Statutory caps on punitive damages: are they infringing on your rights?

Author:Russell, Lynsey
 
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  1. INTRODUCTION

    The constitutionality of punitive damages is historically a highly debated area of the law. Due process challenges led to increased limitations, (1) and increased limitations led to further constitutional challenges; (2) the conflict seemed to be never ending. While history and the current nationwide trend (3) suggest that statutory restrictions on punitive damages are favorable, the Supreme Court of Missouri recently held that the statutory cap imposed by Missouri Revised Statutes Section 510.265 was unconstitutional in certain cases and struck the statutory punitive damages cap in a limited context. (4)

    The argument surrounding statutory caps on punitive damages seems to be black and white--either for or against. However, this may not be the case, as a closer evaluation of Missouri history and the instant decision suggest that the issue is more nuanced. First, Part 11 of this Note summarizes the facts, procedural posture, and holding of Lewellen v. Franklin. Second, Part III explores the legal background of punitive damages and the limitations that have historically been imposed on them. Next, Part IV describes the majority opinion in Lewellen and examines the Supreme Court of Missouri's rationale. Lastly, Part IV Note examines the current nationwide trend, analyzes how Missouri's ruling fits within this trend, and discusses the future impact of the instant case.

  2. FACTS AND HOLDING

    Lillian Lewellen brought an action against Chad Franklin and Chad Franklin National Auto Sales North, LLC ("National") for common law fraudulent misrepresentation and unlawful merchandising practices under the Missouri Merchandising Practice Act ("MMPA"). (5) Lewellen alleged fraudulent misrepresentation and unlawful practices occurred throughout her customer relationship with Franklin and National. (6)

    Franklin owned National, a car dealership located in Kansas City, Missouri. In hopes of increasing vehicle sales at the dealership, Franklin and National implemented a program that allowed customers to purchase a vehicle from the dealership for only $49, $69, or $89 per month. (8) Lured in by National's aggressive advertising and in need of a vehicle, Lewellen visited National and expressed her interest in purchasing a vehicle for $49 per month. (9) National's employees helped Lewellen select a 2002 Lincoln that qualified for the program and assured her that her obligation would only be $49 per month. (10) The salesman explained to Lewellen the workings of the five-year, $49-a-month program. (11) He communicated that the dealership would calculate her monthly payment based on her income but would subsequently send her a check for the difference between the monthly payment and her $49 per month obligation; whereby, she would only actually pay $49 per month. (12)

    Soon after the sale, Lewellen contacted National multiple times because she had not received the check for the difference between payments as promised. (13) Eventually, National sent Lewellen a check in the amount of $3287.30, which covered nine months of the portion of payments that National was responsible for under the agreement. (14) Because Lewellen never received a check for the remaining three months of the first year, Lewellen was unable to make her payments in full, and eventually her car was repossessed. (15)

    After trial, a jury awarded Lewellen $25,000 in actual damages for her fraudulent misrepresentation claim against Franklin and National and an additional $25,000 in actual damages for her MMPA claim against Franklin and National. (16) The jury also found Franklin and National liable for punitive damages and awarded Lewellen $1 million for each claim. (17) Lewellen chose to take judgment for actual and punitive damages for common law fraudulent misrepresentation against Franklin and judgment for actual and punitive damages for the violation of the MMPA against National. (18)

    Franklin and National moved to reduce the punitive damage awards pursuant to Missouri Revised Statutes Section 510.265, which states that punitive damages are not to exceed the greater of $500,000 or five times the judgment awarded in favor of the plaintiff. (19) The trial court sustained their motion and reduced the punitive damage awards against Franklin and National to $500,000 and $539,050 respectively. (20) In doing so, the court rejected Franklin and National's claim that the punitive damage awards violated their due process rights. (21) It also rejected Lewellen's claims that the cap on punitive damages violated her right to a trial by jury. (22)

    In the instant case, Lewellen, Franklin, and National appealed the trial court's judgment and reintroduced their claims. (23) The Supreme Court of Missouri analyzed the language of the Missouri Constitution, which provides, "That the right of trial by jury as heretofore enjoyed shall remain inviolate." (24) The court reasoned that [s]hall remain inviolate' ... means that any change in the right to a jury determination of damages as it existed in 1820 is unconstitutional." (25) The court noted that in 1820, (26) the right to a jury trial in an action for fraud included the right to a determination of punitive damages. (27) Thus, because Section 510.265 imposed a legislative limit on the jury's assessment of punitive damages when such a limit did not exist at the time the Missouri Constitution was adopted, the court found the statutory cap to be unconstitutional. (28)

  3. LEGAL BACKGROUND

    Punitive damages are deeply rooted in the history of American law. These damages, awarded in addition to compensatory damages, serve the dual purposes of punishing past wrongdoing and deterring future wrongful behavior. (29) Embedded in the history of punitive damages is a great deal of debate, as punitive damages have been a subject of controversy since their origination. As a result, both the constitutionality of punitive damages, as well as the caps imposed upon them, are often challenged. (30)

    1. The Supreme Court of the United States's Review of the Constitutionality of Punitive Damages

      The constitutional debate regarding punitive damages hinges on due process considerations, as scholars disagree about whether the imposition of punitive damages passes constitutional muster. Even when it is agreed that punitive damages should exist, the amount of punitive damages that can be constitutionally imposed is debated. (31) Do punitive damages comport with due process? Is there a limit on the amount of punitive damages that comport with due process? The expansive history of this area of law shows that the answers to these questions are complex.

      The Due Process Clause serves as a safeguard against the arbitrary denial of life, liberty, or property by the government, (32) such that it prohibits the imposition of grossly excessive or subjective punishments. (33) Early on, many argued that punitive damages were per se unconstitutional: "The idea is wrong. It is a monstrous heresy. It is an unsightly and an unhealthy excrescence, deforming the symmetry of the body of law." (34) This strong opposition arose from excessive punitive damage awards and alleged arbitrary decisionmaking. (35) The early per se unconstitutional label on punitive damages was removed as courts began to shed light on punitive damages and their constitutionality. The idea that punitive damages could accord with due process began to receive acceptance.

      Acknowledging this idea, the Supreme Court of the United States still expressed its "concern about punitive damages that 'run wild'" and recognized a need for limitations. (36) While many courts echoed these sentiments, the Court confronted the due process challenge to punitive damages head-on in Pacific Mutual Life Insurance Co. v. Haslip, (37) The opinion began, "This case is yet another that presents a challenge to a punitive damages award," (38) and set out "to review the punitive damages procedures and award in the light of the long-enduring debate about their propriety." (39)

      The Court first discussed the common law method for determining the amount of punitive damages to be awarded. (40) Under the common law approach, the amount of punitive damages was initially determined by the jury, which was instructed to consider the gravity of the wrong committed and the need to deter similar conduct. (41) To ensure the award was reasonable, the trial and appellate courts would then review the jury determination. (42) The Court noted that every state and federal court that had considered this two-step mechanism had determined that it, in itself, did not violate due process. (43)

      Although not violative of due process, the two-step mechanism was unsatisfactory to the Court, which honed in on the need for additional limitations in awarding punitive damages. (44) The Court placed a limitation of "reasonableness" on punitive damages and announced, "As long as the discretion is exercised with reasonable constraints, due process is satisfied." (45) Where the punitive damages awarded did "not exceed an amount that [would] accomplish society's goals of punishment and deterrence," the damages were not viewed by the Court as "crossing] the line into the area of constitutional impropriety." (46) Although the punitive damages awarded in Haslip were more than four times the amount of compensatory damages, (47) the Court determined that the punitive damages assessed by the jury against the defendant did not violate the Due Process Clause of the Fourteenth Amendment. (48) The Court applied its new "limitation" and reasoned that "the instructions ... enlightened the jury as to the punitive damages' nature and purpose, identified the damages as punishment for civil wrongdoing of the kind involved, and explained that their imposition was not compulsory." (49) This was deemed a "reasonable constraint" on the application of the common law in reaching the award, such that the damages did not violate due process. (50) In its review of punitive...

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