A New Twist on Due Process and Punitive Damages?

The readers of this blog are likely to be familiar with the due process issues arising in punitive damages litigation over the last 15-20 years.  In fact, many of the U.S. Supreme Court's decisions on these issues have arisen from Oregon cases: Oberg, Leatherman, and now Williams (for the second time).  Whatever your views on the Supreme Court’s jurisprudence in this area, it should be apparent to all that the Court continues to take an active interest in the topic and that its decisions have increasingly sought to limit the size of punitive damages awards.  The most recent such case, arising from the Exxon Valdez litigation, greatly reduced a punitive damages award as a matter of maritime common law, rather than based on constitutional due process.  Exxon Shipping Co. v. Baker
128 S.Ct. 2605 (2008) (to $507.5 million, from $5 billion awarded by the jury and $2.5 billion approved by the Ninth Circuit).

Until now, virtually every case addressing the due process issue has arisen in conjunction with challenges to the excessiveness of a punitive damages award.  However, a new issue may be on the horizon: whether the Due Process Clause imposes procedural constraints upon the circumstances under which punitive damages may be awarded at all.  In Flax v. DaimlerChrysler Corp., 2008 WL 2831225 (Tenn. July 24, 2008), DaimlerChrysler was hit with a product liability verdict of $2,500,000 in compensatory damages and $98 million in punitive damages, which the trial judge later reduced by to slightly over $13 million. (The actual damages and punitive damages were even higher, but part of the award was based upon a negligent infliction of emotional distress claim that the court threw out).  The Court of Appeals rejected the punitive damages award altogether, but the Tennessee Supreme Court reversed.  It rejected DaimlerChrysler's challenge to the award of punitive damages, holding that there was sufficient evidence to permit the jury to award them.  But the most interesting issue was the one the court did not even address: DaimlerChrysler’s argument that the Due Process Clause precluded an award of punitive damages at all.  As DaimlerChrysler stated in its brief:

To permit DCC to be punished despite objective indicia of reasonable conduct, such as compliance with federal safety standards and industry custom, would expand liability for punishment under Tennessee law, thereby depriving DCC of the “fair notice” required by the Constitution. See State Farm, 538 U.S. at 417 (“‘[E]lementary notions of fairness enshrined in our constitutional jurisprudence dictate that a person receive fair notice ... of the conduct that will subject him to punishment.”’) (quoting BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 574 (1996)); *27 see also Philip Morris, 127 S.Ct. at 1062 (emphasizing fair notice principles); Bouie v. City of Columbia, 378 U.S. 347, 353 (1964) (there is a “potentially greater deprivation of the right to fair notice ... where ... a statute precise on its face has been unforeseeably and retroactively expanded by judicial construction, than in the typical ‘void for vagueness situation”). As the Court put it recently in Arthur Andersen LLP v. United States, 544 U.S. 696 (2005), “a fair warning should be given to the world in language that the common world will understand, of what the law intends to do if a certain line is passed.” Id. at 703 (quotation omitted).

Indeed, permitting a defendant to be punished for designing a product in full compliance with on-point federal safety standards and industry custom, and where reasonable people could disagree as to the design's lawfulness, would render Tennessee's punitive damage law unconstitutionally vague as applied to the facts of this case. Grayned v. City of Rockford, 408 U.S. 104, 108 (1972); City of Chicago v. Morales, 527 U.S. 41, 56 (1999) (due process requires “the kind of notice that will enable ordinary people to understand what conduct [a law] prohibits”); United States v. Powell, 423 U.S. 87, 93 (1975).

In the interest of full disclosure, I authored an amicus brief in the case, on behalf of the Product Liability Advisory Council, supporting this position.  We stated, in part:

The Court has long held that the Due Process Clause forbids criminal convictions for conduct that is not defined with sufficient specificity to permit defendant to know what conduct is prohibited.  For example, in United States v. L. Cohen Grocery Co., 255 U.S. 81, 89 (1921), a federal anti-profiteering statute, enacted as part of the price-control system established during World War I, provided, “that it is hereby made unlawful for any person willfully * * * to make any unjust or unreasonable rate or charge in handling or dealing in or with any necessaries.”  The Court concluded that the Fifth and Sixth Amendments required an ascertainable standard of guilt adequate to inform persons accused of violation thereof of the nature and cause of the accusation against them.  Id.  The Court noted that the statute in question “forbids no specific or definite act,” and therefore impermissibly left it to the judge and jury to decide what was prohibited.  Id.  For the same reason, it is not enough that a defendant is found to be “reckless” for purposes of imposing punitive damages it is necessary that the defendant recklessly engaged in a defined, prohibited act.

Due process likewise precludes the imposition of punishment whenever the defendant reasonably could have concluded that its conduct was lawful.  See generally Colautti v. Franklin, 439 U.S. 379 (1979) (statute that predicated criminal responsibility on a “complex medical judgment about which experts can--and do-disagree” was unconstitutionally vague); Connally v. General Constr. Co., 269 U.S. 385, 392 (1926) (law imposing criminal penalties “should not admit of such a double meaning that the citizen may act upon the one conception of its requirements and the courts upon another”) (citation omitted); S.W. Tel. & Tel. Co. v. Danaher, 238 U.S. 482, 490 (1915).  . . .

The same principles apply to punishment meted out in a civil proceeding.  In decisions rendered since this Court decided Hodges, the United States Supreme Court has characterized punitive damages as “quasi-criminal.”  Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 432 (2001).  This underscores the need for due process protection against their arbitrary and standardless imposition.  Id. at 433 (“Despite the broad discretion that States possess with respect to the imposition of criminal penalties and punitive damages, the Due Process Clause of the Fourteenth Amendment to the Federal Constitution imposes substantive limits on that discretion”).  In State Farm, the Court expressed grave concern that, although punitive damage awards “serve the same purposes as criminal penalties, defendants subjected to punitive damages in civil cases have not been accorded the protections applicable in a criminal proceeding.”  538 U.S. at 418.  . . .

The United States Supreme Court recently reinforced its conclusion that punitive liability should not be imposed on a defendant whose conduct was not objectively unreasonable.  Safeco Ins. Co. of America v. Burr, 127 S. Ct. 2001 (2001).  Safeco involved the federal Fair Credit Reporting Act (15 U.S.C. §§1681a et seq. (FCRA)), which provides, among other things, that “willful” failures to comply with the statute may result in an award of punitive damages.  Justice Souter, writing for the Court, agreed with the plaintiffs that the term “willful” encompassed not only “knowing” violations but also “reckless disregard of statutory duty.”  Id. at 2208.  In explicating the “recklessness” requirement, however, the Court looked to the term’s long-established common-law meaning, which takes its bearing by objective standards:  “While ‘the term recklessness is not self-defining,’ the common law has generally understood it in the sphere of civil liability as conduct violating an objective standard:  action entailing ‘an unjustifiably high risk of harm that is either known or so obvious that it should be known.’”  Id. at 2215 (emphasis added, citation and footnote omitted.)   

The Supreme Court concluded that the defendant had intentionally engaged in conduct that in fact violated the FCRA, but it recognized that the defendant’s belief that its conduct was lawful had a “foundation in the statutory text” that was sufficiently convincing that the district court adopted it.  Thus, while the defendant’s conclusion was erroneous, it “was not objectively unreasonable,” and the defendant could not be said to have acted “willfully” or with “reckless disregard.”  Id. at 2215-16.  “Where, as here, the statutory text and relevant court and agency guidance allow for more than one reasonable interpretation, it would defy history and current thinking to treat a defendant who merely adopts one such interpretation as a knowing or reckless violator.”  Id. at 2216 n. 20. The Court analogized to the cases establishing qualified immunity, indicating that, for such purposes, the court should consider whether defendant’s action was reasonable in light of legal rules that were “clearly established” at the time.  Id. at 2216. 

Obviously, it is too early to know whether DaimlerChrysler will seek review in the United States Supreme Court, let alone whether the Court would grant certiorari to consider this issue.  But I doubt the issue is going away any time soon.

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