In a post last week, Lauren Goldman discussed the Missouri Supreme Court’s decision in Lewellen v. Franklin striking down Missouri’s cap on punitive damages as applied to common-law causes of action and promised that we would do a subsequent post addressing the court’s further holding that the punitive damages in that case were not unconstitutionally excessive. This is that post.
We’ve been following the post-trial proceedings in Allen v. Takeda Pharmaceuticals North America, Inc., a product-liability action involving the diabetes drug Actos. The case garnered headlines earlier this year when the jury awarded an astounding $9 billion in punitive damages against the two defendants.
On August 28, the district court in the Western District of Louisiana issued a ruling denying the defendants’ motion for judgment as a matter of law (JMOL) on liability for punitive damages and other issues. Despite the suggestion of some news reports that the defendants are now on the hook for the $9 billion, the district court has not yet ruled on the defendants’ separate motion for a new trial under Rule 59, which argues among other things that the punitive damages are excessive.
In this post, I want to address a significant flaw in the district court’s reasoning concerning the defendants’ challenge to punitive liability. Although the error did not affect the decision’s outcome, the issue arises in other cases with some frequency and could make a difference in this case on appeal.
Last week, in Lewellen v. Franklin, the Missouri Supreme Court sharply restricted the reach of the State’s punitive damages cap statute, which limits punitive damages to the greater of $500,000 or five times the compensatory damages. The court reasoned that applying the statute to common-law causes of action that existed prior to 1820, when Missouri adopted its Constitution, violates the plaintiff’s right to trial by jury.
In a prior post, Andy Frey and I discussed the concern expressed by some defense lawyers that jurors in a bifurcated trial might bake punitive damages into their compensatory award because they are unaware that they will be able to impose punitive damages in a second phase. We expressed the view that this concern can be readily addressed by instructing the jury before it deliberates in the first phase that, if it finds that the defendant acted with the requisite mental state, a second phase will commence to address the amount of punitive damages (if any).
The Missouri Court of Appeals’ decision last week in Advantage Buildings & Exteriors, Inc. v. Mid-Continent Casualty Co. confirms both that the concern about inflation of the compensatory damages is a real one and that the solution is proper instruction of the jury.
As readers undoubtedly are aware, concerns about upward spiraling punitive awards have prompted many state legislatures to enact caps on punitive damages. The plaintiff bar’s first line of attack on such statutes has been to challenge them under various provisions of state constitutions.
When that tactic has failed—as it has in most states—a second option in some plaintiffs’ playbook has been to assert in individual cases that the defendant forfeited the right to receive the benefit of the cap by not pleading it as an affirmative defense. For example, the plaintiff has invoked this argument in the Montana Supreme Court case about which Andy Frey and Rory Schneider blogged a couple of months ago.
In a recent post, we set forth our views on why, with some forethought, traditional bifurcation—i.e., trying liability for the underlying tort, compensatory damages, and liability for punitive damages in the first phase and, if necessary, the amount of punitive damages in a second phase—can be a beneficial procedural safeguard for defendants. Sometimes, however, circumstances may dictate other forms of bifurcation, or even trifurcation.
As we noted in a prior post, many state legislatures and supreme courts have mandated that the amount of punitive damages be tried separately from other issues in the case if the defendant so requests. The principal impetus for mandating this procedure was concern that evidence of the defendant’s financial condition, though assumed to be relevant to the amount of punitive damages, is undeniably irrelevant to and presents a grave risk of prejudicing the resolution of the other issues in the case—i.e., liability for the underlying tort, comparative fault, compensatory damages, and liability for punitive damages.
We will address in a future post why the assumption that an organization’s financial condition is relevant to the setting of punitive damages is false. But the purpose of this post is to take sides in the debate over whether this safeguard—colloquially known as bifurcation—is worth invoking.
The lawyer for the plaintiff in a punitive damages case frequently asks the jury to return a particular amount of punitive damages. Often the requested amount is very large—far more than the plaintiff realistically expects to recover, and certainly greater than the Constitution would permit.
This strategy has a clear purpose: Suggesting an arbitrary large number sets the jury’s “frame of reference” and anchors its assessment of the proper amount of punishment. A substantial and mounting body of social science research demonstrates that jurors exposed to high numerical “anchors” return much higher awards—even if those anchors are self-evidently arbitrary, and even if they are presented to jurors as “limits,” “caps,” or “maximums.” The plaintiff’s request has the effect of starting the jury’s discussion at the suggested level—even if the request bears no relationship at all to the facts or the evidence in the case.
There are substantial tactical questions whether or when it is in the defendant’s interest to seek bifurcation of the amount of punitive damages from other trial issues and whether the defendant should in some circumstances seek bifurcation of all punitive damages issues from compensatory damages issues or trifurcation so that punitive liability and punitive amount are each tried in separate second and third phases, respectively (if necessary).
Those are subjects for another post. This post concerns the defendant’s right to have a separate proceeding to determine punitive amount, which is the most common form of bifurcation.
We recently posted about the decision by the West Virginia Supreme Court of Appeals in Manor Care Inc. v. Douglas, — S.E.2d —-, 2014 WL 2835831 (W. Va. June 18, 2014), to cut a multimillion-dollar punitive award by more than half in a case against a Charleston nursing home. In our prior post, which is available here, we commented on the court’s decision to reduce the punitive damages proportionately (from $80 million to about $32 million) after it reduced the compensatory damages from $11.5 million to $4.6 million.
The West Virginia court’s decision to afford a proportionate reduction of the punitive damages after vacating part of the compensatory damages raises is noteworthy, but it may be even more striking that the court refused to reduce the $32 million punishment any further. In an opinion that shows little inclination to follow the U.S. Supreme Court’s guidance that high awards of compensatory damages require lower ratios, the West Virginia Supreme held that the 7:1 ratio between punitive and compensatory damages was not excessive. The decision suggests that large companies hit with very large verdicts in West Virginia state court may have difficulty obtaining any reduction of the punitive damages as long as the ratio is lower than 10:1 and the court deems the conduct to be highly reprehensible.