Gore, Cooper Industries, and State Farm v. Campbell: Game, Set, and Match for Exorbitant Punitive Damage Awards
Few decisions of the past quarter century are as likely to alter the way in which civil litigation is conducted as much as State Farm Mutual Automobile Insurance Company v. Inez Preece Campbell, 123 S. Ct. 1513 (April 7, 2003). In Campbell, the U.S. Supreme Court, for the third time in the past seven years, reined in the use of punitive damages as an all-too-often arbitrary and capricious substitute for criminal penalties. The Court reiterated that defendants—even those who behave very badly—have a constitutionally protected right to have a civil law “punishment” assessed according to clearly defined guidelines and meaningful limitations.1
The New Trilogy—Gore, Cooper Industries, and Campbell
The Court expanded its decisions in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), and Cooper Industries v. Leatherman Tool Group, Inc., 532 U.S. 424 (2001), both of which had affixed constitutional limitations on the award of punitive damages as well as providing “guideposts” for implementing these substantive due process limitations. Unfortunately, both decisions left “wiggle room” for lower courts to avoid the Supreme Court’s holdings. Campbell endeavored mightily to erase any doubt about the meaning of these previous decisions. Just as Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S.574 (1986); Anderson v. Liberty Lobby, Inc. 477 U.S. 242 (1986); and Celotex Corp. v. Catrett, 477 U.S. 317 (1986), dramatically enhanced the role of summary judgment in federal jurisprudence almost two decades ago, so too, the new trilogy of Gore, Cooper Industries, and Campbell is certain to have at least as great an impact on the restriction of the use of punitive damages at the outset of the 21st century.
In Gore, the Supreme Court reversed a $2 million punitive damage award predicated on a compensatory damage award of $4,000. In that case, plaintiff, an automobile purchaser, sued several defendants for the automobile distributor’s failure to disclose that the automobile had been repainted after being damaged prior to delivery. The Supreme Court held the punitive damage award violated BMW’s right to substantive due process because it was arbitrarily disproportionate to the actual damages caused and attempted to punish BMW for conduct unrelated to the specific wrongful conduct involved in the pending lawsuit. The Court set forth “three guideposts,” discussed at length below, to be used by subsequent trial and appellate courts in assessing punitive damages.
Cooper Industries held that the constitutionality of a punitive damage award decided pursuant to the Gore guideposts was to be reviewed by the trial and appellate courts de novo.2 That is, the question of the award’s compliance with substantive due process was purely a legal one, not factual, so that no deference to the jury’s verdict on this issue was required either by the trial court or on appeal.3
In Campbell, the Utah Supreme Court acknowledged its obligation to review the $145 million punitive damage award in light of Cooper Industries’ de novo standard of review.4 However, the Utah high court did not understand Cooper Industries to require de novo review of the trial court rulings regarding the admission and exclusion of evidence in support of the punitive damage claim. It used an “abuse of discretion” standard to review the trial court’s rulings on evidence. It held that the trial court had not abused its discretion by allowing into evidence State Farm’s nationwide practices to avoid paying legitimate claims to increase profits.5 The Utah Supreme Court diluted the de novo review mandated by Cooper Industries by implementing a less intrusive standard of review—abuse of discretion—to evaluate the evidentiary basis on which the punitive damage award would then be reviewed de novo. Although the U.S. Supreme Court did not expressly address the Utah Supreme Court’s use of two distinct standards of review, Campbell certainly appeared to hold that Cooper Industries’ de novo review applied to all aspects of the review, including evidentiary rulings. “We reiterated the importance of these three guideposts in Cooper Industries and mandated appellate courts to conduct de novo review of a trial court’s application of them to the jury’s award. 532 U. S. at 424.”6
In light of the Utah Supreme Court’s expressed acknowledgment of and purported adherence to Cooper Industries’ de novo standard of review, this reiteration of the de novo standard of review in Campbell can only mean that the Utah Court did not understand and fully comply with Cooper Industries, despite paying it lip service. Because one of the constitutional guideposts to be reviewed by the appellate court involved the “similarity” of the other “bad acts” to the conduct at issue in the case before the trial court, Gore, Cooper Industries, and Campbell required de novo review to include the evidentiary rulings of the trial court pertaining to punitive damages. The entire tenor of Campbell is that the Utah trial court violated the defendant’s right to substantive due process in significant part by allowing the admission and consideration of irrelevant and highly prejudicial evidence which should have been excluded in the first instance by the trial court as the initial “gatekeeper” and which should have been rejected as reversible error by the Utah appellate courts. It is difficult to reconcile Campbell with an abuse of discretion standard of review versus a de novo standard of review applicable to evidentiary rulings of the trial court, at least as they relate to the issue of punitive damages. At a minimum, Campbell holds that the trial court’s “discretion” in the admission and exclusion of evidence pertaining to an award of punitive damages is narrow and limited, which appears to be another way of saying it is essentially subject to de novo review.
Can “Bad” State Farm + Gore = $145 Million?
Based on Gore, which was announced after State Farm had been found liable for “bad faith” but prior to the damage assessment phase of the trial, State Farm argued that evidence of its out-of-state and other conduct that bore little or no relationship to the harm alleged by the Campbells should be excluded from the trial phase determining the amount of actual and punitive damages. Campbell was a garden variety third party bad faith case involving State Farm’s refusal to settle a claim on behalf of its insureds, the Campbells, within their policy limits. The original negligence lawsuit arose from a serious automobile collision in 1981. Mr. Campbell, driving with his wife, decided to pass six vans on a two-lane road. A car driving in the opposite direction swerved onto the shoulder to avoid a head-on collision with Campbell, but lost control of his vehicle and struck another vehicle, killing himself and permanently disabling the driver of the vehicle he struck. State Farm declined offers to settle the ensuing claims for the policy limits of $50,000 ($25,000 per claimant) and the jury returned an excess judgment of $185,849, finding Campbell 100 percent at fault. State Farm, having assured the Campbells prior to trial that they had no potential exposure, initially refused to satisfy the excess judgment, telling the Campbells to “put for-sale signs on your property” and refusing to post a supersedeas bond to allow the Campbells to appeal.7
Although State Farm ultimately paid the entire excess judgment rendered against the Campbells, the Campbells, as part of an agreement reached with the plaintiffs who had sued them initially, pursued a suit against State Farm for violation of common law insurer bad faith, common law fraud, and intentional infliction of emotional distress which resulted in the punitive damage award.8 The Supreme Court’s discussion of the agreement between the Campbells and their erstwhile adversaries, with the former adversaries getting control of the Campbell’s bad faith lawsuit as well as 90 percent of any recovery therefrom, suggests the Court was troubled by this arrangement.9
Although the evidence of State Farm’s improper handling of the actual claim in suit was substantial, plaintiff sought to admit additional extraneous evidence of State Farm’s nationwide policy to underpay claims regardless of merit to enhance profits. The trial court admitted such evidence over objection. “The jury awarded the Campbells $2.6 million in compensatory damages and $145 million in punitive damages, which the trial court reduced to $1 million and $25 million respectively.”10 The Utah Supreme Court reversed the trial court and reinstated the full amount of the punitive damage award based on its analysis of the “three guideposts” identified in Gore. As reiterated in Campbell:
In light of these concerns, in Gore, supra, we instructed courts reviewing punitive damages to consider three guideposts: (1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.11
Despite the egregious conduct found by the jury in Campbell, as acknowledged by the Supreme Court in its opinion, and as set forth at even greater length by Justice Ginsburg in her dissent, the six justice majority found its reversal in Campbell to be “neither close nor difficult.”12 It found the award in Campbell to violate each of Gore’s three guideposts.
Guidepost One—Reprehensibility
The Court began by explaining the first “reprehensibility” guidepost.
We have instructed courts to determine the reprehensibility of a defendant by considering whether: the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident. 517 U.S. at 576, 577.13
The Court noted that the presence of a single factor involved in the reprehensibility analysis may not be sufficient.14 The Court, although well aware of the limitless variety of fact patterns and situations which can arise, made clear it expected both the trial and appellate courts’ analysis to be careful, thoughtful, and, ultimately, restrained and principled. The Court ordered lower courts to change dramatically the manner in which punitive damages are litigated, tried, and assessed as a matter of constitutional substantive due process.
Campbell is significant in its rejection of exorbitant punitive damage awards precisely because the conduct on the record before it was conceded by all to be “reprehensible.”16 The Supreme Court left no doubt it was not condoning or approving in any way State Farm’s handling of the Campbells’ claim.17 Nevertheless, it rejected as violating substantive due process both the amount of the award in relation to the actual compensatory damages sustained and the cornucopia of irrelevant dissimilar “acts” and hypothetical “harm” used by the Utah Supreme Court in sustaining the award.
While we do not suggest there was error in awarding punitive damages based upon State Farm’s conduct toward the Campbells, a more modest punishment for this reprehensible conduct could have satisfied the State’s legitimate objectives, and the Utah courts should have gone no further.
This case, instead, was used as a platform to expose, and punish, the perceived deficiencies of State Farm’s operations throughout the country. The Utah Supreme Court’s opinion makes explicit that State Farm was being condemned for its nationwide policies rather than for the conduct directed toward the Campbells. 2001 WL 1246676, at *3.18
The Court expressly rejected a state’s right to punish a defendant for out-of-state conduct lawful where it occurred or even unlawful out-of-state conduct not directly affecting the plaintiff.19 The Campbells attempted to circumvent this by arguing that “such evidence. . . was relevant to the extent it demonstrated, in a general sense, State Farm’s motive against its insured.”20 The Supreme Court squarely rejected this argument. “This argument misses the mark. 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.”21
The Court did not stop there, however, finding yet a more “fundamental reason” why the punitive damage award could not pass constitutional muster.
For a more fundamental reason, however, the Utah courts erred in relying upon this and other evidence: The courts awarded punitive damages to punish and deter conduct that bore no relation to the Campbells’ harm. A defendant’s dissimilar acts, independent from the acts upon which liability was premised, may not serve as the basis for punitive damages. A defendant should be punished for the conduct that harmed the plaintiff, not for being an unsavory individual or business.21
The Court added that subjecting a defendant to punitive damages for conduct not occurring in or directly affecting the state itself, “creates the possibility of multiple punitive damages awards for the same conduct,” something plainly unacceptable to the Court.22
Using similar reasoning, the Court found no support for the award by analyzing the second prong of Gore’s first guidepost, “recidivism.” “The Campbells have identified scant evidence of repeated misconduct of the sort that injured them.”23 Campbell drastically limited the definition of “similar” conduct for the purpose of showing reprehensibility. “Although evidence of other acts need not be identical to have relevance in the calculation of punitive damages, the Utah court erred here because evidence pertaining to claims that had nothing to do with a third-party lawsuit was introduced at length.”24 This statement is further enhanced by Justice Ginsburg’s dissent disagreeing with the majority’s analysis. Justice Ginsburg argued forcefully that the majority’s distinction between “third party” claims and “first party” claims, as well as the alleged absence of a “nexus” between State Farm’s national policy and its specific treatment of the Campbells was fatuous in light of the extensive evidence that State Farm’s “policy” traversed all types of claims with the unified goal of reducing payments and increasing profits.25
Justice Ginsburg’s dissent is relevant to trial and appellate courts only to show the types of evidence of allegedly “similar” acts which, as Campbell expressly held,26 are not sufficiently “similar” to be admissible at trial. Using a wide variety of examples, strong words, and admonitions, Campbell repeatedly and consistently rejected all evidence in the trial court record of allegedly similar out-of -state conduct as being “dissimilar,” “tangential,” and bearing “no relation” to the conduct that injured the Campbells.27 The lower courts are entitled to disagree with the Supreme Court’s analysis and conclusions but are bound by the U.S. Constitution to follow and apply them.
In reading Campbell, it is difficult to miss the Court’s annoyance at having lower courts ignore or misinterpret the Court’s previous opinions in Gore and Cooper Industries. Campbell says in down-to-earth language atypical of the Court’s usual scholarly gentility:
We meant what we said in Gore and Cooper Industries. Stop admitting irrelevant and prejudicial evidence of other “bad acts” having little or nothing to do with the conduct at issue before you. Start instructing juries fully, carefully and specifically about what they may and may not consider in awarding and assessing punitive damages! We know you have never been required to do this before but as interpreters of the Constitution we are requiring you to do it from this point forward!
Of course, being the U.S. Supreme Court, they could not use those exact words, but that is what they were saying in firm but polite Supreme Court-speak.
Guidepost Two—Relationship to Type, Amount of Compensatory Damages
• The “Ratio” Test
“Turning to the second Gore guidepost,”28 the Court again declined to “impose a bright-line ratio which a punitive damage award cannot exceed.”29 The Court then proceeded to do essentially just that, leaving a small amount of discretion for lower courts while reminding them of the difference between “discretion” and “doing whatever you feel like.”
Our jurisprudence and the principles it has now established demonstrate, however, that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.. . . While these ratios are not binding, they are instructive. They demonstrate what should be obvious: Single-digit multipliers are more likely to comport with due process, while still achieving the State’s goals of deterrence and retribution, than awards with ratios in range of 500 to 1, id., at 582, or, in this case, of 145 to 1.30
To obviate any doubt about the all-but-“binding” nature of these “guidelines,” one need look no further than the penultimate sentence of Justice Ginsburg’s dissent: “Even if I were prepared to accept the flexible guides prescribed in Gore, I would not join the Court’s swift conversion of those guides into instructions that begin to resemble marching orders.”31
Precisely. Trial and appellate courts may not circumvent or ignore the Supreme Court’s pronouncements simply because the Court is deferential and courteous enough to couch its “orders” as “guidelines” or because its decisions are not unanimous (they rarely are). Dissenting opinions are an integral and important part of our appellate jurisprudence. They do not, however, give lower courts an alternative path to follow simply because they do not approve of the law as enunciated by the majority.
The Court proceeded to explain that its guidelines might be exceeded if truly reprehensible conduct resulted in only minor economic loss such that a single digit ratio might be insufficient. However, in doing so, it suggested that deviation from its guidelines should not only be rare, but a two-way street that might well disqualify even a small “single digit ratio” award if actual or compensatory damages were substantial. “The converse is also true, however. When compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee.”32 The Court applied this “guideline” in the concluding paragraph of the opinion, opining that the facts of Campbell “likely would justify a punitive damages award at or near the amount of compensatory damages.”33 “At or near”—not “more than.” What disturbed Justice Ginsburg as “instructions that begin to resemble marching orders,” others might describe as a rare, refreshing, and much needed dose of clarity and specificity.
The Court emphasized the importance of basing a punitive damage award on the impact or harm defendant’s conduct caused the plaintiff, not on some alleged hypothetical harm to others or dissimilar harm allegedly perpetrated in another jurisdiction or in the distant past.34 Furthermore, and the importance of this next sentence cannot be overstated: “The principles set forth in Gore must be implemented with care, to ensure both reasonableness and proportionality.”35 The U.S. Supreme Court has categorically rejected the increasing reluctance and refusal of trial and appellate courts to overturn all but the most egregious punitive damage awards or to sweep under the rug (known as the “harmless error” doctrine and the “abuse of discretion” standard of review) the admission and argument of prejudicial evidence having nothing whatsoever to do with the conduct alleged to have harmed plaintiff. Neither the jury’s “verdict” nor the trial court’s “discretion” in admitting evidence are to stand in the way of thoughtful, principled de novo review of punitive damage awards according to the constitutional limitations and guidelines mandated by Campbell. Campbell admonished trial and appellate courts to fulfill their duties as “gatekeepers” regarding the exclusion of evidence designed to prejudice the jury against the defendant despite having little or no probative value to the proper assessment of punitive damages, that is, little or no similarity or proximity to: 1) the conduct forming the basis for plaintiff’s punitive damage claim; 2) the jurisdictional location thereof; or 3) the relevant time period in which the conduct at issue occurred. The Court certainly seemed to say that the admission of such evidence rarely, if ever, can be swept aside as “harmless error.”
Guidepost Three—Relationship to Analogous Civil (Not Criminal) Penalties
Gore’s third guidepost is “the disparity between the punitive damages award and the ‘civil penalties authorized or imposed in comparable cases.’”36 The Court explained that although in the past it had looked to criminal penalties as well, it was no longer willing to do so as a means of setting the amount of punitive damages. Criminal penalties are only relevant to show the types of conduct that might warrant punitive damages.37 The Court observed that the most relevant civil sanction under Utah law for the wrong done to the Campbells was a $10,000 fine for fraud, “an amount dwarfed by the $145 million punitive damages award.”38 The Court again summarized and rejected the Utah high court’s reasoning and analysis as being “insufficient to justify the award.”39 “The punitive award of $145 million, therefore, was neither reasonable nor proportionate to the wrong committed, and it was an irrational and arbitrary deprivation of the property of the defendant.”40
Importance of Jury Instructions
The Court stated throughout the opinion that the jury must be specifically and meaningfully charged concerning the constitutional limitations on any such award. “Vague instructions, or those that merely inform the jury to avoid ‘passion or prejudice,’ App. to Pet. for Cert. 108a.109a, do little to aid the decision maker in its task of assigning appropriate weight to evidence that is relevant and evidence that is tangential or only inflammatory.”41 way of example, the Court noted: “A jury must be instructed, furthermore, that it may not use evidence of out-of-state conduct to punish a defendant for action that was lawful in the jurisdiction where it occurred.”42
The Court, as it must, left the precise details of additional, specific instructions to the trial and appellate courts who are entrusted with implementing the High Court’s rulings. The lower courts, with the able assistance of the bar, must take Campbell to heart and formulate standardized jury instructions that will embody, as fully and specifically as possible, the constitutional limitations set forth therein. Undoubtedly, additional instructions will need to be crafted by counsel and the trial court on a case-by-case basis depending on the facts. The Court’s obvious displeasure with and rejection of vague, generalized “one size fits all” jury instructions in punitive damage cases should cause trial judges to rethink their unwillingness to stray from or supplement standardized instructions in other areas as well.
“Standard” instructions and specific case-based instructions are not antithetical to one another. Both types of instructions are necessary to provide appropriate uniformity in the law together with the flexibility essential to the diverse fact patterns and legal issues that arise in many cases. Trial courts, after Campbell, are obligated to read, follow, and implement its holding by charging the jury fully and specifically concerning what it may and may not consider in awarding punitive damages. Vague general instructions studiously drafted to provide the jury with as little real guidance as possible will no longer pass constitutional muster.
Impact on Future Discovery
Although Campbell does not address the issue of discovery per se, the implications are difficult to ignore. The Court quoted directly from the Utah Supreme Court opinion regarding the extensive evidence pertaining to State Farm’s nationwide performance, planning and review, or PP&R, policy43 and then noted: “Evidence pertaining to the PP&R policy concerned State Farm’s business practices for over 20 years in numerous States. Most of these practices bore no relation to third-party automobile insurance claims, the type of claim underlying the Campbells’ complaint against the company.”44
The Campbells argued that evidence of State Farm’s nationwide policy and handling of first party claims (Campbell being a third party claim) was relevant because every dollar earned by State Farm in underpaying one type of claim was the same as a dollar earned in underpaying another. Plaintiff also offered expert testimony that State Farm’s nationwide practices ultimately hurt all consumers, thus supplying the “nexus” with plaintiff Gore and Cooper Industries required. “For the reasons already stated, this argument is unconvincing. The reprehensibility guidepost does not permit courts to expand the scope of the case so that a defendant may be punished for any malfeasance, which in this case extended for a 20-year period.”45
The Court’s very next sentence may well have greater impact on future discovery and evidentiary disputes in civil cases than anything else uttered in this astonishing opinion. “In this case, because the Campbells have shown no conduct by State Farm similar to that which harmed them, the conduct that harmed them is the only conduct relevant to the reprehensibility analysis.”46 This sentence may be the most powerful tool ever given to the trial bar and trial and lower appellate courts to limit the discovery and use at trial of documents and evidence of “other bad acts” which have long been the cornerstone (now rejected as the “Emperor’s New Clothes” many have long argued such evidence to be) of punitive damage litigation. One might justifiably ask, as Justice Ginsburg implicitly did in her dissent: “If this evidence of State Farm’s nationwide scheme to underpay claims to increase profits does not constitute evidence of ‘a nexus’ to ‘the specific harm suffered’ [by the Campbells], what evidence possibly would or could?” This is the precise point Campbell firmly and dramatically makes. There is unlikely ever to be such evidence and its admission at trial is strongly disfavored as a matter of substantive due process. The Supreme Court almost never says “never,” and correctly did not do so here, because it cannot anticipate what fact patterns might arise in the future. It was, however, very clear about what to do on the factual record before it. It rejected all “similar bad acts” evidence presented in Campbell as unworthy of consideration by the jury and described its decision as “neither close nor difficult.”
Campbell has expressly and severely limited the meaning of the word “similar” in these cases. “Similar” no longer encompasses whatever plaintiff’s counsel can dig up on defendant nationwide over the past half-century. It no longer encompasses evidence of misconduct in “first party” cases when the alleged misconduct in suit involves a “third party” bad faith claim or vice versa. It no longer involves “nationwide” “policies” intended to enhance profitability. The long festering argument about the breadth of “similar bad acts” has been resolved by the highest authority.47 The lower courts and members of the bar (as well as the public) have a constitutionally protected right to disagree with the majority’s conclusions and analysis. However, they also have a constitutionally imposed obligation to follow the law and the law now defines “similar” very narrowly. “Similar” now means “pretty close to identical” in kind, location, and time.
Although the scope of discovery is broader than the test for admissibility at trial, the clear implication of Campbell is that trial courts should limit discovery to information calculated to lead to the far more limited scope of admissible evidence set forth therein. The Court’s emphasis on dramatically narrowing the scope of “similar” kinds of conduct; specifically requiring that such conduct meaningfully and substantially affect the citizens of the state where the alleged wrongful conduct toward plaintiff took place; further requiring a “nexus” between the other “bad acts” and the harm to plaintiff; requiring a proximity in time (as well as place) of the allegedly similar bad acts to the wrongful conduct alleged; and finally and most notably rejecting as completely irrelevant and “dissimilar” all of the purportedly “similar bad acts” evidence offered by plaintiff in Campbell;leaves no doubt that narrower limitations on the scope of discovery of such conduct are part and parcel of the Campbell decision.48
Campbell, as Justice Ginsburg noted with apparent displeasure in her dissent, represents a “new” approach to punitive damages and similar species of litigation.49 Why constitutional law should not evolve in this direction the dissenters do not make clear other than Justice Scalia’s and Justice Thomas’s belief that substantive due process simply does not attach to state law punitive damage awards;50 and Justice Scalia’s additional assertion that the constitutional guidelines enunciated in Gore and Campbell were incapable of “principled application.”51 The fact that due process as well as a multitude of other constitutional mandates and prohibitions are difficult to reduce to “paint-by-the-numbers” rules and guidelines should rarely, if ever, be used to confer constitutionality “by default.” As the majority opinion noted in quoting and categorically rejecting the Utah courts’ misinterpretation of Gore and Cooper Industries, the problem with “principled application” of the nation’s constitution and laws lay far more often with the “principals” (the judiciary and trial bar) than with the “principles.”52
It makes no sense to interpret Campbell as saying: “You can still force defendant to produce or disclose to you every ‘bad’ thing it has done nationwide for the past 20 years. You simply cannot offer it into evidence at trial.” Indeed, this precise facet of Campbell may well be one of its most important ultimate benefits to the legal system and the avoidance of frivolous claims, although it may take further decisions of responsible trial and appellate courts, including the Supreme Court, before the “new way of doing things” truly becomes inculcated into the daily jurisprudence of trial courts and trial lawyers. “Old habits die hard.” Nevertheless, the sooner these “old habits” die, the better.
Although arbitrary and disproportionate punitive damage awards have been a legitimate concern of large corporations, insurers, and anybody else with sufficient assets to be subject to the whim and caprice of juries, the actual risk of the large punitive damage award is only one part of the problem. The cost of defending these claims, especially when plaintiffs have free rein to ask for virtually every document a corporation possesses nationwide, with very few meaningful restraints to protect against abuse, increases dramatically the cost of doing business and deprives the economy of much-needed assets far better spent on other more productive endeavors. Campbell appears to have sent a strong message to litigants and lower courts alike that “business as usual,” in the realm of punitive damage claims will no longer be tolerated. This message applies not only to the factual predicates necessary to initiate and support such claims; but also to the permissible factors and evidence to be considered in determining both entitlement and amount.
Impact on Insurer’s Statutory Bad Faith Claims
Campbell did not dwell on the specific kind of “punitive damage” claim at issue there, precisely because its opinion encompassed all manner of punitive damage awards. One of the causes of action supporting punitive damages in Campbell was common law bad faith, sometimes known as violation of the insurer’s common law duty of good faith and fair dealing. In reversing and remanding for trial the Utah trial court’s initial summary judgment in favor of State Farm, the Utah Court of Appeal noted that the Campbells were entitled to prove their claim of bad faith “and to prove they are entitled to punitive damages.”53
Florida and several other states have adopted the Uniform Unfair Claims Settlement Practices Act. Some but not all of these states permit individuals to sue for specified violations of the act. Campbell potentially has far-reaching implications for punitive damage claims and awards authorized by such statutes, as enacted in Florida54 and elsewhere. Florida’s implementation of the statute contains the following provision:
(4) No punitive damages shall be awarded under this section unless the acts giving rise to the violation occur with such frequency as to indicate a general business practice and these acts are:
(a) Willful, wanton, and malicious;
(b) In reckless disregard for the rights of any insured; or
(c) In reckless disregard of the rights of a beneficiary under a life insurance contract.55 (emphasis supplied)
Florida or federal courts charged with determining the constitutionality of state statutes must reconcile the above highlighted language with Campbell’s constitutional prohibition against basing punitive damages on out-of-state conduct and conduct dissimilar to the conduct and harm resulting in the violation. If the “acts giving rise to the violation occur with such frequency as to indicate a general business practice” based on out-of-state conduct which may be lawful in those other states or based on in-state conduct which does not meet Campbell’s exceedingly narrow definition of the word “similar” in this context, the continuing viability of punitive damage awards pursuant to such statutes as presently drafted is in doubt.
If the statute plainly requires an unconstitutional ingredient, that is, evidence extraneous and dissimilar to the conduct alleged to have harmed plaintiff, to permit punitive damages to be awarded, any such award violates substantive due process as held by Campbell and the statutory language must be rejected. If, on the other hand, the offensive language is judicially written out of the statute to attempt to save the statute from constitutional infirmity, a clear statutory precondition for the award of punitive damages deliberately placed there by the legislative branch will have been eliminated, in plain violation of the equally important constitutional doctrine of separation of powers.
The judicial branch cannot supplant the legislature’s plain intent to require repetitious behavior sufficient to constitute a general business practice as a precondition to awarding punitive damages in order to avoid a different constitutional prohibition now established by Campbell. The above statutory language allowing punitive damages for certain violations of the Unfair Claims Settlement Practices Act may require legislative amendment to comply with Campbell.
Conclusion
Gore, Cooper Industries, and Campbell have dramatically changed the landscape of punitive damage claims for the foreseeable future. In Campbell, the Supreme Court looked into the trenches of punitive damage litigation and, not liking what it saw, engaged in some “plain talk” to the judiciary and the trial bar about the constitutional restraints on punitive damage claims. It is exceedingly important that the trial bar and lower courts follow the Court’s ruling. One notable part of the Utah Supreme Court’s constitutionally flawed and rejected analysis in deciding Campbell was its reliance on the trial court’s express finding that: “State Farm’s actions, because of their clandestine nature, will be punished at most in one out of every 50,000 cases as a matter of statistical probability,’ ___ P. 3d, at ___,2001 WL 1246676, at *15,. . . ”56
The “statistical probability” of any given case, however wrongly or “unconstitutionally” decided, being reviewed by the Supreme Court of the United States is substantially smaller despite the open, public, and distinctly “non-clandestine” nature of such decisions.57 We must be able to rely upon our trial courts to apply and follow the law and on our trial bar never to confuse zealous advocacy with misstating that law to the court.
The bedrock of our judicial system is “the rule of law.” This “principle,” that we are governed by laws uniformly applicable to all and not by “men” free to bend and shape the rules to suit their own purposes, is predicated, first and foremost, on the willingness of the citizenry, the trial bar and the trial courts to follow and apply the law whether they agree with it or not. “Appellate review,” the “hope” that a higher court will correct a mistake after hundreds of thousands of dollars in legal fees and judicial and private time and resources have been spent is a distant second.
Continued failure of lower courts to apply and follow multiple Supreme Court decisions addressing the same subject discredits and weakens our entire judicial and legal system. The trial bar and trial courts must accept their responsibility to apply and follow both the letter and spirit of the law announced in Gore, Cooper Industries, and Campbell. The “rule of law” depends on it.
1 “Although these awards serve the same purposes as criminal penalties, defendants subjected to punitive damages in civil cases have not been accorded the protections applicable in a criminal proceeding.” 123 S. Ct. at 1520. “Great care must be taken to avoid use of the civil process to assess criminal penalties that can be imposed only after the heightened protections of a criminal trial have been observed, including, of course, its higher standards of proof.” Id. at 1526.
2 Cooper Industries, 532 U.S. at 443.
3 Id. at 437.
4 65 P.3d at 1143-44.
5 65 P.3d at 1144.
6 Campbell, 123 S. Ct. at 1520.
7 Id. at 1517-18.
8 Id. at 1518.
9 Id. at 1518.
10 Id. at 1519.
11 Id. at 1520.
12 Id. at 1521. That the Campbells were ably represented before the Supreme Court is confirmed by two words: Laurence Tribe. Had more liberal presidents been in a position to appoint more Supreme Court justices over the past 20 or so years, Professor Tribe more than likely would have been one of the justices deciding Campbell, not one of the advocates arguing it. His knowledge of the law; love and respect for it; and advocacy skills are unparalleled.
13 Id.
14 Id. (emphasis added).
15 Id.
16 Id.; also 1527–30 (Ginsburg, J., dissenting).
17 Id. at 1521 (emphasis added).
18 Id. at 1522.
19 Id.
20 Id. (emphasis added).
21 Id. at 1523.
22 Id.
23 Id.
24 Id.
25 Id. at 1530–31 (Ginsburg, J., dissenting).
26 It is disingenuous for anyone, other than a sitting Supreme Court Justice, to speak of any plain statement, directive, or “guidance” to lower courts in a majority opinion of the United States Supreme Court as dicta or anything less than binding. No one who respects the rule of law can justify or be pleased by lower court judges or members of the trial bar who attempt to flout, distort, or sidestep the clearly enunciated rulings of the United States Supreme Court.
27 Campbell, 123 S. Ct. at 1523.
28 Id. at 1524.
29 Id.
30 Id.
31 Id. at 1531 (emphasis added) (Ginsburg, J., dissenting).
32 Id. at 1524 (emphasis added).
33 Id. at 1526.
34 Id. at 1523.
35 Id. at 1525–26.
36 Id. at 1526.
37 Id.
38 Id. at 1526, citing to 65 P.3d 1154, where the Utah Supreme Court stated: “Specifically, the trial court found that State Farm could be forced: (1) to pay a $10,000 fine for each act of fraud under Utah Code Ann. §§ 31A-26-301 et seq.” In fact, the $10,000 fine was for violation of Utah’s Unfair Claims Practices Act, §§31A-26-301 et seq., not fraud per se.
39 Id.
40 Id.
41 Id. at 1520 (emphasis added).
42 Id. at 1522-23.
43 Id. at 1519.
44 Id.
45 Id. at 1524.
46 Id. (emphasis added).
47 Your spouse does not count in this particular “similar bad acts” debate.
48 See, e.g., Evans v. Allstate Insurance Company, 2003 WL 21382474 (N.D. Okla. June 13, 2003) (citing Campbell to reject request for deposition discovery of company’s “apex” officers regarding punitive damage claim based on alleged “pervasive practice of inadequate supervision over Allstate claims adjusters” and limiting territorial scope of requested information to “the State of Oklahoma” regarding categories of Rule 30(b)(6) testimony of Allstate’s corporate designees).
49 “If our activity in this domain is now ‘well-established,’ see ante, at 1519, 1525, it takes place on ground not long held.” Campbell, 123 S.Ct. at 1527 (Ginsburg, J., dissenting).
50 Id. at 1526.
51 “I am also of the view that the punitive damages jurisprudence which has sprung forth from BMW v. Gore is insusceptible of principled application.” Id. (Scalia, J. dissenting).
52 Justice Kennedy said as much when commenting on trial counsel’s success in convincing the trial court to misinterpret Gore. “In opposing State Farm’s motion to exclude such evidence under Gore, the Campbells’ counsel convinced the trial court that there was no limitation on the scope of evidence that could be considered under our precedents.” Id. at 1522.
53 840 P. 2d 130 (Utah App. 1992).
54 Fla. Stat. §624.155.
55 Fla. Stat. §624.155(4) (2003).
56 Campbell, 123 S. Ct. at 1519.
57 Perhaps, the Supreme Court will more routinely grant certiorari to reverse decisions failing to follow Campbell and remand them for compliance therewith. See Ford Motor Co. v. Ramon,123 S. Ct. 2072 (May 19, 2003); Ford Motor v. Smith, 123 S. Ct. 2072 (May 19, 2003); DeKalb Genetics Corp. v. Bayer CropScience, S.A.,123 S. Ct. 1828, 155 L. Ed. 2d 662 (April 21, 2003) (No. 02-130); National Union Fire Ins. Co. of Pittsburgh, Pa. v. Textron Financial Corp., 123 S. Ct. 1783, 155 L. Ed. 2d 662 (April 21, 2003); San Paolo U.S. Holding Co. Inc. v. Simon, 123 S. Ct. 1828, 155 L. Ed. 2d 661 (April 21, 2003); Key Pharmaceuticals, Inc. v. Edwards, 123 S. Ct. 1781, 155 L. Ed. 2d 662 (April 21, 2003); Anchor Hocking, Inc. v. Waddill, 123 S. Ct. 1781, 1781, 155 L. Ed. 2d 662 (April 21, 2003).
John T. Kolinski received his law degree, cum laude, from the University of Michigan Law School in 1975. He simultaneously received his B.A. and M.A. in English literature, summa cum laude, from the University of Detroit. Mr. Kolinski practices with Shutts & Bowen, LLP, in the firm’s litigation department, handling a variety of cases including construction litigation, creditor’s rights, disability insurance, contract disputes, and personal injury claims.
