Court Opinion

ID: 770018
Source: CourtListenerOpinion
Date Created: 2012-04-18 10:29:01+00
Date Added: 2024-06-11T17:55:47.347127
License: Public Domain

223 F.3d 617 (7th Cir. 2000)
Miguel Perez, Plaintiff-Appellee, Cross-Appellant,v.Z Frank Oldsmobile, Inc., Defendant-Appellant, Cross-Appellee.
Nos. 99-2742, 99-2854, 00-1701 & 00-1786
In the United States Court of Appeals For the Seventh Circuit
Argued June 1, 2000
Decided July 31, 2000

Appeals from the United States District Court  for the Northern District of Illinois, Eastern Division.  No. 97 C 8950--Harry D. Leinenweber, Judge.[Copyrighted Material Omitted]
Before Bauer, Easterbrook, and Manion, Circuit Judges.
Easterbrook, Circuit Judge.

1
This $8,000 dispute  about a used car has led to an $800,000 judgment  against Z Frank Oldsmobile. Punitive damages  exceeding $500,000 and attorneys' fees near  $240,000 make up the bulk of the award. These  damages are at least an order of magnitude too  high, and final decision about attorneys' fees  must abide the outcome on remand.

2
Jack Bowler bought a new car from Z Frank in  1993, trading in his 1990 Oldsmobile Cutlass  Supreme. The odometer showed about 28,000 miles.  Z Frank resold the car to Miguel Perez, who had  asked to buy a single-owner, low mileage auto.  Perez drove the Oldsmobile some 50,000 miles  through 1997. When he offered it in trade to a  different dealer, however, he learned that the  odometer was incorrect. By tracing the chain of  title back with the aid of state authorities,  Perez learned that he had been the car's eighth  owner and that Moe Pour (the fourth owner, doing  business as Portage Auto Sales) had rolled the  odometer back roughly 70,000 miles.

3
Perez sued Z Frank and Pour under 49 U.S.C.  sec.32710(b), which creates jurisdiction to  enforce the Motor Vehicle Information and Cost  Savings Act of 1972, recodified in 1994 as  Chapter 327 of Title 49. Section 32703 prohibits  odometer tampering. Z Frank did not violate  sec.32703, but sec.32705(a) required it either to  disclose the Oldsmobile's true mileage or confess inability to determine that mileage, and Z Frank  did neither. Perez believes that Z Frank should  have figured out from General Motors' warranty  records, which maintenance workers accessed by  computer, that a rollback had occurred. This  supported a claim under sec.32710(a)

4
A person that violates this chapter or a  regulation prescribed or order issued under this  chapter, with intent to defraud, is liable for 3  times the actual damages or $1,500, whichever is  greater.

5
Illinois has an essentially identical provision,  625 ILCS 5/3-112.1(e)(1), adding that "[a]ny  recovery . . . under this Section shall be offset  by any recovery made pursuant to the federal  Motor Vehicle Information and Cost [sic] Act of  1972." 625 ILCS 5/3-112.1(e). Both federal and  state statutes provide that violators must  reimburse prevailing plaintiffs' legal expenses.  Perez also sought to recover damages under state  tort law.

6
Perez paid Z Frank $11,000 for the car. A  jury's special verdict establishes that the  difference between fair market value of the car,  given its actual mileage, and the actual purchase  price was $7,900. The jury also assessed damages  of $3,000 for repairs required by the car's extra  mileage, $10,000 for loss of use while the car  was being repaired, $3,600 for finance charges on  the loan Perez took out to buy the car, and  $30,000 for "aggravation, humiliation, or  inconvenience", for total compensatory damages of  $54,500. In post-judgment motions the district  judge chopped the compensatory award down to  $11,500, stating that the evidence did not  establish that the difference in mileage caused  the losses of which Perez complains. 1999 U.S.  Dist. Lexis 9462 at *4-5 (N.D. Ill. June 10,  1999). Perez appeals, contending that the jury's  figure was justified, but we think that any error  runs in Perez's favor. The $7,900 difference  between the $11,000 market value of a car with  28,000 miles (as Perez supposed) and the $3,100  value of a car with about 100,000 miles (the  actual figure) reflects elements such as  anticipated repair costs and diminished use.  That's why a high-mileage car sells for less than  a low-mileage car. To allow cumulative awards for  the difference in market value, and repairs, and  loss of use, and "inconvenience," is quadruple  counting. Gardynski-Leschuck v. Ford Motor Co.,  142 F.3d 955 (7th Cir. 1998). See also Haluschak  v. Dodge City of Wauwatosa, Inc., 909 F.2d 254  (7th Cir. 1990) (describing damages of $7,500  before trebling in another odometer case as  excessive). Even if Z Frank sold Perez a hunk of  scrap with no engine and square wheels, the loss  could not logically exceed the purchase price  less salvage value, for Perez could sell it to a  junk yard and buy a functioning car. As for the  finance charge a buyer's loss does not depend on  how much of the purchase price was borrowed or  how long it took to repay the loan. To evaluate  economic loss correctly, the court should add  prejudgment interest on the overpayment (here  $7,900) from the time of sale, using the rate at  which the judgment debtor pays for capital. See  In re Oil Spill by the Amoco Cadiz, 954 F.2d 1279, 1331-33 (7th Cir. 1992). The buyer loses  the use of this money and should be compensated  for its time value whether he buys the car with  cash or on credit. But Perez does not seek  prejudgment interest, and Z Frank does not  contend that $11,500 is too high, so we leave the  compensatory damages as the district judge set  them.

7
In separate answers, the jury concluded that Z  Frank misstated the mileage "with the intent to  defraud plaintiff" and that a punitive award is  warranted. The jury assessed $550,000 in punitive  damages against Z Frank. The "intent to defraud"  finding required trebling of the award for the  odometer rollback. The judge deducted the entire  treble-damages award of $34,500 from the punitive  award, cutting it to $515,500. Thus the total judgment against Z Frank after all post-trial motions was $550,000: $11,500 in compensatory damages, $23,000 (double this) to achieve trebling under the odometer statutes, and  $515,500 in punitive damages. Perez correctly  observes that the district court committed a  logical error in this process. It reduced the  punitive award because Illinois law forbids  cumulative damages multipliers and punitive  damages for a single wrong. See, e.g., Harris v.  Manor Healthcare Corp., 111 Ill. 2d 350, 366, 489 N.E.2d 1374, 1381 (1986); Verdonck v. Scopes, 226 Ill. App. 3d 484, 491, 590 N.E.2d 545, 550 (2d  Dist. 1992). The district judge therefore should  have reduced the punitive award by $23,000, to  $527,000, rather than by the full odometer award  after trebling. The total then would have been  $561,500 rather than $550,000. But for reasons  yet to come the award must be reduced rather than  increased.

8
Z Frank's claims of trial error are  unpersuasive and do not require discussion. As  for the sufficiency of the evidence Pour rather than Z Frank did the tampering, and it is not  clear that anyone at Z Frank lied to Perez; the  most one could say is that the sales staff should  have known what the maintenance staff either knew  or should have deduced from GM's database. Still,  Z Frank the corporation "knew" what its  maintenance workers knew, and it did not have in  place any procedures to disseminate this  information, though managers must have  appreciated that failure to communicate could  lead its sales force to misrepresent matters on  occasion. Because Z Frank does not contest the  jury's conclusion that it misstated the mileage  "with the intent to defraud", we need not pursue  the question whether any person (or the corporate  entity) acted with that mental state. Cf. Farmer  v. Brennan, 511 U.S. 825 (1994). Frauds often  escape detection, and the need to augment  deterrence of concealable offenses is a principal  justification of punitive damages. See A.  Mitchell Polinsky & Steven Shavell, Punitive  Damages: An Economic Analysis, 111 Harv. L. Rev.  869 (1998); Richard Craswell, Deterrence and  Damages The Multiplier Principle and its  Alternatives, 97 Mich. L. Rev. 2185 (1999).

9
Although a damages multiplier of some kind is  in order, what is the right multiple? Optimal  deterrence is achieved when damages equal the  harm done by the wrong, divided by the  probability of detecting the injury and  prosecuting the claim. This is an application of  Gary S. Becker, Crime and Punishment An Economic Approach, 76 J. Pol. Econ. 169 (1968), a theory  of sanctions that played a role in his receipt of  a Nobel Prize in 1992. For example, if a wrong  causes $5,000 injury and is redressed one time in  five, the optimal damages are $25,000. That  redresses the injury to victims as a whole, and  the injurer then can decide what precautions are  appropriate. (A firm such as Z Frank must work  out, for example, how much to spend investigating  the history of the used cars it receives and  coordinating the operations of its sales and  maintenance staffs.) For a more complete  explanation applied to punitive damages, see  Keith N. Hylton, Punitive Damages and the  Economic Theory of Penalties, 87 Geo. L.J. 421  (1998). The punitive award even as reduced by the  judge is 45 times compensatory damages (and 65  times the difference in market price, the best  measure of both the customer's loss and the  dealer's gain). Are odometer rollbacks detected  that infrequently? When it is so hard to be  certain, it is appropriate to rely on rules of  thumb. Both the state and federal odometer  statutes supply such a rule treble damages. Both  say that the wrongdoer "is liable for 3 times the  actual damages or $1,500, whichever is greater."  They do not say something like "3 times the  actual damages, or $1,500, or any other  multiplier the jury prefers, whichever is  greatest."

10
When a federal statute provides for treble  damages (or some other multiplier), judges  regularly conclude that punitive damages may not  be added. Congress has specified the multiplier,  which judges and juries alike must respect. Thus,  for example, Shea v. Galaxie Lumber &  Construction Co., 152 F.3d 729, 734 (7th Cir.  1998), holds that punitive damages may not be  added to the statutory double damages for wilful  violations of wages and hours requirements under  the Fair Labor Standards Act. We have concluded  that the anti-retaliation section of the FLSA does permit punitive damages, because retaliation  claims are not covered by the double-damages  rule, Travis v. Gary Community Mental Health  Center, Inc., 921 F.2d 108 (7th Cir. 1990), but  that decision has been controversial; other  circuits have held that because some portions of  the FLSA  provide for multipliers, punitive awards  are impermissible across the board. E.g., Snapp  v. Unlimited Concepts, Inc., 208 F.3d 928 (11th  Cir. 2000). No court believes that punitive  damages may be awarded for antitrust violations,  the best known of the federal treble-damages  statutes, although some kinds of antitrust  violations are concealable. See Brown v.  Presbyterian Healthcare Services, 101 F.3d 1324,  1331-32 (10th Cir. 1996) (holding that punitive  damages may not be awarded for violations of  federal antitrust laws). Indeed, no case of which  we are aware holds that, when Congress specifies  a damages multiplier, the jury may select a  different and higher multiplier by awarding  punitive damages under federal law.

11
When denying Z Frank's motion to reduce the  punitive award, the district judge wrote that  "odometer roll backs are a nationwide problem  [that] needs to be deterred. Both the state of  Illinois and the United States have seen fit to  enact statutes to deal with this problem. An  award of punitive damages such as the one awarded  by the jury in this case will not fall on deaf  ears. Automobile agencies who would not be scared  off by a small award of compensatory damages,  even if the award is trebled, will undoubtedly be  scared off by this award of over one-half million  dollars." 1999 U.S. Dist. Lexis 9462 at *11.  Indeed they will be "scared off" by awards 40 or  more times the loss (and, in this case, 65 times  the profit from the wrong). They may be scared  right out of the used-car business. Excessive  awards tend to discourage participation in the  underlying economic activity, for some level of  error by employees is a risk of doing business.  Auto dealers also would be terrified by the  prospect of a judge ordering the Army to drive an  M1-A1 main battle tank through their showrooms,  flattening their inventory. High penalties deter  more, but this is not to say that higher always  is better. One problem with an excessive penalty  is that it attracts too many enforcers, who  pursue private riches. This concern has led to  proposals to decouple damages from recovery, so  that the defendant pays more than the plaintiff  receives, with the difference going to the public  fisc. E.g., Marcel Kahan & Bruce Tuckman, Special  Levies on Punitive Damages Decoupling, Agency  Problems, and Litigation Expenditures, 15 Int'l  Rev. L. & Econ. 175 (1995). Section 32710 does  not take that approach, however, nor does it say  that more is always better. Congress decided that  the right penalty is trebling, with a minimum of  $1,500 to ensure some sting even when the harm is  slight. The district judge, like the jury,  obviously believed this inadequate. But  disagreement with an Act of Congress is not a  good reason to amerce a defendant.

12
Adequacy of deterrence cannot be evaluated by  limiting attention to private awards. Section  32709 authorizes both civil suits and criminal  prosecutions by the United States, plus civil  suits by states. Section 32709(a) is particularly  telling. It permits the United States to enforce  the odometer-tampering rules by civil suits for  damages and prescribes "a civil penalty of not  more than $2,000 for each violation. A separate  violation occurs for each motor vehicle or device  involved in the violation. The maximum penalty  under this subsection for a related series of  violations is $100,000." Rolling back the  odometer (or lying about the mileage) on one car  can support no more than a $2,000 penalty; for 25  cars the penalty is $50,000 at most; and the  maximum penalty for more than 50 cars is  $100,000. What sense could it make to have a  statutory cap of $100,000 on the civil penalty  for 50 or more violations yet allow a jury to  impose a $550,000 penalty for a single violation?  Punitive damages are a form of civil penalty,  going to a victim rather than the public but  serving the same function. Section 32709  demonstrates that for violations of this statute  the sky is not the limit. A victim is entitled to  treble damages, and the maximum civil penalty on  top of trebling is $2,000 per car, plus criminal  penalties under sec.32709(b) for really severe  infractions.

13
If the federal odometer statute does not  authorize punitive damages, how about the state  odometer statute? The state law is essentially  identical to the federal, going out of its way to  ensure that plaintiffs do not recover  cumulatively under the two laws. When Illinois  enacts a twin to a federal law, state judges  generally hold that the state law has the same  meaning as the federal. Luken v. Lake Shore &  M.S. Ry., 248 Ill. 377, 383, 94 N.E. 175, 178  (1911); Branson v. Department of Revenue, 168 Ill. 2d 247, 254, 659 N.E.2d 961, 965 (1995). In  Verdonck the state's appellate court announced  this approach to 625 ILCS 5/3-112.1 in  particular. 226 Ill. App. 3d at 491, 590 N.E.2d  at 550. See also Buechin v. Ogden Chrysler-  Plymouth, Inc., 159 Ill. App. 3d 237, 253, 511 N.E.2d 1330, 1339-40 (2d Dist. 1987). Moreover,  sec.3-112.1(e) says that the defendant is liable  in an amount equal to the sum of treble damages  (or $1,500 if greater) plus attorneys' fees;  greater damages cannot be "equal to" the  statutory formula. Thus we predict that the  Supreme Court of Illinois would hold that  punitive damages may not be awarded for  violations of 625 ILCS 5/3-112.1.

14
Perhaps anticipating this conclusion, Perez  added claims under the common law of Illinois.  Any conduct that violates 625 ILCS 5/3-112.1,  Perez insisted, also is common law fraud and  therefore supports an award of punitive damages.  Perez also contended that Z Frank told other  lies--in particular, that the car had only one  prior owner and was in good condition.  Unfortunately, neither the district judge nor the  jury distinguished among potential bases for  punitive damages. The jury was not asked, for  example, to make separate awards for the mileage  misrepresentation and for any other  misrepresentations. Indeed, we cannot be certain  that the jury found any other misrepresentations.  It found that Z Frank violated the odometer  statutes with intent to defraud, but its separate  verdict with respect to the common-law claim is  ambiguous. It answered "yes" to the question

15
Did Z Frank Oldsmobile, Inc. know the false  statement or statements of material fact it made  in connection with the sale of plaintiff's  vehicle were false, or did it make the same  statement or statements with a reckless disregard  of whether they were true or false?

16
This not only is a compound question, making a  simple "yes" ambiguous, but also fails to specify  which "statement or statements" were false. Just  the statements about the odometer, or were some  other statements false? The question did not  permit the jury to find, for example, that Z  Frank's statements about mileage were  intentionally false, but statements about the  condition of the car were negligently false (or  even true). A single false statement on any  subject would lead to a "yes" answer. Differences  in the burden of persuasion further compound  matters the judge instructed the jury that Perez  had to establish common-law fraud by clear and  convincing evidence, while issues concerning  accuracy of the odometer were to be decided by a  preponderance of the evidence. Because this  question came immediately after the odometer-  statute question, the jury may well have  concentrated on statements about mileage. That  possibility finds support in the jury's punitive awards $550,000 against each of Pour and Z Frank, although Pour was responsible only for  odometer tampering. Perhaps the jury thought Z  Frank less responsible than Pour on this account  (for Pour rolled back the mileage) and more  responsible for other deceits, but exactly  offsetting differences would be surprising.  Because the verdict is ambiguous, however, we  must consider separately the possibility of  punitive tort awards for fraud about the odometer  and about other matters.

17
Illinois has never squarely faced the question  whether punitive damages may be awarded under the  common law when 625 ILCS 5/3-112.1, which does  not itself authorize punitive awards, covers the  same ground. One appellate decision (Verdonck)  assumes that the answer is yes, provided that the  awards are not cumulative, but the litigants did  not present the issue for decision. Cf. Ciampi v.  Ogden Chrysler Plymouth, Inc., 262 Ill. App. 3d 94, 634 N.E.2d 448 (2d Dist. 1994). For the  reasons we have already given when explaining why  punitive damages are not proper under state and  federal odometer statutes, the best answer to  this question--and the one we predict that the  Supreme Court of Illinois will adopt when it  finally considers the issue--is no. What point  would the statutes serve if in the end the common  law of fraud were the effective authority to  award damages? The state's legislature could have  said that the award is to be determined under the  law of fraud, or it could have written that  treble damages are just a minimum, preserving to  plaintiffs all common-law remedies. But neither  state nor federal law contains a savings clause  for tort remedies. Federal law provides that  state odometer statutes are not preempted, 49  U.S.C. sec.32711, but lacks a similar provision  for state tort law. The Illinois odometer statute  does not say that common-law claims are  unaffected. Both statutes provide that the right  award is the greater of treble damages or $1,500.  Treble damages are a form of punitive damages.  See Vermont Agency of Natural Resources v. United  States ex rel. Stevens, 120 S. Ct. 1858, 1869-70  (2000); Texas Industries, Inc. v. Radcliff  Materials, Inc., 451 U.S. 630, 639 (1981). The  legislative decision to have a multiplier of  three is not honored when a court permits a jury  to select a different punitive multiplier.  Although one federal appellate decision more than  a generation old concludes that punitive damages  under state common law are compatible with the  federal odometer statute, see Edgar v. Fred Jones  Lincoln-Mercury of Oklahoma City, Inc., 524 F.2d 162 (10th Cir. 1975), more recent decisions have  drawn its methodology into question. E.g., Geier  v. American Honda Motor Co., 120 S. Ct. 1913  (2000); Rice v. Gustavel, 891 F.2d 594, 597 (6th  Cir. 1989). But this is not a subject we need  pursue, given our conclusion that the Supreme  Court of Illinois would treat the state's own  odometer law as establishing the maximum award  for misrepresentations about mileage.

18
Punitive awards for the single-owner and good-  condition representations would not cover the  same ground as the odometer-tampering statutes,  so they cannot be ruled out. But neither can this  award be sustained on that ground, given the  verdict's ambiguity. We therefore remand for a  new trial, limited to Perez's claim that Z Frank  committed frauds other than misrepresenting the  car's mileage. Compensatory damages have been  fixed, so the trial will be limited to liability  for frauds other than mileage and, if liability  is established, to punitive damages. The judge  should tell the jury about the damages for the  rollback, so that jurors will not be tempted to  confer duplicative recovery, and should ensure  that any further punitive recovery is reasonable  in relation to the award already made. Illinois  (we are confident) would not treble the damages  for the more serious misrepresentation concerning  mileage yet allow unlimited damages for puffery  such as "this car is in good condition."Even criminal sentencing, once the subject of  unbridled discretion by district judges, is now  controlled by principles of proportionality. If  the United States had prosecuted Z Frank  Oldsmobile, Inc., for what it did to Perez, the  maximum penalty would have been a fine of  $11,500. See U.S.S.G. sec.2N3.1(a) (setting an  offense level of 6 for a single odometer  violation), sec.8C2.4(d) (fine of $5,000 for a  level 6 offense by an organization, though an  increase to the victim's actual loss is  authorized by sec.8C2.4(a)(3)). (We disregard the  culpability adjustment under sec.8C2.5, which  cannot be calculated on this record, but for a  modestly sized organization such as an auto  dealership this adjustment could not  substantially increase the fine for a first  conviction.) Illinois does not treat violation of  625 ILCS 5/3-112.1 as a crime, so its legislature  has not opted for a higher punishment than  Congress specified. Punitive damages should not  be used as an escape hatch, subject only to the  whim of judge and jury.

19
Although the parties have devoted considerable  attention to constitutional limits on punitive  damages, see BMW of North America, Inc. v. Gore,  517 U.S. 559 (1996), these come into play only  after the assessment has been tested against  statutory and common-law principles. When the  Supreme Court is asked to review a state court's  award, the Constitution is the only constraint,  for the state judges determine the meaning and  application of state law. But when a plaintiff  seeks punitive damages in a federal case, it is  unnecessary to look for limits in the  Constitution. See Donovan v. Penn Shipping Co.,  429 U.S. 648, 649 (1977) ("[t]he proper role of  the trial and appellate courts in the federal  system in reviewing the size of jury verdicts is  . . . a matter of federal law."); Browning-Ferris  Industries v. Kelco Disposal, Inc., 492 U.S. 257,  277-80 (1989). Federal judges may, and should,  insist that the award be sensible and justified  by a sound theory of deterrence. Random and  freakish punitive awards have no place in federal  court, and intellectual discipline should be  maintained. Zaz£ Designs v. L'Or al, S.A., 979 F.2d 499 (7th Cir. 1992); Kemezy v. Peters, 79 F.3d 33 (7th Cir. 1996); Cass R. Sunstein, Daniel  Kahneman & David Schkade, Assessing Punitive  Damages, 107 Yale L.J. 2071, 2078-79 (1998). If  the award is well justified, then it is also  constitutionally sound; and if it is not  justified, then a new trial may be awarded using  "federal standards developed under Rule 59"  (Browning-Ferris, 492 U.S. at 279) without  resorting to constitutional reasoning.

20
Because we are remanding for further  proceedings, we also vacate the award of  attorneys' fees and costs, which should be  recalculated in light of the final outcome.  Still, two comments are in order.

21
First, the district court's total award of  $236,911, see 2000 U.S. Dist. Lexis 2037 (N.D.  Ill. Feb. 18, 2000), is awfully hard to swallow.  It represents more than 1,200 hours at $185 per  hour, or about two-thirds of a year's billable  time for a hard-working lawyer. How can a case  this simple, which required only three trial days  and led to a compensatory award of $11,500, have  commanded that investment of resources? In  Haluschak, an odometer case that yielded  compensatory damages of $7,500 before trebling,  the plaintiffs' legal costs were only $12,560--  and Haluschak was tried twice! This question  requires careful attention on remand.

22
Second, the district court assumed that the  reasonableness of attorneys' fees must be  assessed in relation to the total award,  including punitive damages. If either the state  or federal odometer statute supported punitive  damages, that might be so. Given our holding that  any recovery in excess of $34,500 depends on  state tort law, however, the award looks  unreasonable, for no sensible person spends  $236,000 in pursuit of $34,500 (or even $163,500,  treble the jury's original compensatory award).  See Cole v. Wodziak, 169 F.3d 486 (7th Cir.  1999). The state and federal odometer-tampering  statutes authorize awards of attorneys' fees only  for success in obtaining recoveries under those  statutes. Illinois does not provide for fee-  shifting in tort cases. Outlays in pursuit of  common-law punitive damages therefore must be  borne by Perez and may not be shifted to Z Frank.  See Roche v. Fireside Chrysler-Plymouth, Mazda,  Inc., 235 Ill. App. 3d 70, 86-87, 600 N.E.2d 1218, 1228-29 (2d Dist. 1992).

Reversed and Remanded