Cases by Issue - Punitive Damages Liability

State Farm Mutual Auto Ins. Co. v. Campbell - Oral Argument

Fri, 09 Jan 2009 14:50:39 +0000

Case:

State Farm Mutual Auto Ins. Co. v. Campbell

Media File:

01-1289_20021211-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Sheila L. Birnbaum

Justice Stevens: We'll hear argument in Number 01-1289, State Farm Mutual v. Campbell and others.

Ms. Birnbaum, you may proceed whenever you're ready.

Mr. Birnbaum: Thank you, Justice Stevens, and may it please the Court:

This case arose from a single failure by State Farm to settle a third party automobile case in the State of Utah within the policy limits of its insured in Utah.

There was evidence in the record, uncontroverted evidence, that this was the only case in the State of Utah where a policyholder of State Farm had been subject to potentially a threat of execution on a judgment.

All of the other judgments that were in excess of policy limits, which there were seven of in the State of Utah over a 14-year period, including both before and after Mr. Campbell's case--

Justice Stevens: Ms. Birnbaum, may I ask you a question about the record?

Mr. Birnbaum: --Yes, Your Honor.

Justice Stevens: As I understand the other side, what is at issue is a policy that your company had over the years, I forget the name of it, BP and something or other, and I looked for that policy in the record, and I couldn't find it.

Is it in the record?

Is there a written--

Mr. Birnbaum: It's in the lodging, Your Honor.

Justice Stevens: --It's a lodging?

Mr. Birnbaum: It's at 1506 to 1531 in the lodging, and if you look at the B, so-called PP&R... it's called the Performance Planning and Review Manual... it is a guide.

It is a personnel evaluation guide on how to evaluate personnel, and it applies to all, all the personnel of State Farm, all thousands of personnel, and what the plaintiff did was to cherry-pick from this long manual which is in the lodging, as I said, one or two points that didn't even apply to claims adjustors or claims representatives, but to supervisors, to try to create this pervasive nationwide scheme that there was an attempt by State Farm over 20 years to lessen the claims that they were paying and not pay the fair value of claims.

Justice Ginsburg: Nonetheless, if the jury found such a policy, that there was a policy as alleged by the plaintiff, that's not... we have to take that as a given, don't we, Ms. Birnbaum?

Mr. Birnbaum: You may have to take that as a given, Your Honor, but the question becomes, how is that policy related in any way to this decision to try a case in the State of Utah, and how can State Farm be punished for its nationwide conduct, when all this case was about, and should have been about--

Justice Kennedy: Do you say the evidence of conduct in other jurisdictions should have been excluded, it was inadmissible?

Mr. Birnbaum: --Your Honor, some evidence could have come in under this Court's determination in BMW to show reprehensibility, but evidence that could have come in to show reprehensibility had to be comparable to the conduct that was at stake here.

Justice Souter: Well, what do you say to the argument on the other side that the instances of conduct involving facts having nothing to do with settlement within policy limits, all came in, in effect as rebuttal, as admissible rebuttal evidence in response to issues that State Farm raised?

Mr. Birnbaum: Your Honor, the record is replete in our opening brief.

We cite to the many times all of this evidence came in on direct, of the plaintiff's experts and the plaintiff's so-called fact experts.

That's a makeshift argument.

This didn't just come in.

This was a 2 and month trial on... and most of that trial was geared to this nationwide scheme.

And more importantly, if you look at what the Utah Supreme Court said in reinstating this incredibly excessive verdict, 145 to 1, when you look at that, it is very clear that the Utah Supreme Court was looking at a national scheme.

Justice Souter: Well, yes, that may be.

I mean, I think there's no question it was looking at a national scheme.

The question is whether our gripe, or your gripe is with the Utah Supreme Court or with the case as it was tried, and I take it your answer to my question is, there was evidence going to practices having nothing to do with settlement within policy limits that did come in without any relationship to rebuttal at all.

Mr. Birnbaum: That's exactly right, Your Honor.

Justice Souter: Okay.

Mr. Birnbaum: And it's all cited in our brief, in our opening brief, many, many times.

Justice Scalia: And why doesn't--

Justice O'Connor: --And were objections made each time?

Mr. Birnbaum: Your Honor, there was not, because that wasn't necessary in the State of Utah.

If a litigant objects in limine to the introduction of this evidence, which was done--

Justice O'Connor: That was done.

Mr. Birnbaum: --That was many times done, and Your Honor, when this court came down with the case of BMW v. Gore, there was an oral argument made that that kind of evidence was unconstitutional under Gore, because it was dissimilar and extraterritorial.

Justice Scalia: Ms. Birnbaum, why doesn't it go to reprehensibility if it were true that this failure to settle claims that were quite valid was simply part of a nationwide pattern to pay out less than was due, not just in this context but in every context?

Why doesn't that go to reprehensibility?

Mr. Birnbaum: Because, Your Honor, if we are... if we permit litigants to create this overriding scheme that you are engaged in fraud in all your business practices, and that you can be punished for that, it is as if in Gore--

Justice Kennedy: Well, I think it does go to reprehensibility if we're giving some kind of an ethical report card to State Farm.

Mr. Birnbaum: --Your Honor--

Justice Kennedy: It does not go to reprehensibility, I would think would be your point, as to the harm suffered by this plaintiff.

Mr. Birnbaum: --Absolutely.

Justice Kennedy: And that seems to me the difference.

Mr. Birnbaum: Absolutely.

Your Honor--

Justice Scalia: You say it would go to reprehensibility, and it would go to the harm suffered by this plaintiff, if they introduced evidence of doing the same thing to other plaintiffs in other States, the same thing to other plaintiffs.

How does that go to the harm to this plaintiff?

Mr. Birnbaum: --Well, Your Honor--

Justice Scalia: You know, I don't understand how you can possibly say you cannot introduce evidence from other States, and at the same time say, unless it's introduced to show reprehensibility.

Once you say you're allowed to introduce it for reprehensibility, I don't know why all of this doesn't go to show that State Farm is more reprehensible.

Mr. Birnbaum: --Your Honor, because in Gore v. BMW this Court, the majority of this Court held that you can introduce on the reprehensibility question similar conduct that compares to the conduct that occurred to the particular plaintiff in the underlying case.

Justice Kennedy: Of course, that's all that was offered in Gore, of course.

Mr. Birnbaum: But that... but Your Honor, it would be like--

Justice Kennedy: So we didn't really have to reach your question in that case.

Mr. Birnbaum: --Your Honor, but it would be like in Gore saying that there was a plan to maximize profits, and that not only could you introduce and consider the repair issues that occurred in Gore, but you could also show that there was discrimination against minority customers, that there was--

Justice Breyer: But the answer is that all that does go to reprehensibility.

It does.

A person who commits this conduct and is part of a company that engages in all kinds of bad action is a person who is somewhat more reprehensible than if you worked for a company that doesn't engage in all this bad action, but I thought your point was that that's true, but unless you draw a line like the line that was drawn in Gore, you are inviting a jury to punish the company for all kinds of things that truly do make them more reprehensible, but without standards, without a legislature telling them how reprehensible, et cetera.

Mr. Birnbaum: --I couldn't have said it any better, Your Honor.

[Laughter]

Justice Scalia: Well then, maybe... maybe you can tell me how one defines reprehensibility so that it only includes what you call the same acts.

Maybe you can tell me.

That's what gives me the trauma, and you say not different acts.

What is different acts?

It has to be something--

Mr. Birnbaum: Well, I think--

Justice Scalia: --other than a policyholder who... you know, who passed five, six cars on the highway?

Mr. Birnbaum: --No.

No, you have--

Justice Scalia: Why isn't cheating all policyholders in all contexts, paying less than they're entitled to, why isn't that similar to what happened here?

Mr. Birnbaum: --Because it had nothing to do with what happened here, and I'd like to explain to you.

Maybe it's a little... but what happens in third party and first party cases, in this particular case there was a decision to go to trial.

Why was that decision made to go to trial?

Because at least the lawyers for State Farm in some of the claims represented felt this was a no liability case.

Mr. and Mrs. Campbell said that they were not liable, that they didn't cause this accident.

This wasn't a no-brainer.

There was evidence.

The jury decided on other evidence.

But when you bring into this equation 20 years of conduct that, some of it that is lawful, this wasn't only fraudulent conduct.

This jury heard and was instructed... not instructed, but in the summation there was references to the payment of non-OEM, the specification of non-OEM parts, was perfectly legal in almost every jurisdiction.

Justice Kennedy: How would you formulate the standard that you want us to adopt, the standard which confines the reprehensibility evidence to what you deem to be appropriate in a case such as this?

Mr. Birnbaum: I think--

Justice Kennedy: What rule do we have?

Mr. Birnbaum: --I think, Your Honor, the proper reprehensibility inquiry is limited to an examination of a defendant's specific misconduct toward the plaintiff and similar conduct by the defendant toward others, but it has to be similar.

This was not similar conduct requiring--

Justice Ginsburg: And here you're not drawing a line... one of the lines was similar conduct and in the same State, but in the automobile, automobiles, we're a very mobile society, so I don't think... well, perhaps you are, but you said this is, we draw a line around Utah, but suppose the driver who was insured by State Farm was from California, or from New York, where you get more than seven incidents out of 14 years?

Mr. Birnbaum: --But the question here was, was there a bad faith failure to settle?

That is the conduct.

If there was evidence of bad faith failure to settle in other States, that could come in on reprehensibility.

That could inform the jury in some way, and under BMW v. Gore, you said that that kind of conduct, similar conduct in BMW was identical conduct.

Justice Kennedy: Well then, then you have no concern with punishing for acts that took place out of State?

Mr. Birnbaum: No, I--

Justice Kennedy: You're abandoning that, or--

Mr. Birnbaum: --We have not gotten to the ratio of the comparable penalties questions under BMW.

We were just focusing on reprehensibility.

Justice Scalia: --What is similar conduct in BMW, to give some feel for what you mean by similar conduct?

Mr. Birnbaum: Exactly what the Court--

Justice Scalia: Selling cars with scratches on them, or is it selling... what about, you sell cars with defective, knowingly, with defective clutches?

Would that be similar?

Mr. Birnbaum: --No, it would not.

Justice Scalia: It would... it has to be cars with scratches, it has to be the same thing?

Mr. Birnbaum: It's the conduct--

Justice Scalia: Wow.

Mr. Birnbaum: --It was the conduct that occurred in that case.

In that case there was a failure to tell consumers--

Justice Scalia: The car had a scratch.

Mr. Birnbaum: --that the car had a--

Justice Scalia: So the only cases that are relevant are other cases where BMW pawned off cars that had scratches?

It could pawn off all sorts of other defects, but not scratches?

Mr. Birnbaum: --If you open it up to all kinds of other defects, then you're opening it up--

Justice Scalia: You lose, right.

Mr. Birnbaum: --You're opening it up--

[Laughter]

--to the kind of thing that can happen here, especially if it gets punished.

In this case there was a million dollars' worth of compensatory damages, a substantial number, and this verdict was 145 times that.

That could only be considered because it was punishing all of this extraterritorial, dissimilar, and in many instances, lawful conduct.

Justice Ginsburg: I thought we had just gotten off the extraterritorial... where you said it wouldn't make any difference if the insured was from California or from Utah.

Mr. Birnbaum: That's exactly right, Your Honor.

The really important thing here is that the Utah Supreme Court--

Justice Kennedy: Excuse me.

I don't understand where we are on the out of State.

You say you're going to get to that under another--

Mr. Birnbaum: --Yes.

Justice Kennedy: --prong?

Mr. Birnbaum: Under ratio and comparable penalties, Your Honor.

Because this Court has said that you could introduce extraterritorial conduct, similar, past conduct with regard to reprehensibility, but there are three guideposts in Gore, and the Utah Supreme Court ignored the other two guideposts.

Of course, when it came to the ratio guidepost, this Court has repeatedly said there has to be a reasonable relationship, reasonable ratio between the penalty, the punishment, and the harm to the plaintiff: not the harm to others, not the harm to the community at large, not the harm to all of the consumers that dealt with State Farm, as the Utah Supreme Court held and found, and--

Justice O'Connor: So how do we measure that?

How do we measure the ratio, the reasonable relationship of the penalty?

Mr. Birnbaum: --Here, Your Honor, there was a compensatory damage award of a million dollars.

That was a substantial compensatory award.

The ratio that would be reasonable with regard to a million dollars could not be 145 to 1.

Justice Scalia: Except that, you know, we say that you can't take into account harm to others, but you can take into account harm to others so long as that is done under the rubric of reprehensibility.

Mr. Birnbaum: As long--

Justice Scalia: If you've done the same thing to other people, you can be punished more.

Now, you may find a significant difference between punishing you for what you did to the other people, and punishing you more for what you did to this person, because it is rendered more reprehensible because of what you did to other people, but I don't see a whole lot of difference between the two.

Mr. Birnbaum: --But even if there is a ratio, what reprehensibility does is put you on the continuum of blameworthiness, and this Court has said previously that 4 to 1 is close to the line.

In TXO it permitted 10 to 1 because economic damages was small, and you looked at potential harm as well as the realized harm to the litigant there.

Here, he had substantial compensatory damages.

In addition, if you look at the third guidepost in Gore, you have comparable penalties and sanctions for comparable conduct.

That's how that is defined.

What was the conduct here?

It was a failure to settle within policy limits.

It wasn't intentional tort; it was--

Justice Stevens: May I just suggest an analogy?

This, in a way this reminds me of the argument we heard last week... maybe it was last session... about the three strikes law in California; that you're not necessarily punished for the other things you did, but you can take into account your prior crimes even in other States in order to justify a more severe penalty for what you've done here.

And isn't it... part of the argument the other side makes is that this is a very large company, and the board of directors doesn't hear about a $100 million punitive damage award down in Texas, and therefore you've got to at least give them enough money so the board of directors will know they ought to take corrective steps.

Mr. Birnbaum: --Could I just first answer this $100 million punitive damage award, because I think that really shows where the Utah Supreme Court is going.

There was no judgment.

This had nothing to do with bad faith failure to settle.

It had to do with an uninsured motorist coverage.

The case was settled for pennies on the dollar.

There was no--

Justice Kennedy: 99 cents?

Unknown Speaker: [Laughter]

Mr. Birnbaum: --Pennies.

Pennies.

Unfortunately I couldn't put into evidence the amount because there as a confidentiality agreement, but that case had nothing to do with the kind of conduct here.

You cannot--

Justice Kennedy: No, but I suppose to the extent it's relevant it is, that you need an awfully big award against an awfully big company, because you want the company itself to take corrective steps, and if this $100 million award isn't even called to the attention of the board of directors, maybe that says you needed a larger award than would otherwise be justified.

Mr. Birnbaum: --Your Honor, I think if you look at this, this was a jury award that was never made into a judgment.

Why would anybody... it was settled.

It was a runaway verdict in a place.

Why would anybody go to the board of directors with something like that?

Justice Souter: Okay, let's assume the $100 million had never happened.

Mr. Birnbaum: Okay.

Justice Souter: The argument as made is, this is a company with a surplus in, literally measured in the billions.

You've got to have a really big judgment to get their attention.

What's your response?

Mr. Birnbaum: The answer to that is, first of all, surplus was the wrong number to ever focus on.

That money is accounted for, and there are some very good briefs, amicus briefs that talk about surplus.

There was never a profit from underwriting in this particular instance, and the fact that the company has surpluses, that's to pay out claims.

Justice Breyer: That's just saying how rich they are.

I mean, the question... whether they're rich or not, they seem quite rich, but maybe they're not, but the harm here was what?

That is he had a $50,000 policy.

Mr. Birnbaum: Yes.

Justice Breyer: And he for a period of time the client thought that he'd have to pay $136,000 out of his own pocket, for how long a period of time?

Mr. Birnbaum: There is a question in the record.

The trial court said that it was for a short period of time.

The Utah Supreme Court said it was for 18 months.

Justice Breyer: All right, so for 18 months he's frightened that he'll have to pay $136,000 out of his own pocket, all right.

Now, because of that fright, he was given a million dollars in compensation and another $145 million... I don't know, how much went to him?

How much went to the lawyers?

Mr. Birnbaum: Well, Your Honor, there would be 40 percent that would go to the lawyers--

Justice Breyer: So--

Mr. Birnbaum: --and under the agreement the--

Justice Breyer: --$56 million goes to the lawyers.

Mr. Birnbaum: --Right.

Justice Breyer: And how much went to him?

How much went to him?

Mr. Birnbaum: 10 percent of the award was--

Justice Breyer: All right, so $14 million went to him, and where did the rest go?

Mr. Birnbaum: --It went to the two other plaintiffs in the original case.

Justice Breyer: Okay.

Now, that's all necessary for the follow... or at least not necessary, reasonable for the following reason.

This is a very big company, and unless you really make them pay they might do this again, or if not this, something equally bad, okay?

Now, what's your response?

Mr. Birnbaum: The response to that, Your Honor, is there's nothing in this record... first of all, that kind of ratio is totally unreasonable and out of proportion to the harm to the plaintiff.

Justice Breyer: That's not my question.

My question is, there is a claim.

Even if it's out of proportion to the harm, we've got to wake these people up at State Farm.

Now, they get wakened up by this 145 million judgment, believe me, and--

Mr. Birnbaum: Yes.

There's no question of that.

Justice Breyer: --All right.

Now... all right.

Now, what's your response to that, that's a very desirable and necessary thing, or they might do it again?

Mr. Birnbaum: It's not a necessary thing on this record, it is not a desirable thing.

There was no--

Justice Breyer: Because?

Mr. Birnbaum: --There was no evidence in this record that there was any other case in which there had been a failure to settle within policy limits that jeopardized an insuree--

Justice Breyer: All right, suppose there had been 10 cases in which 10 other people were frightened of having to pay $136,000 for a period of 18 months.

Then, in your opinion, would it have been justified to enter this judgment of $145 million to wake them up?

Indeed, at 4 month intervals they kept doing this over and over.

Mr. Birnbaum: --Your Honor, if that happened, then each one of those plaintiffs could have a bad faith failure to settle claim in which they could have gotten punitive damages in their own States.

There is no... this whole concept that this is a clandestine scheme, every--

Justice Scalia: Maybe no amount of money will suffice.

Maybe we have to send them to jail.

Mr. Birnbaum: --Well, that's what--

[Laughter] That's what the Supreme Court of Utah said, even though it's not in their statute.

Can you imagine, on fair notice, when we talked about fair notice, that you could go to jail for a failure to settle one case in the State of Utah?

Justice Kennedy: Did this jury--

Justice Scalia: --It didn't have authority to send them to jail though, did it?

Mr. Birnbaum: No, they didn't.

Justice Souter: You know, but you're making... I think you're making two arguments.

First, you're making the argument that you started with, and that is, evidence was improperly admitted, acts in other States were improperly considered, acts unlike failure to settle were improperly considered.

Let's assume, for the sake of argument, that you lose... I mean, if you win on that, I presume we're not going to get to the point you're arguing now.

Let's assume you lose on that.

You get to the point that you're arguing now and you say, okay, 4 times the amount of actual damage would be okay, 145 is not.

What do we put in an opinion to indicate what is the proper point in between 4 and 145?

Mr. Birnbaum: I think you've already put that in your opinions in this Court already, and that is that there has to be a relationship between the amount of the punitive damages and the compensatory harm to the plaintiff.

Justice Souter: Yes, I know that, and the question is, is 4 times the relationship appropriate, and 145 is not?

And how about 80, and 60, and 20?

How do we grapple with that?

Mr. Birnbaum: Well, I think you grapple with that only by looking at the three guideposts that you've already put forth, and it could be 4, it could be 5, and some courts have even held 10, but most of the courts that have followed your jurisprudence have held that 3, or 4, or 5 is close to the line.

Justice Souter: Is the point of your argument ultimately... you're not saying this, but I mean, if we accept the way you're going, are we really going down the road to saying, look, at some point we've got to leave this in a less protean state, and we've got to pick a number, and is that our business to do?

Mr. Birnbaum: Now, we're not asking you to put a bright line.

It would be helpful, but I don't think this Court is prepared to do that.

Justice Kennedy: Well, would the bright line be helpful if we said, up to... pick a number... 10 times will be usually accepted unless that is not adequate enough to compensate the plaintiff for the wrong that was done to him?

Mr. Birnbaum: That would be an excellent way of drawing the line, Your Honor.

Justice Scalia: You get this out of what provision of our Bill of Rights?

Mr. Birnbaum: Your Honor, we get it out of due process, the two bedrock provisions called due process and federalism.

Federalism, comity, States' rights.

Justice Ginsburg: But as far as--

Justice Scalia: --It's not specific, is it?

10 times is what it says.

Mr. Birnbaum: No, we're not suggesting that.

I thought it was a good idea, however.

[Laughter]

Justice Ginsburg: Ms. Birnbaum, I'd like you to clarify your position on what has been called extraterritoriality--

Mr. Birnbaum: Yes, Your Honor.

Justice Ginsburg: --because I thought today that you were very forthright with the Court.

You said no, you're not going to make a distinction whether the plaintiff comes from California or New York rather than Utah.

Mr. Birnbaum: Right.

Justice Ginsburg: So you can't just draw a line around the State of Utah and say, that's the relevant State.

But you tell us a supplemental brief was calling attention to a case where there was a specific request to make that kind of charge.

You made no such, State Farm made no such request in this case, as far as I can tell.

Mr. Birnbaum: Yes, they did, Your Honor.

Justice Ginsburg: Yes?

Where?

Mr. Birnbaum: Well, it might not have been totally the same that--

Justice Ginsburg: Which one?

Mr. Birnbaum: --It's in the lodging at 394.

It was instruction number 46.

Justice Ginsburg: Yes, and instruction number 46, which I looked for, was the closest thing.

Mr. Birnbaum: That's right--

Justice Ginsburg: That talks about both compensatory and punitive damages, that you should base it on State Farm's conduct in handling of the case against Curtis Campbell.

Mr. Birnbaum: --Right.

Justice Ginsburg: Only.

Mr. Birnbaum: Right.

Justice Ginsburg: Now, that's not even saying other people within Utah.

So that's... and it's alike for compensatory and punitive.

That is nothing like the charge that said, look in the State of Nevada.

But I just wanted to make sure that you are saying, you don't look only to Utah, because this particular plaintiff happened to come to Utah.

It would be the same thing if the plaintiff came from California.

Mr. Birnbaum: Absolutely, Your Honor.

Let me just mention one other part of the guideposts which I think are very relevant here, and that is comparable penalties for comparable misconduct, and here it is uncontroverted that the penalty that the Utah courts or the Utah system could have placed on State Farm for an act, for a single act of bad faith failure to settle, which was at stake here, was $10,000.

Yet when the Utah Supreme Court examined that guidepost from the Court, it looked at the scheme.

It looked at all of the nationwide conduct to determine that 1) you could be... you would have to disgorge all your profits or you could be imprisoned, which was not correct anyhow under the Utah statute.

But if you restate the guideposts that you have already come down with, and you make it clear that we're talking about conduct that was permitted to the plaintiffs, that we're talking about reasonable ratios that had to do with the plaintiff's wrong, not harm to others, not harm to all of those in Utah... in fact, if you look at the bad faith failure to settle issue, there was no one in the State of Utah that was harmed by that kind of conduct.

There was nobody that was even subject, Justice Breyer, for a short time with execution, and that... and there was no reason, there was no reason to deter that kind of conduct because there was no conduct in the future, after the Campbell case, that that even came close to.

So I think that if you focus on those factors, those guideposts that you elucidated to in Gore, and make them stronger, that would be sufficient for the lower courts to do their job in doing a meaningful... meaningful appellate review, not the kind of review here that was based on questionable conclusions and improper predicates.

Thank you.

Justice Stevens: Thank you, Ms. Birnbaum.

Mr. Tribe, we'll hear from you.

Argument of Laurence H. Tribe

Mr. Tribe: Justice Stevens, and may it please the Court:

I think I might begin by saying that I barely recognize the case that, though I didn't try, I read the transcript in, from hearing Ms. Birnbaum's description.

She says that the conduct involved in this case was simply the failure to settle.

It wasn't, she says, even an intentional tort.

Well, the Court's--

Justice Kennedy: Well, that was the sole ground of liability, was it not?

Mr. Tribe: --The sole ground of original liability was objectively unreasonable failure to settle, but phase 2, which was held at the insistence of plaintiffs, who wanted... of the defendants who wanted to bifurcate, phase 2 focused on the question of whether there was an intentional tort, and there was found to be fraud; and the court, the trial court affirmed the judgment partly on the ground of intentional fraud; and the fraud, and it's not a surprise really to the lawyers for the defendants, because they made it clear in their opening statement that they understood the whole theory of this case to be that the insurance policies that were being sold by State Farm, which led people to think that in first and in third party cases the claims adjuster would try to do a reasonably objective job of satisfying the claim if possible, in fact weren't bad at all.

There was a clandestine cap that was imposed by this innocuous-looking bureaucratic PP&R program that was thoroughly documented and that was imposed from headquarters, documented elaborately by hundreds of examples; and it's true, some of them came from other States, and I will get to that; but they were all just illustrative, because it came from headquarters in Bloomington, and it was a directive--

Justice Breyer: I take it the policy is, pay as little as possible, even if fraud is necessary?

Mr. Tribe: --And, in fact, it was necessary here.

That is, they made up things.

They doctored the file.

Justice Breyer: All right, I see that, but what's--

Mr. Tribe: They made up the fact that... they defamed this dead person and said that he was speeding to meet a pregnant girlfriend, who didn't exist.

There were findings that they systematically shredded, and destroyed, and fabricated documents for two decades in order to cover up the fact that they were not selling what they were pretending to sell.

And it was found in this case clearly, and then again de novo by the Utah Supreme Court, that this policy, which was clandestine and then covered up, was a policy that had persisted for two decades, which they even now seem unwilling to acknowledge.

Justice Stevens: --Can I interrupt with a question?

Mr. Tribe: Sure.

Justice Stevens: I'm sure you're going to get to it, but one can infer... maybe it's not entirely clear... that all of this was established, and there are very, very many, many bad, bad deeds done in all parts of the United States, but that the $145 million is in large part punishment for what was done outside of Utah.

Mr. Tribe: Oh, I don't think so, Justice Stevens.

I do plan to get to that.

Justice Stevens: The second point that relates to that is that when the Supreme Court of Utah made the comparison to what the criminal penalty might have been, they had to be referring to more than what could have been imposed in Utah.

Mr. Tribe: No, Justice Stevens, what they said was this.

They referred among other things to the Utah Unfair Claims Practices Act, which said $10,000 fine per violation; and there were in their view thousands of individual instances of wrongfully denied benefits.

Justice Stevens: In Utah?

Mr. Tribe: In Utah, yes, because they didn't draw this fancy distinction between first and third party claims that is being drawn for the convenience of State Farm.

The wrong is not--

Justice Kennedy: That's the basis of the underlying tort, which was the failure... which was the excess.

Mr. Tribe: --That was the example--

Justice Kennedy: Which was the excess.

Mr. Tribe: --Justice Kennedy.

That was the tip of the iceberg.

Justice Kennedy, this is very important.

In this particular case, it was the failure to settle a case, and it was a fraudulent failure to settle a case, not just a random accident, but it was pursuant to exactly the same policy, capping the average amount that a given claims agents puts out in terms of State Farm money, that is used in these other instances.

It was exactly the same policy.

In this case, it was because this fellow named Bill Brown wanted to move to Colorado, and because he did, and because he was close to his quota, and this is all in the record, and it is found... and it's not disputed any longer.

Because he wanted to move to Colorado, he puts pressure on somebody underneath him to make sure that that year's numbers look better.

Justice Breyer: Of course, companies would have a policy of trying to make as much money as possible.

Mr. Tribe: It's not just making as much money--

Justice Breyer: Well, some companies could add--

Mr. Tribe: --it's stealing.

Justice Breyer: --could add to that, by the way, one way we make money is, we pay out as little as possible and we charge as much as possible.

I remember an airline that had the policy, charge the customer the highest price he will pay for the service that he wants, all right?

Mr. Tribe: But Justice Breyer--

Justice Breyer: There could be such a policy.

Mr. Tribe: --Right--

Justice Breyer: Now--

Mr. Tribe: --and if the policy is sell him a ticket and then turn him away at the door--

Justice Breyer: --Oh, no, no, but by the way--

Mr. Tribe: --pretending to sell him a place--

Justice Breyer: --it might be that such a policy would even condone doing a lot of bad things to do that, and what's worrying me about permitting that kind of policy to serve as a justification for a $145 million judgment is precisely what I wrote in my concurrence in the BMW case, that the Constitution, indeed the Magna Carta says that you should not take life, liberty, or property without law; and to take 12 people, call them a jury, selected at random, and tell them that they are free to go through the business practices of a company--

Mr. Tribe: --Justice Breyer--

Justice Breyer: --to unite them under the name of a policy and then assess $145 million for every bad thing that this jury thinks--

Mr. Tribe: --Justice Breyer, please... I believe in the Magna Carta as much as you do.

It was not arbitrary.

There were criteria.

The criteria were pursuant to an instruction proposed by State Farm, and in this case it was not every bad thing.

All of the specifics, including these seemingly trivial things like appearance allowances, were all introduced in particular cases to show how they were being used by someone who was up against his monthly quota, and because he was up against the monthly quota... you read the testimony of Gary Fye at page 1375 and 1387 of the joint appendix.

Because they were up against the monthly quota, the people at the receiving end who thought they had a claims agent who was, as they call him, a good neighbor, in fact had someone who was selling them a place in the airline, and it wasn't there, deliberately.

Justice Kennedy: --Nothing you have said, Mr. Tribe, Professor, persuades me that the jury didn't punish this company for being a bad company quite without reference--

Mr. Tribe: Because of the--

Justice Kennedy: --to the harm this plaintiff suffered.

Mr. Tribe: --Well, first of all, as to the harm suffered, proposed instruction 40 by State Farm would have told the jury, I think consistent with this Court's jurisprudence and with the history of punitive damages, that they could consider the effect of State Farm's behavior, quote,

"on the lives of plaintiffs and of other policyholders. "

and it's because, Justice Breyer, of what you said in BMW that a lot of other people who are harmed by these practices are not likely to be able to sue.

That is, they're not going to make it.

Mr. Fye testified at 30 and 44, for everyone like Campbell, who will take on a company this size and with the resources of State Farm, there are hundreds, if not thousands, who will simply go away, because State Farm--

Justice Ginsburg: Mr. Tribe, maybe fewer, maybe fewer now after a verdict of that size, and isn't that one of the problems?

Mr. Tribe: --Well, that's the hope.

That--

Justice Ginsburg: Isn't that... now there's an incentive for lawyers to pursue such claims.

Before they might have thought them too small to be worthwhile.

Mr. Tribe: --One of the advantages... there may be down sides, but if we prevail, Justice Ginsburg, we're prevailing on a theory that the practice we've identified, which is quite specific, for 20 years of putting these invisible caps that cheat the insured in all kinds of cases throughout the State of Utah, there will no longer be anyone who can recover for those harms, beyond compensatory damages, because the penalty will have been extracted.

Justice Breyer: The question that's bothering me--

Justice Ginsburg: --Is that true in New York or Vermont?

I mean, you said in Utah there would be no one who can get another $145 million--

Mr. Tribe: I think if they've done this in every State, then they should be exposed to the possibility of punitive damages in other States.

Justice Ginsburg: --So you could multiple that by 50.

Mr. Tribe: Well, you know, it seems to me, if you look at the opinion that was delivered from the bench by the district court after 2 months, in his own words... they accuse us of writing his opinion.

In his own words, what he said was that absent a punitive award, the problem of recurrence of their misconduct is extremely high, the probability of recurrence; because he saw the evidence that they never stopped; and he said that even the $25 million award that he felt constrained by State law, mistakenly, to give, he thought would not suffice because... and I'm now reading from his December 19 opinion... because the $25 million may not be enough to offset the profit that they're likely to have earned.

That is, every time they cheat the insured by--

Justice Stevens: Mr. Tribe, you've told me that this is all based on what happened in Utah.

I haven't read this massive record, and you tell me you have.

In the second phase of the punitive damages trial, not the first one--

Mr. Tribe: --Yes.

Justice Stevens: --when they did get into out of State evidence, what proportion, in your judgment, of that evidence related to Utah, and what proportion related to other States?

Mr. Tribe: I think the overwhelming majority related to Utah, and every time it came in dealing with another State, contrary to what we heard, it was because the door had been opened, and it was specifically found by the trial court that they waived any objection to the testimony in question, despite what we heard about--

Justice Stevens: But you're telling me that over half of the evidence related to Utah itself?

Mr. Tribe: --Yes, but let me tell you, Justice Stevens, it was so uniform that the particular examples were picked because they so nicely illustrated the way a particular device like the use of non-OPM parts would interact with the cap that was imposed.

It was nothing about--

Justice Stevens: Are they correct in telling us that this... there's only one example of a failure to settle--

Mr. Tribe: --We have no way of knowing, Justice Stevens, because they have erected... the record also shows that since the 1970s, part of their policy of destroying records has included--

Justice Stevens: --Yes, but there must have been a lot of records--

Mr. Tribe: --getting rid of all those records.

Justice Stevens: --But they didn't destroy all the evidence to have a trial go on this long.

Mr. Tribe: Well, it's because... part of what was said by the trial court was that it took the persistence of a David to bring this particular Goliath to his knees.

Much of the evidence certainly wasn't produced through discovery.

The key evidence, including the May 1979 PP&R report, was obtained indirectly through other cases, not with any cooperation on the part of State Farm.

State Farm kept saying, we don't have a PP&R policy.

Oh, and then we got rid of it in 1992; and we got rid of it again in 1994; and yes, there's a PP&R policy, but it doesn't actually set the cap on any particular claim.

Well, that's a nicely and artfully put point.

It doesn't.

What it does is, it imposes a ceiling which averages things out and forces whoever is unlucky enough to come in when somebody is about to hit his ceiling to get cheated.

It seems to me that we... it's true that it all began by looking at this, as it happened, failure to settle.

That's a happenstance.

It could have begun in some other way.

Because it happened to a couple that was rather vulnerable, and yet tenacious: this fellow had had one wife who had been murdered in his home, another wife who had died of cancer.

He himself had Parkinson's disease.

They were part of the weakest of the herd, as State Farm's policies put it, that they're picked on, because they're less likely to fight back.

But it happened that these people did fight back, and it seems to me it's not a matter of rewarding them.

They get a relatively small piece of this.

The family of the dead young man gets part of it.

The State may get part of it.

The key point is that it is a critical disincentive, and Justice Kennedy, any notion--

Justice Kennedy: Well, some people get part of it that weren't hurt at all.

Mr. Tribe: --Some lawyers will certainly get part of it.

I don't--

Justice Kennedy: I wasn't referring to the lawyers.

Mr. Tribe: --I--

[Laughter]

What made me think you might have been?

No, but it seems--

Justice Kennedy: Well, I was referring to the other people that took an assignment of the claim together with--

Mr. Tribe: --That could be, but--

Justice Breyer: --I was referring to them, and my problem is that in fact what you have is a system where if you take, let's call it the most evil corporation in the world, and I'm sure there are some such, and they commit a very minor tort in respect to someone, pursuant to their policy of being evil--

Unknown Speaker: [Laughter]

Justice Breyer: --and it seems to me that there are criminal laws, there are regulatory authorities, there are statutes--

Mr. Tribe: --Right.

Justice Breyer: --there is common law, there are many, many sources of law; and it's disturbing in terms of the picture of the law to have 12 people picked at random to assess an enormous fine without standards other than, "this defendant is evil", and I'm assuming he is evil.

Mr. Tribe: Justice Breyer, first, it's not fair to say that was the only standard.

Justice Breyer: Oh, no, I'm trying--

Mr. Tribe: Second... second--

Justice Breyer: --to get you to say what the standard was, if it is not that.

Mr. Tribe: --I thought this Court did a rather good job in BMW.

Reprehensibility could hardly be higher when one has a repeat offender who even now mischaracterizes its intentional tort, when one has a repeat offender that obstructs justice--

Justice Kennedy: But again, you're defining reprehensibility quite without regard to the specific injury imposed on the plaintiff.

Mr. Tribe: --Well--

Justice Kennedy: You're defining... you're giving a report card to the entire company.

Mr. Tribe: --No, but Justice Kennedy, in TXO this Court talked about the ratio not just of the harm that actually befell the particular plaintiff, but of the punitive damages to the harm that might have befallen that plaintiff if the tortious plan had been carried to completion.

Here, if it had been carried to completion the home would have been taken, because a deal would not have been struck in December of '84... of '84, and also in TXO, and in other cases, you've spoken of the harm to the larger community.

You've also spoken of the importance of extracting the profit from tortious behavior.

Justice Kennedy: I think... Justice Breyer touched on this.

Part of the harm to the larger community here is the image that this does to the judicial system when corporations, businesses, people of substance want to use the courts and they're deterred from doing it by the threat of runaway punitive damages, and that is not good for the legal system.

Mr. Tribe: Justice Kennedy, I certainly agree in principle; but to pick a case in which a corporation has defied the legal system, has shredded documents, has covered up its deliberate wrongdoing, has not even bothered to pay attention to a $100 million award... yes, of course it wasn't reduced to a judgment, but the evidence in this case is that that's not relevant.

What was critical is that they had built a wall of deniability so that no one in a decisionmaking capacity is informed of punitive judgments.

Mr. Muskowski testified in this case that he would not let anyone know, in a position of authority, even of the punitive judgment in this case; and in their reply brief they say, well, Mr. Mendoza had decisionmaking authority, but if you look at the relevant pages in the joint appendix, you'll see that that's not true.

In the colloquy it's clear that he did not.

What that means is that a company can surround itself with an impregnable wall and in effect spit at the legal system.

How good is that for its image?

Now, it may be that an ideal legal system might not use juries for this purpose, but is it the mission of this Court to redesign the legal systems of the 50 States?

15 States have signed an amicus brief here saying it's important to them to be able to use punitive damages when the regulatory and criminal justice systems haven't quite caught up with whatever latest axis of evil is afoot in the corporate world.

Is it really helpful to any of us to have a corporation be able to defraud all of the people who rely on it, who depend on it, and get away with paying simply what harm they happened to cause in the one case when they get caught?

It seems to me especially bizarre, especially bizarre for State Farm to speak here proudly of the fact that this is the worst case in history.

Justice Stevens: Can I ask one other question just about the proceedings here?

Mr. Tribe: Yes.

Justice Stevens: The record is so large I didn't have the whole thing completely in mind.

After the trial judge reduced the jury's award of $145 million to... what was it, $20 million?

Mr. Tribe: 25.

Justice Stevens: --$25 million, State Farm still appealed.

Mr. Tribe: There was a cross-appeal by State Farm.

Justice Stevens: Well, did both sides appeal that?

Mr. Tribe: Yes.

Justice Stevens: I see.

It wasn't clear to me.

Mr. Tribe: That's right.

State Farm appealed because it thought there should be no punitives.

It seems even now they think it did nothing wrong.

Justice Stevens: Yes.

Mr. Tribe: And there was a cross-appeal by the Campbells on the grounds that they thought it was a mistake of State law to have reduced the punitives.

Justice Stevens: I was thinking it would have been quite a shock if State Farm had been the only appellant here and that was the result of that appeal.

Mr. Tribe: Yes.

Justice Stevens: It's sort of dramatic, yes.

Mr. Tribe: Yes, well--

Justice Stevens: Both sides appealed.

Mr. Tribe: --Yes, that's correct.

Justice Ginsburg: And isn't there a certain irony in that it was chopped down to $25 million, and then the Utah Supreme Court, using this Court's case law, saying we don't give the ordinary deference that we would give to that judgment of the trial court, because the Supreme Court had told us we must engage in de novo review, and engaging in de novo review, we don't chop it down, we put it back to where it was originally.

Mr. Tribe: Well, Justice Ginsburg, I think in a sense that looks ironic.

It looks as though Cooper v. Leatherman came back in a boomerang, but I think really the way I read the opinion of the Utah Supreme Court, they applied Cooper in an even more vigorous way in general.

That is, they didn't just engage in de novo review of the question of excessiveness.

They engaged in de novo review of all the facts, so you have not just a jury, but a jury and a trial court and a full appellate court.

The only fact on which they said they weren't going to defer was a technical issue about the wealth of State Farm, and the real reason they actually gave for increasing the 25 to 145 was their conviction that the trial court believed that 25 would not stop State Farm from persisting in its practices, and that it was only their own earlier suggestion that the ratio should matter a great deal that had misled the trial court.

Justice Scalia: What do you think the ratio should... I mean, we did say something in BMW about ratio between compensatory damages and punitives.

What do you think the ratio should be?

No limit, 10 to, 145... whatever it takes to stop them?

I mean, what if nothing will stop them but sending them to jail?

Mr. Tribe: Well, in this case, sending them to jail was an option that the Supreme Court of Utah mentioned, and that State Farm doesn't seem to take very seriously.

They think the State Supreme Court of Utah doesn't understand its own law.

There are provisions of Utah law that make deliberate fraud of the sort they committed an imprisonable offense, and maybe that's an option, but that suggests--

Justice Breyer: You mean, you could right in this case put people in prison for--

Mr. Tribe: --Well, I haven't... I have no contact with the Attorney General of Utah, but they--

Justice Breyer: --No, no, I mean, you'd have to bring another trial, wouldn't you?

Mr. Tribe: --Well, of course you... yes.

Yes, but the comparability standard asks, how serious an offense is this, and I submit it's extremely serious.

But to your question, Justice Scalia, on ratio, I think that instead of trying to come up with a number... because I think suggesting any number would be so arbitrary that it would do more damage to this Court than good to the legal system.

It's not like 6 months for the idea of a serious crime.

I mean, it would just be a number plucked from the air, and it would backfire, because as the law and economics people are fond of pointing out, any number you pick will then lead people to sort of modify their behavior accordingly, and just internalize the costs on a kind of bad man theory, and what you really are trying to do is stop the behavior.

We're not talking about negligence here.

We're talking about something of which the optimal level is zero.

The optimal level of deliberate fraud and deception covered up in this way is zero.

The relevance of the ratio, I think, is simply as one thing to look at.

If the ratio looks very high, you ask why is it so high?

In this case, the answer comes back, it's so high because the ratio of the number of people they hurt to the number who are going to be motivated to sue and able to sue is very low.

I mean, is very... you know, a number... a huge number will be hurt.

A very small number are going to be able to make it through that filter.

Justice O'Connor: Well, with verdicts like this, we might see an increase, don't you think?

Mr. Tribe: Well, I suppose.

I suppose, but there are ways of getting rid of frivolous lawsuits.

The point also is, it's hard... if you see an increase, Justice O'Connor, and if it is an increase that gets anywhere, it might be because they stopped destroying the evidence, because they stopped fabricating... they've so doctored the files, like the file in this case, to make it look in any given case as though the report that they give corresponds to the history of the case, and it's awfully hard to sue successfully when the file has been massaged and doctored.

The result in a case like this is of course it looks like a very large award, but--

Justice Kennedy: What if there were in Utah a second Campbell, a second excess carrier, and the case was tried 6 months later.

Would they get the same punitive damages?

Mr. Tribe: --No.

If it was for any activity that occurred during the period from May 1979 to the time of this trial--

Justice Kennedy: Both hypothetical plaintiffs are injured around the time Campbell is, and they both bring the same kind of suit and they have the same evidence; they each get the 145?

Mr. Tribe: --No.

I think that it's a penalty that is like... there ought to be some double jeopardy like doctrine that if they can show that they've already been punished for this course of conduct, they ought not to have to pay the penalty a second time.

Now, the Double Jeopardy Clause--

Justice Ginsburg: Mr. Tribe, I thought you answered--

Justice Stevens: --What's the authority for that proposition?

Mr. Tribe: --I would... I just made it up.

[Laughter]

Justice Stevens: Professor Tribe.

Mr. Tribe: I just made it up.

I said there ought to be such a doctrine.

Justice Ginsburg: Mr. Tribe, you're talking about a second Utah plaintiff.

I thought you answered--

Mr. Tribe: Yes, a second--

Justice Ginsburg: --Several questions ago you said this could be multiplied at least 50 times.

That is, one big winner in each State.

Mr. Tribe: --Well, if they commit 50 big offenses, it's part of our jurisprudence of 50 States that they might be subject to 50 penalties.

That--

Justice Stevens: Your argument is that this is all Utah damages, so there are--

Mr. Tribe: --That's right.

That's--

Justice Stevens: --49 other claims out there that must be at least as valuable.

Mr. Tribe: --Well, that's right.

Justice Stevens: Yes.

Justice Scalia: And even in Utah, I thought our case says you're punishing them for the harm done to this plaintiff.

Mr. Tribe: Ultimately, you are.

Justice Scalia: If you can take reprehensibility into account, but it's for the harm done to... well, what about the harm done to all the other plaintiffs in Utah?

Mr. Tribe: Justice Scalia, there's no pretense that this is compensatory damages.

The compensatory damage compensates them for the harm done to them.

Justice Scalia: Then you shouldn't have said that.

Mr. Tribe: Then the reprehensibility of what was done to them is affected by, as this Court has said, whether it was an isolated event, as they claimed, or whether it was done as part of a schematic, systematic form of predation.

Now, it was of that sort.

That was shown.

The fact that it was predation that was launched from Bloomington and therefore spread throughout the country is State Farm's problem.

It shouldn't be the problem of the plaintiff who collects punitive damages in a given case.

Justice Souter: Mr. Tribe, I can't remember... I assume it's in the briefs, I just don't remember, what was the instruction to the jury on any limits on their consideration of the out-of-State evidence?

Was the jury told, look, you can only punish them for what they did here, this only goes to intent, or something like that?

Mr. Tribe: There was no request here, as there was, for example, in the recent Ninth Circuit case against Ford, no request whatsoever by State Farm for such an instruction.

What they did request, and were not entitled to, was that under BMW they preserved an objection that the out-of-State evidence be completely disregarded, even though it came in in response to the doors that they had opened, but they did not--

Justice Souter: But the objection never eventuated in a request for an instruction--

Mr. Tribe: --Not at all.

Justice Souter: --or in instruction addressing specifically that point?

Mr. Tribe: No, and they were fully aware... I mean, the day after BMW came down, there was a bench conference.

There was an extended colloquy.

It was fully--

Justice Stevens: But wasn't that after the trial?

I thought that was in the petition for reconsideration?

Mr. Tribe: --No.

The... May 21, 1996 was before the full-blown 2-month period of the phase 2 trial.

Justice Stevens: I see.

Mr. Tribe: And it was known very clearly the day after BMW that a good bit of the evidence in this case, because many of the examples of how this policy worked, would come from other places, would not be Utah-based.

The $100 million verdict which would illustrate the wall they built would come from Texas.

They never once asked for an instruction limiting matters to Utah, and I don't fault them for it.

It would have been rather bizarre to do so, because they knew full well that we were not asking the Utah jury or the Utah courts to punish them for what they did elsewhere.

We were simply using what was done elsewhere first to rebut their commissioners... they brought in commissioners from various States to testify that State Farm never did anything wrong.

The trial court said, now you know, if you do that, you're going to open the door... Justice Stevens, I wanted to just... if you do that, you're going to open the door to proof of what happened elsewhere.

They didn't mind, and they insisted that the sequence of proof be rebuttal first, actually, through depositions, and then the principal arguments, which made it look as though it was part of the direct case.

I think that--

Justice Stevens: Thank you, Mr. Tribe.

Mr. Tribe: --this judgment should be affirmed.

Thank you.

Rebuttal of Sheila L. Birnbaum

Mr. Birnbaum: Do I have a little time, can I just... left to respond?

Justice Stevens: You have about--

Mr. Birnbaum: Two minutes?

Justice Stevens: --You have, I think, a minute and a half... but let's make it two and a half.

Mr. Birnbaum: Thank you, Your Honor, I appreciate that, because there are certain things that Mr. Tribe said that I think we have to clarify.

First of all, this case, on the openings of the plaintiff, the plaintiff said to the jury, this case transcends the Campbells' file.

It involves a nationwide practice.

He went on to say, you're going to be evaluating and assessing and hopefully requiring State Farm to stand accountable for what it is doing across the country.

That is the purpose of punitive damages.

On the summation, they asked this jury to act as a national regulator, because none of the regulators had acted against State Farm.

Can you imagine, in a 14... in a 20-year period, State Farm handled approximately 280 million claims.

Justice Souter: What limiting instruction did you ask for?

Mr. Birnbaum: The only instruction, Your Honor, was the instruction that I previously read to Justice Ginsburg that they should look to the conduct toward the Campbells, and that was the instruction.

There was no other instruction.

But whether there was an instruction or not, I think as the Ninth Circuit just said in White v. Ford, you have to look at the evidence, the openings, the closings, and what was punished here.

It was a scheme, and the scheme had no causal relationship with the decision to try this case.

You asked, Justice Stevens, how much of the evidence was extraterritorial?

Huge amounts, and it came in on direct, and we have it cited in our brief, and it wasn't only--

Justice Stevens: Do you disagree with Mr. Tribe's suggestion that over half the evidence related to Utah?

Mr. Birnbaum: --No, Your Honor.

It related to Mr. Campbell's underlying case, not to actions in Utah that harmed Utah policyholders.

That was all inferred from this large national scheme.

In fact, the evidence is contrary.

Justice Stevens: You're saying the Utah evidence was evidence relating to this particular case--

Mr. Birnbaum: Absolutely.

Justice Stevens: --rather than to other Utah policyholders.

Mr. Birnbaum: And if you look at the footnote in their brief, and look at our reply brief, we point out all of that evidence had to do with the underlying case.

The lawyers from the underlying case, Mr. Campbell, Mrs. Campbell, Ospital, Slusher et cetera, and this issue of whether there was one, whether this... Mr. Campbell was vulnerable, Mr. Campbell was the only person in this whole trial that wasn't vulnerable.

He was a 60-year-old white man and who had a B.A. and an M.A. He sat through the entire trial and he said he was not liable, and the decision was made that this was a no liability case.

Mr. Tribe says Ospital was not speeding--

Justice Stevens: Thank you, Ms. Birnbaum.

Mr. Birnbaum: --Thank you so much.

Justice Stevens: I think we've got your position.

The case is submitted.

Attribution:

The Oyez Project

Featured:

Barnes v. Gorman - Oral Argument

Fri, 09 Jan 2009 14:50:23 +0000

Case:

Barnes v. Gorman

Media File:

01-682_20020423-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Lawrence S. Robbins

Chief Justice Rehnquist: We'll hear argument next in No. 01-682, Kay Barnes v. Jeffrey Gorman.

Mr. Robbins.

Mr. Robbins: Thank you, Mr. Chief Justice, and may it please the Court: The Eighth Circuit held in this case that a private plaintiff may obtain punitive damages in an action brought against municipal government defendants under section 504 of the Rehabilitation Act of 1973 and title II of the Americans with Disabilities Act.

Although the court of appeals identified substantial evidence in the legislative record that Congress never intended this result, it thought that this Court's decision in Franklin against Gwinnett County Public Schools left it little or no choice in the matter.

As the Eighth Circuit read Franklin, once a cause of action has been created or inferred, it presumptively carries with it all common law remedies, including punitive damages, unless Congress has specifically said otherwise.

Justice O'Connor: Mr. Robbins, did any... did the petitioners raise the Newport case at any time below?

Mr. Robbins: No.

Justice O'Connor: Why not?

Mr. Robbins: The... the party--

Justice O'Connor: I mean, it looks like the most obvious source of law on this topic.

What's going on here?

Mr. Robbins: --In the lower court, my client took the position that it was, in fact, an arm of the State, not an arm of the municipal government.

For various factors... it cited various factors that in its view warranted an Eleventh Amendment immunity, not a City of Newport immunity.

The court of appeals, in the decision being reviewed before this Court today, rejected that argument.

We have not separately sought certiorari on that decision.

But I... I do want to add on that point, Justice O'Connor, that in our view it would be a mistake to take respondent's suggestion that because my client took that position in the lower court, that this Court should therefore turn a blind eye to the City of Newport doctrine.

It seems to us that it's quite analogous to a situation in which a litigant, for example, decided to argue only legislative history in the lower court and then before this Court... and then someone said, well, you're therefore constrained not to look at the words of the statute.

That seems--

Chief Justice Rehnquist: It doesn't change the issue, I take it.

Mr. Robbins: --It does not change the issue.

The position the client took below was always that punitive damages are unwarranted for a variety of reasons, including a reason that we are now urging by virtue of the client having lost the Eleventh Amendment immunity issue below.

Justice Ginsburg: Was there a reason?

Justice Kennedy: And I suppose it's not like an immunity from suit that can be waived.

It's... we use the term immunity, but it's not that sort of immunity.

Mr. Robbins: Exactly.

It... it is exactly the sense in which it was used in City of Newport as a background principle of law that Congress is assumed to have taken into consideration in enacting the actual test.

And we--

Justice Scalia: Doesn't the Eighth Circuit allow you to argue in the alternative?

I mean, you couldn't have said we have Eleventh Amendment immunity and... and if we don't, we're a municipality, and therefore Newport applies.

You could have done that, I suppose.

Mr. Robbins: --I... I think counsel could have taken that measure.

They didn't, but I don't think that it... that that amounts to a waiver.

Justice Breyer: What are we supposed to do then?

Because it seems to me that you're arguing there are two possibilities.

One possibility is no one gets punitive damages no matter who he sues, and the second is that, anyway, a person who sues a municipality can't get punitive damages.

Your second argument may be a lot stronger than the first.

So, am I supposed to go to the second argument that nobody has argued in the courts below at all, bypassing them, or am I supposed to go to the first argument which has enormous implications well beyond this case?

Mr. Robbins: Well, I think the answer, Justice Breyer, is that we have urged both arguments.

I think we... we could prevail on the basis of either presumption.

I... I would, however, tell you why I think the Court ought to address the broader issue and that is because, given the construction of Franklin that the Eighth Circuit took in this case, there is no good reason to believe that were City of Newport called to their attention, they would have come out any differently.

The Eighth Circuit took Franklin to say that unless... given that there's a cause of action, whether explicit... whether express or implied, that must necessarily carry with it all common law remedies unless Congress has said otherwise, which it rarely does--

Justice O'Connor: Well, the Eighth Circuit said appropriate remedies.

So, don't we have to look at what appropriate means in this context?

Mr. Robbins: --Well, I think that... that's the language from Franklin.

Justice O'Connor: Yes.

Mr. Robbins: And we think Franklin is properly confined to compensatory remedies for the reasons we've said in the brief.

The Eighth Circuit's view of appropriate, however, Your Honor, was that it is synonymous with whatever the common law has traditionally made available by virtue of State law, by virtue of Federal law, by virtue of the entire corpus of law.

And whatever you can find on the books is, therefore, appropriate within the meaning of Franklin, as the Eighth Circuit saw it, and that, Justice Breyer, to return to your question, is a doctrine of enormous capacity.

Justice Ginsburg: Mr. Robbins, I don't understand why you say if this Court says Newport or Fact Concepts, whatever you want to call it... it says, a municipality is immune.

Period.

That takes care of your case, and if the Court... this Court were to say, Eighth Circuit, you overlooked the fact that municipalities are immune and therefore in... in this case you are wrong, and we reverse, now, that takes care of your client.

Right?

Mr. Robbins: Well, I... I think it does.

If--

Justice Ginsburg: And why should we in your case, where there is a clear ground, not decide it on that basis?

Why should we go to the next case that doesn't involve a municipality?

Mr. Robbins: --Let me say two things with respect to that, Justice Ginsburg.

First of all, the last thing I want to do is talk the Court out of ruling for my client on any ground.

[Laughter]

So, if the Court believes City of Newport is sufficient... and we think it's quite powerful... we'll certainly be glad of that result.

But let me say two more things about it.

The first is even City of Newport requires looking to the next step and asking, okay, that's the presumption.

It's a strong presumption.

Is there specific evidence in the statute that overcomes it?

For all the reasons we've said in the brief and I'd be glad to turn to, the evidence in this statute is quite extraordinarily compelling that, to the contrary, punitive damages were foreclosed.

Second, I... I wish I could be as confident as the Court's... as Your Honor's question suggests, that were this case to return to the Eighth Circuit with nothing but a ruling about City of Newport, you know, in its sails, that the Eighth Circuit would take that mandate and take it and... and come out differently.

I'm not quite so confident about that because of the sweep of how they read Franklin.

Justice Ginsburg: If the Court--

Justice Scalia: --We would... the... the broader position would be... would be taking the case on the same basis that the Eighth Circuit decided it.

Right?

On the broader ground.

Mr. Robbins: I think that's correct.

Justice Scalia: And there... this is not a constitutional matter.

Mr. Robbins: No.

Justice Scalia: So, the doctrine of... of observing the narrowest possible constitutional ground does not apply here.

Right?

Mr. Robbins: No.

Quite... quite the contrary.

The question presented is what do these statutes mean after all.

Justice Scalia: So, this would be an opportunity to... to do what the Court is supposed to do, and that is clean up confusion below on the meaning of a statute, and the broader confusion is certainly much... much more worth clearing up than the narrower confusion.

Mr. Robbins: Right, and I might say one of the matters we've pointed to in the petition for certiorari is, in fact, that this misconstruction of Franklin is not confined to this case, to this statute, and certainly to the Eighth Circuit.

It is a wide-ranging, I think, over-reading of what this Court said... not just meant, but said... in Franklin itself.

And perhaps I might just turn briefly to that initial question.

It seems to us, for several reasons, the Eighth Circuit has badly misunderstood what Franklin says.

It doesn't cover punitive damages.

That's the short of the matter.

Punitive damages were, after all, not sought by the plaintiff in Franklin, but more to the point, the premise of Franklin against Gwinnett County was drawn from Bell against Hood and the cases that underlie Bell against Hood, and that is an explicitory, compensatory rationale.

The idea in Bell was that courts have an authority--

Justice Scalia: Explicitory?

[Laughter]

Mr. Robbins: --I'm sorry?

Justice Scalia: Did you say explicitory?

Mr. Robbins: Good heavens, I hope not.

[Laughter]

Justice Scalia: I like it though.

It's good.

[Laughter]

Mr. Robbins: Well, what... what I certainly meant to say is that Bell and Hood stem from a line of authority that says that courts have the authority, the inherent authority I... I had meant to say, when... when charged with the construction of a statute to make good the wrong done.

And that is about as clear a statement of a compensatory rationale as you could have.

Franklin did not suggest that a plaintiff who has been made whole, as Mr. Gorman was to the tune of $1 million in compensatory damages, including $150,000 in pain and suffering, has a right inferable through a statute that speaks not a word to the matter, to an additional presumption of punishment.

Justice Kennedy: Well, did the compensatory damages in this case include damages for humiliation, or am I wrong about that?

Mr. Robbins: I... I do not... I have not seen an indication that it included that.

I--

Justice Kennedy: In... in this... is the jury instructed in this jurisdiction that compensatory damages include damages?

Of course, pain and suffering, but is that also humiliation?

I thought humiliation was covered as part of the compensatory award.

Mr. Robbins: --I... we have included the instruction, Justice Kennedy, at page 72 of the joint appendix, and I do not find a specific reference to that.

I'd be glad to see if I can--

Justice Kennedy: Well, I guess it... it goes to the make-whole point.

Assume a jurisdiction where humiliation is not part of the compensatory award, could the argument be made, well, in order to make the person whole, you must give punitive damages because it includes damages for humiliation?

Mr. Robbins: --Well, I guess I'd be inclined to... to think about that in a case in which somebody had argued that below or here.

Justice Scalia: But it wouldn't achieve that.

Mr. Robbins: But... but--

Justice Scalia: It wouldn't achieve that.

Would it, Mr. Robbins?

I mean, you... you would not tell the jury, you know... you're telling the jury, punish this person if you think he deserves punishment.

You're not telling the jury, by the way, humiliation damages are not available, and therefore give this fellow as... as much humiliation damages, calling them punitive damages, as--

Justice Kennedy: --But I want you to assume... and I believe this is the law in many jurisdictions... that punitive damages are given in part to ease the... the... it's smart money in order to ease the... the pain that the person suffers, et cetera.

Mr. Robbins: --Right.

I... I don't want to quarrel with the hypothetical, Justice Kennedy.

It may very well be that pain and suffering already embraces that concept.

In many jurisdictions, pain and suffering is not compensable as a compensatory damages.

And it may be that in the jurisdictions to which Your Honor adverts, punitive damages are used to supplement a compensatory regime that falls short of pain and suffering, which is not the case here.

This man received $150,000--

Justice Kennedy: I understand.

Mr. Robbins: --for the category called pain and suffering and he was made whole.

And there's no suggestion that he wasn't made whole.

The suggestion is that my clients should be punished, and that is something as to which the statute provides absolutely no--

Justice Breyer: Well, that's true, but the statute doesn't say specifically about whether to give an injunction, about whether you could give a trademark remedy.

I mean, normally what the decisions have been of the Court under Franklin... I'm simply focusing you on their main argument.

Under Franklin, the courts decide there either is an ordinary private right of action, et cetera, or there isn't.

And if there is, you take it as it is, ordinarily.

And if there isn't, there's nothing.

Mr. Robbins: --Well--

Justice Breyer: Why should we divide up, in other words... there's this amount of the common law action, but not that amount.

There's... why... how do we know that we have the two-witness rule or the... or the parol evidence rule?

I mean, there are lots of controversial things in common... in common law actions--

Mr. Robbins: --Yes.

Justice Breyer: --that private people can bring.

So, why separate out from that whole package suddenly punitive damages?

That's--

Mr. Robbins: Precisely because this is not a common law action.

This is a Federal statute--

Justice Breyer: --All right.

Mr. Robbins: --as to which--

Justice Breyer: So, which one shall we separate out?

Just punitives or what?

Mr. Robbins: --Well, as to which Congress has spoken.

It has adopted title VI remedies that are quite robust, which come with title VI regulations that are enormously detailed, freighted with due... levels of due process that are quite unusual.

And yet, we propose to overlay a punitive damages remedy that comes with none of those protections.

It would work an extraordinary anomaly to layer punitive damages on a regime like this.

This is not, after all, a question that is committed to the courts like some of those doctrines.

The parole evidence rule may in some jurisdictions have originally been enacted or not.

But the fact is this is a statute, and Congress spoke rather clearly to what it... it wanted the statute to accomplish.

And some of the things it expressly said cannot live with the things that respondent proposes to import into it.

And let me just say one other thing, and I noticed that my white light on, as... I do want to reserve some time for rebuttal.

This is also a Spending Clause statute, and I know this gets back to a... a threshold issue that both Your Honor and Justice Ginsburg suggested perhaps the Court could pretermit.

I think it would be a mistake, given that the task is to construe the statute, to ignore the fact that it was enacted pursuant to a contractual regime in which punitive damages historically and for a variety of sensible reasons are especially inappropriate.

And if there are no questions, I... I would like to reserve the balance of my time for rebuttal.

Argument of Gregory G. Garre

Chief Justice Rehnquist: Very well, Mr. Robbins.

Mr. Garre, we'll hear from you.

Mr. Garre: The statutes at issue in this case, section 504 of the Rehabilitation Act and title II of the ADA, do not sanction the award of punitive damages which are, by their definition, damages in excess of that necessary to make good any wrong done.

Now, there are several... both section 504 and title II derive their remedies expressly from title VI of the Civil Rights Act of 1964, which operates as a condition on the receipt of Federal financial assistance.

And it seems to me that... to us that there are several facets of the title VI statutory scheme which make it particularly inappropriate to infer a punitive damages remedy.

The first is, is that title VI, although it's silent with respect to a compensatory remedy, expressly provides for punitive and regulatory measures in the event that the violation of its nondiscrimination provision.

In particular, the statute provides for a termination of Federal funding, which this Court has itself recognized is a very severe... severe remedy that can have a powerful deterrent effect.

In addition, the statute authorizes administrative enforcement actions, actions that... in which the regulatory agencies, who have responsibility for enforcing section 504 and title II, can take remedial action, order remedial action, short of funding termination.

Now, the second aspect of title VI and title VI statutory scheme it seems to us to be quite pertinent is that punitive damages are themselves antithetical to Spending Clause legislation like title VI because the availability of unbounded punitive damages awards can actually have the effect of diverting resources from achieving the important objectives of the underlying spending programs.

Justice Kennedy: Tell me.

I just can't recall.

Have we held that punitive damages are available on the Bivens action?

Mr. Garre: We think the Court addressed that in passing in the Carlson v. Green case, and we think that that... the discussion of punitive damages in that case is properly regarded as... as dictum in that case.

But... but--

Justice Kennedy: So, do... do I infer from your... from your response that it is the position of the Department that punitive damages should not be awarded in Bivens cases?

Mr. Garre: --Yes, but there are two distinctions between Bivens and this case.

First, in the Bivens context, there aren't statutory penal and regulatory measures that can be used like funding termination or administrative enforcement actions to take deterrence measures when... when needed to deter violations.

And second, in the Bivens context, this Court is giving effect to a constitutional tort that it alone has recognized.

In... in this context, the Court is purporting to ascertain Congress's intent in enacting section 504 in title II.

Justice Ginsburg: What about 1983?

This Court has said that punitive damages are available.

Mr. Garre: That... that's correct, Justice Ginsburg.

And... and first of all, if I can make two points... first, in that context, again, there is no express statutory penal or regulatory measures that Congress created to provide deterrence as it did under title VI, the remedies at issue in this case.

And secondly, what's important, we think, about the Smith case, in which this Court recognized a punitive damages remedy under section 1983... is that in that case, the Court didn't start with the presumption that punitive damages were available and simply look to see if Congress had said otherwise.

And that's the presumption that the court of appeals applied in this case.

Instead, the Court purported to engage in an inquiry of Congress's intent and... and focused on the fact that when... when Congress enacted section 1983, it made very clear that it was adopting a special species of tort liability looking to the... the State common law at the time which provided for punitive damages there.

So, we think that the section 1983 case is quite different than this case.

The Court--

Justice Ginsburg: But you... and you rely on the heavy gun in statutes like title VI, title IX.

That heavy gun is so heavy that it's never used.

I mean, in the case that we will hear tomorrow, the statement was made, well, yes, it would be a drastic sanction to withdraw Federal funds, but in 30 years it hasn't happened.

Mr. Garre: --Well, first of all, it does happen.

It happened in the Grove City case that came here, and I could point Your Honor to additional examples in which the termination funding mechanism has been used.

Now, to be sure, it... it's an unusual remedy and it's a harsh remedy, and simply because it's not used in more cases doesn't mean that it doesn't have a deterrent effect.

Justice Ginsburg: Under the Rehabilitation Act, it has been used under 504?

Mr. Garre: Yes.

I could point you to... to one case.

It's... it's not a case cited in the brief.

It's a court of appeals case, Freeman v. Cavassos, 939 F. 2d 1527, which is one example.

But... but again, the... the Federal Government... Congress gave the Federal Government and the Federal agencies authority to enforce these provisions short of funding termination.

The... the agencies receive thousands of complaints each year under title II and section 504.

And they investigate those complaints commeasurate with the seriousness of the allegations raised in those complaints, and they are successful in negotiating compliance agreements, ranging from informal agreements to formal settlement agreements, in which those alleged to... to have engaged in discrimination agree to take corrective measures to eliminate discrimination and, in some cases, to pay monetary sums.

Now, the... the Federal agencies have entered into more 300 of those agreements under title II alone in the past 8 years.

So, there is an administrative process in place.

It's statutory... statutorily created by Congress, and we think that that process itself counsels heavily against judicial inference of punitive damages.

Or in addition, to return to the... the Court's Franklin case, the Franklin case is grounded on the notion that the Federal courts have the authority to provide a remedy when necessary to make good the wrong done.

That principle has no application to and has never been extended to punitive damages.

It would be a quantum leap for this Court to extend the Franklin principle to punitive damages.

Punitive damages, the Court has recognized, are both quasi-criminal, unpredictable, and at times have a devastating effect.

Those characteristics of punitive damages make them uniquely suited for careful legislative judgment.

Congress in section 504 and title II has not made any legislative judgment that punitive damages should be available, and therefore, this Court should reverse the decision below.

If there are no further questions.

Argument of Scott L. Nelson

Chief Justice Rehnquist: Thank you, Mr. Garre.

Mr. Nelson, we'll hear from you.

Mr. Nelson: Mr. Chief Justice, and may it please the Court: This case presents the issue of whether Congress foreclosed awards of punitive damages when it enacted the rights of action to enforce section 504 of the Rehabilitation Act and title II of the ADA which together prohibit discrimination against people with disabilities in the provision of public services.

The text, structure, policies, and legislative history of the ADA disclose no prohibition on the award of punitive damages.

Absent such a prohibition--

Justice O'Connor: Well, if... now that the Eleventh Amendment immunity issue is gone, don't we have to deal with City of Newport?

Mr. Nelson: --Well, I think the answer to that, Justice O'Connor, is no.

Had the defendants wished to preserve the ability to argue for immunity on City of Newport, they were free to do so in the lower courts.

Justice O'Connor: Well, do you say that we are precluded from considering that authority as we resolve this case?

Mr. Nelson: No, I don't say--

Justice O'Connor: No.

Mr. Nelson: --you're precluded from it.

It's... it's a--

Justice O'Connor: No.

So, are you going to deal with it then?

Mr. Nelson: --Yes.

I... I do intend to deal with that.

I'd like to start by dealing with... with the issue of whether there's a punitive damages remedy at all because I think then the Newport issue really is secondary to that.

And the starting point with respect to the availability of punitive damages I think has to be this Court's decision in Franklin.

And it's useful I think to, instead of looking at... at arguments about what underlies Franklin, to look at what Franklin said. Quote:

"the general rule, therefore, is that absent clear direction to the contrary by Congress, the Federal courts have the power to award any appropriate relief in a cognizable cause of action brought pursuant to a Federal statute. "

Chief Justice Rehnquist: Franklin wasn't dealing with punitive damages, was it?

Mr. Nelson: That's right, Mr. Chief Justice.

Punitive damage was... was not the form of relief that was being addressed in Franklin.

Justice Kennedy: And appropriate relief does not sound to me to be consistent with your beginning premise which was that unless Congress forecloses the remedy, we must give it.

Mr. Nelson: Well, I certainly don't mean to say that... that in any particular case, the Court must give it unless Congress forecloses it, but if Congress has not foreclosed it, it's potentially available if, in view of the policies of... of the particular statute, it's an appropriate remedy and in view of the conduct that's being addressed.

Specifically, under this Court's decisions, punitive damages are an appropriate remedy where there's willful... a willful violation or reckless disregard of... of the legal entitlements of the plaintiff.

Justice Souter: Well, what do you make of the... the argument that the whole touchstone for damages here is 504, which is essentially the... the spending power... the... the... a statute resting on the spending power?

The closest analogy to that is with contract, and you don't get punitive damages from contract.

Mr. Nelson: Well, there... there are two answers to that.

The first is that the touchstone is not simply 504, but also the ADA, which is not a Spending Clause enactment at all.

The second is that--

Justice Souter: But that referred to 504 for... for... in effect, for its remedial scheme.

Mr. Nelson: --To the extent that... that what it... what it says is that the remedies available, the remedies being a private right of action... and that does not necessarily, however, import a limitation imposed on that remedy from above by the Spending Clause that doesn't inhere in the... in the nature of the statute itself, assuming that the Spending Clause does impose that limitation, which I don't concede, and I'll get to in a moment.

But this Court actually addressed a similar situation in the Darrone case.

The issue there was the remedies available under section 504 for a case of employment discrimination, and 504 in turn incorporates the remedies available under title VI.

Title VI said there is no remedy available for employment discrimination under title VI except with regard to a Federal program where the funding is for employment purposes.

This Court said that by incorporating the title VI remedies, section 504 did not incorporate that limitation on the remedial scheme that had nothing to do with the policies underlying section 504 which were to eliminate discrimination against the handicapped more broadly.

Similarly, under the Americans with Disabilities Act, the... the purpose of that act is to extend even further than 504 the prohibition on and the remedies for discrimination against persons with disabilities.

And to import into that statutory scheme a limit on relief that... that would pull it back and... and restrict it to what's appropriate on a Spending Clause measure would be inappropriate under, I think, the mode of analysis this Court used in Darrone.

But in any event, even if one looks only at section 504, the Spending Clause analogy to contract doesn't limit remedies available to contractual remedies.

This Court I think made clear, both in Franklin and then more recently in Davis v. Monroe County, that although the obligation that an entity may undertake under the Spending Clause is contractual in the sense that it's voluntary and it has to be clearly stated what the substantive requirements you're subjecting yourself to when you accept Federal funding are, that that does not carry with it the notion that you're limited to a, quote, "contract" remedy.

In Davis, what the plaintiff sought in her complaint was punitive and compensatory damages for injuries that had been inflicted on her.

She, of course, was not a party to any contract.

What she was seeking was quintessentially a tort recovery, and this Court held in Davis that as long as the requirement that the conduct was intentional, it was a violation that was... that... that a person in authority had knowledge of and had... had allowed the situation to go forward, that if those conditions, which were Spending Clause conditions under the Gebser decision... if those conditions were met, you could go forward and obtain the type of tort remedial relief that the plaintiff was--

Justice Scalia: Well, you say... you say she wasn't a party to the contract.

She... she was a beneficiary of the contract, surely.

I mean--

Mr. Nelson: --Well, you could, I suppose, analogize her to a third party beneficiary, but to suggest that--

Justice Scalia: --And contract actions were original tort actions.

It's easy to characterize a contract action as a tort action.

Right?

It's just assumpsit.

Mr. Nelson: --Well, and in fact--

Justice Scalia: I... I'm not sure a whole lot hangs on--

Mr. Nelson: --that... that argument can go the other way, too, because the States are broadly recognizing that... that malicious and bad faith breaches of contract carry with them tort remedies.

But I'll give another example.

This Court in a couple of decisions, Wright v. Roanoke Housing Authority, and Wilder v. Virginia Hospital Association, held that under Spending Clause enactments, obligations can be imposed on the recipients of funds that are enforceable that create enforceable rights under section 1983.

And this Court has repeatedly held, most recently I think in City of Monterey v. Del Monte Dunes, that 1983 is ever and always a tort remedy.

Justice Ginsburg: --Mr.... Mr. Nelson, why don't we look specifically at this context, which is the ADA, and the anomaly that when Congress thought about punitive damages, as we know it did in the employment part, it provided for them with qualifications and with caps on amount.

So, it would be passing strange, would it not, that when Congress is explicit about punitive damages, it contains them, and it when it says not one word one way or another, they are unlimited because that's... as I take your argument to be, under part 3, there are the caps and the qualifications, but under part 2, it's public service, no limitation.

Mr. Nelson: It's under title I that the caps apply, Justice Ginsburg, and I think that what that illustrates is not... not the point that... that Congress didn't intend to provide these remedies.

You have to look at... at the timing of the enactments and the background of those changes to the... in the Civil Rights Act of 1991.

As the ADA was originally enacted, title I, consonant with title VII, didn't provide a damages remedy of any kind.

It didn't provide an entitlement to any legal forms of relief.

It was limited to equitable relief following the... the title VII model.

No such limitation has ever been placed on title II.

In title II, Congress simply incorporated by reference an action for legal remedies that this Court had already recognized to exist.

Now, then in 1991, Congress expanded the relief under title I of the ADA, as well as under title VII of the Civil Rights Act for the first time ever to allow a damages remedy, either compensatory or punitive, for employment discrimination to which those statutes applied.

And what that illustrates is simply the history that Congress has been very wary about providing broad damages remedies in the employment discrimination area and in 1981, it relaxed that unwillingness to some degree, but then placed a cap on it.

But in title II, it's quite clear, from the original 1990 legislation, that Congress didn't impose that circumscribed set of employment discrimination remedies on title II.

So, by expanding title I, that doesn't either limit title II or imply that title II was ever intended to be limited.

Justice Ginsburg: Am I right that title III says no punitive damages?

Mr. Nelson: Title III says no punitive damages at all as part of a... of a remedial scheme that is similarly circumscribed to... to title I, although in somewhat different ways, a remedial scheme that under title III doesn't make a private right of action for damages of any kind available to an individual plaintiff.

Under title III, it's only the Attorney General who can ever sue for any damages, and then when Congress... it... having made a... a damages remedy available to the Attorney General, it then went on to say, and under this statute, damages doesn't include punitive damages.

I think to the extent that sheds any light on title II at all, we know that in title II, Congress knew that it was creating a damages remedy.

That it didn't limit those damages, as it did in title III, when it created that limited damages remedy through the Attorney General, is, if anything, an indication that no limitation was intended.

Justice Breyer: Why?

Why?

Because... why... why would somebody want to... title II has to do with actions against a government basically, doesn't it?

Mr. Nelson: That's correct.

Justice Breyer: So... so, I thought punitives are primarily designed to compensate an individual who's not going to be compensated.

It's just a way of wielding a very big club against the people who behaved badly.

Mr. Nelson: Well--

Justice Breyer: Now, why would you want that big club to be wielded against private people in limited amounts, but when you get to a government which, after all, represents the entire public, you say the sky is the limit?

Newport would suggest where the government is involved it's less reasonable to assess punitives than where a private individual is.

Mr. Nelson: --Well, I think the... part of the answer to that is the whole structure of the ADA remedial scheme indicates an intention to make broader remedies available against public entities than private entities to begin with.

That's why, when the ADA was originally enacted, there were all these limits placed on title III, no compensatory damages even, limits on title I against private and public employers, not even any compensatory damages.

Clearly, in title II, everyone agrees that Congress made available a remedy there that is much more extensive than it made against private employers or private offerors of public accommodations.

Now, why Congress did that I think is... is perhaps somewhat obscure, but it seems to relate back to the entire history, starting with the 1964 Civil Rights Act, where Congress was very hesitant about imposing broad remedies against private actors, possibly in part due to the... the effectiveness of their lobbyists, which... which may have been greater in this instance than those of... of public employers and entities.

But for whatever reason Congress did it, it's clear that Congress did enact broader remedies under title II than under those titles that are applicable to--

Justice Ginsburg: But that's an anomaly too because in title... title III, which is the... the title that imposes... title I is the one... employment.

Right?

Mr. Nelson: --Correct.

Justice Ginsburg: And are government employers liable for punitive damages under title I?

Mr. Nelson: No, they are not.

Justice Ginsburg: So, your... your notion that... that the government is not well representative in the legislature... here is a title that says, private sector, you're going to be stuck.

You're going to be subject to punitive damages, but not government entities.

Mr. Nelson: Well, that... that was... that was what happened in the 1991 round.

Presumably the... the Congress there obviously did made... make a considered choice not to impose those remedies on... on public actors.

But I think, you know, to step back even further, one has to look at the fact that both section 504, by virtue of the 1986 Rehabilitation Act amendments, and the ADA, by virtue of... of section 502, are subject as a general rule to the principle that... that Congress very deliberately said public entities, and in particular States, are going to be subject to the full range of remedies that are available against private defendants.

Congress did that explicitly in both those... both those statutes.

And I think what that indicates is that there has been a considered judgment in these statutes that, especially in the area of the provision of public services, Congress wants broad remedies to be made available against the public entities that are subject to it.

It's true that Congress made a different judgment in 1991 when it extended the... the remedies for employment discrimination.

But except for that provision of the statute where public employers were given a special exemption, the rest of the statute evinces an... an intention by Congress that public entities not get special exemptions.

Chief Justice Rehnquist: But doesn't that seem rather perverse?

Mr. Nelson: Well, I think it... it seems... it seems to me that... that one can look at it either way.

It's perverse if you're a public entity; it's not perverse if you're a business entity that feels like anti-discrimination laws trench on the... the freedom of businesses to operate in the way they want to operate.

I think what Congress has done with respect to discrimination against persons with disabilities, first in making the 504 remedies available against recipients of Federal funds, and then in making the title II remedies available against public entities, is... is Congress has made a judgment that says, we think discrimination against persons with disabilities is particularly objectionable when engaged in by the government, just as in the fourth--

Chief Justice Rehnquist: But... but your... your Newport case certainly suggests that traditionally public entities are treated differently than private entities for the same conduct if you're talking about punitive damages.

Mr. Nelson: --That's certainly true.

And... and what I think is distinctive about Newport, to begin with, here I do believe that... that if the Court were to considered that under these statutes there is a punitive damages remedy available generally, and then the question is should these particular defendants be freed from it under a City of Newport rationale, that... that it's fair for this Court to hold the... the defendant to the rule that it generally applies, which is that if you want to argue something like that, raise an issue like that, you should do it in the lower courts.

But even looking beyond that, what we have in... in these statutes is in the--

Chief Justice Rehnquist: About the issue, are you... are you suggesting that it is not included in the question presented?

Mr. Nelson: --No, I'm not making that argument.

Chief Justice Rehnquist: Then... then did you in your brief in opposition point out that this was not properly raised in the lower courts?

Mr. Nelson: Yes, that was pointed out in the brief in opposition.

Justice Breyer: I want to be sure you... suppose that we did look at the Newport issue.

I'm not saying that we should, but suppose we did.

And suppose that you lost on your point that it should be waived or deemed waived.

What would your... is there any response to their claim on the merits that... that Newport makes clear that they are not liable in punitive damages?

Mr. Nelson: Yes.

I think... I think that... that the first response is that through the Rehabilitation Act amendments of 1986, which are codified at 42 U.S.C., section 2000(d)(7), and also in section 502 of the ADA, which is codified at 42 U.S.C., section 12202, those provisions are fundamentally incompatible with the notion of Newport immunity.

And I want to just start by expressing my understanding of what Newport immunity is in light of this Court's decision in... in the Vermont Natural Resources case.

It's not specifically an immunity that is municipal immunity.

It's an immunity or a... or a general presumption against awards of punitive damages against State and local governments as a class.

And... and what it says where it operates is that those defendants as a class have an exemption against a particular form of relief that is otherwise available against private actors.

In the Rehabilitation Act amendments and in section 502 of the ADA, what Congress said expressly is that as to remedies against States, which are one of the entities entitled to the Newport presumption, they're subject to the same remedies under the statutes as are any other private or public entities, meaning if you can get it against a private entity, you can get it against a State.

And that takes away the fundamental premise of Newport, which is that governmental entities as a class are entitled to a special exemption.

What these statutes say is that governmental entities as a class are entitled to no special exemption.

And the City of Newport issue I think simply goes away.

I'd also suggest that one of the fundamental premises of City of Newport is not present under these statutes, and that is that there's an adequate alternative deterrent.

And... and in this case, what we're talking about when we're talking about punitive damages as a deterrent, to answer Justice Kennedy's question earlier of Mr. Robbins, in this case the compensatory damages award did include pain, suffering, humiliation, and mental damages.

So, we're not talking about punitive damages here as a surrogate for some component of compensatories.

We're talking about it as a remedy designed to provide a deterrent that will assist in... in Congress's goal of eliminating discrimination against persons with disabilities.

And in... in Newport, this Court looked at the 1983 remedy and said, yes, punitive damages are an important element of deterrence with respect to civil rights violations that are subject to section 1983.

But we have a better deterrent which is the availability of punitive damages against individual defendants who actually make the decisions to carry out the... the wrongful acts that 1983 is responding to.

Now, whether that judgment is... as to which is more effective, is correct or not, that's the line the Court drew in Newport.

But under these statutes, that remedy is not available because section 504 and title II of the ADA make quite clear that they provide remedies only against the entities.

There's no right of action against a... an individual under title II of the ADA or under section 504 of the Rehabilitation Act.

So, with respect to these statutes, deterrence against the entity is all you've got and all you can rely on.

And that's yet another reason why Newport's policies are inapplicable here.

And Newport was very clear that beyond looking at the immunity, as... as it used the term, of municipalities as a... as a sort of standard to try to determine what the legislature was thinking about when it enacted the statute, the Court was also going to look at the policies of the particular statutes to determine whether or not immunity from punitive damages accorded with those policies.

And given the distinctions between the ADA and section 504, those policies are not served here by immunizing the... the defendants against punitive damages on... under a Newport rationale.

I'd also like to get back for a moment, if I could, to the... the notion that what's going on in Franklin is limited to compensatory remedies and that... that the idea of... of punitive damages as one of the normal modes of relief offered by the Federal courts is not really what the Court was talking about in Franklin.

I think that's inconsistent not only with Bivens where in Carlson v. Green this Court, I think, held that punitive damages are available in Bivens actions because, as one of the ordinary remedial mechanisms available to the Federal courts, they were particularly appropriate for the redress of constitutional violations.

The reason I say that that's a holding is the issue in Carlson was not whether there was a... a right of action for any relief at all under the Eighth Amendment.

It was conceded that... that the plaintiff could get injunctive relief against an Eighth Amendment violation if there was a pervasive--

Chief Justice Rehnquist: Mr. Nelson, last year in... in the Alexander case and this year in the Malesko case, we've indicated that we're taking a much more critical look, I think, at these kind of claims than we ever did in Carlson.

Mr. Nelson: --Well, Mr. Chief Justice, I don't think that that's... that that's quite right with respect to... with respect to the evolution of this Court's doctrine.

I think what the Court said, in... in particular in Sandoval, was that... that the Court had backed away from the notion that for every right, there has to be a remedy and had gone to the... the Court v. Ash notion, that what we're looking for when we're trying to determine whether a right of action exists is congressional intent.

But that was true at the time of... of Franklin as well and the Court in Franklin said that's a separate question from what relief you get when it's conceded that there is a right of action to begin with.

And similarly, in Malesko, this Court said, we're not going to recognize a right of action against this particular entity.

The question, when it's clear that Congress has made a right of action available, as it is here, and what form of relief is appropriate, is a different matter.

Chief Justice Rehnquist: Well, but what... what you're arguing basically is that every one of these things is fixed in time permanently not just as to its holding, but as... as to language in it.

And what I'm trying to suggest is that that is not always necessarily so, that the Court may take a slightly different view some... now than it did 10 years ago.

Mr. Nelson: Well, Mr. Chief Justice, I think that's clearly... that's clearly true.

And the question that... that we as... as lawyers are trying to... to deal with is... is how, in light of changes in precedent and... and changes in evolution of the Court's doctrine over time, what aspects can we pull out and... and hold constant or... or use to make arguments as to what the rule remains.

And to me, looking at Franklin, which was a case that... first of all, all nine Justices concurred in the holding at the time.

Second, it came at a point where this Court had already evolved far away from the every right must have a remedy doctrine and was looking very specifically at whether or not Congress had intended to allow a right of action.

But what the opinion for the Court said and even the concurrence said was when it's crystal clear that Congress said there's a right of action here, does... do we infer limits on our ability to provide appropriate relief when Congress hasn't given us guidance on that subject?

Justice Ginsburg: And didn't say anything about whether punitives would be appropriate relief because all Franklin involved was compensatory damages.

Before that, it was thought that there were no compensatory damages under spending statutes.

To clarify that, they used the phrase appropriate relief.

So, we've never had any holding that under Franklin punitive damages would be appropriate.

Mr. Nelson: That's correct, Justice Ginsburg.

On the other hand, the Court has certainly held that punitive damages are appropriate in implied statutory rights of action, the most notable being section 1981 which, unlike section 1983, is an implied right of action.

Section 1981 doesn't say anything about creating a right for anybody to go in and get enforcement, and the Court has held not only is there a right of action there, but held as recently as the Pollard case, which I believe was last year, that under 1981 the scope of relief includes punitive damages.

I think that what that reflects is the Franklin principle, that when there's a cause of action, when it's a cause of action such as these, that is, essentially a tort remedy, that the traditional range of relief that's appropriate for such rights is provided.

And that range of relief includes punitive damages.

And... and again, the issue in this case is not whether on the facts punitive damages are appropriate, because that hasn't yet been decided, but whether ever punitive damages are appropriate under this statute.

And I think Franklin speaks to the question not in its express holding but its rationale which... which I believe has survived down to the present.

Unless there are any further questions, I will leave it at that.

Rebuttal of Lawrence S. Robbins

Chief Justice Rehnquist: Thank you, Mr. Nelson.

Mr. Robbins, you have 4 minutes remaining.

Mr. Robbins: Thank you, Mr. Chief Justice.

Let me turn... go back for just a moment to the 1991 act because I think its... its significance here is terribly important and quite a bit different from respondent's characterization.

The 1991 act amended title I of the ADA and also the Rehabilitation Act to provide a capped punitive damages remedy available only to... only to nongovernmental entities.

This case obviously involves an uncapped award, indeed an award four times the size of the cap, applied only to governmental entities and not in an employment setting.

That's more than simply anomalous.

It is, I think, completely implausible for reasons that I think go beyond what... what Mr. Nelson has described to you.

The fact is title I was enacted in its original form at the very same time that Congress was considering the 1991 legislation.

Everyone in Congress knew that when they enacted in title I that there shall be the same remedies as title VII... everyone knew that at that very moment laying before another committee in Congress was the very legislation that is being characterized as the 1991 legislation, as if it happened much later.

These happened simultaneously and everyone knew that punitive damages were around the corner.

In my view, when you look at what Mr. Nelson called the timing of the enactments, you really have to read title I as if it enacted a punitive damages and capped and targeted and calibrated.

Title III also has a penalty provision.

Although it forbids punitive damages, to go back to Justice Ginsburg's question, it has a civil penalties provision.

So, the thing that is remarkable about respondent's position and the position you would be urged to adopt is that although title I of the ADA has a limited punitive damages provision applicable only to employment cases and exempting the government, and although title III has a civil penalties provision applicable only to public accommodations, title II, which is silent, shall have an unlimited punitive damages provision which can be applied against governmental entities.

And it is against governmental entities and only governmental entities that title II applies.

And City of Newport, I should add, doesn't change just how anomalous that is.

The Rehabilitation Act amendments go not one step in the direction of overturning City of Newport.

The Rehabilitation Act amendments say only this, that the States shall be liable for whatever remedies are applicable to other public entities or private entities.

It doesn't tell us what those shall be, and in our view punitive damages aren't available against anybody under title II.

So, it... it hardly advances respondent's position to say that there shall be applicable to the States whatever is applicable to anyone else.

The other thing is, what are those other public entities if not, among other things, municipal governments like my client?

By carving out, in other words, municipal governments, the 1986 amendment is a very strange way to overrule the doctrine in... in City of Newport, and I would respectfully suggest that it does no such thing.

Let me... let me end with this point.

And we haven't... we haven't mentioned the history of judicial interpretation of title VI and section 504, which had never... never, not once... ever been construed to permit punitive damages at any of the times in history that these statutes were meticulously amended and... and previous remedy provisions incorporated going forward.

But I do want to end with where Mr. Nelson began.

Chief Justice Rehnquist: Thank you, Mr. Robbins.

Mr. Robbins: Perhaps not.

[Laughter]

Chief Justice Rehnquist: You've already ended.

Attribution:

The OYEZ Project

Featured:

Cooper Industries v. Leatherman Tool Grp. - Oral Argument

Fri, 09 Jan 2009 14:50:29 +0000

Case:

Cooper Industries v. Leatherman Tool Grp.

Media File:

99-2035_20010226-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of William Bradford Reynolds

Chief Justice Rehnquist: We'll hear argument first this morning in Number 99-2035, Cooper Industries, Inc. v. Leatherman Tool Group.

Mr. Reynolds.

Mr. Reynolds: Thank you, Mr. Chief Justice, may it please the Court--

The Court today considers what is the proper standard of review for appellate courts when faced with a constitutional challenge to a punitive damage award as grossly excessive.

In the instant case, the Ninth Circuit upheld a punitive damage award against Cooper Industries of 4.5 million, which 90 times the $50,000 compensatory award.

It did so using an abuse of discretion review standard.

We submit that that was error, that the court of appeals should have examined the constitutional excessiveness issue independently under a de novo review standard.

This Court framed the gross excessiveness constitutional inquiry as it applies to punitive damages in BMW v. Gore.

It identified there three guideposts for making what is essentially a comparative analysis, looking at the reprehensibility of the offense, the ratio, or relationship of the punitive damages to the compensatory award, in order to discern whether the punishment or any discernible relationship to the offense or was wildly disproportional, and as a third guidepost to look at other available sanctions, whether criminal or civil, that would bear on the question of how society generally punishes this sort of offense.

Justice Scalia: Mr. Reynolds, when you have a standard, what should I say, so wildly extreme, as wildly disproportionate, does it make any difference... does it really... do you really think it makes any difference whether you're reviewing the lower court for a... de novo, or for abuse of discretion?

I mean, the question is whether the court abused its discretion in not considering this wildly disproportionate.

Does that really boil down to any difference for... between whether it is wildly disproportionate... I just find it hard to imagine a situation in which I would be reviewing a district judge for abuse of discretion, and would find that it is... that it is an abuse of discretion, where I wouldn't also find that it was wildly disproportionate.

Mr. Reynolds: Well, Your Honor, I think that you certainly could come to the same conclusion under both standards, but the--

Justice Scalia: Well, the point is, wouldn't you almost... wouldn't you virtually always come to the same conclusion under both standards?

Mr. Reynolds: --I don't know that you would, and I think that the reason de novo review is important is that you have a legal issue here.

You have one that implicates a constitutional right.

It is, I think admittedly, bottomed on guideposts that are fluid concepts, and there's a need to have some kind of a coherent doctrine that develops so as to have a uniform application of the substantive standards.

Chief Justice Rehnquist: Well, do you have much doubt, Mr. Reynolds, that if the standard is de novo review, there will be more determinations of lower... of the district court, trial court upset than if there's abuse of discretion review?

Mr. Reynolds: I believe there probably would be more awards that would be upset, or there would be more remittitur decisions.

Chief Justice Rehnquist: More law would develop in the courts of appeals, presumably.

Mr. Reynolds: That's exactly the point I was trying to make, that I do think that you would get a more coherent body of law.

You would be able to better determine how to apply the standard, and it would be applied in a way that would be more uniform, and I think one of the objectives of the due process protection is that people who are similarly situated be treated the same way for--

Justice O'Connor: Mr. Reynolds, is this a mixed question of fact and law that we're talking about?

Mr. Reynolds: --Justice O'Connor, I think that it could be characterized as a mixed question of fact and law in that, as I understand what that means, it means that if you have established facts, and you're applying a legal principle to those facts, that would be a mixed question of fact and law.

Justice O'Connor: For instance, in the first prong, the reprehensible conduct, presumably a review of the facts is included in the appellate review, so you do seem to have a mixed standard--

Mr. Reynolds: Well, to some--

Justice O'Connor: --mixed question.

Mr. Reynolds: --Excuse me, Your Honor.

To some extent I think I would agree with you.

It does seem to me that what we're talking about here in de novo review is the same thing that the Court does traditionally.

As to historical facts, the Court accords deferential review, and we don't suggest there would be any difference as to that.

But when you get to the legal issue of where you cross the constitutional line, and you start looking at it in a comparative analysis, which really is looking at extrinsic facts that are outside the record, that's where the legal inquiry comes in and de novo review would be required.

Justice Kennedy: On the reprehensibility of the conduct, do you envisage that if you prevail the circuit court will have some sort of standards for reprehensibility, or how will it go about writing this?

Mr. Reynolds: Well--

Justice Kennedy: I could see if it was abuse of discretion, I can hear the circuit court saying, well, trial judges see the witness, and they heard the whole trial, and they're in the position to make this judgment, and we're not going to second guess them.

That's what would happen under the abuse of discretion standard in all likelihood.

What would the circuit court do with this first prong that Justice O'Connor mentioned, reprehensibility?

Mr. Reynolds: --I--

Justice Kennedy: Under your view?

Mr. Reynolds: --As I understand it, Your Honor, the court of appeals would basically take the conduct and, on the established record, that would be the baseline, if you will, for its comparative analysis under the Gore factors.

You would have to look at where that conduct fits on a continuum of blameworthiness, if you will, and that would be essentially a legal question.

What you're doing is very much, it seems to me, Your Honor, what you do under the de novo review standard that this Court announced in Bajakajian, I believe is how you pronounce it.

Justice Ginsburg: Mr. Reynolds, may I interrupt you at that point, because what you described sounded very much to me like what a jury does when it's choosing among negligence degrees of culpability, negligence, gross negligence, recklessness.

Those are quintessentially jury decisions, and they're not reviewed de novo by any judge, not the trial judge, not the court of appeals, so why isn't the degree of reprehensibility exactly the same?

Mr. Reynolds: Well, Your Honor, here the... we are over a threshold of malice that is necessary in order to award a punitive award.

Justice Ginsburg: Just like you would be over a threshold if you decide there's negligence.

Then, if there's negligence, then there would be recovery, but there might be greater recovery if you had a higher standard.

Mr. Reynolds: Right, but I think what the Court has said in BMW v. Gore is that you are going to determine whether or not the punishment that is imposed here is reasonably related to the crime, and whether it rationally serves the interest of punishment and deterrence, and that is an analysis, a legal analysis that looks to this conduct as compared to similar conduct and the way in which that has been treated in the punishment arena, and in other situations.

Justice Scalia: Could you describe the precise test that the court of appeals would be applying under your standard as compared with the precise test that would apply under an arbitrary and capricious standard?

It seems to me the substantive question, which they would apply on de novo, is whether any reasonable person could possibly consider this proportionate.

Isn't that the test?

It has to be wildly disproportionate.

I assume that means no reasonable person could consider it proportionate, right?

Mr. Reynolds: I think that that would--

Justice Scalia: Okay.

Mr. Reynolds: --I don't quarrel with that, Your Honor.

Justice Scalia: Now, if you're using an abuse of discretion standard, you would be asking whether any reasonable judge, whether no reasonable judge could think that any reasonable person would consider this proportionate.

You're sure that the two questions don't boil down to the same thing?

Mr. Reynolds: Well, Your Honor, I--

Justice Scalia: I... it's just too subtle for me to understand the difference between the two.

Mr. Reynolds: --I think that there is a substantive standard that has been announced as being applicable in BMW v. Gore, and we're not going back and suggesting we revisit that.

What we're saying is that it ought to get meaningful application, it ought to be applied so as to allow the courts to give some content to it and through cases to come to a more clear understanding of exactly how it applies in different cases.

It is, I believe, clear, and I agree with the Chief Justice, that the de novo standard would allow courts of appeals, who believe that this was disproportionate punishment, it would allow them to apply a remittitur when, under the abuse of discretion standard, they would feel that they were not compelled to.

Justice Scalia: I understand that, but it seems to me that whenever a court of appeals finds that no reasonable person could possibly consider this proportionate, so it is wildly disproportionate, it would automatically find that no reasonable judge could have thought that a reasonable person would find this proportionate.

I don't know whether you can find one finding--

Mr. Reynolds: Yes, Your Honor.

I don't disagree--

Justice Scalia: --without automatically making the other one, so what are we arguing about?

Mr. Reynolds: --I don't disagree that where you have a punitive award that is so over the line that everybody agrees that it would be unconstitutional, that whichever standard you apply would probably give you the same result.

You're going to have a lot of cases where you're not talking about something that is so over the line.

I happen to believe this case is one that is so over the line, and the point is that you've got a legal question, it's got a constitutional dimension, you've got a standard that is not one that is dependent upon looking at the historical facts and second guessing them, and that, I believe, dictates that you look for de novo review and independent review by the courts of appeals.

Justice Ginsburg: Whatever word you use to describe it, I take it that what you're essentially asking is to have the judge, as a panel of three judges, sit as though they were jurors, as though they were jurors making a determination of reprehensibility.

Mr. Reynolds: As though they were jurors in making the policy judgment as to what the appropriate punishment is in order to fulfill the goals of deterrence and retribution.

Justice Ginsburg: And then if we go back in history, punitive damages, I believe, was considered in the bailiwick of the jury, and not the judge.

In fact, there was a question whether any judge, even the trial judge, could overturn the jury's verdict, is that not so?

Mr. Reynolds: Well, I believe it's clear that you could have a court overturn a verdict if, indeed, it was a verdict that was outrageously excessive, or, as they said in the early cases, driven by juror bias or passion, and was not proportional to the offense, and I believe the common law, as well as the early American law, has said that punitive damages would certainly be reviewable in that regard, as would compensatory, so I think--

Justice Ginsburg: Mr. Reynolds--

Mr. Reynolds: --appellate review is available.

Justice Ginsburg: --I'm not certain of that, and I think that, at least as to compensatory damages, there was some disagreement on this Court whether there was any allowance of--

Mr. Reynolds: Right.

Justice Ginsburg: --appellate review at all.

Justice Scalia and I differed on that--

Mr. Reynolds: I understand--

Justice Ginsburg: --on that question.

Mr. Reynolds: --but I believe in Gasperini you said that there was appellate review.

Justice Kennedy: Would you argue, Mr. Reynolds, different principles to... and different propositions to the circuit court than you would to the jury, or do you just argue the same thing?

Mr. Reynolds: I think that the... well, the arguments to the jury in this regard would depend in large part on the instructions that were given to the jury, and I think there are some instructions that would be very problematic to give the jury in terms of the BMW v. Gore guideposts, so--

Justice Stevens: Mr.--

Justice Kennedy: --So that the court of appeals--

Mr. Reynolds: --I don't think the jury would have the same--

Justice Kennedy: --does consider different propositions, i.e., comparative awards and similar cases in other parts of the country, or something like that?

Mr. Reynolds: --I think that's right.

I think that the... what happens is, this is a check on the excesses of the jury determination with regard to punishment, and it is a test, as I understand BMW v. Gore, that says that we're going to look at what the jury did in this case in order to serve society's interest in punishment and deterrence, and to see whether that is out of line, constitutionally out of line, with the punishment that is visited for similarly situated people who commit similar offenses.

Justice Stevens: Mr. Reynolds--

Mr. Reynolds: It is a check, if you will, at the appellate level on the jury judgment call.

Justice Kennedy: --So if that's true, then Justice Scalia's proposition that no reasonable juror could find the award doesn't quite work, because you're putting forth different contentions to the two different bodies.

You're putting one case to the court of appeals, and another to the jury, i.e.--

Mr. Reynolds: I--

Justice Kennedy: --that this is inconsistent with what other juries and judges have done around the country and therefore just doesn't meet the standard of proportionality under some Nation wide proportionality standard that the jury didn't hear about, or is the answer that the jury can hear about this stuff?

Mr. Reynolds: --I think that certainly there are special instructions that could help to inform the jury's decision that we would not be at all adverse to giving.

I understood Justice Scalia's question to be where the court of appeals was looking to see whether the punitive award was reasonable amount and rational in terms of the purposes that it was intended to serve, and I think--

Justice Ginsburg: Mr. Reynolds, you're looking over one important player.

It's not jury versus court of appeals making this decision.

The court of appeals doesn't get into the picture until a district judge, the trial judge, so it would be de novo review not of the jury's assessment, but of the trial judge's refusal to tamper with the jury's verdict, so isn't it... the court of appeals is reviewing not the jury's action but the trial court's action, isn't that so?

Mr. Reynolds: --That's correct, and I think that as we were saying, Justice Ginsburg, the court of appeals would, in that instance, do the traditional deferential review of the historical facts, or the fact questions, but as to this legal question it would be a de novo review.

Justice Souter: Mr. Reynolds, let me ask you if I am understanding your argument correctly in this respect.

I think you're making two different kinds of arguments for the value of the de novo review.

The first argument is simply that de novo review on its own merits is the better review here.

The second argument is sort of a practical one, that if all you have is abuse of discretion review of what the trial judge does when the trial judge reviews the jury verdict, you're not going to have very many appellate cases, and you're certainly not going to have many appellate cases with exhaustive discussions of the way jury verdicts ought to be examined.

And I think you're saying that if you have de novo review, you're simply going to have more articulations by appellate courts of the way trial courts ought to look at jury verdicts, and if you are making the second argument, I suppose you're making... you're saying what ought to happen in the development of the review of punitive damages is the same thing that I think happened back in the old days on the review of jury verdicts of negligence.

If you go back in the law reports to the twenties and the thirties when negligence law was developing, you find exhaustive appellate discussions of whether, you know, the train was close enough to the intersection for the driver to have been negligent in going out on the track, and so on, and I think you're arguing for a sort of parallel between punitive damages development and maybe the old negligence law development, in that you're saying each one would profit greatly by having plenary treatment in appellate courts.

Is that a fair--

Mr. Reynolds: That is fair, Justice Breyer.

I do think that.

I think that the two arguments go hand in hand.

In other words, I--

Justice Souter: --I agree.

I agree.

Mr. Reynolds: --My argument that the de novo review is in and of itself--

Justice Souter: But the value is not only in the substantive standard, the value is in the application of that standard in sort of developed appellate discussions.

Mr. Reynolds: --I think that's right, especially in light of the recent decision in BMW v. Gore.

Justice Stevens: May I ask you a question, Mr. Reynolds?

You indicated that you thought the court of appeals would decide what the appropriate award was.

I'm not sure that's right.

It seems to me that the court of appeals decides what is the limit on appropriate awards, and anything over whatever the ceiling is would be inappropriate.

Is it your view that if there is a reversal or remand in the case, that the instruction should always be to enter judgment for the amount that would be the maximum constitutionally permissible award, or would it be to send it back and say to the lower court, you got the range wrong, instead of being 1 million to 10 million, it's 500,000 to 2 million, and you can start over again and put the new award within the permissible constitutional range?

Which way... what are you suggesting?

Mr. Reynolds: I know you're not going to like this answer, because I think that what I would say is, the court of appeals probably could take either approach.

If the court of appeals viewed the award as constitutionally excessive, there is authority that suggests that the court of appeals could set what would be the maximum allowable award constitutionally, on its own.

I think there is also the ability of the court of appeals to do a remand, and to have the district court perform that, so I'm not sure that--

Justice Ginsburg: Mr. Reynolds, is it settled--

Mr. Reynolds: --I have a specific response one way or the other on that.

Justice Ginsburg: --Is it settled that a court of appeals could order a remittitur?

I didn't know that that was a settled question.

Mr. Reynolds: I--

Justice Ginsburg: I thought that was an open question.

Mr. Reynolds: --Well, I... as I said to Justice Stevens, I'm not sure I can say it's settled, so I think that my sense is that they could do either one.

The Eleventh Circuit has in the Johannes case ordered the remittitur at the maximum allowable rate constitutionally, or amount constitutionally.

the Tenth Circuit in Oxy Products on the other hand did not do that, and said it had to be something that was sent back, so--

Justice Ginsburg: But we... this Court has never ruled on that question--

Mr. Reynolds: --No.

Justice Ginsburg: --and it's in the background.

That question comes up in the background of the Seventh Amendment in the Reexamination Clause, doesn't it, whether the court of appeals can--

Mr. Reynolds: Well--

Justice Ginsburg: --Can instruct the entry of a final judgment that's different from the number that the jury came in?

Mr. Reynolds: --Your Honor, I think that the Seventh Amendment Reexamination Clause would not inhibit a court of appeals from directing the maximum amount, and I say that because we're in an area where we aren't concerned with facts tried to the jury.

We're in an area where we have a legal question, where the jury has made a public policy judgment call on the punishment, and what the court of appeals would be saying is that the... that a jury could not have imposed a punishment in excess of whatever that amount is, not constitutionally.

Justice Scalia: Mr. Reynolds, this problem exists no matter how we come out in this case, doesn't it?

Mr. Reynolds: I--

Justice Scalia: What relevance does this have to this case?

I mean, this is going to be a problem whether the review is de novo, or whether the review is for abuse of discretion, and we... it seems to me we shouldn't find for or against you on the basis of how we feel on this point, isn't that right?

Mr. Reynolds: --I think that you would have the same--

Justice Scalia: I mean, whatever standard you're going to use, if you decide that the district court got it wrong, you're going to be confronted with this issue--

Mr. Reynolds: --I--

Justice Scalia: --so it seems to me it has nothing to do with what we're wrestling with, but what I would like to know is why you think that a court of appeals would not be developing law if it's only applying the abuse of discretion standard.

Doesn't it have to come out with a written opinion--

Mr. Reynolds: --I would--

Justice Scalia: --and the written opinion would say, you know, no reasonable judge could consider that this was not wildly disproportionate?

It would make a lot of law, it seems to me.

Mr. Reynolds: --I believe the kind of opinion you're likely to get is what we got in this case, where the Ninth Circuit simply says they do not believe that the district court abused discretion, and it would not provide any enlightenment, or any kind of coherent... doctrinal coherence to the BMW v. Gore factors in an application of that.

Justice Breyer: So what you want is not... I mean, I can't... I'm having trouble seeing what the difference is between the standards.

Like a lot of other things, the answer seems to be, it depends on what's at issue in the particular case.

This is a Federal case.

Mr. Reynolds: This is a Federal case.

Justice Breyer: So they're already reviewing for abuse of discretion under Rule 59 the decision not to give a new trial on the issue.

Mr. Reynolds: That's correct.

Justice Breyer: All right.

So inevitably you're saying, you have to review this for abuse of discretion at least there, and now we get into the constitutional area, so it must be, you know, sort of beyond that, and there are certain things, reprehensibility or harm, you'd say, look, judge, remember, the district court judge saw this and you didn't, and take that into account.

Now, when you get into the comparison of other penalties, as to that, I don't see why the district judge would be in a superior position at all.

The judge would be in a superior position to decide how reprehensible this person's behavior was, and how harmful it was to this plaintiff, but then once we get the outer limits of that, the appellate judge on his own applies the constitutional standard as an element of deference, and there's a big element of no deference.

I mean, what can you say beyond that, and then beyond that, the words de novo and abuse of discretion become slogans.

Mr. Reynolds: I--

Justice Breyer: The people who want a tough review say, de novo, the people who want a weak review say, abuse of discretion, but those are slogans.

In terms of how the judge should act, is it as I described?

Mr. Reynolds: --I think as the judge would act it is as you describe, but I do think it certainly does make a difference what standard you are imposing.

Justice Breyer: Well, all right.

Leaving the slogan out of it, how do you... if what we want to have happen... and I'm not sure there's a disagreement between the two sides on it.

I'll find out... what form of words do we use to get that to happen?

I mean, it's like be a judge.

Mr. Reynolds: Well--

[Laughter]

--that would certainly be a good beginning.

[Laughter]

I think that what you would be looking at is the kind of standard that you imposed, that was imposed in the, I go back to the Bajakajian... I cannot pronounce that... Bajakajian case, where the Court had the excessiveness issue in the context of a fine and the Eighth Amendment and said de novo review was the appropriate review to determine disproportionality, and went through a not dissimilar kind of an inquiry that BMW v. Gore laid out.

And I believe that the de novo standard would require the kind of demanding or exacting review of those guideposts in a way that would be much more rigid and decipherable, if you will, and understandable, than if you had just an abuse of discretion review and, because it's a due process right, and it's bottomed on the interest of people being treated who are similarly situated in uniform... uniformly in a similarly situated way, there is much to recommend that you go to the de novo standard that will, over time, I think, help to develop a much more articulate and coherent line of inquiry for applying the Gore standards.

Justice Scalia: Isn't it always an abuse of discretion when the trial court makes an error of law?

Mr. Reynolds: I think when the trial court makes an error of law, that it would certainly be an abuse of discretion, but I also would say that I think the standard we use here is one that is compelled by the nature of the inquiry and the fact that it's constitutional, and by the Gore guideposts, and the comparative analysis which are extrinsic to the historical fact record, and that's what requires that there be a de novo review.

I'll save the rest of my time for rebuttal, Mr. Chief Justice.

Argument of Jonathan S. Massey

Chief Justice Rehnquist: Very well, Mr. Reynolds.

Mr. Massey, we'll hear from you.

Mr. Massey: Mr. Chief Justice, and may it please the Court--

We urge an abuse of discretion standard for two principal reasons.

First, there's the historical tradition under which punitive damages were largely committed to the jury with quite limited appellate review, the second reason is the pragmatic argument for abuse of discretion standard.

As Justice O'Connor and Justice Kennedy have recognized, the Gore guideposts are intensely fact specific, reprehensibility perhaps most of all and, as this Court noted in Gore, reprehensibility is perhaps the most important indicator of the reasonableness of an award.

Also--

Justice O'Connor: What do we do generally, if you look at our precedents, on mixed questions of fact and law on appellate review?

You see some statements that it's de novo review.

What's the closest analogy, do you suppose?

Mr. Massey: --Well, we believe that reasonableness is maybe a close analogy, because the touchstone of excessiveness is, of course, reasonableness, and it is the sort of grossly excessive standard that Justice Scalia has referred to, and in many contexts reasonableness--

Justice O'Connor: Well, but there is more than one question under the Gore standard, in addition to reprehensibility, the ratio between compensatory and punitive damages awarded, and how the award compares to other sanctions available for comparable misconduct.

Those latter two seem closer to pure questions of law, in a sense.

What has this Court historically done, do you think, on appellate review standard for mixed questions of fact and law?

Mr. Massey: --Well, it's done both, Your Honor.

I mean, Pullman standard against Swint is a case noting the difficulty of precise categorizations, but in the context of reasonableness, Cooter and Gell, for example, the reasonableness of Rule 11, the Pierce v. Underwood, the reasonableness of a... of the legal position taken by the Government in equal access to justice cases.

Cooter and Gell is notable because it discussed how negligence has been traditionally reviewed very deferentially under an... essentially an abuse of discretion standard, so I think Justice Souter's concern about the development of the law can be fully addressed through an abuse of discretion standard, and that--

Justice Breyer: I couldn't find any except the ones... I just had to look this up for another reason, and Justice Ginsburg has a couple in an opinion she wrote, but the case... I mean, this seems not a question of mixed fact and law, but up to a certain point you decide what the facts are.

Now, once the facts are there, it's purely a question of applying the legal label, and so the real question is, under what circumstances does a court of appeals defer, where all that's happened is the trial judge is applying the legal label to a set of undisputed facts.

Now, until we get to the point of dispute, I'll give you all the discretion you want, but once we're in the nondisputed area, at that point, the only two I could find were the ones you mentioned.

There was a Rule 11 case, and she had both, and there was question involving competence of witnesses or something, competence... there was a competence thing.

I can see it on the page.

You know what I'm talking about?

Mr. Massey: --Yes, Your Honor.

Justice Breyer: All right.

Unknown Speaker: [Laughter]

Justice Breyer: I couldn't find any other than that.

Mr. Massey: Well, it's... yes.

We agree that the very last step of the analysis has a strongly legal flavor to it, but--

Justice Breyer: Strongly legal... it isn't a question of degree.

It is a question of black and white.

The question of applying a legal label to a set of undisputed facts is a question of law.

Now, you can give as much weight as you want to the judge before you decide what the nondisputed area is, so I'll give you all that.

Now, I say, defer, defer, defer, as long as there's any factual matter in dispute.

At that point, we reach the area where there's none.

Now, all we're doing is applying the legal label.

Now, on that one, is there anything other than what Justice Ginsburg had in her opinion?

Mr. Massey: --There's Gasperini, Your Honor, which involved a New York statute which did not simply direct district courts to review the historical facts underlying a compensatory award, but instructed them to engage in a comparative analysis, an essentially legal analysis of this compensatory award versus other compensatory awards in New York to see if they were comparable.

Justice Ginsburg: In fact, they gave that instruction to the appellate courts, and this Court said, because of the Seventh Amendment, that job... the only judge positioned to do it in the Federal courts would be the district courts.

Mr. Massey: Exactly, Your Honor, and that was essentially a legal inquiry, but this Court said the court of appeals was constrained--

Justice Breyer: Oh, but then that's exactly the question, because I'd say, I don't see any reason why, once we're in the area of undisputed fact, why there's any reason that a court of appeals here should defer one little bit, any more than it does with any other standard of law, except with a very few exceptions.

Mr. Massey: --Well, as Justice Scalia noted, the question of whether a mistake of law has been made is an automatic abuse of discretion, if there hasn't been a mistake, so traditionally this label of abuse of discretion has been used, even though before Gore, even under State law excessiveness standards, there was always the last step of applying the law to the facts in the court of appeals.

In other words, consider a State which has codified standards for excessiveness of damages, as some States have, like Texas, for example.

That... the district judge has no discretion whether to apply those statutory criteria.

He has no limited right to be wrong, in Judge Friendly's terms.

That's a pure issue of law in the last step, yet the standard of review has always been abuse of discretion.

Chief Justice Rehnquist: I think the Ornelas case from our Court is against your position to a certain extent.

You say that the BMW standards are very fact specific.

Ornelas involved a Fourth Amendment question, which is classically fact specific--

Mr. Massey: Yes.

Chief Justice Rehnquist: --and yet we held there that the review was de novo and not abuse of discretion.

Mr. Massey: Yes, Your Honor, you did.

We believe that case is not controlling, because first there were separate interests there, a need for a national standards of law enforcement, and other reasons that the Court noted.

In particular--

Chief Justice Rehnquist: Well, but if BMW v. Gore announces a constitutional rule, presumably there's a need for national standards there, just as surely as with the Fourth Amendment.

Mr. Massey: --Well, Your Honor, we think, though, that a district court review would be the best way to promote uniformity in the context of punitive damages, because--

Chief Justice Rehnquist: Well, though, you could have said the same thing about Ornelas.

Mr. Massey: --Well, this Court did note in Ornelas the importance of deferring to local courts and law enforcement officials on the questions underlying the judgments of reasonable suspicion--

Chief Justice Rehnquist: As a part of de novo review.

Mr. Massey: --Yes, Your Honor.

You're correct about Ornelas.

That doesn't involve the jury context and the tradition of appellate review in punitive damages cases, but you're right that... of course, you did also write, though, Ohio v. Robinette, which was a Fourth Amendment voluntariness of consent to search.

Chief Justice Rehnquist: I don't cite Ornelas just because I wrote it.

Mr. Massey: No, I understand.

[Laughter]

I understand, Mr. Chief Justice.

I understand, but the Robinette case is a case where you noted that the fact specific nature of reasonableness made bright line rules inappropriate, and you recognized the need to defer to the sort of close people who were closer on the facts and on the scene.

But let me just circle back for a moment, because the Rule 59 context, and motions for remittiturs, those have always been judged by an abuse of discretion standard, and that, of course, is where constitutional excessiveness challenges are ordinarily raised.

There's quite a logic to the Cooter and Gell position that we ought to have a unitary standard of review in this area because the Rule 59 context, as Justice Breyer mentioned, will require the district judge to apply sometimes the very same standards as are in Gore to the judgment under State law requirements.

The third... the second and third Gore guideposts have been tossed out as being primarily legal, but that's not always true.

The second guidepost involves actual harm as well as potential harm.

Gore noted that whether a high ratio is permissible because of a particularly egregious act might have resulted only in a small number of damages.

In other words, there are a number of difficult factual questions associated with each of these guideposts.

Justice Breyer: Well, the difference with 59, I thought, look, BMW is... governs quite extreme cases, you know, and if you say, look, judge, you have a lot of discretion under 59, and you have a lot of discretion to decide how egregious something is, and you have reprehensibility, and how much harm, and all those things.

Now you give him discretion on discretion, then you say at this last step, where you're also applying this legal label that only applies to extreme cases, you're saying, and now there's some more discretion even in that, you don't have much of a rule left.

Mr. Massey: Well, Your Honor, if we think that you will... I mean, Justice Souter's concern that the law be developed in this area we think can be fully accommodated by abuse of discretion.

The General Dynamics amicus brief, and the brief submitted by General Dellinger in this case, both discuss a lot of studies that have been done and cases that have been decided since BMW v. Gore.

One striking thing is the role of courts under an abuse of discretion standard in striking down punitive damages.

There are about six studies discussed, the GAO study, Rand, Michael--

Justice Souter: Are these studies of what trial judges have done in reviewing, or are they studies about what appellate courts have done in reviewing trial judges?

Mr. Massey: --Both, Your Honor.

Both.

In... the total of both trial and appellate together is... the range of reversal goes from 54 to 70 percent.

If you want to look just at appellate courts applying abuse of discretion, I believe there are numerous cases in the General Dynamics brief.

Particularly, there's a case called Kim, one called Kimzey, there's an Aetna Life case from the Ninth Circuit, so I don't believe... the abuse of discretion standard is not a toothless standard.

As this Court noted in U.S. v. Taylor, which was a 1980 Speedy Trial Act case which reversed the dismissal of a case under the Speedy Trial Act, this Court described abuse of discretion as permitting thorough appellate review, so we don't share the view--

Justice Souter: Well, but it's thorough appellate review... you say it's not a toothless standard, but I mean, his argument is that his teeth are very far apart, and a lot is going to get through, and sure, there are some teeth, but... I mean, I... it seems to me that your brother's argument is... does not depend, perhaps, on exact parsing of the difference between applying de novo and abuse so much as it does in emphasizing that if you're going to have de novo review it's going to be a more aggressive review, and it's going to be a more articulate review, and doesn't he make sensible points in that respect?

Mr. Massey: --Well, perhaps superficially, but I really... but we believe that, for example, the practical result of telling courts of appeals that they have to review de novo long, burdensome records might be actually to reduce the amount of time they have--

Justice Souter: Yes, but I mean, you've just been telling us that they're going to review carefully on abuse of discretion, and I suppose they're going to have to look at long, burdensome records there, aren't they?

Mr. Massey: --Well, we believe that in a case involving... the headline cases we see in the papers about big, punitive awards can be addressed fully by an abuse of discretion standard.

What's going to happen in the run of the mill cases, where the result is actually reasonable and falls within what this Court described in Gore as the zone of reasonableness, those cases are going to occupy a tremendous amount of appellate resources without many differences in result, and the result of the whole process may be more unpublished opinions in punitive damages cases because the courts of appeals are busy reading records in cases where the abuse of discretion standard would have the same outcome.

So we... as a practical matter, Rule 59 is a familiar standard.

The abuse of discretion review has grown up, not just under Gore, but under the State law excessiveness standards which courts have always applied historically, even though the last step of applying any of these standards could be described as a purely legal issue.

Justice Ginsburg: Well, that's... Mr. Massey, the point that I'm having difficulty with, and I think Justice O'Connor raised it first, there's one of these standards, reprehensibility, degree of reprehensibility that sounds like even at the last step.

It's a judgment call that the jury makes, just as I described gross negligence and recklessness.

I don't really see the difference.

But the other two standards, the seriousness of the injury and the comparable awards in other cases, that the jury isn't so well equipped to deal with, and you can say this is law applied to historic facts.

Mr. Massey: Well, sometimes it is, Your Honor.

Sometimes those... I mean, the second guidepost is almost always part of the jury charge.

The third guidepost is a part of the jury charge in some places.

It wasn't in this case... well, there is an Oregon statute that instructs juries on the criminal and legislative sanctions which could be applied, but even those guideposts will be very factual.

For example, the Cooper brief in this very case, the reply brief, leads off with three pages of factual argument about potential harm and reprehensibility and the legislative sanctions, so even at this level there's still factual disagreement about how to apply this.

Justice Breyer: Well then, you have to take the facts as the plaintiff states them.

I mean, normally, these trials, you take the facts as the plaintiff states them, then the defense comes along on appeal and says, well, you can't take that, because there's no support for that, but you're going to have to do that anyway in any appeal, and so... but you read it with an eye favorably towards the side that won, you know, and there's always an argument you can't read it that favorably, but that's going to be true no matter what standard you have.

But having done that, I don't see what's left that's so tough for the appellate judge to do.

Mr. Massey: Well, Your Honor, in resolving the parties' disputes about what reasonable inferences are possible--

Justice Breyer: No, I'm saying that that kind of thing--

Mr. Massey: --I--

Justice Breyer: --is true in every trial, every appeal.

They're always arguing about that sort of stuff, and that's true whether punitive damages are at stake or not, and that's true... you know, I mean, you get an appeal, there are dozens of arguments like that from a complicated trial, so we always go through that.

I know how to do it.

I mean, I might not do it brilliantly, but I try, and what you do is, you read it with an eye favorably towards the side that won.

Now, that's true regardless.

Now I'm looking at the stage beyond that, and once you're beyond that, I don't see that it's so tough for a... you know, it isn't too complicated.

You now know what your facts are.

So it's at that point that I... and I don't know how to write it to get this... I don't... I see where... you see, I need... I don't think you disagree that much with it, but I'm not sure.

Mr. Massey: --Well, I don't... I agree... I don't think we disagree that much.

We think an abuse of discretion label for the analysis, though, is more appropriate, because that's... in all the cases that you've reviewed you've mostly been applying discretion under Rule 59.

It's not... perhaps in many cases you could say that courts of appeals are--

Chief Justice Rehnquist: Does the court of appeals apply an abuse of discretion standard when it's reviewing the decision of a trial court under Rule 59?

Mr. Massey: --Yes, Your Honor.

Chief Justice Rehnquist: And does one of our cases stand for that proposition?

Mr. Massey: I... this Court's cases... yes.

It's sort of accepted, that's the accepted standard under the... as in the Tri Counties case that you heard earlier, that was the thing that Justice Breyer--

Chief Justice Rehnquist: Which we dismissed as improvidently granted--

Mr. Massey: --Yes, Your Honor.

No, I'm not citing that case as precedent.

Chief Justice Rehnquist: --because we thought it was an open question.

Mr. Massey: Right.

Well, that's a--

Justice Ginsburg: How about Gasperini?

Gasperini said that the standard for the appellate court vis a vis the trial court--

Mr. Massey: --Yes.

Justice Ginsburg: --on compensatory damages is abuse of discretion, and that was a majority opinion--

Mr. Massey: Yes.

Justice Ginsburg: --of this Court.

Mr. Massey: Yes, Your Honor.

Justice Souter: Isn't the difference between the Rule 59 situation a sort of precedent for what we should do here, in the situation we've got here, something like this--

Rule 59 motions are reviewing, sort of, or are intended to review what are claimed to be specific mistakes and problems in individual cases, but what we're dealing with here is regarded somehow as a more serious and a more intractable problem than what Rule 59 addresses, and therefore the argument is, because you have a more intractable problem in trying to get some kind of coherent standard for punitive damages, you've simply got to have a more restrictive remedy or a more intensive review, so Rule 59 really is not a good precedent to appeal to.

Mr. Massey: Well, Your Honor, procedurally the excessiveness challenges are made under the Rule 59 rubric, so that applying the sort of--

Justice Souter: In the sort of normal... I say normal remittitur motions, but I don't think we perceive the problem of remittitur issues as being a problem comparable to the difficulty of trying to get some kind of a coherent standard for punitive damages, and because the problems are different maybe the remedies and terms of judicial review ought to be different.

Mr. Massey: --Well, Your Honor, I think the seriousness with which the lower courts address this problem is not really going to be affected by the standard of review.

I think the message has been sent in Gore and has been received, and the courts have shown themselves quite willing to step in and reverse verdicts that the perceive to be excessive, and I... we believe that the de novo standard is frankly just confusing.

It's beyond what the historical tradition would permit.

It--

Justice Souter: Well--

Mr. Massey: --sort of... yes.

Justice Souter: --When you're finished, I want to go back to the question of historical tradition, but go ahead and finish what--

Mr. Massey: Well, and it fails to recognize the first hand vantage point of the district judge.

This Court has recognized in the habeas context, for example, Professor Baktor's warning that it's sort of debilitating to State courts to be told that they're going to be second guessed by Federal courts.

In this instance, when you have highly fact intensive questions I think the message sent by a de novo review is... might have the unintended consequence of sort of undermining the district court's willingness to grapple with the record, knowing that whatever he does is going to be reviewed again by the... by his brethren on the court of appeals.

Chief Justice Rehnquist: --But that's quite different than the habeas rule.

I mean, there's no writ of habeas pecuniae that says, you know, if you lose a punitive damages award in the State court you can go into Federal court and relitigate it.

That's just the ordinary pressure that any trial judge is subject to knowing he will be reviewed by an appellate judge, appellate court.

Mr. Massey: Yes, Your Honor.

We... I simply meant that the judges now are doing a very conscientious job of restraining--

Chief Justice Rehnquist: Well then, they have nothing to fear.

Unknown Speaker: [Laughter]

Justice Souter: Mr. Massey, going back to the historical point that you alluded to, I'm not sure that I follow your argument, and I'd like you to maybe expand on it.

I realize... I mean, we have faced the argument that historically the review of a jury verdict is very, for this kind of punitive excessiveness is very grudging, but we passed that point and we said, yes, there can be some review, and that review to begin with can take place by a trial judge, and a trial judge who is performing what, I think, functionally is an abuse of discretion review of what the jury did, informed by particular Gore factors and so on, can set it aside.

Once we have passed the point of saying there can be that kind of review by the trial judge, what is it historically that would have a bearing on the question, whether the appellate court's review of the trial judge is either de novo or abuse of discretion?

I would have thought that the force of historical precedent is behind us once we take the position that the verdicts can be reviewed at all?

Mr. Massey: --Well, Your Honor, the common law, though, drew the line between the trial judge and the appeals court, that that... the Seventh Amendment was adopted largely to prevent appellate courts from interfering, not trial judges.

Justice Souter: Well, that might ground an argument saying the trial judge's review is itself unreviewable, but that's not your argument, and if we accept the proposition that the trial judge can be reviewed under some standard, what historically... what does history tell us as to whether that standard ought to be de novo, in which case the appellate court is looking at the jury verdict for abuse, or on an abuse of discretion, in which case the appellate court is looking for an abuse by the trial judge, who reviews for abuse?

What does history tell us when we are at the stage where we are at now?

Mr. Massey: Well, I mean, history would counsel that having gone to abuse of discretion in Gasperini we ought not go further to de novo, because the Gasperini step--

Justice Souter: But the review of the jury... the substantive standard for reviewing the jury verdict is going to be exactly the same in either case.

Mr. Massey: --Well, but that was always true historically.

In other words, even in the 19th Century, judges, the trial judges were reviewed for excessiveness but not courts of appeals and, even before Gore, we had common law standards for reviewing damages awards, or--

Justice Souter: Okay, but if that--

Mr. Massey: --borrowed those--

Justice Souter: --But if that is not a reason for saying there is no appellate review, I don't know why it is a reason for making this choice between two varieties of appellate review.

Mr. Massey: --Well, sort of in for a penny, in for a pound, but we think we ought to--

Unknown Speaker: Yes.

Mr. Massey: --stop where we are, rather than... I mean, the Court in Gasperini made the quite deliberate decision not to go to de novo review, or to tell the courts of appeals--

Justice Ginsburg: And did think there was historical precedent for--

Mr. Massey: --Yes.

Justice Ginsburg: --an abuse of discretion standard, and there was disagreement on the Court whether that was so, but the majority held that there was, but... so unless Gasperini is overruled, then I think this case has got to turn on, is there a significant difference between compensatory damages, where we said abuse of discretion is it, no de novo review--

Justice Scalia: --Except that--

Justice Ginsburg: --and punitive damages.

It's got to turn on that, unless the Court is going to redo Gasperini and say no, the court of appeals can have de novo review there, too.

Mr. Massey: Yes, Your Honor, we agree, and we think the line between--

Justice Stevens: May I just ask you this question?

Mr. Massey: --Yes.

Justice Stevens: Is there not at least conceptually... maybe practically it doesn't matter... a difference between constitutional excessiveness of a damage award and nonconstitutional excessiveness?

In other words, could not... like the damages in Gasperini or the damages here might be excessive in a sense that they violated State law, or they just offended the conscience some way, but did not violate the Constitution.

Does it... is there... is it conceivable that an award could be excessive as a matter of just general common law rulings of one kind or another, but yet not violate the Constitution?

Mr. Massey: Yes, Your Honor.

Justice Stevens: So that this case is conceptually quite different from Gasperini?

Mr. Massey: Well, it is in that way, although of course the Gore factors themselves are distilled from the common law.

I mean, Your Honor did not mint them from new sources.

You traced back to the common law roots, and footnote 24 of Gore in fact refers to their deep rooted nature within the common law.

So we think the common law precedents are still highly instructive.

But going back to the line between compensatories and punitives.

I mean, at common law there was not that line.

The courts did not treat the two differently and, in fact, in footnote 7 of Cooper's reply brief they discuss the common law tradition of treating them similarly, indistinguishably, in fact, in the same verdicts, so we agree that Gasperini here is controlling, and we don't think it should be overruled or modified, and we don't think a meaningful distinction can be drawn between punitive damages and compensatories.

I would just like to add, and this uniformity notion that we've heard about, first we believe the district courts are in a good position, but also, second, this Court in TXO essentially rejected a proposal for intrajurisdictional comparisons.

The BMW factors are guideposts, but only guideposts.

They are nonexclusive, and the question of gross excessiveness lends itself to an abuse of discretion standard rather than the de novo one.

If there are no further questions, thank you very much.

Rebuttal of William Bradford Reynolds

Chief Justice Rehnquist: Thank you, Mr. Massey.

Mr. Reynolds, you have 3 minutes remaining.

Mr. Reynolds: Thank you, Mr. Chief Justice.

On Gasperini, I'd just like to say there's no need to overrule Gasperini.

In that case, the Court was looking at an excessiveness issue as it relates to compensatory damages, not to punitive, where it was very much tied up with a review of the historical facts, and that's why the Court said that deferential review was what was required in Gasperini.

Here we have punitive damages that, as I've explained, are of a much different sort, and they're not tied up with the historical facts, so Gasperini does not, certainly, need to be overruled.

The other point I make under Rule 59--

Justice Scalia: Excuse me, doesn't pain and suffering come into a Gasperini calculation sometimes, or often?

Mr. Reynolds: --But again it goes to the compensation in the compensatory award.

We're looking now at the punishment on the defendant--

Justice Scalia: Yes, but it's... I understand.

I'm not sure the calculation of pain and suffering is much different from calculation, the calculation at issue here.

Mr. Reynolds: --The calculation, I would submit, Mr. Justice Scalia, is on the side of the fact finding, the historical facts, and what the harm is to the injured party.

Here, we are talking about not facts tried to the jury, the historical facts, but the judgment made on the punishment side.

I do think that there is a difference between nonconstitutional excessiveness and constitutional excessiveness.

This Court in Brown and Ferris did say that where you're dealing with an issue of nonconstitutional excessiveness on the punitive damage side, that the deferential review would be the appropriate review, but unless what the Court has said in BMW v. Gore is superfluous, unless we're going to say that there's no difference between the constitutional excessiveness and nonconstitutional, then there is something here that requires a de novo review standard that is not just the deferential review that you have in the nonconstitutional context, and we would submit that the... all the indicia that point to de novo review are in place here.

And I would point the Court to the Salve Regina decision of this Court which does, indeed, explain why, when a de novo review is, is indeed required and necessary on a legal issue, especially of constitutional importance, that abuse of discretion is no answer to that review standard.

Thank you.

Chief Justice Rehnquist: Thank you, Mr. Reynolds. The case is submitted.

Attribution:

The Oyez Project

Featured:

BMW v. Gore - Oral Argument

Fri, 09 Jan 2009 14:49:46 +0000

Case:

BMW v. Gore

Media File:

94-896_19951011-argument.mp3

Related Transcript:

1995_94_896_argument.xml

Transcript:

Argument of Andrew L. Frey

Chief Justice Rehnquist: We'll hear argument now in Number 94 896, BMW of North America v. Ira Gore.

Mr. Frey.

Mr. Frey: Thank you, Mr. Chief Justice, and may it please the Court--

When an automobile comes off the assembly line it has to be transported to the location where it's distributed.

In the course of that happening, it sometimes suffers some damage and BMW, like other manufacturers, has means at hand to restore the car to factory condition as best they can using the same techniques that would be used in the factory if the same incident happened in the factory parking lot.

The question arises, when this happens, whether or under what circumstances there might be an obligation or it might be good business practice to inform the dealers and prospective purchasers of the automobile that there has been work done on a repair or refinishing work.

Now, BMW looked at this question in 1983, and the way they went about that was to examine the various State laws that were on the books then that addressed the subject and to comply with the strictest of those laws, which was to make disclosure, or at least not to sell without disclosure, any car that had had repairs or refinishing that exceeded in cost 3 percent of the manufacturer's suggested retail price.

Unknown Speaker: Mr. Frey--

--Well, Mr.--

Mr. Frey: --I'm sorry.

Justice O'Connor: Mr. Frey, I guess Alabama at the time did not have a statute--

Mr. Frey: That's correct.

Justice O'Connor: --in effect dealing with the subject.

Mr. Frey: That's correct.

Justice O'Connor: And do you question whether Alabama courts could properly find some award of punitive damages here for at least the conduct--

Mr. Frey: Well, I--

Justice O'Connor: --that occurred in Alabama at that time?

Mr. Frey: --I do question it, although I'm not questioning it in this case.

Justice O'Connor: It's not before us in this case, is it?

Mr. Frey: See, I believe that what you have here is actually a species of malum prohibitum and not malum in se.

Justice O'Connor: But we take it on the assumption that--

Mr. Frey: The conduct is punishable--

Justice O'Connor: --punitive damages could be awarded--

Mr. Frey: --In Alabama.

Justice O'Connor: --in Alabama--

Mr. Frey: Yes, that's correct.

Justice O'Connor: --at the time this incident occurred.

Mr. Frey: At the time of the sale of this car.

Justice O'Connor: Now, do we also assume that it would be perfectly proper during the course of trial for evidence to be admitted on the existence and frequency of similar conduct outside of Alabama to show a course of conduct or the defendant's state of mind or something of that sort?

Mr. Frey: Again, we are not challenging that.

I have difficulty where the evidence is not relevant.

I question its relevance here to any legitimate purpose question.

Justice O'Connor: Well, haven't there been many cases, including ones decided by this Court, where evidence--

Mr. Frey: Yes.

Justice O'Connor: --of other similar conduct outside the jurisdiction has been admitted?

Mr. Frey: Absolutely, and there's no question, for instance, if it were admissible for Rule 404(b) kind of purposes under the Federal Rules of Evidence--

Justice O'Connor: Well, just admissible to prove the intent--

Mr. Frey: --Right, now if intent--

Justice O'Connor: --and the egregiousness of the injury.

Mr. Frey: --That's true, and I think my problem with it, and it may not be a constitutional problem, it's a kind of rule 403 problem, that it's highly prejudicial in a case like this, where it was agreed that there was a policy and there was no question of intent--

Justice O'Connor: Well, again, do we assume--

Mr. Frey: --You can assume--

Justice O'Connor: --here that the evidence of conduct out of State properly was admissible?

Mr. Frey: --You can assume that, yes.

That's what the Alabama supreme court held--

Justice O'Connor: Okay.

Mr. Frey: --and we're not challenging that.

Justice O'Connor: Does this case boil down to kind of a fluke because it was submitted to the jury on this multiplier theory instead of... what if the jury... what if it had not been presented to the jury that way, and just the egregiousness of what happened to the plaintiff here, and the fact that similar instances occurred elsewhere, it was a standard practice of the company, could the jury properly have awarded the 4 million in punitives based on conduct in Alabama alone?

Mr. Frey: No.

I'm going to argue that they couldn't, but that is a different argument.

There are two separate issues in this case.

The first issue is whether BMW was punished for non Alabama conduct, conduct to which Alabama law does not extend, but punished under Alabama law; if so, whether that was improper--

Justice O'Connor: Well--

Mr. Frey: --and if so, whether inadequate remedy was--

Justice O'Connor: --I know you are, but is that because this case has peculiar facts?

I mean, could--

Mr. Frey: --This case I think, Justice O'Connor, highlights what is more submerged in a lot of other cases, product liability, or mass tort, or consumer fraud cases where you have nationwide conduct, which is the invitation to the jury to punish the defendant not only for the conduct that was done in the State or to the plaintiff, or plaintiffs in the case, but to punish them for their national conduct.

Justice Ginsburg: --But Mr. Frey, that came in only because a lawyer said it in summation.

No judge charged it.

No Alabama law permitted it.

It was an impermissible summation.

There was no objection to what the lawyer said.

The source for that notion that you could multiply by all the incidents came from an unobjected to lawyer's summation--

Mr. Frey: On any--

Justice Ginsburg: --and the Alabama supreme court said it's dead wrong.

You're not supposed to compute the size of the remedy on that basis so you can't trace that error to any flaw in the Alabama law.

Mr. Frey: --Well, I'm not... except for the unconstitutionality of the holding of the Alabama supreme court, I'm not sure that I am, but I don't accept your premise that there was not a proper objection.

I'd note--

Justice Ginsburg: Where was the objection... I didn't see it... to the lawyer's summation?

Mr. Frey: --No, it wasn't during the summation, but what happened was there was a motion in limine.

During the motion in limine, counsel for BMW, who had just been through the Yates trial, said, Your Honor, I know what they're going to do with this.

They're going to improperly invite the jury to punish on the basis of sales outside of Alabama, and the law in those States is different.

It's not the same as Alabama.

A lot of these States have statutes.

That was one of the objections that was made.

I can give you the page of the transcript.

Justice Ginsburg: Mr. Frey, there was no objection after the lawyer made that statement in summation, and isn't it common--

Mr. Frey: The court had already ruled that that was a permissible use of the evidence.

Justice Ginsburg: --Well, perhaps we won't... I don't want to detract you on this any longer--

Mr. Frey: No.

No, but I think--

Justice Ginsburg: --but you can give me the place in the record where the judge makes an error of law in saying it's proper for the jury to take into account the... to use as a multiplier sales in other States.

Mr. Frey: --Well, I think you'd have to look at page 451 to see our argument, of the transcript... the Clerk's record, I'm sorry, and then at 585 to 591 of the Clerk's record, but I believe that what happened here was that we said this improper use is going to be made and in fact Mr. Bolt, counsel for Dr. Gore, said they wanted to use it on damages.

Now, I understand that there are different ways in which it can be used, but because the Yates trial had already been held, and it had been used precisely in the way it was used here, and that was called to the attention of the court, I can't see that we had to do more, and besides--

Justice Ginsburg: But Mr. Frey, even if you were right about what the record would reveal, and even if we can pass over that there was no objection to the statement that was made, the Alabama supreme court itself said, such evidence may not be considered in setting the size of the civil penalty.

Mr. Frey: --I agree, and I am willing to accept that as the premise and proceed to the question, which is really the question we presented, whether the use of that evidence to set the size of the civil penalty was properly remedied by the reduction of the punitive damages award from 4 million to 2 million.

Justice Souter: May I just ask you one question before you get into that?

You have argued, as I recall, that one of the aspects of the error was that Alabama was allowing the jury to punish for conduct which was lawful in the States in which it took place and that, as I understand it, is premised on your statement that when BMW adopted its 3 percent cost policy it was complying with the most stringent of out of state laws.

Mr. Frey: I don't... I believe it is true... the situation is this.

There were statutes--

Justice Souter: Well, let me just tell you what my question is, then--

Mr. Frey: --Okay.

Justice Souter: --My question is, in those States in which... which had adopted this 3 percent rule, is it also the case, as counsel on the other side have claimed, that the common law fraud action was preserved and any plaintiff in any of those other States could still have brought a common law fraud action based upon repairs, undisclosed repairs, even though they did not amount to 3 percent of the cost?

Mr. Frey: Well, the answer to that is, the action might not have been dismissed for lack of jurisdiction or preemption, but the action would have been, I believe, bound to fail.

Now, let me say this.

First of all, at the time of the sale of the car to Dr. Gore, there had not been a single suit brought anywhere in the United States on the theory that not disclosing paint refinishing is fraud... by the manufacturer is fraud at all, let alone in a State that had a statute that says here is the standard under our Deceptive Trade Practices Act, and then you comply with that standard and then we're going to go ahead and not only find you liable for any damage that may have been suffered but find you... but punish you.

Now, there are... we cite in our brief a case from Louisiana which held that because the amount of the refinishing exceeded the statutory threshold, there was a cause of action, and I have a case from Wisconsin that was--

Justice Souter: Did you understand the court's reasoning to be that had it not exceeded it would have been no fraud cause of action?

Mr. Frey: --I think that was implicit--

Justice Souter: Okay.

Mr. Frey: --in the fact that their decision turned on whether or not it exceeded it.

Justice Souter: Is there... I take it that is the extent of the out of state discussion of the subject.

Mr. Frey: There's a case called Tesh v. Best Motors, decided by the court of appeals in Wisconsin on August 15, 1995, and the cite I have is 1995 Westlaw 478413, which is to the same effect.

That is, it turned on that--

Now, let me make the point, to my mind there is something slightly Kafkaesque about saying, this is the standard, more than 3 percent, you must disclose less than 3 percent.

It's not material, which is what the current Alabama statute says, and then turning around and solely on the evidence of compliance with that statute... solely on the evidence of conduct that complies with that statute, no separate evidence of fraudulent intent except what you infer from the conduct... holding somebody liable for fraud and punitive damages.

Justice Souter: Well, it's not... why is it Kafkaesque?

I mean, can't a State simply say, look, we're not going to provide the administrative machinery of the State to go after these dealers unless the dereliction reaches a certain point, but if any individual who has been defrauded wants to go after them for the amount of his loss, the individual is free to do it?

Mr. Frey: Well, I guess... I guess my problem with this is that if virtually every State that has considered this conduct has found that there... that in a statute, has set a statutory threshold... those statutes are passed to balance the interests of consumers, and having information that's important to them, with the interests of the business community in doing business free from restrictions that may increase costs or have other adverse effects.

Now, you know, it seems to me that... it's hard to say that this conduct is malum in se, and remember, the only evidence--

Justice Souter: Well, it may be hard to say, but do you... are you saying or would you argue that the courts of Alabama should have instructed the jury that so long as the damage did not reach this 3 percent threshold that as a matter of law it could not be considered as--

Mr. Frey: --No.

No.

Justice Souter: --Okay.

Mr. Frey: We're not saying that to this Court.

I'm not--

Justice Souter: So aren't you then making a jury argument to us?

Mr. Frey: --No.

No.

The argument... on this particular point, the argument about the lack of any notice that this conduct was unlawful, and there was no notice in any judicial decision, any statute, or any regulation anywhere in the United States that this conduct would be considered fraud, but the only argument I'm making here is that that bears on the reprehensibility of the conduct when you're assessing whether it's excessive.

Now, for purposes of my argument about extraterritorial punishment, it does not matter, because the problem here is that Alabama law was applied, and I think nobody can dispute that this case was decided only under Alabama law.

Alabama law was applied to conduct that Alabama had no business regulating.

Justice Ginsburg: Mr. Frey, I think that that argument is not genuinely in the case, and let me tell you why.

There's a statement made by the lawyer.

It's not in the judge's charge.

The Alabama supreme court says that was wrong.

The jury determined liability.

The Alabama supreme court then... we think, after a thorough and painstaking review of the record, 2 million is an apt award, and that's what we set.

Shouldn't we, as a Federal court, give the Alabama supreme court the respect of assuming that once it recognized the extraterritorial computation was no good, it then set what it considered a permissible award without regard to any extraterritorial multiplier?

Mr. Frey: Well, but the issue we're raising is that we believe the Constitution prohibits it from doing that, and the reason we believe that--

Justice Ginsburg: Let's just assume that the Alabama supreme court said the jury has determined liability.

We, as judges, are determining amount, and the amount we as judges arrive at has nothing to do with multiplier based on out of state sales, it has to do with what happened inside Alabama and the amount we set for that is 2 million.

Mr. Frey: --All right, and my answer to that is, what is wrong with that is that that is first of all not what they did.

It's not what Alabama law calls for them to do.

It is very clear under Alabama law that what they do is, they reduce the punishment to the largest amount that is constitutionally permissible.

That is not the same as having a de novo determination by the court of what the punishment should be.

I would agree with Your Honor that if the court had determined the punishment de novo, that we would not have an objection based on what happened before the jury, but Alabama law is clear that you defer to the jury.

Our problem is, you're deferring to a jury which the Alabama court itself recognized imposed punishment on an unconstitutional basis.

Justice Souter: Let me ask a question which is an alternative, or rests on the alternative of Justice Ginsburg's premise.

Let's assume that they did indeed... that whatever is left on that verdict rests upon a consideration of out of state conduct.

Why isn't the answer to that that in fact Alabama was not punishing anything other than Alabama conduct?

On the analogy with the argument which is common in the enhanced damage area in criminal law, we say, well, the enhanced penalty is not a further punishment for prior crimes which may be considered, and why do we not look at the Alabama rule as simply saying Alabama says if you've done it in other States, you better watch it here, because we're going to sock you hard as a result of it?

Mr. Frey: I have no problem... I think this was Justice O'Connor's question in the beginning.

I'm not here saying that Alabama cannot consider that conduct to enhance the punishment that should be imposed for every plaintiff who sues, not just Dr. Gore, and it's an issue I want to talk about which is very important that I'm afraid I'm not going to get to, but... but you have to decide... there is a difference... the Witte case that Justice O'Connor wrote for the Court last year recognized that there is a difference between punishing for the tort that is being adjudicated and enhancing the punishment for that based on other conduct, and punishing for the other conduct.

Now, the Alabama supreme court was quite clear, and I don't see how anybody could fail to conclude each additional sale that took place outside of Alabama was punished an additional 4,000 by this jury.

Justice Souter: Was it punished, or was it used as a measure for enhancement in punishing the Alabama--

Mr. Frey: It was used... in my view, you cannot let that kind of a subterfuge conceal the fact that the more activity which presumptively we have to assume was lawful in other States that was engaged in, the larger the punishment that Alabama is imposing on the defendant.

Now, there is a problem with that, it seems to me.

The problem is, the reality is, and the Alabama supreme court recognized this, that what happened here was that the punishment was being measured by... in order to take away the profits.

This was the express purpose, take away the profits that BMW made in New Jersey or Hawaii or California from selling cars that for all we know were perfectly lawfully sold in accordance with the law of that State.

Justice O'Connor: --Well, the Alabama supreme court did grant a remittitur, and how do we know that what it did in granting the remittitur is somehow unconstitutional, and are you relying on the Due Proces Clause--

Mr. Frey: Well, I have--

Justice O'Connor: --or the Commerce Clause, or what?

Mr. Frey: --Well--

Justice O'Connor: What principle is it--

Mr. Frey: --Okay--

Justice O'Connor: --that tells us what they did in granting the remittitur was unconstitutional?

Mr. Frey: --I have two separate arguments, and I need to be clear about this.

The first argument has to do with the remedy if there was a constitutional violation in the way the punishment was measured.

Is the remittitur to the constitutionally maximum amount an adequate remedy?

And I'd like to read to the Court from a case called Hicks v. Oklahoma at 447 U.S. 345, where the Court said, had the members of the jury been correctly instructed in the this case, they could have imposed any sentence of not less than 10 years.

That is, they could have imposed a sentence of less than the one they did.

Then the Court said, it is argued that all that is involved in this case is the denial of a procedural right of exclusively State concern.

Where, however, a State has provided for the imposition of criminal punishment in the discretion of the trial jury, it is not correct to say that the defendant's interest in the exercise of that discretion is merely a matter of State procedural law.

Justice Ginsburg: But Mr. Frey, I keep coming back to where the State has.

There was nothing in Alabama statute law.

There was nothing in the judge's charge that permitted the size of the civil penalty to be set by the number of incidents all over the country.

The Alabama supreme court said that was wrong, and then it said, we are determining the size of a verdict that would be permissible without regard to that--

Mr. Frey: No, but Your Honor, it's... there is a vast difference, and this Hicks case makes it clear, between determining the verdict that is proper for this conduct, and determining the largest constitu--

Justice Ginsburg: --The Hicks case relied, as you read it, on a judge's charge.

There was no source of Alabama law.

There was no authoritative Alabama law--

Mr. Frey: --If the jury had not believed, and had not punished for non Alabama sales, it presumably... we don't know for sure, but the best evidence is that it would have imposed a punishment of 56,000 if it--

Justice Ginsburg: --I'm forgetting what the jury does.

Mr. Frey: --No, but you can't--

Justice Ginsburg: I'm asking why we don't owe the Alabama supreme court the respect of saying that when it recognized that what the jury did was impermissible, it then substituted a figure that it thought a proper construction of the law, not permit--

Mr. Frey: --No, what... it substituted a figure that it thought was the largest figure that... the largest amount that a jury could punish BMW.

When that happens, what happens is the right to have the jury determine the punishment is wiped out, because this jury would have picked a smaller number.

Justice Souter: --And conversely you're saying what is left is still a punishment for extraterritorial conduct and that's wrong, whether it's 2 million or 2.

Mr. Frey: No.

If it were reduced to 56,000, that would expunge the effect of the extraterritorial punishment.

Justice Souter: Because there wouldn't be any extraterritorial punishment.

Mr. Frey: That wouldn't... there would not be any.

Justice Souter: Yes, but so long as there's some extraterritorial punishment--

Mr. Frey: We are saying that we are still subject to extraterritorial punishment.

That's--

Justice O'Connor: --And do you rely on the Due Process Clause or the Commerce Clause?

Mr. Frey: --No, the Due Process--

Justice O'Connor: I have yet to hear your theory.

Mr. Frey: --No.

We rely on the Commerce Clause for the proposition that it's wrong to punish us, that Alabama cannot project its law outside of Alabama to do what Dr. Gore said, which is to force BMW to stop its conduct everywhere.

For that we rely on the Commerce Clause, the Due Process Clause, and the Full Faith and Credit Clause.

On the question of remedy, I think we rely on the proposition which is implicit in the Due Process Clause that if there is a violation of your Federal constitutional rights, ordinarily, barring exceptional circumstances, you're entitled to an appropriate remedy that expunges the effect of that violation, and that's what we're asking for here, and we say the reduction to 2 million does not expunge the effect, and I think you'll see when you look at the Hicks case or the death penalty cases, where a jury imposes the death penalty--

Chief Justice Rehnquist: Well, they're criminal cases.

I'm not so sure the same standards carry over from criminal cases to a civil case.

Mr. Frey: --Well, it might not, although certainly we're dealing with punishment here.

Justice O'Connor: But can't a State court in a criminal case consider conduct that occurs out of State at the time of imposing sentence--

Mr. Frey: Absolutely.

Justice O'Connor: --to determine the sentence range?

Mr. Frey: Absolutely.

Absolutely.

We have no problem with that.

I want to be completely clear about that.

What they cannot do is punish for that conduct if they don't have jurisdiction over that conduct.

Justice Kennedy: Mr. Frey, I'm glad we've come to this point, because I think it's a very important issue that we haven't considered in these punitive damages cases before.

What would happen if the Alabama resident went to Tennessee, bought his car there, and then came back to Alabama?

What measure... and he sues in Alabama court under Alabama law?

Mr. Frey: I think the Constitution would permit the application of either Alabama or Tennessee law in that circumstance.

I don't have a problem with that.

Justice Kennedy: Well, could Alabama count the sales both in Tennessee and in Alabama?

Mr. Frey: You mean one sale, and say--

Justice Kennedy: No.

Could it count all... could it take into account all of the sales under this alleged fraudulent--

Mr. Frey: --No, no, no, because... no, it can't do that, because it has no interest... it cannot take into account sales to residents of Tennessee or Illinois or some place that are made in Tennessee.

It can't--

Justice Kennedy: --But why not, if Alabama residents are going there to buy their cars?

Why couldn't they say, well, we'll take Tennessee sales plus Alabama sales, or if we have the--

Mr. Frey: --Well, because I think the--

Justice Kennedy: --If we have the metropolitan area around the District of Columbia--

Mr. Frey: --Well, in Healy v. Beer Institute people were going to New York to buy the beer because it was cheaper.

The Court said, well, that doesn't give Connecticut the right to enact a system which affects the prices that are going to be charged in New York.

Justice Kennedy: --But it seems to me that what we would have to do if we adopted your rule is to have a jurisprudence of apportionment something like our interstate tax jurisprudence.

Mr. Frey: Well, the apportionment issue is very important, and it relates to a different question, which is our excessiveness argument.

Remember, even if the Court were to disagree with us on everything we've been talking about so far and were to accept 2 million as a de novo punishment set by the Alabama supreme court that expunged any error that may have occurred, there is the second issue in this case, which is, is 2 million too much for what happened to Dr. Gore?

Justice Ginsburg: And that aspect--

Justice Kennedy: --Well--

Justice Ginsburg: --is not quirky.

There was a question raised, this is an ordinary... this is a strange case.

It will never happen again, presumably, because trial judges will be instructed by the Alabama supreme court's absolutely clear statement such evidence may not be considered in setting the size of the civil penalty, so this is not going to be repeating the issue in Alabama.

Mr. Frey: I can't agree... well, in the narrow sense that it comes up here, that's true, but in the broader sense the question would be, is the defendant, for instance, entitled to have the jury told that they can't punish for conduct that occurs outside--

Justice Ginsburg: But the one issue... your second issue is the one that will be a continuing one.

Is 2 million too much for this kind of injury?

But the other one you would be asking us to make a correction that the Alabama supreme court has already made--

Mr. Frey: --Well--

Justice Ginsburg: --an issue as far as I can see it which will never repeat in this jurisdiction, and--

Mr. Frey: --Oh, it will repeat in a slightly different form where it's less obvious what's happening, in the form that is common in product liability cases, for instance, where the argument is made that there are so many thousands of people around the country who have bought this product, or been injured by it, or so many thousands... and the jury will be invited to punish for that without any kind of explicit mathematical formula, and that will raise a different problem, but the first step on that particular road is this case.

Justice Ginsburg: --I did--

--Wouldn't every defense lawyer be able, then, to tell the judge, the trial judge please instruct the jury that such evidence may not be considered in setting the size of the civil penalty?

Mr. Frey: Well, if the Court would hold that, I think that would be extremely valuable in the development of the law.

Justice Ginsburg: Well, that's the marching orders that the Alabama supreme court has given.

Mr. Frey: Well, it is less clear, and I can tell you from looking at this litigation around the country that this problem recurs in a slightly more insidious or less, you know, obvious form than it recurred in this case, but--

Justice Breyer: Could you just say a word about excessiveness?

That is, as I see it, and I thought that was probably in this case--

Mr. Frey: --It is.

Justice Breyer: --you have 4,000 of damage of economic nature.

A company is going to have to pay 2 million in punitives.

I take it the total amount of evidence of this kind of conduct in Alabama amounts to 56,000, so I suppose the underlying question which some people complain about is that juries are free to transfer possibly the entire gross national product, or some significant portion thereof, under a standard that has no limit.

I'm not saying I buy that argument.

Mr. Frey: All right.

All right.

No, I--

Justice Breyer: But the problem... the problem is, is there not some Federal limitation and then, of course, it raises, what?

What is the standard, federally--

Mr. Frey: --The first part--

Justice Breyer: --that could be possible to prevent tremendous transfers of property on minimal evidence of significant harm?

Mr. Frey: --The first part of the problem, Justice Breyer, is not a problem any more because the Court has decided in Haslip and in TXO and in Honda that there does exist a substantive due process limit.

Justice Breyer: But what, is the question.

Mr. Frey: Now, I understand the question is what, and I think there are... the nature of the inquiry inherently cannot be reduced to a mathematical formula.

You have to consider the reprehensibility of the conduct, other civil penalties, and in this case I think it's extremely important that the penalties provided under the Deceptive Trade Practices Act for fraud in selling automobiles is 2,000 if it's a civil penalty, or treble damages plus attorney's fees in a private action.

There is a fascinating question about whether the denominator of the fraction, when you're looking at the reasonable relationship between the punishment and the wrong, is the plaintiff's own injury, or potential injury, or whether it's all 14.

I wish I had the chance to talk about this, because there's a procedural due process as well as a substantive due process aspect to this question, but I haven't got the time, so I think I'd better reserve what I have left for rebuttal.

Argument of Michael H. Gottesman

Chief Justice Rehnquist: Very well, Mr. Frey.

Mr. Gottesman, we'll hear from you.

Mr. Gottesman: Thank you, Mr. Chief Justice, and may it please the Court--

I'd like to begin by rehearsing a little bit more the procedural posture in which this case got to the Alabama supreme court, because it bears heavily on this first question that's presented in the petitioner's brief.

As Mr. Frey explained, before the trial, BMW moved to bar the admission of these... the evidence of out of state sales, and the judge denied that motion, and BMW now concedes that that denial was correct, the evidence was in fact admissible.

The parties went to trial.

They were admitted, and then in closing argument counsel made the unfortunate statement which the Alabama supreme court thought created an improper issue for the jury.

BMW did not, as Justice Ginsburg observed... BMW did not object to that.

If it had objected to that, under Alabama law, as the supreme court has told us it is in Alabama, the Judge either would have had to give a corrective instruction to the jury which said, look only at Alabama sales, or, if the judge had refused to give that correction, they would have been entitled to a new trial, not to a remittitur.

Under Alabama law, if there is a judicial error that affected the outcome, Alabama will not remit, it will give the defendant a new trial.

Now, because BMW didn't--

Chief Justice Rehnquist: Does the supreme court of Alabama insist that an objection be made during the course of argument?

That's a very difficult thing to do, to stand up in the middle of your opponent's argument to the jury and object.

Mr. Gottesman: --Well, you can do it either then or at the end, but they do, Your Honor.

I'll give you the cites to two cases in which Alabama says that unless the counsel says something that's uncorrectible, and they've made it clear that's an appeal to racial bias, or that kind of thing, unless it is uncorrectible, the failure to object to it means that you have waived the right to a new trial or to appeal from it.

There's the Alabama--

Justice O'Connor: Is that true even where there has been a motion in limine in advance of the argument and the issue is resolved?

Mr. Gottesman: --Yes, because the motion in limine was only to the admissibility of the documents, not to... it did not address--

Justice O'Connor: Well, what if a motion in limine addressed or should be interpreted to address counsel's argument as well?

Mr. Gottesman: --Well, it didn't--

Chief Justice Rehnquist: Well, suppose it did.

Mr. Gottesman: --Okay.

Justice O'Connor: Do you think Alabama law would then not permit a new trial?

Mr. Gottesman: Well, I guess I don't know the answer to that.

I would give the Court reference to Alabama Power, 342 Southern 2d, at 327, and Southern Life, 518 Southern 2d at 77, where the court explains its practice respecting the failure to object to counsel's statements.

Now, BMW understood that because it had not objected it could not move for a new trial on this ground, and it did not.

It moved for a new trial on that the judge erred in admitting the evidence, because there they had gotten the ruling from the judge and they were challenging it.

But on this issue, they realized that they couldn't move for a new trial because they hadn't objected.

They had waived it.

What they did instead is, they were fortunate that Alabama has a very generous remittitur practice.

The defendant in any case where punitives has been awarded can ask for a post judgment hearing, put in any evidence that it wants, and say, on the basis of this evidence, please reduce the verdict, and they invoked that, and in this post judgment hearing for the first time they introduced the evidence that only 14 of these 983 cars were Alabama cars.

They had... before the jury they had made no reference to the location of these cars at all.

There was no reference by either party to where these 983 cars were sold, and the only point that BMW made in response to counsel's statement which the Alabama supreme court was unhappy with was, there's nothing wrong with those 983 cars.

They're just as good as any other car, so you shouldn't punish us for them.

But now, in the remittitur proceeding, they did make an issue of the geography.

They did put in the fact that only 14 of those 983 cars were Alabama cars, and they asked the Alabama courts to reduce the punitive damage verdict--

Justice Stevens: May I ask, Mr. Gottesman, in the remittitur proceeding did they also bring out the fact that in a lot of States these sales would not have been unlawful?

Mr. Gottesman: --Well, they made the argument.

It is not a fact.

They made the argument that in a lot of States there are statutes that--

Justice Stevens: There's no evidence that they would have been unlawful in any State, is there?

Mr. Gottesman: --That they would have been unlawful?

Justice Stevens: If there's a presumption of innocence, we would presume--

Mr. Gottesman: Right.

That's right.

Justice Stevens: --all these sales were lawful.

Mr. Gottesman: That's right, and the Alabama supreme court said--

Justice Stevens: And that was brought out at the remittitur hearing.

Mr. Gottesman: --Right.

The Alabama supreme court said there's no evidence of whether they are unlawful or not in other States, so they brought that out at the remittitur hearing as well.

Now, the Alabama supreme court was in this case in a peculiar posture.

Justice Stevens: Let me just be sure I understand.

You say there's no evidence one way or another.

Did they at least have before them the fact that there are all these statutes out there that do have this 3 percent standard in them?

Mr. Gottesman: Yes, that there were--

Justice Stevens: That wasn't--

Mr. Gottesman: --At the time they adopted the policy, 15 States had those statutes.

At the time of the trial in this case, 25 States had those statutes.

Justice O'Connor: --Including Alabama by the time of trial--

Mr. Gottesman: No.

At--

Justice O'Connor: --is that right?

Mr. Gottesman: --Well, Alabama by the time of trial, but after the sale in this case.

Justice O'Connor: Right, which--

Mr. Gottesman: But the Alabama statute--

Justice O'Connor: --makes it particularly--

Mr. Gottesman: --Well, except that the Alabama supreme court has construed that statute not to preempt the common law fraud action.

Justice Souter: --I was going to say, in your brief you make the claim that in your... of course, you could still have common law fraud in Alabama.

Do I remember correctly that you also made the statement that there is no... there is at least no reason to believe that there couldn't have been a common law fraud action in any of the other States with the limits?

Mr. Gottesman: Yes.

That is, with the possible exception of one of those statutes, they don't contain safe harbor language in them.

They don't say, if you comply with this statute that means that you can't be sued under the common law--

Chief Justice Rehnquist: Well, it's really a matter of statutory interpretation--

Mr. Gottesman: --Yes, of course.

Chief Justice Rehnquist: --in each State which has some--

Mr. Gottesman: That's correct, Your Honor.

Chief Justice Rehnquist: --I would think it would be very difficult to generalize one way or the other in the absence of decided cases.

Mr. Gottesman: Well, of course, that's right, and Your Honor, the Alabama supreme court said as far as we're concerned, we don't think you should consider the sales out of State at all in determining the amount.

That's relevant to the culpability, but not to the amount of--

Justice Stevens: Why is it relevant to culpability?

Would you explain that?

Does it show that they were honorable or dishonorable if they're complying with the law throughout the country?

Mr. Gottesman: --Well, the... it's... they haven't shown that they complied with the law.

Justice Stevens: I thought you said to me a moment ago there was no example of a case anywhere in the States that reached the same result as the Alabama court did in this case.

Mr. Gottesman: No, I... there's no case.

I'm talking about--

Justice Stevens: So if you presume that the conduct is innocent unless proven guilty, there's no proof that they violated the law anywhere else.

Mr. Gottesman: --No, that's right.

Justice Stevens: Right.

Now then, in that regard, what is the relevance of the out of state conduct?

Mr. Gottesman: Well, they concede it's relevant.

The Alabama supreme court--

Justice Stevens: Well, everybody concedes it.

I'm still curious, why is it--

Mr. Gottesman: --The relevance is that it goes to show the, among other things we have a--

Justice Stevens: --A lot of lawful transactions.

Mr. Gottesman: --Pardon?

Justice Stevens: It goes to show 983 lawful transactions.

Mr. Gottesman: But it also goes to show why they... that it is a nationwide policy, that--

Justice Stevens: Right.

Mr. Gottesman: --they are reluctant to change it, that they are making a profit off of the--

Justice Stevens: Why should their interest in either changing it or maintaining it be the business of the Alabama court?

Mr. Gottesman: --Well, Your Honor, at best--

Justice Stevens: I don't understand.

Why does Alabama have any authority to tell them what policy to follow in New York?

Mr. Gottesman: --It doesn't.

It doesn't have... Alabama has to be Alabama regarding--

Justice Stevens: Right.

Mr. Gottesman: --in determining the amount of punitive damages.

In determining the quality and the character of the party before them and how it should be punished for its Alabama behavior, just--

Justice O'Connor: But admittedly it was applied here by the jury, as has been determined by the Alabama supreme court, in a way that directly tried to affect the conduct of BMW in other States.

Mr. Gottesman: --That's correct, and now I want to come back to where I was on the procedural posture.

If they had objected, they would have been entitled to a new trial.

They didn't object, and the Alabama supreme court said you're asking us to give you a remittitur for this.

We agree with you, the counsel shouldn't have said that, and we agree with you that the likely thing the jury did was to do this arithmetic computation, and therefore you're entitled to a remittitur.

Now, the question... and now, it said, we are going to redetermine the amount of punitive damages, and the question is, did that remove... we'd still have the second question, which is, is their own redetermination excessive, but did that remove the taint, as BMW calls it, of the jury's consideration of the out of state sales?

Now, in their--

Justice Scalia: Did they say that they're going to recompute the amount, or... you're in direct disagreement here with your--

Mr. Gottesman: --Yes, and I--

Justice Scalia: --colleague, Mr. Frey, who says that it's clear under Alabama law that what the remittitur amounts to is a reduction of the verdict to the maximum constitutionally permissible amount.

Mr. Gottesman: --All right, and that's exactly where--

Justice Scalia: You dispute that.

Mr. Gottesman: --We do, and I've advised Mr. Frey that we would, because our brief didn't, and it's reading his reply brief that made us realize the following mistake.

The court in this case did not say it's reducing to the maximum.

On page 21a of its opinion, in the appendix, 21a, it said, we hold that a constitutionally reasonable punitive damage award in this case is 2 million.

Now, those are the words it used.

It didn't say maximum, it didn't not say maximum.

It's not clear what they meant by that.

In their brief, Mr. Frey and BMW said that, well, look at other Alabama cases where the court has said that our practice is to reduce to the maximum that would be constitutionally permissible, and they cited a case called Big B, and there are other cases to the same effect.

Now, we went back, after reading their reply brief, and read each of those cases that has said we're reducing to the maximum.

Each of them is a case where the trial was error free.

The only thing that was being complained about was that the amount the jury brought in exceeded the maximum amount that could be justified for punishment and deterrence, what are called in the jargon mere excessiveness cases, and in that context the Alabama supreme court has said, when the only problem we have is that the jury's verdict is higher than could be justified, we reduced to the maximum that would be justified, and the inference was drawn in BMW's brief... and as I say, and I apologize for this, we acquiesced in it... that that must be what they did here as well.

But this case is unique in that it is a case where we don't have an error free trial, but because they didn't object, they're not entitled to the new trial they would automatically be entitled to.

Justice Scalia: But why... if the Alabama court does what you suggest, if only in the pure excessiveness cases they reduce it to the constitutional maximum, but in error cases they reevaluate on their own, there is simply no explanation for the term, constitutionally reasonable punitive damages award.

The court would have simply said, we hold that a reasonable punitive damages award in this case is 2 million--

Mr. Gottesman: Well, I--

Justice Scalia: --and that a remittitur of the 4 million jury verdict is appropriate.

They don't say that.

They say, we hold that a constitutionally reasonable punitive damages award.

Mr. Gottesman: --Yes.

Justice Scalia: Why is the adverb there?

Mr. Gottesman: Well, I think the adverb is there because they're saying that what made this one constitutionally unreasonable was the consideration of out of state conduct.

What makes it constitutionally reasonable is that we have determined the award without considering the out of state conduct.

I believe that that's the meaning of it.

It's... I don't mean to claim that I can tell you with absolute certainty that Alabama did not use a maximum here.

What I'm saying is, it's not at all clear that because they do in those other cases they did here.

Two things are striking.

One is that they didn't say... this language is pretty standard in their cases, we reduce to the maximum amount, and we don't find it here.

And the second thing is that when we realized this and followed up on it we found one other Alabama case where, because of peculiarity of posture, the court had before it a remittitur where there was error.

The error in that case was found to be genuine bias by the jury.

That case was the Harmon case at 525 Southern 2d 411, and it seems clear from the face of that opinion that in that case where there was a tainted jury verdict Alabama supreme court did not remit to the maximum possible amount but to something less than that, because it said, since this was a tainted award, the plaintiff, if it rejects this remittitur, will not be bound to this as the maximum that it can seek, so they plainly didn't think they were imposing the maximum.

Justice Ginsburg: Mr. Gottesman, if we don't know what operation the Alabama supreme court in fact performed, on a remittitur there are three, at least three positions, the highest a jury could award, the least that a jury, reasonable jury would award, and what the court itself thinks is reasonable.

We don't know which of those three choices.

Do we make an assumption, or do we remand to the Alabama supreme court and say, tell us what you did?

Mr. Gottesman: Well, in the case that we cite in this section of our brief, Clemons v. Mississippi, this Court had a similar problem.

It didn't know exactly what the State court had done as between two alternatives, one of which would have been constitutionally okay, and the other of which would have been constitutionally troublesome, and what the Court did in that case is say, now, if this is what you did, court, it was okay, but if this is what you did, it wasn't, and we remand for further proceedings consistent with this opinion, and that would certainly be an option.

That is, if the Court thinks that a maximum would have tainted the award but that a redetermination would not, it could say that.

I think it would be dangerous to try to conclude from this language that you know which of these choices the Alabama supreme--

Justice Kennedy: Well, do you agree with the Alabama supreme court that the jury could not use the number of similar acts that a defendant committed in other jurisdictions as a multiplier?

Mr. Gottesman: --Certainly, in the absence of evidence that it's unlawful in those States, we would agree that they--

Justice Kennedy: And is that because of interstate commerce concerns or due process concerns?

Mr. Gottesman: --I think due process concerns--

Justice Kennedy: Well... well--

Mr. Gottesman: --but I want to be clear what we're agreeing to--

Justice Kennedy: --on interstate... does interstate commerce enter into the calculus?

Suppose Alabama enacted a statute saying that an auto company that defrauded consumers in Alabama had to disgorge all of its national profits, would that be constitutional?

Mr. Gottesman: --For conduct that didn't... did or did not occur in Alabama?

Justice Kennedy: Well, the sale occurs in Alabama, they do business in Alabama, but the measure of disgorgement is profits nationwide.

Mr. Gottesman: You know, we have a... there's a grossly excessive test under the Due Process Clause that this Court's--

Justice Kennedy: What about... is there any interstate commerce objection to the statute that I hypothesize?

Mr. Gottesman: --There might be, Your Honor.

I don't... you know, it's not this case, but it might or it might not.

I could see a problem if a State did that.

Justice Kennedy: In other words, you're not sure whether or not there is an interstate commerce problem.

Mr. Gottesman: I think the answer is I would not be sure... Alabama removed it by saying you can't... Alabama went further than both we and BMW thinks the Constitution requires.

Alabama said that we are not allowed to consider the out of state sales in determining the amount.

Justice Kennedy: Well, let's just--

Mr. Gottesman: Now, we agree that Alabama--

Justice Kennedy: --Let's just assume that either a statute, and of course then we'll next get to the fact that our hypothetical jury instruction considers out of state conduct as a multiplier in fixing the amount of the award, or out of state profits as being part of the sum that must be disgorged to this plaintiff.

Are there not interstate commerce concerns with such measures of damages?

Mr. Gottesman: --There might well be, Your Honor.

Justice Kennedy: And how do you... well--

Mr. Gottesman: Alabama has absolutely foolproof protections against that happening.

Alabama, uniquely among the States--

Justice Kennedy: --Well, if you say there might well be, then I take it you concede the surface plausibility or reasonable content to the proposition that Alabama may not punish by way of damages for acts that have occurred out of State.

Mr. Gottesman: --Stated that way, I agree with it, yes.

Alabama at least without a determination that it's unlawful in another State, Alabama can't.

The reason I'm putting that--

Justice Scalia: Ah... ah... ah... ah... ah, that's a big qualifier you just threw in there.

Mr. Gottesman: --Yes, of course.

Yes, of course, and in this case--

Justice Scalia: I don't think Justice Kennedy had that qualifier in mind.

Mr. Gottesman: --Well, here's my--

Justice Scalia: I didn't hear it in his question.

Mr. Gottesman: --Yes, I understand, but here's my concern.

Suppose this case had not been filed in Alabama but because perhaps they couldn't get in personam jurisdiction, and so it were filed in New Jersey.

If the issue were whether New Jersey, applying Alabama law, would be allowed to award punitive damages or not, that's an interesting question.

Ordinarily, one State doesn't punish conduct in another State.

Justice Scalia: Well, it certainly does in criminal cases where--

Mr. Gottesman: It takes account of out of state--

Justice Scalia: --where recidivist criminals--

Mr. Gottesman: --Of course.

Justice Scalia: --are punished more severely if they've committed crimes not only in that jurisdiction but in other jurisdictions.

Mr. Gottesman: Of course, and that's the point I'm making, is that while Alabama can't say, we want to punish you for what you did in Texas, Alabama can say that in determining the quality and character of your actions in Alabama--

Justice Scalia: How bad a person you are.

Mr. Gottesman: --Exactly... we can look to the conduct that you've engaged in in other States just as this Court has held that the Due Process Clause allows that in sentencing by a State in a... or by a Federal court, for that matter, in a criminal case.

Justice Souter: But implicitly you're relying, I guess, so far as analogies go, on the fact that in the criminal enhancement field we... at least there is no authority to the effect that it would be proper for a State to say, we will set our punishment for conduct in this State by multiplying a... you know, a particular term of years for every similar act that took place elsewhere.

Mr. Gottesman: Well, in some sense, that's what a recidivist statute does.

It doesn't do exactly that--

Justice Souter: Well, if it does it like that--

Mr. Gottesman: --You know, the three strikes you're out statutes are going to--

Justice Souter: --Yes.

Mr. Gottesman: --give a greatly increased punishment because of actions--

Justice Souter: But it's harder... it's not a kind of a multiplier punishment.

Mr. Gottesman: --It may be much more than a multiplier.

Unknown Speaker: Do we really have--

Chief Justice Rehnquist: --How much of our jurisprudence in the recidivist statutes do you think is dependent on the Double Jeopardy Clause, which of course doesn't have any applicability to a civil proceeding.

Mr. Gottesman: Well, of course, Your Honor, but both due process and double jeopardy apply to the criminal proceedings, and to the extent that courts are allowed to do this in sentencing in a criminal case, it would seem to follow a fortiori that--

Chief Justice Rehnquist: Yes, but perhaps the reason that the courts have said that you're not sentencing again for the same conduct in a recidivist statute is because there would be a double jeopardy problem if you were, and you're not bound down by the double jeopardy clause in a civil proceeding.

Mr. Gottesman: --Well, I think that's right.

I want to be--

Justice Kennedy: And it's not only double jeopardy, it's the problem that a State can't really, consistent with known juris prudential postulates, divide up a sentence and say, well now, you serve this part of your sentence in Nevada, and this part of your aggravated sentence back in California, where you committed the crime, but we can do that under the Commerce Clause.

We can do that with apportionment.

We do it with interstate taxes all of the time.

Mr. Gottesman: --Well, you know, I don't think the Court should take too much counsel from what I say about this, because since in this case Alabama has removed all these issues from the consideration--

Justice Scalia: I'm saying, do we have to grapple with all of this?

Mr. Gottesman: --No, Your Honor.

Justice Scalia: I thought that both you and--

Mr. Gottesman: Yes.

Justice Scalia: --your opponent concede that these out of state things should not have been considered by the jury.

I mean, I thought that that's--

Mr. Gottesman: Right.

Well--

Justice Scalia: --for purposes of punishing those acts separately.

Mr. Gottesman: --That's right, absolutely.

That's why... and therefore, since I--

Justice Ginsburg: But Mr. Gottesman, there is another multiplier that is alive.

The other, I quite agree the Alabama supreme court has said, that's wrong, you don't do it, but this one 2 million, if you just take account of the 14 other in Alabama--

Mr. Gottesman: --Okay.

Justice Ginsburg: --Does every plaintiff get the 2 million, and what about the other States?

How tolerable is a single award of 2 million when you consider that that 2 million can be replicated again and again and again?

Mr. Gottesman: Okay, let me address that, Your Honor, because... and thank you for bringing me to that.

There are two things I want to say about that.

Number 1, the Alabama court knew and had... was entitled to find that there were many, many, many more than 14 cars that had been sold in Alabama.

They told us that they did a thorough and painstaking review of the record in arriving at the award.

Now, I can't tell you for sure, because they didn't tell us what the elements were that led them to the 2 million, but this record gives a basis for believing that there were hundreds of cars in Alabama that were sold that were repainted.

I'll come to that in a second.

And then secondly, I'll address the other implications that would flow even if it were only 14.

Incidentally, as to the question of whether everybody can do the same thing, the answer is no.

Alabama... remember that punitive damages are not just to punish for past acts, but to deter future acts.

Alabama had a practice that was on going, and so it needed to have a penalty large enough to deter the practice from continuing.

Justice Stevens: Do you think that it was... in your brief, you argue that it was appropriate to deter the nationwide policy.

Have you abandoned that position?

Mr. Gottesman: If we said that... I don't believe--

Justice Stevens: You've said it over and over again.

You said over and over again that this--

Mr. Gottesman: --Oh, I'm sorry, yes--

Justice Stevens: --this jolt was necessary to change a national policy.

Mr. Gottesman: --Well, because--

Justice Stevens: Do you adhere to that position?

Mr. Gottesman: --If they would not stop in Alabama--

Justice Stevens: You don't know whether they would have or not.

There's no evidence that even if they knew they were liable for compensatory damages they wouldn't have changed their policy.

There isn't anything one way or the other on that point.

Mr. Gottesman: --Well, that's right... it's always true, when you have to set punitive damages--

Chief Justice Rehnquist: Well, the respondent says that BMW had stopped shipping cars to Alabama by the time of this trial.

Mr. Gottesman: --Well, that's right.

They didn't put this before the jury.

In the post judgment hearing they put on testimony that--

Chief Justice Rehnquist: Well, does that make it--

Mr. Gottesman: --immediately prior to this trial a phone call was made saying, don't send cars to Alabama.

There are two things to be said about that.

One, that... as that testimony developed, it became clear that cars would continue to come into Alabama, because dealers trade cars all the time.

They're all linked into a computer network, and when a customer wants a particular kind of car, you trade.

The testimony was, our dealers trade lots of cars, and this record shows a lot of interstate trades, and the witness was then asked, well... this was a phone conversation, this changed policy.

It was just a phone conversation... don't do it.

The witness was then asked, well, what change did you make to assure that these repainted cars wouldn't then just get traded back into Alabama from one dealer to another, and he said, we did nothing about that.

What's most interesting... so at best what they were saying was, okay, we've been caught.

We promise from now on we will reduce the amount of fraud that we commit in Alabama, because what they weren't willing to say is, we will disclose, because they couldn't just disclose in Alabama without disclosing nationwide.

There was no way they... even when they wanted to fix this problem, they couldn't fix it by disclosing it in Alabama because, since they knew cars came from other States, they'd have to disclose in other States as well, and they didn't want to do that.

And so the first argument we made, and I want to defend the court here today on the ground it itself used, which is, it didn't consider the out of state at all, but the first argument we made in our brief is that they were entitled to look at the out of state conduct in this case, because BMW had constructed an engine that was a nationwide engine and couldn't figure out a way to tailor it so that it wouldn't do harm to Alabama.

Justice Stevens: --Well, there's no evidence they couldn't figure out a way to do it.

Mr. Gottesman: Well, except--

Justice Stevens: The one phone call doesn't discuss all possibilities that--

Mr. Gottesman: --Well, but it--

Justice Scalia: --executives might think of faced with this problem.

Would be unwilling to do it, is what you mean.

You don't even have that--

--They'd have problems nationwide doing it this way, that they're not going to stop in Alabama alone.

You don't even have evidence they were unwilling to do it.

Mr. Gottesman: --Well, at least--

Justice Stevens: You just have this one phone call, they got a problem in Alabama, this is the way we'll try to solve our Alabama problem.

Mr. Gottesman: --That's right.

Justice Stevens: That's all that shows.

Mr. Gottesman: But recall that they were trying to solve the Alabama problem, and even then they couldn't find a way to do it, right--

Chief Justice Rehnquist: Well--

Mr. Gottesman: --so they didn't proffer... they certainly didn't proffer a way to do it.

Chief Justice Rehnquist: --How many 2 million awards can Alabama give in a case like this--

Mr. Gottesman: Well--

Chief Justice Rehnquist: --against BMW?

Mr. Gottesman: --It can only once deter them.

It has deterred them, right.

They have stopped, so there is no longer a--

Justice Breyer: You would deter them with a judgment of a billion dollars--

Mr. Gottesman: --Yes, sure.

Justice Breyer: --Fine.

So does that mean they can award 2 billion?

Mr. Gottesman: No.

Justice Breyer: Or 5... my question, really, I want to get you back--

Mr. Gottesman: Yes.

Justice Breyer: --to what you were about to say.

You were saying, number 1, there's evidence of hundreds of cars.

Mr. Gottesman: Yes.

Justice Breyer: All right, and you have two prongs to it, and I want to hear what you have to say, and what I'm thinking in my mind, though I'm not adopting it, is, is there some procedural aspect of due process that says when there is no obvious relationship between damages and minimal harm, when historically it can't be justified, at least the court has a procedural obligation to explain some rational theory, maybe a little stronger than a legislature, maybe the same, maybe weaker.

And the second thing is, is there any such theory here, whether you say hundreds, or whether you say two, or whether you say one.

Mr. Gottesman: Okay.

Justice Breyer: Those are the... that's the excessive part that's--

Mr. Gottesman: Okay.

Justice Breyer: --bothering me, and I think you were going to discuss--

Mr. Gottesman: Right, I do.

I want to address both those.

Here's what the record shows about the number of cars.

Plaintiffs got discovery from BMW of the records of repainting that they still had.

Remember, this thing had been going on for 9 1/2 years, and so on the record it was explained to the court, we only got discovery for portions where, you know, particular places where they had them.

What they got were 5,856 repainted cars... that's in the record... of which, 983 involved repainting that cost more than 300, and counsel said, now, we don't want to... to the jury, we don't want to bombard you with 6,000 of these, so we'll give you the 983 that are more than 300 of repainting, and that's where... of those 983, 14 were Alabama cars, so we don't... there's no evidence as to how many of the other 6... roughly 5,000 were Alabama or not.

But beyond that, there's a very important thing in the record.

Justice Breyer: --explain, assume that's so.

Mr. Gottesman: Right.

Justice Breyer: Okay.

Mr. Gottesman: Okay, now--

Justice Breyer: Still, isn't there some obligation on a court under the Due Process Clause... and I'm not buying this.

I'm putting it for you to discuss... a procedural obligation under this kind of circumstance... the people who are paying this judgment did not intentionally cause harm, the people who are paying it.

There is purely economic harm.

Mr. Gottesman: --Yes.

Justice Breyer: It is fairly small in amount compared to the amount of damages.

Mr. Gottesman: For this one person.

Justice Breyer: Is there not an obligation to explain some rational theory?

That would be the theory I'm asking you to discuss.

Mr. Gottesman: Well, let me explain the rational theory, and I leave it to the Court whether the Court wants to say the Due Process Clause requires that.

There is no case that has said that in the past.

The Court could say we want that, and--

Justice Breyer: But we would say it if that's the law, presumably, and what I want to know is--

Mr. Gottesman: --But I do want to tell you that they could rationally get there if they in fact did the thorough and painstaking review that they claim they did.

There is evidence in the record, and it's cited in our brief, that 2 to 3 percent of all the cars that come to this country from BMW have to be repainted.

Now, we don't have the universe of all the sales in Alabama, but we do have the evidence of the sales by the dealer who sold Dr. Gore his car.

His testimony, and it's at page 297 of the trial transcript, is that he sold 300 to 400 BMW's a year.

Now, 2 to 3 percent of that would be 6 to 12 cars a year at that one dealer.

For 9 1/2 years this practice continued, from January of '83 to July of '92.

Nine and a half years' time, 6 to 12, would be something between 57 and 114 cars for that one dealer.

The record also shows in Plaintiff's Exhibit 13 that there were at least four other dealers in Alabama that were BMW dealers.

Justice Stevens: --Are you including the repainting jobs less than 300?

Mr. Gottesman: Yes.

Justice Stevens: Yes.

Justice Breyer: I've got the point.

On that theory--

Mr. Gottesman: Okay.

Justice Breyer: --then wouldn't a rational connection be to take the total global amount of conceivable damages and divide by the number of potential lawsuits, and then you'd have a number, and that would be this person's rational share on such a theory.

I'm saying, I don't know what that number would come to, but isn't there an obligation, at least to articulate the theory?

Mr. Gottesman: Well, I don't think it's right... and my time is up, Your Honor.

May... so I'm not sure I can finish.

Chief Justice Rehnquist: Answer the question briefly.

Mr. Gottesman: In fraud cases, very few people sue.

If you're going to divide it up and say each person only gets a fraction, then the defrauder will never be brought to a halt.

The profit will never be taken out.

Rebuttal of Andrew L. Frey

Chief Justice Rehnquist: Thank you, Mr. Gottesman.

Mr. Frey, you have a minute remaining.

Mr. Frey: Thank you.

I would like, then to... first of all, on this waiver argument, which is brand new, it's not made in the brief in opposition, was not made in the merits brief, we'd like an opportunity to submit a post argument brief.

That's the first half of Mr. Gottesman's argument.

I'd like to answer Justice Breyer's question with a procedural reason why it violates due process not to divide, as you suggested, and to allow Dr. Gore to collect the full amount, and that reason comes... you can see it from the first issue in Phillips Petroleum v. Shutts, which was the standing of the defendant to complain about the plaintiffs, jurisdiction over the plaintiffs.

What you have here is a one way class action under which, if BMW wins, it gets no credit.

It won the Yates case on punitive damages, zero punitive damages.

Now along comes Dr. Gore, and BMW loses the Dr. Gore case, and the jury imposes the full punishment necessary to deter the entire conduct everywhere in the United States.

That is manifestly unfair to BMW, because what it does not allow for is the fact that every other jury that hears this might find that there is no punishable conduct.

Chief Justice Rehnquist: Thank you, Mr. Frey.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Honda v. Oberg - Oral Argument

Fri, 09 Jan 2009 14:49:52 +0000

Case:

Honda v. Oberg

Media File:

93-644_19940420-argument.mp3

Related Transcript:

1993_93_644_argument.xml

Transcript:

Argument of Andrew L. Frey

Chief Justice Rehnquist: We'll hear argument first this morning in Number 93-644, Honda Motor Company v. Karl Oberg.

Mr. Frey.

Mr. Frey: Thank you, Mr. Chief Justice, and may it please the Court:

This case is here on writ of certiorari to the supreme court of Oregon to decide whether a defendant in a civil case has a right to any judicial review of a jury verdict alleged to be excessive under applicable State or Federal substantive damages law, or indeed, a plaintiff claiming that a verdict is insufficient.

In the Texaco Pennzoil case a punitive verdict of $3 billion was returned by the jury, and it was reduced on judicial review by $2 billion.

In Grimshaw v. Ford Motor Company, a $125 million punitive verdict was reduced to three and a half million dollars.

In Proctor v. Upjohn, a $125 million verdict was reduced by the Court to $35 million.

Unknown Speaker: These are State court decisions you're referring to?

Mr. Frey: These are State court decisions.

Unknown Speaker: What standard is it that those courts use in assessing punitive damages?

Mr. Frey: Well, there's a lot of debate about what the standard... you mean in determining whether a--

Unknown Speaker: Yes.

Mr. Frey: --punitive verdict is excessive?

The standards may vary.

They are a matter of the State substantive law of damages, the State substantive law of punitive damages, which will set up a structure for determining the amount of damages not in any liquidated or definite sense, but in some general sense.

It will identify factors that are relevant, it may call for proportionality review with other verdicts, it may limit--

Unknown Speaker: Well, what were the standards employed in the cases you were reciting?

Mr. Frey: --Well, I'm not certain what the standards were, but I don't think it matters for the purposes of this Court's decision.

The only point that I wanted to make is that if those verdicts had been returned in Oregon, the Court would have lacked the power to consider whether they conform to the law of Oregon.

Unknown Speaker: Well, what standard are you asserting is constitutionally mandated, Mr. Frey?

Mr. Frey: Well, I think it's very important in understanding this question to distinguish between the procedural due process requirement... that is, what procedures must be provided, which is what we're talking about this morning, and the substantive law of damages, which is to say, what law determines how much is an acceptable range of damages on a given set of facts?

We are not saying in this case that the State of Oregon, or that the other States in those cases, have to have any particular substantive law of damages.

Unknown Speaker: Mr. Frey, would it be sufficient for a State to say, as long as the award is not the product of passion or prejudice, it is not excessive?

Mr. Frey: I doubt that.

The question... if you're asking for passion or prejudice... if you are saying to me... I guess I want to give a two-part answer to that question, if I may.

The first is, passion or prejudice means different things.

In our view, the term is ordinarily used as a rubric for actually conducting excessiveness review, but it could be the reverse.

That is, you could look at the size of the verdict and say it's a product of passion and prejudice, or you could say, we will not look at the size of the verdict at all, but if we see other evidence, such as an improper jury argument or some other extraneous evidence that might cause passion and prejudice.

Unknown Speaker: The thing about punitive damages review, it seems to me, is that if you're reviewing a verdict for actual damages and talk about passion or prejudice or the weight of it, you've got some fairly concrete things to hang on to... the amount of the medicals, the amount of... cost of maintaining someone who's disabled... but the punitive damage is much, much harder to pin down.

Mr. Frey: Well, it may be much harder to pin down, and that suggests that there is a difference between liquidated kinds of damages inquiry and the kind of unliquidated inquiry where you're asking how much pain and suffering the plaintiff experienced as a result of his or her injury, or how much is an appropriate amount of punishment.

But State law says, for example, deterrence is relevant.

State law may say comparative review is important.

That is, the verdict should not be disproportionate to other verdicts that have been returned in the State.

Now, I'm not saying the Federal Constitution requires the State to have such a rule, but I am saying, if the State does have such a rule, we have a right to have that rule applied to the verdict in the case by a judge to determine whether the verdict comports with the State's substantive law of damages.

The State's substantive law of damages may be that damages are disfavored and should be small in product liability cases, because they affect the... punitive damages, let's say, because they affect the cost of goods to consumers.

Unknown Speaker: Mr. Frey, what are the, then... you said you're not talking about substantive limits today.

What are the procedural limits?

You have not answered whether passion and prejudice... maybe you want to continue that.

I would be interested in knowing whether you think a remittitur device is constitutionally required, whether you think it's compatible with due process to have a new trial limited to the punitive damages only, or whether you'd have to have an entire trial.

What exactly are the components of this due process for which you're arguing?

Mr. Frey: Okay, well, let me see if I can take those in order, and forgive me if I forget some of them, but to start out, I do want to complete the answer to Justice Stevens.

I think passion and prejudice is not enough, because even a well meaning jury not inflamed by passion and prejudice can make a mistake.

They can misunderstand the legal constraints.

They can come up in good faith with an aberrant verdict which violates the State law, substantive law of damages.

Unknown Speaker: How could we ever tell that if it comports with the, sort of the ultimate substantive standard of bearing at least a reasonable relationship to the facts of the case?

Mr. Frey: You would never have to tell that.

Unknown Speaker: Pardon me?

Mr. Frey: You would never have to tell that.

That is, the Supreme Court would not be asked that question.

The State supreme court... there is a State law of damages.

If you had... imagine a bench trial in which the judge has to determine the amount of damages.

State law, which may not be very articulated or detailed in the form of a code, but it exists.

There are principles that guide his or her selection of damages.

For instance, to take compensatory damages for pain and suffering, the amount is supposed to be the amount that would appropriately compensate the plaintiff for injury.

Now, I understand that there is a range within which reasonable people could disagree, and it may be a very substantial range, and any verdict that is within that range by a jury, or any judgment returned by a judge within that range, is acceptable, but... and therefore not subject to being set aside.

Unknown Speaker: Well, then, with respect to punitive damages, why isn't any verdict acceptable if it bears the... if it can be said to bear a reasonable relationship to those facts in evidence which would indicate that punitive damages were appropriate?

Mr. Frey: Because State law may impose greater constraints than that on punitive damages.

State law may have a whole set of rules, and often does.

Unknown Speaker: Well, but your argument... then, maybe I'm missing something.

Your argument at this point seems to be boiling down to this: whatever State law provides, we ought to get.

Mr. Frey: Whatever State law provides--

Unknown Speaker: And State law doesn't provide anything, apparently, for you here.

Mr. Frey: --No, no, no.

What State law doesn't provide... there is an Oregon law of damages.

I'm not sure what it is.

I'm not here today to argue whether it was rightly or wrongly applied, because Article VII, section 3 of the Oregon constitution deprives the Oregon courts of the right to apply that law of damages to the verdict in any particular case.

Unknown Speaker: Your point would be applicable in a compensatory damages review, too?

Mr. Frey: Absolutely.

Unknown Speaker: You contend that that constitutional provision prevents the Oregon courts from even applying passion and prejudice review, don't you--

Mr. Frey: We... that--

Unknown Speaker: --and although you don't assert that passion or prejudice review will suffice for purposes of constitutional sufficiency, you deny that there was even passion or prejudice--

Mr. Frey: --That's correct.

Unknown Speaker: --review here, don't you?

Mr. Frey: That is correct.

Unknown Speaker: But you don't deny, I take it, that there was at least the possibility of review for that... we'll say that ultimate substantive threshold--

Mr. Frey: There is no possibility--

Unknown Speaker: --which is required by the Supremacy Clause.

Mr. Frey: --No, I don't... this gets into... this is not the main point in our argument.

We believe that we are entitled to have the verdict reviewed for its compliance with both State and Federal substantive law of damages, whatever that law is, and in the case of the Due Process Clause--

Unknown Speaker: I take it, however, that Oregon has not denied you, at least in terms, any substantive... any review under a substantive Federal standard that you claim is applicable.

Mr. Frey: --We believe the Oregon courts are without jurisdiction under State law to conduct such review, and we believe we were deprived of that review.

Unknown Speaker: Have they ever come out and said, there is a Federal standard constitutionally applicable to us, but our constitution forbids us to entertain an appeal on that ground?

Mr. Frey: They haven't come out and said it, but they have come out and said that verdicts that are excessive, they lack the jurisdiction, the power, to set aside.

They lack the power to review and consider a claim that a verdict was excessive.

Unknown Speaker: Can you tell us what is this constitutionally minimal procedure?

What process are you due?

I feel a little nebulous about that.

You say, some process.

What is that process?

Mr. Frey: The process that we say... well, let's start off with what we get, which is, when a verdict is returned, we get no judge to examine whether the verdict conforms with the substantive law that regulates the size of verdicts.

We do not get that review, in our opinion.

There's a debate about whether we do or we don't, but we think it's clear that we don't.

Our position--

Unknown Speaker: But you do get a review for no evidence, and you get a review if the judge thinks that the instructions were not adequate.

Mr. Frey: --All right, I have two... we get a review for no evidence, which means a review for liability.

That is, whether punitive liability is established, and I might say that I think the no evidence standard is not constitutionally acceptable itself, and Jackson v. Virginia provides some support for that.

It rejects the no-evidence standard in favor of taking the facts in the light most favorable to the verdict, could any reasonable jury define the standard, but that's not the main point.

We say that giving instructions to the jury does not cure the unfairness of being unable to correct an aberrational jury verdict that violates the State law of damages, or the Federal law of damages, and we say that part of the right to which we are entitled, which is a right that has existed for centuries in the common law system, which is a right that exists every place else in the United States, is to have a judge look at that verdict and ask himself or herself, does it comport with the law.

That is the procedure.

Unknown Speaker: Suppose the judge looks at the amount of the prayer in the complaint before the issue is submitted to the jury, and concludes that on this evidence, that maximum amount would be a sustainable award.

Does it have to be a retrospective assessment?

Mr. Frey: I guess I have two things to say about that.

The first is that there are two kinds of questions you can ask about the State procedural system in determining whether it's sufficiently fair.

The first question is whether some ingredient is an indispensable element such as an unbiased decisionmaker, or we say some form of judicial review wherever the jury is given substantial discretion.

You can also ask a question whether the overall system, which is what the Oregon court asks, whether the overall system is fair enough, taking into account various other protections.

Now, we don't think Oregon has... certainly we had no notice that this is the procedure by which you could do it.

I think it would be better than nothing to have that happen.

Unknown Speaker: I wonder, would it be constitutionally sufficient?

Mr. Frey: I think it would depend on the rest of the system, but I suppose if the judge actually sat down... well, it depends on the case, I think is the answer, because the judge can't know in advance what the jury's findings are going to be.

You may have a variety of theories.

The jury may come back with verdicts that tell you that they only found some of the things and not others, so the inquiry for the judge would be an extraordinarily--

Unknown Speaker: But this verdict was a general verdict, wasn't it?

They didn't find the existence of malice and wealth on the part of the defendant.

They didn't make any special findings.

Mr. Frey: --Right.

In fact, we asked for a special verdict and were denied one.

Unknown Speaker: I'm curious to know how far your theory extends, Mr. Frey.

The State of Arizona has a provision in its constitution that the issue of contributory negligence and the issue of assumption of risk shall always be questions for the jury, and the courts can't review jury findings on those.

Now, would that be unconstitutional under your theory?

Mr. Frey: Well, that raises an interesting question, because we're dealing with an affirmative defense, and that may be different from the elements of the case, but I think I have... if the State substantive law is that you are not liable to pay damages to a plaintiff who was contributorily negligent, I have difficulty with the proposition that a fair system provides no judicial review.

So I would have my doubts, although I think our case is a substantially stronger case than that, but I would doubt whether that would be constitutionally sufficient.

I understand there's a case from 1919 that held that, but we have made the point that it hasn't been cited for over 60 years, and that it's inconsistent, we think, with the Court's modern procedural due process doctrine.

Unknown Speaker: Mr. Frey, why should the constitutionally mandated review be any more than is required in a criminal case, for example?

Mr. Frey: I don't know that we're asking for any more than is required in a criminal case.

Unknown Speaker: Well, what do you think that standard is, the Jackson standard?

If any reasonable juror could have reached a conclusion it's okay?

Mr. Frey: Well, we've spent a lot of time talking about... I think that might be an acceptable standard.

The question that's before the Court is whether a judge applying some standard has to determine whether the verdict conformed with the law.

Now, I think that that--

Unknown Speaker: Is there any justification for requiring more than would be required on review in a criminal case in a punitive damages case?

Mr. Frey: --No.

I don't think we're suggesting that more would be required, but it may depend on what the State law is.

I don't think we are suggesting that any more is required, but I have to say that I doubt that in a criminal case you could irrevocably commit to the jury's discretion the question whether the evidence is sufficient, no matter how well instructed the jury is.

Unknown Speaker: Well, I would have thought the standard was the one I mentioned in Jackson.

Mr. Frey: Well, I'm perfectly willing to accept... I mean, I think the standard on how you assess the facts is you take the facts in the light most favorable to the verdict, and you ask whether any reasonable juror, or any reasonable jury, in light of those facts, could... applying the law to those facts, could come to the conclusion they came to.

I have no problem with that standard.

That's what we would like to see the Court supply.

Now--

Unknown Speaker: And you would be satisfied with that... a procedure that provided for that review in this case?

Mr. Frey: --Well, we didn't get that review.

We say that that's what we need.

Unknown Speaker: Well, I know, but would you be satisfied with that, because I understood that to be--

Mr. Frey: Well--

Unknown Speaker: --the implication of what you were just saying.

Mr. Frey: --that is the least we feel we are entitled to.

Now, if you ask me would I be satisfied with that, in the Haslip case, what the Court did was, it looked at the system that Alabama had, and it said this overall system is a procedurally fair system in part because the Alabama courts give a kind of review which clearly is more than the Constitution would require if you looked at that element standing alone.

But the Alabama system was marginal at best in the quality of the jury instructions that were given, and the Court looked at the overall system, so I'm reluctant to say that the overall Oregon system is a fair enough system for administering punitive damages.

But what we are asking for today is that we have, at a minimum, a judge apply something like the Jackson standard.

Unknown Speaker: Okay, but as I understand it, you have not attacked anything but what you deemed to be the procedural deficiency in review of the verdict that comes in.

You have not attacked any other aspect of the Oregon system, e.g., the adequacy of its instructions, and so on.

Mr. Frey: That's correct.

Unknown Speaker: Okay.

Mr. Frey: That's correct.

So--

Unknown Speaker: We've got to take the case on the assumption, I presume, that the remainder of the Oregon system is constitutionally adequate.

Mr. Frey: --We... I believe you could fully discharge your duty by saying that it's inadequate in this respect and remanding it.

Unknown Speaker: So you're not saying that the other accoutrements that sometimes operate as checks on juries are necessary.

You wouldn't have to have a remittitur, just as long as you have a judge look it over.

Mr. Frey: A remittitur is a device to which defendants object, because it is a substitute for a new trial, which defendants want.

I don't think a remittitur is constitutionally required, but it is actually a pro-plaintiff device, because historically it evolved as a substitute for a new trial.

Unknown Speaker: All right, so you're striking out the remittitur, and you could have... if the judge thinks that the... there should be another jury you could have just limited to damages, that would be all right, too.

Mr. Frey: Nothing that we say here today raises that problem.

I don't want to be taken to be conceding when we get back to the Oregon court that the rest of the system is sufficient, but for purposes of this Court's review, the only question we present is whether Oregon is obligated to have a judge examine this verdict in light of the Federal and State substantive law of damages and ask whether the verdict is excessive or not under that law.

Unknown Speaker: And you say that in light of some history that there was a time when the jury even decided questions of law, when at least in some places jury verdicts--

Mr. Frey: Yes.

Unknown Speaker: --were not reviewable?

Mr. Frey: We say that that was an incident of the right of jury nullification.

It was not true in civil cases at common law or in civil cases generally, I don't believe.

Unknown Speaker: What are the best cases you have, Mr. Frey, for the proposition that some judicial review beyond passion and prejudice review was traditional in the American system, or in the English system at the time of the founding?

What are the best cases you have?

Mr. Frey: Well, many of the cases don't refer to passion and prejudice.

They refer to whether the verdict is outrageously excessive, or grossly excessive, or I think the formulation--

Unknown Speaker: Okay, I'll say... or anything beyond.

I'm saying that--

Mr. Frey: --Well, if you look at the--

Unknown Speaker: --I want cases that go beyond passion and prejudice, and that's what you're giving me.

Mr. Frey: --Well, I mean... there are... well, the courts don't, I think, analyze the matter that way.

They characterize the verdict in explaining why they set it aside.

Sometimes they say the verdict is the product of passion and prejudice, or it's so large that it must be the product of passion and prejudice.

Sometimes they say it's excessive.

Now, it may be excessive with respect to some liquidated or clear provision of law, like not more than three times the compensatories, or something like that, or it may be excessive in the abuse of discretion sense, that whoever was the fact-finder, whoever returned the verdict, had a broad range of discretion, but this is so far outside the range of discretion.

Now, when the--

Unknown Speaker: Give me your best cases, Mr. Frey, whatever you think they say.

What are your very best ones?

Mr. Frey: --Well, there's your opinion in TXO.

Now, it doesn't discuss passion and prejudice, but what it says--

Unknown Speaker: It doesn't discuss prior cases, either, and it's dictum, and I might have been wrong.

[Laughter]

Mr. Frey: --You might have been, but I think you were pretty clearly right.

Unknown Speaker: To be specific, Mr. Frey, there was a brief... one of the briefs in this case that suggested that maybe this Court was wrong about what the common law was.

There was a mixed picture.

There were some decisions that sounded like, particularly in tort cases, the jury has the last word.

Mr. Frey: I don't... I don't think that that is... it is clear that as the institution of the jury evolved in the 17th and 18th Centuries, one of the essential incidents of that institution was to have judicial review, the power of the judge to send the case to a new jury when the case was... when the decision was--

Unknown Speaker: But there were at least some decisions made noises the other way.

I mean, some of the cases... you cited contract cases, where you do have... it's almost a question of law whether these damages are proper damages or not, but tort cases, where it's pain and suffering, where the damages are unliquidated--

Mr. Frey: --Well--

Unknown Speaker: --And especially where the damages are punitive, and therefore very hard to say--

Mr. Frey: --May I can approach--

Unknown Speaker: --Are you going to give me your best cases?

Mr. Frey: --No, I don't think--

Unknown Speaker: You're not going to give me your best cases.

Mr. Frey: --No.

I can't... I can't... our brief... I think our brief covers it.

I'm not prepared--

Unknown Speaker: You're not willing to select among them just a couple that you think are the tops?

Okay.

Mr. Frey: --I don't think I'm... I don't think--

Unknown Speaker: That's your prerogative.

You also don't think that this Court is subject to issue preclusion because in a prior case... one of the things you seem to say in your reply brief was that this Court had said there was court review of a jury verdict, that was the traditional common law approach, and the Court has already decided that.

Is not... the Court is fallible, is it not?

Mr. Frey: --Yes, the Court could revisit questions--

Unknown Speaker: So there's no issue preclusion on that point.

Mr. Frey: --I'm not... well, stare decisis I suppose would be the question.

I'm not saying that the Court is bound, but I'm saying that if you revisit it, and even if you didn't revisit it, cases like Jackson I think make clear that there is an obligation.

In the Fowler case in the Oregon supreme court in 1954, they said, if this court were authorized to exercise its common law powers we would unhesitatingly hold that the award of $35,000 as punitive damages was excessive, but they say under Article VII, section 3 we are without power to consider whether or not the punitive damages were excessive.

Now, I am saying that a provision that deprives them of the power to reverse a verdict that they would unhesitatingly say is excessive under State law is not consistent with fundamental fairness.

Unknown Speaker: Mr. Frey, let me ask just one question.

You said you are entitled to have the State law rule, substantive rule, a procedure available to have a judge determine whether the State's substantive law was applied.

Mr. Frey: That's correct.

Unknown Speaker: What State rule of substantive law are you arguing was not applied?

Mr. Frey: Well, we are arguing that the State... we argued below that the verdict, both the compensatory and the punitive were excessive, but we argued for--

Unknown Speaker: But is it a State rule of law that the damages award may not be excessive as long as it complies with the instructions and the various criteria that they describe?

Mr. Frey: --I think the correct way to think of it is that is a State rule.

I don't know if that's a rule of substantive law or not, that the damages may not be excessive.

I think it is a rule.

It is a rule that the courts of Oregon are without power to apply in jury trials, but if you had a bench trial--

Unknown Speaker: But you're begging the question.

I mean, you're saying, as you put it, you said, even if the Oregon supreme court finds that the damages are excessive under State law, the constitutional provision says that they cannot review it for that excessiveness.

Another way to view the constitutional provision is as saying, in effect, there is no such thing as excessiveness of damages for purposes of Oregon substantive law.

Mr. Frey: --You could... you could--

Unknown Speaker: There is no such thing.

Mr. Frey: --You could, but they have never said that.

They have clearly said that there are verdicts that are ex... in the Van Lom case, they said they were of the opinion that the verdict was excessive, but they lacked the power to set it aside.

In a bench trial, it's clear that there would be law that would govern this, and they could review it in a bench trial.

Unknown Speaker: Well, they said it was excessive, but they didn't say it violated the law of Oregon.

Mr. Frey: Well--

Unknown Speaker: In other words, they... isn't it consistent... isn't it a reading of what they said simply that if we were writing on a clean slate we'd probably have a thirteenth juror rule that says... that would in fact overturn this verdict, but we don't have a clean slate, and we do not have the authority... i.e., the law of Oregon does not give us the authority or provide a standard for review?

Mr. Frey: --No, but that's not what they said.

First of all, we're not talking about thirteenth juror review, and in my opinion, when they say that the judgment is manifestly excessive and they would set it aside, they are saying that it is unlawful, under Oregon law.

I believe that is what they are saying.

I think it's clear that that's what they're saying.

Unknown Speaker: Are they saying--

Mr. Frey: Now, where did the power--

Unknown Speaker: --that it was an error for the trial judge to submit the case to the jury on the state of the complaint where an award up to $5 million could be returned by the jury?

Mr. Frey: --I guess if you asked the question at that time, and if you were going to spend the time in every case for the one case in 50 or 100 where a question actually arises.

This is not the procedure of Oregon.

I think we can confidently say that the judge would not have undertaken any inquiry--

Unknown Speaker: A judge must submit to the jury any punitive damages request that the plaintiff cooks up in the complaint?

I thought the result was... the rule was quite the opposite.

Mr. Frey: --The rule is that it can't exceed the amount in the complaint.

It can't exceed the amount sought in--

Unknown Speaker: But the complaint can exceed--

Mr. Frey: --$50 million or $500 million.

Unknown Speaker: --The complaint can exceed an amount of what the evidence would justify?

Mr. Frey: Well, the complaint is the complaint.

Then you have the evidence.

If the judge undertook... I agree that it is theoretically possible, although I don't believe that Oregon has such a procedure, to ask the judge in every case ahead of time to determine the limit of the damages that would be allowable, but I don't think we have to use that procedure, and I don't think Oregon has that procedure.

If it wanted to adopt such a cumbersome and burdensome and time-consuming and resource-consuming procedure, maybe that procedure would be good enough to satisfy the Constitution, but I don't think it has that procedure, and I don't think we can be held to have defaulted in this case for not employing this... or certainly the Oregon supreme court didn't suggest that that was why we were not getting review.

I would like to reserve the balance of my time.

Unknown Speaker: Very well, Mr. Frey.

Mr. Tribe, we'll hear from you.

Argument of Laurence H. Tribe

Mr. Tribe: Thank you, Mr. Chief Justice, and may it please the Court:

I think I might begin with, I think a crucial question that Justice Kennedy has been pressing, because I was rather surprised by the answer.

It seems to us that really no argument whatever has been offered by Honda, either historical or functional, for the peculiar thing they say they have a right to as a matter of procedural due process, namely, review by a judge after the verdict... and I underline the phrase, after the verdict... to assure compliance with State law.

Now, apart from the proposition which I think has been explored by Justice Souter and Justice Scalia of how circular their claim is... I mean, State law doesn't give them what they say they have a right to... and apart from the decisions of this Court, summarized in a footnote in our brief, holding that there is no Federal right to make sure you get everything the State promises, outside the very limited context of Cleveland v. Loudermill and entitlement theory, apart from that, the fact is that Oregon has precisely the procedure about which Justice Kennedy asked, and it's not that different from Federal practice, although it's in a damages context.

The leading case, indeed, their brief reads as though this Court granted cert to review it 44 years out of time, is Van Lom, in Oregon, in 1949, and Van Lom very carefully, at page 467 of 210 Pacific 2nd, reviews a series of cases... Lyons, McDaniels, Weatherspoon, British Empire... all explicitly holding that it is legal error, reversible notwithstanding Article VII, section 3, which just prevents reexamination of a jury verdict based on evidence, legal error for a judge not to cap the damages at the highest level the judge believes would be sustainable under the evidence.

That, in a sense, disposes of this case.

Unknown Speaker: Well, Mr. Tribe, you and your colleague differ very much about what Oregon allows under these cases in the way of review of punitive damages.

Mr. Tribe: Not on this issue, Mr. Chief Justice.

I... their brief says nothing about this.

We discussed it in our brief.

There's no response.

This is an undisputed point about Oregon law.

We do differ on other aspects, you're right.

Unknown Speaker: I would have thought you differed on this point, too--

Mr. Tribe: I don't think so.

Unknown Speaker: --having read all the briefs, and what if after duly deliberating--

Mr. Tribe: Right.

Unknown Speaker: --we simply cannot decide which of you is right as to the nature of the review Oregon affords?

Mr. Tribe: I think, Mr. Chief Justice, if that were the case, then one would affirm this judgment, because there is no showing that Oregon violates anything that is comprehensible as procedural due process, since Oregon... I mean, I suppose you could say... it depends on what you were unsure of.

If you were unsure whether Oregon provided even judicial review to see that the instructions complied with Federal requirements, if you believed that Oregon, in response to Justice Souter's question, had somehow defied Federal law and said no, we will not apply Haslip, even though we did in this case, if there were some ambiguity... that is, if looking at this case you couldn't tell whether Oregon is one of those States that is simply defying the Supremacy Clause, I suppose you could vacate and remand, but there is... if there's uncertainty, it's only about marginal matters, marginal matters that I think are indispensable to establishing a procedural due process theory, but not to establishing whether this judgment should be affirmed.

Unknown Speaker: I don't know about that.

Don't we have to take our best shot at figuring out what the Oregon... you certainly wouldn't--

Mr. Tribe: Oh, sure.

I would urge that.

Unknown Speaker: --I mean, you wouldn't propose in an equal protection or race discrimination case that if we couldn't figure out what the law of the State was we'd just say, well, we can't figure it out, so--

Mr. Tribe: No, no.

Unknown Speaker: --we have to assume you haven't been... I mean--

Mr. Tribe: Of course, Justice Scalia, but if it was A or B, and the only thing that might violate the Constitution was C, you wouldn't waste this Court's time figuring out if it's A or B, and that's what I think we have here.

I mean, as I listen to what kind of judicial review--

Unknown Speaker: --Mr. Tribe, I'm a little puzzled by that, because the standard for review is no evidence, and according to what you've just told us, you would never have a no-evidence situation, because you can't give the case to the jury in the first place unless the top figure is one that is sustainable--

Mr. Tribe: --Right, Justice Ginsburg--

Unknown Speaker: --by the evidence, but no evidence, Mr. Frey suggested... it could be a scintilla--

Mr. Tribe: --Right.

Unknown Speaker: --and that wouldn't do.

Mr. Tribe: Fowler v. Courtemanche in Oregon, in 1954, which is in our footnote 35, definitively rejects the scintilla rule, says no evidence means no substantial evidence, and the one ambiguity that I've found in Oregon law in this respect is the question whether a trial judge has a sua sponte duty to look at the evidence, even without a request.

That is, suppose it's clear to the judge on the basis of the record that, under State law, the highest award that could have been sustainable here under the no-evidence rule, meaning no substantial evidence, or whatever standard Mr. Frey wants this Court to adopt is, let's say, $2 million, then he has to have some theory of what's the highest that would make sense under Oregon's substantive law.

Let's suppose it's $2 million.

The judge who is able to determine that after the jury has spoken is no less able to determine that before submitting it to the jury, and at least some of the cases, like Lyons, suggest that in that circumstance the judge has a duty, sua sponte, to set a cap.

In more recent cases, where defense counsel have not taken advantage--

Unknown Speaker: To set a cap in what way, Mr. Tribe?

Mr. Tribe: --Well, there--

Unknown Speaker: To instruct--

Mr. Tribe: --Yes.

Unknown Speaker: --the plaintiff's lawyer not to argue for more than $2 million?

Mr. Tribe: No.

There are two methods used in Oregon, Mr. Chief Justice.

One... and it was used in the case of Lane v. Kelley in 1982... is to strike that part of the complaint that asks for more, and under the Oregon rule that says you can't recover any more than your complaint, that has the necessary result.

The other, which was endorsed in Van Lom, was specifically to instruct the jury that they are to return a verdict of no more than, and then the number is set.

In this case, it would be no more than whatever number below $5 million they thought was sustainable.

Unknown Speaker: And these were both punitive... Van Lom and the other case you're referring to were both punitive damages cases?

Mr. Tribe: No.

In those cases, Mr. Chief Justice, after saying that its principles applied equally to punitive and compensatory cases, the court discussed these.

They were not punitive damage cases.

Indeed, they were ones, I would be quick to admit, where it was quite easy to admit, to calculate--

Unknown Speaker: It's a much different picture when you're trying to figure out actual damages on the evidence--

Mr. Tribe: --Sure.

Unknown Speaker: --supporting and then punitive--

Mr. Tribe: Right.

It's very different, but it's no more different before the jury speaks than after, that's the point.

Admittedly, it's hard to tell, as you asked, you know, how much is too much?

Like, you know, in Amadeus, when the emperor--

Unknown Speaker: --Mr. Tribe, let me just ask you if I may--

Mr. Tribe: --reviews the song and says, too many notes?

Unknown Speaker: --Is it not possible that a plaintiff will have alternate theories of liability both for punitive damages and actual damages, and that on one theory $5 million would be appropriate, on another theory, $1 million would be appropriate.

What does the judge do there?

Does he--

Mr. Tribe: Well, there have been some Oregon cases, some written by Justice Linde, like Andor v. United Airlines in 1987, which have suggested that alternative instructions could be given in cases of some complexity--

Unknown Speaker: --Do you take the position that they are required under Oregon law in that kind of case?

Mr. Tribe: --Well, I certainly think that if the request were made Van Lom would be strong precedent for there being required, but no request was made.

For example, in the closing argument to the jury, Honda's counsel said, it's hard to know these things, but I think anything more than $50,000 here would be unjust enrichment.

We cite that in note 6 of our brief.

But then he did not ask to have a cap on either the compensatory or the punitive damages of $50,000.

Let me turn to the broad question of what it is that this Court is being asked to constitutionalize as a matter--

Unknown Speaker: Could you clarify first to me whether--

Mr. Tribe: --Sure.

Unknown Speaker: --you're saying that there can never be an excessive verdict in Oregon because the district judge before... the trial judge before ever giving the case to the jury will set an amount... will make sure that the amount that's sought is not excessive?

Mr. Tribe: No, Justice Ginsburg, I'm not saying that judges do that in every case.

Van Lom endorsed the proposition that, if asked, they have a duty to do it.

There is contest over whether they ought to do it sua sponte, and because, as the chief justice points out, there are many cases in which it would be very hard to say in advance that a verdict of more than X, where X is less than the ad damnum requested would be excessive, they don't do it.

But it's not easier to say after the jury has spoken, that's the point.

You see, whatever--

Unknown Speaker: Mr. Tribe, I dare say that judges of Oregon are not going to thank you for establishing the proposition that they can be asked ex ante, before the trial, to pick a number.

It's one thing after the trial to say, this is too much.

It's quite another thing before the trial to pick a number and say--

Mr. Tribe: --If--

Unknown Speaker: --anything more than this is excessive punitive damages, and that's really what you think the Oregon system is?

Mr. Tribe: --Well, Justice Scalia, it's not before the trial--

Unknown Speaker: I'd find it a very difficult system to administer.

Mr. Tribe: --Well, (a) it's not before the trial, it's after the record is closed.

(b) In many cases, it will be excruciatingly difficult, and so they will resist it, and they will look for aspects of the law that say, we don't really have to do this, but (c), if it's excruciatingly difficult, and perhaps difficult to the point of being meaningless, what is it that we're being told procedural due process requires them to do after the fact?

That is, after the fact, when you've seen what the jury has done... that is, in Oregon, you know the range.

Unknown Speaker: You're asking them to define obscenity instead of recognizing it when they see it.

[Laughter]

Mr. Tribe: I'm asking them to number the page, and they can number it as well before they have perused it as after.

That is, we're talking here about a fairly--

Unknown Speaker: Yes, but that assumes there's only one theory of liability.

You can have specific, special interrogatories and all the rest that make a lot of variables in a judge's task.

Mr. Tribe: --Well, but Justice Stevens, I really want to focus on the main point, which is the before and after point.

If there are several--

Unknown Speaker: And you think a judge can do it before... when he's doing the instructions and everything else, he can figure out the answer because he knows what the jury is going to decide on the merits--

Mr. Tribe: --No.

He knows in Oregon that they can't give more than $5 million, and he can at least say this: on no theory that is in this case, under Oregon law, would anything more than $4 million be justifiable.

Now, I readily concede it will be a rare judge who would be able to say that before the fact.

It is equally a rare judge who would be able to say, hmm, now that I've seen five, I think four would have been better.

What standard would be judge apply?

Throughout the briefs below, and I do think this is terribly important, it has been a standard which really says, we can't just look deferentially, Jackson v. Virginia-like, at what the jury did.

In their opening brief, at page 3, they--

Unknown Speaker: --May I interrupt with one other question?

Do you think the system would be constitutionally inadequate if it did not require the judge to do this?

Mr. Tribe: --To do this advance thing?

Unknown Speaker: Yes.

Mr. Tribe: No, certainly not, Justice Stevens.

I think that just makes the case a lot easier, but even if that procedure were not available in Oregon, I don't think that there's a demonstrated infirmity.

Let me, if I might, just return to the question of what it is they're asking.

If you look at their opening brief at page 3, they talk about reexamining the evidence and setting aside the verdict because--

Unknown Speaker: Where are you reading from, Mr.--

Mr. Tribe: --Oh, I'm reading from page 3 of the blue brief, Mr. Chief Justice, about 10 lines down where they're quoting from Van Lom.

They are complaining that Oregon has eliminated the power of a trial court to reexamine the evidence and set aside a verdict because it was excessive, or in any other respect opposed to the weight of the evidence, and in Van Lom, at page 466, the Court states what it is understanding the State constitution to mean.

Unknown Speaker: --Well, what you've just read they say is a quote from Van Lom.

Mr. Tribe: That's correct, and that is... that is the deprivation of judicial review of which they complain.

That is, when they say what it is about the Oregon constitution that ties the hands of judges unduly, they quote language about how, under the Oregon constitution, you can't reexamine the evidence and set aside the verdict because it's against the weight of the evidence.

That's what they apparently wanted to correct below, throughout the proceedings below.

For example, Justice O'Connor, I believe, asked about their cases, the cases that they thought illustrated the kind of judicial review that ought to be available.

Grimshaw was one of them, from California, that Mr Frey mentioned.

And Grimshaw, 174 Cal. Rptr. at page 391, explains what standard they use: "Independent judgment on the evidence".

That is, they are asking, or at least have asked throughout the proceedings below... asked the courts of Oregon not simply to review for the presence of substantial evidence that makes it a lawful verdict, which is the most they could get in a criminal context, they've been asking for an independent reassessment.

Unknown Speaker: Well, that's not what he's saying today, so it seems to me that's kind of a waste of time to debate.

Mr. Tribe: Well, it may be.

I can't tell what he's saying today.

I don't want to waste my time, but I don't know what he's asking for now.

If he's asking for Jackson v. Virginia type review, then it's very hard for me to see why that isn't what already is given in Oregon.

That's not--

Unknown Speaker: Except for what they say.

Mr. Tribe: --what would meet his theory.

Unknown Speaker: They say it won't be reviewed for excessiveness or weight of the evidence.

Mr. Tribe: Well, excessive or in any other respect opposed to weight.

Unknown Speaker: I think we could take the supreme court of Oregon at its word here that they don't provide review unless there is no evidence, or for instructions that were given.

Mr. Tribe: Justice O'Connor--

Unknown Speaker: I don't see why we should debate that.

Mr. Tribe: --No, I don't intend to.

The supreme court of Oregon in this very case, however, did say that if there was insufficient evidence on each of the statutory elements of this product liability scheme, the decision should be set aside.

It did not say that the decision should be set aside only if the Federal substantive due process standard was not met.

Unknown Speaker: Mr. Tribe, what about the broader theory of the petitioner's case, that whatever the State law provides, there must be a procedure to ensure that the jury's verdict conforms to that rule?

I take it that's a fair statement--

Mr. Tribe: I think it is.

Unknown Speaker: --of Mr. Frey's position.

Mr. Tribe: Whatever State law provides we ought to get, and the problem I have with that, frankly, is, you got what State law provided, to some extent by definition.

Unknown Speaker: What about the underlying theory.

Does he... is that--

Mr. Tribe: Well, I don't think it's sustainable.

Unknown Speaker: --an acceptable constitutional--

Mr. Tribe: I don't think so, Justice Kennedy.

I think what he's trying to do is extrapolate from things like the impairment of contract clause, where there are Federal constitutional principles that can, in certain limited circumstances, bind the State to its word.

He's trying to extrapolate from cases where the State defines the boundary of liberty and property in cases like Arnett v. Kennedy, or Bishop v. Wood, or Cleveland v. Loudermill, and then, this court says, you define the property, now we tell you what is due process.

But if there were a general principle that says that there is a kind of Federal constitutional entitlement enforceable by someone called a judge to make sure that the State not only says, we followed our own procedures, but also says, we guarantee you that we haven't made any mistakes, and you're entitled as a matter of Federal law to that kind of State guarantee, it's utterly incoherent, I think, and unprecedented.

Unknown Speaker: --What about a Federal guarantee that no reasonable juror could have awarded this sum?

Mr. Tribe: I think that, although it's sometimes put in terms of gross excessiveness, is the Federal substantive due process principle.

That is, the proposition--

Unknown Speaker: Yes, except that if you take the Oregon court at its word on the meaning of its constitution, they can't apply even that.

Mr. Tribe: --No, I'm sorry, Justice O'Connor, I think that is simply not the case.

The Oregon supreme court in this case, in this very case, elaborately at page 20a of the petition and at 28a and 29a in footnotes 10 and 14, went through the process of talking about how reasonable and proportional this judgment was.

Indeed, within the first 2 minutes of the oral argument in the Oregon supreme court, on January 10, 1992... I think this Court has the tape.

I just listened to it... counsel for Oregon told the justices of the Oregon supreme court that he "invited"--

Unknown Speaker: Who's counsel for Oregon?

Mr. Tribe: --I'm sorry, Oberg.

I'm sorry, Mr. Chief Justice.

Counsel for Oberg said he invited the Oregon court to engage in full scrutiny for reasonableness, proportionality under, as he put it, any applicable Federal test... he said, go for it.

He cited Haslip and said, do it.

The justices proceeded to do it.

They did just that.

I think it is really an insult to the State of Oregon to say that, although they haven't ever, in response to Justice Souter's question, said, you know, we will interpret Article VII, section 3 of our constitution in such a way as to prevent us from enforcing Federal substantive due process.

It's an insult to attribute that to them.

They never said it.

They didn't say it in Van Lom, and they didn't say it here.

In Van Lom, they were talking about a special problem of... and a provision very similar to Article VII, and in describing it they said, we simply may not... and this is page 466.

We don't think a court may

"substitute its judgment as to the facts for a verdict based on competent evidence returned by a properly instructed jury. "

They don't want to substitute their judgment.

Now, that does not mean that they are saying, we will not ask whether this verdict is grossly excessive, whether it's the product of passion or prejudice, and when Justice Scalia asks what's their best case on whether they are entitled, as a matter of substantive due process, to anything more than passion or prejudice, I think they've had their shot.

Unknown Speaker: Procedural due process, I was talking about.

Mr. Tribe: Procedural... yes, exactly, procedural due process.

The Beardmore case in 1764, which is cited in the historians' brief, sort of deals with what it regards as their best case.

It's a case called Chambers v. Robinson in 1726.

It says it's the only one which went beyond passion or prejudice in the 18th Century, and that it's lawless and we disapprove it.

It's certainly no solid historical tradition saying that as a matter of procedural due process you're entitled to anything more than a look to see if this jury was in a sense lawless and biased.

Unknown Speaker: Mr. Tribe, could you comment explicitly on something which I think you've been commenting implicitly on all along, and that is language which is clearly troublesome to some members of the Court, and I think on its face to me, in that quotation from page 3 of the blue brief, in which the Oregon court disclaims the authority to review the evidence as to whether in... the verdict as to whether in any other respect it is opposed to the weight of the evidence?

It's that phrase, the weight of the evidence.

Implicitly in what you're saying is that that phrase, weight of the evidence, refers to a kind of, you might say, a finicky judgment, thirteenth juror kind of review, as opposed to the far broader substantive due process question that you've identified, due process standard that you've identified.

Am I right in saying what I just said?

In other words, weight of the evidence is a term of art, and it refers to a kind of thirteenth juror review?

Mr. Tribe: I think that's exactly right, Justice Souter.

That is, that quotation and two or three more in the opinion suggest that they don't want to reexamine the evidence.

They want to defer to jurors as long as they're acting lawfully supported by substantial evidence.

They do not want to substitute their judgment as that of a thirteenth juror.

When Mr. Frey said, imagine a bench trial, I think he put himself in the mindset that the Oregon supreme court said it didn't want to imagine.

We don't want to imagine what we as judges would have done here.

Unknown Speaker: Mr. Tribe, do you... what is your support for the proposition, which I think you maintain, that Oregon does apply a passion or prejudice standard, meaning by passion or prejudice, passion or prejudice that is evidenced exclusively by the excessiveness of the verdict, and not aliunde by, you know, some conduct in the jury room or--

Mr. Tribe: Well, exclusively by he size of the verdict against the backdrop of the record, that is true.

Unknown Speaker: --Yes, against the backdrop.

Mr. Tribe: Because in Lane v. Stewart in 1960, a case that they cite for the proposition that there is no such review, what the Court says is, we find that there was substantial evidence to support this verdict, and we reject the idea that we are free to set it aside because its mere size, I take it independent of that evidence, somehow indicates something wrong.

But the answer to your question, Justice Scalia, what is the evidence for that proposition, is the Foley case in Oregon... it's dictum, but it's the supreme court of Oregon in 1972... the Brewer case in 1983 in the Oregon court of appeals, and quite interestingly, Van Lom itself.

That is, Van Lom said, it's an open question whether this kind of review survives.

They didn't exterminate it.

Unknown Speaker: Mr. Tribe--

Mr. Tribe: It's been in the Oregon law since 1862.

Unknown Speaker: --In your... you've now said it a few times, attributed to the Oregon supreme court the words, substantial evidence, as distinguished from no evidence.

In one of those cases that you cited, can you tell us which one uses the phrase, substantial evidence supports the jury's verdict?

Mr. Tribe: In Fowler v. Courtemanche at page 275 the court uses the phrase, substantial evidence, Justice Ginsburg.

Let me answer your question, Justice Scalia, in this additional way.

This entire case has been tried since 1989 on the premise that that kind of review is available.

If you look at the new trial and JNOV briefs it's absolutely clear what happened there.

They were asking for passion or prejudice review.

We didn't fight the fact that there was authority to grant it.

We answered on the merits.

In their brief, filed below on, I believe it was June 22nd, 1989, they make quite a bit of the fact that Oberg does not dispute the authority of the Oregon courts to engage in passion or prejudice review.

We didn't dispute it.

We have never disputed it.

It's been in this case.

They simply... there was no indication of it.

Unknown Speaker: There's just some uncertainly about what that means.

Mr. Tribe: Sure.

That's right.

I mean, precisely what it means, I can't say, but--

Unknown Speaker: Do you think there is reason to believe it means functionally something different from the Federal substantive standard?

Mr. Tribe: --I honestly don't.

I think the... as I understand the plurality opinion in TXO, the notion of gross excess, though it's a different verbal formulation, really has to mean excess in relation to something, as Justice Kennedy pointed out in his concurring opinion.

Nothing is excessive in itself.

I was earlier remembering this business where the emperor says of Mozart, you know, too many notes.

Well, which ones do you want me to remove, your majesty?

I mean, too many for what, and the... I think the test, and we all grapple for verbal formulations of it... I think the test ultimately, whether it's gross excessiveness, or infection by something other than rational processes reasoning from the evidence, ultimately comes to the same thing, and it's essentially a Federal test.

Unknown Speaker: Mr. Tribe, the Oregon constitution has a provision that no other State constitution has.

In what respect is Oregon different from any other State?

Your argument seems to go to the effect that there is review.

It's the same as in the other States.

Mr. Tribe: No, it's less, Justice Ginsburg.

It's different in this respect.

When the Oregon supreme court said, we occupy a lonely eminence, we were comparing themselves to those States, and they are many, that do weight-of-the-evidence review, not quite thirteenth-juror in every case, but substantial reexamination on whether something was adequately supported in the evidence.

It's really a new trial standard with respect to facts.

Oregon won't go that far.

That is, the Oregon reexamination bar is more stringent than the Seventh Amendment's reexamination bar in the sense that even though at common law one could undermine a jury verdict by disagreeing with it in effect, in certain limited circumstances, as long as one had made a directed verdict motion first.

Unknown Speaker: I think your answer suggests a degree of precision among these various doctrines that just doesn't exist.

You know, I don't think these various courts have said, well, we see that some States use weight of the evidence, thirteenth juror, we're not going to use it, we're going to use substantial evidence, as if these were highly--

Mr. Tribe: Yes.

Unknown Speaker: --refined notions.

I don't think they are.

Mr. Tribe: Mr. Chief Justice, I don't mean to be sort of slicing the salami too fine, but I'm trying to figure out what exactly is it that procedural due process supposedly entitles you to that Oregon won't give you?

Oregon--

Unknown Speaker: Let me give you a hypothetical that troubles me.

Assume that in TXO we had held that the punitive damage award, that there's a Federal limit, substantive limit on the award, and it can be no more than ten times the actual damage award... just assume that... and Oregon gave general instructions as they did here, and the jury returned a verdict where the punitive damages award was eleven times the actual damage award.

Would there be any review in Oregon of such a holding?

Mr. Tribe: --Absolutely.

What the Oregon court would say... it's said it many times about other provisions of the Oregon constitution... we interpret that constitutional provision consistent with our obligations under Federal law.

Van Lom, which is a decision from 1949, says you can't reexamine facts.

The Oregon supreme court I'm sure would say we don't have to--

Unknown Speaker: Are you saying Oregon would provide review?

If Oregon did not provide review in my hypothetical, would their system be constitutional?

Mr. Tribe: --If they provided no judicial method of enforcing the Federal Constitution itself--

Unknown Speaker: They wouldn't correct the specific error I identified?

Mr. Tribe: --The honest answer, Justice Stevens, is I do not know.

I don't think Court has ever held--

Unknown Speaker: That's what we have to decide, isn't it?

Mr. Tribe: --Well, no, I don't think so, Justice Stevens, because in this case, the Oregon courts... the judgment you are reviewing is a judgment in which the Oregon courts purported to say... they only referred to Article VII, section 3 in one footnote in Van Lom.

They said, it treats damages as a factual matter, and we recognize that, but that does not prevent us from applying Haslip and looking at the reasonableness of this judgment in light of the policies of this rather detailed statute, and they even said that they would implement the statute by requiring substantial evidence of all its elements.

So we do not have a case where the State of Oregon has a constitutional provision that on its face, or as construed, says, we will not reverse a verdict that is federally excessive.

Remember what Article VII says.

It says, we will not reexamine a fact found by a jury--

Unknown Speaker: No, but I understand them to be saying that if there's evidence that will support some punitive damage award, that's the... and also if all the right instructions have been given, that's all we're going to look at.

Mr. Tribe: --Well, that is--

Unknown Speaker: You think I misread their cases, right?

Mr. Tribe: --There's language in Van Lom to that effect.

The Roberti's House of Wines case in 1985--

Unknown Speaker: If that's what they say.

Mr. Tribe: --If that's what they say.

If they say that we don't care about the amount--

Unknown Speaker: As long as there's some evidence to support some punitive damages.

Mr. Tribe: --and that we don't care about it even if it is grossly excessive within the meaning of the Federal Constitution.

I suppose that would be defiance of the Supremacy Clause.

That would be relatively easy.

Unknown Speaker: What if it's grossly excessive under Oregon State law, but we still won't review it?

Would that be constitutional?

Mr. Tribe: That would be constitutional.

I think it would be a matter for Oregon and the allocation of power between judges and juries, rather as you said in the concurring opinion in Cloverleaf.

It's a matter of Oregon's governmental structure to decide how it will effectuate principles that are optional with Oregon.

That is, if Oregon gives more than the Federal Constitution requires.

Unknown Speaker: Now, it's not... in Cloverleaf it was a question of which body would decide it.

The question is whether nobody has to decide it in this case.

Mr. Tribe: Well, I suppose if Oregon said, for example, no damages above $10 million are lawful, but we'll allow you to award damages of $11 million, I would say they've rewritten their law.

That is, the State is keeping its promise.

Unknown Speaker: Thank you, Mr. Tribe.

Mr. Tribe: Thank you, Mr. Chief Justice.

Unknown Speaker: Your time has expired.

Mr. Frey, you have 2 minutes remaining.

Rebuttal of Andrew L. Frey

Mr. Frey: Thank you.

I'll try to be fast.

Let me just say that I think that Professor Tribe's last answer shows there is a confusion between substantive and procedural that's going on here.

Let me give Justice Scalia a case, Blunt v. Little, which is quoted at page 15 of our brief.

Let me come back to this question which Professor Tribe puts so much weight on about the preverdict procedure.

There is no such procedure in Oregon for unliquidated damages, and somebody asked whether it would be fair for this Court to saddle the Oregon courts with such a procedure.

If the Oregon courts chose to have such a procedure and gave people notice that it was available, that might satisfy the Constitution, but you could not affirm this decision on the ground that such a procedure exists in Oregon.

It's up to the Oregon courts to decide how they are going to comply with the requirement that there be some judicial review.

So you would have to say there has to be some, we send it back, and then the Oregon courts would craft something which may or may not be procedurally adequate to assure fundamental fairness.

Unknown Speaker: Why isn't there in effect review when the judge can say, well, my instructions couldn't have been understood.

I instructed them absolutely properly, and if they came out with this number, then they weren't following my instructions, so I'm going to overturn the judgment on that basis... the verdict on that basis?

Mr. Frey: That cannot be done in Oregon.

That cannot be done in Oregon.

Unknown Speaker: I thought if a judge thought his instructions weren't adequate... oh, you're saying if the judge thinks the jury didn't understand his instructions, he couldn't order a new trial?

Mr. Frey: It's too... it's... no.

The instructions would have to be themselves legally erroneous in order to order a new trial, in which case the Oregon supreme court would have the power to enter whatever judgment it wants.

Unknown Speaker: So if a judge in Oregon thinks--

Mr. Frey: It doesn't have to even have a jury.

Unknown Speaker: --The judge looked at this jury and said, this jury really didn't understand what I was saying, there would be no power to--

Mr. Frey: That's exactly the problem.

If they concluded that the verdict is in excess of the amount that would be regarded by all reasonable people as the maximum recovery justified by the evidence, the Oregon supreme court says, too bad, there's nothing that can be done about it.

Unknown Speaker: --Even if the judge thinks the flaw is that she didn't instruct with sufficient clarity so that the jury comprehended what she was trying to say?

Mr. Frey: You couldn't look at what the jury did.

You could look at the instructions and ask whether they comply with State law.

Chief Justice Rehnquist: I think that answers the question, Mr. Frey.

Mr. Frey: Thank you, Your Honor.

Chief Justice Rehnquist: Thank you.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Txo Production Corp. v. Alliance Resources Corp. - Oral Argument

Fri, 09 Jan 2009 14:49:28 +0000

Case:

Txo Production Corp. v. Alliance Resources Corp.

Media File:

92-479_19930331-argument.mp3

Related Transcript:

1992_92_479_argument.xml

Transcript:

Argument of Carter G. Phillips

Chief Justice Rehnquist: We'll hear argument first this morning in No. 92-479, TXO Production Corporation v. Alliance Resources Corporation.

Mr. Phillips.

Mr. Phillips: Thank you, Mr. Chief Justice, and may it please the Court:

Well, the Court may begin its opinion in this case in much the same way that it began its opinion in Haslip, that is, that this case is yet another challenge to a punitive damages award.

To be sure, this case does not involve just any old punitive damages award.

The award here of $10 million for the tort of slander of title is beyond rational explanation by reference to any legitimate interests asserted by the State of West Virginia and is the product of a procedural scheme that bore no discernable relationship to the procedural scheme that this Court reviewed and approved in Haslip.

Indeed, the West Virginia Supreme Court's judgment ultimately rests on a wholly arbitrary, really mean versus really stupid, classification of defendants that even the respondents do not defend in this Court.

Accordingly, that judgment should be reversed.

TXO was an oil and gas exploration company based in Texas that opened an office in West Virginia in the early 1980's.

In 1984, it first became interested in the Blevins tract in McDowell County, West Virginia, and sought to obtain the oil and gas development rights to that tract.

Those rights were held by Respondent Tug Fork... or excuse me.

The title to the oil and gas was held by Respondent Tug Fork, and the development rights were held by Respondent Alliance Resources.

An agreement was reached between Alliance and TXO that granted the latter the rights to the development.

TXO received a title opinion that indicated that there was question as to whether or not a 1958 deed had, in fact, conveyed Tug Fork's interest to a third party.

The question then was how to resolve that problem, and TXO obtained a quitclaim deed from the recipient of the rights in order to be in a position to ensure that if it began to drill well... drill a well on that property and, in fact, successfully uncovered oil or gas, that it would be able to take that oil and gas free of any claims by this third party.

So, TXO filed its quitclaim deed, and then filed a declaratory judgment action seeking to have the respective rights of the parties resolved.

Respondents counterclaimed in that lawsuit for slander of title based solely on TXO's action in recording the quitclaim deed and sought both compensatory damages and the punitive award.

The case was tried exclusively on respondents' claim of slander of title.

Respondents did not seek compensatory relief on any other theory of the case, and they did not submit an instruction to the jury with respect to any claim other than the straight slander of title claim.

The jury was instructed with respect to the punitive award that it could enter an award for three purposes: to punish the wrongdoer, to serve as an example to others not to engage in such conduct, and to provide unspecified, quote, additional compensation.

And then in arriving at a punitive amount, the jury should consider the nature of the wrongdoing, the extent of the harm inflicted, the intent of the defendant, the wealth of the perpetrator, as well as any mitigating factors, which were unspecified by the court.

Unknown Speaker: Mr. Phillips, the respondent has come back with a proposal that suggests that the evidence in this case meets all those standards.

Are you going to address that argument?

Mr. Phillips: Meets all... well, actually what they argue is that it meets the standards that the Court sort of noted in Haslip as the Green, Alabama factors.

In truth, I think if you were to look at the four factors that the jury was asked to look at, it would be very difficult to reach the conclusion that the jury could have come to a $10 million verdict based on these factors.

If you consider the nature of the wrongdoing, what we are talking about here is slander of title, nothing more.

No physical injury was a possibility.

We are talking about a pure economic tort.

The entire extent of the injury that was actually caused to the plaintiffs as a consequence of this particular economic activity was $19,000.

Unknown Speaker: Well, the Supreme Court of West Virginia gave the impression I thought in its opinion not that there was any physical... but that your client acted with malice in the really nasty sense of the word.

Mr. Phillips: The West Virginia Supreme Court certainly seemed to indicate that, although it is a little difficult to understand on this record on what basis you would reach that conclusion in light of the slander of title claim.

You will recall that in the trial of this case, there was--

Unknown Speaker: Yes, but if the case comes to us, we should... I suppose we would not quarrel with that judgment of the... that there was malice.

Mr. Phillips: --Well, there is no basis in the jury's verdict necessarily to find malice because the jury was told that it could award punitive damages simply for reckless disregard and without malice.

So, that... it's not clear to me that as it comes to this Court, that there is necessarily a jury finding of malice.

There is an appellate finding.

Unknown Speaker: Yes, but do you lose the case if we assume there's malice?

Mr. Phillips: Oh, no, of course not.

We don't lose the case on that basis.

Unknown Speaker: Well, that's what I thought.

So--

Mr. Phillips: My basic point--

[Laughter]

We're in agreement on that, Justice White.

But my basic point is that as you evaluate the relationship of the $10 million award, which is really where I think you have to start the legal analysis against what is going on here, in truth there isn't all that much that is going on here.

Unknown Speaker: --Well--

Mr. Phillips: And even if you accept that it gets you over the threshold of some punitive award, it certainly doesn't take you into the $10 million range for this kind of tort.

Unknown Speaker: --But certainly if you're looking for reasons why the jury might have found $10 million, it's more likely that they found malice than that they simply found reckless disregard.

Wouldn't you agree with that?

Mr. Phillips: I would agree with that, Mr. Chief Justice.

I would also, however, conclude that if you are looking to how the jury got to a $10 million award in this case, it is quite clear.

The question... the jury was provided with evidence of the wealth of the defendant in the case, TXO, and was asked by counsel in closing argument to award some percentage of that wealth over as a punitive award, that that would be the fair way to proceed.

And that is the only numerical evidence in this record, frankly, that can you get anywhere near $10 million.

Unknown Speaker: Mr. Phillips, on that point, if the State of West Virginia had had, prior to your client's conduct here, a clear rule, whether it be a rule of statute or previously announced common law, to the effect that punitive damages may be awarded by reference not merely to the verdict in the tort action, but by reference to the extent... the economic extent of the harm either intended or potentially threatened by the tort, even though not realized, would you say that there was either a procedural or a substantive due process violation in applying that rule?

Mr. Phillips: The... if that rule, which is obviously the rule that respondents in a sense urge the Court to adopt--

Unknown Speaker: That's how you get a basis for $10 million, if there is one, yes.

Mr. Phillips: --Right, and their... and that is part of their quest to come up with a number of $5 to $8 million because that is the potential gain.

We would still have a problem with that because you still have an extraordinary award that is difficult to justify by reference to the underlying conduct involved here, and--

Unknown Speaker: Well, but let me start just with the general proposition, which is what I was trying to get at with my question.

Would there be as a general judgment... would there be a procedural or substantive due process defect in that rule?

Mr. Phillips: --It is hard to evaluate it in the abstract.

I think there would be a substantive problem that could arise with that rule because in a situation like this where you have a plaintiff, defendant dealing in a particular transaction, the economic theory that tells you that you are going to deter this conduct says you look at the transaction and the actual profit, and you take away all of the actual profit and then some multiple for any instances in which engaging in this same conduct might not actually be uncovered.

If you do that, as we explained in the reply brief, you take away all possible incentive for providing... for going forward with that kind of conduct, and you should, thereby, completely deter.

Our position is whenever you get to the point where you have put in all that retribution permits and you put in all that deterrence will permit and you go beyond that, that then you are, in effect, punishing the innocent.

So, there is a substantive problem even at that level.

The difficulty, obviously, is where you draw the line, and if you had a situation, like you pose, where a legislature has come in and tried to make some kind of an assessment, I suspect the court ought quite rightly to be somewhat deferential in how it evaluates whether or not you've still crossed that line.

But I think there is still an excessiveness problem.

Unknown Speaker: Well, if you had complete... if you had adequate knowledge of the rule in advance, why would it make any difference even if it were a common law rule?

Mr. Phillips: Oh, I don't think it would make any difference if it were a common law rule.

I'm not... this is not a notice problem.

I still think you have a problem of excessiveness.

Unknown Speaker: So, your quarrel here is not with the general proposition that the other side advances, that in fact, it's the risk of harm threatened that should be the basis for engaging in a proportionality analysis, if that's what we're going to call it, but your objection is to its application here.

And is it your objection that you did not have adequate notice that such was your exposure?

Mr. Phillips: Well, we clearly wouldn't have had any notice of it because this is an argument that didn't arise until the briefs in this Court.

We were never tried on that basis in the courts below.

Unknown Speaker: Of course, did you have any... were you on notice that there was, in fact, a different and more favorable theory of punitive damages in West Virginia?

Mr. Phillips: At the time of the trial?

Unknown Speaker: Yes.

Mr. Phillips: Or at the time of the conduct at issue?

Unknown Speaker: Well, actually I suppose it ought to be at the time of the conduct.

Mr. Phillips: It's sort of difficult... at that stage in the process, to be sure, the procedures were less well formulated than they have since become, but to the extent that Garnes, the decision of the West Virginia Supreme Court subsequent to this Court's decision in Haslip, reflects basically the West Virginia Supreme Court's analysis of the appropriate inquiry that ought to be undertaken, the rules presumably would have been quite favorable as they ultimately played out.

We just weren't the beneficiary of any of those rules in this particular case.

Unknown Speaker: Of course, on that theory, you can never develop a common law of punitive damages because the first case would be unconstitutional, there being no notice of it.

I mean--

Mr. Phillips: Well, you could clearly have... there's no quarrel about whether or not a punitive award could be imposed in a particular circumstance.

The question is--

Unknown Speaker: --Without notice.

You're dealing with a bad actor who has committed an intentional tort, and a common law court says for the first time, we are going to adopt within this jurisdiction a theory of punitive damages.

That would be okay, wouldn't it?

Mr. Phillips: --I think that would be fine.

My problem with the notice issue... there's a different notice issue involved with respect to the potential gain theory that the respondents put forward here, which is that wasn't the theory in the State of West Virginia at the time of the conduct.

That wasn't the theory put forward by the trial court in the instructions to the jury.

The instructions to jury say harm inflicted, not potential gain to the defendant.

That was not the theory on which the matter was defended in the trial court and post-judgment.

That was not the theory on which the decision was defended in the West Virginia Supreme Court, and now it comes here.

The other part of the problem with this argument, as it comes to this Court is, there is no evidence that would support an expected gain analysis in this case.

Unknown Speaker: Why is the new adoption of a theory any worse than the new adoption of the whole doctrine?

Suppose there had been... never been a punitive damages case in West Virginia before, although there had been in other jurisdictions.

And it comes before the West Virginia Supreme Court and the West Virginia Supreme Court says, yes, we adopt the theory of punitive damages.

Mr. Phillips: But what you don't do--

Unknown Speaker: Why is it... why is adopting a theory of punitive damages any worse than adopting the whole thing?

Mr. Phillips: --It's the timing of adopting the theory of punitive damages.

You don't... after the jury, which is supposedly the sentencer in this context, you say to the jury this is the basis on which you should decide how much money to take from the defendant, okay.

And they make a $10 million award on a set of facts.

You don't then come back in and say if we took those facts, as it comes to us, if we take it on its own terms, we could not conceive of getting to $10 million.

But even though the jury never had this in front of it, even though it could not conceivably have based the award on this, we will now come in and urge you to affirm that verdict on that basis.

If this had been the issue in front of the jury, we would have tried that issue and the expected gain would not have been anywhere near the fabricated number that respondents' counsel put forward.

Unknown Speaker: It's not a notice problem.

It's not notice at the time of your conduct.

It's a jury instruction problem.

Mr. Phillips: Yes, and a procedural trial problem.

Unknown Speaker: Does the case boil down then to the fact that you really do not dispute the position as a general matter put forward by the other side that the expected or anticipated harm, even though not realized, can be the base for... the baseline, as it will, for the award, that we are really here to review the question whether, in fact, there was adequate evidence to support the instructions as given?

Mr. Phillips: Exactly, Your Honor.

Unknown Speaker: That's it.

Mr. Phillips: Yes.

Unknown Speaker: It's a fairly narrow case then.

Mr. Phillips: Well, we brought this case on the theory that the West Virginia courts imposed the verdict on us, and we defended it and presented it to the Court under those terms because it may be a narrow theory, but it's an important one.

The question here is, is there a limit based on excessiveness?

And if this Court holds that as tried before the West Virginia courts--

Unknown Speaker: Yes, but that isn't what you would have us decide.

You would not have us decide whether there's a limit based on excessiveness.

You would have us decide whether there was an adequate evidentiary foundation for the jury to return the verdict it did given the instructions it had.

Mr. Phillips: --Right.

But that still requires you to make an analysis of whether there's a reasonable means-ends fit in this case, as the case was tried, as the jury had the evidence.

Unknown Speaker: Well, I think you're telling us that we're supposed to decide whether there is an evidentiary instruction-verdict fit, which is a different concept of fit.

Mr. Phillips: Well--

Unknown Speaker: And it may well be a... for $10 million, it may well be a very worthy exercise, but I think it's a little bit narrower than what you were saying a minute ago.

Mr. Phillips: --But see, I think the reason for the way we view this I suppose in somewhat different terms is we came to the case with what was in front of us in West Virginia and brought that to the Court's attention as an important issue on its own terms.

The respondents, because they cannot defend the issue as it comes on its own terms, have now tried significantly to shift the Court's focus from the way it was decided below.

In responding to that point, what I am suggesting to you is that there are procedural obstacles to taking into account that argument.

I'm not saying... and we have never argued categorically that you cannot have a $10 million punitive damage award.

There's certainly going to be a lot of instances in which that would be an appropriate award in a particular case.

But what I'm saying is that for slander of title with no potential harm, with gross over-deterrence as the ultimate effect of the $10 million verdict, this Court ought to declare that, under these circumstances, that award is excessive, and therefore violates substantive due process.

Unknown Speaker: Mr. Phillips, why do you say no potential harm?

The West Virginia Supreme Court referred... of course, they were talking about Garnes and so forth, but it could potentially cause millions of dollars in damages to other victims.

Mr. Phillips: To other victims.

Unknown Speaker: Well, but is that part of the calculus or not?

Mr. Phillips: Well, I think that... to my mind that reflects more the passion and prejudice problem that's inherent in the bad acts evidence that was put into this case because if you read that language carefully, it cannot possibly be that he reaches that conclusion based on the slander of title claim in West Virginia alone because he's talking about a pattern of fraud.

Well, a slander of title case, even if done maliciously, doesn't constitute a pattern of fraud.

It's a single point.

So, in order to get to a pattern of fraud, you have to go to all the bad acts evidence that was brought in and say that somehow all of that can be used to upgrade the quantity of the punitive award.

And our position is that all is way beyond the jurisdiction of the West Virginia Supreme Court to take into account--

Unknown Speaker: You don't--

Mr. Phillips: --and could not have been the basis for the jury's verdict.

Unknown Speaker: --You don't think there's any basis in this record for figuring out how much harm might have been caused to this particular litigant if the program had been successful.

Mr. Phillips: I think it would be perfectly acceptable for that inquiry to be undertaken on remand after this verdict is set aside.

Go back to the jury, start over again, if they wish to, see whether or not... see, one of the problems you've got, if you go back to a new jury, is Garnes... in the Garnes case, the West Virginia Supreme Court exhaustively analyzed what factors ought to go into the determination of an appropriate jury award.

And you will look in vain in that opinion for an expected gain theory like the one put forward by the respondents in this case.

And there's good reason, for the reasons I was trying to explain to Justice Souter.

It is a grossly over-deterring method of imposing a punitive award, and so there's no reason in the world to assume at this point that West Virginia would adopt that kind of an approach in this kind of a case.

So, it may be... you know, I have no quarrel.

If they want to go back on retrial, try to put in that evidence, it will show that the expected gain is nowhere near what they project in their briefs.

Unknown Speaker: What do you think the expected gain might have been?

What do you think the record indicates on that?

Mr. Phillips: This record doesn't indicate anything about what the expected gain would have been because it wasn't an issue in the case.

There are some snippets of exhibit numbers that--

Unknown Speaker: They couldn't tell how valuable the property was.

Mr. Phillips: --We couldn't even begin to know whether or not those are wild projections, whether they really went into anybody's calculations on any of this stuff.

Unknown Speaker: Mr. Phillips, did I gather from a remark you made a moment ago that you think that West Virginia could not punish a... in the sense of inflict punitive damages on a defendant who had committed one bad act in West Virginia and had committed a series of similar bad acts in other States?

Mr. Phillips: I don't think you could punish them for the potential injury to the others in other States.

I think you could derive from the facts something about the nature of the entity, and you might even be able to figure out something about what would be necessary as a deterrence matter in West Virginia if you can come up with some kind of a nexus between the two.

Unknown Speaker: What if it were shown that no lawsuits had ever been brought against the defendant for these bad... similar bad acts in other States?

So, this would be presumably the only opportunity to punish him for those.

Mr. Phillips: Well, but I mean, it's clearly not the only opportunity.

There's always the opportunity for those who are down in those States to bring those kinds of actions.

I mean, I don't think West Virginia... simply because West Virginia saw bad acts in Texas, I don't see that it can reach down and exercise jurisdiction over those bad acts even if it has a case--

Unknown Speaker: You don't think a career offender could be punished for a career of crime in another State?

Mr. Phillips: --Well, the difference in that is that when you get in the criminal sentencing process, you have some set guidelines and you have--

Unknown Speaker: Well, I know, but you're arguing it's not a permissible factor, as I understand you.

You're arguing that out-of-jurisdiction wrongdoing--

Mr. Phillips: --In a civil proceeding.

Unknown Speaker: --is not a permissible factor in the calculation--

Mr. Phillips: I think in civil proceeding--

Unknown Speaker: --in this proceeding, but it would be in a criminal proceeding, obviously.

Mr. Phillips: --It would be in a criminal proceeding, but in a civil proceeding, what you're talking about... and remember what he says.

The language is harm to victims as a monetary amount in other States based on other acts, frankly.

Unknown Speaker: In a civil proceeding, usually the standards are more lax than in a criminal proceeding.

Mr. Phillips: But see, my problem with this is that when you're in a situation where we are orders of magnitude beyond anything that anyone else has ever permitted with a particular punitive award... and as we explain in the... in our brief, we've already demonstrated that we are orders of magnitude outside... one of the genuine fears you have to have is this a product of passion and prejudice, and that bad acts evidence, as used in this context does create passion and prejudice.

And the best evidence of it is the West Virginia Supreme Court's own opinion.

Unknown Speaker: Then it never can be used again.

As a theoretical matter, it cannot be used in a civil punitive damages award?

Mr. Phillips: No.

It clearly plays a role in the sense--

Unknown Speaker: Well, how do we... how would you articulate the permissible role?

Mr. Phillips: --Well, because you can demonstrate the malice.

You can demonstrate a certain amount of knowledge and, therefore, demonstrate two things I think from it.

One is that some greater amount will be required to deter this actor in the future because of what we know from other acts, and two, that this actor... it's not just a mistake here, that this really is a bad actor, and therefore some additional amount would be required as a consequence of that.

What I had--

Unknown Speaker: May I interrupt you just with one question?

Mr. Phillips: --Oh, of course.

Unknown Speaker: Can that additional amount, in effect, be the... be calculated as the additional amount to deter the additional or the further economic harm, let's say, outside of the State itself if this conduct were to continue?

In other words, you said it may be used for determining malice.

Well, maybe this... I don't know how you articulate the add-on for malice, but I suppose that malice's add-on would be something less than a calculation of a deterrence amount if we considered the fact that there had been 10 other attempts to do what was done here with the same objective in mind, so that if the potential gain here was $5 million, the jury could consider that there had been attempts to gain $50 million.

That I suppose would take you beyond a mere malice add-on.

Would that be impermissible?

Mr. Phillips: I don't think it probably would be impermissible under those circumstances, but the... you know, of course, the problem is, is that what you're talking about there is an undertaking that we clearly embrace, which is that you initially have to examine sort of what the nature of the award is.

Is it off the charts?

Has it fallen beyond what is by all objective measures impermissible?

If it is, then you have to justify it.

Unknown Speaker: But my example wouldn't be off the charts.

Mr. Phillips: Well, it would be if I--

Unknown Speaker: This one you say... pardon me?

Mr. Phillips: --It would be probably.

If you end up with a number that's way off for the slander of title and you looked and tried to compare it, you'd say, geez, this number is nowhere near what we would have expected for this kind of an offense anywhere.

And then you can look in the record, if there is such a record, for what is unique about this case that might justify that award.

And that way you do permit the common law to continue to develop without being completely constrained by the Constitution.

But we're nowhere near that because we... there's nothing specific to TXO that would allow you to get from what would be the ordinary kinds of multiples that ought to be applied here.

Unknown Speaker: Is it permissible, Mr. Phillips, to enter a punitive damages award not only to deter this actor, but other actors similarly situated?

Mr. Phillips: Yes, Justice Kennedy, it is permissible.

Unknown Speaker: Well, it seems to me that if it's the marginal cost of wrongdoing that's the limit on the award, that that might not have sufficient notoriety or publicity to accomplish that effect.

Mr. Phillips: Well, I think you've still got to be limited by the nature of what is it that you're trying to deter here, and what we're trying to deter here is the reckless recordation of quitclaim deeds, which is hardly something that requires a huge amount of notoriety for the purpose of trying to get others not to do it.

You don't need a $10 million award to tell a land man and his title counsel, the next time he's got a problem with title, to act cautiously in trying to resolve that title.

And, indeed, a $10 million award in a case like this is going to place the fear of God into those people and thereby create way over-deterrence and cause even more trouble--

Unknown Speaker: Well, I suppose that's--

Mr. Phillips: --in terms of oil and gas development.

Unknown Speaker: --That's for the jury, isn't it?

Mr. Phillips: At some point, I think it isn't for the jury.

At some point, if the State's reason for having a punitive damages system is to deter and to punish and what you've done is effectively grossly over-deterred, then you'll have, in effect, gone way beyond the ends permissible by the State and therefore the means are invalid.

Unknown Speaker: Mr. Phillips, are you going to suggest some kind of a test that courts could employ in knowing when there is a likelihood of bias or arbitrariness in these cases?

Mr. Phillips: I think what you--

Unknown Speaker: Or do we... is it just we know it when we see it?

I mean, what is it?

Mr. Phillips: --Well, I knew it when I saw it here, but I don't think that's the right test, Justice O'Connor.

[Laughter]

The test is that you look first at the gravity of the offense, and you look at the nature of what kind of deterrence would be necessary.

You compare it to the objective criteria in sort of Solem versus Helm's like analysis to see is this objectively unreasonable.

At that point, that should trigger two separate inquiries.

One is is there a basis for believing that this was the product of passion and prejudice.

The use of wealth in this case clearly caused passion and prejudice.

The use of other bad acts clearly caused passion and prejudice, and the repeated references to out-of-State defendants, compared to in-State plaintiffs created passion and prejudice in this case.

The other thing you can look for then is what State justifications exist specific to this defendant that would justify the award in this case.

In this case, no such exists.

Respondents have tried to bring some in, but they weren't adjudicated below.

If there are no further questions, I'll reserve the balance of my time.

Unknown Speaker: Thank you, Mr. Phillips.

Mr. Tribe, we'll hear from you.

Argument of Laurence H. Tribe

Mr. Tribe: Thank you, Mr. Chief Justice, and may it please the Court:

This case, rather like the gas in the wells in the thousand acre tract, seems to be vanishing before our very eyes.

Mr. Phillips says in response to Justice O'Connor's, I think, very important question, what standard after all does he ask this Court to promulgate, says he knew it when he saw it.

But he doesn't really offer a test different from that in the instructions in this case, as I'll show in a moment.

And I do think that perhaps TXO, which has been adjudicated guilty of a number of land frauds, has sold this Court something of a dry hole because the case was originally presented as though the relevant ratio was 526 to 1.

But I think we now see that's apples to oranges.

That is, the numerator of that fraction came from a $10 million figure which, as I will show, was well grounded in this record in terms of expected gain, what did they hope to gain not simply by recording fraudulently a phony quitclaim deed, but by doing it as part of this particular century old pattern of land fraud.

The numerator was then upped somewhat in light of the fact that there is a real chance that someone will get away undetected.

In this case, they didn't.

They were caught.

The denominator, the $19,000... that's where this fancy 526 to 1 ratio comes from... had nothing to do with what they expected to gain.

It just happened to be how much it cost to get attorneys to stand up to TXO and to stop them dead in their tracks in this declaratory judgment action.

Unknown Speaker: Mr. Tribe, where in this record do you find that the jury was told there was some $5 to $8 million gain at stake, and where in the record does it show the courts below had those figures?

Mr. Tribe: Justice O'Connor--

Unknown Speaker: I haven't been able to find it.

Mr. Tribe: --Justice O'Connor, there is no reference below in the courts to the $5 to $8 million figure.

There is reference through simple multiplication that would give it to us.

Unknown Speaker: It just doesn't seem to be the basis on which this was tried or--

Mr. Tribe: That I... let--

Unknown Speaker: --presented to the jury.

Mr. Tribe: --Let me address--

Unknown Speaker: It looks to me like you're trying to concoct something that might have served, if it had all been presented, but I don't find it.

Mr. Tribe: --Let me address that directly.

I don't think that's true.

That is the center of their claim, somehow that this case was tried on a different theory.

The fact is it was tried on this very theory.

Let me turn to, for example, our closing argument to the jury in this case.

After the dollar figures had been put in on how many wells could be dug, on how much gas per well, on how many dollars per thousand cubic feet, in the closing argument... and if you want the citations, it's pages 746 to 58 and 779 to 83 of the transcript.

Let me read a characteristic sentence.

It was full of these.

TXO thought this was going to be a huge money-making lease.

That's why it was worth the scheme, and the punishment should fit it so we can stop people from stealing people's land with fraudulent quitclaim deeds.

And then in the brief in the West Virginia Supreme Court, our brief... I don't know why they think this argument was one--

Unknown Speaker: Now, wait.

That's all that the jury was told with reference to these figures?

Mr. Tribe: --No.

The jury was told, with reference to the figures, that they would add up to, I believe, millions of dollars, but it was never quantified as 5 to 8.3.

That is, that arithmetic is something the jury would have had to do for itself.

Unknown Speaker: Well, and it was never... I didn't find anything in the record demonstrating dollar amounts of projected loss to your client.

Mr. Tribe: Well, Justice O'Connor, as Mr. Phillips' brief says, in this case, the expected gain to TXO, if they had gotten away with it... that is, if they had successfully gotten Mr. Signaigo to sign the false affidavit, and if they had managed to get their declaratory judgment so that they made it look as though they didn't have to pay the 22 percent to the respondents, the expected gain to them was exactly equal to the expected loss.

That's their point in their reply brief... expected loss of--

Unknown Speaker: But as I understand the way you have calculated the $8.3 million that you want us to focus upon at the high end, it assumes 25 wells, all of which are successful, 0 failure rate.

It assumes that there's maximum recovery.

It gives no discount for present value of money, which is routine in, say, wage earner cases.

And I think this is a highly exaggerated figure that you're asking us to rely upon.

Mr. Tribe: --Justice Kennedy, let me address those points.

Unknown Speaker: Plus the fact, as Justice O'Connor put it, it was never pointed out to the jury or the Supreme Court anyway.

Mr. Tribe: Justice Kennedy, with respect to the discount rate, we were projecting figures using the $3 that was the price in 1985.

TXO's own experts in defense exhibit 14 indicated that they expected the price of gas, over the 20-year life of the wells, to go up by a factor of 4 or 5.

That would more than offset any rational discount rate.

The most important point, however, isn't that.

It is that the time to litigate the amount of expected gain is surely not in this Court reviewing this case under the Fourteenth Amendment's Due Process Clause.

That is, we did introduce before the jury dollar figures and a range of estimates about the number of wells.

Even if you take the lower estimate of 15 wells, you come up not with $8.3 million, but $5 million as to what they hoped.

And it would only take a multiplier of 2 then to get punitive damages of $10 million.

But the time to contest those numbers was at trial.

You see, if it were true that no one was thinking about expected gain in the State of West Virginia in a case of this kind, so that they were basically bamboozled... they didn't know that that was the focus... that might be, though not necessarily for constitutional purposes, enough of an explanation for why they didn't do it at trial.

But at trial, when we introduced these numbers, we didn't get any counter-figures from TXO.

On the contrary, when they put on Ken Walty and Mike Good as key witnesses, it was on cross-examination of those witnesses at pages 544 to 553 and 672 to 677 of the transcript that we clearly established that they expected a multi-million dollar income stream.

Their whole strategy was don't think about that.

We're innocent.

We relied on advice of counsel, arguments that have been demolished below and rejected by this jury.

When I get to the jury instructions, I think that will be clear.

They also ended up saying, as they said here, don't punish the innocent.

We, after all, didn't make all this money.

But, of course, the theory of deterrence in West Virginia and a number of other States is that you punish in accord with what they hoped and intended to gain, not what they happened to gain.

That's why--

Unknown Speaker: Well, Mr. Tribe, is there... where in the instructions is this theory expounded?

Mr. Tribe: --If you--

Unknown Speaker: And were they told anything except consider the actual damages, which here were $19,000, and the wealth of TXO?

Mr. Tribe: --Yes, they were, Justice O'Connor.

If you look at plaintiffs' instruction number... defendants' instruction number 6A in the joint appendix--

Unknown Speaker: Joint appendix where?

Mr. Tribe: --Joint appendix, page 34, an instruction which is, of course, considerably more detailed than the one this Court held sufficient in the Haslip case.

The last paragraph--

Unknown Speaker: Well, could you read it?

Yes.

Mr. Tribe: --Yes.

The critical thing is you're supposed to look at the intent of the party committing the act, as well as the extent committed, and the purpose, it's explained at the end, is to deter TXO and others from committing like offenses in the future.

And then it says to in fact deter it, may require a larger fine and one of larger means.

Now, this instruction in these respects was not objected to.

There was no suggestion on their part at trial that they were entitled to something more precise.

And West Virginia put them on notice in a case called Wells against Smith in 1982 of this entire theory, which is standard in West Virginia.

That is, in Wells, the court had said that where the defendant's conduct has been egregious, but the plaintiff has suffered indeterminate or nominal damages, one needs to award a high multiple.

And, indeed, in that case they said the sky is the limit.

No ratio is relevant.

Unknown Speaker: A high multiple of what did they say?

Mr. Tribe: They don't address what the denominator is, but the theory--

Unknown Speaker: Well, I would think it would be very difficult to put anybody on notice if they don't even discuss what the denominator is.

Mr. Tribe: --Well, I would suggest if we were in an arithmetic class, that might be true, but common sense out in West Virginia I think tells people when the law was that we're going to punish you in terms of the outrageousness of what you tried to do, that you're not supposed to be doing arithmetic.

In other words, there was no numerator, there was no denominator.

The suggestion was that looking at ratios isn't relevant.

What you look at is what did they hope to get away with, and then you add a kicker for the chance that they would never have been caught.

Unknown Speaker: Well, I suppose that's why I have trouble with the extrapolations in your brief.

Here in this Court is the first time anybody has heard about $8.3 million, which is a very high end figure in any event.

Mr. Tribe: Not quite.

Page 8 of the brief in the Supreme Court of West Virginia used these numbers to calculate this figure, $13,676,252, was... and I'm reading... the price... the prize TXO hoped to grab by fraudulently disparaging appellee's title.

That $13 million figure was a bit lower than some of the other numbers because it was based on some later projections after one well had proved disappointing.

But you notice they do not deny--

Unknown Speaker: But that was a gross production figure.

Mr. Tribe: --That was a total revenue figure.

That's right.

Unknown Speaker: We're talking here about lost royalties, and--

Mr. Tribe: Well, no.

That's right.

The 22 percent of that--

Unknown Speaker: --There are other issues here you want to discuss.

Mr. Tribe: --Yes.

Unknown Speaker: But it would seem to me that those persons who have been punished for being overzealous on the behalf of their clients would find it rather difficult to understand why there's some puffing in the figures before this Court which is used to justify that punishment.

Mr. Tribe: Justice Kennedy, I had thought that the relevant standard in substantive due process attack on a judgment such as this is whether there is any rational basis that can be offered.

In Nordlinger v. Hahn, it was stressed that what matters is not how the State's decision makers articulate that, but whether one can find a rational basis.

More recently than Nordlinger, in Growe v. Emison this Court said that one defers to judicial, as well as legislative decision making.

It was for that reason that we felt free and that I would fully defend taking the numbers that were before this jury, and which TXO did not undertake to attack at trial, to show how very easily from them one could understand the conclusion of the West Virginia Supreme Court that a judgment of this magnitude was needed to deter this kind of harm.

And, indeed, the instruction... to go to the questions that were asked with respect to the instructions by the Chief Justice and Justice White, if you look not just at 6A, Justice O'Connor, but if you also look at plaintiffs' instruction 2 on page 26 of the joint appendix, look at what this jury had to find in order to find TXO liable.

They had to find... second paragraph of instruction 2... TXO filed the quitclaim deed with the intent to hurt the interests of the defendants, in other words, ill will.

They also had to find that TXO acted maliciously.

They had to find malice and without good faith and recorded the quitclaim deed with an intent to hurt the defendants rather than clear up the title.

So that when, on that basis, the jury returned this award, it's not so surprising to me, given that the case was litigated below on this very theory, that that was the closing argument, that that was the brief in the State Supreme Court, that that was what the instructions called the jury's attention to.

What did they intend to get away with, not how much did it cost to catch them.

Given all of that, it's not so surprising that the West Virginia Supreme Court, finding this attempted fraud... and I now quote from that court... no isolated incident, but part of TXO's pattern and practice to defraud and coerce those in positions of unequal bargaining power, a pattern that the court said threatened, quote, millions of dollars in damages to other victims, unquote.

That's not just other victims in Oklahoma or Texas.

The millions of dollars in damage from numbers they didn't undertake to refute at trial would have been to us because those are royalties that we would have expected to gain.

It's no surprise that the West Virginia Supreme Court found on that basis that, quote, an award of this magnitude is necessary to discourage TXO from continuing this pattern and practice of fraud, trickery, and deceit, unquote.

Now, if the theory is constitutional... and I see no conceivable basis as a matter of substantive due process for saying the State cannot use this as a way of deciding how much is needed to deter and punish, no basis for saying that you can't look at how much they hoped to gain, even optimistically that you can't look at that, but must instead look at some multiple of what it costs to prevent them from succeeding.

Given that there's no basis in substantive due process for that, it seems to me that all they're left with is the idea that somehow there wasn't sufficient evidence here.

And I agree that the evidence that was in the record wasn't added up in precisely the way our brief does, but surely, that is a burden that would have fallen on TXO at trial.

And it's not a proper question for this Court to second guess the reasonableness of the West Virginia judiciary in saying that $10 million was needed.

It seems to me that all they're left with is some theoretical arguments that one might debate, arguments about what's the best way to deter.

Do you go after people, whether they succeed or fail, as West Virginia does?

In fact, in its constitution, article 3, section 5, it says that the penalty should be proportionate to the nature of the offense.

In fact, with respect to aggravated... attempted aggravated robbery, West Virginia says we'll punish you the same way whether you succeed or fail.

Is that the best way, or is it best to only add a very high kicker when the wrongdoer succeeds?

Well, that's an interesting question.

Most States, the 27 amici who have filed a brief in support of our position, take the view that it's for them to decide and that they think it is more just, as well as more effective, to use this theory and to use a theory which, by the way, West Virginia has officially endorsed.

The West Virginia Attorney General, at pages 6 to 7 of the amicus brief filed by the 27 States, endorses this very theory quoting from the Garnes case, and Garnes really expresses the view that the reason it is improper to play with numbers and look at these proportions is precisely that it's perverse in terms of incentives and in terms of fairness.

What it means is that when a victim is smart enough and tough enough to stand up to an extortionate scheme, as the respondents did here, then the wrongdoer is going to be, in effect, rewarded, rewarded because the most that can be charged against it is the attorney's fees or some reasonably low multiple thereof.

Because the West Virginia Supreme Court has quite clearly rejected that approach and has said instead you look to the expected gain, it seems to me that all that's left is some possible procedural due process arguments, and perhaps I should turn to those.

I don't think, by the way, that the Court ought to reach the merits of some of the fancier procedural due process arguments that we have here because TXO's only argument at trial was about the First Amendment.

They said that slander of title violates the First Amendment, but nowhere at trial did they argue that under the Due Process Clause of the Fourteenth Amendment, one is entitled to some different or more precise jury instructions or some further kind of explanation by a trial judge.

Unknown Speaker: Did the Supreme Court of West Virginia pass on that point?

Mr. Tribe: I think not, Mr. Chief Justice.

That is, the West Virginia Supreme Court said these damages are not excessive.

They also said that their new rules, which are rather like what I gather TXO would like this Court to promulgate somehow for all 50 States... their new rules about jury instructions and post-verdict explanation in the Garnes case should not be applied retroactively.

The West Virginia Supreme Court ruled that.

But it was never asked to rule that the Due Process Clause of the Fourteenth Amendment requires of its own force special instructions beyond those that were used in Haslip.

It was never asked to rule for the first time that Fourteenth Amendment due process requires States to assign some special role to the trial judge post-verdict.

And when we made that argument, the response of TXO at footnote 33 of their brief was that it's frivolous.

It's frivolous to say they waived it, and to prove that, they give you a 23-word snippet from their brief below.

I would invite you to look at the relevant parts of that brief when there is time.

In their reply in support of certiorari in their appendix, they reproduced the entire relevant portion of their brief below.

I think a fair reading of that whole argument is simply West Virginia law under Garnes should entitle us retroactively to these special procedures.

If the Court, however, were to reach the merits of the procedural attack, I think it's quite clear that TXO ought to lose.

The State Supreme Court's post-verdict review, which was critical in Haslip, was at least as thorough here as in the Alabama Supreme Court.

Now, the petitioners make some mileage out of Justice Neely's rhetoric; that is, they make something of the fact that he used some homespun shorthand to categorize wrongdoers as really mean or really stupid, but I think that's a pretty irrelevant distraction.

His colleagues called him to task for what they thought was unduly colorful.

In any event, he explained in good old-fashioned legalese, very traditional, exactly what those terms meant, and lo and behold, they meant exactly what we would expect, intentional, malicious, deliberate wrongdoing was the kind that really mean was supposed to cover.

So, one can't make a federal case out of that.

As far as the trial judge's review post-verdict, they make the rather astonishing argument now... they didn't make it below, but they make the argument now, supported by at least some of their amici, that the Federal Constitution guarantees them a right to, quote, several layers, unquote, of judicial review... that's at footnote 38 of their reply... and, therefore, to a fuller post-verdict explanation by the trial judge than they got here.

I would submit that that's untenable.

Even in criminal cases, this Court has held ever since McCain v. Durston, that the Fourteenth Amendment entitles you to only one level of judicial review.

It's entirely up to the States how to allocate post-verdict assessments as between their trial and appellate judiciaries.

And, anyway, TXO could have received, had they only asked, a much fuller explanation from the trial judge of just why he thought $10 million was reasonable.

And that does go back to the questions that both you, Justice O'Connor, and you, Justice Kennedy, asked.

That is, if one is nervous about the attempt in hindsight to figure out just exactly where the $10 million could have come from, it seems to me that the fault for that difficulty should be placed squarely at the feet of TXO.

They had, after all, a bifurcated trial.

Under West Virginia Rule of Civil Procedure 42(c), they could have had a trifurcated trial with a separate proceeding on punitive damages.

West Virginia would have fully entitled them to put special interrogatories to the jury.

If they wanted to know exactly how these numbers were derived, they could have asked, but it was too obvious to anyone I think for them to make quite a fuss about it.

Their whole strategy was, and it seems here to be, simply to emphasize, look, we may have done terrible things, but that was in other States, and here we were innocent, although the jury evidently found that they were guilty of the most scurrilous, deliberate, fraudulent behavior.

As far as the jury's role is concerned, not only were the instructions given in this case considerably more constraining than those that the Court found sufficient in the Haslip case, not only did they require a showing of indifference to the rights of others, something very much like the utter disregard phrase that the Court thought sufficient when given a further gloss in your opinion yesterday in Creech, Justice O'Connor, not only that, but they didn't ask for any further instructions, as we show in some detail in our brief.

Beyond that they waived any requests for including proportionality in the instructions.

We explained that.

They were satisfied to have the jury have even less guidance.

As a matter of strategy, their whole game was we're innocent.

They didn't want to focus the jury on punitive, and so, they can surely not complain now even if the Court were to reach that issue on the merits of a violation of procedural due process in terms of the jury's role.

Well, there being no violation of procedural due process, and it being quite clear that the judgment below meets the standard for substantive due process, it really does seem to me that this case is not an opportunity for the Court to give further guidance to the lower courts.

And let me just add a word about that issue of further guidance because one of the recurring themes in the petitioner's submissions is somehow to recur to passion and prejudice, prejudice against out-of-staters.

Well, that's a red herring here.

TXO and Alliance are both Texas corporations.

There's not a scintilla of evidence about that.

Passion and prejudice, but no real standards, nothing that would really offer guidance to the lower courts.

And I think I know why.

Because that's a fundamentally legislative task.

As the 27 amicus States have made clear, in the last few years, the vast majority of the States have responded to the perceived problems of punitive damages.

10 of them have set dollar caps.

12 of them have required bifurcation of the punitive phase.

25 of them have required heightened standards of proof.

Unless this Court were to undertake the extraordinary task, of under... sort of doing that legislative business in an even more complicated replication of the labyrinthine jurisprudence of the death penalty cases, to really structure the trials in these cases--

Unknown Speaker: Don't tempt us, Mr. Tribe.

[Laughter]

Mr. Tribe: --Well, I hope not.

I gather some of you are less happy than others with that labyrinth.

I would hope that you're not tempted by this case to do anything very much because I don't think that this case is what it was cracked up to be.

Thank you.

Unknown Speaker: Thank you, Mr. Tribe.

Mr. Tribe, may I just ask?

These are State law issues that we don't have to examine, but just for me to understand the quiet title litigation here.

Suppose that the deed that they found had been given to the individual and then his successor in title was I think the Crews Company.

Suppose that deed had, in fact, granted the mineral rights so that Alliance didn't have them.

Would, under your theory of the case, TXO have a duty to then encourage Crews to deed the property back to Alliance, or could TXO legitimately take it for itself?

Mr. Tribe: Well, one of their own experts suggested that in those circumstances, the standard practice would be to unify the title and deed it back to Alliance, but I think it might be harder to show, under the body of West Virginia law that was in place at the time, that it would have been a violation of any duty if they had acted in a more self-interested way.

But as you say, clearly that's a State law question.

And what happened here is really unmistakable.

They went around trying to find people who would say that they owned the oil and gas, and they didn't succeed.

And when Mr. Signaigo said I won't sign that affidavit, we really know that they were willing even to suborn perjury.

Unknown Speaker: Well, but aren't they supposed to do that in order to investigate their title?

Mr. Tribe: Well, there's no question that in general you're supposed to ask questions, but when the answer is no, then paying somebody $6,000 to say yes, which is what they did to Virginia Crews, that's not my understanding of ordinary business practice.

Unknown Speaker: There's a letter from a title attorney in the last exhibit to the yellow brief, who indicates that this deed... Mr. Wallace's letter... that this deed was ambiguous so far as he's concerned as written to Mr. Skeen.

Was that written so that Mr. Skeen could introduce it at trial?

Mr. Tribe: Well, it was written in December.

It was written just before the declaratory judgment action.

It looks like it was written with litigation in mind.

And you notice that the courts of West Virginia said there's no ambiguity.

Paragraph 6 of the original 1958 deed, which these other opinion letters studiously avoided discussing, eliminated any ambiguity.

It was a ridiculous theory.

I find it hard to take these legal opinions seriously.

I don't mean to impugn the ethics of these lawyers, but it doesn't sound to me as though this was a genuine search for truth.

Thank you.

Unknown Speaker: Thank you, Mr. Tribe.

Mr. Phillips, you have 4 minutes remaining.

Rebuttal of Carter G. Phillips

Mr. Phillips: Thank you, Mr. Chief Justice.

Let me just address a couple of points here.

First of all, you will notice that again, there is no defense of the punitive award on the terms that it was imposed by the jury and upheld by the West Virginia Supreme Court in this case.

Indeed, I think Mr. Tribe revealed quite plainly that he cannot defend it on that ground, that he has to find some other ground by which to justify this award and then invokes Nordlinger v. Hahn to justify it.

Unknown Speaker: But he... but he's responding to your substantive due process argument.

If... your procedural due process argument would, indeed, say, well, it has to be upheld on the same ground that was proposed.

But for substantive due process, isn't he right that so long as it is sustainable on some rational basis?

That's what we do for legislatures.

Why is it any different for courts?

Mr. Phillips: It is a huge difference for courts because the punishment was imposed by the jury, and what trying to sustain the jury's verdict on a ground not in front of the jury does is ignore the potential of passion and prejudice that undergirds the jury's--

Unknown Speaker: Procedural due process it seems to me, not substantive due process.

Mr. Phillips: --I think procedural and substantive due process merge here, Justice Scalia.

I'm not... I am not here to defend across the board the possibility that $10 million verdicts can never be entered in any kind of case.

What I am here to say is that the $10 million verdict in this case is grossly excessive, and if this Court has meant what it said in the past, that grossly... that a State is no more permitted to assess a grossly excessive damage award than it is to impose a grossly excessive fine, this is the case that tests the limits of that.

And if you go back and examine with care the precise items that Mr. Tribe has gone through and look at the jury instructions, if they thought they had tried this case on a potential gain theory throughout the entire proceedings, wouldn't it have been reasonable to expect that when they proposed a jury instruction that it would have said you must measure this by the potential gain rather than by the harm actually inflicted?

It's clear that this was not tried on that particular theory.

Unknown Speaker: Well, they did refer, didn't they, in the... or the instruction referred to deterring other conduct in other circumstances.

So, I suppose that carries with it the implication of potential gain in these other circumstances.

I can't seem to find the instruction now.

What was it?

Mr. Phillips: But even... but that... I don't think you can reincorporate into other... into the deterrence rationale, which is the rationale that you're supposed to follow, these elements which decide the amount of the award.

This is what describes how you get to $10 million.

Unknown Speaker: Well, it may assume a degree of analytical sophistication on the part of the jury, which is a little bit generous, but when you start talking about deterrence, what you're really talking about is deterrence in relation to the temptation.

And the temptation is what you're referring to by potential gain, isn't it?

Mr. Phillips: If you defined it in those terms for the jury, that might be, but there is simply nothing in what the jury was asked to do to look at potential gain.

All it was asked to do was look at actual profit and actual harm, and on that basis, there is no way that you can get to $10 million.

The only way you get to $10 million is because of the wealth of TXO and the decision to impose a 1 percent penalty.

Unknown Speaker: What was the purpose, Mr. Phillips, of all this evidence about potential gain?

Mr. Phillips: It was originally put into the case because there was at one stage a claim that they were going to make that there was a bad faith dealing here in that when we capped the well, we actually deprived them of a significant amount of money.

That was a separate element.

It wasn't a separate cause of action, but it was a separate element of the case.

That evidence was brought in for that purpose to give some measure to that because they didn't have access to the specific numbers.

Unknown Speaker: This would be relevant to actual damages.

Mr. Phillips: Right, and it was abandoned.

That claim was specifically abandoned in the middle of trial, Mr. Justice White.

Chief Justice Rehnquist: Thank you, Mr. Phillips.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Pacific Mutual Life Insurance Co. v. Haslip - Oral Argument

Fri, 09 Jan 2009 14:49:41 +0000

Case:

Pacific Mutual Life Insurance Co. v. Haslip

Media File:

89-1279_19901003-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Bruce A. Beckman

Chief Justice Rehnquist: We'll hear argument first in Number 89-1279, Pacific Mutual Life Insurance Company v. Cleopatra Haslip.

Mr. Beckman.

Mr. Beckman: Mr. Chief Justice, and may it please the Court:

This matter is here on writ of certiorari to review a judgment of the Alabama Supreme Court.

That judgment affirmed and awarded punitive damages against the Petitioner, Pacific Mutual Life Insurance Company, on a respondeat superior basis for fraud committed by a sales agent in collecting and pocketing premiums from a policy of group health insurance issued by another carrier, Union Fidelity Life Insurance Company, and also on individual policies of life insurance issued by Pacific Mutual.

The insurance was issued to cover employees of the City of Roosevelt, which is a small town in Alabama.

During the course of the trial, all counts asserted by plaintiffs alleging any wrongdoing against Pacific Mutual directly were dismissed and abandoned, so that the sole basis of the award was respondeat superior, or the fraud of the agent.

The major portion of the award went to Mrs. Haslip because she incurred medical expenses during a period which would have been covered by the Union Fidelity policy had the agent not misappropriated the premiums.

She was apparently unable to pay the hospital expenses, and a judgment was entered against her.

And that appears to explain the great disparity in the award that went to her, and the relatively nominal awards that went to the other plaintiffs.

Unknown Speaker: Now, I suppose we do not know the breakdown of compensatory and punitive damages here?

Mr. Beckman: Justice O'Connor, under Alabama law, the punitive damage award to Mrs. Haslip would have been at least $840,000, because the maximum... she had a prayer for $3 million of punitive damages, and a prayer for her actual damages, plus emotional distress damages of $200,000.

The award to her was $1,040,000, so that if we assumed that she got the full general, actual, economic damages, and emotional distress damages, for which she prayed, the punitive award still would have been at least $840,000, and that would have been the computation under Alabama law.

The plaintiffs themselves submitted the case to the Alabama Supreme Court--

Unknown Speaker: Excuse me.

Why do you say that would be the computation under Alabama law?

Is it impossible, under law... under Alabama law, to give a plaintiff more than the plaintiff prays for?

Mr. Beckman: --Yes, and under the cases that were cited, in fact by the Respondents here, that would be the computation of the award.

It would be at least $840,000, because the actual other damages would not exceed $200,000.

And as I said, the plaintiffs here submitted--

Unknown Speaker: Are there Alabama cases that set aside judgments for more than what is prayed for?

Mr. Beckman: --It is my understanding that there are, Justice Scalia.

I cannot cite them to you at this point.

The plaintiffs--

Unknown Speaker: I think it makes sense to say she asked for so much, and--

Mr. Beckman: --Yes.

Unknown Speaker: --and you subtract that from the total.

But the jury could have said in the jury room, couldn't it, well, she asked for that much, but we really think that her emotional distress was even more than that and we'll give her even more?

Mr. Beckman: That could happen, but they would then have been limited to the prayer under Alabama law.

And again--

Unknown Speaker: Are you going to supply the Court with citations to establish that proposition?

Mr. Beckman: --I will do that, Justice O'Connor, and I would cite the Court to the case cited by the Respondents in the Respondents brief, which laid out their position that the award would have been $840,000 and not more, because as I stated, the respondents... the plaintiffs presented this court case to the Alabama Supreme Court as an award of $1,040,000.

Unknown Speaker: Does that mean that we should sort of treat the case as though the actual damage... I guess there were some actual pecuniary damages, a few thousand dollars, too, weren't there?

Maybe there was about 210 of actual damages, and 840 of the other, so it's 4... 4 to 1 ratio?

Mr. Beckman: All of the... all of the plaintiffs in the case had a total of economic damages something of about $3,900, and the total award was something in the area of $1,077,000.

Unknown Speaker: Right, but as to this particular respondent, it's roughly... we can treat the case as though the punitive damage was roughly four times the actual damage?

Mr. Beckman: Yes, Justice Stevens.

Pacific Mutual has petitioned this Court to vacate a judgment of the Alabama Court and the award of punitive damages as violating the due process clause of the Fourteenth Amendment.

Of the issues that were briefed and submitted here on behalf of the petitioner, I would like to focus my argument on three central issues:

First, that the open-ended, standardless discretion delegated by Alabama law to the jury here to determine whether or not to punish Pacific Mutual for the agent's fraud, and if so, how much, violated due process.

Second, that the system of judicial review in place in Alabama did not cure those violations, and third, that respondeat superior on the record in this case is not a constitutionally permissible basis for imposing punishment on Pacific Mutual.

Unknown Speaker: You say, not a constitutional... constitutionally permissible basis for imposing punishment on Pacific Mutual.

Are you saying it was not a constitutionally permissible basis for imposing any sort of liability, or just what you call punishment?

Mr. Beckman: Just the punitive award.

Unknown Speaker: You... there's a different constitutional standard for respondeat superior, in your view, when you're talking about punitive damages?

Mr. Beckman: Petitioner submits that that is correct, Your Honor.

The... in... for compensatory damages under respondeat superior, the rationale of it is that where one of two innocent people should suffer because of acts of an agent, wrongful acts of an agent, the principal who put the agent in a position to cause the injury should bear the loss.

Imposing punishment on a principal who, as in this case, was in fact a victim of, in effect, embezzlement... is not a rational basis for punishment.

Unknown Speaker: I guess that argument... well, supposing you have a corporation, and the president of the corporation does a lot of things secretly.

The directors don't know, the stockholders don't know, and you impose a criminal fine for violating the Sherman Act or something.

Is that unconstitutional?

Mr. Beckman: There's... there is... that is a different situation than we have here.

Under the Sherman Act, for example, or a regulatory program, the company is under a direct obligation to comply with the law.

And if in fact fines or triple damages under the Sherman Act are sought to be imposed upon it because of the violation by the company, and the company comes in and tries to defend saying well, high-level management or the responsible people didn't authorize those acts or know that they were going on.

And the courts have held that if that action is taken in the course of the company's business, and to further its profits, the company management can't come in and say well, we didn't know what was going on, and avoid liability.

But the situation is different, I submit, where the agent, even a high-level officer, is affirmatively acting against the company's interest, and is in fact, as here, embezzling, or stealing the money--

Unknown Speaker: Maybe they... maybe they fixed prices at a level that caused them to lose money.

That wouldn't be a defense, would it?

Mr. Beckman: --But they were still acting to benefit the corporation and seeking to increase its profits by violating the law.

I mean, here, there was no possible way that Pacific Mutual could have benefited from the agent's thefts of the premiums, and those thefts that were actually premiums of a... due to another company, but both of those companies had liability imposed on them, under Alabama law, for their policies.

Unknown Speaker: But wouldn't that also... that argument also justify saying you can't recover civil... even actual damages?

Mr. Beckman: But there you have, again, an innocent third party and the innocent company, and the company put the agent in a position to cause the harm.

So for compensatory damages, vicarious liability has some purpose.

But to impose punishment on a company that has had a theft or an embezzlement from it doesn't forward any rational goal of retribution or deterrence.

Unknown Speaker: Mr. Beckman, do you have any case authority from this Court to support this rather curious position?

Mr. Beckman: Only the... the authority that we have cited in the briefing that has been submitted.

Unknown Speaker: Mr. Beckman, if I understand the position you're taking on this point, if... if an officer of a corporation is secretly... secretly favors polluting the environment, and at great expense to the company... not in its interests, but at some expense to the company... pollutes... intentionally causes the company to pollute the environment, a penalty could not be imposed upon the company because the officer was not acting in the company's interest?

That's... that's your position?

Even though the company put this officer in a position where he could do this, you know, put him in charge of all its chemicals, so that he was in a position to dirty the earth, which is what he wanted to do, you couldn't punish the company for that?

Mr. Beckman: That is a somewhat different case than those that we have been relying on, such as the Standard Oil of Texas v. The United States case, where you had the three employees stealing oil from Standard and then selling it back.

Unknown Speaker: It's different from those cases, but it's--

Mr. Beckman: Yes.

Unknown Speaker: --But it tests what I understood to be your response to Justice Stevens.

As I understood your response to Justice Stevens, you think the crucial factor is whether... whether you can impose punishment upon the principal depends upon whether the agent was acting in the principal's interest.

Isn't... wasn't that your... your line?

Mr. Beckman: Yes, and... and if you're--

Unknown Speaker: All right.

Mr. Beckman: --If you are suggesting that--

Unknown Speaker: So then your answer to my hypothetical has to be that you cannot punish the corporation.

Mr. Beckman: --I would suggest that's correct, Justice Scalia, and that would be because if you had, in effect, a disloyal employee trying to sabotage the company by putting in procedures which would in fact be causing emissions beyond EPA standards, for example, it would really not forward the goals of retribution and deterrence to punish the company because it had that employee doing that.

Unknown Speaker: It would deter the company from putting such a nut in such a position, wouldn't it?

Mr. Beckman: That would be direct liability, not respondeat superior liability, if you're suggesting that the basis of the punishment then would be that the company had not controlled or was... this agent, or had not properly monitored them.

Unknown Speaker: Mr. Beckman, we've been questioning you about what you say was your third point.

Perhaps you'd like to get to your first and second point.

Mr. Beckman: I would indeed, Your Honor... Justice... Mr. Chief Justice.

And with respect to Pacific Mutual's basic due process point presented here, Alabama law delegated complete discretion to the jury to determine whether or not to punish Pacific Mutual for the agent's fraud, and if so, how much.

The Alabama legislature had never established any limits on permissible punishment for conduct, or for punitive damages generally, and the decisions of the Alabama Supreme Court recognized that in Alabama there was no legal measure which limited these awards.

Unknown Speaker: Assume that we're just talking about punishing the agent himself.

Forget the respondeat superior problem.

Are there any standards that you could cite to the Court that would suffice for giving punitive damages against the agent himself here?

Mr. Beckman: Yes.

One... well, two come to mind, and one that would not work.

If you're talking about overall standards for limiting punitive damages awards, which I understand to be your question, it would... it... I'm sure there is a continuum of solutions which would be acceptable and meet due process requirements.

But one which certainly would be for the legislature to take various categories of conduct which are subject to this umbrella penalty, which is a whole spectrum of torts and tortious breach of contract in Alabama, and define the categories of conduct and specify the penalties for those... those specified items of conduct, much as in a penal code.

The other could be, and still meet, I think, the concerns which have been expressed by some members of this Court and... with respect to punitive damages, and have... try to have an umbrella remedy, a situation where you had either a fraction or a multiple of actual economic harm caused, which would cause the award to have some reasonable relationship to... or a necessary relationship to actual harm, plus attorney's fees, to take care of small cases which might not otherwise be brought.

And I would suggest also a cap, and then the... even the amount of a multiple of actual damages, to take care of the cases such as cited in the amicus brief of the national accounting firms, where there would be a large corporation where a lot of money was involved but a very small degree of fault.

Unknown Speaker: Mr. Beckman, the Alabama court has handed down in the Green oil case a list of factors to be used on appellate review of punitive damages cases.

Is that correct?

Mr. Beckman: That is correct, Justice.

Unknown Speaker: Now, in your view, if the Green Oil factors were spelled out to the trial jury that fixed the punitive damages, would that adequately serve to guide the jury's discretion?

Mr. Beckman: No, Justice O'Connor, it would not.

Those factors are highly judgmental, subjective, and would not remove from the jury the personal discretion to impose punishment on a... virtually a limitless amount.

The Hammond and Green Oil factors would not cure the lack of an upper limit limiting the amount of the award.

It would not--

Unknown Speaker: Well, do you take the position here today that the only possible way to meet the due process concerns that you express is to set a dollar limit?

Mr. Beckman: --Not necessarily a dollar limit, if a multiple plus a cap approach were taken, as I suggested in answer to Justice Kennedy's question.

But... but--

Unknown Speaker: That's a form of a dollar limitation.

Mr. Beckman: --Yes, Justice... Justice O'Connor.

Unknown Speaker: That's all you're saying would suffice.

Mr. Beckman: Yes.

The... yes, the Hammond factors, there's really only three of them that are at all substantive.

The first is that the award should bear some reasonable relationship to actual damages.

But in practice, that has proven to be a meaningless test, because any... any relationship can be and has been held to be reasonable.

And further, in Alabama, at least, about the same time the Hammond case was decided, the Alabama Supreme Court overruled an earlier decision which had required a... a... required relationship between actuals and punitives and adopted a rule that there was no necessary relationship between actuals and punitives.

And the second Hammond factor is to consider the reprehensibility of the conduct.

That is really only putting the... in different words what the jury here was instructed to consider, which was character and degree of the wrong, and it is just as vague.

And in fact this Court noted that reprehensibility was not a suitable, or a sufficiently precise basis for imposing punishment in the Giaccio v. Pennsylvania case.

The third, relatively substantive, Hammond factor was the wealth of the defendant.

The wealth of the defendant factor, when you take that into account, really only ensures that a large corporation, with a jury argument that the award has to be enough to hurt and sting, is going to ensure that there is in effect a multimillion dollar award, even if there is a very small degree of fault, and... I submit on behalf of the petitioner that those factors just would not adequately control the jury's discretion.

Unknown Speaker: Mr. Beckman, suppose I had a criminal statute that said for this offense the court may impose a fine up to full confiscation of all property of the defendant.

You know that the penalty is everything you own if you get convicted.

Would that... would that comport with due process, and then it's--

Mr. Beckman: I think I--

Unknown Speaker: --It's up to the judge to decide, you know--

Mr. Beckman: --Yes, I think I understand your question, and that is that you have a penal code section which specifies in advance, and says that the maximum penalty for that specified offense is up to... in a sense, a... action.

We will take... confiscate the charter of the corporation and all of its assets.

Unknown Speaker: --Um-hum.

Mr. Beckman: Yes, I would suggest that that would meet due process, but that is different than punitive damages situation, because there the legislature has acted to tailor a remedy to a defined offense.

But with punitive damages, you have this whole spectrum of torts and tortious breach of contract, and with an umbrella that... that fits it all.

Unknown Speaker: But the legislature has, in effect, said for each of those offenses, for any... for any civil offense, you are on notice that what you can be penalized is all of your assets.

Mr. Beckman: I'd suggest that that--

Unknown Speaker: Why isn't that... you know.

It's an upper limit.

Now, you may not like how high an upper limit it is, but it is certainly there.

You know, when you commit any tort, that... that that's the penalty that... that may exist.

Mr. Beckman: --That would be as if... and the situation really is as if, for example, the Alabama Penal Code, which would cover everything from minor traffic offenses to first degree murder, had a single penalty section which said, for any violation of this code the maximum penalty is capital punishment.

And I suggest that that would not be a rational and meaningful limit--

Unknown Speaker: Well, let's take that out of it.

Mr. Beckman: --Or even notice--

Unknown Speaker: We've place some limitations on capital punishment.

I mean, it can only be imposed for murder.

But let's say... let's say for all criminal offenses it'll be up to... up to the judge.

Mr. Beckman: --Up to life imprisonment--

Unknown Speaker: Um-hum.

Mr. Beckman: --And I would suggest that that would not be a meaningful or realistic penalty for 99.9 percent of the offenses in the code; similarly, that confiscation of all the assets would not be a meaningful or really reasonable penalty for 99.9 percent of the offenses in punitive damages.

Unknown Speaker: Because... because it... because what?

Because of a lack of procedural due process?

Mr. Beckman: Because it is so high that it wouldn't be fair notice of what the actual penalties would be.

I mean, it's like having life imprisonment for a traffic offense.

It wouldn't take the discretion away from the sentencing authority to give virtually any sentence for a minor offense, and there would be no real notice to anyone of what the penalty might be, and it would certainly not cure the open-ended discretion of the sentencer in that situation.

Unknown Speaker: Mr. Beckman, can I ask kind of a long-run, long-range question?

Are you claiming in this case that the Alabama procedure is kind of invalid on its face, and therefore, regardless of the facts of this particular case, every punitive damage award in Alabama should be set aside, or do you depend on the facts of your case?

Mr. Beckman: I suggest that in any case in which the jury was instructed as it was in this case--

Unknown Speaker: Right.

Mr. Beckman: --that due process requirements would not be met, and to that extent, the answer to your question would be yes.

Unknown Speaker: Then the other thing that's running through my mind, to the extent that you've suggested that maybe we could craft rules like a ceiling and special procedures and all, are you suggesting that those procedures... that we would write a rule for the future that would not be retroactive to past awards, or... you don't have a retroactivity problem?

Mr. Beckman: I would suggest there would be no retroactivity problem and even that this Court would not have to craft rules.

I mean, State legislatures can... are certainly free to experiment with any number of possible solutions to--

Unknown Speaker: But until they meet the minimum that you think are required, all these awards would be invalid?

Mr. Beckman: --Yes, Justice Stevens, but that is our position.

Unknown Speaker: I take it you have no problem with the theory of punitive damages, then.

It's just the standard.

Suppose you had a manufacturer of children's play equipment.

Manufacturer A uses a rope because he thinks its safe.

Manufacturer B uses the same rope because it's much cheaper, and he knows it's very unsafe.

Two children are injured.

The injuries are exactly the same.

Should the recovery be the same in each case?

Mr. Beckman: I would suggest not, Justice Kennedy, if in fact guilt is personal and... and if penalties are to be imposed because of guilt, as they in fact generally are not in punitive damages cases.

Unknown Speaker: So you have... you have no trouble with the proposition that, in the second case, where there was an intentionally substitution of an inferior fabric, or piece of equipment, you have no trouble at all with that child recovering substantially more, even though his injuries were the same?

Mr. Beckman: No, Justice Kennedy, and that is because punitive damages are not a matter of compensation, and... and I suggest that it is not the perspective to look at them from any entitlement of someone injured to recover them.

I mean, supposedly they are imposed to punish and deter because of wrongful conduct.

The plaintiff gets them is a mere windfall.

Unknown Speaker: And you have no quarrel with that element in the law?

Mr. Beckman: Well, I have a quarrel with it, but to... to seriously quarrel with it would require a position that there could be no civil penalties in any case, and that is not in the history of the decisions of this Court.

Back to the basic due process point that I was discussing, the... it's the legislature in... neither the courts nor the legislature in Alabama had set any limits to punishment.

The jury here was told that it had complete discretion to either punish or not punish, as it chose, and with respect to fixing the amount of the award, it was told only to--

Unknown Speaker: Excuse me.

That's been going on since 1791, as I understand it.

Do... do... do you have any... do you have any cases that... that have imagined in the past that this violates the due process clause, and how... you know, who... who whispers in my ear that it... it is in violation of due process when it's been going on since 1791 and nobody has thought so?

Mr. Beckman: --I suggest, Justice Scalia that the situation here is... is essentially the same as it was in Williams v. Illinois, when you have the practice which had extended from medieval England down through the United States from the time of the Revolution and the adoption of the Constitution to the time of that decision, of... of increasing penalties of prisoners beyond the maximum allowed by statute when they were unable to pay fines or court costs, and there, as here, if that had been analyzed and looked at, the Court would probably have found that it violated due process, just as I submit that punitive damages... the procedures--

Unknown Speaker: What was the basis of that decision?

Mr. Beckman: --That... the basis of the decision was that it was a violation of due process to sentence... to allow a prisoner to be required to serve time beyond the maximum allowed by the statute because he was unable to pay a fine or court costs, and the court recognized that even though that had been the practice from medieval England through all the history of the United States, it still violated due process, and recognized that it had only come to the attention of the Court because that practice's impact on society had changed radically.

And I submit that that--

Unknown Speaker: But this one has come to the attention of this Court before, and this Court has... has opinions that... that have approved it before, doesn't it?

Mr. Beckman: --The... the due process validity of punitive damages has not been decided by the Court and been directly before it.

The Court has, in some prior opinions, recognized the doctrine and assumed or accepted it.

But the issues have not been placed before it for... for an actual determination.

I see that I am about out of time, and with the Court's permission, if there are no further questions, I'd reserve the balance of my time for rebuttal.

Unknown Speaker: Very well, Mr. Beckman.

Mr. Ennis, we'll hear now from you.

Argument of Bruce J. Ennis, Jr.

Mr. Ennis: Mr. Chief Justice, and may it please the Court:

Alabama provides two levels of protection for defendants facing the possibility of punitive damages.

First, the jury sets the award pursuant to the traditional common law standards, then, trial and appellate courts independently reassess the award pursuant to even more protective standards.

Let me talk first about the jury instructions.

The jury was instructed, with respect to the State's purpose in punitive damage awards, that they are to punish and deter, that they are not to compensate the plaintiff, or not to be a windfall to the plaintiff, and the jury was instructed that the amount of the award must be tailored to the character and the degree of the wrong as shown by the evidence in that particular case.

Pacific Mutual did not object to those common law instructions at the trial, and did not request any more specific instructions at trial.

Those common law standards, by themselves, certainly satisfy traditional notions of fair play and substantial justice.

They have been used and approved by courts throughout the land for 200 years, and no court has ever found them violative of due process.

Despite enormous pressure on State legislatures and Congress in the past 15 years, those are still the standards that are used in nearly every State today.

These standards, as the Court recognized in Day v. Woodworth, were well established before the due process clause was adopted.

In fact, in another Alabama case, Louis Pizitz, decided by this Court in 1927, this Court upheld those very common law standards and unanimously rejected precisely the same due process challenge Pacific Mutual is raising again... that these common law standards gave the jury "unbridled discretion" to fix the punitive amount

"without any method of ascertainment and without any limit to the amount it may impose. "

That argument was rejected unanimously in Pizitz.

Earlier, in Standard Oil v. Missouri, this Court also upheld against due process attack a punitive fine where there were no standards for determining the amount and no maximum.

That was a State antitrust fine, but the Court relied for its decision expressly on the analogy to punitive damage proceedings.

I think that there is simply no anchor in the text of the due process clause, and there is certainly no established societal norm from which the Court could define or develop new standards.

In this circumstance, where these standards have been used and thought to be fair for over 200 years, and where, even today, Pacific Mutual does not suggest specific standards for determining what is the right amount, merely a cap on whatever amount is awarded--

Unknown Speaker: Well, let's say a jury is instructed by the trial court to... that it may find punitive damages and it's within their discretion to make that determination.

Mr. Ennis: --Purely... wholly within their discretion?

Unknown Speaker: Yes, sir.

Mr. Ennis: Well, that... that would be more--

Unknown Speaker: Do you think that would raise any due process concern about standardless discretion?

Mr. Ennis: --I think, Justice O'Connor, that even such minimal instructions as that would satisfy the due process clause as that clause is constructed.

Unknown Speaker: Well, that is a very strange notion of what due process means, then, isn't it?

Mr. Ennis: I think not.

Unknown Speaker: Doesn't the clause suggest to us that wholly standardless discretion in these matters is unauthorized?

Mr. Ennis: Well, Justice O'Connor, I think not, for two reasons.

First, this Court's due process decisions in the past have always applied with respect to clarity in the conduct that can trigger a punishment of any type.

There must be clear notice of the conduct.

That was certainly true in this case.

Pacific Mutual was punished for intentional fraud.

There is no claim that the conduct at issue in this case was vague.

Second, even in the case of capital punishment, in the McGautha decision, this Court ruled that the due process clause does not require more specific standards for determining the sentence of death.

In that case, the jury was instructed that it had

"absolute discretion to decide whether to sentence to death or not. "

and there was absolutely no legislative or judicial guidance as to whether to impose that penalty.

The Court decided that, as a matter of due process, that did not violate the Constitution.

The next year, in Furman, the Court, of course, did decide under the higher, more rigorous standards of the Eighth Amendment, that capital cases do require guided discretion, but the due process clause does not, as this Court ruled in Pizitz, and ruled in Standard Oil v. Missouri.

Let me turn to the second level of protection that Alabama gives defendants in punitive damages cases.

Unknown Speaker: Excuse me.

Before you get off the first, I don't... I don't quibble with your assertion that that has been accepted for many years, but I do... do you really think it's fair to call it a standard?

I mean, you say that the standard is telling the jury, essentially, be sure that the punishment fits the crime.

That... that is what you describe as a standard.

Mr. Ennis: Yes.

That is actually--

Unknown Speaker: It's just like telling them, don't punish too much, and don't punish too little.

Punish just enough.

Mr. Ennis: --That is actually... the hypothetical that Justice O'Connor posed is actually less protective of defendants than the traditional common law standards.

The traditional common law standards do more than that.

They say, here's the purpose of punitive damage awards, to punish and deter, and they say that you must base your amount on the character and the degree of wrongdoing as shown by the evidence in this case.

Unknown Speaker: Well, of course.

I mean, in other words, don't punish too much for... for, you know, how bad the wrong was.

Mr. Ennis: Yes.

I think that that standard, which was the standard before the Court in Pizitz and all the other cases cited in our brief, and all the cases that have been upheld over the 200-year history in which that standard has been used, do find that that's--

Unknown Speaker: I would rely more on the 200 years than I would upon the standard.

[Laughter]

Mr. Ennis: --Justice Scalia, let me turn to the next level of protection.

Unknown Speaker: Counsel, before you get there, suppose the rule in the State were that one out of every four defendants is subject to a punitive damage award, and it just rotates based on the docket number?

Mr. Ennis: No.

I think that would certainly not satisfy due process, because that would go to the conduct issue that punitive damages--

Unknown Speaker: Suppose... suppose it were shown that, in effect, that's what's happening in our legal system?

Mr. Ennis: --Well, I don't think there has been--

Unknown Speaker: But suppose it were?

Mr. Ennis: --Well, if it were, then that would be a different question entirely, about an arbitrary and unequal application of a supposedly neutral principle of law.

Unknown Speaker: So if... if... if... it could be established that, in a particular State, and there was simply no rhyme or reason at all to the award of punitive damages, you would then think it would be a due process problem?

Mr. Ennis: I think it would be a different issue from the issue posed by the facts of this case.

Unknown Speaker: Would there be a due process problem?

Mr. Ennis: I think, Your Honor, that if it could be shown through empirical evidence that there wasn't just an occasional aberrational decision, but that, in a substantial number of cases it was entirely arbitrary and fortuitous whether a particular defendant got hit with a punitive damage award or not, that would raise a due process question with respect to conduct that can subject one to a punitive damage award.

But that is not this case at all.

Unknown Speaker: Wouldn't it raise due process standards because we've lost confidence in the operation of the system to operate with predictability, with fairness--

Mr. Ennis: Justice Kennedy, let me say that there is no basis in the record of this case or this Court to have lost confidence in the punitive damage--

Unknown Speaker: --No, but I'm talking about what the standards of due process are, and you seem to indicate that predictability, evenness, fairness, proportionality--

Mr. Ennis: --In Alabama today--

Unknown Speaker: --are all some indices of due process, and you indicate at the outset you don't think there's any due process standard, I had thought, with reference to the jury.

Now, I know you're going to rush to the second point, but let's just talk about the jury instruction.

Isn't there... isn't there some due process component that requires predictability?

Mr. Ennis: --I think there is a due process component that requires predictability with respect to the nature of conduct that can trigger a punitive award.

Pacific Mutual has not cited any cases which take the very big next step, and ruled that there must also be predictability with respect to the precise punishment that a defendant can incur when they violate a clear conduct norm.

And there is no case in the history of this Court's jurisprudence, that I am aware of, that takes that step.

Unknown Speaker: What about ex post facto cases?

Mr. Ennis: Well, Your Honor, I am talking right now with respect to civil cases.

This is not, obviously, a criminal case where the ex post facto case... ex post factor clause would apply.

The ex post facto clause also, I think, is different because it requires... it applies to conduct that was not criminal at the time of the crime.

Unknown Speaker: Mr. Ennis, would you apply your principle that unpredictability produces a violation of the due process clause to substantive liability as well, so that if one can show that, gee, lawyers really never know what's going to happen when you send a case to the jury, except to the extent that it hinges upon factors that really should have no bearing... like whether the defendant has deep pocket or not.

If... if you could show that, then the whole system would be infected?

Or does this just apply to the amount of the liability, not to the liability itself, which would seem very peculiar?

You'd extend that to the whole system, I assume.

Mr. Ennis: Well, Justice Scalia, I'm not entirely sure I understand your question, but--

Unknown Speaker: What I'm asking is, if it is true that the amount of damages must be predictable in order for due process to be... roughly predictable--

Mr. Ennis: --I don't think that's true.

Unknown Speaker: --I thought that was your answer to Justice Kennedy, that if the system were entirely unpredictable--

Mr. Ennis: Whether a defendant would be subjected to any punitive damage award at all, if it was just fortuitous--

Unknown Speaker: --Right.

Mr. Ennis: --whether every fourth defendant gets punitive awards against them--

Unknown Speaker: Right.

Mr. Ennis: --that would go to the conduct that would trigger a punitive award, and I think that would implicate a due process concern.

Unknown Speaker: And the same would be true about whether the jury finds liability at all?

Mr. Ennis: I think the same would not be--

Unknown Speaker: I mean, did you think jury verdicts are predictable in that sense?

Do you... has that ever been a requirement?

Mr. Ennis: --I think that it's not a requirement that jury verdicts be predictable.

That's the point I was trying to make.

This Court's decisions have never required that due process requires predictability of the amount of a particular punishment.

Unknown Speaker: But they have to be just nonarbitrary?

Mr. Ennis: They just have to have some rational basis, and not be arbitrary, that's correct.

And Alabama today ensures that it is not an arbitrary process.

The Hammond Hornsby Standard of Review which the Alabama Supreme Court has been adopting since 1986, expressly provides that jury verdicts will be independently reassessed by trial and appellate courts in order to determine whether the amount set by the jury is more than would be necessary to accomplish society's goals of punishment and deterrence.

That test has actually been advocated by the insurance industry amicus brief supporting Pacific Mutual as a workable and appropriate test that will protect against arbitrary and irrational punitive awards.

That's the test that Alabama applies today.

Unknown Speaker: Was that test applied in this case?

Mr. Ennis: Yes, it was, Your Honor.

Unknown Speaker: Do you think the trial judge's memorandum really reflected what the test is supposed to reflect?

Mr. Ennis: Well, the trial judge's memorandum does refer to the Hammond opinion and does state that the award was reviewed by the trial court under Hammond.

The important thing to understand that it is not just the trial court but the Alabama Supreme Court itself that independently applies these factors.

The Alabama Supreme Court has itself reduced or set aside many punitive damage awards, even when the trial court thought they were appropriate.

For example, one of the Hammond-type reviews requires a comparability review to ensure fairness of punitive amounts across a range of similar cases.

Using that comparability review, which is not equally available to the trial courts because they are not as aware as the Alabama Supreme Court of the range of cases, the Alabama Supreme Court has regularly reduced punitive damage awards when it finds that the amount is outside that reasonable range.

Just within the past 10 days, the Alabama Supreme Court has done that twice.

Unknown Speaker: The argument is that punitive damages don't need all these protections, these specific factors that Alabama Supreme Court has imposed, and that there doesn't need to be appellate review.

Mr. Ennis: Justice White--

Unknown Speaker: There's just no due process problem at all.

Mr. Ennis: --Justice White I think there is no due process problem at all simply with the common law standards and standards for review, but in this case--

Unknown Speaker: Well, what is... is there... is there some due process requirement that the punitive damages not be excessive?

Mr. Ennis: --Yes, Your Honor, I think that there are decisions of this Court that do impose an outer limit regardless of the fairness of the standard of procedure.

Unknown Speaker: What, there's not a limit like, excessive?

Mr. Ennis: The outer limit would be, under the substantive component of the due process clause--

Unknown Speaker: Yes?

Mr. Ennis: --that the punitive award not exceed an amount that would rationally further the State's legitimate objectives.

Now, in this case, I think that there can be no serious argument that this award violates that standard, for the simple reason--

Unknown Speaker: And you say this excessiveness comes out of the due process clause, this... you say?

How does it do that?

You say that... I thought you started out saying the due process clause just doesn't read on punitive damages?

Mr. Ennis: --I think that the due process clause does not apply to whether... to predictability of the amount of the punitive damage award.

I think that's right.

Unknown Speaker: But it does apply, you say... it can be too great?

Mr. Ennis: There is, perhaps, a substantive component of the due process clause.

Unknown Speaker: Well, you said there was awhile ago.

Mr. Ennis: Well, Your Honor, I think that the cases that established such a substantive limit on what is State economic regulation are very old cases and may not be good law today, but for purposes of this case.

I'm not challenging those old cases in which the Court did say that a civil fine or civil penalty which is wholly arbitrary and irrational may violate the substantive component of the due process clause.

Unknown Speaker: Do you know of any States around that not only agree with that notion but have set down some more specific standards than just excessiveness or irrationality?

Mr. Ennis: Well, I--

Unknown Speaker: Have they put down some overall limits, or some proportionality rules?

Mr. Ennis: --Your Honor, in the past... since 1986, a majority of the States have actually legislatively revisited their punitive damages systems, but only nine States today impose caps on the upper limit of punitive awards.

Unknown Speaker: Well, what about... nine States put caps on, but how about others that have set some standards, other than just these vague... rather vague standards?

Mr. Ennis: We have cited in our... actually in our opposition to certiorari... the four States that have legislatively established some standards.

Those standards are remarkably identical to the standards that Alabama applies as a matter of common law.

They are remarkably similar to the Hammond Hornsby Standards of Review.

So far as I'm aware--

Unknown Speaker: You don't think... I gather you don't think the due process clause need go any farther than just to say to a jury or to an appellate court, the award should not be excessive?

Do you think that requires any more specific guide... guidelines than that?

Mr. Ennis: --No, Your Honor, I don't think it does.

In this case, let me make very clear that the standard of review that was used by the Alabama Supreme Court is much more protective than the traditional, common law standard of review that was at issue in Browning-Ferris and Bankers Life.

There, the courts applied the traditional standard of whether the verdict was the result of bias, passion, prejudice, or corruption.

Here, the Alabama Supreme Court applies a much more protective standard, and it will explicitly reduce or set aside a punitive award even if that award was not the result of bias, passion, or prejudice, if the award is greater than is reasonably necessary to accomplish society's objectives of punishment and deterrence, and it measures whether the award exceeds that test by an application of the seven standards in the Hammond Hornsby Standard of Review.

In 15 cases since 1986, the Alabama Supreme Court has reduced or set aside jury awards under that standard.

This is a standard with teeth.

It is a meaningful, meaningful constraint on--

Unknown Speaker: Let's just--

--15 out of how many?

Of... if... in 15... it has set them aside out of how many punitive damages cases that it's heard?

Mr. Ennis: --I'm not sure of the exact total, Your Honor, but I think it is at least 15, and I would be happy in a post-trial submission to try to get that information to the Court.

Unknown Speaker: Thank you.

How... how much of a penalty... let's assume you have a defendant with a net worth of $1 billion.

How much is necessary to deter that... that defendant?

The standard you recite sounds very nice.

Does it... does it mean anything?

How do I go about deciding, as a judge of the Alabama Supreme Court, or any other court--

Mr. Ennis: Well, Your Honor--

Unknown Speaker: --That it is no more than is necessary to deter--

Mr. Ennis: --Your Honor, there are at least two parts of an answer to that question.

The first is, you can't determine how much is appropriate to deter based simply on knowledge of the wealth of a defendant.

The jury is instructed they must look at character and the degree of the wrongdoing.

Under the Hammond standards, the reviewing courts are instructed to look at how much knowledge the defendant had.

Unknown Speaker: --Oh, so it... so it isn't just... just what's necessary to deter, but also how bad is the thing that you want to deter?

Mr. Ennis: That's right.

The character and the degree of the wrongdoing.

That's right.

Unknown Speaker: So it... so it's not just how much is necessary to deter, but also how much do you hate what was done?

Mr. Ennis: That's right.

Unknown Speaker: Okay.

Yes.

Mr. Ennis: It's a societal judgment.

That's correct.

Unknown Speaker: Right.

Now, how do you decide how much you hate what was done?

Mr. Ennis: Well--

Unknown Speaker: As a judge, in order to apply this standard?

Mr. Ennis: --Your Honor, it's... it's very much the process that judges go through and juries go through every day in deciding difficult questions that are--

Unknown Speaker: Juries I would agree, but... but is this really a legal... you know, legally determinable issue, how much we hate this particular act?

Mr. Ennis: --Your Honor, the Alabama Supreme Court looks at those factors.

For example, whether the defendant had continuing notice of the particular wrongdoing at issue, whether it took corrective steps or not.

There very specific standards, cited at page 32, 33 of our brief, which the courts use to reach that decision.

In a recent case, for example, the Alabama Supreme Court noted that the degree of the wrongdoing was sufficient to merit a punitive award by itself, but noted, as the jury does not know, that that same defendant had been hit with a punitive award in another case, and therefore decided that it was not necessary to have a second punitive award against the defendant for the same conduct.

That would not rationally further the State's objectives, and so it set aside the punitive award entirely, based upon that factor.

The Alabama Supreme Court does the same thing with respect to comparability reviews.

It says to itself, all right, here's another insurance bad faith case and a punitive award was set at this amount; we have had seven of these insurance bad faith cases in the past 3 years, and here is what seems to be a reasonable range of punishment in these cases; we think this one exceeds that reasonable range, and reduces it accordingly.

It is not a standard of review that simply rubber-stamps the jury.

Far from it.

In Alabama, I think, unlike any other State of which I'm aware, there is a right for a post-verdict evidentiary hearing at which the defendant can present new evidence that was never presented to the jury in... in support of reducing the punitive award.

The defendant can come in and say, the award should be reduced because I am quite poor, and this would absolutely bankrupt me and cripple me.

The defendant can come in and say, the award should be reduced because I have already been subjected to a criminal fine for similar conduct.

That kind of information would be extremely prejudicial to a jury... for a jury to hear at the liability phase.

But Alabama courts give the defendant an evidentiary opportunity to present all relevant evidence, and then, based on that evidence, the courts independently reassess.

They are not simply rubber-stamping jury verdicts.

Unknown Speaker: Is it... is it anticipated that juries given this kind of an instruction will often refuse to give any punitive damages?

Mr. Ennis: Yes, Your Honor, I think that that... whether to award punitive damages is discretionary with the jury, because it is supposed to reflect a societal judgment about whether this conduct is deserving of punishment.

Unknown Speaker: Some... deserving of imposing something on the defendant other than compensatory--

Mr. Ennis: That's correct.

Unknown Speaker: --damages?

Mr. Ennis: That's correct.

Let me just say--

Unknown Speaker: Is that... that's just the standard the jury has?

If you think this fellow really deserves it, give it... let him have it, eh?

Mr. Ennis: --No, that's not quite as simple as that, Justice White.

Unknown Speaker: Well, the degree of the crime?

How much you hate it?

Mr. Ennis: The standard is that before a jury can even consider whether it wants to impose a punitive amount, it must find that the conduct violates the conduct standard requisite for a punitive award.

In this case, the conduct standard was intentional fraud.

You can't simply--

Unknown Speaker: No.

Mr. Ennis: --impose punitive damages because you think somebody was a little negligent, or a little sloppy, in Alabama.

There must be some element of intentional wrongdoing.

Once that threshold has been crossed, however, it is discretionary.

Unknown Speaker: You don't think... you don't... you don't think you can be just so negligent that punitive damages are authorized in Alabama?

Mr. Ennis: Not in Alabama, Your Honor.

Some States do authorize punitive damages for reckless conduct, for gross recklessness.

This Court in Smith v. Wade adopted that as the appropriate standard for actions under 1983, without requiring--

Unknown Speaker: Product liability cases?

Mr. Ennis: --Private liability cases, Your Honor.

But in Alabama--

Unknown Speaker: Product.

Product.

Product liability.

Mr. Ennis: --Product liability cases?

In Alabama, there has to be an intentional wrongdoing element.

I'm sure some other States have somewhat lesser degrees of a mental wrongdoing component, but almost everybody--

Unknown Speaker: Well, everybody intends to put out the product.

Is that just enough?

Mr. Ennis: --No, that's not enough.

It's not just putting the product into commerce that's enough.

There has to be an element of wrongdoing, a mental element of intent to commit wrong.

Unknown Speaker: And are juries told that?

Mr. Ennis: Yes, Your Honor.

Unknown Speaker: It doesn't have to be an element of wrongdoing by the defendant personally, though.

It can be by one of his agents, right?

Mr. Ennis: That's correct, Your Honor.

Unknown Speaker: That's a strange use of "intentionally", then.

I mean, I'm perfectly innocent.

I haven't committed any fraud, and I've been negligent enough to hire somebody who commits a fraud.

That's intentional wrongdoing on my part.

Mr. Ennis: Well, let me... let me turn to that, Your Honor.

First, Pacific Mutual's argument on vicarious liability is that there must... constitutionally, there must be some element of benefit to the principal.

First, that issue is not before the Court, because at the trial level and in the Alabama Supreme Court level, Pacific Mutual never argued that benefit is a constitutional requirement for vicarious liability.

It's argument was on quite different grounds.

Furthermore, this would be a very inappropriate case to consider that, because indisputably in this case, there was economic benefit to Pacific Mutual.

There were at least 3 months of premiums on life insurance policies that Pacific Mutual received and never refunded as a result of these frauds.

But turning to the merits of that vicarious liability argument, in both punitive damages cases and antitrust cases and even in criminal cases, this Court has expressly approved vicarious liability without either fault by the principal or benefit to the principal.

Again, in the Pizitz case, decided unanimously in 1927, the Court squarely ruled that Alabama, the same system we're talking about here, could impose vicarious liability for punitive damages without fault by the principal.

That was a unanimous ruling of this Court.

In the Hydro-level case, this Court even went so far as to adopt as rational and wise social policy a rule of vicarious liability for Federal antitrust cases that is indistinguishable from the Alabama rule at issue here.

In Hydro-level, this Court ruled that, under the antitrust laws, a principal can be held vicariously liable for antitrust violations by an agent even if the principal was not at all at fault, and even if the principal did not benefit.

Now, I know that some justices of this Court dissented from Hydro-level and did not think that was the wisest or most rational... the best policy choice, but the fact that the Court as a Court reached that conclusion shows that that decision is at least a rational judgment.

Alabama has made that rational judgment, and it should be upheld.

Finally, even in criminal cases--

Unknown Speaker: Do I have to do it as a policy choice, Mr. Ennis?

Mr. Ennis: --No, you don't, Your Honor.

Unknown Speaker: Or because I think it's the law?

Mr. Ennis: No, you don't, Your Honor, not at all.

This is not a policy case.

This is a constitutional case before the Court, and you certainly don't have to as a policy matter.

Even in criminal cases, this Court has upheld vicarious criminal liability without fault or benefit.

In the Park and Daughterwite cases, the Court even went so far as to rule that an individual officer of a company can be held criminally liable on vicarious liability principles for the wrongdoing of an agent of which the principal was not aware, and from which the principal did not benefit.

It seems to me to follow a fortiori that if vicarious liability is appropriate even in that criminal context, it is appropriate here.

Let me simply conclude, since my time is almost to expire, by saying that the principal issue here I think is the standards issue.

I think that Alabama has developed a rational system for achieving legitimate and very important State objectives.

Alabama provides substantially more protection than the common law standards that were well established when the due process clause was adopted and that are still the prevailing standards today.

This Court should not expand upon that traditional understanding of due process and throw settled State tort law into complete disarray without compelling evidence that the punitive damage awards are fundamentally unfair in the majority of cases, and without compelling reason to believe that the legislative process is closed or is incapable of addressing that problem.

There does not have to be a constitutional remedy for every social problem.

In this case, I think this is a paradigmatic case for judicial restraint, not judicial activism.

Thank you very much.

Thank you, Mr. Ennis.

Mr. Beckman, you have 2 minutes remaining.

Rebuttal of Bruce A. Beckman

Mr. Beckman: The jury instruction in this case, and the common law jury instruction in Alabama really left the jury entirely to its own internal resources in deciding whether or not to punish and, if so, how much.

It was recognized rather forthrightly by Justice Houston of the Alabama Supreme Court in a subsequent decision to ours that that instruction was incomprehensibly vague and incomprehensible as a gauge for the jury to use in measuring the amount of a punitive award.

And he noted the consequences of that vagueness in two recent cases that had come before the Alabama Supreme Court, where he found the facts to be identical and the jury instructions to be identical, and in fact identical to the instruction here, and in one the jury came in with an award of $2,500,000, and in the other, $21,000.

In the jury room when the question came up, shall we punish Pacific Mutual for the agent's fraud, all it had to go on was its own notions of right and wrong or whether or no.

All it was told by Alabama law was that you have discretion.

You can if you want.

Similarly, when it had decided to make the award and say, we're going to punish Pacific Mutual for the agent's fraud, how much should we award, all the instructions told them was, you've got discretion.

It's any amount you want.

I suggest that that is exactly the arbitrary and discriminatory enforcement that due process condemns, and would respond... in response to Respondent's contention that due process requires no notice of penalty, I'd suggest that that's a rather crabbed and narrow view of due process, and prior decisions of this Court have held that the fair notice portions... concerns of the ex post facto clauses are included within the concept of fundamental fairness included in the due process clauses of both the Fifth and Fourteenth Amendments.

If you could imagine a statute--

Chief Justice Rehnquist: Thank you, Mr. Beckman.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Browning-Ferris Industries v. Kelco Disposal - Oral Argument

Fri, 09 Jan 2009 14:49:15 +0000

Case:

Browning-Ferris Industries v. Kelco Disposal

Media File:

88-556_19890418-argument.mp3

Related Transcript:

1988_88_556_argument.xml

Transcript:

ORAL ARGUMENT OF ANDREW L. FREY ON BEHALF OF PETITIONERS

Chief Justice Rehnquist: We'll hear argument first this morning in No. 88-556, Browning-Ferris Industries of Vermont v. Kelco Disposal.

Mr. Frey.

Mr. Frey: Thank you.

Mr. Chief Justice, and may it please the Court:

The question in this case is whether a $6 million verdict inflicted on Petitioner BFI to punish it for a purely economic tort that caused Respondent Kelco Disposal $51,000 in actual damages is subject to attack on the ground that it is disproportionate to the wrong that BFI was found to have committed.

Now, BFI and Kelco were competitors in the roll-off waste disposal business in Burlington, Vermont and for a period of about six months in late 1982 and early 1983 BFI, which had been losing market share to Kelco, substantially reduced its prices in what the jury found was an effort to put Kelco out of business and to secure a monopoly in the market.

This effort in fact proved unsuccessful.

Kelco maintained its market share.

BFI soon raised its prices.

And, eventually it was BFI that gave up, sold out, and left the Burlington market.

In the meanwhile, this lawsuit had been brought.

The complaint charged an attempt to monopolize in violation of Section 2 of the Sherman Act and in a second count tortious interference with Kelco's business relations in violation of Vermont common law.

Now, the same alleged misconduct, predatory pricing, underlay both causes of action.

After the jury found BFI liable on both counts, it was asked to assess damages, and after a hearing it found that Kelco's injury, as I mentioned, was $51,000.

Under the Federal Antitrust Claim, Kelco was of course entitled to three times that amount together with attorney's fees.

For the state tort, which, remember, involved exactly the same conduct, Kelco was awarded the same $51,000 in compensatory damages and $6 million in punitive damages.

Now, the jury, which had before it a sympathetical local plaintiff and was being asked to punish a large, impersonal, out-of-state defendant, awarded this astronomical amount after a damages hearing in which it was repeatedly urged to send the message to Houston... which is where BFI has its corporate headquarters... and was invited to base its award on BFI's size, which was detailed to it in terms of annual income, revenues, monthly revenues, weekly revenues, hourly revenues.

Now, when BFI challenged the verdict as excessive, both the district court and the court of appeals upheld it.

And in the course of doing so they did not undertake any careful analysis of the circumstances of the case of BFI's conduct.

They simply upheld the award on the basis of their subjective reactions that it was not excessive.

And in the case of the court of appeals essentially on the basis of BFI's wealth.

Now, both Kelco and its amici speak at some length about the generally valuable role played by punitive damages in the modern American legal system.

And they charged BFI with asking the Court to overturn traditional state tort law.

But the Court does not have before it any question of the Constitutionality of punitive damages as such.

By and large, therefore, the impassioned defense that has been made of the Institution of punitive damages is quite beside the point.

There may be many things right or wrong with punitive damages, but the question before the Court is whether federal law prohibits excessive awards of punitive damages.

This is a relatively recent phenomenon, by no means a traditional part of state tort law, and little has been said and little could be said to justify the infliction of excessive punishments on tort-feasors.

Mr. Farr: Well, Mr. Frey, what kind of federal law do you think applies here?

Do we look to Vermont state law in this instance?

How do we get the federal law issue before us?

Mr. Frey: Well, I'm--

Mr. Farr: Is it through your Excessive Fines Clause of the Constitution?

Mr. Frey: --Well, there are three provisions that... three bodies of law or provisions of law that could regulate the excessiveness of damages awards in tort cases, punitive damage awards.

One is the Excessive Fines Clause of the Eighth Amendment and certainly the one we first think of as being potentially applicable.

Mr. Farr: Well, is that the one you're arguing today?

Is that the one--

Mr. Frey: I intend to--

Mr. Farr: --that was raised below?

Mr. Frey: --That was raised below.

The common law argument that this is excessive, apart from the Constitution, was raised below.

The third ground on which the Court could reach the question whether the award is excessive is the due process clause.

Mr. Farr: But was that raised below?

Mr. Frey: The due process argument as such was not raised below.

We believe, however, your Honor, if I can anticipate your next question, that that is not a reason why this Court could not reach the due process question if it found that the Excessive Fines Clause of the Eighth Amendment was inapplicable.

While Kelco in its brief has mentioned several times that the due process issue was not raised below, what it has not done is cite any cases that indicate that that is a detect that blocks the Court from ruling on that question.

And, in fact, in our reply brief we cited several cases, I think City of Revere, Braniff Airways against Nebraska, and I think in fact the instances are legion in which the party has cited... has made the correct substantive attack.

That is, it has identified specifically what its problem is with what happened to it, what it thinks is wrong.

But, it has assigned the wrong provision of the Federal Constitution.

In a case like that, I think the Court has felt free, if need be, to reach the correct provision.

Essentially our claim is that this award is excessive.

It is grossly disproportionate to what was done wrong.

We say that violates the Excessive Fines Clause of the Eighth Amendment.

Mr. Farr: Has this court ever incorporated the Excessive Fines Clause into the Fourteenth Amendment to make it applicable to the states?

Mr. Frey: I'm not sure that I'm aware of any case in which it either has done so or has rejected doing so.

It's clear that it has applied both the Excessive Ball Clause and a Cruel and Unusual Punishments Clause.

In fact, the kinds of provisions that are not incorporated are basically procedural provisions like the jury trial right of the Seventh Amendment or the indictment right under the Fifth Amendment.

We are talking here about a substantive protection of individual rights under the Bill of Rights, I think.

The protection against excessive punishments.

Mr. Farr: How do you define state action here?

Mr. Frey: I define state action because it's going to be... in this case it's federal action really... it's going to be the United States Marshall who is going to come to Browning-Ferris' office if they don't pay the judgment and cart away its property to sell it.

Mr. Farr: So, you would limit this to just suits in Federal Court?

Mr. Frey: Not at all.

Our position... it would be state action if the suit were in state court and the sheriff were going to do it.

It seems... It seems to me clear, Justice O'Connor, that where the punishment is inflicted by virtue of the judgment of a court, even in a private civil action, that constitutes state action.

I don't think the state can avoid the responsibility to adhere to the constitution by using the medium... it's still the power of the state that enforces the judgment.

The medium is simply this trial before a state or federal court between private parties.

Mr. Farr: But, if you are right, it would involve the federal courts and this Court in reviewing every state tort judgment that resulted in punitive damages.

Mr. Frey: Well, I--

Mr. Farr: I mean, it would be a substantial expansion, would it not?

Mr. Frey: --I believe it would not be a substantial expansion at all and I think there are several reasons for that.

First of all, there is no expansion of the number of cases that would be brought.

This is simply an issue that would arise in an existing case.

So, this would not involve the lower federal courts in a single case more than they would otherwise be involved in.

It is simply where a tort suit is brought and a claim for punitive damages is made there is the possibility of raising the claim that the Constitutional award is... that the punitive damages award is excessive.

Mr. Farr: Well, what about state courts, though?

Mr. Frey: State courts--

Mr. Farr: I mean, a lot of these are in state courts.

Mr. Frey: --Well, the second... yes, many of these are in state courts.

And, again, it would require the state courts to do something similar to what they do anyway, which is a normal judicial function, which is to review the excessiveness of verdicts.

Now, we believe that the way many state courts have done this is a constitutionally unacceptable method for approaching it.

That is, it's been purely subjective in the standard--

Mr. Farr: But then petitions for certiorari would be filed and if there is a federal doctrine we've enunciated, that's one more thing we would have to look at.

Mr. Frey: --Well, let me say this about that... about that concern.

I think there are several things to be said.

The first is that if the Court decides this case and it holds that the Eighth Amendment applies, and it sets forth a framework within which the Eighth Amendment analysis is to be conducted, I think you will find that even though in theory it is possible to raise claims, that the incidence of the exorbitant awards will be substantially reduced.

The second thing is that the same thing could be said about the rule that a criminal conviction must rest on evidence that satisfies the reasonable doubts standard.

That is an issue... well, the same thing could be said about applying the Speedy Trial Clause to the states.

Mr. Farr: In a criminal case you have habeas corpus.

A criminal judgment does not become final where a civil judgment does.

Mr. Frey: But that is in fact one of the concerns.

In a case like Jackson against Virginia the concern was that you were creating an additional cause of action a whole new case, that could be brought to review the question of the sufficiency of the evidence.

What we are talking about here is a claim which will arise in a relatively small proportion of the cases, and, indeed, a much smaller proportion of the cases after this Court establishes the analytical framework within which these cases are to arise or these claims are to be evaluated.

And I think it will be easy for this Court unless... this Court would not grant certiorari in particular cases unless it saw a question of general importance about the administration of the punitive damages system.

If it sees a question of general importance, if it sees a recurring type of problem in which excessive punitive damages may be being inflicted, then it seems to me that the duty that the Constitution places upon this court is to explicate the law in this area where it would be useful.

Mr. Farr: Mr. Frey, assuming that the Excessive Fines Clause applies to the states, I find... why must it apply so as to impose a national standard?

I find it difficult to think that the Constitution meant to say every state has to hate predatory pricing the same amount.

Mr. Frey: Well, I don't believe it does and I don't believe it's the burden of our submission that it does.

You have to distinguish between the class of cases... which I hope would increasingly come to be the norm and which is the norm in the case of criminal case finds... where the legislature has established standards.

And in that class of cases our position is that the constitutional inquiry would defer substantially to the legislative judgment.

What the Constitution does--

Mr. Farr: Why not totally?

Is the standard you ask us to impose a national standard or rather should we just look to each individual state and say this award is excessive given what's done within that state, and allow each state to say how much it hates it each individual thing as much as it wants?

Mr. Frey: --Well, by and large I think that is our position because our position is only that the excessive fine inquiry under the Federal Constitution is an outer perimeter.

Within that outer perimeter, the states are free to set the rules as they see fit.

Mr. Farr: No, but we're not in agreement.

I'm not talking about any outer perimeter.

I'm saying that--

Mr. Frey: I understand.

--If the state wants to say for a particular type of offense you can be fined one-quarter of your net worth, that's fine if the state hates a particular thing that much.

So long as the state treats everybody alike.

But I gather what you're mainly complaining about is the flukiness of judgments.

Now, that would be eliminated within each state, at least, wouldn't it, if you applied the Excessive Fines Clause simply to require the state to have some consistency in judgments within its own state.

Well, let me say, Justice Scalia, that I think your position comes to a hard place against Solem against Helm when you come up against that.

And I think what Solem teaches us is that where the legislature sets a boundary, that will be respected.

Mr. Farr: --Do you regard Solem as the last word on that subject?

Mr. Frey: Well, let's say that it's the last case I'm aware of in which this Court has addressed the matter.

But let me back up for a minute.

This is not a case in which Vermont or federal law has authorized in any affirmative way a $6 million verdict.

This is a case in which we have a system of the sky is the limit, we won't tell you what it is.

Whatever amount the jury comes up with, if it doesn't shock our conscience... and we won't tell you how we decide that... is okay.

Mr. Farr: It would be a different case if you had had fifteen $6 million verdicts in Vermont and the Vermont Supreme Court had looked at all of these and said,

"Yeah, we hate predatory pricing that much."

It would be a different case, wouldn't it?

Even without a legislative pronouncement.

Mr. Frey: It would be a different... It would be a different case and I would have a much harder task.

But I'm not prepared to concede that if by some fluke Vermont decided that for double-parking the appropriate penalty was a million dollars, that this Court would have nothing to say about it.

Mr. Farr: Why?

Why would we care how much... maybe Vermont has a real problem with double-parking.

[Laughter]

The citizens of Vermont can... you know, can handle that the way they want, can't they?

Mr. Frey: Because I think the Eighth Amendment is a provision that commits to the courts some safety net function in this area.

I mean, I hate... I hate... don't want to, if I can avoid it, prolong this dispute because I don't think it's this case.

That is, I don't see, even if you were correct... unless you want to take the next step and say that a state that has no system, that sets no standards, that the maximum penalty is any amount you can dream of for any wrong that you do, which I think is totally inconsistent with the Eight Amendment.

And I might say that this Court in a federal case should not allow that kind of award to be entered.

I don't believe Vermont law permits that.

Mr. Farr: You were not... all I'm... I just want to get your answer to one question.

You do not... you're not willing to read "excessive" to mean simply excessive with regard to other fines imposed by that state?

Mr. Frey: I'm not willing to--

Mr. Farr: You insist upon some national standard?

Yes or no?

I think that can be answered yes or no.

Mr. Frey: --I am... I am... I think the answer is no, although in this case I would be satisfied, I think, with that reading.

I think we would still win.

Mr. Farr: No... yes, you insist on a national standard?

Isn't that right?

Mr. Frey: I insist on... I don't insist on anything.

I urge the Court--

[Laughter]

--that it... that it consider a rule under which the punishment bears some relationship to the crime.

That is, I think the macado is somewhere in the Eighth Amendment.

But I have to stress--

Mr. Farr: Mr. Frey, I don't understand why you're not willing to say it's a national standard.

That's the way I read your brief.

Mr. Frey: --Because I think our position is that the standard--

Mr. Farr: Do you think--

Mr. Frey: --is not the same where there are different legislative judgments.

That is--

Mr. Farr: --Yes, but if there are no legislative judgments.

Mr. Frey: --If there are no legislative judgments--

Mr. Farr: Basically we have a system now with no legislative judgments so far.

So, in that ballpark isn't the standard the same everywhere under your submission?

Mr. Frey: --I'm still not sure, Justice Stevens, that I can go that far because the approach that we suggest which is the... in which we are guided by Solem... and maybe I shouldn't be, but it is the most recent word, if not the last word, of the Court on the subject... is a multi-factor approach.

One of the relevant factors is what happens in Vermont, is this in line with the penalties that are inflicted in Vermont for this kind of misconduct?

That is a relevant factor.

So, I am not--

Mr. Farr: Well, assume we thought that a $100 million fine was clearly excessive, do you think it would stop being excessive because Vermont had inflicted it a hundred times?

Mr. Frey: --No.

Mr. Farr: I don't follow that approach.

Mr. Frey: I don't... I'm not suggesting that.

One of the problems I have with looking at other punitive damages awards, as opposed to legislative judgments or even court-made common law explications of rules is that they are all the product of the same, what we feel, defective system that is bound, not regularly, but all too frequently to produce these bloated, irrational, excessive awards.

So, I don't even like looking at other punitive damages awards.

But I guess I'm somewhere... I can imagine a system or a set of rules... and I don't think this is the Court's problem today because it seems to me that whoever is right in this debate, this award is excessive.

If the Eighth Amendment applies to the states, the Eighth Amendment authorizes the striking down of this award.

Mr. Farr: Do you think this award would be excessive if Vermont had a statute that said there should be no punitive damage awards in excess of $10 million in cases... and somehow describe this kind of economic tort?

Mr. Frey: Yes.

Mr. Farr: What if there was a federal... what if the federal antitrust penalties were raised to $10 of criminal penalties and you have this very violation?

Would a $6 million fine violate the Excessive Fines Clause?

Mr. Frey: You mean where this--

Mr. Farr: Well, you have a Sherman Act found violation here.

Mr. Frey: --I think it would be--

Mr. Farr: I would assume--

Mr. Farr: I think it would be--

Mr. Farr: --a judge, if--

Mr. Frey: --I think it would be a much... a much harder argument to make.

Just as in Solem it was a hard argument to make that the legislative determination... it was a five to four case... it's a much harder argument to make.

Now, I will say about the one million dollars that is... authorizes a criminal fine for antitrust violations, that that provides very little benchmark to justify the $6 million here.

Because $1 million represents the Congressional judgment about the penalty that should be imposed for the most severe violations of the antitrust laws.

Now, whatever you may think about the conduct here, and I'm sure Mr.--

Mr. Farr: --Well, that's not quite right--

Mr. Frey: --will tell you--

Mr. Farr: --because you can also go to jail.

Mr. Frey: --Well, a corporation can't.

Mr. Farr: Oh, okay.

Mr. Frey: The penalty for a corporation... in fact, I think there may be a distinction in--

Mr. Farr: Mr. Frey, you take the position... excessive in any state?

Mr. Frey: --This $6 million for this conduct, I think would be excessive anywhere, yes.

Mr. Farr: In any state?

Mr. Frey: We... that is our position.

Yes.

Mr. Farr: Well, Mr. Frey, you're talking interchangeably about an excessive fine and punishment.

Do you think we have to find that this fine was punishment in order to agree with you?

Mr. Frey: Well, I think... I think you would have to find that it was punishment to agree with us under the Eighth Amendment argument.

Mr. Farr: Uh-huh.

Because you think... because?

Mr. Frey: I think our view is that what the word "fine" means is a monetary exaction for purposes of punishment.

Mr. Farr: But you must be contending that it needn't be criminal punishment?

Mr. Frey: It need not be punishment that is inflicted as a result of a criminal prosecution.

Definitely we are contending that.

In fact... In fact, we think that--

Mr. Farr: Well, why do you have to even talk about punishment then?

Mr. Frey: --Well, I think it's a question of how we use the word punishment.

Only if you define the word punishment as being that which is inflicted after a criminal proceeding.

And I understand that in Ingraham that the Court was talking about a different provision of the Eighth Amendment.

Mr. Farr: Yes.

Mr. Frey: The Cruel and Unusual Punishments Clause.

It said we're going... what we are going to do is to say that you can't punish people except through the criminal process.

Now, I'm not talking about fines but other kinds of punishments.

They are corporal punishment.

Therefore, it said if something is punishment within the meaning of the Cruel and Unusual Punishments Clause, you have to have a criminal prosecution.

Now, we have a different history in the case of civil penalties, civil punishments.

We have a history that goes back to, really, the time of amercements of Magna Carta of punishing people for wrongdoing in civil proceedings.

And where the punishment is monetary only and, therefore, within the contemplation of the Excessive Fines Clause, I think my provision is... my argument is that it doesn't matter whether it's inflicted on a civil or criminal--

Mr. Farr: Well, I guess punitive damages are often talked about as a form of punishment.

I guess.

Mr. Frey: --They are almost always talked about as a--

Mr. Farr: Yes.

Mr. Frey: --form of punishment for--

Mr. Farr: Yes.

So, it--

Mr. Frey: --purposes o?

Mr. Farr: --it isn't much of a problem you say?

Mr. Frey: --Huh?

Mr. Farr: It isn't much of an issue?

Mr. Frey: I don't think... I don't think it's a problem for my case, to make that--

Mr. Farr: In the English or the Commonwealth countries, have they relied on the Magna Carta or the English Bill of Rights to set aside any punitive damage award--

Mr. Frey: --We have a--

Mr. Farr: --in a civil case?

Mr. Frey: --We have a footnote in our reply brief which addresses that question, and my understanding is that the tradition is not to refer to the Magna Carta or the English Bill of Rights even... even in setting aside criminal fines as excessive.

It's just simply the way the English do it.

But I think it is understood that it is part of the tradition.

That is, the rights that were protected by Magna Carta.

This Court has always thought it part of what was brought through the English Bill of Rights into the Eighth Amendment.

Mr. Farr: Is there some objective standard apparent there or is it again what seems to shock the conscience of the trial court?

Mr. Frey: You mean what is the standard for--

Mr. Farr: In setting aside--

Mr. Frey: --excessiveness?

Mr. Farr: --Yes.

Mr. Frey: Well, actually--

Mr. Farr: In civil... in civil cases.

Mr. Frey: --Actually, Magna Carta contained a standard which, to my mind, is far more satisfactory than the "shock the conscience" standard.

Mr. Farr: No.

I mean what the English judges do when they set aside punitive damages awards, if they do.

Mr. Frey: They do set them aside.

Mr. Farr: But, do they have an--

Mr. Frey: They do set them aside.

Mr. Farr: --objective standard?

Mr. Frey: Well, I can't tell you that I am as familiar with the details of the English... of the English cases, so I'm not sure that I could tell you--

Mr. Farr: Well, because if we're saying that the Magna Carta and the English Bill of Rights incorporates this idea, then I should think that the English judges would incorporate it somehow with an objective standard, if that's what you say it means.

Mr. Frey: --Well, what it means is that the... I mean, I'm not sure what does it mean to say that a punishment is excessive.

In my mind what it must mean is that the punishment is... you first look at what is the purpose of punishing somebody.

The purpose is to exact just retribution for wrongful conduct, first of all, and secondly, to deter the offender and others like the offender from committing similar offenses in the future.

Now, if you ask yourself whether a punishment is excessive, it seems to me you have to ask yourself whether considering what the offender did, considering what the purposes of the punishment are, is this more than is necessary.

And we have in American law in the area of bail, precisely that kind of analysis.

That is, we ask what is the purpose for releasing somebody on bail and requiring bail when we release somebody before a trial.

The purpose is to insure their attendance at trial.

What amount of bail is excessive?

The amount of bail that is more than reasonably necessary to accomplish that purpose.

Now, I don't see how the protection that... that you are given under the Eighth Amendment or under the Due Process Clause, or that this Court should impose as a discipline on the federal courts in reviewing damages awards can soundly look to a different standard.

Mr. Farr: Is the Due Process Clause equally of assistance to you in this case as... suppose there were no problem with it having been raised, that the Due Process Clause was clearly raised below--

Mr. Frey: I think that--

Mr. Farr: --But does that really incorporate just about the same standard we're talking about?

Mr. Frey: --I think it does, but I know that my brother here thinks that it incorporates only the "shock the conscience" standard which is a purely subjective unreviewable standard.

In my view, he has to explain whether it's under the Due Process Clause or under the Excessive Fines Clause how an award of this size can possibly be justified by the purposes for which... for which BFI is being punished.

And I think that the cases that he relies on make it clear that the Due Process Clause regulates excessive punishments every bit as much as the Excessive Fines Clause does.

The pre-incorporation cases--

Mr. Farr: Mr. Frey, is your due process argument a substantive due process argument entirely or is it partly procedural?

Mr. Frey: --Well, it is almost entirely substantive.

And to the extent it's procedural, it only asks the Court to consider as relevant in determining the excessiveness, the process by which this came up.

That is, we did not object to the procedures as such.

We are, therefore, not making a procedural due process claim.

But, just as the Eighth Amendment brings procedural considerations into the determination of whether a punishment is cruel and unusual and requires procedures as well as substance, we think the procedures that produce this award are irrelevant.

Thank you.

Chief Justice Rehnquist: Thank you, Mr. Frey.

Mr. Farr.

ORAL ARGUMENT OF H. BARTOW FARR, III ON BEHALF OF RESPONDENTS

Mr. Farr: Thank you.

Mr. Chief Justice, and may it please the Court:

Our position today rests on two, I think, relatively straightforward propositions.

First of all, that the Excessive Fines Clause of the Eighth Amendment does not apply to damages, punitive or not, awarded in private state court tort actions.

Second, that in any event there is no basis in the Eighth Amendment, or otherwise, for the sort of intrusive second-guessing of jury verdicts the Petitioners propose.

Now, before turning to the Eighth Amendment, I'd like to just point out briefly the context in which this claim arises.

The issue in this case is not whether there should be any judicial review of punitive damage awards.

State law commonly provides for such review and punitive damage awards are routinely reduced under such standards or sometimes set aside altogether.

The reason that the Eighth Amendment is pressed in this case and in this Court, when it was just an afterthought in the courts below, is that the courts below upheld this award under the traditional common law standards.

Now, turning to the Eighth Amendment issue, I would like to suggest that before this Court adopts a constitutional rule that will be imposed on 50 state tort systems that the constitutional basis for that rule should be clear and fully supportive.

And I would submit to the Court that that standard is anywhere but close to being met in this particular case.

What is absolutely clear, in fact... and I think really not open to dispute... is that in 800 years of history under the amercements clause of the Magna Carta, the Excessive Fines Clause of the English Bill of Rights and the Excessive Fines Clause of the Eighth Amendment no court has ever held that any of these provisions applied to damages awarded in suits between one private litigant and another.

The reason is that damages, the payments between private litigants as part of their remedies, are simply not fines, as that term was commonly thought of and used in 1789 and in 1689.

Nor, are payments between private litigants amercements, as that term was generally known in the 13th and later centuries.

I think it's very important, to understand this fact because there is some slippery history here.

Fines and amercements were always demanded by and paid to the government.

Of course, in England the government typically was represented by the Crown, sometimes by a feudal lord to which the Crown had sold off the right to demand amercements.

But in every instance, fines and amercements were penalties demanded by, and paid to, what we would now think of as government.

Mr. Farr: What about... what about qwe time actions where a private individual brings in effect a criminal action and gets to keep part of the fine himself?

Mr. Farr: Well, I think those... to begin with, I think those are not--

Mr. Farr: Do you think that's--

Mr. Farr: --specifically the concerns at which these particular provisions are aimed.

But there is a situation where the private party maybe stands more closely in the shoes of the government itself.

Mr. Farr: --Well, I mean, that's so because you say it.

Why can't we say this private party, to the extent he's getting punitive damages, is essentially standing in the shoes of the government?

Mr. Farr: Because I think what you've done then is you've not only taken the language out of context, which are fines and amercements... which, again, I don't think at any time has been thought to relate to damages... but I think you've taken the provision out of historical context and out of the context of the evils at which these particular provisions were aimed.

The concern with the Amercements Clause and the concern of the Excessive Fines Clause is not with fines in general, but with the incentive of the Crown, in particular, to demand excessive fines.

Mr. Farr: Well, to give it to the person who brings a qwe time action?

Mr. Farr: But that is not in fact--

Mr. Farr: Do you acknowledge that what goes to the private individual in one of those actions is a fine?

Mr. Farr: --I'm not sure that I think it is, your Honor.

I think if... it is possible, I suppose, that you might fit it within the definition.

Mr. Farr: So you can have fines of unlimited scope so long as you don't make them payable to the government.

Just have an individual bring the suit and keep the money?

Mr. Farr: I think If you... I guess my position, Justice Scalia, is if you are going to go outside what is normally thought of as a situation in which a fine is imposed, which is when the government brings the proceedings, selects the individual, brings its prosecutorial forces to bear on that individual, and in fact keeps the money... that is the traditional notion of what a fine is.

Now, what you have done is to take out one of those elements and say some of the money is going to someone else.

My own personal feeling is that is not enough to bring that kind of proceedings into the category of fines.

Mr. Farr: How about a state like Florida that makes a percentage of punitive damages awards go to the state?

Mr. Farr: I think in that particular situation, again, that perhaps brings it somewhat closer.

And, of course, I will state the obvious, that that is not the situation in this particular case.

But, the concern still is, though, is there any real incentive for the state in that situation to be seeking excessive fines or damages in particular of the sort that was the concern--

Mr. Farr: It probably is if the state is facing a budget deficit.

Mr. Farr: --Well, it is possible.

I mean, I think that given the particular situation in states these days that--

Mr. Farr: Well, don't punitive damages serve a penal function?

Mr. Farr: --They serve a penal--

Mr. Farr: They really do.

They are designed to deter and to punish.

Mr. Farr: --They do serve to deter and to punish.

I don't disagree with that, your Honor.

But they occur in a wholly different setting.

And that is the point that I'm trying... trying to make.

The fact is that to some extent compensatory damages in private tort suits serve the functions of deterring and punishing.

I mean, there is a reason, for example, that the particular defendant--

Mr. Farr: Well, they serve--

Mr. Farr: --pays the damages.

Mr. Farr: --to make the plaintiff whole.

Mr. Farr: Well, there is a particular... you could make the plaintiff whole by having insurance.

There is a reason that the states choose to make plaintiffs whole through a proceeding which forces the wrongdoer to pay the amount that is necessary to make the plaintiff whole often well in excess of actual economic injury.

And that is because the use of the tort system does serve to punish and deter conduct which the state regards as unacceptable.

Even in compensatory damages.

Mr. Farr: Compensatory damages have all the appearance of being penal in nature, and one does have some concern when the amount awarded is more than 600 times the highest possible criminal time--

Mr. Farr: Well, let me say--

Mr. Farr: --for the same conduct.

It's a concern.

Mr. Farr: --Well, I agree that it can be a concern.

But let me address the question that I think we are talking about immediately, which is whether this is the kind of concern that draws into play something like the Excessive Fines Clause.

The reason that the Excessive Fines Clause was used to express the concern of the citizenry in, let's say, 1689, which was the predecessor of the one in our Eighth Amendment, is because the government itself had an interest in the fines being excessive.

The government was using the fines for several purposes.

First of all, to raise revenues at a time when the king was relatively impoverished.

But, more importantly, to punish its political enemies.

So that the king had an interest not just in fines being levied, but, indeed, having the fines be as excessive as they could possibly be in order to either imprison a defendant who couldn't pay or impoverish one who was fined to the full extent of his property.

Mr. Farr: Of course, there is a parallel because in those cases the attorney who is standing before the jury arguing for the court is representing the Crown that gets the money.

Mr. Farr: That's correct.

Mr. Farr: And the parallel is precise here because the attorney standing before the jury arguing for the punitive damages, his client gets the money.

So the parallel is precise, it seems to me.

Mr. Farr: With due respect, I think the parallel you've drawn is right, but I think it's the incorrect parallel.

The fact is that it is the concern about the government abuse... that is what the Constitution is typically aimed at.

Not concerns about what attorneys says for private litigants in private disputes.

Mr. Farr: By why is the incentive by either the parties or the jury any greater to give punitive damages where the government gets the money than where the private plaintiff does, other than the fact that the jurors are taxpayers?

Mr. Farr: Well, Justice Kennedy, I would suggest that the difference is not in the incentive of the juries.

The question is, it is the incentive for abuse by government.

The State of Vermont has no particular interest in whether Kelco gets an excessive amount of punitive damages or not.

In fact, the State of Vermont's view would really be different from the sort of view that would be expressed by the king in common law.

As I said, the king at common law would like to have damages or fines... because that is what the king is seeking... would like to have fines be as large as he can possibly have them be.

That makes them a more effective punishment.

For the State of Vermont, if punitive damages are excessive within the state, the state can be expected to act to respond to that problem.

The state has no interest in punitive damages being more than necessary to deter conduct.

If it overdeters conduct, then the state has an interest in fact in employing common law standards and legislative standards to see that punitive damages are reduced again.

Mr. Farr: I'm not sure that's always true, Mr. Farr.

Each state certainly has some incentive to want to see its courts used to a certain extent, and I think particularly you attract plaintiffs to a state where there are liberal punitive damage rules.

Mr. Farr: Well, your Honor, with all due respect, I would suggest that the states are more likely to be interested in attracting businesses to the state than they are to be interested in attracting plaintiffs to their state court systems.

I mean, I think that the concern that they would have is that if their system does not regulate through imposition of common law rules by the state courts and ultimately through legislative rules, as legislatures are now stepping in in certain states, that that would in fact create the over-deterrence that a state would not want to see have happened.

But that is different--

Mr. Farr: Mr. Farr--

Mr. Farr: --from the situation at hand.

Mr. Farr: --These are the same jurors--

Mr. Farr: I'm sorry, Justice--

Mr. Farr: --In federal and the state court, they are the same people.

Mr. Farr: --They are essentially the same people.

Although I might point out--

Mr. Farr: Talking about the state's interests.

Mr. Farr: --I might point out, Justice Marshall, that BFI constantly stresses the sort of notion that this is to favor local individuals against an out-of-state corporation.

To begin with, that's essentially just its own surmise, but, of course, one of the supposed remedies for that is diversity jurisdiction.

Mr. Farr: Is your position--

Mr. Farr: And this was a case that was brought into federal court.

Mr. Farr: --there is no such thing as an excessive--

Mr. Farr: I'm sorry, your Honor.

Mr. Farr: --No such thing as an excessive verdict or judgment?

Mr. Farr: Your Honor, no.

That is not my position.

And please let me make that clear.

Mr. Farr: Do you know of one?

Mr. Farr: What I am saying is that--

Mr. Farr: Do you know of one that's been upset?

Mr. Farr: --Oh, yes, your Honor.

There have been numerous judgments that have been reduced.

They have not been reduced under the Excessive Fines Clause, and that is the point that I was making.

Mr. Farr: Well, was remittitur used in this case?

Mr. Farr: Remittitur was sought but it was denied because the trial judge found that this was not an excessive verdict but it was a reasonable punitive measure, in his language,--

Mr. Farr: Who decided--

Mr. Farr: --for the conduct.

Mr. Farr: --Who decided that?

Mr. Farr: That was the trial judge who heard the evidence.

Mr. Farr: The trial judge?

Mr. Farr: Well, after the jury returned its award, there was a motion for remittitur in the trial and the trial judge, which had heard the same evidence as the jury found that this was not an excessive award but was a reasonable punitive measure in light of the conduct.

Mr. Farr: And you say it got up to the Second Circuit?

Mr. Farr: That's correct, your Honor.

Mr. Farr: You are saying that there's no such thing as an excessive award of punitive damages as far as the Federal Constitution is concerned?

Mr. Farr: Well, your Honor--

Mr. Farr: Aren't you saying that?

Mr. Farr: --I think that is probably an accurate statement of our position.

Mr. Farr: All right.

Could I talk about due process for a minute, which you haven't alluded to.

Mr. Farr: All right.

Mr. Farr: Suppose a state runs a system in which it does not have any judge review of damages award?

Not punitive damages, but compensatory.

He lets the jury, you know, pick a number.

And the judge doesn't review it at all.

Would that violate the Due Process Clause?

Mr. Farr: I look at that differently, Justice Scalia.

And let me at least explain, if I can, why I do.

I think there we are not simply saying that the role of a court under the Constitution is to do what I think BFI is asking, which is just to pick another number, a number which is unspecified by BFI, but is apparently lower than $6 million.

What would happen in that situation is that you would look at the overall procedures.

Whether in fact the overall system of awarding punitive damages, including the legislative standards if any, the instructions given to the jury, the process of review by the courts, would meet with... I believe that's a procedural due process issue.

Mr. Farr: It is a... well, it is a procedural due process issue, but you can tell whether the procedure is working, I suppose, by whether you have rough uniformity of treatment.

I'm not sure that the result is any different from excessive fines.

It wouldn't produce a $6 million verdict versus a $100,000 verdict in the same kind of case.

Mr. Farr: Well, your Honor, let me make three points, if I may.

First of all, let me make sure I stress that is not a claim that ever been raised in this case, just to start with.

So, even if I agreed with all you said, I think that it would make no difference to the outcome in this case.

Secondly, however, I don't think quite fairly you can say that the way you determine whether procedural due process has been met is to look at the outcome of the process.

If that was true, then you would open up procedural due process claims in all sorts of cases where I think the court has pretty much closed them down... where somebody comes in and says,

"Here is what happened in my case in state court; this is the result I got."

It couldn't have complied with due process.

There is no way I could have had a judgment like this awarded against me, or some other particular relief awarded against me, if the procedures had been fair.

But the Court has always said there that you look at the procedures.

It may be that in a perfectly fair system there is an inexplicable result.

I don't think this is one.

But that is not... does not mean the procedural due process itself has been violated.

Mr. Farr: Well, certainly, all procedures are directed to securing an objective and a fair result, are they not?

Mr. Farr: That's correct.

That certainly should be the goal of procedures.

The only point I'm making, Justice Kennedy, is I don't think that the analysis works backwards.

I don't think you say that a litigant comes in and says,

"Here is the result that I submit to you as an absolute figure is unfair."

for whatever reason, and therefore you should conclude from that there is no procedural due process.

And, in any event, that is not a claim that BFI has made here.

Now, again, I would like to turn just for a second to what it is that BFI wants the Eighth Amendment to do if it would apply in this case.

As I've just discussed, this is not a case about standards for the jury.

BFI, quite properly, concedes that it did not make any claim that the jury should have been instructed any differently.

In fact, BFI specifically said that all it wanted was the jury to be instructed in accordance with traditional Vermont law.

So, what BFI is really saying is that the court should simply make a different finding of that amount as a matter of its own judgment, and in the process of doing that, give greater weight to certain factors which it says that the jury must have given less weight to and give some less weight to factors that it says the jury must have given too much weight to.

That is basically a rebalancing test.

Now, the first point I guess I would make about that is that I really don't see that that is a proper function of the Eighth Amendment as a general application of that amendment.

The Court in Rummel, for example, and in Solem, has made clear that it is the extremely rare case in which the Eighth Amendment would be used to strike down on constitutional grounds a determination made below.

In those cases, of course, criminal sentences.

And the Court has also made clear that it's the rare case in which even an extended analysis will be necessary.

Now, in Rummel, in particular, the Court found that it was constitutional, without an enormously detailed analysis, to sentence a particular defendant to life imprisonment for what were three relatively small economic crimes.

I simply don't understand the concept of the Eighth Amendment that says that that sentence of life imprisonment is constitutional and that system of review is acceptable, and yet says that the Eighth Amendment requires very stringent review of an award of damages for, let's say, fraud or business misconduct that involves a greater amount of money.

There is certainly nothing in the history of the Eighth Amendment that I'm aware of that--

Mr. Farr: I suppose one can ask whether Rummel was the last word on the Eighth Amendment.

[Laughter]

Mr. Farr: --Well, I'm like Mr. Frey.

I can't say I'm not aware of a case after Rummel.

However, I should point out, as the Court is well aware, the Court in Solem said that it was not in any sense overruling Rummel and that Rummel still stood for good law.

Mr. Farr: Of course, Rummel wouldn't... wouldn't stand in the way of an interpretation of the Excessive Fines Clause that simply applies it on a state by state basis.

In Rummel there was no indication that that particular sentence was excessive as far as what that same state would do in another case.

It might have been considered by some excessive on the basis of a national standard.

But on the basis of a state standard there were clear limits established within the state by the legislature.

Mr. Farr: Well, in that situation I suppose that's true, although that is, of course, not any sort of analysis that was made in Rummel.

Mr. Farr: I understand.

Mr. Farr: Nor, for that matter, your Honor, was that the analysis that was followed in Solem.

I mean, the Court did not say in making these determinations under the Eighth Amendment,

"We will look at other penalties only within the same state."

in order to determine whether we think it falls in or out of the particular analysis it was applying.

So, I think in that sense I agree with Mr. Frey.

That the emphasis in Solem, at least, was on a standard that would have to be applied nationwide.

And I'm certainly saying that there is no... nothing that I can see in the history of the Eighth Amendment that would call for that sort of nationwide standard in a situation like this.

Now, I would just like to touch on one or two other brief points, if I might, because I think they do bear on the question of how the Eighth Amendment would apply, if it does.

And I repeat again that I don't believe that it does.

The principal argument I think, as I understand it made for BFI in this situation, is that the Eighth Amendment does not require the same sort of deference to jury verdicts that it requires for decisions made on sentencing by a judge within legislative guidelines.

I guess I just have two points about that.

First of all, the idea itself is basically contrary to the constitutional framework in which jury determinations are given the greatest of deference in most situations where cases are properly before the jury.

And there isn't any question that this is a case that properly went to the jury on the issue of punitive damages and on the amount of punitive damages.

Second and more specifically, though, I would point out that this is totally inconsistent with the history of the Excessive Fines Clause itself which, after all, is the clause that BFI is invoking to get into this in the first place.

The one thing that is absolutely clear from the Eighth Amendment, the Amercements Clause, whatever antecedent you wish to look at, is that there was no concern in addressing any of these provisions about jury misconduct or jury excessiveness.

Indeed, in the 13th Century, the jury was regarded as the principal safeguard against the sort of abuses that the Amercement Clause was addressed at.

Mr. Farr: Well, I take it you're not claiming that this Excessive Fines Clause applies only in criminal cases?

Mr. Farr: Your Honor, I think quite frankly that is its root.

Mr. Farr: Well, there are... the Federal Government imposes what's called fines in civil cases, doesn't it?

Do you think this provision is applicable to those situations?

Mr. Farr: I don't know, your Honor, to be perfectly honest.

Mr. Farr: You don't know?

Well, I would suppose you would have to know to make this argument.

Mr. Farr: Well, I would feel I had to know a little bit more if I was here--

Mr. Farr: Well--

Mr. Farr: --representing the government in a civil fines case.

But--

Mr. Farr: --Well, here is a fine that is called a fine and it's in a civil case and it's paid to the government.

Now, is this provision amercements?

I thought you would... I thought one of your points was that... that if it's paid to the government, then the clause is applicable.

Mr. Farr: --That is one of the points, your Honor.

As you'll recall--

Mr. Farr: Well--

Mr. Farr: --from the discussion, I had--

Mr. Farr: --Well, what about--

Mr. Farr: --several points that--

Mr. Farr: --What about--

Mr. Farr: --Let me say this.

That the Court in Ingraham said... and I think correctly said... that the Eighth Amendment is properly interpreted in light of its history.

Now, if that is in fact applied to the Eighth Amendment Excessive Fines Clause, it would apply strictly in criminal cases.

That is what the Excessive Fines Clause specifically was addressed at.

Mr. Farr: --But you don't think it's... you don't think that when you use the word "fine"... just fine... it can be a fine imposed in a civil case by the government?

Mr. Farr: Well, what I would certainly say is that the language of the Eighth Amendment fits more naturally, even with a civil fine, than obviously it does with a separate concept like damages which were known at the common law and are used separately.

In my own view, if you stay with the historical analysis which was approved in Ingraham, you still would not get into the civil context.

But I do agree that where the government is using essentially its prosecutorial power in a civil context in seeking fines, that that certainly is a closer analogue to what the concerns of the Eighth Amendment were initially.

Mr. Farr: Well, so, you aren't prepared to concede, though, that the clause applies to those fines by the government in civil cases?

Mr. Farr: Your Honor, I see no particular reason to concede it or not concede it in this case.

But my feeling is that it does not apply by its historical terms to that.

Whether the Court felt that in a particular situation a provision that was--

Mr. Farr: Well, I think your answer is... your answer is that obviously, no, it doesn't apply.

Look to history and it doesn't apply.

If you looked at history, it does not apply, Justice White.

That is correct.

But that is in fact the analysis that the Court has had in other provisions which are clearly intended to apply and, in fact, specifically limited by their terms, to criminal cases.

The Court has not automatically said we apply them.

Even in civil cases in which the government is the moving force, the Court has sometimes applied an analysis to say is this fine essentially something that we can call... even though it's a denominated civil... criminal in nature?

And if that's the kind of situation, like in United States v. Ward, the Court has not said this applies outside the criminal context.

It says this is basically something that is criminal in nature and has moved it into the context that way.

That is possible.

I'm not suggesting that that could not be appropriate in a case in which those standards were met.

But that is very different from a situation which is simply a dispute between private parties.

If the Court has no further questions, thank you.

Chief Justice Rehnquist: Thank you, Mr. Farr.

Mr. Frey, do you have rebuttal?

Mr. Frey: Yes, please, your Honor.

First of all, in looking to history let me just say that Mr. Farr neglects to mention or explain why every single commentator who has written on this subject disagrees with him.

This notion of the role of juries that he espouses is in fact inconsistent with the history because after Magna Carta the writ of misericordia was available to reduce excessive jury amercements.

I don't want to get bogged down in the history which has been thoroughly briefed on both sides.

Let me say with respect to the Rummel point that was discussed that what Mr. Farr persists in ignoring is the element of legislative deference.

Rummel was a mandatory life sentence established by Texas, and in that context the Court said it wasn't going to find that the Eighth Amendment refused to permit that.

The principle, though, and the principle of the dissenters in Solem against Helm was you have to defer where the legislature has made a judgment.

That was the dispute in Solem.

There is no legislative judgment in this case that underlies this award.

Now, I don't want the Court to forget our common law non-constitutional review of excessiveness argument because it's of course much more interesting to debate the Eighth Amendment, but even if you decide the Eighth Amendment is inapplicable, you have to ask yourselves whether you have a responsibility in a federal case to establish a reasonable federal rule.

REBUTTAL ARGUMENT OF ANDREW L. FREY ON BEHALF OF PETITIONERS

Mr. Farr: From a federal court?

Mr. Farr: A case from a federal court.

Yes.

A state law question coming up from a federal court.

I don't think there is any disagreement in the briefs that the federal law governs not the question of whether punitive damages should be inflicted... that's governed by state law... but this sort of excessiveness question.

Now, use of the word Mr. Farr is a shell game because what he wants to do is collapse compensatory damages, which are a completely different animal, with punitive damages.

The concern of the Eighth Amendment is with punishments, and our argument is addressed solely to the punitive part.

The fact that the Courts have been highly deferential traditionally to compensatory damages awards takes them, I think, exactly nowhere.

And, finally, I'd like to discuss this question of the use of the word fine... rather, the fact that a fine is paid to a private citizen.

One of the points I want to mention is... and I think it was brought up in the argument... is that this is a problem, not a virtue of the system, because you don't have a neutral prosecutor deciding what charge to bring, deciding how much to press for.

This is like in Young against Futon, where the Court was troubled by the idea of having a self-interested private prosecutor.

Now, that institution does exist and we're not suggesting that it be set aside.

We are suggesting, however, that it is a concern that should inform the court's decision.

A hundred years ago in Missouri Pacific Railway against Humes the Court addressed specifically this question of who a punishment is paid to, and we quoted it in our brief.

The Court said the additional damages being by way of punishment, it is not a valid objection... I'm sorry.

Chief Justice Rehnquist: Your time has expired, Mr. Frey.

The case is submitted.

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