Florida High Court Again Leaves Emotional Distress “Impact Rule” In Place

In Willis v. Gami Golden Glades, LLC, No. SC04-1929, 2007 WL 3024039 (Fla. Oct. 18, 2007), the intermediate appellate court certified questions to the Florida Supreme Court that invited reconsideration of the state’s “impact rule.” Under that rule, Florida treats emotional distress claims differently depending on whether the plaintiff has suffered a physical impact from an external force.

If there was an impact, Florida permits recovery for emotional distress not only from the impact itself but also for distress stemming from the incident during which the impact occurred. Without an impact, a plaintiff can only recover for mental distress manifested by the physical injury and the plaintiff must have been directly involved in the traumatizing event.

Although the certified questions raised important questions about the application of the impact rule, and invited reconsideration of the rule itself, the majority in Willis concluded that the facts of the case -- involving an assault and battery in a parking lot that plaintiff used at defendant’s direction -- so clearly satisfied the rule that none of the other issues argued by the parties needed to be addressed. However, the concurring and dissenting opinions addressed those issues and the underlying policy questions at length.

Punitive Damages Limited To Compensatory Award Where Plaintiff Not Vulnerable

In Jet Source Charter, Inc. v. Doherty, 148 Cal. App. 4th 1, 55 Cal. Rptr. 3d 176 (4th Dist. Jan. 30, 2007, modified Feb. 28, 2007), the plaintiffs successfully sued aircraft brokers for breach of fiduciary duty in selling them aircraft while willfully deceiving them concerning the price the brokers had negotiated with the sellers (and thereby making additional money on the side). The jury awarded approximately $5 million in compensatory damages, and more than $25 million in punitive damages against various defendants.

On appeal, the court held, “Where, as here, substantial compensatory damages have been awarded, and the conduct in question only involves economic damage to a single plaintiff who is not particularly vulnerable, an award which exceeds the compensatory damages awarded is not consistent with due process” under State Farm Mut. Auto Ins. Co. v. Campbell, 538 U.S. 408 (2003).

Tobacco Company Punitive Damages Exceeding Single-Digit Ratio Upheld

The California intermediate appellate court has upheld a significant punitive damages award against Philip Morris.

In Bullock v. Philip Morris USA, Inc., No. B164398 (Cal. App. (2d Dist.) Apr. 21, 2006), the jury awarded a smoker $850,000 in compensatory damages and $28 billion in punitive damages based on findings of defective design, intentional and negligent misrepresentation and fraudulent concealment about the health effects of smoking, and findings that Philip Morris was guilty of malice, fraud, or oppression with respect to each of plaintiffs’ claims. The trial court reduced the punitive award to $28 million (about 33 times compensatory damages) on remittitur.

The appellate court found that a sufficient record was presented to the jury of extensive efforts by Philip Morris to mislead the public about the adverse effects of smoking, and that it was not necessary to prove that defendant made any specific misrepresentation directly to the plaintiff when it had every reason to expect its misrepresentations to find plaintiff indirectly.

The court acknowledged that the California Supreme Court in Simon v. San Paolo U.S. Holding Co., Inc., 35 Cal.4th 1159 (2005), read State Farm Mut. Automobile Ins. Co. v. Campbell, 538 U.S. 408 (2003), as establishing a presumption that a ratio of punitive to compensatory damages greater than a single digit violates due process, but left open that in cases of “extreme reprehensibility” a greater award might be appropriate. Here, the court found this standard satisfied based on the record, and upheld the award.

Supreme Court Vacates Punitive Damages Awards

In the wake of its decision in State Farm Mut. Automobile Ins. Co. v. Campbell, 123 S. Ct. 1513 (2003), regarding the due process limits on awards of punitive damages, the U.S. Supreme Court has granted 10 petitions for writ of certiorari and summarily vacated and remanded the cases for further consideration to a variety of state and federal courts.

The two most recent of those rulings are Philip Morris USA v. Williams, No. 02-1553, 2003 WL 21020159 (U.S. Oct. 6, 2003); and Chrysler Corp. v. Clark, No. 02-1748, 2003 WL 21313765 (U.S. Oct. 6, 2003). Philip Morris USA involved an Oregon case in which the jury had awarded over $79.5 million in punitive damages, which the judge reduced to $32 million. The appellate court had affirmed in 2002, allowing punitive damages with a ratio of more than 60:1. In Chrysler Corp., the Sixth Circuit had affirmed a jury award of $3 million in a products liability case where compensatory damages were $236,000 (more than 12:1). The Supreme Court's order suggests that even low awards are constitutionally suspect if the ratio to compensatory damages exceeds a single-digit number.

The other vacated cases are:

• Cass v. Stephens, [02-983] 123 S.Ct. 2213 (May 27, 2003), vacating No. 08-97-00582-CV, 2001 WL 28092 (Tex. App. 8th Dist. Jan. 11, 2001) (25 times compensatory damages after remittitur)

• Ford Motor Co. v. Ramon Romo, [02-1097] 123 S.Ct. 2072 (May 19, 2003), vacating 99 Cal.App.4th 1115, 122 Cal. Rptr. 2d 139 (5th Dist. 2002) (46.4 times original compensatory damages, or 58.6 times reduced compensatory damages)

• Ford Motor Co. v. Smith, [02-1096] 123 S.Ct. 2072 (May 19, 2003), vacating 83 S.W.3d 483 (Ky 2002) (reducing award of 6.7 times compensatory damages to 5 times compensatory damages)

• DeKalb Genetics Corp. v. Bayer CropScience, S.A., [02-130] 123 S.Ct. 1828 (Apr. 21, 2003), vacating 272 F.3d 1335 (Fed. Cir. 2002) (3.33 times compensatory damages)

• National Union Fire Ins. Co. of Pittsburgh, Pa. v. Textron Financial Corp., [02-966] 123 S.Ct. 1783 (Apr. 21, 2003), vacating No. G020323, 2002 WL 1399105 (Cal. App. 4th Dist.
June 28, 2002) (10.2 times compensatory damages after remittitur)

• San Paolo U. S. Holding Co., Inc. v. Simon, [01-1722] 123 S.Ct. 1828 (Apr. 21, 2003), vacating No. B121917, 2001 WL 1380836 (Cal. App. 2d Dist. Nov. 7, 2001) (340 times compensatory damages)

• Key Pharmaceuticals, Inc. v. Edwards, [02-342] 123 S.Ct. 1781 (Apr. 21, 2003), vacating Bocci v. Key Pharmaceuticals, Inc., 178 Or.App. 42, 35 P.3d 1106 (2002) (45
times compensatory damages)

• Anchor Hocking, Inc. v. Waddill, [02-370] 123 S.Ct. 1781 (Apr. 21, 2003), vacating 175 Or.App. 294, 27 P.3d 1092 (2002) (9.9 times compensatory damages)

Of those ten cases, three have been decided on remand. The DeKalb court has reconsidered its
original decision and held that the award of $50 million in punitive damages was not unconstitutional under State Farm when compared with the $15 million in compensatory damages awarded (a ratio of 3.33:1). Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp., 345 F.3d 1366 (Fed. Cir. Sept. 29, 2003). In Key Pharmaceuticals, the punitive damages award was vacated and remanded with instructions to allow defendants' motion for a new trial unless plaintiff agreed to remittitur of punitive damages to $3.5 million, down from $22.5 million. The remittitur would result in a ratio of 7:1, down from 45:1. Bocci v. Key Pharmaceuticals, Inc., 189 Or.App. 349, 76 P.3d 669 (Sept. 10, 2003). In the Anchor Hocking case, the appellate court ordered a new trial unless plaintiff agreed to remittitur of punitive damages to $403,416, down from $1 million. The reduction would yield a ratio of 4:1 instead of 9.9:1. Anchor Hocking, Inc. v. Waddill, 190 Or.App. 172, 2003 WL 22404943 (Oct. 22, 2003).

Seventh Circuit Affirms Large Punitive Award After State Farm

Although the Supreme Court limited punitive damages in State Farm Mut. Automobile Ins. Co. v. Campbell, 123 S. Ct. 1513 (2003), and has vacated numerous cases in light of State Farm (as discussed here), the Seventh Circuit has affirmed a punitive damages award representing over 37 times the compensatory damages awarded, finding that the language in State Farm regarding single-digit ratios was discretionary.

In Mathias v. Accor Economy Lodging, Inc., No. 03-1010, 2003 WL 22389863 (7th Cir. Oct. 21, 2003), the jury awarded plaintiff $10,000 in compensatory damages and $372,000 in punitive damages, where a hotel deliberately assigned plaintiffs a room it knew was infested with bedbugs. Defendant appealed, in part arguing that the amount of punitive damages was unconstitutionally excessive under State Farm. However, the court stated that State Farm "did not lay down a . . . single-digit ratio rule – it said merely that 'there is a presumption against an award that has a 145-to-1 ratio' – and it would be unreasonable to do so." Applying various other factors from State Farm and other recent Supreme Court precedent on punitive damages, the court upheld the full award.

Excessive Punitive Damages Claim Does Not Confer Diversity Jurisdiction

In Smith v. American General Life and Accident Ins. Co., 337 F.3d 888 (7th Cir. July 24, 2003), plaintiff alleged bad faith against an insurance company, and claimed actual damages well below $75,000. Defendant argued that plaintiff’s additional claim for $1 million in punitive damages conferred diversity jurisdiction. However, in part relying on State Farm Mut. Automobile Ins. Co. v. Campbell, 538 U.S. 408 (Apr. 7, 2003) [see my post here], the Seventh Circuit disagreed, finding that a federal court must take a "realistic look" at punitive damages when considering whether the jurisdictional amount is satisfied for removal.

Indiana Punitive Damages Allocation Statute Survives Review

Indiana, like a number of other states that enacted similar “tort reform" legislation, limits the amount of benefit that a plaintiff can receive from a punitive damages award by allocating a percentage to a state fund (here 75%). In Cheatham v. Pohle, 789 N.E.2d 467 (Ind. May 30, 2003), plaintiff argued that it was unconstitutional for the state to “take” $75,000 of her $100,000 punitive damages award. However, in a 3-2 decision, the Indiana Supreme Court reversed the intermediate appellate court and upheld the statute because a plaintiff has no right to punitive damages and, therefore, no property interest for the state to “take.” This decision brings Indiana into line with all other state courts considering similar laws, except for Colorado.

Value of “Potential Harm” Is Important In Assessing Whether Punitive Damage Award Is Excessive

In one of the first district court decisions applying the U.S. Supreme Court’s State Farm test, the trial court affirmed an award of punitive damages against an insurer for bad faith where the ratio of punitive damages to compensatory damages was 75:1 ($150,000 versus $2,000). In The Willow Inn, Inc. v. Public Serve Mutual Insurance Company, No. Civ. A. 00-5481, 2003 WL 21321370, 2003 U.S. Dist. LEXIS 9558 (E.D. Pa. May 30, 2003), the compensatory damages were low because the insurance carrier ultimately paid the claim, albeit two years late. The district court concluded that the award comported with the Supreme Court’s recent holding in State Farm because (1) the amount of punitive damages awarded was equal to the value of the plaintiff’s original insurance claim, and thus, this translated into a ratio of 1:1; and (2) the statute permits the recovery of attorneys’ fees, and fee awards in this amount have been upheld.

Punitive Damages Exceeding Single-Digit Multiplier Likely Excessive

In State Farm Mut. Automobile Ins. Co. v. Campbell, 538 U.S. 408 (Apr. 7, 2003), the U.S. Supreme Court revisited the issue of when an award of punitive damages is unconstitutionally excessive, and, among other things, limited the types of reprehensible conduct that may be considered in calculating a punitive damages award. Amplifying its decision in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), the Court held that while a punitive damage award is to be based on the degree of reprehensibility of the defendant’s conduct, the disparity between the actual or potential harm and the punitive damage award, and the difference between the punitive damage award and available civil penalties, a court may not consider dissimilar acts or punish a defendant for conduct directed at another person in another state unless that other plaintiff is joined and an appropriate choice of law analysis applied. The Court also reiterated that “few [punitive] damage awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” State Farm Mutual, 538 U.S. at 425.