Opinion ID: 1758759
Heading Depth: 3
Heading Rank: 2

Heading: Arkansas Common Law

Text: The appellants contend that the punitive damages are excessive under Arkansas law and, in addition, violate their due process rights under BMW of North America, Inc. v. Gore, supra . In 1998, this court set out a compendium of Arkansas law related to remittitur and punitive damages: When considering the issue of remittitur of punitive damages, we review the issue de novo. See Smith v. Hansen, 323 Ark. 188, 914 S.W.2d 285 (1996). We consider the extent and enormity of the wrong, the intent of the party committing the wrong, all the circumstances, and the financial and social condition and standing of the erring party. See United Ins. Co. of America v. Murphy, 331 Ark. 364, 961 S.W.2d 752 (1998); McLaughlin v. Cox, 324 Ark. 361, 922 S.W.2d 327 (1996). Punitive damages are a penalty for conduct that is malicious or perpetrated with the deliberate intent to injure another. See United Ins. Co., supra . When punitive damages are alleged to be excessive, we review the proof and all reasonable inferences in the light most favorable to the appellees, and we determine whether the verdict is so great as to shock the conscience of this court or to demonstrate passion or prejudice on the part of the trier of fact. See Houston v. Knoedl, 329 Ark. 91, 947 S.W.2d 745 (1997); Collins v. Hinton, 327 Ark. 159, 937 S.W.2d 164 (1997). It is important that the punitive damages be sufficient to deter others from comparable conduct in the future. See McLaughlin v. Cox, supra . Routh Wrecker Service v. Washington, 335 Ark. 232, 240-241, 980 S.W.2d 240, 244 (1998). The conscious indifference of the alleged wrongdoer to the wrong committed is a pertinent factor in assessing punitive damages. See United Ins. Co. of America v. Murphy, 331 Ark. 364, 961 S.W.2d 752 (1998). We begin by observing that the extent and the enormity of the wrong done to Mrs. Sauer are considerable. As already emphasized in this opinion, there was evidence that the appellants knew Rich Mountain was short-staffed, including surveys by the Office of Long Term Care, but took no measures to rectify the situation. Indeed, there were attempts to disguise this fact. Also, the Advocat business enterprise appears to be sizeable. The appellants make much of the fact that they were precluded from offering financial information at a post-trial hearing. But we agree with the circuit court that the appellants could not have it both ways. The appellants first objected to any requirement that they divulge financial information at trial. The circuit court sustained the objection. They cannot now, post-verdict, seek a remedy that they themselves shut the door to during the trial. The circuit court correctly disallowed the request. The same holds true of the appellants' passionate argument in favor of a post-verdict excessiveness hearing to introduce financial information they objected to at trial. We know of no procedure authorized in this state by rule or statute providing for such an evidentiary hearing under these circumstances. We decline to authorize one in the instant case. Although the appellants argue that the circuit court erred in not allowing them to place additional financial information into evidence post-trial for the consideration of whether the punitive damages were excessive or to conduct a post-trial excessiveness hearing for that same purpose, there was information presented to the jury relating to the scope of the nursing home business controlled by Advocat, albeit specific financial numbers were not introduced. Mary Margaret Hamlett, who served as Chief Financial Officer for Advocat, Inc., from May 10, 1994, until June 30, 1999, testified by video deposition that the leasehold interest of the Rich Mountain Nursing Home was owned by Diversicare Leasing Corp. and the management of the home was conducted by Diversicare Management Services. Her diagram of the corporate structure, from memory, was that the parent corporation was Advocat, Inc., which had two subsidiaries, Diversicare Management Services Co., and Diversicare Leasing Corp., d/b/a Rich Mountain. Rich Mountain was part of Diversicare Leasing Corp. and was managed by Diversicare Management Services. From the company's perspective, these three corporations were operated as one business, according to Ms. Hamlett. She stated that during the relevant time period, the company had in the vicinity of 11,000 beds, including Canadian operations and North Carolina assisted living operations. In addition, Ms. Hamlett testified that according to an Advocat news release, Advocat operated 86 facilities with 64 nursing homes with 7,300 beds in the southeast and Canada. Advocat was also listed on the New York Stock Exchange in 1996, 1997, and 1998, according to Ms. Hamlett. From this testimony, it appears that Advocat oversaw a major business enterprise. Viewing all of the pertinent evidence together, we conclude that punitive damages were indeed appropriate in this case. The question, however, as was the case with compensatory damages, is the amount of those damages. We conclude that an award of $63 million in punitive damages shocks the conscience of this court as a civil penalty. We will consider what remittitur is appropriate after an analysis under BMW of North America, Inc. v. Gore, supra . Again, what impacts this court is that the three appellants operated Rich Mountain as one business. c. Due Process Violations We turn next to the appellants' contention that their due process rights were violated under BMW of North America, Inc. v. Gore, supra , because they had no prior notice that an award of this magnitude could be entered against them as a penalty in Arkansas. In the Gore case, the issue was whether BMW failed to disclose to the buyer of a new BMW automobile that the car had been repainted. The jury awarded the buyer compensatory damages of $4,000 and punitive damages of $4 million. The Alabama Supreme Court reduced the punitive damage award to $2 million. The United States Supreme Court reversed that award of punitive damages. The Court said in its analysis that [o]nly when an award can fairly be categorized as `grossly excessive' in relation to [the State's legitimate interests in punishment and deterrence] does it enter the zone of arbitrariness that violates the Due Process Clause of the Fourteenth Amendment. 517 U.S. at 568, 116 S.Ct. 1589. In order to make this determination, the Court added that it is necessary for the courts to examine the scope of the State's legitimate interest in punishing the defendant and deterring future misconduct. However, a State may not impose its own policy choice on neighboring states. See id. Accordingly, the Court concluded that a State may not impose economic sanctions on violators of its laws with the intent of changing the tortfeasors' lawful conduct in other States. Id. at 572, 116 S.Ct. 1589. In order to determine whether an award of punitive damages is grossly excessive and runs afoul of due process under Gore , the Court provided three criteria to be used to determine whether a tortfeasor received adequate notice of both the conduct that would subject him to punishment and the magnitude of the sanction a State might impose: (1) the degree of reprehensibility of the defendant's conduct; (2) the disparity between the harm or potential harm suffered by the plaintiff and his punitive damages award; and (3) the difference between this remedy and the civil penalties authorized by statute or imposed in comparable cases. See id. This court has employed the Gore analysis in at least two previous cases. See Edwards v. Stills, 335 Ark. 470, 984 S.W.2d 366 (1998); Routh Wrecker Serv., Inc. v. Washington, supra (both using the Gore factors to analyze whether punitive damages were grossly excessive and violated due process). A Gore analysis is performed in the appellate court by using a de novo review. See Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 121 S.Ct. 1678, 149 L.Ed.2d 674 (2001). Most recently, the United States Supreme Court emphasized that punitive damages pose an acute danger of arbitrary deprivation of property. See State Farm Mut. Ins. Co. v. Campbell, 538 U.S. ___, 123 S.Ct. 1513, 155 L.Ed.2d 585 (April 7, 2003). In that case, one person was killed and another permanently injured in a car accident caused by Campbell. State Farm, the liability carrier for Campbell, refused to settle the matter for the $50,000 policy limits. The case went to trial, and the jury verdict was three times the policy limits. State Farm did not appeal. Campbell sued State Farm for bad faith, fraud, and outrage. Ultimately, the jury awarded the Campbells $2.6 million in compensatory damages and $145 million in punitive damages. The trial court reduced the damages verdict to $1 million compensatory and $25 million punitive, but the Utah Supreme Court reinstated the original verdict. The United States Supreme Court held that the $145 million in punitive damages was neither reasonable nor proportionate to the wrong committed and constituted an irrational and arbitrary deprivation of State Farm's property. In holding as it did, the Court used the Gore criteria and emphasized that the case had improperly been used as a platform to punish State Farm for its perceived deficiencies throughout the country regarding hypothetical nonparties. The Court noted also that there was scant evidence that State Farm had engaged in repeated misconduct of the sort that damaged the Campbells. We will proceed to discuss the Gore criteria. Though the Sauer Estate's counsel disputed this at oral argument, we conclude that the three Gore criteria must be given equal weight.
As to the first criterion, the Court said that exemplary damages imposed on a defendant should reflect `the enormity of his offense.' Gore, 517 U.S. at 575, 116 S.Ct. 1589. Accordingly, the Court held in that case (1) where the harm inflicted by the tortfeasor was purely economic in nature[,] (2) there was no evidence that the tortfeasor had acted in bad faith, (3) there was no evidence that the tortfeasor had persisted in a course of conduct after it had been adjudged unlawful on even one occasion, let alone repeated occasions[,] and (4) the record failed to disclose any deliberate false statements, acts of affirmative misconduct, or concealment of evidence of improper motive, the tortfeasor's conduct was not sufficiently reprehensible to warrant the imposition of a $2 million award. Id. at 576-80, 116 S.Ct. 1589. In State Farm Mut. Ins. Co. v. Campbell, supra , the Court elaborated on factors for consideration when assessing reprehensibility: 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. 538 U.S. at ___, 123 S.Ct. 1513. In the case at hand, the harm inflicted by the appellants was not purely economic in nature. Mrs. Sauer suffered, and there was considerable evidence introduced that budgetary constraints contributed to a diminished staff and inadequate supplies. In addition, the appellants knew by virtue of the surveys by the Office of Long Term Care that they were understaffed with nurses at Rich Mountain and that this directly related to patient care. This understaffing continued even after complaints by staff members, patients, and family members. Furthermore, the record in this case reveals deliberate false entries on patient charts and efforts to conceal this evidence. We have no hesitancy in concluding that the reprehensibility of the appellants' conduct in this case was high.
In Gore , the Court noted that its prior decisions had endorsed the proposition that a comparison between the compensatory award and the punitive award is significant. 517 U.S. at 581. 116 S.Ct. 1589. The Court further noted its rejection of the idea that the constitutional line is marked by a simple mathematical formula, even one that compares actual and potential damages to the punitive award. Id. at 582, 116 S.Ct. 1589 (emphasis in original). The Court concluded that in most instances, the ratio will be within a constitutionally acceptable range. See id. at 583, 116 S.Ct. 1589. However, where the ratio is breathtaking, the award will surely raise a suspicious eyebrow. Id. In the instant case, the jury awarded the Sauer Estate compensatory damages of $15,000,000 for negligence and medical malpractice. We have already concluded that these damages shock the conscience of this court and that a remittitur to $5 million is appropriate. As the jury awards approved by the circuit court stand, the $63 million in punitive damages is roughly 4.2 times the amount of the compensatory damages, as originally determined by the jury. As noted in Gore : In [ Pacific Mut. Life Ins. Co. v. ] Haslip [499 U.S. 1, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991) ] we concluded that even though a punitive damages award of `more than 4 times the amount of compensatory damages' might be `close to the line,' it did not `cross the line into the area of constitutional impropriety.'  517 U.S. at 581, 116 S.Ct. 1589. Most recently, the Court has held 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, ... of 145 to 1. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. at ___, 123 S.Ct. 1513. We cannot say that the ratio of punitive damages to compensatory damages, which is 4.2, is breathtaking in the instant case.
The final factor adopted by the United States Supreme Court in Gore for adequate notice is that of comparing the punitive damages award to the civil or criminal penalties that could be imposed for similar misconduct. In this case, the punitive damages award is substantially greater than the statutory penalties set forth in the Arkansas Code. As set out above, Ark. Code Ann. § 5-28-106 (Supp.2001), authorizes the State of Arkansas to pursue a civil action against any long-term care facility for neglect of its patients. See Ark. Code Ann. § 5-28-106(a)(1). Notwithstanding any criminal penalties available under the chapter, any caregiver against whom a judgment is entered as a result of a civil action brought by the State for neglect or abuse of an endangered or impaired adult shall be subject to a civil penalty of not more than $10,000 for each violation judicially found to have occurred or not more than $50,000 for the death of an adult resulting from a single violation. [3] See Ark.Code Ann. § 5-28-106(a)(2). In the instant case, the record does not reveal a specific number of civil violations committed against Mrs. Sauer. The same can also be said for criminal penalties. Our Criminal Code sets forth the criminal penalties for adult abuse. See Arkansas Code Annotated § 5-28-103 (Repl.1997). For neglect, the statute authorizes the following criminal sanction: (c)(1) Any person or caregiver who neglects an endangered or impaired adult in violation of the provisions of this chapter, causing serious physical injury or substantial risk of death, shall be guilty of a Class D felony and shall be punished as provided by law. (2) Any person or caregiver who neglects an endangered or impaired adult in violation of the provisions of this chapter, causing physical injury, shall be guilty of a Class B misdemeanor and shall be punished as provided by law.Ark. Code Ann. § 5-28-103(c) (Repl.1997). Both civil and criminal penalties are assessed based upon specific violations of abuse, neglect, or exploitation. See Ark. Code Ann. §§ 5-28-103, 5-28-106. Neglect is defined under the Criminal Code as follows: (8) Neglect means acts or omissions by an endangered adult; for example, self-neglect or intentional acts or omissions by a caregiver responsible for the care and supervision of an endangered or impaired adult constituting: (A) Negligently failing to provide necessary treatment, rehabilitation, care, food, clothing, shelter, supervision, or medical services to an endangered or impaired adult; (B) Negligently failing to report health problems or changes in health problems or changes in the health condition of an endangered or impaired adult to the appropriate medical personnel; or (C) Negligently failing to carry out a prescribed treatment plan[.] Ark.Code Ann. § 5-28-101(8) (Supp.2001). Appellants claim that it ludicrous to conclude that Mrs. Sauer suffered 6,300 violations under the subchapter to substantiate a punitive-damages award of $63 million. However, it appears from the definition of the term neglect that it is impossible to know how many violations might have occurred; nor have the appellants suggested a more appropriate number. Moreover, the jury verdicts from other jurisdictions cited in the circuit court's letter opinion do not inform this court about whether those cases were ultimately settled or appealed and affirmed. The highest punitive-damages award affirmed by this court is $3 million. See Airco, Inc. v. Simmons First Nat. Bank, 276 Ark. 486, 638 S.W.2d 660 (1982). The highest punitive-damage award affirmed by our court of appeals on appeal is $4 million. See Arrow Int'l, Inc. v. Sparks, 81 Ark.App. ___, 98 S.W.3d 48 (2003). We conclude, as we did with compensatory damages, that the punitive damages awarded, while not the result of passion or prejudice, shock the conscience of this court. They are far and away in excess of any other punitive-damages award in this state, which, while not the determinative factor, is instructive. Under our analysis, the third criterion in Gore has not been met. We hold that the circuit court abused its discretion in not granting a new trial due to excessive punitive-damages awards or, alternatively, in failing to grant a remittitur. We further hold that under Arkansas law and under the three Gore factors, $63 million was a grossly excessive award and one that could not have been anticipated by the appellants, particularly since the largest award of punitive damages affirmed in this state on appeal heretofore has been $4 million. We grant the remittitur and reduce the amount of the total punitive damages awarded by two-thirds to $21 million, and provide for joint and several liability. We do so on the basis that this is reasonable under our de novo review. We conclude that one business is involved in the management of Rich Mountain and that it shocks the conscience of this court to award the same amount of punitive damages against the parent company and the two subsidiary companies. We will affirm the judgment only on condition of remittitur as stated in the conclusion of this opinion.