong in the future. In its first case reviewing whether punitive damage awards may violate the Due Process Clause of the Fourteenth Amendment, Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 18, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991), the Supreme Court noted its concern that such awards may run wild. There, Haslip brought a claim for fraud against Pacific Mutual and its employee after the insurance agent misappropriated checks for a customer's premium payments, which resulted in a lapse of her health insurance coverage. Notices of the lapse in coverage were not forwarded to Haslip, who was forced to pay her hospital bill on discharge because the hospital could not confirm her health coverage. The jury returned a general verdict for $1,040,000. [13] On appeal, the Supreme Court of Alabama affirmed the punitive damage award. Pacific Mutual Life then petitioned for certiorari arguing that the punitive damage award was the product of unbridled jury discretion and [ ] violative of its due process rights. Id. at 7, 111 S.Ct. 1032. Noting that the specific award in that case resulted in punitive damages more than four times the compensatory damages, the Court cautioned that unlimited jury discretionor unlimited judicial discretion for that matterin the fixing of punitive damages may invite extreme results that jar one's constitutional sensibilities. Id. at 18, 111 S.Ct. 1032. However, the Court refused to draw a mathematical line between awards that were constitutionally acceptable and the constitutionally unacceptable that would fit every case. Id. In its analysis, the Supreme Court determined that Alabama law contained reasonable and adequate guidelines to appropriately delimit an award of punitive damages within the context of due process (through jury instructions and judicial review). In particular, the jury instructions sufficiently conveyed the purpose of punitive damages`not to compensate the plaintiff for any injury' but `to punish the defendant' and `for the added purpose of protecting the public by [deterring] the defendant and others from doing such wrong in the future.' Id. at 19, 111 S.Ct. 1032 (quoting the jury instructions) (alteration added in Haslip ). The Court also held that the jury instructions limited the jury's discretion[i]t was confined to deterrence and retribution, the [S]tate policy concerns sought to be advanced. Id. In addition, the Court noted that the Supreme Court of Alabama had established post-trial procedures for scrutinizing punitive awards. Id. at 20, 111 S.Ct. 1032. These procedures together allowed the meaningful and adequate review by both the trial court and the Supreme Court of Alabama. Id. The Alabama Supreme Court's postverdict review ensures that punitive damages awards are not grossly out of proportion to the severity of the offense and have some understandable relationship to compensatory damages. Id. at 22, 111 S.Ct. 1032. Accordingly, the Supreme Court upheld the punitive damage award and concluded that it was not unconstitutionally excessive. Id. at 24, 111 S.Ct. 1032. The Court's concern in Haslip that courts conduct meaningful and adequate review of punitive damages awards is consistently echoed in the subsequent Court cases. This concern is one which we deem critical in our analysis here. Two years later, in TXO Prod. Corp. v. Alliance Res. Corp., 509 U.S. 443, 113 S.Ct. 2711, 125 L.Ed.2d 366 (1993) (plurality opinion), a constitutional challenge to a punitive damages award came before the Supreme Court again, this time in the context of a common law slander-of-title-action. There, TXO argued that the punitive damages award was unconstitutional, both because the amount was excessive and because it was the product of an unfair procedure. TXO argued that the award was the result of a fundamentally unfair procedure because the jury was not adequately instructed, because its award was not adequately reviewed by the trial or the appellate court, and because TXO had no advance notice that the jury might be allowed to return such a large award or to rely on potential harm as a basis for its calculation. Id. at 462-63, 113 S.Ct. 2711. In upholding the punitive award of $10 million and compensatory award of only $19,000a 526:1 ratiothe Court followed the rationale of Haslip, and examined both whether fair and adequate procedures were followed and whether there was a reasonable relationship between the award and the harm that occurred (or was likely to occur) from the defendant's conduct. Id. at 458, 113 S.Ct. 2711. In addressing the challenge to the procedure, the Court reasoned that [a]ssuming that fair procedures were followed, a judgment that is a product of that process is entitled to a strong presumption of validity. Id. at 457, 113 S.Ct. 2711 (emphasis added). Viewing the fact that the trial judge did not articulate his reasons for upholding the award, the Court concluded that we certainly are not prepared to characterize the trial judge's failure to articulate the basis for his denial of the motions for judgment notwithstanding the verdict and for remittitur as a constitutional violation. Id. at 465, 113 S.Ct. 2711. The Court concluded that the judge gave counsel an adequate hearing on the post-verdict motions and concluded that fair procedures were followed. The Court in TXO again sought to insure the reasonableness of the amount of punitive awards, but it reiterated that [w]e need not, and indeed we cannot, draw a mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case. Id. at 458, 113 S.Ct. 2711. Instead, the Court maintained that a general concer[n] of reasonableness ... properly enter[s] into the constitutional calculus. Id. (citing Haslip, supra, 499 U.S. at 18, 111 S.Ct. 1032) (emphasis added). The Court recognized that the Haslip punitive award was four times the amount of compensatory damages and `may be close to the line' of constitutional permissibility, Id. at 459, 113 S.Ct. 2711 (citing Haslip, supra, 499 U.S. at 23, 111 S.Ct. 1032), but also noted that it had eschewed an approach that concentrates entirely on the relationship between actual and punitive damages. Id. at 460, 113 S.Ct. 2711. Specifically, the Court did not consider the dramatic disparity between the actual damages and the punitive award controlling in a case of this character. Id. at 462, 113 S.Ct. 2711. The Court determined that, in light of the amount of money potentially at stake, the bad faith of petitioner, the fact that the scheme employed in this case was part of a larger pattern of fraud, trickery and deceit, and petitioner's wealth, [it was] not persuaded that the award was so `grossly excessive' as to be beyond the power of the State to allow. Id. (emphasis added). The Court upheld the punitive award relying in large part on principles set forth in Haslip, notwithstanding the fact that the ratio of punitive to compensatory damages was 526:1 in TXO compared to 4:1 in Haslip. In contrast to Haslip and TXO, in Honda Motor Co., Ltd. v. Oberg, 512 U.S. 415, 114 S.Ct. 2331, 129 L.Ed.2d 336 (1994), the Supreme Court overturned the punitive award based on the inadequacy of the State procedures for reviewing such awards. The jury imposed punitive damages of more than five times the amount of the compensatory damages. Both the intermediate appellate and Oregon Supreme Courts upheld the jury award without review. However, the Supreme Court held that Oregon's denial of judicial review of the size of punitive damages awards violates the Due Process Clause of the Fourteenth Amendment. Id. at 432, 114 S.Ct. 2331. The Supreme Court reasoned that: [P]unitive damages pose an acute danger of arbitrary deprivation of property. Jury instructions typically leave the jury with wide discretion in choosing amounts, and the presentation of evidence of a defendant's net worth creates the potential that juries will use their verdicts to express biases against big businesses, particularly those without strong local presences. Judicial review of the amount awarded was one of the few procedural safeguards which the common law provided against that danger. Oregon ha[d] removed that safeguard without providing any substitute procedure and without any indication that the danger if arbitrary awards had in any way subsided over time. Id. The Supreme Court declined to uphold the punitive damage award and reversed and remanded to the Oregon Supreme Court for further proceedings. Id. at 435, 114 S.Ct. 2331. When read together, these early punitive damages cases, Haslip, TXO, and Honda, show the Court's concern for preventing wild jury awards by upholding awards that have been reviewed through a fair and adequate process, because such review protects defendants' rights by ensuring that there is a check on jury discretion. At the same time, the Court's jurisprudence evinces a reluctance to draw a bright-line ratio for reviewing awards under the process but instead focuses the inquiry on whether the award is reasonable when compared to both the actual or potential harm suffered and the State's interest in protecting the public by deterring future unlawful conduct. Continuing its examination of punitive damage excessiveness challenges in BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 574, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996), the Supreme Court reiterated and further developed the principles from its earlier cases and more clearly articulated the principle that [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. In Gore, the Court reasoned that BMW did not receive adequate notice of the magnitude of the sanction that Alabama might impose for fraud in adhering to a nationwide policy of non-disclosure in selling repainted automobiles as new. Id. at 574, 116 S.Ct. 1589. The trial court denied the defendant's post-trial motion to reduce the award as excessive. However, the Alabama Supreme Court concluded that the jury improperly computed the amount of punitive damages, and it recalculated the punitive damages to a constitutionally reasonable punitive damages award of $2 million. Id. at 567, 116 S.Ct. 1589. The Supreme Court in Gore articulated three guideposts for reviewing courts to use in evaluating whether punitive damages awards are unconstitutionally excessive. The Gore guideposts are based on concerns expressed by the Court in its earlier punitive awards cases. These guideposts are: 1) the degree of reprehensibility of the conduct; 2) the ratio of the punitive damages to the actual harm inflicted on the plaintiff; and 3) a comparison of the punitive damages award and the civil or criminal penalties that could be imposed for comparable misconduct. [14] Id. at 574-75, 116 S.Ct. 1589. In applying these guideposts, the Court determined that BMW's conduct was not sufficiently reprehensible because the harm was not performance or safety related, but rather purely economic, and the plaintiff was not financially vulnerable. Id. at 576, 116 S.Ct. 1589. Therefore, the Court reasoned that the conduct did not show an indifference to or reckless disregard for the health or safety of others. Id. The Court continued to reject the notion of drawing a constitutional line marked by a simple mathematical formula, but noted that the punitive award was breathtaking at 500 times the amount of actual harm and bore no reasonable relationship to the compensatory damages awarded. Id. at 582-83, 116 S.Ct. 1589. Finally, the Court concluded that the $2 million was substantially greater than the statutory fines available in Alabama and elsewhere for similar malfeasance. Id. at 583-84, 116 S.Ct. 1589. Holding that the award was unconstitutionally excessive, the Court reversed the judgment and remanded the case for further proceedings. Id. at 586, 116 S.Ct. 1589. [15] The Gore guideposts were applied and expounded upon by the Court in State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003). The Court also incorporated the principles of its earlier punitive award cases, discussed supra. There, the Campbells, who were insured by State Farm, filed a complaint against State Farm alleging bad faith, fraud, and intentional infliction of emotional distress, because State Farm insisted on taking a wrongful death case against the Campbells to trial instead of settling with the plaintiffs within the policy limit (all while assuring the Campbells that they did not need to obtain separate counsel). When the Campbells were found liable and judgment was entered against them in an amount more than $180,000 over the settlement offer, State Farm refused to cover the excess liability. Id. at 413-14, 123 S.Ct. 1513. In the fraud action brought by the Campbells against State Farm, the jury awarded $2.6 million in compensatory damages and $145 million in punitive damages, which the trial court reduced to $1 million and $25 million, respectively. Id. at 415, 123 S.Ct. 1513. The Utah Supreme Court reinstated the $145 million punitive damages award after applying the Gore guideposts. Id. Reversing the Utah Supreme Court, the United States Supreme Court reiterated its concern about the reasonableness of punitive awards by stressing that [t]he principles set forth in Gore must be implemented with care, to ensure both reasonableness and proportionality. Id. at 428, 123 S.Ct. 1513. In applying the first Gore guidepost, the Court provided additional guidance on how a reviewing court should evaluate the level of reprehensibility of the defendant's conduct. Specifically, in evaluating whether State Farm's conduct toward the Campbells was sufficiently reprehensible, the Court factored whether: 1) the harm caused was physical as opposed to economic; 2) the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; 3) the target of the conduct had financial vulnerability; 4) the conduct involved repeated actions or was an isolated incident; and 5) the harm was the result of intentional malice, trickery, or deceit, or mere accident. Id. at 419, 123 S.Ct. 1513. The Court concluded that State Farm's conduct was not so reprehensible to warrant the punitive damages awarded by the jury because the harm was economic and not from some physical assault or trauma; there were no physical injuries; and State Farm paid the excess verdict before the complaint was filed so the [appellees] suffered only minor economic injuries for the 18-month period in which State Farm refused to resolve the claim against them. Id. at 426, 123 S.Ct. 1513. In applying the second guidepost, the Court compared the punitive award to actual harm, and again declined to impose a bright-line ratio. However, the Court recognized that in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages to a significant degree, will satisfy due process. Id. at 425, 123 S.Ct. 1513 (emphasis added). Referencing the 4:1 ratio from Haslip and cited in Gore, the Court reiterated that such awards might be close to the line of constitutional impropriety, but also noted that [w]hile these ratios are not binding, they are instructive[,] [t]hey demonstrate... [that] [s]ingle-digit multipliers are more likely to comport with due process, while still achieving the State's goals of deterrence and retribution, than awards with ratios in the range of 500 to 1, or, in this case, of 145 to 1. Id. (citing Gore, supra, 517 U.S. at 582, 116 S.Ct. 1589) (emphasis added). Further, the State Farm Court went on to note that because there are no rigid benchmarks that a punitive damages award may not surpass, ratios greater than those we have previously upheld may comport with due process where `a particularly egregious act has resulted in only a small amount of economic damages.' Id. However, the Court found the Campbells' compensatory award substantial as appellees were awarded $1 million for a year and a half of emotional distress. Id. at 426, 123 S.Ct. 1513. Ultimately, the Court held that the award was neither reasonable nor proportionate to the wrong committed, and ... an irrational and arbitrary deprivation of State Farm's property, so the Court reversed the judgment and remanded to the Utah Supreme Court for further proceedings to determine the appropriate amount of punitive damages. Id. at 429, 123 S.Ct. 1513. The Court's decisions in Gore and State Farm, reflect its attempt to articulate an additional check against seemingly high awards and its continued concern that some awards, though properly reviewed through a fair and adequate process, may still be unreasonable when compared to the level of egregiousness of the conduct at issue and the actual or potential harm suffered. Notwithstanding this concern, the Court still refused to articulate a constitutional limit for punitive awards and has steadfastly exercised restraint in overturning punitive awards. [16] More recently, [17] in Philip Morris USA v. Williams, 549 U.S. 346, 127 S.Ct. 1057, 166 L.Ed.2d 940 (2007), the Court, once again reiterating its concern for a fair process which gives rise to a presumption of legitimacy, concluded that the Due Process Clause requires States to provide assurance that juries are not ... seeking ... to punish for harm caused [to] strangers. Id. at 355, 127 S.Ct. 1057. The Court did not address the question of whether the punitive damage award of $79.5 million dollars was excessive when compared to the $821,000 in compensatory damages (nearly a 100:1 ratio) in a negligence and deceit lawsuit against a cigarette manufacturer for knowingly and falsely leading the decedent to believe that smoking was safe. The issue before the Court was [w]hether the Constitution's Due Process Clause permits a jury to base that award in part upon its desire to punish the defendant for harming persons who are not before the court (e.g., victims whom the parties do not represent). Id. at 349, 127 S.Ct. 1057. The Court held that such an award would amount to a taking of `property' from the defendant without due process. Id. In reaching its decision, the Court noted that the trial court rejected defense counsel's proposed jury instruction that specified that the jury could not seek to punish Philip Morris for injury to other persons not before the court. Id. at 350, 127 S.Ct. 1057. Instead, the judge instructed the jury that `[p]unitive damages are awarded against a defendant to punish misconduct and to deter misconduct,' and `are not intended to compensate the plaintiff or anyone else for damages caused by the defendant's conduct.' Id. at 351, 127 S.Ct. 1057. The Court concluded that, [a]lthough the States have some flexibility to determine what kind of procedures they will implement, federal constitutional law obligates them to provide some form of protection in appropriate cases. Id. at 357, 127 S.Ct. 1057 (included in original). Holding that the State court applied the wrong constitutional standard to the appeal, the Court vacated the judgment and remanded the case to the Oregon Supreme Court to apply the proper standard. Id. at 357-58, 127 S.Ct. 1057. In Philip Morris, as in previous cases, the Court continued to look first to the process under which the punitive damages were levied and reviewed. The Court held that the process was flawed because the trial judge refused to ensure that the defendant was not being punished for conduct against non-parties. We glean from the Court's jurisprudence that allowing juries to compensate a plaintiff for the defendant's conduct against non-parties invites wild or unreasonable awards and prevents the defendant from having notice of possible sanctions that could be levied against him in the suit. The Court's divided opinions in each of the cases discussed supra have made it challenging for reviewing courts to distill the Court's views on the excessiveness of punitive awards. We think that the divided opinions caution us to exercise restraint in overturning jury awards that have been reviewed under fair and adequate State procedures and processes. Nevertheless, we look beyond the mathematical ratio to determine whether the punitive damages award is excessive. Rather than relying on mathematical ratios alone, we focus on the principles discussed in the Supreme Court cases, and specifically the concern that: 1) courts conduct a meaningful and adequate review of a jury's punitive damage award both at the trial and appellate level to ensure that the award is the product of a process that is entitled to a strong presumption of validity; 2) the award punishes truly reprehensible conduct; 3) the punitive damage award has some relation to the harm suffered by the plaintiff and evidences reasonableness and proportionality, although there is no bright-line ratio, to ensure that the award is not grossly out of proportion to the severity of the offense; and 4) the award advances a State policy concern such as protection of the public by deterring the defendant or others from doing such wrong in the future. B. In the instant case, in examining whether the punitive damages awarded to Wilson are unconstitutionally excessive, we do so mindful of the principles we have distilled from the key Supreme Court cases and the application of those principles in numerous federal and state cases as well as in our own cases. Many of the more recent federal, state, and District of Columbia cases analyze punitive damages awards using the framework of the Gore guideposts, which reflect the Supreme Court's concerns, that the process afford a meaningful and adequate review of a jury punitive damage award and that the award evince reasonableness and proportionality. In this case, appellants rely on Philip Morris, supra, 549 U.S. at 346, 127 S.Ct. 1057, to support their contention that they were prejudiced by the admission of evidence regarding the one hundred similar pre-foreclosure transactions, which, they contend, resulted in the jury inflating the punitive damages awards to punish appellants for their conduct in unrelated transactions with non-parties. [18] Appellants' reliance on Philip Morris in this context is misplaced. Further, because the punitive damage awards comport with the principles we have gleaned from the Supreme Court jurisprudence, we conclude that the punitive damages in this case are not grossly excessive or violative of due process. We disagree with appellants' argument that the punitive awards reflect the jury's attempt to punish them for their previous transactions with non-parties (which were the subject of the RICO claims that were dismissed and never submitted to the jury). [19] Contrary to appellants' assertions, Philip Morris is not applicable here. In reaching its conclusion in Philip Morris, the Court noted that in order to ensure that juries do not use the rubric of reprehensibility to punish a defendant for harm caused to others where the risk of ... misunderstanding is a significant onebecause, for instance, of the sort of evidence that was introduced at trial or the kinds of argument the plaintiff made to the jurya court, upon request, must protect against that risk. Id. at 357, 127 S.Ct. 1057 (emphasis added). Unlike the defendant in Philip Morris, appellants did not request that the trial court give a jury instruction to disregard the other pre-foreclosure-transactions evidence involving strangers to the lawsuit, after the RICO claims were dismissed. Nor did appellants renew their objection or request a curative jury instruction to correct or avoid what they now argue may have been jury confusion regarding the evidence. [20] C. Appellants further challenge the validity of the punitive damages awards on the grounds that the awards are unconstitutionally excessive on their face. The trial judge, they argue, should have scrutinized and reduced the punitive damages. Appellants moved the trial court to set aside the awards, but the court denied appellants' motion, finding that there was sufficient evidence presented regarding [appellants'] sale/lease-back/option to repurchase transaction to support the jury's punitive damages award. We review a trial court's rulings on excessiveness of punitive damages de novo. See State Farm, supra, 538 U.S. at 418, 123 S.Ct. 1513 (citing Cooper Indus., supra note 12, 532 U.S. at 436, 121 S.Ct. 1678); see also Daka, Inc. v. McCrae, 839 A.2d 682, 697 (2003). Appellants have had the opportunity to raise the excessiveness challenge both at trial and on appeal. While appellants argue that the trial court should have scrutinized and reduced the punitive awards as excessive on [their] face[s], we view this as a close question and ultimately conclude in this case, that the punitive damages awards are constitutionally acceptable. Appellants made the same arguments on punitive damages here that they did in their written motion to the trial court for JNOV. In addition to considering the motion, pleadings and oppositions, the trial judge held a hearing where appellants had the opportunity to advance the arguments that they make here on appeal. We have considered the concerns raised by the Supreme Court and cases in our jurisdiction and have carefully scrutinized the awards in light of these considerations, which are reflected in the Gore guideposts that we use to structure our analysis, and we conclude that the punitive damages awards in this case are constitutionally acceptable.