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Punitive Damages in Commercial Litigation: Pursuing and Defending Claims Leveraging Pre-trial Motions, Discovery and Trial Strategies, Navigating Constitutional Restraints
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TUESDAY, APRIL 22, 2014
Presenting a live 90-minute webinar with interactive Q&A
Derek E. Diaz, Partner, Hahn Loeser, Cleveland
John Zavitsanos, AZA, Houston
Robert B. Port, Partner, Hahn Loeser, Cleveland
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PUNITIVE DAMAGES
● With us since 1763 ● Early cases involved trespass ● To punish and deter
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PUNITIVE DAMAGES
“. . . the question will not admit of argument.” Day v. Woodworth, 54 U.S. (13 How.) 363, 371 (1851).
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PUNITIVE DAMAGES
● Banned by state? ● Split with state? ● Capped by statute?
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PUNITIVES RUN WILD
● Risk of arbitrariness ● Uncertainty ● Lack of notice
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WHERE NOT TO LOOK
● Excessive Fines Clause (8th Amendment) ● Double Jeopardy (5th Amendment)
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WHERE TO LOOK
● Due Process Clause (14th Amendment)
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(1) Procedural due process (2) Substantive due process
DUE PROCESS
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(1) Properly instructed jury (2) Judicial review for excessiveness (3) Appellate review (4) Harm to non-parties
PROCEDURAL DUE PROCESS
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Protects against “grossly excessive” awards
SUBSTANTIVE DUE PROCESS
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(1) Reprehensibility (2) Compensatory/Punitive Ratio (3) Comparable Civil or Criminal Penalties
GROSSLY EXCESSIVE
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(1) Economic or physical harm (2) Reckless disregard for health or safety (3) Financial vulnerability (4) Repeated actions or isolated incident (5) Malice, trickery, or deceit
REPREHENSIBILITY
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“The existence of any one of these factors weighing in favor of a plaintiff may not be sufficient to sustain a punitive damages award; and the absence of all of them renders any award suspect.” State Farm v. Campbell, 538 U.S. 408, 419 (2003)
REPREHENSIBILITY
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(1) Potential vs. actual harm (2) Single-digit ratio (3) Substantial compensatories
AWARD RATIO
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(1) Of Limited use in commercial cases (2) Be creative
COMPARABLE PENALTIES
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Considerations
(1) Remittitur (2) Due-Process Review
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INITIAL CONSIDERATIONS
Pleading Issues
More Evidence May Be Required
State Farm Mut. Auto. Ins. Co. v. Campbell (2003)
Insurance
Defendants Will Fight!
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TYPES OF CONDUCT Knowing Violation of Safety Standards Falsifying Test Results Management Knowledge of the Likelihood of Injury Ignoring Previous Complaints or Lawsuits Refusing to Take Corrective Measures Availability of a Safer, More Economical and Technically Feasible
Alternative Course of Conduct Evidence of Cover-up Ongoing Pattern of Misconduct Failing to Warn of Known Dangers Which Are Not Obvious Lacking Corporate Policies and Procedures in the Face of Obvious
Risks Departing from Standards in the Industry Where the Magnitude of the Potential Harm Flowing from the
Misconduct is Great
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PLEADING
The Original Complaint
Federal Court – Federal Pleading Standard vs. State Pleading Standard
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INVESTIGATION
Investigate Punitive Damages Claims Early in Litigation
Investigation Should Not Stop After Filing
Use Various Sources
Resource Intensive
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DISCOVERY
Facts Demonstrating Basis for Punitive Damages
Corporations– Demonstrating Authorization or Ratification
Supporting the Verdict on Appeal 27
TRIAL – A PERSUASIVE THEORY Does the theory “[a]ccount for or
explain all of …the undeniable facts”?
Does the theory “explain away in a plausible manner as many unfavorable facts a it can”?
Does the theory “[e]xplain why people acted in the way they did”?
Is the theory “supported by the details”?
Does the theory have a solid basis in law?
Is the theory “consistent with common sense and…plausible”?*
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TRIAL – GET IN THE JUROR’S MIND “Empathy by itself…is ethically neutral. A good sadist or torturer
has to be highly empathetic, to understanding what would cause his or her victim maximal pain.”**
Explanation–Based
Decision Making***
Use Metaphors!
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EXAMPLE - VIOXX
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TRIAL - WITNESS CREDIBILITY
Antithesis Inference****
BMW of North America, Inc. v. Gore
(1996) – “The degree of reprehensibility of the defendant’s conduct” as “[p]erhaps the most important indicium of the of the reasonableness of a punitive damages award.”
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REFERENCES * Ian Gallacher, Thinking Like Nonlawyers: Why Empathy is a Core
Lawyering Skill and Why Legal Education Should Change to Reflect its Importance, 8 Legal Comm. & Rhetoric 109, 120 (2011).
** Martha Nussbaum, Reply to Amnon Reichman, 56 J. Leg. Educ. 320, 325 (2006).
**** See Nancy Pennington & Reid Hastie, A Theory of Explanation-Based Decision Making, chapter 11 in Decision Making in Action: Models and Methods 188 (Gary A. Klein et al. eds., Greenwood Publg. Group, Inc. 1993).
***** See generally Andrew S. Polis, The Death of Inference, 55 B.C. L. Rev. 435 (2014).
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Pre-Trial Tactics: Know the Law—States Handle Punitive Damages Differently
• Burden of Proof—Clear and Convincing vs. Preponderance
• Standard for Liability
• Limitations on Discovery
• Pleading Requirements
• Predicate Claims
• Bifurcation
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Some States Partially Abrogated Liability for Punitive Damages
NH, MI : Only when explicitly provided by statute IL, OR : None for Legal or Medical Malpractice AL, KS : Employer liability only under specific circumstances
Defenses—All Defenses Applicable to Predicate Causes of Action Apply to Punitive Damages
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Punitive damages is not a claim
General Defenses to Consider
• Statute of limitations, privilege, failure to state a cause of action
• No viable claim for relief
• No monetary damages
• Nominal damages only
Mitigation of Exposure
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• Provocation
• Advice of counsel
• No intent to harm—control the narrative on motive
• Subsequent remedial measures
“Partial Defenses”
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Florida Requires a Prima Facie Case Before Plaintiff Can Even Plead Punitive Damages
In any civil action, no claim for punitive damages shall be permitted unless there is a reasonable showing by evidence in the record or proffered by the claimant which would provide a reasonable basis for recovery of such damages. The claimant may move to amend her or his complaint to assert a claim for punitive damages as allowed by the rules of civil procedure.
Fla. Stat. Ann. § 768.762.72
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Standards for Punitive Damages Liability Vary
• Spite, ill will, intent to harm, revenge • Conscious disregard for rights of others with a great
probability of substantial harm • Reckless disregard • Evil hand guided by an evil mind • Reckless and outrageous indifference to a highly
unreasonable risk of harm and with a conscious indifference to the rights and safety of others
• Willful, wanton, or malicious conduct • Gross negligence
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Discovery—Use All Available Forms of Discovery to Draw Out Plaintiff’s Punitive Damages Theory
Motion to Compel / Motion for More Definite Statement:
• Get the Plaintiff to commit in writing.
• Force Plaintiff to reveal the basis for the allegations in the complaint.
• Educate the judge that the complaint is nothing more than a fishing expedition.
Plaintiff s will generally resist disclosing specific theories of punitive damages liability.
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Limitations on Discovery—Statutory and Protective Orders
Majority Rule
Punitive-damages related discovery (e.g., Defendant’s net worth, income, tax returns) is permissible from the outset.
Minority Rule
• No punitive-damages related discovery until Plaintiff makes a prima facie case for punitive-damages liability.
• FL, CA, SD, MD
In any claim alleging punitive or exemplary damages, before any discovery relating thereto may be commenced … , the court shall find, after a hearing and based upon clear and convincing evidence, that there is a reasonable basis to believe that there has been willful, wanton or malicious conduct.
S.D. Codified Laws § 21-1-4.1
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Financial Position—Double-Edged Sword
Plaintiff
Defendant’s financial position amount of punitive damages to punish and deter
Defendant
Plaintiff’s financial position …
• Liability: No “great probability of substantial harm”
• Due Process: Not a financially vulnerable victim
Financial Position—Use It or Lose It
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Defendant’s Burden: Evidence of Defendant’s poor financial condition
Waiver: Failure to produce evidence of Defendant’s inability to pay punitive damages waiver
We hold that it is not legally necessary for either plaintiff or defendant to introduce evidence of the net worth of the defendant during the trial to support an award of punitive damages. If, however, no such evidence is presented, neither party may challenge on appeal either the inadequacy or the excessiveness of a punitive damages award. If a party wishes to preserve the question for appeal, evidence of net worth must be presented at trial, or error in the amount of punitive damages is waived. G & C Trucking Co. v. Smith, 612 So. 2d 1092, 1105 (Miss. 1992) (citing multiple cases regarding Defendant’s burden)
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Discovery—Use Plaintiff’s Silence and Evasion Against Her
• Failure to disclose theory Inability to defend summary judgment
• Exclude any evidence previously sought in discovery
• Unsuccessful motion has its advantages
Forces Plaintiff to articulate a theory
educates the court
Summary Judgment Based Solely on Constitutional Due Process
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Chicago Title Ins. Corp. v. Magnuson, 487 F.3d 985 (6th Cir. 2007)
Sixth Circuit Found …
• Economic harm only [not physical]
• Plaintiff not financially vulnerable
• Defendant’s conduct not repeated against different parties
“[T]he fact that First American acted maliciously is insufficient to support a finding that First American's behavior was sufficiently reprehensible for an award of punitive damages.”
Id. at ¶ 74.
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Bifurcation Upon Request Bifurcation Automatic
Bifurcation May Be Mandated by Statute Either With or Without Request
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Bifurcation May Be Mandated by Statute Either With or Without Request
The court shall, on application of any defendant, preclude the admission of evidence of that defendant's profits or financial condition until after the trier of fact returns a verdict for plaintiff awarding actual damages and finds that a defendant is guilty of malice, oppression, or fraud .
Cal. Civ. Code § 3295(d)
If punitive damages are claimed pursuant to this section, the trier of fact shall make a finding of whether such damages will be assessed. If such damages are to be assessed, a subsequent proceeding must be conducted before the same trier of fact to determine the amount of such damages to be assessed.
Nev. Rev. Stat. § 42.005(3)
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$
$
$ $
$
$
$
$
$
$
Liab
Bifurcation Regarding Liability for Punitive Damages vs. Amount of Punitive Damages
Liab
Liab
Liab
$
Liab
[$] Bifurcate Amount of Punitive Damages [Liab] Bifurcate Liability for Punitive Damages
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Bifurcation Regarding Liability for Punitive Damages vs. Amount of Punitive Damages
… the trier of fact shall first resolve from the evidence produced at trial whether an award of punitive damages shall be made. … If it is found that punitive damages are to be awarded, the trial shall immediately be recommenced in order to receive such evidence as is relevant to a decision regarding what amount of damages will be sufficient to deter, penalize, or punish the defendant….
Ga. Code Ann. § 51-12-15.1(3)
… the trier of fact shall first hear evidence relevant to, and render a verdict upon, the defendant's liability for compensatory damages and the amount thereof. If the trier of fact makes an award of actual damages, the same trier of fact shall immediately hear any additional evidence relevant to, and render a verdict upon, the defendant's liability for punitive damages and the amount thereof.
735 ILCS § 5/2-1115.05(c)
Motions In Limine—Back Door Motion to Bifurcate
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Defendant respectfully requests that, until Plaintiff makes a prima facie showing of liability for punitive damages, the Court should …
• Limit references to punitive damages in opening statements
• Prohibit References to punitive damages during the introduction of evidence
• Prohibit any evidence of Defendant’s financial position/wealth
• Prohibit evidence of any similar alleged wrongful conduct
All motions should be designed to force Plaintiff to reveal as much as possible about the theory and evidence
Relate to the Jury on a Personal Level
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• Sometimes it is better to admit a mistake [without admitting liability]
• Plaintiff will be fully compensated
• Looking for a windfall
