The sky is not the limit when a jury assesses a large punitivedamage award against a civil defendant — even when such damages are justified and not capped by statute — according to a recent Texas Supreme Court decision.
Bennett, et al. v. Reynolds is the rare civil case in which a jury found that the defendants’ actions — here, theft of cattle — constituted a crime, triggering the felony exception to the exemplary-damages cap found in Texas Civil Practice & Remedies Code §41.008(c)(13). While the high court in an 8-0 ruling found that exemplary damages were justified in the case, the justicesstill ruled that the award violated due-process requirements. The jury’s $1.25 million in punitive damages was excessive when compared to the $5,300 in actual damage award, the high court ruled.
While the court pointed out that the punitive/actual damage award ratio was 235/1, it did not indicate what the appropriate formula might be in its decision, which remands the case to Austin’s 3rd Court of Appeals for further review of the amount of punitives.
The background to the June 25 decision is as follows, according to court’s opinion: The case concerns a longtime feud between cattle-raising neighbors Randy Reynolds and Thomas O. Bennett Jr. in San Saba County. In 2002, Reynolds sued Bennett and a corporate landowner, the James B. Bonham Corp., of which Bennett served as president, alleging they had sold 13 head of Reynolds’ cattle that had strayed onto the corporation’s land. [See "Long-Running Legal Battles Involve Life, Liberty and the Pursuit of Livestock" Texas Lawyer, June 4, 2007, page 1.]
Bennett also was indicted for cattle theft in 2002 — a charge he was acquitted of a year later, notes the opinion.
In the civil trial, the jury sided with Reynolds, finding: Bennett and the corporation converted Reynolds’ cattle; they did so with malice; and they committed felony theft. The jury assessed $5,327.11 in compensatory damages (the cost of the stolen cattle) plus punitive damages of $250,000 against Bennett and $1 million against the corporation. The defendants appealed, but the 3rd Court of Appeals found that the punitive damages were justified. The defendants then took their case to the high court.
As part of his analysis of the case, Justice Don Willett relied on two U.S. Supreme Court decisions to determine whether the punitive damages award violated due-process constraints: 1996′s BMW of North America Inc. v. Gore ,which focused on the “enormity” of a defendant’s conduct in assessing punitive damages, and 2003′s State Farm Mutual Automobile Insurance Co. v. Campbell ,which further examined the reasonableness of punitive damages based on the “reprehensibility” of the defendant’s conduct and the actual harm suffered by the plaintiff as compared to the punitive damages.
To determine the sustainability of the punitive damage award, Willett analyzed Bennett’s conduct as alleged by the plaintiff during the trial. He summarized those allegations, including that Bennett engaged in “bribing a witness and urging him to lie,” “threatening a witness” and “photograph tampering,” among other things.
Willett found that the Bennett’s alleged conduct satisfied State Farm’s requirement for reprehensible conduct. The court also found that Bonham Corp. could be held liable for exemplary damages for Bennett’s alleged conduct.
But Willett also noted that State Farm’s admonition that any punitive/actual damage award above 4:1 “might be close to the line of constitutional impropriety.”
“In sum, Bennett’s wrongdoing is blameworthy enough to warrant exemplary damages, but under federal law ‘a more modest punishment for his reprehensible conduct could have satisfied the state’s legitimate objectives,’ ” Willett wrote. “ We commend the court of appeals’ careful and extensive analysis, but we disagree that this case falls within the Gore/State Farm exception that leaves room for a higher multiplier . . . the exemplary damages here were unconstitutionally excessive.”
Susan Vance, a partner in the Austin office of Alexander Dubose & Townsend who represents the defendants in Bennett on appeal, is pleased with the decision, which she say clearly follows punitive-damage restrictions set forth by the U.S. Supreme Court.
“What the United States Supreme Court has certainly made clear is that a defendant should be punished for the conduct that harmed the plaintiff, not for litigation misconduct or not for being an unsavory individual or business,” Vance says.
“Unfortunately, a lot of colorful rhetoric permeated this case. But this was not any wire snipping, bandana wearing, gun-toting raid on the neighbor’s cattle. It’s undisputed that the cows just wandered across the river and were sold,” Vance says. “It’s certainly been our position that the act of selling the neighbor’s cattle does not warrant punitive damages at all under Texas law. But, we are nonetheless pleased that the court recognized the constitutional excess of the award in this case.”
Vance also stresses that neither Bennett nor the Bonham Corp. has been convicted of a crime associated with the cattle theft discussed in the opinion.
“I think it’s really important to remember that Mr. Bennett was acquitted of the felony charges of selling the cattle,” Vance says. She also denies that Bennett and the Bonham Corporation acted maliciously as alleged in the civil litigation.
David Keltner, a partner in Fort Worth’s Kelly Hart & Hallman who represents the plaintiff in Bennett , plans on asking the court for a rehearing of the case.
“The thing I regret about the decision is that conduct that a jury found was criminal in nature, accompanied by evidence of a cover up and evidence of attempting bribes and attempted witness intimidation, doesn’t justify a significant civil penalty,” Keltner says.
Neither Keltner nor Vance has any idea how the punitive damages might be assessed in this case now.
“I’m not sure that the court has given us bright-line boundaries for the range and type of conduct that can be considered in weighing punitive damages,” Vance says. “There was a great deal of alleged but non-proven conduct here that was used to weigh in favor of reprehensibility or malice. And that’s truly the heart of the issue, is whether Mr. Bennett acted maliciously or reprehensibly when he sold the cattle belonging to Mr. Reynolds.”
Keltner says he still hopes he can preserve the damage award, based on the harm that could have been caused to his client had Bennett been successful.
The decision alarms plaintiff lawyers such as John Gsanger, a partner in Corpus Christi’s The Edwards Law Firm, who tries to preserve punitive damages on appeal.
After all, punitive damages are named that for a reason, Gsanger says. “They’re not to compensate somebody. They are to punish somebody. And unless we were talking about specific examples of criminal conduct, Texas law already has a statutory cap on damages that addresses the due process concerns that the Supreme Court had previously written about.”
But Chris Kratovil, a partner in the Dallas office of K&L Gates who represents corporate defendants on appeal, says the opinion is a reasonable interpretation of U.S. Supreme Court precedent.
“[H]ow does $5,300 in actual damages support an award of $1.25 million in punitives?” Kratovil says.
“The key thing to me is the U.S. Supreme Court has made clear that the Anglo-American legal tradition supports double, triple and quadruple damages,” Kratovil says. “Anything beyond that starts to raise due process issues.”