Grynberg v. Citation Oil & Gas Corp.

*512 TUCKER, Circuit Judge

(dissenting).

[¶ 69.] I agree with the majority’s decision on Issues I, II, and III. With regard to Issue IV, I respectfully dissent.

[¶ 70.] The issue of punitive damages falls largely within the province of the jury, which is afforded a great deal of latitude in determining the amount of punitive damages, if any, to be awarded. Schaffer v. Edward D. Jones & Co., 552 N.W.2d 801, 809 (S.D.1996). The question of damages is strictly a jury question. Kamp Dakota, Inc. v. Salem Lumber Co., Inc., 89 S.D. 696 , 237 N.W.2d 180 (S.D.1975) (citing Rowan v. Becker, 73 S.D. 273 , 41 N.W.2d 836 (1950)) (emphasis added). Only in cases where the punitive damages award is oppressive or so large as to shock the conscious of fair-minded persons should the court “invade the sacred kingdom of the jury.” Hulstein v. Meilman Food Industries, 293 N.W.2d 889, 892 (S.D.1980).

[¶ 71.] In making its determination that the jury verdict in this ease is shockingly excessive and oppressive, the majority correctly uses the five factor determination that was set forth to give “guideposts” for judicial review. Flockhart v. Wyant, 467 N.W.2d 473, 479 (S.D.1991). The factors for this test are: (1) the amount allowed in compensatory damages, (2) the nature and enormity of the wrong, (3) the intent of the wrongdoer, (4) the wrongdoer’s financial condition, and (5) all of the circumstances attendant to the wrongdoer’s actions. Id. Upon analyzing these factors with the proper deference and comity to the jury’s award, a result different than that of the majority seems to be required.

[¶ 72.] The first factor to be considered is the amount of compensatory damages and its relationship or ratio to the amount of punitive damages. Both parties’ briefs quickly point out the vast range of ratios that have both survived and crumpled under the weight of judicial review. In footnote seven of the majority opinion, the Court lists several awards that were upheld. These awards range from a high of 35 to 1 to a low of 11 to 1. This case presents compensatory and punitive damage awards that yield a ratio of 13.5 to 1. The ratio of damages here is easily within bounds that the Court has found permissible on previous occasions. Even though a mathematical bright line is not used in determining the reasonableness of the ratio, and such ratio comparisons are of limited value, this case does not present the kind of ratio that “shocks the conscience.” Schaffer, 552 N.W.2d at 810-11 . In fact, an even higher ratio may be justified in cases in which the injury is difficult to detect. BMW of North America, Inc. v. Gore, 517 U.S. 559 , 116 S.Ct. 1589 , 134 L.Ed.2d 809 (1996). Here, Citation utilized an involved scheme of deceit and trickery in order to hide their wrongdoing. Therefore, I would have to conclude that this factor does not sway in the direction of finding punitive damages oppressive.

[¶ 73.] The second factor is the nature and enormity of the wrong. In this case it is plain and simple what the wrong is: theft by fraud. Pursuant to prior ease law, the majority takes this opportunity to examine the sophistication of the parties. While it is true that both plaintiffs and defendant had ample education and experience in the oil industry, I believe that the majority places too much emphasis on the plaintiffs intellect and not enough on the defendant’s conduct and its magnitude. The defendant, through trust given by the plaintiffs, was stealing thousands and thousands of dollars. This despicable conduct should not be so easily outweighed by the status of the plaintiffs sophistication. In fact, the sophistication of the plaintiffs simply emphasizes the complexity of the fraud and the need for extensive punitive damages. The defendant should not be judicially relieved of a large punitive damages award because it and plaintiffs were skilled in the oil industry. Theft is theft. If the jury sought to punish the defendant for its conduct, we should appreciate that conclusion. Again, this factor is not tipped in defendant’s favor.

[¶ 74.] The third factor that is considered is that of the wrongdoer’s intent. This factor should focus on the degree of reprehensibility of the defendant’s conduct. Schaffer, 552 N.W.2d at 812 (citing BMW, 517 U.S. at -, 116 S.Ct. at 1599 , 134 L.Ed.2d at 826 ). This factor is “perhaps the most important indicium of the reasonableness of a punitive *513 damages award.” Id. The defendant was not only taking what it was not entitled to take, which is undoubtedly reprehensible, but was taking considerable efforts to affirmatively conceal or “make legitimate” its fraud using its position of power granted by the Joint Operating Agreements. Defendant was taking advantage of its control of plaintiffs property as well as taking advantage of plaintiffs belief that the operation was being run honestly. Deliberate false statements, acts of affirmative misconduct, or concealment of evidence of improper motive are factors that must be considered in favor of the plaintiffs. BMW, 517 U.S. at -, 116 S.Ct. at 1601 , 134 L.Ed.2d at 829 .

[1175.] The evidence shows that the defendant intentionally and repeatedly allocated improper costs against the plaintiff; intentionally charged higher penalties than allowed; provided the plaintiff with false pay-out reports; never credited funds to the plaintiffs despite saying it would do so; secretly changed the method of allocating the costs among the wells; and engaged in an on-going pattern of fraudulent conduct to conceal its improper actions. According to BMW, infliction of economic injury, especially when done intentionally through affirmative acts of misconduct can warrant a substantial penalty. BMW, 517 U.S. at -, 116 S.Ct. at 1599 , 134 L.Ed.2d at 827 . Also, intentional malice can represent the decisive element in a “close and difficult case.” BMW, 517 U.S. at -, 116 S.Ct. at 1599 , 134 L.Ed.2d at 827 (citing TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443 , 113 S.Ct. 2711 , 125 L.Ed.2d 366 (1993)). Intentional malice by the defendant appears in statements such as, “I don’t care what you do and we don’t care what the Working Interest owners do either;” and, the working interest owners only remedy was to sue and that they could “go to hell.” Grynberg’s Brief id., pp. 18 and 23; Trial Transcript pp. 1661-1662 and 269, 915-916. As stated in BMW, the punishment should fit the crime. BMW, 517 U.S. at -, 116 S.Ct. at 1599 , 134 L.Ed.2d at 826 fn. 24. Here, the defendant was taking so much that instead of making a profit on their oil wells, the plaintiffs were losing as much as $67,000 per year. Grynberg’s Brief at p. 18. Unlike the majority, this dissenter can not say that the jury’s determination to punish "the defendant by taking away one year of its own profit is unjustified and shocking. 17 This third, and most important factor, does not favor reduction of the jury verdict.

[¶ 76.] The fourth factor is the consideration of the financial condition of the wrongdoer. Both net worth and net income are analyzed. Schaffer, 552 N.W.2d at 813 . The defendant’s net worth has risen from $43 million in 1992 to $48 million in 1994. Within two years, defendant has amassed a five million dollar increase in net worth. Defendant’s net income is in excess of $4 million dollars per year. It is readily apparent that the defendant can pay the award. The jury must have believed this as well.

[¶ 77.] The majority’s assertion that this Court has never upheld a punitive damages award that “would have this kind of an effect on a defendant” is in error. This Court has upheld a punitive damages award which constituted more than 1,200 percent of the defendant’s annual net income, and would take her well over twelve years to pay if she committed her entire net income to paying the same. 18 Flockhart v. Wyant, 467 N.W.2d at 479 . This Court has affirmed strong punitive damages against individuals; a corporation should not be treated preferentially. Again, this factor does not induce the “shock” required for reversal by this Court.

[¶ 78.] The fifth and final factor is a consideration of all the other relevant circumstances of the case. Under Schaffer , the two concerns that were examined were the availability of other sanctions and determining if a less drastic remedy could achieve the goal of deterring future misconduct. In the majority’s review of possible other sanctions, it *514 recognizes the defendant’s conduct as grand theft. Grand theft is committed when the value of the property stolen exceeds five hundred dollars, and can warrant the imposition of a $10,000 fine as well as a ten year prison sentence. SDCL 22-30A-17, 22-6-1. However, the South Dakota statutory scheme fails to differentiate between the criminal who steals $501 and the criminal who steals $5 million. The two criminals would face the same possible maximum sentence. This lack of distinction limits the magnitude in which the thief can be punished in a criminal context. Because of this distinction, I believe that a higher punitive damage award in the civil context is certainly justified when the thief steals an amount of money that so greatly exceeds $500.

[¶ 79.] Also, the majority seems to be looking at the defendant’s conduct while wearing blinders. It appears that other charges could have easily been brought against the defendant. Both mail fraud and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) are feasible when surveying the defendant’s actions. Mail fraud, as defined in 18 U.S.C.A. § 1341 , authorizes an unlimited fine and imprisonment of five years. 19 Each separate mailing made as part of a single scheme to defraud may be a separate mail fraud offense. Center Cadillac v. Bank Leumi Trust, 808 F.Supp. 213 (1992). Over the course of the parties’ relationship, the defendant falsified pay-out reports, overcharged for expenses, and improperly changed expense allocation to a volumetric basis. If these actions were reported to the plaintiffs in the form of a mailed letter, extreme sanctions could have been levied on the defendant. For example, if the defendant had mailed five letters which contained fraudulent material to each plaintiff, they could have faced around fifty counts of mail fraud. Extremely large fines, with the possibility of 250 years imprisonment, would be warranted. United States v. Paccione, 751 F.Supp. 368 (1990), affirmed 949 F.2d 1183 (1991) (fine of $250,000 for mail fraud was reasonable in light of the defendant’s income amounting to over $1 million dollars). See also United States v. Shelton, 669 F.2d 446 (1982). A sentence of twenty years was not abuse of discretion in light of massive fraud with losses approaching one million dollars; United States v. Moss, 631 F.2d 105 (1980). Where the defendant was convicted of twelve counts of mail fraud, his forty-five-year sentence was within the maximum sentence allowed.

[¶80.] As clearly stated in 18 U.S.C.A. § 1961 (1)(B), “racketeering activity” means any act indictable under section 1341 (relating to mail fraud). Participating in RICO’s prohibited activities allows both criminal and civil penalties. 18 U.S.C.A. §§ 1962-1964 . The criminal penalty permits an unlimited fine and a maximum prison term of 20 years. 20 Id. The civil penalty includes the recovery of treble damages as well as the cost of the suit. Id. This includes a reasonable attorney’s fee. Id. The sting of all the possible punishments that RICO permits would be one the defendant did not soon forget.

[¶ 81.] The majority concludes that the severity of other sanctions is in disproportion with the punitive damage award. However, when a broader spectrum of available sanctions is examined, the jury’s award is well within acceptable tolerances. Also, while a less drastic remedy might possibly deter future misconduct, but there is no doubt that this verdict will assure that the defendant will not “do it again.” This last factor fails to afford defendant any assistance.

[¶ 82.] This Court must also be “mindful that the trial court in passing upon the reasonableness of the jury verdict had the benefit of hearing and observing the same things as the jury, [and] has had the opportunity to observe the jury itself for signs of passion and prejudice, and has considered the amount of the verdict.” Brewer v. Mattern, *515 85 S.D. 356 , 182 N.W.2d 327, 332-33 (1970). Since the trial court entered judgment adopting the jury’s punitive damages verdict of $4.8 million, it is fair to assume that the trial judge, at the very least, did not oppose the verdict.

[¶83.] The jury returned this punitive damages verdict; the trial judge entéred judgment imposing the punitive damages; and on appeal this court is split. 4.8 million dollars shocks the conscience of the majority, but for reasons unexplained one million dollars does not. In this area where the Court really has no special expertise to determine damages and did not see the witness nor hear the testimony, the “sacred kingdom of the jury” should not be disturbed. Because an analysis of the five factor test does not support a modification of the jury verdict, the jury’s award of punitive damages should stand. I respectfully dissent.

[¶ 84.] TUCKER, C.J. for KONENKAMP, J., disqualified.

. The majority states that the punitive damages award would represent all of Citation’s income for an entire year despite the fact that this case is a dispute over only seven of the 3,000 wells that Citation operates.

. The jury assessed $30,000 in punitive damages against the defendant who earned approxi- ■ mately $2,400 at her part-time job.

. As evidence of the severity of this crime, the statute was amended in 1994 to change the phrase "fined not more than $1,000” to read "fined under this title” thereby giving express authority to impose larger fines. Pub.L. 1 OS-322, § 330016(1)(H).

. As evidence of the severity of this crime, the statute was amended in 1988 to change the phrase "fined not more than $25,000” to read “fined under this title” thereby giving express authority to impose larger fines. Pub.L. 100-690, § 7058 (d).