Beverage bottle openedLast 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.

Lillian Lewellen, a 77-year-old widow, sued Chad Franklin and the auto dealership that he owned and operated (National).  She claimed that they had defrauded her into buying a car by telling her that her payments would be only $49 per month, when in reality her obligations to the bank that issued the car loan were substantially greater.  Ultimately Lewellen was unable to keep up with her payments; the bank repossessed the car and sued her for breach of contract.

Lewellen brought claims for common-law fraud and unlawful merchandising practices under Missouri’s consumer-fraud statute, the Missouri Merchandising Practice Act (MMPA).  The jury awarded her compensatory damages of $25,000 and punitive damages of $1 million against each defendant.  The trial court entered judgment against Franklin on the common-law fraud claim and against the dealership on the MMPA claim.  Pursuant to the cap statute, the court reduced the punitive award against Franklin to $500,000 and, for reasons impossible to tell from the opinion, reduced the punitive award against National to $539,050.

Lewellen appealed from the reduction of the award against Franklin, contending (among other things) that the cap statute violated her right to a jury trial under the Missouri Constitution.  The court noted that Franklin did not appeal from the reduction of the punitive judgment against National on her MMPA claim, presumably because the Missouri Supreme Court had previously upheld the application of the cap statute to such claims on the ground that they did not exist in 1820.

The Missouri Supreme Court agreed with Lewellen that the cap should not have been applied to her punitive award for common-law fraud, concluding that an earlier decision striking down a statutory cap on non-economic compensatory damages was dispositive.  The court observed that “determination of the amount of punitive damages was a function for the jury in 1820”; because the cap “changes the right to a jury determination of punitive damages in 1820, it unconstitutionally infringes on Ms. Lewellen’s right to a trial by jury” under the Missouri Constitution.

There is good reason to question the court’s assumption that if a cap on compensatory damages violates the right to trial by jury, then a similar cap on punitive damages must likewise be unlawful.  The U.S. Supreme Court observed in State Farm v. Campbell that compensatory and punitive damages “serve different purposes”: Compensatory damages are necessary to make the plaintiff whole, while punitive damages serve the State’s interest in punishing and deterring misconduct.  A plaintiff has no right to an award of punitive damages at all.  If a State determines that a multiple of five times the compensatory award (or $500,000 if that amount is greater) is sufficient to serve the public purposes of punishment and deterrence, a private plaintiff has no legitimate basis to complain that her windfall is not sufficiently large.

Even more fundamentally, as the Supreme Court held in Cooper Industries, “the level of punitive damages is not really a ‘fact’ ‘tried’ by the jury,” but rather reflects a generalized judgment about the severity of the defendant’s conduct and the appropriate amount of punishment.  That is why imposing due process limits on punitive damages awards in federal cases does not violate the Seventh Amendment.  There is no reason why same analysis should not apply to state-law claims.

As Mark Behrens noted on the Washington Legal Foundation’s blog, this ruling is an outlier:  The majority of courts have held that statutory caps on punitive damages awards are constitutional because the jury’s basic functions of determining whether punitive damages are warranted and assessing the amount are preserved.  A cap on punitive damages merely sets an outer limit; its operation constitutes the application of law, not the determination of facts.

The Missouri Supreme Court went on to hold in Lewellen that the $1 million punitive award against Franklin and the $539,050 punitive award against National were not unconstitutionally excessive.  The flaws in the court’s excessiveness ruling will be addressed in a separate post.