SC Lawyer, January 2007, #3. Don't Gamble on Due Process Review of Punitive Damages.

• Author: By William J. Watkins Jr.

South Carolina Lawyer

2007.

SC Lawyer, January 2007, #3.

Don't Gamble on Due Process Review of Punitive Damages

South Carolina LawyerJanuary 2007Don't Gamble on Due Process Review of Punitive DamagesBy William J. Watkins Jr.Punitive damages have long been available at common law. In one of the earliest cases, the Court of King's Bench in 1763 allowed punitive damages related to an illegal general warrant and the imprisonment of a printer who had criticized government policy. See Huckle v. Money, 95 Eng. Rep. 768 (K.B. 1763). Twenty-one years later, a South Carolina court approved "exemplary damages" when the defendant slipped a large quantity of Spanish fly into the plaintiff's drink and thus caused plaintiff to suffer extreme pain for two weeks. See Genay v. Norris, 1 S.C.L. 6 (1 Bay 6) (1784). The defendant's prank was a "drunken frolic," but the court nonetheless described it as "a very wanton outrage upon a stranger" warranting punitive damages. Id.

Gamble v. Stevenson: 1991

Pac. Mut. Life Ins. Co. v. Haslip: 1991

Although punitive damages have been available at common law since before American independence, only recently have courts required post-verdict review of punitive damages to determine compliance with due process. In South Carolina, this review has been conducted under Gamble v. Stevenson, 305 S.C. 104, 406 S.E.2d 350 (1991). Gamble, however, was decided several years before the U.S. Supreme Court gave specific guidance on due process requirements in the punitive damages context. Hence, lawyers and trial judges should be careful when examining a punitive damages award under the Gamble factors. Gamble has not been overruled, but a Gamble review might not meet the standards set by the U.S. Supreme Court.

Gamble arose from an automobile accident in which Stevenson's car hit Gamble's car because a stop sign had been removed by agents of Southern Bell during the repair of an underground telephone line. Id. at 105, 406 S.E.2d at 351. Stevenson cross-complained against Southern Bell and received a $5,000 award of actual damages and $87,500 in punitive damages. Id. at 107, 406 S.E.2d at 352. Southern Bell appealed, and one of the issues raised was the due process and equal protection implications of the punitive damages award. Id. at 111, 406 S.E.2d at 353.

In reviewing the award, the S.C. Supreme Court made clear that it was responding to the U.S. Supreme Court's decision in Pac. Mut. Life Ins. Co. v. Haslip, 499 U.S. 1 (1991), which was decided three months prior to Gamble. In Haslip, the Supreme Court considered the narrow issue of "whether the Due Process Clause render[ed] the punitive damages award in this case constitutionally unacceptable." 499 U.S. at 18. Holding that the common law method - in and of itself - does not violate due process, the Court also concluded that the punitive damages assessed against Pacific Mutual were not violative of the Due Process Clause. Id. at 17, 19. Pacific Mutual had the benefit of "the full panoply" of Alabama's procedural protections: (1) the jury was adequately instructed on punitive damages, (2) reasonable post-verdict review procedures existed in the trial court and (3) meaningful appellate review was available. Id. at 23. The holding in Haslip was limited, deciding that the particular procedures in this case were not unreasonable, yet providing "no guidance as to whether other any other procedures are sufficiently 'reasonable[.]' " Id. at 24 (Scalia, J., concurring) (emphasis in original).

After noting the trial court properly charged the jury on punitive damages and that meaningful appellate review existed in South Carolina, the Gamble Court turned to post-verdict review procedures. 305 S.C. at 111-12, 406 S.E.2d at 354. In response to Haslip, the S.C. Supreme Court held that, when examining a punitive damages award, trial courts shall conduct a post-trial review and that they may consider the following:

(1) defendant's degree of culpability; (2) duration of the

conduct; (3) defendant's awareness or concealment; (4) the existence of similar past conduct; (5) likelihood the award will deter the defendant or others from like conduct; (6) whether the award is reasonably related to the harm likely to result from such conduct; (7) defendant's ability to pay; and finally, (8) as noted in Haslip, "other factors" deemed appropriate.

Id.

The S.C. Supreme Court indicated that findings should be placed on the record. Id. Ultimately, the S.C. Supreme Court, based on the factors, upheld the punitive damages award in Gamble.

Id. at 112, 406 S.E.2d at 355.

BMW of N. Am., Inc. v. Gore: 1996

Five years after Haslip, the U.S. Supreme Court again considered due process analysis of punitive damages in BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996). The Court finally addressed the specifics of due process review that it had sidestepped in Haslip. In Gore, Dr. Gore purchased a new BMW automobile that had been repainted, but BMW failed to inform him of this repair. Id. at 563-64. Dr. Gore brought suit against BMW, arguing that the value of his repainted car was less than that of a car that had not been refinished. Id. at 564. The jury awarded Dr. Gore $4,000 in actual damages and $4 million in punitive damages. Id. at 565. The Alabama Supreme Court remitted the award of punitive damages to $2 million because the jury improperly multiplied the compensatory damages by the number of similar sales in other jurisdictions in calculating the punitive damages. Id. at 567. The U.S. Supreme Court granted certiorari to "illuminate the character of the standard that will identify unconstitutionally excessive awards of punitive damages." Id. at 568 (internal quotation marks omitted).

To assist in due process analysis, the Supreme Court identified three "guideposts" for due process review: (1) the degree of reprehensibility of the defendant's conduct, (2) the disparity between the actual harm and the punitive damages award and (3) civil or criminal penalties authorized in comparable cases. Id. at 575. The Court concluded that the $2 million punitive damages award was grossly excessive because the harm was economic and did not affect the safety of the vehicle, the 500 to 1 ratio bore no relationship to the harm suffered and the maximum civil penalty authorized for such conduct by the state legislature was $2,000 under the Deceptive Trade Practices Act. Id. at 582, 584. The judgment was reversed and the case remanded for further proceedings consistent with the announced guideposts. Id. at 586.

State Farm Mut. Auto. Ins. Co. v. Campbell: 2003

Twelve years after the Gamble decision, the U.S. Supreme Court decided State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003), in which it "address[ed] once again the measure of punishment, by means of punitive damages, a State may impose upon a defendant in a civil case." Id. at 412. The Court expressed at the outset its "concerns over the imprecise manner in which the punitive damage systems are administered" in the several states. Id. at 417. Campbell was a bad faith action in which the jury returned a verdict for $2.6 million in actual damages and $145 million in punitive damages. Id. at 415. The trial court reduced the award to $1 million actual damages and $25 million punitive damages, but the Utah Supreme Court reversed and reinstated the verdict of the jury. Id. The U.S. Supreme Court granted certiorari. Id. at 416.

The Campbell Court reaffirmed that the Gore guideposts provide the proper due process test for a punitive damages award. Id. at 418. In undertaking a Gore analysis, the Supreme Court described the case as "neither close nor difficult" and reversed the Utah Supreme Court because: (1) the reprehensibility factor was improperly used "to rebuke State Farm for its nationwide activities" rather than the harm suffered by the plaintiffs, (2) ratios exceeding single digits are seldom appropriate when compensatory damages are substantial and (3) the most relevant civil sanction was a $10,000 fine for an act of fraud. Id. at 418, 420, 425, 428. Frustration with the state court's failure adhere to Gore is evident throughout the majority opinion.

Frazier v. Badger: 2004

The first S.C. Supreme Court case to review a punitive damages award under Campbell was Frazier v. Badger, 361 S.C. 94, 603 S.E.2d 587 (2004). The first citation of Campbell was the Court of Appeals case of Collins Entertainment Corp. v. Coats and Coats Rental and Amusement, 355 S.C. 125, 584 S.E.2d 120 (2003), in which the court examined and upheld a punitive damages award under the Gamble and the Gore factors. In Frazier, the state Supreme Court reviewed an award of $200,000 actual damages and $200,000 punitive damages, an award that had been reduced by the judge from $400,000 in actual damages and $400,000 in punitive damages awarded by the jury. Id. at 98, 603 S.E.2d at 589. The Court did not conduct a Gamble analysis, but did invoke Gamble when it rejected an argument that a plaintiff is required to introduce evidence of a defendant's ability to pay. Id. at 106, 603 S.E.2d at 593. The Court indicated that Gamble only applied to post-trial review and that the factors are examined by the judge and not the jury. Id. The Court found that due process was not offended based on a Campbell analysis. Id. at 107. From the brief discussion in Frazier, it appeared that the Supreme Court believed that Gamble and Campbell could co-exist.

Durham v. Vinson: 2004

Although not specifically addressing the validity of Gamble, the S.C. Supreme Court's decision in Durham v. Vinson, 360 S.C. 639, 602 S.E.2d 760 (2004), is one of the most often cited post-Campbell South Carolina punitive damages opinions. In Vinson, evidence was submitted to the jury indicating that, after the alleged act of malpractice, the surgeon had prescribed Valium for a family member of the patient and had suggested that the family member distribute it to others who were upset about the patient's condition. The trial judge admitted the evidence based on the Gamble factor of "concealment." The Supreme Court reversed and remanded, holding that under Campbell, evidence should not be submitted that allows a jury to punish a defendant for bad acts that do not harm the plaintiff.

Atkinson v. Orkin Exterminating Co.: 2004

The first extensive S.C. Supreme Court analysis of Campbell and adoption of the Gore analysis for due process review of punitive damages was Atkinson v. Orkin Exterminating Co., 361 S.C. 156, 604 S.E.2d 385 (2004). In

Atkinson, the jury awarded $6,191 for breach of contract accompanied by a fraudulent act and $786,500 in punitive damages related to the breach of a transferability provision in a termite bond. Id. at 164, 604 S.E.2d at 389.

In undertaking a due process analysis of the award, the state Supreme Court used the Gore framework and quoted at length from both Gore and Campbell. Based on review of the Gore guideposts, the Supreme Court concluded that "[a]lthough the amount of compensatory damages in the present case was particularly low, Orkin's acts were not so egregious as to warrant a 127 to 1 ratio." Id. at 171, 604 S.E.2d at 393. The Atkinson Court never mentioned the Gamble factors nor cited Gamble at all.

The Atkinson Court indicated that, in some extreme cases, the ratios discussed in Campbell and Gore could be exceeded. Id. at 171, 604 S.E.2d at 393. As an example, the Court cited the Judge Richard Posner's opinion in Mathias v. Accor Economy Lodging, Inc., 347 F.3d 672 (7th Cir. 2003), in which a brother and sister were given a room that the hotel knew to be infested by bedbugs. Atkinson at 171, 604 S.E.2d at 393. In fact, the entire hotel was infested, but management refused to pay an exterminator to treat the building. Mathias at 674. The jury awarded the each plaintiff $5,000 in actual damages and $186,000 in punitive damages. Id. Observing that the Campbell ratio guidance was not overly rigid and that the hotel's conduct was especially egregious, the Seventh Circuit upheld the award. Id. at 678.

Mackela v. Bentley: 2005

In April 2005, when confronted with a challenge to punitive damages, the state Court of Appeals in Mackela v. Bentley, 365 S.C. 44, 614 S.E.2d 648 (2005), upheld a punitive damages award just over three times the actual damages, based on Gamble.

Id. at 50, 614 S.E.2d at 651. However, the court noted that the appellant did not request a review under Campbell and that the appellant relied "exclusively" on Gamble in challenging the award. Mackela at 49, 614 S.E.2d at 651.

Webb v. CSX Transp., Inc.: 2005

In Webb v. CSX Transp., Inc., the jury awarded $3,000,000 in actual damages on the wrongful death claim, $250,000 actual damages on the survival action and $875,000 in punitive damages. 364 S.C. 639, 643, 615 S.E. 2d 440, 442 (2005). The facts of the case are rather simple: a woman and her sister had been out grocery shopping, and their vehicle was hit by a CSX train as they returned home. Id. at 644, 615 S.E.2d at 443. At the trial, evidence was admitted of out-of-state conduct and other matters that did not harm the plaintiff. Id. at 657, 615 S.E.2d at 450. Citing Campbell, the Court reversed the punitive damage award and instructed the trial court on retrial to only permit evidence related to the particular harm suffered by the plaintiff. Id.

James v. Horace Mann Insurance Company: 2006

In November 2006, the Supreme Court decided James v. Horace Mann Ins. Co., 2006 WL 3422235 (S.C. Nov. 27, 2006), which was a bad faith action arising out of a dog bite. James' dog bit Geiger and Geiger suffered injuries as a result. When James submitted the claim to the insurance company, the adjuster erroneously asserted that the liability coverage could not be paid unless Geiger proved James was negligent. At the adjuster's urging, Geiger sued James and received $50,500 verdict. The insurance company paid $25,500 and James paid the remainder.

James then sued Horace Mann because the adjuster misrepresented that dog bites are governed by a negligence standard rather than strict liability and because he had concealed the existence of coverage. The jury awarded James $146,000 in actual damages and $1,000,000 in punitive damages. The trial court approved the verdict under Gamble and Gore, and the Supreme Court affirmed. In reviewing the award, the Supreme Court implied that it is proper for trial courts to conduct both a Gamble and Gore analysis. The Court found that the adjuster's misrepresentations about the law and encouragement of Geiger's suit was "extremely reprehensible," that the 6.82 to one ratio was not an excessive punishment, and that possible statutory penalties were so low that there was little basis for comparing them with the punitive damages award. Interestingly, most of the Court's discussion focused on Gore rather than Gamble. Each Gore factor received a separate discussion whereas all Gamble factors were dealt with in a single paragraph. Gamble remains, but it is clearly the stepchild in punitive damages review.

Conclusion

So the question remains: Do the Gamble factors form the appropriate framework for evaluating the constitutionality of punitive damages awards in South Carolina? With James, the South Carolina Supreme Court implies that a dual review is proper.

The South Carolina Supreme Court should reconsider the dual test and expressly overrule Gamble. Gamble was a good response to early United States Supreme Court case law on punitive damages. But the punitive damages landscape has changed drastically since 1991with Gore and Campbell. Now, clear guideposts exist that courts must use when evaluating a punitive damages award: (1) reprehensibility, (2) ratio of actual damages to punitive damages, and (3) comparable civil penalties.

While several of the Gamble factors relate to the reprehensibility analysis (culpability, duration, and concealment) and the ratio of actual damages to punitive damages (relationship between the award and harm), under Gamble the trial court is not required to evaluate all the factors. Gamble, 305 S.C. at 112, 406 S.E.2d at 354. Additionally, Gamble does not mention comparable civil penalties, a factor that courts are required to consider under Gore. Hence, a complete, constitutionally sufficient analysis is uncertain under a traditional application of Gamble.

Moreover, the "other factors" prong of Gamble permits consideration of matters at odds with the Gore guideposts and thus renders the Gamble review unreliable. For example, out-of-state conduct of a defendant might be considered under the catch-all Gamble prong even though this is prohibited under Campbell. Both Vinson and Webb show a tendency in trial courts to consider bad acts that did not harm the plaintiff. The broad discretion found in Gamble and similar cases from other states is one reason why the United States Supreme Court has expressed frustration with "the imprecise manner in which the punitive damage systems are administered" across the country. Campbell, 538 U.S. at 417. One need not read between the lines to determine that the Supreme Court is demanding uniformity in state punitive damages review. The Court does not desire nor will it permit states to serve as laboratories of punitive damages jurisprudence.

In summary, Atkinson provided good analysis and faithful application of Gore and Campbell.

Atkinson also gave an indication that the Court was preparing to move away from a Gamble analysis. James, however, retains the Gamble framework despite its inconsistencies with Campbell. History and more recent United States Supreme Court case law suggests that Gamble is an outmoded method of due process review and should be discarded. Both Gamble and Gore/Campbell endeavor to reach the same result: to ensure that a punitive damages award comports with the Due Process Clause of the Fourteenth Amendment. The former might not yield a result congruent with the Fourteenth Amendment, but the latter will if the United State Supreme Court's guidance is followed. A definitive word is needed from the state Supreme Court to guide the trial bench and bar on due process review of punitive damages.