Jim Ray, Inc. v. Williams

wENDELL L. Griffen, Judge, dissenting. I join Judge Baker’s dissent because I would affirm the jury’s award of punitive damages in this case. However, I write separately to highlight two areas of the majority’s opinion that I find disquieting.

First, the majority concludes that Jim Ray’s “purely economic” behavior was “not highly reprehensible” and was “not particularly egregious.” The jury, who was the trier-of-fact, obviously disagreed. Jim Ray’s general manager testified that, whereas the dealership customarily makes a $300-$400 profit on the sale of a vehicle, it made a profit of $3500 on the sale to Williams — approximately ten times its customary profit. It is bewildering to me how a double-digit profit that resulted from repeated and deliberate fraudulent behavior is not egregious enough to support a double-digit award of punitive damages.

Second, the fact that there were no personal injuries in this case does not mean that Jim Ray’s conduct was not wanton and willful. The United States Supreme Court clearly recognizes that a higher punitive-to-compensatory damages ratio may be justified where a particularly egregious act has resulted in only a small amount of economic damages. See State Farm. Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003). Because that is precisely what happened in this case, I cannot join the majority’s opinion, which treats “purely economic” loss as the stepchild in the punitive damages lexicon.

Karen R. Baker, Judge, dissenting. The only issue that the other dissenting judges and I cannot join in the majority’s opinion is its decision to remit the punitive-damages award finding that the award violates due process as unconstitutionally excessive. The role of judicial review in a punitive damages case requires adherence to our supreme court’s admonition that we defer to the jury’s judgment by focusing on whether the evidence could support the jury’s verdict:

Punitive damages are to be a penalty for conduct that is malicious or done with the deliberate intent to injure another. We have also held that “where, in light of the evidence, the jury could have concluded that appellants displayed a conscious indifference for appellee and that their acts were done with the deliberate intent to injure her, the amount of punitive damages did not shock our conscience.” When conducting our review of an award of punitive damages, we view the evidence in the light most favorable to the appellee.

Bank of Eureka Springs v. Evans, 353 Ark. 438, 456-57 , 109 S.W.3d 672, 683 (2003) (internal citations omitted).

A jury set the punitive damages award; the trial judge who heard all of the evidence and observed the witnesses found the award acceptable and refused to remit the damages. Four of the nine members of this court considering the case would also refuse to disturb the jury’s verdict. However, evaluation of an award of punitive damages is not merely an independent review and substitution of judgment by majority. A judicial substitution of opinion concerning a jury award of punitive damages is not the standard to which we must adhere.

Instead, our focus on review is, as the majority notes, “to police a constitutionally acceptable range.” See Mathias v. Accor Economy Lodging, Inc., 347 F.3d. 672, 678 (7th Cir. 2003). One aspect of policing that range is reviewing the ratios of punitive and compensatory damages. Our court recently reviewed the range of ratios in punitive damages cases and, according to this court’s analysis, the verdict before us falls within the range of expected verdicts:

Further, in reviewing several of our most recent cases decided since the Campbell opinion involving punitive damages imposed in connection with economic injury, we observe that the punitive-to-compensatory ratios have generally ran between 1-to-1 and 17-to-1. See, eg., Stewart Title v. Am. Abstract, 363 Ark. 530 , 215 S.W.3d 596 (2005); Bank of Eureka Springs v. Evans, 353 Ark. 438 , 109 S.W.3d 672 (2003); Hudson v. Cook, supra; Superior Federal Bank v. Jones & Mackey Constr., supra, (factors mentioned). Overall, we have little difficulty sustaining a substantial punitive award against Aon. Its conduct in this case, which we may consider in total, see Superior Federal Bank v. Jones & Mackey Constr. Co., 93 Ark. App. 317 , 219 S.W.3d 643 (2005), was highly reprehensible in its dishonesty and outright fraud, particularly in light of appellee’s financial vulnerability.

Aon Risk Servs. v. Mickles, 96 Ark. App. 369, 379 , 242 S.W.3d 286, 294 (2006).

Regarding the ratio of punitive to compensatory damages, the ratio in this case is just under 17 to 1. In State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003), the United States Supreme Court held that, while it would not impose a bright-line ratio of punitive to compensatory damages, in practice, few awards exceeding a single-digit ratio will satisfy due process. However, our courts have not been reluctant to exceed the single-digit ratio where the circumstances warrant. See Aon Risk Servs., supra (25 to 1); Superior Fed., supra (17.6 to 1); Routh Wrecker, supra (75 to 1). The ratio in this case is certainly not comparable to the 500 to 1 ratio that the United States Supreme Court found unconstitutional in BMW of North America v. Gore, 517 U.S. 559 (1996), or the 145 to 1 ratio in Campbel L. Moreovet:, the Court recognized in Campbell that a higher ratio may be upheld where a particularly egregious act has resulted in only a small amount of economic damages. That is the situation here, where appellant’s deliberate fraud resulted in compensatory damages of a little less than $4500.

The due process aspect of our review requires a determination of whether the punitive damages unconstitutionally exceed the notice of potential penalties to which appellant was subjecting itself by its actions. When we consider how the punitive damages awarded by the jury compare with applicable statutory penalties, the ratio between the punitive damages awarded and the statutory penalties to which appellant was subject drops considerably. The Arkansas Deceptive Trade Practices Act, at Ark. Code Ann. § 4-88-103 (Repl. 2001), provides that one who knowingly and willingly violates the ADTPA may be guilty of a Class A misdemeanor, which carries a maximum fine of $1000. Ark. Code Ann. § 5-4-201 (b)(1) (Repl. 2006). The ADTPA also provides that a violator may be assessed a penalty of up to $10,000, Ark. Code Ann. § 4-88-113 (a)(3) (Repl. 2001), and that a person who suffers actual harm or injury as a result of a violation has an independent cause of action for reasonable attorney’s fees. Ark. Code Ann. § 4-88-113 (1) (Repl. 2001). Given the fact that appellant violated the act in two transactions with appellee, appellant was on notice that the penalties under those statutes could be $22,000 plus attorney’s fees and the costs of recovery expended by the State. In addition, appellee was sixty-nine years old at the time appellant fraudulently obtained its profits from appellee. Subchapter 2 of the Deceptive Trade Practices Act provides for enhanced penalties for practices targeting the elderly. Section 4-88-201 defines the elderly as anyone over the age of sixty. The enhanced penalty is an additional amount up to $10,000 for each violation. Ark. Code Ann. § 4-88-202 (Repl. 2001).

Accordingly, appellant had notice that, under the statutory scheme for penalties, it was subject to $42,000 plus fees and costs in addition to the compensatory damages. Given that appellant had notice under the statutory structure that it could be liable for the mandatory attorney compensation, the $42,000 statutory penalties, plus the compensatory damages, the ratio between the awarded punitive damages and clearly identified penalties to which appellant had notice is less than 2 to 1. The statute further provides that appellant was subject to a suspension or forfeiture of its charter, franchise, or suspension of the company’s authorization to do business in this state. The forfeiture or suspension of the company’s authorization to conduct business in this State would necessarily result in a loss of all future profits.

Although the majority holds that the jury’s award of punitive damages fails to comport with federal due process, an independent review shows that the punitive-damage award unswervingly comports with due process. Not only did appellant have ample notice through our statutory scheme that its action could result in such a penalty, it had notice that its use of deceptive practices subjected it to a loss of all future profits in this State by a forfeiture of its license to do business in this State. Additionally, as the majority notes, the purpose of punitive damages is both to punish and to deter. Given the testimony in this case that appellant made a considerable, unconscionable profit as the result of its fraudulent conduct, and that this conduct was carried out as a course of business, it is reasonable that a jury would impose a punitive award large enough to act as an economic deterrent to future, similar conduct. The remitted award allowed by the majority will make this course of conduct once again profitable when appellant has sold seven cars in this manner. It was not unreasonable of the jury to require that seventeen cars be sold in this manner before this method of operation once again became profitable. If we are merely policing a constitutionally acceptable range, as the majority asserts, the jury’s award should stand.

Hart, Robbins, and Griffen, JJ., join.