Opinion ID: 900011
Heading Depth: 1
Heading Rank: 8

Heading: Does the punitive damage award violate Jones' constitutional right to due process of law?

Text: [¶ 44] Jones alleges that this award violates its constitutional right to due process of law. Due process is guaranteed both by the Fourteenth Amendment to the United States Constitution and Article VI, § 2 of the South Dakota Constitution. The burden of proof falls upon Jones to show that it was denied due process. Davis, 906 F.2d at 1226. Our statutes controlling punitive damages are presumed to pass a due process challenge until it appears clearly, palpably and plainly that they do not. In re Certif. of Questions of Law, 1996 SD 10 ¶ 58, 544 N.W.2d 183, 195 (citing Simpson v. Tobin, 367 N.W.2d 757, 765 (S.D.1985)). See BMW, 517 U.S. at ____, 116 S.Ct. at 1604, 134 L.Ed.2d at 833 (Breyer, J., concurring) (citing TXO, 509 U.S. at 457, 113 S.Ct. at 2720, 125 L.Ed.2d at 378). [¶ 45] There is a two-fold due process protection granted Jones when facing the prospect of imposition of punitive damages. First, it is guaranteed procedural due process. Honda Motor, 512 U.S. 415, 114 S.Ct. 2331, 129 L.Ed.2d 336. [¶ 46] Jones is protected by SDCL 21-1-4.1 [21] which requires the trial court to determine both before discovery is allowed and before the matter goes to the jury, that the plaintiff has established a prima facie case that the defendant's conduct meets the requirements for imposition of punitive damages per SDCL 21-1-3. Flockhart, 467 N.W.2d at 477. [¶ 47] Elementary 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 the severity of the penalty that a State may impose. BMW, 517 U.S. at ____, 116 S.Ct. at 1598, 134 L.Ed.2d at 826. Our statutes and interpretative case law have provided constitutionally sufficient notice. See footnotes 9 and 10, supra. [¶ 48] Jones is also guaranteed, during the trial, the jury will be given sufficient guidance in its deliberations. In Davis, the Eighth Circuit upheld our punitive statute, determining it, by its terms, provided a limiting factor as to the specific instances where punitive damages could be awarded. 906 F.2d at 1227. The jury was further guided by the five-factor test which has been previously described. We agree with the Davis court that the punitive damages statutes that governed this trial met the procedural due process requirements guaranteed Jones. Likewise, the procedural manner of this trial is in conformity with those statutes. [¶ 49] Procedural due process requires such protections as the right to judicial review of a jury's verdict by the trial court and an appellate court. Honda Motor, 512 U.S. 415, 114 S.Ct. 2331, 129 L.Ed.2d 336. Here, Jones has received bothtwice. [¶ 50] Jones is also entitled to substantive due process. Its property cannot be taken from it via punitive damages in excess of that which is reasonably necessary to punish and deter. Haslip, 499 U.S. at 22, 111 S.Ct. at 1046, 113 L.Ed.2d at 23; BMW, 517 U.S. at ____, 116 S.Ct. at 1595, 134 L.Ed.2d at 822. Damages awarded in excess of that criteria amount to an arbitrary deprivation of property. Honda Motor, 512 U.S. at ____, 114 S.Ct. at 2340, 129 L.Ed.2d at 349; Schaffer I, 521 N.W.2d at 927, n10. The due process clause of the Fourteenth Amendment prohibits a state from imposing a grossly excessive punishment on a tortfeasor. BMW, 517 U.S. at ____, 116 S.Ct. at 1592, 134 L.Ed.2d at 818 (citing TXO, 509 U.S. at 454, 113 S.Ct. at 2718, 125 L.Ed.2d at 377). In Haslip, the Court held that there cannot be a mathematical bright line in every case between what is constitutionally acceptable and what is constitutionally unacceptable. The correct rationale is that of reasonableness. Haslip, 499 U.S. at 18, 111 S.Ct. at 1043, 113 L.Ed.2d at 20. See BMW, 517 U.S. at ____, 116 S.Ct. at 1605, 134 L.Ed.2d at 834; TXO, 509 U.S. at 458, 113 S.Ct. at 2720, 125 L.Ed.2d at 379. Reasonableness is determined by an examination of the five factors that have been previously set forth when applied to the relevant facts of this case. Davis, 906 F.2d at 1227. The presence or absence of any one of these factors cannot alone justify or defeat the constitutionality of a punitive damage award. Pulla v. Amoco Oil, 72 F.3d 648, 659 (8th Cir.1995). A shocking disparity in the ratio between an award of punitive damages and actual damages may initially suggest that the punitive damage award is unconstitutional. However, the existence of potential damages and/or the reprehensibility of a defendant's conduct may overcome any such disparity. Id. at 659 (citing TXO, 509 U.S. at 462, 113 S.Ct. at 2722, 125 L.Ed.2d at 382). [22] Likewise, the net worth of the tortfeasor is also typically considered to determine constitutional reasonableness of the award. TXO, 509 U.S. at 462, n. 28, 113 S.Ct. at 2722, n. 28, 125 L.Ed.2d at 382, n. 28. [¶ 51] With the possible exception of factor one in this case, which can be argued either way as to whether the punitive award is grossly disproportionate to the compensatory award, [23] all other factors fall firmly in favor of supporting the reasonableness of the award. Jones' conduct was fraudulent and intentional for the purpose of enriching itself at the expense of small investors who trusted Jones with their savings. [24] This award was based on actual events and did not focus on potential victims of similar hypothetical torts. Pulla, 72 F.3d at 659. As has been shown, this is not a case where the award will destroy or even seriously damage Jones. `Punitive damages should bear a reasonable relationship to the harm that is likely to occur from the defendant's conduct as well as to the harm that actually has occurred. If the defendant's actions cause or would likely cause in a similar situation only slight harm, the damages should be relatively small. If the harm is grievous, the damages should be greater....' 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.... While petitioner stresses the shocking disparity between the punitive award and the compensatory award, that shock dissipates when one considers the potential loss to respondents.... In sum, we do not consider the dramatic disparity between the actual damages and the punitive award controlling in a case of this character. TXO, 509 U.S. at 460-62, 113 S.Ct. at 2721-22, 125 L.Ed.2d at 380-82 (emphasis original) (quoting Garnes, 413 S.E.2d at 909). [¶ 52] After the first jury verdict of $500,000, Jones had the option of paying that amount, as it did with the compensatory award of $25,000, or appealing. It appealed and demanded a new trial on the punitive damage question. It got one. As was forecast by our first opinion in this case, the effect of a new trial on punitive damages awarded by a jury could be the same, could be less, or could exceed the award in the prior trial. Schaffer I, 521 N.W.2d at 926, n. 8. Jones had options and chose what turned out to be the most financially costly. That is not the fault of the Constitution. Davis, 906 F.2d at 1228. [¶ 53] BMW, the latest Supreme Court pronouncement of due process protection in the punitive damages arena, is distinguishable on its facts. [T]he record in [ BMW ] discloses no deliberate false statements, acts of affirmative misconduct, or concealment of evidence of improper motive, such as were present in Haslip and TXO.  BMW, 517 U.S. at ____, 116 S.Ct. at 1601, 134 L.Ed.2d at 829. Under the circumstances attendant in the present case, we find the punitive award against Jones does not jar one's constitutional sensibilities. BMW, 517 U.S. at ____ n. 34, 116 S.Ct. at 1602, n. 34, 134 L.Ed.2d at 830, n. 34 (quoting TXO, 509 U.S. at 462, 113 S.Ct. at 2722, 125 L.Ed.2d at 382, and citing Haslip, 499 U.S. at 18, 111 S.Ct. at 1043, 113 L.Ed.2d at 20). [¶ 54] We hold that Jones received both procedural and substantive due process. No one doubts that this state may protect its citizens by prohibiting deceptive trade practices. BMW, 517 U.S. at ____, 116 S.Ct. at 1595, 134 L.Ed.2d at 822. The damages were properly determined and within reason when based on all the circumstances of this case.