June 25, 2010

The due process fence around punitive damages

By The due process fence around punitive damages

Author: Deborah J. La Fetra

The Texas Supreme Court today issued a favorable ruling in Bennett v. Reynolds. As the court phrased it, “This case involves an extended drought, missing cattle, and feuding neighbors.” Thirteen head of Randy Reynolds’ cattle wandered up the dry Colorado River bed onto Tom Bennett’s land. Due to a long-standing feud between the ranchers, Bennett took the opportunity to take Reynolds’ stray cattle to auction, where he sold them for $5,327.11. One of Bennett’s workers, however, thought this was a dirty deal and took photographs of the cattle being loaded onto the truck and turned them over to Reynolds. Reynolds sued Bennett for conversion and sicced the sheriff on him for felony cattle rustling. Bennett was acquitted of the felony but the jury held him liable in a civil trial for conversion with malice, awarding him $5,327.11 in compensatory damages and $1.5 million in punitive damages.

PLF filed an amicus brief in the case in support of neither party, providing a framework for the court to analyze the punitive damages issue in a case that predominantly involved economic harm, but had elements of noneconomic harm as well (abuse of process,intimidation of witnesses, etc., related to facts I have not related in this summary). Recent Supreme Court decisions set out factors for determining whether the amount of punitive damages exceeds constitutional limits: “(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.” Moreover, the Court has held that punitive damages that are “four times the amount of compensatory damages might be close to the line of constitutional impropriety.”

How the ratio should be applied in this case was the primary issue for the Texas court and the bottom line of our brief was “most importantly, this Court should retain the strict use of the ratio for assessing the constitutionality of punitive damages in economic injury cases (e.g., ‘ordinary’ cases).”

That is just what the court did, concluding:

Robert Frost wrote elegantly of rural life, and made famous an old proverb: “Good fences make good neighbours,” an apt aphorism for Texas cattle ranchers along the drought-prone Colorado River.

The Supreme Court has placed a constitutional fence around exemplary damages, one that lower courts must police to prevent the “acute danger of arbitrary deprivation of property.” As the Court counseled almost a century ago, the power to award exemplary damages “is limited by the obligation to administer justice.” We concede the constitutional lines are somewhat opaque, making the required balancing “necessarily unscientific.” Indeed, the role of exemplary-damages “gatekeeper” has been called “one of the most challenging that has been placed upon appellate judges in civil cases. Time and again,” though, the Supreme Court has disapproved of awards “that dwarf the corresponding compensatories.”

We agree with the court of appeals that “Texans know better than to steal cattle,” – an offense once redressed beneath a tree rather than inside a courtroom. That said the 47:1 and 188:1 ratios here exceed the outermost limit permitted by due process. We thus remand to the court of appeals to reconsider exemplary damages in line with this opinion and prevailing ratio analysis.

The unanimous decision can be found here.

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