CITE AS Energy & Min. L. Inst. Chapter 3 Defending … Against Punitive Damages from the Answer Through the End of the Trial Albert F. Sebok Brian J. Moore Robert O. Passmore Rena

Chapter 3

Defending Against Punitive Damages from the Answer Through the End of the Trial

Albert F. SebokBrian J. Moore

Robert O. PassmoreRena K. Seidler

Jackson Kelly PLLCCharleston, West Virginia

Synopsis

§ 3.01. Introduction ..................................................................................60§ 3.02. Pleading .........................................................................................60 [1] — Pleading Punitive Damages in the Complaint ....................60

[a] — Federal Rule of Civil Procedure 8(a)(3) .................60[b] — Federal Rule of Civil Procedure 9(g) ...................... 62[c] — Federal Rule of Civil Procedure 54(c) .................... 63[d] — State Statutes ............................................................64

[2] — Removal ............................................................................... 65[a] — Extent of Burden ...................................................... 65[b] — Damages from the Complaint .................................66[c] — Other Means of Determining Damages ..................66[d] — Proportionate Punitive Damages ............................ 69[e] — Other Punitive Damages Factors for Removal ........ 71

[3] — Defending Punitive Damages in the Answer ..................... 71[a] — Affirmative Defenses. .............................................. 71

[i] — Constitutional Defenses ................................. 72[ii] — Advice of Counsel ........................................ 74

[4] — Motions Dispensing with Punitive Damages ..................... 75§ 3.03. Determining Punitive Damages Amount .................................. 77

[1] — Discovery ............................................................................. 77[a] — Net Worth ................................................................. 77[b] — Temporal Scope of Financial Information .............. 78[c] — Type of Information Discoverable ........................... 80

[i] — Annual Reports ............................................. 80[ii] — Tax Returns .................................................. 81

[d] — Financial Condition of Parent Corporations ........... 82[i] — The Problem of TXO Production Corp. v. Alliance Resources Corp. ............................ 82

CITE AS29 Energy & Min. L. Inst. 3 (2008)

ENERGY & MINERAL LAW INSTITUTE§ 3.01

[2] — Evidence ...............................................................................84[a] — State Farm Ins. Co. v. Campbell: Relevance of Defendant’s Out-of-State Acts .............................84[b] — Expert Opinion .........................................................86[c] — Evidence of Good Acts Inadmissible at Trial ..........87[d] — Evidence of Settlement Offers and Negotiations .......................................................87[e] — Evidence of Liability Insurance ...............................89

§ 3.04. Bifurcation of Trials .....................................................................90[1] — The Bifurcation Process .......................................................90[2] — Bifurcation Statutes and Judicial Discretion ....................... 91

§ 3.05. Jury Instructions and Rule 50 Motions .....................................92[1] — Rule 50 ..................................................................................92[2] — Insufficient Evidence Objection...........................................93[3] — Objecting to Plaintiff’s Instructions ....................................94

[a] — Amending Plaintiff’s Instructions ............................95[4] — Limiting Instructions ...........................................................95[5] — Rule 59 ..................................................................................96

§ 3.06. Conclusion ......................................................................................97

§ 3.01. Introduction.A thorough understanding of the complex issues surrounding punitive

damages is frequently overlooked by attorneys early in a case, perhaps because counsel generally focuses first on liability. However, understanding punitive damages, and examining their applicability in any given case, is essential for a successful conclusion to the matter. Therefore, attentive litigators must consider all of the implications of a punitive damages claim, from responding to the complaint to the filing of post-trial motions.

§ 3.02. Pleading.[1] — Pleading Punitive Damages in the Complaint.

[a] — Federal Rule of Civil Procedure 8(a)(3).Rule 8(a)(3) of the Federal Rules of Civil Procedure dictates that “a

pleading that states a claim for relief must contain . . . a demand for the relief sought, which may include relief in the alternative or different types of relief.” Unfortunately, this language does not clearly define the level of specificity required in pleading punitive damages. Thus, courts have been left with the

60

DEFENDING AGAINST PUNITIVE DAMAGES § 3.02

task of determining whether punitive damages must be specifically pled in the body of a complaint.

Most courts have interpreted Rule 8(a)(3) as not requiring a plaintiff to explicitly state the phrase “punitive damages” in his complaint, so long as he otherwise alleges sufficient facts in support of such a claim. In jurisdictions governed by the Federal Rules of Civil Procedure, or equivalent state court rules, the “notice pleading” standard is utilized and general factual allegations will suffice.1 For example, allegations that a defendant acted “willfully or with reckless disregard for the plaintiff’s interests” will ordinarily be enough to give the defendant the requisite notice.2 As one court has stated, “it is not necessary for the plaintiff to explicitly demand punitive damages; however, absent an explicit demand,” the plaintiff must provide sufficient notice to the defendant, via allegations in the complaint or subsequent actions, to inform the defendant that punitive damages “are on the table.”3

Assuming the defendant has not received notice via the phrase “punitive damages” or other factual allegations in the complaint, some courts may look for timely notice in later court filings. For example, the Eighth Circuit, in Bowles v. Osmose Utilities Services, Inc., found that, while the plaintiff had made no mention of punitive damages in his complaint, he could nevertheless pursue such damages at trial because he placed the defendants on notice of his claim by requesting information related to the defendant’s net worth in discovery three months prior to trial and by explicitly demanding punitive

1 See, e.g., Guillen v. Kuykendall, 470 F.2d 745, 748 (5th Cir. 1972); Scutieri v. Paige, 808 F.2d 785, 790-93 (11th Cir. 1987); In re Landbank Equity Corp., 83 B.R. 362, 377 (E.D. Va. 1987); Newell v. Wis. Teamsters Joint Council No. 39, No. 05-C-552, 2007 WL 2874938, at *3 (E.D. Wis. Sept. 28, 2007); Maglione v. Cottrell, Inc., No. 00-C-2436, 2001 WL 946189, at *2 (N.D. Ill. Apr. 27, 2001); Walker v. City of Orem, No. 2:02-CV-253 TS, 2007 WL 3026399, at *3 (D. Utah Oct. 9, 2007). But see Cohen v. Office Depot, Inc., 184 F.3d 1292, 1297-98 (11th Cir. 1999)(“Punitive damages are a remedy, so under the rule [8(a)(3)] a request for them should be included in the complaint”) vacated in part on other grounds, 204 F.3d 1069 (11th Cir. 2000) cert. denied, 121 S. Ct. 381 (2000).2 Newell, 2007 WL 2874938, at *5.3 Id.

61

ENERGY & MINERAL LAW INSTITUTE

damages in his pre-trial disclosure three weeks before trial.4 Other circuits have not been inclined to allow such minimal notice to suffice, and the Eighth Circuit itself has been careful to emphasize that notice must be sufficiently timely so as not to prejudice the defendant.5

[b] — Federal Rule of Civil Procedure 9(g).Further complicating the issue, Federal Rule of Civil Procedure 9(g)

states “[i]f an item of special damage is claimed, it must be specifically stated.” While the Rule fails to specify what “special damage” means, most courts have interpreted the phrase as not including punitive damages.

Many courts simply interpret special damages as being a form of compensatory damages, separate and distinct from punitive damages.6 While other courts shy away from stating that special damages and punitive damages are wholly separate, they still follow the majority view by not requiring the term “punitive damages” to be “specifically stated.” Under a notice theory which mirrors the rationale used in addressing Rule 8(a)(3), one court stated “even if punitive damages are ‘special’ within the meaning of this rule, the

4 Bowles v. Osmose Utils. Svcs., 443 F.3d 671, 675 (8th Cir. 2006).5 See, e.g., Ne. Women’s Ctr., Inc. v. McMonagle, 665 F. Supp. 1147, 1160-61 (E.D. Pa. 1987); Winters v. Fru-Con Inc., 498 F.3d 734, 741 (7th Cir. 2007). See also Anheuser-Busch, Inc. v. John Labbatt Ltd., 89 F.3d 1339, 1349-1350 (8th Cir. 1996)(finding that the plaintiff could not seek punitive damages at trial where the defendant had only one week’s notice of its intent to seek punitive damages).6 See Roberts v. Graham, 73 U.S. 578, 579 (1867)(noting that special damages are those that are natural but not necessary consequences of the act); Rohrbaugh v. Wal-Mart Stores, Inc., 572 S.E.2d 881, 888 n.18 (W. Va. 2002)(noting that the term special damages “refers to any actual monetary loss that may have been suffered”). See also Neal v. Honeywell, Inc., 191 F.3d 827, 832 (7th Cir. 1999); Nelson v. G.C. Murphy Co., 245 F. Supp. 846, 847 (N.D. Al. 1965); In re Harry Levin, Inc., 175 B.R. 560, 569 (E.D. Pa. 1994); Figgins v. Advance Am. Cash Advance Ctrs. of Mich., Inc., 482 F. Supp. 2d 861, 868-869 (E.D. Mich. 2007); Maglione, 2001 WL 946189, at *2; Soltys v. Costello, 520 F.3d 737, 742 (7th Cir. 2008)(where the court acknowledged in dicta that the parties and lower court may have shared the fundamentally erroneous “assumption that a prayer for punitive damages had to appear in the complaint in order to sustain an award of such damages”).

§ 3.02

62

DEFENDING AGAINST PUNITIVE DAMAGES

object of the rule is to guard against unfair surprise. . . .”7 Thus, a party will generally be permitted to seek punitive damages, regardless of whether they were specifically pled in the complaint, so long as the court does not find that such a claim comes as an unfair surprise.

However, it should be noted that some courts find that punitive damages are special damages, requiring a party to specifically plead them in the complaint.8 One court even determined that Rule 9(g) “requires, in mandatory language, that a claim for punitive damages be set forth in a party’s complaint.”9 Thus, counsel should determine the applicable jurisdiction’s precise interpretation of Rule 9(g) in order to effectively determine the level of specificity required for a claim of punitive damages.

[c] – Federal Rule of Civil Procedure 54(c).To thoroughly assess the issue of pleading punitive damages, Rule 54(c) of

the Federal Rules of Civil Procedure must be considered. Rule 54(c) provides “[e]very other final judgment should grant the relief to which each party is entitled, even if the party has not demanded that relief in its pleadings.” The interpretation of this rule is closely related to the notice theory integral to many courts’ views of Rules 8(a)(3) and 9(g). Most courts interpreting Rule 54(c) have held that a claim for punitive damages is preserved, even if not specifically alleged, if a sufficient factual basis for punitive damages is pled in the complaint or the opposing party is given fair notice of the claim.10 For example, one court found that the plaintiffs could seek punitive damages without specifically demanding them in their complaint when they

7 Bowles, 443 F.3d at 675.8 Kingston Square Tenants Ass’n v. Tuskegee Gardens, Ltd., 792 F. Supp. 1566, 1579 (S.D. Fla. 1992)(stating in dicta that “Rule 9(g) provides that items of special damages, such as punitive damages, are to be specifically pleaded”).9 Nal II, Ltd. v. Tonkin, 705 F. Supp. 522, 528 (D. Kan. 1989).10 See, e.g., Guillen v. Kuykendall, 470 F.2d 745, 748 (5th Cir. 1972); In re Landbank Equity, 83 B.R. 362, 377 (E.D. Va. 1987); Griffith Labs. U.S.A., Inc. v. Pomper, 607 F. Supp. 999, 1001 (S.D.N.Y. 1985); Newell v. Wis. Teamsters Joint Council No. 39, No. 05-C552, 2007 WL 2874938 at *2-3 (E.D. Wis. Sept. 28, 2007).

§ 3.02

63


alleged in the complaint that the defendants acted “maliciously, wantonly, willfully, and in bad faith. . . .”11 Thus, as with Rule 8(a)(3), the majority interpretation of Rule 54(c) is that a punitive damages claim is preserved if sufficient allegations are set forth in the complaint so that the opposition is not unfairly surprised by the existence of such a claim.

[d] — State Statutes.In defending a claim for punitive damages, the defendant must also

be aware of potential issues arising from both procedural and substantive state statutes addressing punitive damages. For example, one state statute prohibits a complaint to be filed seeking a prayer for relief that includes punitive damages.12 Instead, the party seeking punitive damages may amend its complaint to include this prayer for relief “pursuant to a pretrial motion and after a hearing before the court.”13 Other states, such as West Virginia, have no procedural statutes governing the pleading and proof of punitive damages.

As part of tort reform, some states have limited the ability to seek punitive damages by precluding plaintiffs from seeking such damages as to certain claims, or above certain amounts.14 One state statute precludes punitive damages for all civil claims except wrongful death, other than in a tort action where it is proven by “clear and convincing evidence” the defendant “engaged in oppression, fraud, wantonness, or malice. . . .”15 Another state limits recoverable punitive damages to three times the amount of compensatory

11 Scutieri v. Paige, 808 F.2d 785, 791 (11th. Cir. 1987).12 Ill. Code Civ. P. § 2-604.1 (1995).13 Id. 14 Three states, Louisiana, Massachusetts, and Washington, only allow punitive damage awards when authorized by statute. Campen v. Stone, 635 P.2d 1121, 1128 n.8 (Wyo. 1981)(internal citations omitted).15 Ala. Code 1975 § 6-11-20 (1987). See also Hodges v. S.C. Toof & Co., 833 S.W.2d 896, 901 (Tenn. 1992)(holding that punitive damages many only be awarded if a plaintiff can prove by “clear and convincing evidence” that a defendant has acted “(1) intentionally, (2) fraudulently, (3) maliciously, or (4) recklessly”).

§ 3.02

64


damages or $50,000.00, whichever is greater.16 Thus, counsel must carefully examine state law to determine whether any procedural or substantive rules exist limiting a party’s pleading of punitive damages.

[2] — Removal.Punitive damages may play an important role in determining whether

a case is removable from state to federal court on diversity of citizenship grounds. In addition to complete diversity of the parties, federal diversity jurisdiction requires that “the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs.”17 It is well-established that removal statutes are strictly construed against removal.18 Thus, the defendant seeking to remove a case from state to federal court based on diversity of citizenship must be especially cognizant of how a claim for punitive damages may be used to argue the sufficiency of the amount in controversy. The defendant seeking removal bears the burden of proving the requisite amount, and a claim for punitive damages can potentially play a significant role in helping the defendant meet this burden.19

[a] — Extent of Burden.While there is a split of authority as to the extent of the defendant’s

burden in proving that the amount in controversy exceeds $75,000, most courts generally require proof by a preponderance of the evidence.20 “The

16 Ind. Code Ann. § 34-51-3-4 (1999). See also Va. Code Ann. § 8.01-38.1 (1987)(limiting punitive damages awards to a maximum of $350,000.00).17 28 U.S.C. § 1332 (2008).18 See Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09 (1941); Weiner v. City of Johnstown, N.Y., 931 F. Supp. 985, 990 (N.D.N.Y. 1996); Scott v. Greiner, 858 F. Supp. 607, 610 (S.D. W. Va. 1994).19 Gafford v. Gen. Elec. Co., 997 F.2d 150, 155 (6th Cir. 1993). More generally, “[t]he burden of establishing federal jurisdiction is placed upon the party seeking removal.” Mulcahey v. Columbia Organic Chem. Co., 29 F.3d 148, 151 (4th Cir. 1994)(citing Wilson v. Republic Iron & Steel Co., 42 S. Ct. 35, 66 (1921)).20 De Aguilar v. Boeing Co., 47 F.3d 1404, 1410-1412 (5th Cir. 1995); Gafford, 997 F.2d at 158; Oshana v. Coca-Cola Co., 472 F.3d 506, 511 (7th Cir. 2006); In re Minn. Mut. Life

§ 3.02

65


preponderance burden forces the defendant to do more than point to a state law that might allow the plaintiff to recover more than what is pled,” and requires the defendant to actually produce evidence to show to a reasonable probability that compensatory, punitive and other damages potentially exceed $75,000.21 The question then becomes: what role do punitive damages play in helping the defendant meet his burden? Put simply, the defendant may offer a demand for punitive damages as evidence of potentially higher damages than may be apparent at first blush.22

[b] — Damages from the Complaint.The best and most convenient method for proving the amount in

controversy is to recite from the ad damnum clause, or prayer for relief, of the complaint. However, plaintiffs often fail to set forth a specific dollar amount of alleged damages in the complaint.23 These “indeterminate complaints” need to be closely scrutinized to determine if they state a claim with an amount in controversy over $75,000.24 Indeterminate complaints are fairly common. In fact, some states specifically prohibit specifying an amount of damages in the complaint.25 Moreover, even specific dollar amounts alleged in complaints must be evaluated because “[t]he ad damnum clause is only an estimate of the relief to which the plaintiff is entitled, and ‘the [p]laintiff is not restricted or bound by the relief requested.’”26 Further, should the

Ins. Co. Sales Practices Litig., 346 F.3d 830, 834 (8th Cir. 2003). But see Morgan v. Gay, 471 F.3d 469, 477 (3d Cir. 2006)(requiring the defendant to establish the amount in controversy to a legal certainty) cert. denied 128 S. Ct. 66 (2007).21 De Aguilar, 47 F.3d at 1412 (emphasis in original).22 See Bell v. Preferred Life Assurance Society, 64 S. Ct. 5, 6 (1943).23 Martin v. Franklin Capital Corp., 126 S. Ct. 704, 707-708 (2005)(noting it is unsurprising for a state court complaint to lack a clear amount in controversy).24 See Roman v. Grafton Transit, Inc., 948 F. Supp. 736, 738 (N.D. Ill. 1996).25 Kentucky Rule of Civil Procedure 8.01(2) prohibits plaintiffs in a claim for unliquidated damages from specifying an amount of damages in their pleadings. See also Ill. Code Civ. P. § 2-604 (2003); Cal. Code Civ. P. § 425.10(b)(2005); Tex. R. Civ. P. 47 (2003).26 Asbury-Castro v. GlaxoSmithKline, Inc., 352 F. Supp. 2d 729, 732 (N.D. W. Va. 2005)(internal citation omitted).

§ 3.02

66


defendant initially fail to attempt removal simply because no ad damnum is specified, the court may determine that the defendant has waived the right to remove the case.27

Certainly, in many instances, punitive damages may not be necessary to reach the $75,000 minimum, as compensatory damages may be substantial enough standing alone. Nonetheless, when such damages do not meet the requisite minimum, defendants may then turn to the punitive damages claim to bolster their argument.28 As a preliminary matter in evaluating a claim for punitive damages, the court will determine if the plaintiff’s claim of punitive damages was made in good faith.29 In making this determination, most courts will reject claims of punitive damages that are “patently frivolous and without foundation.”30 This review is generally limited to determining if punitive damages are available under state law, or are in some way facially absurd.31

[c] — Other Means of Determining Damages.If the court is unable to determine damages from looking solely at the

complaint, the defendant may set forth factual support for his claim that the amount in controversy requirement has been met. The defendant may choose to articulate his amount in controversy argument in his notice of removal, an

27 See, e.g., Marler v. Amoco Oil Co., 793 F. Supp. 656, 659 (E.D. N.C. 1992); Essenson v. Coale, 848 F. Supp. 987, 989 (M.D. Fla. 1994).28 See Bell v. Preferred Life Assurance Soc’y, 64 S. Ct. 5, 6 (1943)(“Where both actual and punitive damages are recoverable under a complaint each must be considered to the extent claimed in determining jurisdictional amount”); Bryant v. Wal-Mart Stores E., Inc., 117 F. Supp. 2d 555, 557 (S.D. W. Va. 2000)(“A good faith claim for punitive damages may augment compensatory damages in determining the amount in controversy unless it can be said to a legal certainty that plaintiff cannot recover punitive damages in the action”).29 St. Paul Mercury Indem. Co. v. Red Cab Co., 58 S. Ct. 586, 590 (1938).30 Golden ex rel Golden v. Golden, 382 F.3d 348, 355 (3d Cir. 2004)(quoting Packard v. Provident Nat’l Bank, 994 F.2d 1039, 1046 (3d Cir. 1993)).31 See Cadek v. Great Lakes Dragaway, Inc., 58 F.3d 1209, 1211-1212 (7th Cir. 1995)(“Where punitive damages are required to satisfy the jurisdictional amount in a diversity case, a two-part inquiry is necessary. The first question is whether punitive damages are recoverable as a matter of state law”).

§ 3.02

67


attached affidavit, or in detail in his opposition to the plaintiff’s motion to remand.32 Furthermore, some courts grant the defendants limited discovery regarding the amount in controversy.33

Cases where the defendants have made “bare-bones” arguments for removal can be instructive on how not to plead removal. For example, in Lupole v. Collins Pine Co., the court rejected defendant’s argument that evidence that punitive damages were properly pled created an automatic amount in controversy in excess of $75,000, with no further evidence.34 In rejecting this argument, the court scrutinized each of the plaintiff’s compensatory damage claims to determine the quantity of punitive damages necessary to reach $75,000, and ultimately concluded that compensatory damages plus reasonable punitive damages could not possibly total $75,000.35 Similarly, an Arizona court rejected the defendant’s argument that “[t]here is not a single reported Arizona case in the last 15 years in which a punitive damage award did not exceed $75,000,” sufficiently met the defendant’s burden of proof.36 Rather, the court stated that the defendant needed to compare the

32 Allen v. R & H Oil & Gas Co., 63 F.3d 1326, 1335 (5th Cir. 1995). Note that the Tenth Circuit requires that the notice of removal contain facts supporting the amount in controversy. Laughlin v. Kmart Corp. 50 F.3d 871, 873 (10th Cir. 1995), cert. denied, 116 S. Ct. 174 (1995)(“The burden is on the party requesting removal to set forth, in the notice of removal itself, the ‘underlying facts supporting [the] assertion that the amount in controversy exceeds $50,000’ ” )(internal citation omitted).33 See, e.g., Whitney v. State Farm Mut. Auto. Ins. Co., No. 3:98-0241, 1998 U.S. Dist. Lexis 22247, at *5 (S.D. W. Va. June 29, 1998). Generally speaking, however, the more thoroughly the defendant asserts an amount in controversy argument in his notice of removal, the less likely the plaintiff is to attempt to file a motion to remand on this issue. Diligent counsel must remember that mere “bare-boned assertions do not fulfill the burden of offering evidence that proves to a reasonable probability that the threshold jurisdictional amount existed. . . .” King v. Retailers Nat’l Bank, 388 F. Supp. 2d 913, 919 (N.D. Ill. 2005).34 Lupole v. Collins Pine Co., No. 07-73 Erie, 2007 WL 3023962, at *2-3 (W.D. Pa. Oct. 12, 2007).35 Id. at *10.36 Nguyen v. Hartford Cas. Ins. Co., No. CIV 06-2541-PHX RCB, 2007 WL 2206903, at *4 (D. Az. July 30, 2007)(internal citations omitted).

§ 3.02

68


facts of the case at bar with those of previous cases to successfully plead an amount in controversy over the jurisdictional limit.37 While there is some support in case law allowing removal with a less specific pleading, this is an unnecessary risk when a relatively simple analysis of the plaintiff’s claims will strengthen the defendant’s argument and better ensure the defendant’s success in removing the matter to federal court.38

[d] — Proportionate Punitive Damages.Perhaps the most important factor when considering a punitive damages

claim’s impact on the amount in controversy necessary for removal is the proportion of punitive damages sought by the plaintiff relative to the compensatory damages that are sought. Due process requires that punitive damages are “both reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered.”39 In BMW of North America, Inc. v. Gore, the United States Supreme Court clearly emphasized that “[t]he principle that exemplary damages must bear a ‘reasonable relationship’ to compensatory damages has a long pedigree.”40

While no bright line ratio of punitive damages to compensatory damages has been established, a ratio below 10:1 is “more likely to comport with due process.”41 If meeting the jurisdictional requirement requires punitive damages so out of proportion with compensatory damages that, if awarded,

37 Id.38 Cross v. Bell Helmets, USA, 927 F. Supp. 209, 213-214 (E.D. Tex. 1996)(holding “[i]n today’s legal climate, whenever exemplary damages are sought in a products liability case from a corporate defendant, $50,000 certainly is not a high-end award”); Hicks v. Herbert, 122 F. Supp. 2d 699, 701 (S.D. W. Va. 2000)(finding that “a request for punitive damages, where properly recoverable, inevitably inflates a plaintiff’s potential recovery”).39 State Farm Mutual Auto Ins. v. Campbell, 123 S. Ct. 1513, 1524 (2003).40 BMW N. Am., Inc. v. Gore, 116 S. Ct. 1589, 1601 (1996).41 Campbell, 123 S. Ct. at 1524. Specifically, the Supreme Court looked to legislative history indicating that, when a punitive damage is created by the legislature, double, triple, or quadruple damages are usually seen as sufficient to “deter and punish.” Id. A higher ratio “may comport with due process where ‘a particularly egregious act has resulted in only a

§ 3.02

69


the punitive damages would be overturned for violating a defendant’s due process, then it is very likely that removal will not be possible.42 For example, Del Vecchio v. Conseco, Inc. represents an extreme class action case where the plaintiffs alleged actual damages of $600 and punitive damages of $75,000.43 The court found that the 125 to 1 ratio of damages bordered “on the farcical” and the case was subsequently remanded to state court.44 Even where the ratio is lower, the estimate of punitive damages “should be objective and not based on fanciful, pie-in-the-sky, or simply wishful amounts. . . .”45 Likewise, claims with compensatory damages approaching $75,000 make it more likely removal will be allowed given the low ratio of potential punitive damages necessary to meet the minimum requirement.46

There are some exceptions to the general rule requiring a realistic ratio. For example, in BMW, the U.S. Supreme Court noted:

[L]ow awards of compensatory damages may properly support a higher ratio than high compensatory awards, if, for example, a particularly egregious act has resulted in only a small amount of economic damages. A higher ratio may also be justified in cases

small amount of economic damage.’” Id. (internal citation omitted). In Exxon Shipping Co. v. Baker, 2008 WL 2511219, at *21 (2008), the Supreme Court explicitly limited maritime cases to a 1:1 ratio and, in dicta, lamented the “stark unpredictability of punitive awards,” perhaps indicating a future trend towards stricter ratio based limits for cases considered under the Due Process Clause. Id. at *15.42 See Smith v. Am. Gen. Life & Accident Ins. Co., 337 F.3d 888, 894 (7th Cir. 2003)(citing to Campbell, 123 S. Ct. at 1526).43 Del Vecchio v. Conseco, Inc., 230 F.3d 974, 979-980 (7th Cir. 2000).44 Id. at 980.45 Baney v. Trans Union, L.L.C., No. 1:06-CV-2181, 2007 WL 1098523, at *4 (M.D. Pa. Apr. 10, 2007)(remanding to state court because, in order to meet the jurisdictional requirement, punitive damages would have to be unreasonable)(internal citations omitted).46 McMahon v. Alternative Claims Serv., Inc., 521 F. Supp. 2d 656, 660 (N.D. Ohio 2007)(removal allowed where $50,000 in compensatory damages was alleged; therefore, punitive damage award would only need to be half of compensatory damages).

§ 3.02

70


in which the injury is hard to detect or the monetary value of non-economic harm might have been difficult to determine.47

In any event, keeping an eye on the proposed compensatory/punitive ratio may give diligent counsel an advantage in presenting its theory on the appropriateness of punitive damages or removal to the court.

[e] — Other Punitive Damages Factors for Removal.When a complaint does not facially establish an amount in controversy

over $75,000, any discovery requests that may have been filed by the plaintiff in the state court matter may be relevant to establish a larger amount in controversy. For example, in Anderson v. State Farm Ins. Co., the plaintiff’s claims did not appear to exceed $75,000.48 However, the plaintiff’s discovery requests asked for information relating to the “pattern and practice” of State Farm.49 The court found that such a request, along with the allegations in the complaint, indicated the potential for a sizable punitive damage award and therefore removal was proper, although it was “a close question.”50 In noting the “close question,” the court may have been suggesting that, absent a broad discovery request targeting punitive damages, removal would have been rejected. Thus, while courts will clearly allow removal based in part on a punitive damages claim, whether such an attempt will succeed may depend on how thoroughly defense counsel explains the defendant’s theory to the court.

[3] — Defending Punitive Damages in the Answer.[a] — Affirmative Defenses.

The defense of a claim for punitive damages begins with the answer. At this stage, the defending party must determine whether it has any affirmative defenses to the punitive damages claim that must be pled in its answer. Along

47 BMW, 116 S. Ct. at 1602.48 Anderson v. State Farm Ins. Co., No. CIV-07-0698-HE, 2007 WL 2402153, at *2 (W.D. Okla. Aug. 17, 2007). 49 Id.50 Id.

§ 3.02

71


with many similar, if not identical, state rules, Rule 8(c) of the Federal Rules of Civil Procedure sets forth many affirmative defenses available to the defending party, and emphasizes that the party “must affirmatively state” such defenses, when applicable, in responding to a pleading. The key to carefully addressing affirmative defenses is to ensure that no applicable defenses are overlooked, and therefore possibly waived, by the defendant. While some courts may grant relief from a waiver for good cause shown, the better practice is to include all appropriate affirmative defenses in the answer to ensure no inadvertent waiver of a valid defense.

In pleading defenses, counsel must comply with Rule 11, and be aware of Rule 12(f), of the Federal Rules of Civil Procedure. Under Rule 11, defenses must have a reasonable basis in fact and law. Rule 12(f) provides that a party can move to strike any insufficient defenses from a pleading. While most courts are wary of striking defenses as insufficient, courts will nevertheless do so, particularly if “it appears to a certainty that plaintiffs would succeed despite any state of the facts which could be proved in support of the defense.”51 Thus, accurately understanding and interpreting affirmative defenses is essential in the defense of claims for punitive damages.

[i] — Constitutional Defenses.Constitutional defenses are commonly used as affirmative defenses to

punitive damages claims. Generally, these defenses allege that an award of punitive damages would constitute a deprivation of property without due process of law or violate some other constitutional provision. Not surprisingly, given the breadth and depth of Constitutional interpretation, these defenses can run from extremely specific assertions of law to general

51 See, e.g, Williams v. Jader Fuel Co., 944 F.2d 1388, 1400 (7th Cir. 1991)(internal citation omitted); Smith v. Wal-Mart Stores, No. C 06-2069 SBA Docket No. 13, 2006 WL 2711468, at *2 (N.D. Cal. Sept. 20, 2006). See also 2-12 Moore’s Federal Practice-Civil § 12.37 (“To prevail on [a] motion to strike, the movant must clearly show that the challenged matter ‘has no bearing on the subject matter of the litigation and that its inclusion will prejudice the [opposing party]’”)(internal citation omitted).

§ 3.02

72


legal premises. Unfortunately, there has been no comprehensive guidance of the validity of these defenses from the U.S. Supreme Court.52 While the Court has stated that it is “not prepared to draw a bright line marking the limits of a constitutionally acceptable punitive damages award,” there are certain defenses that the defendant can and should assert in his answer to prevent waiver of these defenses.53

It is important to note, however, that many courts appear inclined to strike constitutional defenses raised as affirmative defenses. As one court stated, “‘affirmative defenses, if accepted by the court, will defeat an otherwise legitimate claim,’”54 whereas constitutional defenses “entirely overlook liability and focus solely on potential relief.”55 Another court stated “[a]ssertions that punitive damages are not recoverable or constitutional do not constitute affirmative defenses under Section 8(c)” of the Federal Rules of Civil Procedure.56 Simply put, these courts do not see constitutional defenses as true affirmative defenses, as contemplated by the Federal Rules, but instead seem to perceive them as evidentiary arguments couched in the guise of affirmative defenses.57 Nevertheless, the safest course of action is to include these defenses so as to avoid any potential argument that they have been waived.

52 See Browning-Ferris Indus. of Vt., Inc. v. Kelco Disposal, Inc., 109 S. Ct. 2909, 2912 (1989)(holding that the Excessive Fines Clause of the Eighth Amendment did not apply to civil punitive damages awards between private parties); BMW N. Am., Inc. v. Gore, 116 S. Ct. 1589, 1592-93 (2003)(noting that, while states have a valid interest in punishing unlawful conduct with punitive damages, the United States Constitution does impose some procedural and substantive limitations on punitive damages awards).53 BMW, 116 S. Ct. at 1604.54 Greiff v. T.I.C. Enter., L.L.C., No. Civ. 03-882-SLR, 2004 WL 115553, at *3 (D. Del. Jan. 9, 2004)(quoting FDIC v. Haines, 3 F. Supp. 2d 155, 166 (D. Conn 1997)).55 Id. See also Bobbitt v. Victorian House, Inc., 532 F. Supp. 734, 736 (N.D. Ill. 1982)(finding that an affirmative defense is a basis for denying liability even if the facts of the complaint are true).56 Kiswani v. Phoenix Sec. Agency, Inc., No. 05 C 4559, 2006 WL 463383, at *5 (N.D. Ill. Feb. 22, 2006).57 See Johnson v. Chrysler Corp., 187 F.R.D. 440, 442 (D. Me. 1999)(internal citations omitted).

§ 3.02

73


Moreover, several courts refuse to strike, at first blush, the validity of constitutional defenses as affirmative defenses. One of these courts has stated that “[t]here is no such limitation on affirmative defenses in the Ninth Circuit.”58 Yet another court rejected a claim that the defendant’s constitutional defenses against the plaintiff’s plea for punitive damages should be stricken because they are “mere denials of the elements of the specific claims and are, therefore, redundant . . .” with the defendant’s general denials in its answer.59 The court concluded that redundant defenses “need not be stricken if their presence in the pleading cannot prejudice the adverse party.”60 In any event, in listing these defenses, the defendant places the plaintiff on notice of a potential due process defense and prevents an involuntary waiver of any such defense.61

[ii] — Advice of Counsel.Courts are in relative agreement that the advice of counsel is a defense to

punitive damages, at least to some extent.62 As to whether advice of counsel constitutes an affirmative defense, some courts have indicated that advice of counsel would completely bar a claim for punitive damages.63 This would

58 Smith, 2006 WL 2711468 at *6 (internal citations omitted).59 Sender v. Mann, 423 F. Supp. 2d 1155, 1163 (D. Colo. 2006).60 Id., 423 F. Supp. 2d at 1164 (quoting Allegheny County Sanitary Auth. v. U.S.E.P.A., 557 F. Supp. 419, 426 (W.D. Pa. 1983)).61 See Axen v. Am. Home Prod. Corp. ex. rel Wyeth-Ayerst Labs., 974 P.2d 224, 239 (Or. Ct. App. 1999)(noting that affirmative defense put plaintiffs on notice of due process argument).62 See Henderson v. U.S. Fid. & Guar. Co., 695 F.2d 109, 113 (5th Cir. 1983); Sheetz, Inc. v. Bowles, Rice, McDavid, Graff & Love P.L.L.C., 547 S.E.2d 256, 265-66 (W. Va. 2001)(“[W]e hold that in an employment law civil action, the fact that an employer acted in reliance upon the advice of counsel is not an absolute defense to a claim that the employer acted unlawfully or negligently. Relevant evidence regarding the advice of counsel may be admissible in the trial of an employment law civil action as part of the calculus of evidence that the fact finder considers in reaching its verdict – including on the issue of punitive damages, where that issue is presented”).63 See, e.g., Fox v. Aced, 317 P.2d 608, 610 (Cal. 1957)(“Exemplary damages are not recoverable against a defendant who acts in good faith and under the advice of counsel”).

§ 3.02

74


indicate that advice of counsel should be raised as an affirmative defense to a punitive damages claim. However, other courts have held that advice of counsel is not an absolute defense.64 And, still other courts admit evidence of attorney advice without a party even pleading or indicating such advice as an affirmative defense.65 Accordingly, it is particularly important to look to local case law to determine the strength of the advice of counsel defense, and whether it should be raised as an affirmative defense to punitive damages in the answer.

[4] — Motions Dispensing with Punitive Damages.Often times, the defendant may wish to dispense with the plaintiff’s

punitive damages claim early in the litigation, particularly when statutory support or case law suggests that no such claim is valid. Beyond responding to the plaintiff’s claim with affirmative (or other) defenses, the defendant may choose to file a motion to attempt to dispense with the claim. The question then becomes whether to file a motion to strike or a motion to dismiss?66 To answer this question, it is first necessary to understand the differences between the two motions.

The Federal Rules of Civil Procedure, and state rules modeled after them, address these two motions separately. Rule 12(b) provides a list of defenses the party may assert in a motion to dismiss, including the 12(b)(6) defense asserting “failure to state a claim upon which relief can be granted.” Rule 12(f) addresses motions to strike, and allows the court to strike “an insufficient defense or any redundant, immaterial, impertinent, or scandalous

64 See, e.g., Crowe v. Lucas, 595 F.2d 985, 992 (5th Cir. 1979); Pierce v. Penman, 515 A.2d 948, 955 (Pa. Super. 1986).65 Antolovich v. Brown Group Retail, Inc., 183 P.3d 582, 600 (Col. Ct. App. 2007)(finding that advice of counsel need only be pled as a specific defense in a limited number of actions based on state statutes).66 Depending on the specific circumstances of a case, a motion for summary judgment or a motion for judgment as a matter of law may also be viable options for addressing a punitive damages claim.

§ 3.02

75


matter,” and further allows the court to do so sua sponte or in response to a party’s motion.

While the federal and most state rules separately address each of these types of motions, the majority of courts have, to a certain extent, refused to acknowledge any substantial distinction between the two. As one court noted, “whether a petition is ‘dismissed’ or ‘stricken’ for failure to comply with [a statute] carries the same consequences regardless of semantics.”67

Seeing no substantial difference between the two types of motions, another court uses the “‘motion to dismiss’ formulation” to address both, for the “sake of familiarity.”68 Unfortunately, no court has clearly and succinctly distinguished the true, practical difference between these two motions.

In endeavoring to address this issue, however, some courts have attempted to distinguish motions to dismiss from motions to strike, with varying degrees of success. One court vaguely noted the difference as “(A Motion to Dismiss) applies to claims, not defenses, but at times has been used in testing the sufficiency of defenses before trial on the merits, although under [] Rule 12(f) a motion to strike is the specific method for attacking a defense.”69

Not surprisingly, given the general consensus on the similarity between motions to dismiss and motions to strike, courts have dispensed with punitive damages claims under a variety of motions. However, a review of the relevant case law seems to indicate that motions to dismiss may be the more prevalent method for dispensing with punitive damages claims.70

67 In re Salazar, 339 B.R. 622, 633 (Bankr. S.D. Tex. 2006). See also The Children First Found., Inc., v. Martinez, No. 1:04-CV-0927, 2007 WL 4618524, at *4 (N.D.N.Y. Dec. 27, 2007)(noting that a 12(f) Motion to Strike and a 12(b) Motion to Dismiss are “mirror images” of each other).68 Detlefsen v. Deffenbaugh Indus., Inc., No. 04-2577 JWL, 2005 WL 2323225, at *1 n.2 (D. Kan. Sept. 22, 2005).69 Smith v. Midwest Mut. Ins. Co., 289 N.E.2d 788, 791-92 (Ind. App. 1972)(internal citations omitted).70 See, e.g., Fellner v. Philadelphia Toboggan Coasters, Inc., No. 3:05-cv-218-SEB-WGH, 2006 WL 2224068, at *4 (S.D. Ind. Aug. 2, 2006); Walter v. Pike County, Pa., 465 F. Supp.

§ 3.02

76


Nevertheless, some courts have dispensed with punitive damage claims via motions to strike.71

§ 3.03. Determining Punitive Damages Amount.[1] — Discovery.

[a] — Net Worth.Discovery plays an important role in assisting the court, or a jury, in

determining whether punitive damages should be awarded in a case, and if so, to what extent.72 The discoverability of a defendant’s financial position will generally depend upon whether such information is admissible in determining the amount of punitive damages. A majority of states permit a jury to consider the “financial position of the defendant” in determining the amount of punitive damages.73 At least one state, however, prohibits the introduction of evidence of financial condition in determining an appropriate amount of punitive damages.74

Most federal courts have held that a plaintiff may obtain discovery of net worth information without first making a prima facie case for punitive

2d 409, 415 (M.D. Pa. 2006); Jones v. Co. of Cook, No. 01 C 9876, 2002 WL 1611606, at *2 n.1 (N.D. Ill. July 17, 2002).71 See, e.g., Cerveceria Modelo, S.A. DE C.V. v. USPA Accessories LLC, 07 Civ. 7998(HB), 2008 WL 1710910, at *7 (S.D.N.Y. Apr. 10, 2008); Orlando v. Carolina Cas. Ins. Co., CIV F 07-0092 AWI SMS, 2007 WL 2155708, at *10 (E.D. Cal. July 26, 2007)(citing Bureerong v. Uvawas, 922 F. Supp. 1450, 1478 n.34 (C.D. Cal. 1996)).72 If relevant, the defendant’s net worth is generally discoverable under Federal Rule of Civil Procedure 26(b)’s liberal standard that allows discovery of any matter reasonably calculated to lead to the discovery of admissible evidence.73 The following states explicitly discuss financial condition in their published jury instructions: Alaska, Arkansas, Arizona, California, Hawaii, Idaho, Iowa, Maine, Maryland, Minnesota, Michigan, Nevada, New Jersey, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, West Virginia, Wisconsin, Wyoming. Richard L. Blatt, Robert W. Hammesfahr & Lori S. Nugent, Punitive Damages State-by-State Guide, at Appendix III (West 2007 ed.).74 See, e.g., Hardaway Mgmt. Co. v. Southerland, 977 S.W.2d 910, 916 (Ky. 1998)(“It has been the law of this Commonwealth for almost one hundred years that in an action for punitive damages, the parties may not present evidence or otherwise advise the jury of the financial condition of either side of the litigation”).

§ 3.03

77


damages.75 However, courts will not necessarily require immediate production of such information to the opposition. For example, one court ruled that the information would be filed under seal with the clerk until such time as punitive damages are tried.76 And, courts have delayed production of discovery regarding net worth until after dispositive motions are heard.77 Finally, if ultimately required to turn over sensitive financial information to the opposition, a party may seek a protective order limiting the recipients of such information.78 Such a measure will at least provide some degree of protection against sensitive material falling directly into a competitor’s hands.

[b] — Temporal Scope of Financial Information.While financial information may in some instances be relevant to

addressing punitive damages, that relevance does not necessarily give a party carte blanche to a timeless scope of said information. Most courts find that only current financial information is relevant to a claim of punitive damages.79 The question then becomes: how far back is this information relevant?

75 See, e.g., Mid Continent Cabinetry, Inc. v. George Koch Sons, Inc., 130 F.R.D. 149, 151-152 (D. Kan. 1990); Carrasco v. Campagna, No. C-03-4727 SBA (EMC), 2007 WL 81909, at *1 (N.D. Cal. Jan. 9, 2007).76 See Etter v. Mazzotti, No. 3:06CV139, 2008 WL 570916, at *2 (N.D. W. Va. Feb. 28, 2008)(production of bank statements, tax returns, income statements, balance sheets filed under seal with the clerk until punitive damages are tried).77 Heartland Surgical Specialty Hosp., L.L.C. v. Midwest Div., Inc., No. 05-2164-MLB-DWB, 2007 WL 950282, at *14 (D. Kan. Mar. 26, 2007); Iwanejko v. Cohen & Grisgby, P.C., No. 2:03CV1855, 2005 WL 4043954, at *3 (W.D. Pa. Oct. 5, 2005)(discovery of financial information delayed until it is seen if the claim survives summary judgment and can demonstrate a “real possibility” of punitive damages).78 Fieldturf Intern., Inc. v. Triexe Mgmt. Group, Inc., No. 03 C 3512, 2004 WL 866494, at *3 (N.D. Ill. Apr. 16, 2004)(where parties were competitors, their financial information was disclosed solely to outside counsel).79 See Westbrook v. Charlie Sciara & Son Produce, Co., Inc., No. 07-2657 Ma/P, 2008 WL 839745, at *3 (W.D. Tenn. Mar. 27, 2008)(finding that “the scope of discovery should

§ 3.03

78


Certainly, this question has a highly fact-specific answer. Nonetheless, courts tend to follow certain trends which can guide counsel on what his or her court will rule. In various instances, requests for financial records going back three years,80 six years,81 and for an unlimited time82 were all reduced to the most current or the immediately preceding year’s records. On the other hand, other courts have found that the last three years of records are reasonably discoverable.83

Obviously, certain factual situations may allow for discovery of substantially more financial records. For example, one court found that an antitrust claim involving defendant’s past actions was sufficient to allow discovery of the last five years of financial information, though even this was a reduction from the original request of seven years.84 Accordingly, an objection to an overly broad request for financial information may be appropriate, in addition to other punitive damages objections. Ultimately, while time limitations on this information will always be based substantially

be limited to the defendant’s current financial condition and net worth. . . . Therefore, the court will allow discovery of information relating to the defendants’ financial condition, financial affairs, and net worth for the period of January 1, 2007 to the present”)(emphasis in original); Heartland, 2007 WL 950282 at *14 (holding “the current information of plaintiffs’ net worth or financial condition relevant to the issue of punitive damages”); Lane v. Capital Acquisitions, 242 F.R.D. 667, 670 (S.D. Fla. 2005)(noting “[t]he Court, however, does find that Plaintiffs’ discovery requests are overbroad on their face in that some seek financial records for a five year period and some seek records for an unlimited time period. ‘Only current financial documents are relevant to a claim for punitive damages’”)(internal citation omitted).80 Westbrook, 2008 WL 839745 at *1; Platcher v. Health Prof’ls, Ltd., No. 04-1442, 2007 WL 2772855, at *3 (C.D. Ill. Sept. 18, 2007).81 Learjet Inc. v. MPC Prods. Corp., No. 05-1074-MLB-DWB, 2007 WL 2287836, at *4 (D. Kan. Aug. 8, 2007).82 Lane, 242 F.R.D. at 670.83 Williamson v. Victoria Coll., No. V-06-37, 2007 WL 1100424, at *2 (S.D. Tex. Apr. 4, 2007)(motion to compel tax returns granted, but limited to most recent three years).84 Heartland Surgical Specialty Hosp., L.L.C. v. Midwest Div., Inc., No. 05-2164-MLB-DWB, 2007 WL 950282 at *4 (D. Kan. Mar. 26, 2007).

§ 3.03

79


on the factual situation, there is a clear trend to limit this information to recent years of records.

[c] — Type of Information Discoverable.[i] — Annual Reports.

A substantial number of courts have limited production of financial information to annual reports and current financial information.85 As one court explained, “[t]he most recent annual reports and current financial statements of [the party] suffice to determine punitive damages . . . All other financial information is irrelevant to determining punitive damages.”86 Courts have required that balance sheets produced must be audited, or have an affidavit representing that they are an accurate representation of net worth, in order to replace the production of an audited annual report.87 For publicly traded companies, information disclosed publicly to shareholders should be sufficient. Thus, the defendant can consider a limited disclosure of public information as an appropriate response to a request for financial information, assuming that said information was requested for purposes of addressing punitive damages, and not as a part of the plaintiff’s claim.

85 See id. at *14 (“The most recent annual reports and current financial statements of plaintiffs suffice to determine punitive damages. . . . All other financial information is irrelevant to determining punitive damages”)(internal citations omitted); D’Onofrio v. SFX Sports Group, Inc., 247 F.R.D. 43, 52 (D.D.C. 2008)(“[D]iscovery directed to this discreet issue should be limited to net worth, and production of an annual or other periodic balance sheet, distributed to stockholders in the regular course of business, or other financial statement or balance sheet subject to audit or independent CPA verification of accuracy”).86 Learjet, 2007 WL 2287836 at *4 (emphasis in original, internal citations omitted)(limited a request for annual reports, balance sheet, profit and loss statement, income statements, federal tax returns and any other documents of financial condition to only annual reports and current financial information).87 In re Brewer Leasing, Inc., No. 01-08-00120-CV, 2008 WL 1833186, at *4 (Tex. Ct. App. Apr. 22, 2008)(balance sheets not enough where it was “not audited, not certified, and [did] not include any affidavit or other statement to represent that they could accurately reflect the net worth of the corporations”).

§ 3.03

80


[ii] — Tax Returns.Courts are more hesitant to provide discovery of tax returns for the

purposes of addressing punitive damages.88 Tax returns are generally considered highly sensitive and privileged and therefore additional protections are given to them by many courts.89 For example, the Second Circuit requires that (1) the tax returns be relevant to the action and (2) the information contained in them is otherwise unobtainable.90 Thus, when other sources containing the requested information exist, many courts are likely to reject the production of tax returns.91 Nevertheless, it should be noted some courts do not require a significant burden in order for a plaintiff to obtain a defendant’s tax returns.92

[d] — Financial Condition of Parent Corporations.Another contentious area of admissibility is looking to the financial

condition of a defendant’s parent company in determining punitive damages.

88 Renaissance Nutrition, Inc. v. Jarrett, No. 06-CV-0380S(Sr), 2008 WL 1848600, at *9 (W.D.N.Y. Apr. 23, 2008)(to obtain tax documents plaintiff must have “demonstrated an inability to obtain information regarding defendants’ financial circumstances through alternative means”); In re Brewer Leasing, 2008 WL 1833186 at *4 (“The reason tax returns are treated differently from other discovery requests of financial matters is because federal income tax returns are considered private and the protection of that privacy is determined to be of constitutional importance”).89 See, e.g., Van Westrienen v. Americontinental Collection Corp., 189 F.R.D. 440, 441 (D. Or. 1999)(“A personal tax return often contains irrelevant and confidential information”).90 Pedraza v. Holiday Housewares, Inc., 203 F.R.D. 40, 43 (D. Mass. 2001).91 See E. Auto Distribs., Inc. v. Peugeot Motors of Am., Inc., 96 F.R.D. 147, 148 (E.D. Va. 1982)(“[A] ‘qualified’ privilege emerges from the case law that disfavors the disclosure of income tax returns as a matter of general federal policy”).92 See, e.g, Westbrook v. Charlie Sciara & Son Produce Co., No. 07-2657 Ma/P, 2008 WL 839745 at *3 (“The court finds that the defendant’s federal tax returns that relate to the period of January 1, 2007 to the present [Mar. 27, 2008], are relevant to Westbrook’s punitive damages claim and are subject to discovery”); State ex rel. Arrow Concrete Co. v. Hill, 460 S.E.2d 54, 63 (W. Va. 1995)(“The plaintiff contends that the income tax returns are relevant since it is seeking punitive damages in its claim of tortious interference. . . . we agree that the information sought could lead to the discovery of admissible evidence. Therefore, the defendants have failed to demonstrate that the trial judge substantially abused

§ 3.03

81


A majority of courts will not permit the introduction of a parent corporation’s financial condition in an action against a subsidiary, unless the plaintiff can successfully pierce the corporate veil.93 In Ramada Hotel Operating Co. v. Shaffer, the plaintiff used expert testimony based on Securities and Exchange Commission filings as evidence of the defendant’s net worth.94 However, the expert could not separate the subsidiary, which did not file financial statements, from the parent company, and ultimately the jury used the parent company’s financial statement to award punitive damages.95 In ordering a new trial on the issue of punitive damages, the court concluded that the plaintiff did not pierce the corporate veil by merely showing that there was no separate financial statement, as the calculation based on the parent company’s net worth “hardly advances the stated purposes of an award of punitive damages . . . [because] the jury was allowed to punish someone other than the [subsidiary].”96 Thus, defendants should object to a request

his discretion by allowing the discovery of the defendants’ income tax returns”)(internal citations omitted).93 See Cap Gemini Am., Inc. v. Judd, 597 N.E.2d 1272, 1286 (Ind. Ct. App. 1992)(“Generally, evidence of the wealth of the parent corporation is irrelevant and inadmissible in assessing punitive damages against a subsidiary corporation. . . . Financial documents regarding the wealth of a parent corporation are admissible if the subsidiary was merely an instrumentality of the parent corporation”)(internal citations omitted); Walker v. Dominick’s Finer Foods, Inc., 415 N.E.2d 1213, 1216-1217 (Ill. Ct. App. 1980)(Nothing in the record warranted the admission into evidence of the financial figures of the alleged parent corporation of the defendant, a nonparty, where evidence was insufficient to disregard the distinct corporate existence of the defendant); Herman v. Hess Oil V.I. Corp., 379 F. Supp. 1268, 1276 (D.V.I. 1974)(corporate wrongdoer’s parent company is not relevant in assessing punitive damages); Cont’l Trend Res. Inc. v. Oxy USA, Inc., 810 F. Supp. 1520, 1533 (W.D. Oka. 1992)(“The financial worth of a parent corporation is generally irrelevant in assessing punitive damages on a subsidiary unless the corporate veil is pierced”), aff’d 44 F.3d 1465 (10th Cir. 1995), and vacated, 116 S. Ct. 1843 (1996), and aff’d 101 F.3d 634 (10th Cir. 1996), and cert. denied 117 S. Ct. 1846 (1997).94 Ramada Hotel Operating Co. v. Shaffer, 576 N.E.2d 1264, 1267 (Ind. Ct. App. 1991).95 Id.96 Id. at 1268, 1271. See also George Grubbs Enters., Inc. v. Bien, 900 S.W.2d 337, 339 (Tex. 1995)(“Awarding exemplary damages against one defendant according to the wealth

§ 3.03

82


for financial information of a parent corporation until such time as the court finds that the corporate veil has been pierced.

[i] — The Problem of TXO Production Corp. v. Alliance Resources Corp.97

The Supreme Court of Appeals of West Virginia has somewhat defied the general trend, and permitted evidence of a parent corporation’s financial information to be considered for punitive damages, where a party was not forthcoming with information pertaining to the subsidiary’s finances.98 In TXO, on appeal from an adverse jury verdict, the defendant argued that the jury was improperly permitted to consider irrelevant financial information concerning the net worth of an entire division, rather than the net worth of one company. The Supreme Court of Appeals found no error, noting that “TXO was not forthcoming during discovery with information about the worth of TXO Production Corporation, nor did TXO offer such evidence at trial.”99

To fully understand and appreciate the emphasis the court placed on TXO’s not being “forthcoming” in discovery requires an examination of discovery in the case. The plaintiffs submitted interrogatories to TXO requesting financial information. TXO replied that profit and loss statements for TXO were not readily available and that it would take a full and costly audit to separate TXO’s information from that of other subsidiaries.100 Ultimately, the plaintiffs used the public records of TXO’s parent corporation,

of a separate entity substantially increases the risk of unjust punishment” in order to award punitive damages based on parent corporation the jury must be instructed on piercing the corporate veil).97 TXO Prod. Corp. v. Alliance Res. Corp., 419 S.E.2d 870 (W. Va. 1992) aff’d 113 S. Ct. 2711 (1993).98 “The worth of the TXO Division of USX, and the worth of USX for that matter, is relevant.” Id. at 890.99 Id. at 890.100 Id. at 890 n.13.

§ 3.03

83


USX, to estimate the net worth of TXO for the jury.101 However, the court noted that USX’s wealth was relevant, regardless of TXO’s evasive discovery response.102

Although the court made no express finding that the corporate veil had been pierced, it did refer to certain information that relates to piercing the corporate veil, noting that “USX has the power to: 1) elect the Board of Directors, 2) appoint all officers through the Board, and 3) generally control the operations of TXO Production Corp. Indeed, it is undisputed that at the end of the chain of related companies, TXO has but one stockholder, to-wit USX.”103 In any event, even defense counsel outside of West Virginia should be on the lookout for a plaintiff’s attempted use of TXO in support of his or her contention that the financial information of the parent company is relevant and admissible under certain circumstances.

[2] — Evidence.[a] — State Farm Ins. Co. v. Campbell: Relevance of Defendant’s Out-of-State Acts.

A defendant can argue a due process violation when a plaintiff attempts to introduce evidence of the defendant’s out-of-state acts in order to punish the defendant for conduct bearing no relation to the plaintiff’s harm.104 In Campbell, the U.S. Supreme Court avowed that courts cannot award punitive damages to punish and deter conduct bearing no relation to the plaintiffs’ harm, in turn prohibiting the admission of such evidence for said purpose.105

101 Id. at 890.102 Id.103 Id. at 890 n.14. Interestingly, the court obtained this information not from the record below but from oral argument.104 State Farm Mutual Auto Ins. v. Campbell, 123 S. Ct. 1513, 1516 (2003). See also BMW N. Am., Inc. v. Gore, 116 S. Ct. 1589, 1597-1598 (1996)(noting that “Alabama does not have the power [. . .] to punish BMW for conduct that was lawful where it occurred and that had no impact on Alabama or its residents. Nor may Alabama impose sanctions on BMW in order to deter conduct that is lawful in other jurisdictions”).105 Id., 123 S. Ct. at 1522.

§ 3.03

84


Beginning in their opening statement and continuing throughout the course of the trial, the Campbell plaintiffs urged the jury to remember that the case transcended the plaintiffs’ harm and involved State Farm’s nationwide practice.106 In particular, the plaintiffs introduced into evidence numerous out-of-state acts of State Farm’s, a majority of which “bore no relation” to the plaintiffs’ harm and were lawful in the states in which they occurred.107 In holding that State Farm’s due process had been violated in allowing such evidence, the Court noted, “[d]ue process does not permit courts, in the calculation of punitive damages, to adjudicate the merits of other parties’ hypothetical claims against a defendant under the guise of the reprehensibility analysis.”108 The Court went on to state that allowing such out-of-state evidence was impermissible for the obvious reason of creating the possibility of multiple punitive damages awards for the same conduct.109

While the Court undeniably found that State Farm’s due process rights had been violated, the Court also noted that not all out-of-state conduct was per se excluded. “Lawful out-of-state conduct may be probative when it demonstrates the deliberateness and culpability of the defendant’s action in the State where it is tortious, but that conduct must have a nexus to the specific harm suffered by the plaintiff.”110 Thus, while Campbell affords defendants some due process protections, it also leaves room for the potential of out-of-state lawful conduct to be entered into evidence in some instances.

[b] — Expert Opinion.The use of expert testimony to determine a range or multiplier for punitive

damages is generally impermissible, potentially limiting the use of expert

106 Id. at 1522.107 Id. at 1522-23.108 Id. at 1523.109 Id.110 Id. at 1522 (the court continued by stating that jury instructions must explain that evidence of the lawful conduct must not be used to punish defendants).

§ 3.03

85


testimony in the punitive damages phase of the trial.111 For example, in a suit against Wal-Mart, the plaintiff sought to introduce expert testimony that “a punitive damage award equal to or less than dividends paid would financially punish, but not irreparably harm [Wal-Mart].”112 The testimony was excluded because it was a conclusory and unsupported statement, insufficient under Federal Rule of Evidence 702, and thus, unhelpful to the jury.113

Nevertheless, expert testimony is not absolutely prohibited as it relates to punitive damages. One court noted that “[e]xpert testimony may be properly admitted to assist the jury in determining the proper amount of punitive damages,” because “[n]et worth and other aspects of the proper amount of punitive damages are technical and specialized matters,” which the jury may need explained to them.114 Yet another court prohibited expert testimony on projected losses, as unsupported by evidence, but allowed expert testimony that “could be probative of the reprehensibility of [the defendant’s] conduct.”115 Accordingly, while experts have no place in determining a range or multiplier for punitive damages based on unsupported conclusions, they may be a significant evidentiary resource for explaining complicated financial documents, which may be relevant to a punitive damages claim, to the jury.

111 See, e.g., Voilas v. General Motors Corp., 73 F. Supp. 2d 452, 464 (D.N.J. 1999)(“[T]he assessment of possible ranges of punitive damages is not a proper subject for an expert’s report or testimony”).112 Hayes v. Wal-Mart Stores, Inc., 294 F. Supp. 2d 1249, 1250 (E.D. Okla. 2003).113 Id. at 1251 (“When the normal experiences and qualifications of laymen jurors are sufficient for them to draw a proper conclusion from given facts and circumstances, an expert witness is not necessary and is improper”)(quoting Wilson v. Muckala, 303 F.3d 1207, 1219 (10th Cir. 2002)).114 Browning-Ferris Indus., Inc. v. Lieck, 845 S.W.2d 926, 944 (Tex. App. 1992) overruled on other grounds, 881 S.W.2d 288 (Tex. 1994). See also Jenco v. Islamic Republic of Iran, 154 F. Supp. 2d 27, 39 (D.C. 2001)(allowing expert opinion to assist in the determination of punitive damages awarded by explaining net worth).115 Atkinson v. Orkin Exterminating Co., 604 S.E.2d 385, 392 (S.C. 2004).

§ 3.03

86


[c] — Evidence of Good Acts Inadmissible at Trial.Courts are unlikely to allow defendants to mitigate punitive damages

by introducing evidence of good deeds to the jury.116 Specifically, courts are typically unwilling to allow evidence of charitable contributions, civic activities and the like, because they are unrelated to the defendant’s conduct in the case.117 However, it is not certain whether courts would take this same position regarding the post-trial hearing on punitive damages. Moreover, a “good act” related to the conduct in the case would likely be admissible as relevant evidence, rather than as a form of punitive damages mitigation.118

[d] — Evidence of Settlement Offers and Negotiations.

Some courts allow evidence of settlement proposals to assist in the determination of the appropriateness of a punitive damages award. For example, in Garnes v. Fleming Landfill, Inc., the Supreme Court of Appeals of West Virginia stated one factor which may be considered in awarding punitive damages is “whether the defendant made reasonable efforts to make amends by offering a fair and prompt settlement for the actual harm caused once his liability became clear to him.”119

116 In re Vioxx Prod. Liab. Litig., No. MDL 1657, 2005 WL 3164251, at *1 (E.D. La. Nov. 18, 2005)(granting plaintiff’s motion in limine on defendant’s reputation and “Good Acts” under Rule 401).117 Niver v. Travelers Indem. Co. of Ill., 433 F. Supp. 2d 968, 994-995 (N.D. Iowa 2006)(holding unrelated good acts not relevant under Rule 401); Miller ex rel. Miller v. Ford Motor Co., No. 2:01-CV-545-FTM-29DNF, 2004 WL 4054843, at *4 (M.D. Fla. July 22, 2004)(unrelated acts, good or bad, inadmissible).118 In David v. Caterpillar, Inc., 324 F.3d 851, 865 (7th Cir. 2003), the Seventh Circuit held “Caterpillar has cited no authority for the proposition that good deeds taken by the employer after it has made an unlawful employment decision somehow insulate the employer from an award of punitive damages.” However, the evidence that it placed the employee in a higher paying job was admissible. Therefore, the court’s decision is limited to its consideration of the sufficiency of evidence to preclude a finding of punitive damages and not as to its general admissibility.119 Garnes v. Fleming Landfill, Inc., 413 S.E.2d 897, 909 (W. Va. 1991). See also TXO Prod. Corp. v. Alliance Res. Corp., 419 S.E.2d 870, 887 (W. Va. 1992); Hodges v. S.C. Toof & Co., 833 S.W.2d 896, 902 (Tenn. 1992).

§ 3.03

87


The court emphasized that the trial court’s post-verdict review of punitive damages must include consideration of “[t]he appropriateness of punitive damages to encourage fair and reasonable settlements when a clear wrong has been committed. A factor that may justify punitive damages is the cost of litigation to the plaintiff.”120 In any event, settlement proposals should be considered as a potential source of evidence in determining the appropriate amount of punitive damages that should be awarded.121

Surprisingly, no courts have applied or thoroughly analyzed the admission of evidence of settlement negotiations in the context of punitive damages. Nonetheless, the negotiations themselves may be an important source of evidence, particularly in determining whether each party acted in good faith. In preparation for negotiating these relatively uncharted waters, a wary attorney should bear in mind several pertinent factors throughout the course of the litigation.

1. Documentation – In cases with punitive damages claims, it is prudent to pay some attention to documenting settlement negotiations. Diligent counsel should take care to write complete factual letters regarding settlement, which specifically respond to the plaintiff’s demands, and illustrate that the defendant is negotiating as well. This documentation should also include casual statements by the plaintiff’s counsel regarding what he

120 Garnes, 413 S.E.2d at 900, at syl. pt. 4. The precise meaning of this language in the context of the introduction of evidence of insurance before the jury is less clear. The court goes on to state that insurance should not be mentioned before the jury, nor should there be “explicit argument” about settlement offers presented to the jury. Thus, even in West Virginia, the true extent of using settlement proposals as evidence is unclear.121 It is possible, however, that a federal court applying the West Virginia state law would find that evidence of settlement offers is prohibited by Federal Rule of Evidence 408 under the Supremacy Clause of the U.S. Constitution. See, e.g., Cox v. Shalala, 112 F.3d 151, 154 (4th Cir. 1997)(the court refused to allow evidence of settlement proposals, finding that “[u]nder the Supremacy Clause of the Constitution, . . . a state law which conflicts with federal law is preempted. . . . [E]ven when Congress has neither expressly preempted state law nor ‘occupied the field,’ a state law is per se preempted to the extent that it actually conflicts with federal law” (internal citations omitted)).

§ 3.03

88


intends to recommend to his client, either by letter to counsel or memorandum to file. Such letters should also clarify any objections to the plaintiff’s negotiating tactics or change of position.

2. Motion – Attorneys should recognize how to address the introduction of settlement negotiation evidence. For example, in West Virginia, a motion in limine is appropriate to exclude the introduction of settlement negotiations under Rules 403 and 408 of the West Virginia Rules of Evidence.

3. Benefits to Defense – Assuming settlement negotiations are admissible, their use may not be limited to making the plaintiff’s claim against the defendant. In some instances, the defense may also want to introduce evidence of negotiations, particularly to demonstrate that the plaintiff did not negotiate in good faith. West Virginia’s jurisprudence on good faith settlement conduct by insurance carriers is an instructive guide to the potential significance of this evidence for the defense.122

4. Benefits to Plaintiff – The plaintiffs may attempt to use evidence of settlement negotiations to show that defendants were not trying in good faith to settle prior to trial, despite knowing that they were liable. Garnes, for example, focuses on the defendant’s attempt to settle “once his liability became clear to him,” but contains little solid guidance on what constitutes a “fair and prompt settlement” offer.123

[e] — Evidence of Liability Insurance.Like numerous state evidentiary rules, Rule 411 of the Federal Rules of

Evidence generally prohibits evidence of liability insurance “upon the issue [of] whether the person acted negligently or otherwise wrongfully,” unless

122 In Hadorn v. Shea, 456 S.E.2d 194, 198 (W. Va. 1995), the court noted “it takes two to negotiate,” and that the plaintiff’s refusal to waver from her initial demand gave State Farm “no indication that it would be prudent to prolong negotiations.”123 Garnes, 413 S.E.2d at 909.

§ 3.03

89


such evidence falls under an exception to Rule 411.124 An exception may be triggered where a defendant introduces evidence of his own poverty in order to show how punitive damages would impact him. Courts differ on whether evidence of defendant’s liability insurance was applicable in the plaintiff’s rebuttal when the defendant had introduced such evidence during his case.125 Thus, defense counsel must be wary of the evidentiary backlash a presentation of the defendant’s poverty may elicit.

§ 3.04. Bifurcation of Trials.[1] — The Bifurcation Process.As addressed previously, a plaintiff will often seek to introduce evidence

supporting his punitive damages claim, such as the net worth or prior acts of the defendant, which is not relevant to liability or compensatory damages, and in fact may be highly prejudicial. Naturally, the introduction of this evidence is a serious concern to the defendant because of its potentially prejudicial impact, and the possibility of the plaintiff using the defendant’s wealth as a weapon to inflame the jury. One means of combating this prejudicial and irrelevant evidence from improperly influencing the jury is to bifurcate the trial.

Simply put, bifurcation splits a trial into two (or more) phases. A majority of states allow (or even require) bifurcation when punitive damages

124 Beck v. Koppers, Inc., Nos. Civ.A.3:03CV60-P-D, Civ.A.3:04CV160-P-D, 2006 WL 924040, at *2 (D. Miss. Apr. 7, 2006).125 Compare; Humana Health Ins. Co. of Fla., Inc. v. Chipps, 802 So.2d 492, 497-98 (Fla. App. 2001)(holding that trial court correctly admitted evidence of an indemnity agreement to rebut defendant’s assertions that a large punitive damages award would force the company into financial straits) with Edwards v. Whitlock, Nos. CL01-339, CL01-340, 2002 WL 31425599, at *4 (Va. Cir. Ct. 2002)(“[T]he issue presented to the Court is whether the defendant should be allowed to merely present truthful evidence of poverty for the jury’s consideration of punitive damages without being penalized by the mention of insurance. The Court finds that the defendant cannot, and should not, be penalized for presenting truthful evidence of his ‘financial condition.’ . . . So long as the defendant does not take an additional step and mislead the jury into believing that, due to his poverty, he will be unable to pay an award of punitive damages, there is nothing wrong with merely providing the jury with an accurate assessment of his ‘financial condition’”)(emphasis in original).

§ 3.04

90


are sought.126 Many courts bifurcate punitive damages trials in a two-step procedure: (1) the jury determines liability and compensatory damages, and makes a finding of whether the plaintiff is entitled to punitive damages, and (2) the same jury then hears evidence on punitive damages and determines the amount of punitive damages.127 This type of bifurcation is based on the familiar balancing act between prejudice and judicial economy. As one court noted, “[b]ifurcating only the amount of punitive damages […] eliminates the most serious risk of prejudice, while minimizing the confusion and inefficiency that can result from a bifurcated trial.”128 Regardless of the exact form of bifurcation, the nationwide trend allowing bifurcation for punitive damages claims of some sort has gained substantial ground over the past couple of decades, and even courts previously rejecting bifurcation are now bound by an increasing number of state statutes.

[2] — Bifurcation Statutes and Judicial Discretion.Generally speaking, a party seeks bifurcation of a trial under a state

statute or rule of civil procedure. For example, in West Virginia, a party can seek bifurcation of a punitive damages claim under Rule 42 of the West Virginia Rules of Civil Procedure, which allows the court to “order a separate trial of any claim, cross-claim, counterclaim, or third-party claim, or of any separate issue.”129 Some states have statutes specifically allowing the

126 Transp. Ins. Co. v. Moriel, 879 S.W.2d 10, 30 (Tex. 1994)(noting that thirteen states require bifurcation when punitive damages are sought)(internal citations omitted). The case did not list the multitude of other states that permit bifurcation, many of which are cited to herein.127 See, e.g., Campen v. Stone, 635 P.2d 1121, 1129 (Wyo. 1981); Doralee Estates, Inc. v. Cities Serv. Oil Co., 569 F.2d 716, 723 n.9 (2d Cir. 1977); Transp. Ins., 879 S.W.2d at 30-31.128 Transp. Ins., 879 S.W.2d at 30. Another variation of this procedure is dividing the trial into (1) liability and (2) all damages. Berkla v. Corel Corp., 302 F.3d 909, 916 (Cal. 2002).129 W. Va. R. Civ. Pro. 42(c)(2007). See also Pa. R. Civ. P. 213(b)(1999).

§ 3.04

91


defendant to request bifurcation of a punitive damages claim.130 Other states, such as Ohio, actually require bifurcation of a punitive damages claim.131

Generally, bifurcation is considered within the province of the court and is left solely up to judicial discretion.132 Such discretion is based on a variety of factors, including “whether any party would be prejudiced by granting or not granting such request, as well as the impact on judicial resources, expense, and unnecessary delay.”133 Moreover, as with all matters of judicial discretion, a lower court’s decision regarding bifurcation will not be disturbed absent a showing of an abuse of discretion.134

On the other hand, a statute or rule allowing bifurcation certainly does not guarantee bifurcation. In West Virginia, for example, unitary trials resolving all issues are generally preferred, and the circumstances of the particular case must warrant bifurcation.135 Thus, navigating the waters of bifurcation in a punitive damages case may require a persuasive argument on the high level of anticipated prejudice, as well as an understanding of the applicable state statute or rule.

§ 3.05. Jury Instructions and Rule 50 Motions.[1] — Rule 50.As mentioned previously, punitive damages play a significant part

in litigation from responding to the complaint through the end of trial, including a role in final motions to the court and instructions to the jury. Interestingly, there is a subtle interplay between a motion for judgment as a matter of law136 and objections to jury instructions, and without care, the

130 Ill. Code Civ. P. § 1115.05 (1995).131 Ohio Rev. Cod. Ann. § 2315.21 (West 2004).132 See Ragland v. Gray, No. 1474, 2000 WL 33364205, at *561 (Pa. Nov. 15, 2000).133 Allstate Ins. Co. v. Wade, 579 S.E.2d 180, 185 (Va. 2003).134 See, e.g., Santarlas v. Leaseway Motorcar Transp. Co., 689 A.2d 311, 313-314 (Pa. 1997).135 See Sheetz, Inc. v. Bowles, Rice, McDavid, Graff, & Love, Inc., 547 S.E.2d 256, 260 at syl. pt. 4 (W. Va. 2001); Rohrbaugh v. Wal-Mart Stores, Inc., 572 S.E.2d 881, 890-891 (W. Va. 2002).136 Fed. R. Civ. P. 50.

§ 3.05

92


defendant could inadvertently waive a possible objection. Clearly, when the plaintiff has failed to make a prima facie case for punitive damages, a Rule 50 motion for judgment as a matter of law is appropriate. The motion must be made at the close of all evidence in order to preserve a post-verdict Rule 50 motion.137 A Rule 50 motion should specifically state that the motion is moving for judgment as a matter of law on the issue of punitive damages or, at the very least, put the plaintiff on notice that the defendant desires judgment on punitive damages.138

[2] — Insufficient Evidence Objection.In addition to a Rule 50 motion, it is also important, when appropriate,

to object to the insufficiency of the evidence regarding punitive damages through an objection to jury instructions on punitive damages.139 And, the most prudent course for defendants, at least initially, is not to submit any instructions on punitive damages. The concern with submitting an instruction is that the submission may be viewed as a waiver of his objection to the sufficiency of the evidence. However, one court that has considered this issue has found that a defendant does not waive its ability to challenge a punitive damage verdict by submitting its own instruction.140 In any event, a defendant should have proposed punitive instructions on hand for use in arguing the plaintiff’s instructions. Moreover, as with jury instructions, the

137 Tidewater Fin. Co. v. Fiserv Solutions, Inc., 4 F. Appx. 201, 204, (4th Cir. 2001)(citing Smith v. Univ. of N.C., 632 F.2d 316, 338-39 (4th Cir.1980)); A.T. Stephens Enter., Inc. v. Johns, 757 So. 2d 416, 419 (Ala. 2000).138 Beya v. Hoxworth Blood Ctr., No. 07-4028, 1999 WL 137625, at *5 (6th Cir. Mar. 3, 1999)(holding that defendant’s Rule 50 motion did not move specifically for judgment on punitive damages, but did raise facts arguing there was insufficient evidence of punitive damages, therefore no waiver of objection was found).139 Zhang v. Am. Gem Seafoods, Inc., 339 F.3d 1020, 1041 (9th Cir. 2003)(“where the defendant did not object to the jury instructions on punitive damages, and did not challenge the sufficiency of the evidence to support punitive damages in his Rule 50(a) motion, he could not raise the issue in a Rule 50(b) motion”).140 See Bud Wolf Chevrolet, Inc. v. Robertson, 508 N.E.2d 567, 569-70 (Ind. Ct. App. 1987) vacated on other grounds, 519 N.E.2d 135 (Ind. 1998).

§ 3.05

93


defendant should not include a punitive damages section on his proposed verdict, in order to preclude any argument that he has waived the issue of the appropriateness of punitive damages.

[3] — Objecting to Plaintiff’s Instructions.It is essential that the defendant object to any improper punitive

damage instructions drafted by the plaintiff, in order to preserve the record for appeal.141 The defendant’s failure to raise objections to the plaintiff’s proposed punitive damages instructions will generally waive the defendant’s objection to any errors therein.142 For example, in Radec, Inc. v. Mountaineer Coal Dev. Co.,143 the defendant appealed the failure of the trial court to give a punitive damage instruction that included the five factors a jury is to consider in awarding punitive damages under state case law.144

141 Vandevender v. Sheetz, Inc., 490 S.E.2d 678, 694 (W. Va. 1997)(objection that emotional distress damages often duplicate punitive damages denied because the defendant did not object at the trial court level and in fact agreed to a jury instruction on emotional distress damages and jointly submitted a verdict form that allowed both punitive and emotional distress damages).142 Stuller v. Price, No. 03AP-66, 2004 WL 1879014, at *17 (Ohio Ct. App. Aug. 23, 2004)(citing Dunn v. Maxey, 693 N.E.2d 1138, 1141 (Ohio Ct. App. 1997)).143 Radec, Inc. v. Mountaineer Coal Dev. Co., 552 S.E.2d 377, 383-384 (W. Va. 2000).144 The five factors:

(1) 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 caused 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.

(2) The jury may consider (although the court need not specifically instruct on each element if doing so would be unfairly prejudicial to the defendant), the reprehensibility of the defendant’s conduct. The jury should take into account how long the defendant continued in his actions, whether he was aware his actions were causing or were likely to cause harm, whether he attempted to conceal or cover up his actions or the harm caused by them, whether/how often the defendant engaged in similar conduct in the past, and whether the defendant made reasonable efforts to make amends by offering a fair and prompt settlement for the actual harm caused once his liability became clear to him.

§ 3.05

94


The plaintiff noted that at trial, the defendant only objected to the proposed instruction on the grounds that no instruction should be given, and did not raise an objection to the absence of the five factors. Consequently, the Radec court held that the defendant waived the error by not properly raising it pursuant to Rule 51.145

[a] — Amending Plaintiff’s Instructions.Along with objecting to the plaintiff’s proposed jury instructions

regarding punitive damages, the defendant should also move to amend the plaintiff’s instructions to conform to applicable law. Doing so will cure the defect in the jury instructions, as a preventive measure in the event that the instructions are at some point presented to the jury. However, in moving to amend the plaintiff’s drafted instruction, the defendant should take special care to state on the record that by amending the instruction, he is not waiving his claim that a punitive damage instruction should not be given to the jury under any circumstances.

(3) If the defendant profited from his wrongful conduct, the punitive damages should remove the profit and should be in excess of the profit, so that the award discourages future bad acts by the defendant.

(4) As a matter of fundamental fairness, punitive damages should bear a reasonable relationship to compensatory damages.

(5) The financial position of the defendant is relevant. Garnes v. Fleming Landfill, Inc., 413 S.E.2d 897, 899-900 (W. Va. 1991).145 Federal Rule of Civil Procedure 51 establishes a protocol for submitting and objecting to proposed jury instructions. See also Sufix, U.S.A., Inc. v. Cook, 128 S.W.3d 838, 843 (Ky. Ct. App. 2004)(“Finally, Sufix contends that the trial court erred by failing to instruct the jury on the purpose of punitive damages, on the plaintiff’s burden of proof, and by failing to require findings both of negligence and of gross negligence. None of these alleged errors was preserved for review. Sufix did not tender a punitive damages instruction, and it did not object to the trial court’s proposed instruction beyond its contention that no instruction should be given”).

§ 3.05

95


[4] — Limiting Instructions.A limiting instruction may also be appropriate on the issue of punitive

damages, as a means for guiding and clarifying issues for the jury. For instance, when evidence of harm to those outside the litigation is admitted at trial (generally to show “reprehensibility”), the defendants are entitled to a limiting jury instruction stating that the jurors cannot punish the defendant for acts against nonparties.146 It is important to remember that the jurors hear a great deal of information, and a limiting instruction can help to gently remind them that certain evidence is not admissible in addressing punitive damages.

[5] — Rule 59.Punitive damages must be ever present in the defense counsel’s mind,

even when moving for a new trial at the conclusion of litigation. A Rule 59 motion for a new trial, often made simultaneously with the renewal of a Rule 50 motion, can be used to preserve the punitive damages issue for appeal. Generally, constitutional objections must be raised at the earliest opportunity, and in the case of an excessive award of punitive damages, the earliest opportunity may be in post-trial motions under Rules 50 and 59.147

Finally, it should be noted that the trial court’s holding of a post-trial hearing on a punitive damage award is fundamental to safeguarding a defendant’s due process rights.148 Thus, defendants should have ample opportunity to contest punitive damage awards during the post-trial phase, in the hopes of receiving relief from the trial court, or in beginning to frame the issues for appeal.

146 Philip Morris v. Williams, 127 S. Ct. 1057, 1063 (2007)(finding that the “Due Process Clause forbids a State to use a punitive damages award to punish a defendant for injury that it inflicts upon non-parties as those whom they directly represent, i.e. injury that it inflicts upon those who are, essentially, strangers to the litigation”).147 Call v. Heard, 925 S.W.2d 840, 847 (Mo. 1996). 148 See Pacific Mut. Life Ins. Co. v. Haslip, 111 S. Ct. 1032, 1045 (1991); Garnes, 413 S.E.2d at 900.

§ 3.05

96


§ 3.06. Conclusion.Sir Francis Bacon once said, “Revenge is a kind of wild justice, which

the more a man’s nature runs to, the more ought law to weed it out.” Notwithstanding such wisdom, the law allows punitive damages, both as a means of deterring conduct and as a weapon to punish defendants. While no defendant wants to be faced with the prospect of paying such damages, diligent defense counsel can limit the impact and potential harm to his client through a clearer understanding of the intricacies of this category of damages.

§ 3.06

97

Documents

CITE AS Energy & Min. L. Inst. Chapter 3 Defending … Against Punitive Damages from the Answer Through the End of the Trial Albert F. Sebok Brian J. Moore Robert O. Passmore Rena