Opinion ID: 797035
Heading Depth: 2
Heading Rank: 4

Heading: Oregon's Punitive Damages Allocation Statute

Text: 42 Pursuant to Or.Rev.Stat. § 31.735, the district court entered judgment in favor of the State Account in an amount equal to 60 percent of the punitive damages award. The punitive damages award for the federal, i.e., equal protection claim, was not subject to the § 31.735 allocation, but only the punitive damages award for the state law tort claim of contract interference. Engquist's primary contention on cross-appeal is that § 31.735 violates the Fifth Amendment's Takings Clause and the Excessive Fines Clause of the Eighth Amendment. 11
43 Engquist's first argument is that the doctrine of judicial estoppel prevents the Oregon Justice Department from collecting funds for the State Account because the Department, as Defendants' counsel, previously denied liability for punitive damages. We review the district court's decision not to invoke judicial estoppel for an abuse of discretion. Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782(9th Cir.2001). 44 Judicial estoppel prevents a party from taking inconsistent positions when those inconsistencies have an adverse effect on the judicial process. United States v. Miguel, 338 F.3d 995, 1002 n. 20 (9th Cir.2003) (Judicial estoppel prevents a party from taking a contrary position `where a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position.' (quoting New Hampshire v. Maine, 532 U.S. 742, 749, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001))). We reject Engquist's contention that the Department took inconsistent positions. By virtue of its decision to represent Defendants, the Department necessarily held the view that Defendants had not committed malfeasance in office or willful or wanton neglect of duty. See Or.Rev. Stat. § 30.285(requiring the Department to defend and indemnify state employees, unless it deems that the employees committed malfeasance in office). The Department's views did not change during the proceedings below; rather, it was the jury that concluded that Defendants acted with malice or reckless and outrageous indifference, such that it found punitive damages were appropriate. See Or.Rev. Stat. § 31.730. 45 Nor did the Department take an inconsistent position when it sought judgment creditor status under § 31.735. The Department did not change its position to one of agreement with the jury determination of willfulness or malice but, because the jury awarded punitive damages, the State Account was automatically entitled to its statutory portion and the Department was separately obligated under § 31.735 to obtain judgment creditor status in order to obtain this statutory portion. Accordingly, we conclude that the district court did not abuse its discretion in rejecting Engquist's judicial estoppel argument. 12
46 Engquist next asserts that the district court erred in entering judgment in favor of an entity that was not a party to the proceeding. The Oregon Supreme Court and the district court for the District of Oregon have both held that the State of Oregon can assert its substantive right as a judgment creditor pursuant to § 31.735. 13 See DeMendoza v. Huffman, 334 Or. 425, 51 P.3d 1232, 1235-36 (2002); In re Stein, 236 B.R. 34, 37 (Bankr.D.Or. 1999). Neither opinion indicates that the State must obtain party status prior to its assertion of this right. The statute's express language, which invites the State to act only [u]pon the entry of a verdict including an award of punitive damages, belies any inference that the State is required to become a party. Or.Rev.Stat. § 31.735. Additionally, Federal Rule of Civil Procedure 69(a) permits judgment creditors to use any execution method consistent with the practice and procedure of the state in which the district court sits. Cigna Prop. & Cas. Ins. Co. v. Polaris Pictures Corp., 159 F.3d 412, 421 (9th Cir. 1998) (internal quotation marks omitted). Under Oregon state procedure, the State can merely be identified as a judgment creditor in the judgment and need not intervene as a party. See DeMendoza, 51 P.3d at 1235-36; Or.Rev.Stat. § 31.735(2). Therefore, we conclude that Oregon is entitled to assert this substantive right without becoming a party.
47 Section 31.735, which is called a split-recovery provision 15 because it apportions the punitive award between the plaintiff and the State, provides in part: 48 Upon the entry of a verdict including an award of punitive damages, the Department of Justice shall become a judgment creditor as to the punitive damages portion of the award to which the Criminal Injuries Compensation Account is entitled pursuant to paragraph (b) of this subsection, and the punitive damage portion of an award shall be allocated as follows: [forty percent of the punitive damages award to the prevailing party and sixty percent to the compensation account]. 49 Or.Rev.Stat. § 31.735(1). 50 Engquist argues that § 31.735 violates the Takings Clause of the Fifth Amendment, which forbids the taking of private property . . . for public use, without just compensation. U.S. CONST. AMEND. V. 16 We use a two-step analysis to determine whether a taking has occurred: first, we determine whether the subject matter is property within the meaning of the Fifth Amendment and, second, we establish whether there has been a taking of that property, for which compensation is due. 17 Konizeski v. Livermore Labs (In re Consol. U.S. Atmospheric Testing Litig.), 820 F.2d 982, 988 (9th Cir.1987). The dispute in this case focuses on the first step, i.e., whether a punitive damages award constitutes property under the Takings Clause. 18 51 The question of whether punitive damages awards qualify as property for purposes of the Takings Clause is a question of first impression in the federal courts. 19 Two types of Takings Clause cases guide our analysis: cases examining whether principal owners have a property right in interest that accrues on funds held by the government, and cases examining whether a plaintiff has a property interest in a cause of action. Both of these two species of Takings Clause cases indicate that the relevant inquiry is the certainty of one's expectation in the property interest at issue. They compel us to conclude that Engquist's interest in her punitive damages award is not a property right cognizable under the Takings Clause, because punitive damages awards are necessarily contingent and discretionary. Our conclusion is bolstered by our consideration of the deterrence and punishment justifications for punitive awards, discussed below, and is in concert with the majority of state supreme courts who have decided the question.
52 Our analysis begins with the Supreme Court cases holding that interest constitutes property for purposes of the Takings Clause. Webb's, 449 U.S. 155, 101 S.Ct. 446, 66 L.Ed.2d 358, involved a state statute that confiscated for the state the interest accrued on interpleader funds. In concluding that the interest was property under the Takings Clause, the Webb's Court emphasized that the creditors at issue had more than a unilateral expectation in the interest, and cited the usual and general rule ... that any interest on an interpleaded and deposited fund follows the principal. Id. at 161-62, 101 S.Ct. 446. The Court emphasized that earnings of a fund are incidents of ownership of the fund itself and are property just as the fund itself is property. Id. at 164, 101 S.Ct. 446. Similarly, in Phillips v. Washington Legal Foundation, 524 U.S. 156, 118 S.Ct. 1925, 141 L.Ed.2d 174 (1998), the Court concluded that the interest gained from the Interest on Lawyers' Trust Account program involved property for Takings Clause purposes. The Court's reasoning hinged on the fundamental maxim of property law that the owner of a property interest may dispose of all or part of that interest as he sees fit. Id. at 167, 118 S.Ct. 1925. 53 While the interest cases do not articulate a general rule for what is cognizable as property under the Takings Clause, the Court's reasoning focused on the certainty of the principal-holder's expectation of receiving interest. Engquist's expectation that she will receive a punitive damages award or the amount of any such award is far less certain than the expectation of interest on principal. Simply put, punitive damages do not follow compensatory damages, as interest follows principal. The interest in Webb's qualified as property because of the certainty of the creditor's expectations that it would receive interest, pursuant to the general maxim that interest follows principal. See Webb's, 449 U.S. at 162, 101 S.Ct. 446. In contrast, punitive damages are never awarded as of right, no matter how egregious the defendant's conduct, in contrast to compensatory damages, which are mandatory; once liability is found, the jury is required to award compensatory damages in an amount appropriate to compensate the plaintiff for his loss. Smith v. Wade, 461 U.S. 30, 52, 103 S.Ct. 1625, 75 L.Ed.2d 632 (1983). Because of the inherently uncertain nature of punitive damages, which are a discretionary moral judgment by the jury, Larez v. City of Los Angeles, 946 F.2d 630, 648 (9th Cir.1991) (internal quotation marks omitted), a plaintiff's interest in receipt of any certain amount of punitive damages is too speculative to constitute property under the Takings Clause. 54 Another category of Takings Clause cases, which examines whether statutory changes to causes of actions can be considered takings, similarly focuses on the certainty of expectations of the person claiming a property interest. We have held that [t]here is no question that claims for compensation are property interests that cannot be taken for public use without compensation. Causey v. Pan Am. World Airways, Inc. (In re Aircrash In Bali, Indo. on Apr. 22, 1974), 684 F.2d 1301, 1312 (9th Cir.1982). In that case, however, we did not discuss punitive damages. Atmospheric Testing Litigation, 820 F.2d 982, involved a Takings Clause challenge to a statute providing that actions against the United States be the exclusive remedy for tort claims against contractors for Hiroshima-related radiation injuries. We relied on the Fifth Circuit's holding that `a plaintiff has no vested right in any tort claim for damages under state law.' Id. at 988(quoting Ducharme v. Merrill-Nat'l Labs., 574 F.2d 1307, 1309 (5th Cir.1978) (per curiam)). We further emphasized that the claims asserted by the plaintiffs were contingent by their nature and arise in a field in which the law remains to be developed. Id. at 989 (also importing the language of Penn Central's ad hoc test in noting that tort claims lack investment-backed expectations). Because the tort claims were contingent by their nature, we concluded that the statute's requirement that claims against the federal government be the exclusive remedy did not constitute a taking. Id.; see also Duke Power Co. v. Carolina Envtl. Study Group, Inc., 438 U.S. 59, 88 n. 32, 98 S.Ct. 2620, 57 L.Ed.2d 595 (1978) (rejecting a constitutional challenge to a statutory limitation on liability for nuclear accidents, and stating the clearly established principle that [a] person has no property, no vested interest, in any rule of the common law and that the Constitution does not forbid . . . the abolition of old [rights] recognized by the common law, to attain a permissible legislative object). 55 The analysis in Atmospheric Testing Litigation, like the Supreme Court's interest cases, focused on the certainty of the plaintiff's expectation that she would receive the property. In contrast to the principal-interest cases, the tort plaintiffs in Atmospheric Testing Litigation had a necessarily contingent interest in their tort claims, such that the substitution of a different type of remedy did not amount to an unconstitutional taking. As described above, a plaintiff's interest in punitive damages is even more contingent and uncertain than her interest in a tort cause of action, because punitive damages are awarded only if the jury both finds that the defendant's behavior was malicious or reckless and decides to invoke its discretionary moral judgment against the defendant's conduct. See Larez, 946 F.2d at 648(the purely discretionary nature of punitive damages required not only a finding that the conduct met the recklessness threshold but also that the conduct merited punitive damages in addition to the compensatory award, which is a discretionary moral judgment (internal quotation marks omitted)); see also Honeywell v. Sterling Furniture Co., 310 Or. 206, 797 P.2d 1019, 1021 (1990) (`The finder of fact must determine what punitive damages, if any, to award based on the proper premise of deterring future similar misconduct by the defendant or others.' (emphasis added) (quoting State ex rel. Young v. Crookham, 290 Or. 61, 618 P.2d 1268, 1274 (1980))). We therefore conclude that a plaintiff's interest in a prospective punitive damages award does not qualify as property under the Takings Clause.
56 Our conclusion that a plaintiff's interest in receipt of a certain amount of punitive damages is not property under the Takings Clause is further supported by consideration of the purposes of punitive damages awards. Punitive damages may be imposed to serve two policy interests: punishing unlawful conduct and deterring its repetition. BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 568, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996). A punitive damages award does not serve any compensatory goals. In the words of the Iowa Supreme Court, a plaintiff is a fortuitous beneficiary of a punitive damage award simply because there is no one else to receive it. Shepherd Components, Inc. v. Brice Petrides-Donohue & Assocs., 473 N.W.2d 612, 619 (Iowa 1991). As a fortuitous beneficiary, a tort claimant does not possess an interest cognizable as a property right under the Takings Clause. The Supreme Court has also emphasized that [i]n our federal system, States necessarily have considerable flexibility in determining the level of punitive damages that they will allow in different classes of cases and in any particular case. Gore, 517 U.S. at 568, 116 S.Ct. 1589. Given the broad discretion granted to the States in fashioning their punitive damages schemes, we uphold the constitutionality of the Oregon statute against Engquist's Takings Clause challenge.
57 Several state supreme courts have ruled upon the constitutionality of split-recovery statutes, with six states (Alaska, Iowa, Indiana, Georgia, Missouri, and Florida) upholding the statutes against federal Takings Clause challenges and two states (Utah and Colorado) holding the statutes unconstitutional. See Dodson, supra, note 16, 49 Duke L.J. at 1365 n. 5 (summarizing state court decisions). The state supreme courts concluded that a plaintiff has no vested right in punitive damages, either (1) because the damages are discretionary and non-compensatory, or (2) because the statutes operate to limit the awards before the time of judgment, that is, before the time when a plaintiff's interest vests. See, e.g., Cheatham v. Pohle, 789 N.E.2d 467, 474-75 (Ind.2003); Evans v. State, 56 P.3d 1046, 1058 (Alaska 2002); Mack Trucks, Inc. v. Conkle, 263 Ga. 539, 436 S.E.2d 635, 639 (1993); Gordon v. State, 608 So.2d 800, 801-02 (Fla. 1992) (per curiam); Shepherd Components, 473 N.W.2d at 619; but see Smith v. Price Dev. Co., 125 P.3d 945 (Utah 2005); Kirk v. Denver Publ'g Co., 818 P.2d 262 (Colo. 1991). 20 Our holding that punitive damages are not cognizable as property under the Taking Clause is therefore in accord with the conclusions reached by a majority of state supreme courts who have considered the issue.
58 Engquist also contends that § 31.735 violates the Excessive Fines Clause of the Eighth Amendment. That amendment instructs: Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted. U.S. CONST. AMEND. VIII. 21 59 The Supreme Court has expressly held that punitive damages awarded to plaintiffs in civil suits do not implicate the Excessive Fines Clause. Browning-Ferris, 492 U.S. at 263-64, 109 S.Ct. 2909. The language of its holding, however, left open a constitutional challenge to a punitive award when the award serves to benefit the State: [w]hatever the outer confines of the Clause's reach may be, we now decide only that it does not constrain an award of money damages in a civil suit when the government neither has prosecuted the action nor has any right to receive a share of the damages awarded.  Id. (emphasis added). Because the State here does receive a share of the damages awarded, 22 we must address the question left open by the Supreme Court. 60 Engquist's contention raises a question of first impression in the courts of appeals. 23 Excessive fines challenges involve a two-step inquiry: (1) whether the Excessive Fines Clause applies, and (2) if so, whether the fine is excessive. United States v. Bajakajian, 524 U.S. 321, 334, 118 S.Ct. 2028, 141 L.Ed.2d 314 (1998) (Because the forfeiture of respondent's currency constitutes punishment and is thus a `fine' within the meaning of the Excessive Fines Clause, we now turn to the question whether it is `excessive.'). 61 We reject Engquist's Excessive Fines Clause challenge because the Clause applies only to government acts that are intended to punish, and the split-remedy scheme is not intended to punish Engquist. The Bajakajian Court stated that at the time the Constitution was adopted, the word `fine' was understood to mean a payment to a sovereign as punishment for some offense. Id. at 327-28, 118 S.Ct. 2028(internal quotation marks omitted). The Excessive Fines Clause thus limits the government's power to extract payments, whether in cash or in kind, as punishment for some offense. Id. at 328, 118 S.Ct. 2028(internal quotation marks omitted). Bajakajian ultimately concluded that the statutory provision at issue in that case—which required certain felons to forfeit their currency at sentencing—did implicate the Excessive Fines Clause because it was intended to punish. Id. at 328, 118 S.Ct. 2028. 62 Because the Excessive Fines Clause applies only to government action that constitutes punishment for some offense, id., Engquist, as the plaintiff in the underlying action, cannot succeed on her claim. 24 In a somewhat analogous case, the Court of Federal Claims rejected an Excessive Fines Clause challenge brought by taxpayers who objected to a retroactive tax on their Roth IRA. Kitt v. United States, 47 Fed.Cl. 821, 827 (Fed.Cl.2000), aff'd, 277 F.3d 1330(Fed.Cir.2002). The court decided that because the imposition of the tax is unrelated to the taxpayer's culpability and unrelated to the commission of any underlying offense, the imposition of the tax is not punishment for purposes of the Excessive Fines Clause. Id. This reasoning applies equally to the operation of Oregon's split-recovery statute on Engquist's award. No punishment of Engquist is involved because operation of the statute is unrelated to Engquist's culpability. Accordingly, we reject Engquist's Excessive Fines Clause argument and affirm the judgment apportioned to the State Account.