MOTION FILED

SEP 3 0 21~

No. 10-349

In The~uprrmr ~ourt of t~r i~nitrt~ ~,tatr~

Shell Oil Company, and SWEPI LP (as successor-in-interest to Shell Western E & P, Inc.),

Petitioners,V.

Nancy Fuller Hebble, et al.,Respondents.

On Petition for Writ of Certiorarito the Court of Civil Appealsfor the State of Oklahoma

MOTION OF ~ INTERNATIONALASSOCIATION OF DEFENSE COUNSEL AND

THE NATIONAL ASSOCIATION OFMANUFACTURERS FOR LEAVE TO FILE BRIEFAS AMICI CURIAE AND BRIEF IN SUPPORT OF

PETITION FOR WRIT OF CERTIORARI

Robert M. (Randy) Roach, Jr.Counsel o/Record

Amy J. Schumacher*Daniel W. Davis*ROACH & NEWTON, L.L.P.1111 Bagby Street, Suite 2650Houston, Texas 77002(713) 652-2032rroach@roachnewton.com

*Admission peneEng," supervisedby principMs of the firm

Counsel for Amici Curiae

WILSON-EPES PRINTING CO., INC. - (202) 789-0096 - WASHINGTON, D. C. 20002

Page

i

MOTION FOR LEAVE TO FILE BRIEFAS AMICI CURIAE

Pursuant to Rule 37.2 of the Rules of thisCourt, Amici Curiae International Association ofDefense Counsel ("the IADC") and the NationalAssociation of Manufacturers ("the NAM") move forleave to file the accompanying brief as amici curiaein support of the petition for a writ of certiorari.Counsel for petitioner has consented to the filing ofthis brief, but counsel for the respondents hasrefused Amici’s request for consent.

The IADC is an association of insurance andcorporate attorneys whose practice is concentratedon the defense of civil lawsuits. The IADCmembership is comprised of the world’s leadingcorporate and insurance lawyers. They are partnersin large and small law firms, senior counsel incorporate law departments, and corporate andinsurance executives. Members represent the largestcorporations around the world, including themajority of companies listed in the FORTUNE 500.Since 1920, the IADC has been dedicated to the justand efficient administration of civil justice and thecontinual improvement of the civil justice system.The IADC supports a justice system in whichplaintiffs are fairly compensated for genuine injuries,responsible defendants are held liable only forappropriate damages, and non-responsibledefendants are exonerated without unreasonablecost. The IADC’s activities benefit the approximately2,500 invitation-only, peer’reviewed members andtheir clients as well as the civil justice system andthe legal profession. The IADC regularly files briefs

ii

in pending cases throughout the United States oncivil justice issues of broad application.

The National Association of Manufacturers("the NAM") represents the interests ofmanufacturers in court. The NAM is the nation’slargest industrial trade association, representingsmall and large manufacturers in every industrialsection and in all fifty states. The NAM’s mission isto enhance the competitiveness of manufacturers byshaping a legislative and regulatory environmentconducive to United States economic growth and toincrease understanding among policymakers, themedia, and the general public about the vital role ofmanufacturing to America’s economic future andliving standards. The NAM monitors legal trendsand developments affecting the ability ofmanufacturers to be treated fairly by the legalsystem. The NAM is actively involved in trackingmajor lawsuits impacting manufacturers and inrelated activities to promote a fair and balanced legalsystem for resolving disputes. With manufacturersfacing legal costs of some $865 billion annually, theefforts of the NAM have a direct effect on thecompetitive position of American manufacturers andcomplement the NAM’s legal reform policyendeavors.

Amici curiae are particularly interested in thiscase because it demonstrates how the Court’spunitive damage jurisprudence is unable to providecivil defendants with fair notice of the magnitude oftheir exposure to punitive damages and how theresulting unpredictability in evaluating punitiveexposure produces practical problems for all partiesand their counsel in settlement evaluation. This casethus presents this Court with an opportunity clarify

iii

that punitive damage awards must bear a reasonablerelationship to the damages compensating theplaintiff for the actual harm suffered--and that othertypes of "additional damages" should not bepermitted to skew the ratio between actual damagesand punitive damages.

The IADC and the NAM’s motion for leave tofile the accompanying brief as amici curiae should begranted.

Respectfully submitted,

Robert M. (Randy) Roach, Jr.Counsel o£Reco_rd

Amy J. Schumacher*Daniel W. Davis*ROACH & NEWTON, L.L.P.1111 Bagby Street, Suite 2650Houston, Texas 77002(713) 652-2032rroach@roachnewton.com

*Admission pending," supervisedby principals of the firm

Counsel for Amici Curiae

September 2010

TABLE OF CONTENTSMotion for Leave to File Brief as Amici Curiae ..........i

Table of Contents .......................................................iv

Table of Authorities ..................................................vii

Interest of the Amici Curiae .......................................1

Background and Introduction ....................................1Argument ....................................................................3

I. Amici agree with Shell that the absence ofclear guidance on how to calculate thepunitive damage ratio frustrates dueprocess ..............................................................3

A. The current jurisprudenceregarding how the punitive damageratio is calculated frustrates dueprocess because it leads tounpredictable punitive damageawards ....................................................3

B. The absence of clear guidance fromthis Court invites state legislaturesand courts to skew the ratio ..................6

C. The absence of clear guidance onhow to consistently calculate thepunitive damage ratio leads to aresult that violates procedural dueprocess ....................................................8

II. The absence of clear guidance on how toconsistently calculate the punitive damageratio and the resulting absence ofprocedural due process notice is ofparticular concern to Amici .............................9

III.

A. The absence of clear guidance onhow to calculate the punitivedamage ratio frustrates the abilityof counsel and the clients theyadvise to make informed settlementrecommendations and decisions .........10

B. The absence of clear guidance onhow to calculate the punitivedamage ratio is especiallytroublesome because theinsurability of punitive damages isconstantly questioned by insurers ......11

Shell’s petition provides this Court withthe opportunity to clarify that the relevantratio is the relationship between only theamount of punitive damages and theamount of actual damages .............................12

A. This Court’s punitive damagejurisprudence has long and correctlyfocused on the relationship betweenthe damages awarded tocompensate a plaintiff for the"actual harm inflicted" relative tothe punitive damage award ................13

B. The lower courts’ inconsistentinclusion of additional types ofcompensatory damages as part ofthe punitive damage ratio revealsthat those types of damages differfrom the "actual harm inflicted" onthe plaintiff. .........................................14

vi

C. A ratio comparing punitive damagesonly to damages that compensate aplaintiff for the "actual harminflicted" would provide much-needed guidance to the lower courtsand is consistent with this Court’sjurisprudence .......................................15

Conclusion .................................................................16

vii

TABLE OF AUTHORITIES

CasesAla. Dep’t o£Conservation & Natural Res. v.

Exxon Mobil Corp.,11 So. 3d 194 (Ala. 2008) ................................7

Blount v. Stroud,914 N.E.2d 925 (Ill. App. Ct. 2009) .............5, 7

BMW of N Am., Inc. v. Gore,517 U.S. 559 (1996) .......................4, 12, 13, 16

Boyd v. Goffo11,608 S.E.2d 169 (W. Va. 2004) .........................5

Bridgeport Music, Inc. v. Justin Combs Publ’g,507 F.3d 470 (6th Cir. 2007) ...........................5

Clark v. Chrysler Corp.,436 F.3d 594 (6th Cir. 2006) ............................5

Coopor Indus., Inc. v. Leatherman Tool Group,Inc.,532 U.S. 424 (2001) .......................................14

Daka, Inc. v. McCrae,839 A.2d 682 (D.C. Ct. App. 2003) ..................5

Exxon Shipping Co. v. Baker,128 S. Ct. 2605 (2008) .....................................4

Flannery v. Baltimore & Otn’o R.R. Co.,15 D.C. 111 (1885) .........................................13

Grant v. McDonogh,7 La. Ann. 447 (1852) ....................................13

Groth v. Hyundai Precision & Indus. Co.,149 P.3d 333 (Or. Ct. App. 2006) .....................5

Hayes Sight & Sound, Inc. v. ONEOK, Inc.,136 P.3d 428 (Kan. 2006) ................................5

Houston & McCarthy v. Niskern,22 Minn. 90 (1875) ........................................13

viii

Jurinko v. Med. Protective Co.,305 F. App’x 13 (3d Cir. 2008) ........................5

Lawnwood Med. Ctr., Inc. v. Sadow,__ So.3d __., No. 4D08-1968, 2010 WL1066833 (Fla. Ct. App. Mar. 24, 2010) ............7

Phelps v. Louisville Water Co.,103 S.W.3d 46 (Ky. 2003) .................................5

Rhone’Poulenc Agro, S.A. v. DeKalb GeneticsCorp.,272 F.3d 1335 (Fed. Cir. 2001) .......................5

Roby v. McKesson Corp.,101 Cal. Rptr. 773 (Cal. Ct. App. 2010) ..........5

Saunders v. Mullen,66 Iowa 728, 24 N.W. 529 (1885) ..................13

State Farm Mut. Ins. Co. v. Campbell,538 U.S. 408 (2003) .........................2, 4, 14, 16

Tony Gullo Motors I, L.P. v. Chapa,212 S.W.3d 299 (Tex. 2006) ............................5

USA Truck, Inc. v. West,189 S.W.3d 904 (Tex. Ct. App. 2006) ...............5

Wallace v. DTG Operations, Inc.,563 F.3d 357 (8th Cir. 2009) ............................5

Willow Inn, Inc. v. Pub. Serv. Mut. Ins. Co.,399 F.3d 224 (3d Cir. 2005) ............................5

Constitutional ProvisionsU.S. CONST. amend. XIV, § 1 ......................................8

Blank Page

INTEREST OF THE AMICI CURIAE 1

The interest of the amici curiae is described inthe accompanying motion for leave to file this brief.

BACKGROUND AND INTRODUCTION

The two issues presented in Shell’s petitionraise a fundamental question in desperate need ofthis Court’s guidance--To what types o_f actualdamages must a punitive damage award reasonablyrelate? Because courts in different states categorizedifferent types of damages as "compensatory" forcomparison to the punitive damage award, thisCourt’s ratio analysis is untethered to anypredictable guidepost. As applied by various lowercourts, this Court’s ratio guideline essentiallyinvolves two open variables--if the types ofadditional damages that may be considered"compensatory" are changeable and uncertain, thenso too is the range of constitutionally permittedpunitive damages. 2

1 Pursuant to this Court’s Rule 37.6, amici curiae the IADC andthe NAM certify that no counsel for a party to this caseauthored any part of this brief, nor did any party, or counsel toany party, make any monetary contribution to fund thepreparation or submission of this brief. Pursuant to thisCourt’s Rule 37.2(a), amici curiae file this brief on September29, 2010, ten days before its due date of October 13, 2010.2 Shell’s petition also presents an opportunity for the Court toclarify its jurisprudence on what has become another source ofunpredictability in punitive damage awards: the maximumconstitutionally permissible ratio when compensatory damagesare "substantial." The state and federal courts’ inconsistentapplication of this Court’s statement that "[w]hen compensatorydamages are substantial, then a lesser ratio, perhaps only equalto compensatory damages, can reach the outermost limit of thedue process guarantee," has left businesses like thoserepresented by amici curiae rudderless in evaluating punitive

2

This case exemplifies the necessity for apredictable starting point in actual damages forcalculating the punitive damage ratio. Often, thedenominator of the punitive damage ratio dependsmore on the particular state in which the issuehappens to arise and less on the character of theaward or the extent of the injury to the plaintiff.Here, because the injury occurred in Oklahoma, theOklahoma court included a special 12% compoundedpre’judgment interest in the denominator andthereby determined that a $53 million punitivedamage award was reasonably related to anunderpayment of $750,000 in oil and gas contractualnet profit payments. Such creative manipulation ofthe punitive damage ratio is common and recurring.

Amici cannot overstress the importance ofhaving a consistent rule. This case provides thisCourt with the opportunity to provide a rule thatwould:

¯ Provide consistent constitutional protectionsfor defendants across the country,

¯ Incentivize settlement by equipping plaintiffsand defendants with consistent case valuationparameters,

¯ Conserve judicial resources by eliminating thecase-by-case categorization of continuallychanging statutory damage schemes, and

¯ Preserve legislative flexibility to craftremedies.

damage exposure. State Farm Mut. Ins. Co. v. 6’ampbell, 538U.S. 408, 429 (2003). Although this brief does not focus on thehavoc caused by the lower courts’ inconsistent rulings on thisissue, the same kind of damaging unpredictability described inthis brief accompanies both issues raised in Shell’s petition, andboth are of real and ongoing concern to amici curiae.

3

By granting certiorari, the Court can answerthe broad question of what effect--if any--damagesthat have both compensatory and punitive qualitiesshould have on the constitutional ratio between theactual harm suffered by the plaintiff and punitivedamages awarded based on the reprehensibility of adefendant’s conduct.

I. Amici agree with Shell that the absence ofclear guidance on how to calculate the punitivedamage ratio frustrates due process.Amici agree with Shell that the lack of clear

guidance on how to calculate the punitive damageratio requires clarification from this Court. Althoughthe Court has weighed in on the constitutionality ofvarious punitive damage ratios, the Court has notsquarely confronted the issue here. The issue hereillustrates that the calculation of the ratio itself, byincluding additional variable damage components,threatens the due process rights of defendants.

A. The current jurisprudence regardinghow the punitive damage ratio iscalculated frustrates due processbecause it leads to unpredictablepunitive damage awards.

This case illustrates the unpredictability ofpunitive damage awards in the absence of clearguidance on how the punitive damage ratio should becalculated. The plaintiffs suffered actual harm ofapproximately $750,000 from the underpayment ofoil and gas contractual net profit payments. Basedon this Court’s guidance on the permissible punitivedamage ratio in Exxon and State Farm, Shell wouldhave been on notice that it could likely face exposure

4

to punitive damages in a 1:1 ratio, or $750,000.Exxon Shipping Co. v. Baker, 128 S. Ct. 2605, 2633(2008); State Farm Mut. Ins. Co. v. Campbell, 538U.S. 408, 429 (2003). Some courts, also relying onState Farm, have issued decisions suggestingpossible notice that punitive damages could reach a4:1 ratio, or $3 million. See State Farm, 538 U.S. at425. Shell had no notice, however, that an award of$53 million in punitive damages would be upheld asconstitutional. See BMWo£N. Am., Inc. v. Gore, 517U.S. 559, 574 (1996).

The Oklahoma court’s justification forupholding that $53 million punitive damage awardillustrates the jurisprudential gap. The Oklahomacourt relied on a special interest rate--12%compound pre-judgment interest--to increase theamount of "compensatory" damages even though theOklahoma legislature candidly described it as a"penalty" in previous iterations of the statute. Thedramatic increase in the amount of purported"compensatory" damages moved the ratio to punitivedamages from a clearly unconstitutional 70:1 to 4:1.Thus, the ad hoc modification of the punitive damagecalculation dramatically altered Shell’s punitivedamage exposure without regard to procedural dueprocess concerns regarding adequate notice.

If the Oklahoma court’s ad hoc modification ofthe punitive damage ratio was an outlier, this casewould not warrant special attention. Unfortunately,the lack of guidance from this Court on how todetermine whether additional recoveries beyond theactual harm inflicted should be included as part ofthe "harm to the plaintiff’ has produced conflicts in avariety of contexts, for example:

5

¯ Emotional distress with a partially punitiveaspect. Compare Roby v. McKesson Corp., 101Cal. Rptr. 773, 797-99 (Cal. Ct. App. 2010);Tony Gu]]o Motors I, L.P. v. Chapa, 212S.W.3d 299, 308-10 (Tex. 2006); Daka, Inc. v.MeCrae, 839 A.2d 682, 697-701 (D.C. Ct. App.2003); with Bovd v. Go££oli, 608 S.E.2d 169,182"84 (W. Va. 2004).

¯ Lost profits. Compare Bridgeport Music, Inc.v. Justin Combs Publ’g, 507 F.3d 470, 489 (6thCir. 2007), with Rhone-Poulenc Agro, S.A. v.DoKalb Genetics Corp., 272 F.3d 1335 (Fed.Cir. 2001).

¯ Attorneys’ fees. Compare Willow Inn, Inc. v.Pub. Serv. Mut. Ins. Co., 399 F.3d 224, 235 (3dCir. 2005); Jurinko v. Med. Protective Co., 305F. App’x 13, 28 n.16 (3d Cir. 2008), withWallace v. DTG Operations, Inc., 563 F.3d 357(8th Cir. 2009). The inconsistent use ofattorneys’ fees to dilute the punitive damageratio is currently before this Court in Stroud v.Blount, No. 09-1572, on petition for writ ofcertiorari from Blount v. Stroud, 914 N.E.2d925 (Ill. App. Ct. 2009).

¯ Capped or reduced awards. Compare HavesSight & Sound, Inc. v. ONEOK,, Inc., 136 P.3d428, 447-48 (Kan. 2006); USA Truck, Inc. v.West, 189 S.W.3d 904, 906, 911 (Tex. Ct. App.2006), with Phelps v. Louisville Water Co., 103S.W.3d 46, 54 (Ky. 2003). See also Clark v.Chrysler Corp., 436 F.3d 594 (6th Cir. 2006)(splintering on how to calculate the ratio);

Groth v. Hvundai Precision & Indus. Co., 149P.3d 333, 340"41 (Or. Ct. App. 2006)(discussing complexity of computing ratiowhen award was limited by statute).

6

Clear guidance from the Court on how thepunitive damage ratio should properly be calculatedwould provide defendants with the constitutionallyrequired notice and greatly enhance the ability toaccurately predict the maximum size of a punitivedamage award.

B. The absence of clear guidance from thisCourt invites state legislatures andcourts to skew the ratio.

Absent clear guidance from this Court, statelegislatures and state courts are able to perform adhoc calculations of the ratio that dramatically alterdefendants’ potential punitive damage liability. Asthe law now stands, a state legislature’scharacterization of a monetary award ascompensation or as a penalty--whether the impacton the punitive damage ratio is intentional or not--can dramatically change a defendant’s punitivedamage exposure from state-to-state and from year-to-year. Here, the Oklahoma legislature’s 1985deletion of the descriptive term "penalty" from theinterest statute was all that the Oklahoma courtneeded to dramatically alter the result of this case,even though:

1) The legislature did not substantively changethe pre’judgment interest calculation from thepre’1985 punitive statute.

2) The pre-judgment interest does not bear anyrelation to the actual harm suffered by thedefendant, even when the time value of moneyis taken into account. In terms of 2010dollars, the 1973 underpayments would stillonly be $3.3 million.

3) The statute singled out a particular class ofdisfavored oil and gas defendants for

especially high pre-judgment interest. Ratherthan 12% compound interest, other defendantsare only subject to 6% simple interest.

The ability of state legislatures and courts toskew the punitive damage ratio and sidestep thisCourt’s punitive damage jurisprudence isdemonstrated by the fact that when faced with thesame situation--deletion of the word "penalty" froman oil and gas payment statute--the AlabamaSupreme Court reached the opposite conclusion. SeeAla. Dep’t of Conservation & Natural Res. v. ExxonMobil Corp., 11 So. 3d 194, 200"01 (Ala. 2008).Leaving the issue to state law makes the federalConstitution not merely disuniform but alsoinfinitely manipulable.

Unfortunately, the creative minds ofattorneys, and the state legislatures and courts inwhich they ply their trade, will never run dry tryingto find such ways to manipulate this Court’s punitivedamage ratio. Currently on writ of certiorari to thisCourt are examples of that creativity--Stroud v.Blount, No. 09-1572, where the Illinois court usedattorneys’ fees to push the punitive damage ratiofrom 10:1 down to 2:1, and Lawnwood MedicalCenter, Inc. v. Sadow, No. 10-371,where the Floridacourt permitted an infinite ratio of $5 million inpunitive damages to zero compensatory damages.See Blount, 914 N.E.2d at 943; Lawnwood Med. Ctr.,Inc. v. Sadow, __ So.3d __, No. 4D08"1968, 2010WL 1066833, at "13 (Fla. Ct. App. Mar. 24, 2010) .The financial stakes are too high, the pot of gold atthe end of the punitive damage lottery too big, for thecreative juices not to flow toward finding new waysto characterize legislatively and judicially createdadditional damages as "compensatory" damages to

8

dilute the punitive damage ratio. Without clearguidance from this Court, state-by-statedeterminations will continue to threaten the dueprocess notice rights of companies represented byAmici.

C. The absence of clear guidance on how toconsistently calculate the punitivedamage ratio leads to a result thatviolates procedural due process.

Amici do not suggest that all remedies shouldbe consistent across all states--doing so wouldintrude upon the state’s rights. Amici merelysuggest that this Court provide guidance on how thepunitive damage ratio governed by the FourteenthAmendment should be calculated. U.S. CONST.amend. XIV, § 1.

Inconsistency in calculations defeats thepurpose of the punitive damage ratio---providingnotice and predictability for what constitutes aconstitutionally impermissible punitive damageaward. Amici acknowledge the difficulty of crafting aratio that can apply to every situation--whether 4:1,1:1, or some form of sliding scale based on the natureof the harm or conduct. However, flexibilityregarding the ratio cannot be compounded byvagueness regarding the definition of compensatorydamages. Providing guidelines in the form of anumeric ratio, without any guidance on how tocalculate that ratio in practical application, is noguidance at all. Given the inclusion of the clearlypenal pre-judgment interest in the compensatoryside of the punitive damage ratio, this case providesthe perfect opportunity for the Court to provideadditional guidance.

9

II. The absence of clear guidance on how toconsistently calculate the punitive damageratio and the resulting absence of proceduraldue process notice is of particular concern toAmicio

The Court has long recognized that excessivepunitive damages bearing no reasonable relationshipto the actual harm suffered threaten constitutionalprotections. Amici, its members, and clients of itsmembers must rely on these protections. Therefore,Amici focus on the procedural due process probleminherent with the current jurisprudence--unpredictability. In the absence of clear guidance onthe calculation of the punitive damage ratio, clientsand their counsel, such as Amici, cannot accuratelyassess the true magnitude of a defendant’s punitivedamage exposure.

Unpredictability also hinders settlement. Theabsence of clear guidance on the method ofcalculating the punitive damage ratio preventsplaintiffs and their counsel from accurately (andreasonably) assessing possible verdict value. Thus,the absence of this clear guidance prevents plaintiffsand defendants from collectively assessingsettlement value and frustrates the agreed resolutionof disputes. This uncertainty is compounded by thepossible exposure for uninsured punitive damagescoercing settlements with plaintiffs and defendants’own insurers.

10

A. The absence of clear guidance on how tocalculate the punitive damage ratiofrustrates the ability of counsel and theclients they advise to make informedsettlement recommendations anddecisions.

In the absence of a state statutory cap onpunitive damage awards, the ratio guidance providedby this Court is the only vehicle available toattorneys and clients for predicting the eventualamount of a potential punitive damage award. Forexample, a defendant would expect that if it is facingactual harm exposure of $1 million, the Constitutionand this Court’s jurisprudence would suggest thatthe punitive damage exposure would also be $1million, a 1:1 ratio.

However, absent further clarification from thisCourt, the defendant cannot accurately estimate theeffect of statutory and common-law "add-ons." Thepossibility that state legislatures or state courtsmight arbitrarily define add-ons as "compensatorydamages" leads to unpredictable dilution of thepunitive damage ratio. Who could have predictedthat an underpayment of $750,000 in oil and gascontractual net profit payments would produce apurportedly constitutional $53 million punitivedamage award?

For a defense attorney, evaluating adefendant’s punitive damage exposure is a key partof evaluating the potential verdict and settlementranges confronting the client. For our system ofjustice to work in practice, the client’s decisionregarding whether to try or settle a case must bebased on a more predictable accounting for maximum

11

punitive damage exposure than is currentlypermitted.

For a plaintiffs attorney, the absence of clearguidance in calculating the ratio turns punitivedamage claims into a lottery where the rewards areuncertain but possibly immense. The uncertaintyencourages gaming the system by forum-shopping inan attempt to avoid states that faithfully adhere tothe Constitution. Absent clear guidance, thatbehavior will only continue.

B. The absence of clear guidance on how tocalculate the punitive damage ratio isespecially troublesome because theinsurability of punitive damages isconstantly questioned by insurers.

The unpredictability in evaluating themaximum range of punitive damages exposure takeson even greater importance because insurers usuallytake the position that punitive damages potentiallyare not covered by their insurance policy. Theprospect of a massive amount of potentiallyuninsured punitive damages creates a financialnightmare for any business. How many businessescould survive a $53 million uninsured punitivedamage award as a result of losing a lawsuit worth$750,000 in actual damages?

This is not a Chicken Little scenario. Inpractice:

¯ Insurers routinely reserve their rights to laterdeny coverage in a case presenting thepotential for an award of punitive damages.

¯ Insurers who have previously negotiated anexpress exclusion of coverage for punitivedamages in their policy will deny coverageoutright.

12

¯ Even when their insurance policies do notexpressly exclude coverage for punitivedamages, insurers frequently invoke theirinsurance policies’ exclusions for intentionalacts in order to reserve their right toultimately denyinsurance coverage forpunitive damages.

Faced with providing coverage for a substantialpunitive damage award, insurers predictably try toshift the risk of the punitive damages onto theinsured. Some form of this scenario plays out inalmost all cases involving punitive damages andcompounds the many practical problems that Amiciface because of the current uncertainty inherent incalculating the punitive damage ratio.

III. Shell’s petition provides this Court with theopportunity to clarify that the relevant ratiois the relationship between only the amount ofpunitive damages and the amount of actualdamages.Shell’s petition exemplifies the need for

guidance that provides clear notice of the propermethod of calculating the punitive damage ratio. Forexample, Amici believe that it would be possible (andappropriate) to articulate a bright line rule thatestablishes which types of damages should beincluded in which side of the ratio. Consistent withthis Court’s punitive damages jurisprudence, thedamages that represent the actual or potential "harminflicted" on the plaintiff should be compared to thepunitive damage award. See Gore, 517 U.S. at 575.Amici would suggest that other types of damages,whether created by state statute or by state commonlaw, should be excluded from calculation of the ratio.Adopting this rule would provide invaluable

13

clarification on how the components of the ratioshould be calculated, resolve current confusion anddisagreement among the lower courts, andsubstantially advance the Court’s punitive damagesjurisprudence.

A. This Court’s punitive damagejurisprudence has long and correctlyfocused on the relationship between thedamages awarded to compensate aplaintiff for the "actual harm inflicted"relative to the punitive damage award.

"The principle that exemplary damages mustbear a ’reasonable relationship’ to compensatorydamages has a long pedigree." Gore, 517 U.S at 581.However, for purposes of evaluating thisrelationship, the Court has recognized that it is notthe label used to describe the damages designed tocompensate a plaintiff for the actual harm sufferedthat matters, but rather the substance of thosedamages. See Gore, 517 U.S. at 581 n.32 (citingGrant v. McDonogJb, 7 La. Ann. 447, 448 (1852)("[E]xemplary damages allowed should bear someproportion to the real dar, age sustained’) (emphasisadded); Saunders v. Mullen, 66 Iowa 728, 729, 24N.W. 529 (1885) ("When the actual damages are sosmall, the amount allowed as exemplary damagesshould not be so large") (emphasis added); Flannery~. Baltiz~ore & 0t~io R.R. Co., 15 D.C. 111, 125 (1885)(when punitive damage award "is out of allproportion to the in]~ries received, we feel it our dutyto interfere") (emphasis added); Houston &McCartt~y ~. Niskern, 22 Minn. 90, 91-92 (1875)(punitive damages "enormously in excess of whatmay justly be regarded as compensation"_for tt~e

14

i~jury must be set aside "to prevent injustice")(emphasis added)).

In distinguishing the purposes served bycompensatory and punitive damages, the Court hascharacterized compensatory damages as "’intended toredress the concrete loss that the plaintiff hassuffered by reason of the defendant’s wrongfulconduct."’ State Farm, 538 U.S. at 416 (quotingCooper Indus., Inc. v. Leatherman Tool Group, Inc.,532 U.S. 424, 432 (2001)). This is in contrast topunitive damages, which are "aimed at deterrenceand retribution." State Farm, 538 U.S. at 416.Although the Court has at times used differentterminology to describe what type of damages shouldbe compared to a punitive damage award forconstitutional purposes, the Court’s meaning--inpart demonstrated by its interchangeable use of theterms "actual damages" and "compensatorydamages"~has remained focused on the harminflicted on or suffered by the plaintiff.

B. The lower courts’ inconsistent inclusionof additional types of compensatorydamages as part of the punitive damageratio reveals that those types ofdamages differ from the "actual harminflicted" on the plaintiff.

The types of compensatory damages that thelower courts sometimes include in their calculation ofthe punitive damage ratio run the gamut. Courtsacross the nation vary widely in their treatment of"add’on" damages like pre’judgment interest, specialinterest, post-judgment interest, attorney’s fees,costs, and penalty interest for purposes of calculatingthe punitive damage ratio. This is not surprising,given that the schemes of different states depend on

15

the imponderable vagaries and development of thelaw by state supreme courts as well as by statelegislatures. Nevertheless, the differences in thosestate schemes should not become an unconstitutionalobstacle to what should be a uniform calculation fordeciding whether a punitive damage award complieswith constitutional requirements. The differences inthose schemes should instead become the impetus toadopting a uniform calculation of that ratio thatprovides the notice needed for defendants to evaluatetheir maximum potential punitive exposure and thento modify their conduct accordingly.

C. A ratio comparing punitive damagesonly to damages that compensate aplaintiff for the "actual harm inflicted"would provide much-needed guidance tothe lower courts and is consistent withthis Court’s jurisprudence.

Amici suggest that this Court clarify that theratio should compare only the harm suffered byplaintiff against the punitive damage award. Thisrule would provide both the clear direction needed bythe lower courts and the adequate notice todefendants required under procedural due process.Further, the rule flows directly from this Court’soriginal formulation of the ratio. Instead ofdetermining what additional types of damagesshould be included in the ratio on a case-by-casebasis or state-by-state basis, the Court can resolvethe question with a simple calculation that isconsistent with the Court’s historic description of therelevant inquiry.

By limiting the punitive damage ratio to theharm suffered by the plaintiff, and stripping awaythe varying and continually changing legislative

16

enhancements to "compensatory damages," thisCourt would adopt a more easily administered rule.That rule would allow parties, counsel, and the lowercourts real predictability in applying this Court’sjurisprudence under the punitive damage ratioguidepost. It would eliminate the problem presentedby this case and so many others encountered byAmici across the country where different state courtsinterpret the add-on as compensatory damages inorder to dilute the ratio. It would make unnecessarythis Court adjudicating, on a case-by-case basis, all ofthe state legislative intent issues and state supremecourt rulings that might justify the classification of aparticular type of "compensatory" damage as "actualdamages" under this Court’s punitive damage ratio.

Although this Court has ’"consistently rejectedthe notion that.., a simple mathematical formula’"can determine a bright line between a constitutionalpunitive damage award and an unconstitutional one,the Court’s jurisprudence does not preclude thecreation of a bright line to determine what types ofdamages should be considered when evaluatingwhether the measure of punishment is "reasonableand proportionate" to the harm suffered by theplaintiff. State Farm, 538 U.S. at 424-25, 426(quoting Gore, 517 U.S. at 582). Adopting a bright"line rule here would provide a predictable foundationfor evaluating punitive damage award, and thereforemake meaningful the flexibility built into the Court’spunitive damage jurisprudence.

CONCLUSION

For the foregoing reasons, and for the reasonsstated by petitioner, the petition for a writ ofcertiorari should be granted.

17

Respectfully submitted,

Robert M. (Randy) Roach, Jr.Counsel of Record

Amy J. Schumacher*Daniel W. Davis*ROACH & NEWTON, L.L.P.1111 Bagby Street, Suite 2650Houston, Texas 77002(713) 652-2032rroach@roachnewton.com

*Admission pending," supervisedby principals of the t’~rm

Counsel for Amici Curiae

September 2010

~lank Page