Petition for Writ of Certiorari — Cudahy Co. v. Miller

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

CUDAHY COMPANY and GENERAL HOST CORPORATION,

Petitioners,

v.

CECcIL W. MILLER, et a/.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

JOHN LOGAN O’DONNELL REX E. LEE *

E. SHERRELL ANDREWS GERALD A. AMBROSE

OLWINE, CONNELLY, CHASE, CARTER G. PHILLIPS

O’DONNELL & WEYHER MARK D. HOPSON

299 Park Avenue SIDLEY & AUSTIN

New York, New York 10171 1722 Eye Street, N.W.

(212) 207-1800 Washington, D.C. 20006

THOMAS D. KITCH (202) 429-4000

RON CAMPBELL ROBERT G. KUHBACH

FLEESON, GOOING, General Host Corporation

COULSON & KITCH 22 Gate House Road

125 N. Market Stamford, Conn. 06902

16th Floor (203) 357-9900

Wichita, Kansas 67201

(316) 267-7361

Counsel for Petitioners

January 18, 1989 * Counsel of Record

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

QUESTIONS PRESENTED

1. Whether the Due Process Clause imposes any lim-

itations on an award of punitive damages where a federal

district court in a diversity action has exercised unre-

strained discretion in awarding $10 million in punitive

damages against petitioners in ongoing litigation and

where additional awards of actual and punitive damages

may be assessed, in unlimited and unpredictable amounts.

2. Whether the Excessive Fines Clause of the Eighth

Amendment applies to an award, in a diversity action, of

punitive damages, designed to “punish” petitioners and

“deter” others, and, if so, whether an award of $10 mil-

lion in this ease is excessive.

3. Whether judicial application of a damage rule that

permits recovery of compensatory damages many times

in excess of the value of real property to “compensate”

for temporary and partial damage to that property vio-

lates either the Takings Clause or the Due Process

Clause.

(i)

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED ...... Sd NR RRC ae i

ca cusaensbannnnebbannnncbese 1

Se a 2

CONSTITUTIONAL PROVISIONS INVOLVED.......... 2

caidas eluiasoninancsnansone 3

REASONS FOR GRANTING THE PETITION ............ 10

I. THIS COURT SHOULD CONSIDER

WHETHER THE PUNITIVE DAMAGE

AWARD IN THIS CASE VIOLATED THE

EIGHTH AND FOURTEENTH AMEND-

Nee icieieieesbanansenee 11

A. The Due Process Clause Limits The Imposi-

tion Of Arbitrary Punitive Damage Awards.. 12

B. The Excessive Fines Clause Of The Eighth

Amendment Limits The Imposition Of Arbi-

trary Punitive Damage Awards...................... 15

II. THIS COURT SHOULD CONSIDER

WHETHER THE COMPENSATORY DAMAGE

AWARD IN THIS CASE VIOLATED THE

TAKINGS AND DUE PROCESS CLAUSES

OF THE FIFTH AND FOURTEENTH

tp 18

ic nenreeccchdbnkaneiasiascinecennevenansensedtensnss 23

(iii)

iv

TABLE OF AUTHORITIES

Cases Page

Aetna Life Insurance Co. Vv. Lavoie, 475 U.S. 813

CI os kre enone iets 12, 15

Ainsworth v. Combined Insurance Co., 763 P.2d

CTD CHU IY nnn 14

Bankers Life and Casualty v. Crenshaw, 108 S.Ct.

OE a Fe cheese are eng erneesenpeaniianen 12, 13, 15

Boston Chamber of Commerce v. Boston, 217 U.S.

EG. __, Seeememneaeke che aietesumerureaeenne tor urrenrrv iin N DUR 20

Browning-Ferris Industries of Vermont, Ine. V.

Kelco Disposal, Inc., 845 F.2d 404 (2d Cir.

1988) cert. granted, No. 88-556................------------- 14

Chicago, B. & Q. R. Co., Vv. Chicago, 166 U.S. 226

Df fae ROR EAS OED DRAM Rae A RTE ON 20

City of Newport v. Fact Concerts, Inc., 453 U.S.

BE EI rcs cceeen cnacecincdsnes a Sabepseneieanaciletaaon 12

City of Yonkers v. United States, 57 U.S.L.W. 3183

Carel, 0 ROD cnn ees instieeteserintanoneimeimn 15

Edwards v. California, 314 U.S. 160 (1941) -.......... 14

Electrical Workers v. Foust, 442 U.S. 42 (1979) .... 13, 16

Furman Vv. Georgia, 408 U.S. 238 (1972).................. 17

Gertz v. Welch, Inc., 418 U.S. 323 (1974).............. 12, 16

Hicks v. Feiock, 108 S.Ct. 1423 (1988) ...............-....- 12

Ingraham Vv. Wright, 430 U.S. 651 (1977)....--..-.----- 14, 15

Giaccio Vv. Pennsylvania, 382 U.S. 399 (1966) -...... 14

Kennedy v. Mendoza-Martinez, 372 U.S. 144

ciao ene ctnpers endtapiidicaanienlaenmaeaiaane te 15, 16

Loretto v. Teleprompter Manhattan CATV Corp.,

ee, ici eisai ee npanmeenindninans 20

Monongahela Navigation Co. v. United States, 148

5 ES By: RRRRRBNCR uC Cun C NE Nan Meni miter Dim mCe nar 21-22

Nollan v. California Coastal Comm’n, 107 S.Ct.

ES FERRI rae ens me UE 20

O’Neil v. Vermont, 144 U.S. 323 (1892).................. 17

Papachristou v. City of Jacksonville, 405 .S. 156

RI re 2 eee eng inane Seka swede 14

Rosenbloom v. Metromedia, Inc., 403 U.S. 29

PENS. J scnnvenucersnces peaeitiateanneediiaiion slinde sebpebiantbaghions 13

Vv

TABLE OF AUTHORITIES—Continued

Page

Ruckelshaus v. Monsanto Co., 467 U.S. 986

| EEE Oe PTO EAE NCEE SOON ERE ce NPR eae 21

Silkwood v. Kerr-McGee Corp., 464 U.S. 238

SII) dnuahickeabe te Ne au 12

Smith v. Wade, 461 U.S. 30 (1983).............000 15

Solem v. Helm, 463 U.S. 277 (1983) ........................ 17

United States v. Batchelder, 442 U.S. 114 (1979).. 14

United States v. Evans, 333 U.S. 483 (1948)....... 14

Constitutional Provisions and Statutes

Bee Ra Oe NF Brean ctectdcteccccnaticsieeiacdsictoecoemionsc 2

Aarne ce a as passim

ee: Se I ne passim

U.S. Const. amend. XIV .................. RASS esd passim

mae. Boe. Beet. § 65-1708... 22

Other Authorities

U.S. Dept. of Justice, Tort Policy Working Group,

Update on the Liability Crisis (1987) .................. 14

Freund, Constitutional Law (1977)................. 20

Jeffries, A Comment on the Constitutionality of

Punitive Damages, 72 Va. L. Rev. 139 (1986)... 14

W. Prosser, Law of Torts (4th ed. 1971)... 12

Restatement (Second) of Torts, § 908 (1979) _....... 12

Stoebeck, Police Power, Takings, and Due Process,

37 Wash. & Lee L. Rev. 1057 (1980)... 21

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

No. ——

CUDAHY COMPANY and GENERAL HOST CORPORATION,

‘ Petitioners,

CECIL W. MILLER, et al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Cudahy Company (“Cudahy”) and General Host Cor-

poration (“General Host’) hereby petition for a writ

of certiorari to review the judgment of the United States

Court of Appeals for the Tenth Circuit in this case. One

of the three questions presented in this case parallels the

Eighth Amendment punitive damages issue which the

Court already has decided to review in Browning-Ferris

Industries of Vermont, Inc. v. Kelco Disposal, Inc., No.

88-556. At a minimum, therefore, this petition should be

held pending the determination of Browning-Ferris on

the merits. The other two questions presented are inde-

pendently worthy of this Court’s review, so that regard-

less of the outcome in Browning-Ferris, this petition

should be granted.

OPINIONS BELOW

The opinion of the United States Court of Appeals for

the Tenth Circuit (app. at 1) is reported at 858 F.2d

1449 (1988). The opinion of the district court denying

petitioners’ motion for partial summary judgment (app.

2

at 178) is reported at 567 F. Supp. 892 (D. Kan. 1983).

The opinion of the district court holding petitioners lia-

ble and imposing compensatory and contingent punitive

damages (app. at 116) is reported at 592 F. Supp. 976

(D. Kan. 1984). The opinion of the United States Court

of Appeals for the Tenth Circuit dismissing petitioners’

appeal from the 1984 district court opinion as premature

(app. at 111) is not reported. The opinion of the district

court denying petitioners’ post-trial motions, rejecting all

proposed remedial action plans and imposing a $10 mil-

lion punitive damage award (app. at 25) is reported at

656 F. Supp. 316 (D. Kan., 1987).

JURISDICTION

The judgment of the court of appeals was entered on

September 28, 1988. The petition for rehearing was

denied on November 1, 1988. The jurisdiction of this

Court is invoked under 28 U.S.C. § 1254(1).

CONSTITUTIONAL PROVISIONS INVOLVED

The Fifth Amendment to the United States Constitu-

tion provides_in pertinent part:

No person shali be . . . deprived of life, liberty, or

property, without due process of law; nor shall pri-

vate property be taken for public use without just

compensation.

U.S. Const. amend. V.

The Eighth Amendment to the United States Constitu-

tion provides in pertinent part:

Excessive bail shall not be required, nor excessive

fines imposed ....

U.S. Const. amend. VIII.

The Fourteenth Amendment to the United States Con-

stitution provides in pertinent part:

3

No State shall . . . deprive any person of life, lib-

erty, or property, without due process of law....

U.S. Const. amend. XIV.

STATEMENT

1. This is a diversity action based on damage to real

property. Respondents claimed that the salt mining oper-

ations of the Lyons, Kansas plant of American Salt Com-

pany (“American Salt”) and its predecessors over a 60

year period caused the pollution of an underground aqui-

fer which passes under the plant ard flows thereafter

under respondents’ lands. The presence of salt in the

aquifer rendered the water unfit for agricultural irriga-

tion and thereby reduced the value of respondents’ farm

lands.t At the time the lawsuit was filed (May 31,

i977), American Salt was an operating division of peti-

tioner Cudahy Company, which had been a subsidiary of

petitioner General Host for about six years.’

Respondents are owners and lessees of approximately

2800 acres of farm land with a value, according to their

own calculations, of $1,100 dollars an acre or a total

value of $3.08 million. Respondents sought compensation

for the permanent decrease in the value of their land due

to their long-term inability to use the contaminated water

in the aquifer to grow irrigated crops. The salt water

1The only contaminant at issue is sodium chloride or common

table salt.

2In 1972 General Host acquired all of the stock of Cudahy? then

a public company and one of the nation’s major meat packers.

American Salt Company was a minor subsidiary of Cudahy. For

1977, the year that this action was filed, General Host had a net

worth of about $45 million and less than 10% of its total assets

were invested in American Salt. At year end 1983, General Host’s

net assets were about $147 million—not $450 million as stated by

the trial court. This increase of about $100 million was largely

attributable to gains on sales of businesses and the sale of common

stock or conversion of debt into common stock.

4

contamination did not affect non-irrigated crops and there-

fore the dry land value of th. farmland was undiminished.

Thus, respondents sought total compensatory damages of

$1.26 million (or $450 dollars per acre), the difference

between the local fair market price per acre of irrigable

land ($1,100 per acre) and dry land ($650 per acre).

Complaint, 10.%

2. In June 1983, the district court denied petitioners’

motion for partial summary judgment based on the appli-

cable two-year staiute of limitations. Petitioners

argued—and the court later found—that the salt water

pollution of the aquifer had existed since at least the

1940’s. App. at 125-138. Moreover, all of the respond-

3Corn, which requires irrigation in that part of Kansas, is

usually more profitable than dryland crops, such as wheat and milo.

Nevertheless, respondents could, and did, “grow unirrigated wheat

and milo crops of considerable value each year.” App. at 139

4 Various solution mining techniques used by American Salt (or

its predecessor) from the outset of operations in 1908 until they

were discontinued by the 1960’s allowed substantial amounts of salt

water to escape into the aquifer. See app. at 126-137; Brief for

Defendants-Appellants at 8-10, Miller v. Cudahy Company, No. 87-

1502 (10th Cir., July 23, 1987). Because the aquifer flows beneath

the plant and respondents’ properties at the glacial rate of only one

mile every ten years or more (app. at 119) and because a natural

clearing of salt from the aquifer could take up to 200 years (app. at

78), pollution from past operations will continue to affect the ground-

water under respondents’ land for many decades even thcugh no

further salt escapes from American Salt’s property.

For the past thirty years, American Salt has been engaged in

pollution control and abatement activities. See, e.g., Tr. 27-663;

Brief for Appellants, No. 87-1502 (10th Cir., July 23, 1987).

at 13-20. Indeed, respondents’ expert conceded that ongoing ground-

water monitoring instituted by American Salt suggested a gradual

clearing of salt pollution. Tr. 15:2044-48, 2100. Respondents’ ex-

pert also testified he could not state that pollution occurring since

1977 had contributed even as much as 1% of the salt in the aquifer.

Tr. 33 :80-82.

5

ents (except one) admitted at trial that they had known

of the salt pollution since 1970 at the iatest.*

Nevertheless, despite the permanent nature of the in-

jury, the district court concluded that the statute of

limitations did not bar respondents’ claims. Instead, the

court stated that respondents’ allegations of continuing

nuisance were sufficient to plead a “temporary” injury

arising from an “abatable nuisance.” App. at 206, 208-

212. Under the court’s interpretation of Kansas law,

such injuries give rise to claims for “temporary” dam-

ages that may be filed every two years “at least so long

as some acts of pollution continue” or for as long as the

“temporary” injury persists. Under the latter standard,

beeause an accelerated cleanup of existing salt pollution

could take up to 100 years, the biennial litigation in this

case could continue well into the twenty-first century.*®

Following a bench trial, the district court concluded

that the salt plant constituted a “continuing nuisance”

which was responsible for the injury in question, 7.e.,

respondents’ inability to use the groundwater to grow

5 See Brief for Defendants-Appellants at 9-10, Miller v. Cudahy

Company, No. 87-1502 (10th Cir., July 23, 1987).

6 Under this doctrine of “temporary damages,” the statute of

limitations was held to preclude plaintiffs from recovering com-

pensatory damages prior to two years before they filed suit (app.

at 211-212). but to allow future recovery of “temporary” damages

in two-year increments for as long as the damage standard is met.

No such time limitation was applied with respect to the award of

punitive damages. Indeed, General Host clearly was held liable in

punitive damages for conduct that occurred long before it owned

American Salt. Respondents already have filed their next two law-

suits for compensatory and punitive damages. See Brothers v.

American Salt Co, Civ. No. 84-1637-T (D. Kan.) (requesting an

additional $2 million in compensatory damages and an additional

$25 million in punitive damages) ; Heirs of Sharpe v. American Salt

Co., Civ. No. 87-1345-K (D. Kan.).

ee]

6

irrigated crops. “Because irrigated corn would be more

profitable for the plaintiffs than the dryland crops,” the

court found that respondents’ damages properly would be

measured “to the extent of these lost crop profits,” instead

of reduced rental value. App. at 139. Based on a calcu-

lation by respondents’ expert of the differences in profits

between theoretical irrigated corn crops and theoretical

dryland crops, the court awarded $3,060,000 in damages

for “lost crop profits” for 1975-1983. App. at 138-142.’

The district court also held that it had the equitable

power to order a cleanup but lacked “sufficient knowledge

or information to order the defendants to undertake any

particular remedial program.” App. at 125. The court

therefore entered a contingent punitive damage award of

$10 million and ordered petitioners to conduct a remedial

investigation. App. at 153-154, 176. The $10 million

7This award of “temporary” damages far exceeded the undis-

puted amount of permanent damage to the land—the difference

between the local fair market price of irrigable land ($1,100

per acre) and dry land ($650 per acre). Such an award of perma-

nent damages—$1,260,000 for 2800 acres-—is precisely what respond-

ents sought in their original complaint. Moreover, even if “‘tem-

porary” damages were appropriate, the award far exceeded the

undisputed testimony regarding the reduced rental value of the

property over the course of nine years (7.e., $715,260). See app. at

141; Def. Exhibit Z-7.

8 The $10,000,000 punitive damages figure was based in part on

an erroneous calculation of General Host’s 1983 net assets as $450

million. In fact, General Host’s total assets for that year were about

$450 million; its 1983 net assets were $147 million. This basic error

—undisputed by respondents—was repeatedly brought to the atten-

tion of the district court, but the court nevertheless ignored its

mistake.

Moreover, although there was a complete absence of evidence of

any type of abuse of the corporate form which would warrant

“piercing the corporate veil,” the court nevertheless held—on a

novel “agency” theory—that General Host was liable for all of

the damages on the ground that it failed to cause a division of its

subsidiary to terminate the division’s president’s employment. App.

at 121-125.

7

contingent punitive damage award was subject to reduc-

tion in “whole or in part,’ if the defendants proposed

and implemented a feasible remediation plan. App. at

174, 175; May 23, 1986 Opinion and Order.

For almost two years, petitioners conducted the court-

ordered remedial investigation, app. at 95-101,° and the

district court held a series of extensive evidentiary hear-

ings on the status and results of the investigation.’® In

their April 1986 Report, the petitioners submitted to the

district court a proposed remedial plan—the Ten Inter-

ceptor Well Plan—that had the approval of respondents’

expert, petitioners’ experts, and three interested Kansas

state agencies. App. at 84-88. During the one-year

period between petitioners’ submission of this “favored

plan” and the issuance of the court’s final opinion,

American Salt and Cudahy entered into a consent decree

with the Kansas Department of Health and Environment

(“KDHE”) and agreed to implement the Ten Interceptor

Well Plan as generally described in the April, 1986 report

to the court. See April 1986 Remedial Report, 23.1! Once

® The remedial investigation and reports required the generation

of enormous amounts of scientific and engineering data and evalua-

tions which cost over $1.7 million dollars to the petitioners. App.

at 99. The $1.7 million dollar cost of developing the remedial plan

includes only out-of-pocket costs of outside experts and drilling

crews and does not include the thousands of man-hours spent by

American Salt personnel on this unprecedented enterprise.

10 Based on the results of the remedial investigation, the court

held that its 1984 findings on remediation times (5 to 15 years with

acceleration, 30 years naturally) “have proved to be off by ...a

factor of ten to twenty.” App. at 76; app. at 97 (aggressive re-

medial plan would take 75-150 years to cleanse aquifer).

11 The Ten Well Interceptor plan will accelerate the remediation

process so that the groundwater will be irrigable in 70-100 years.

This plan, which will cost in excess of $4.8 million (including the

$1.7 million remedial investigation), is the first known implementa-

8

implementation of the plan (which was endorsed and de-

veloped in conjunction with respondents’ expert.) was

assured, respondents belatedly voiced an objection to any

court ordered plan and stated a preference to receive the

$10 million instead. App. at 99-101, 106-107. Based

largely on this objection, the district court held tnat “no

feasible [remedial] plan has been presented” and that

petitioners had proceeded in “bad faith.” App. at 105-

107. Accordingly, the court refused to remit any of the

$10 million punitive damage award.”

3. On appeal, the Tenth Circuit affirmed in all major

respects.’* Despite the 1987 finding of the district court

that the pollution was ‘not remediable within a reason-

able time” (app. at 76, 98, 108), the court of appeals, in

its ruling on the “temporary/permanent” damages ques-

tion, declined to look beyond the 1984 trial record and

concluded that “it is apparent to this court that... the

cleanup process can be . .. achieved within a reasonable

time.” App. at 11. Given this “factual” conclusion (and

a determination that the contrary findings made in the

tion in the United States of a program to accelerate cleanup of

aquifer saltwater pollution. Tr. Jan. 1986 Hearing, 2:85-88.

With full knowledge of the court’s findings and the remedial in-

vestigation results, the KDHE determined not to impose any civil

fine on American Salt or Cudahy (and to completely excuse General

Host from its proceedings), although it had statutory authority to

impose civil fines. Thus, the decision of the trial court in this case

to impose its own “fine” stands in direct contradiction to the judg-

ment of the Kansas legislative (7.e., in setting the range of

penalties for the conduct at issue) and executive branches (i.e.,

the KDHE determination that no fine was warranted).

12 The district court also imposed over $2 million in interest on

the “contingent” punitive damages award for the time that peti-

tioners were engaged in the court-ordered remedial investigation.

13 The only issue on which the judgment of the district court was

not affirmed was the assessment of post-trial expert witness fees.

App. at 24.

9

subsequent “remedial” phase of the proceeding would not

be considered in determining liability), the court of ap-

peals concluded that respondents’ claim properly was

characterized as “a continuing nuisance causing tem-

porary damages.” Jd. at 12. Thus, the court held that

the district court did not err in denying petitioners’

statute of limitations defense.

The court of appeals also relied on its finding that the

damages were “temporary” in affirming the lower court’s

holding on actual damages. Although the court appar-

ently recognized that the measure of “temporary” dam-

ages in question would substantially exceed the recovery

for permanent damages (i.e., the diminished market

value of the land) and that the decision below could give

rise to a virtually endless cycle of biennial “temporary”

damage actions, the court declined to set aside the district

court’s ruling regarding the “proper measure” of com-

pensatory damages. Id. at 13-15.

The court also held that the amount of actual and

punitive damages awarded by the district court was “not

clearly erroneous” or an abuse of discretion. App. at 15.

With respect to petitioners’ argument that the punitive

damage awards violated the “[E]ighth and [F]ourteenth

[A]mendments to the United States Constitution,” the

court held that it could find no “persuasive federal con-

stitutional authority” to support that argument. App.

at 19.

On Petition for Rehearing, petitioners argued that if

the court of appeals were correct in interpreting state

law “to permit a property damage award exceeding the

value of the property, such a state rule would violate both

the Takings and . . . Due Process Clauses of the Fifth

and Fourteenth Amendments.” See Petition for Rehear-

ing and Suggestion of Rehearing En Banc at 8, Miller v.

Cudahy Company, No. 87-1502 (October 21, 1988). The

petition for rehearing was denied “on the merits” by the

10

Tenth Circuit on November 1, 1988. See Order Denying

Petition for Rehearing, Miller v. Cudahy Company, No.

87-1502 (Nov. 1, 1988). App. at 215.

REASONS FOR GRANTING THE PETITION

This case presents the Court with a clear opportunity

to decide whether and to what extent the Due Process

Clause, the Excessive Fines Clause or the Takings Clause

of the United States Constitution imposes substantive

limitations on the discretion of a court to impose damage

awards under state law. The courts below have assessed

an extraordinary damage award against petitioners

which, to date, exceeds $18 million (including interest)

for partial damage to land that has an undisputed total

undiminished market value of less than one-fifth of the

damage award. But that is not all. The lower courts’

damage meter continues to run beyond the $18 million

figure, and potentially will continue to run for most of

the twenty-first century. Under the decisions below,

every two years—for 75, 100, or even 150 years—there

may be a new award of additional damages. The $18

million award in this case can be sustained only if this

Court holds that the Constitution provides absolutely no

protection to a defendant against excessive damage

awards in civil litigation under state law.

The petition in Browning-Ferris Industries of Ver-

mont, Inc. Vv. Kelco Disposal, Inc., No. 88-556 (“Brown-

ing-Ferris”), which the Court already has decided to

review, raises one important issue concerning the con-

stitutional limitations on damages: whether the Eighth

Amendment’s prohibition against excessive fines imposes

any limit on the imposition of punitive damages. This

petition presents two additional, related, and equally im-

portant questions. One of them—the limitations on puni-

tive damages imposed by the Due Process Clause—may

or may not be reached in Browning-Ferris. But the pre-

sent case also raises at least one constitutional issue that

11

is unquestionably not before the Court in Browning-

Ferris: whether the imposition of a compensatory dam-

age award which admittedly will exceed, by a substantial

multiple, the value of the property that is damaged vio-

lates either the Takings Clause or the Due Process Clause.

At a minimum, this Court should hoid this petition pend-

ing disposition of Browning-Ferris. But no matter how

the Court decides Browning-Ferris, it still should grant

this petition in order to consider the two fundamental

and recurring issues squarely presented by this case but

not by Browning-Ferris.

I. THIS COURT SHOULD CONSIDER WHETHER THE

PUNITIVE DAMAGE AWARD IN THIS CASE

VIOLATED THE EIGHTH AND FOURTEENTH

AMENDMENTS

The punitive damages imposed in this case violated

both the Fifth and Fourteenth Amendments’ prohibition

against deprivations of property without due process and

the Eighth Amendment’s prohibition against excessive

fines. The basic facts relevant to both the due process

and excessive fines issues are simple and uncontested.

The district court imposed a $10 million punitive damage

award in order “to adequately punish the corporate

wrongdoers and to serve as a credible example to restrain

and deter others... .” App. at 153-154. Neither the

punitive nature nor the excessive magnitude of the award

in this case seriously can be challenged."

1 Net annual profits for the salt plant have ranged from $1 mil-

lion to $1.75 million since 1975. Nevertheless, the court stated that

the size of the award was “appropriate” because of General Host’s

alleged net assets of over $450 million. App. at 153-154. The im-

position of “punishment” of such magnitude on General Host’s

shareholders was unwarranted in light of the fact that General Host

did not acquire American Salt until 1972 and most of the cited

conduct took place years, if not decades, prior to that time. In fact,

a pollution abatement program was well underway at the time that

General Host acquired American Salt. See supra, at 4 n.4.

i2

A. The Due Process Clause Limits The Imposition Of

Arbitrary Punitive Damage Awards

Two years ago, in Aetna Life Insurance Co. v. Lavoie,

475 U.S. 813 (1986), the Court stated that the argument

that the “lack of sufficient standards governing punitive

damages awards .. . violates the Due Process Clause”

was an “important issue|] which, in an appropriate set-

ting, must be resolved.” Last Term, in Bankers Life and

Casualty Co. v. Crenshaw, 108 S.Ct. 1645 (1988), the

Court granted certiorari but declined, for prudential rea-

sons, to reach the issue whether the imposition of puni-

tive damages could violate the Due Process Clause. This

- case squarely presents that due process issue in a setting

appropriate for resolution by this Court.

1. Justice O’Connor, concurring in part in Bankers

Life, in an opinion joined by Justice Scalia, observed that

it is the inherently arbitrary nature of punitive damage

awards that renders them susceptible to due process chal-

lenge. Bankers Life, 108 S.Ct. at 1656 (the “grant of

wholly standardiess discretion to determine the severity

of punishment appears inconsistent with due process’).

This is so because punitive damages are intended to

punish—not compensate—so there is no objective “actual

damages” benchmark against which they may be assessed.

Gertz v. Welch, Inc., 418 U.S. 323, 350 (1974) (purpose

of punitive damages “to punish” and “to deter’’).'®

Thus—absent some clearly articulated standard for, or

limitation on, the award of punitive damages—“the

impact of these windfall recoveries is unpredictable and

potentially substantial.” Bankers Life, 108 S.Ct. at 1655

15 See City of Newport v. Fact Concerts, Inc., 453 U.S. 247, 266-

267 (1981) (punitive damages “intended . . . to punish the tort-

feasor’’) ; Restatement (Second) of Torts, § 908 (1979); W. Prosser,

Law of Torts 9-10 (4th ed. 1971); see also Hicks v. Feiock, 108

S.Ct. 1423, 1487 (1988) (Q’Connor, J., dissenting) (no “compensa-

tory purpose limits the amount of the fine’); Silkwood v. Kerr-

McGee Corp., 464 U.S. 238, 276 n.3 (1984) (Powell, J., dissenting).

13

(quoting Electrical Workers v. Foust, 442 U.S. 42, 50

(1979) ). See Rosenbloom v. Metromedia, Inc., 403 U.S.

29, 82-83 (1971) (Marshall, J., dissenting).

The view expressed in the concurring opinion in

Bankers Life, that punitive damages such as those im-

posed here violate the due process guarantee, clearly is

correct. Where did the district court’s $10 million dam-

age award come from? It bears no relationship, rational

or otherwise, to the damage suffered by the respondents

(i.e., the lost opportunity to change their manner of

farming to irrigation). Nor does it fairly reflect the

blameworthiness of General Host.'® Instead, the district

court simply picked a number based on the parent com-

pany’s perceived net worth, as did the Mississippi courts

in Bankers Life. But in doing so, the court imposed a

penalty wholly out of proportion to the offense and there-

fore its result is simply arbitrary and in contravention

of the Due Process Clause.

2. It is well established that due process requires the

state to define clearly the conduct that it intends to make

16 Tn this case, the district court’s decision to look to the assets

of General Host Corporation as an indication of an appropriate

punitive damage award illustrates how entirely arbitrary such

awards may be. Despite the complete absence of any facts that

would warrant “piercing the corporate veil,” see Brief for Defend-

ants-Appellants at 52-58, Miller v. Cudahy Company, No. 87-1502

(10th Cir., July 23, 1987), General Host has been “fined” $10 mil-

lion based largely on damages allegedly caused by its subsidiary at

a time prior to General Host’s purchase of Cudahy (in 1972)

and of which it was unaware. Under this theory, if IBM—rather

than General Host—had purchased American Salt, then IBM’s

entire net worth would form the basis of an appropriate punitive

damages award and plaintiffs presumably would be entitled to

hundreds of millions of dollars in punitive damages. Such a system

of civil damages, through which the entire net worth of a parent

company is threatened by every purchase of assets (no matter how

miniscule) and every act of the company’s subsidiaries (past and

present), could not be more arbitrary.

14

subject to punishment. See Papachristou v. City of Jack-

sonville, 405 U.S. 156 (1972); Edwards v. California,

314 U.S. 160 (1941). This demand for specificity in-

cludes a requirement that the state, through its legisla-

ture, provide notice of the maximum penalty for a given

act. See United States v. Evans, 333 U.S. 483, 486-87

(1948). Thus, in the criminal context, the courts’ discre-

tion to impose punishment must be limited by statutes

that establish “the permissible punishment alternatives”

and “demarcate the range of penalties’ for particular

eonduct. United States v. Batchelder, 442 U.S. 114, 126

(1979).

The force of these due process limits on the state’s

power to sanction “is not to be avoided by the simple

label a State chooses to fasten upon its conduct or its

statute.” Giaccio v. Pennsylvania, 382 U.S. 399, 402

(1966). Thus, the potential sanctions imposed through

the “civil” penalty of punitive damages should be no less

subject to due process standards than the imposition of

purely “criminal” penalties. See Jngraham v. Wright,

430 U.S. 651, 669 (1977). As the imposition of multi-

million dollar punitive damage awards becomes increas-

ingly commonplace,’ this Court should grant certiorari

17 See, e.g., Browning-Ferris Industries of Vermont, Inc. v. Kelco

Disposal, Inc., 845 F.2d 404 (2d Cir. 1988), petition for cert.

granted, No. 88-556 (Dec. 5, 1988) (jury awarded compensatory

damages of $51,000 and punitive damages of $6 million); Metro-

media, Inc. Vv. April Enterprises, Inc., No. 88-625 (petition for a

writ of certiorari pending in case involving jury award of actual

damages of $3.8 million and punitive damages of $14 million);

Goodyear Tire & Rubber Company v. Hodder, No. 88-626 (petition

for a writ of certiorari pending in case involving jury award of

actual damages of $3.4 million and punitive damages of $12.5

million, which was reduced on appeal to punitive damages of $4

million) ; Ainsworth v. Combined Insurance Co., 763 P.2d 673 (Nev.

1988) (award of actual damages of $200,000 and punitive dam-

ages of $6 million); see also Jeffries, A Comment on the Consti-

tutionality of Punitive Damages, 72 Va. L. Rev. 139, 140-146 (1986) ;

15

and consider the extent to which the Due Process Clause

limits the diseretion of a court in a common law diversity

action to impose punitive damages, based solely on its

ad-hoc assessment of how much punishment is enough.

B. The Excessive Fines Clause Of The Eighth Amend-

ment Limits The Imposition Of Arbitrary Punitive

Damage Awards

This Court has noted that “whether the Eighth

Amendment’s Excessive Fines Clause serves to limit

punitive damages in state civil cases—is a question of

some moment and difficulty.” Bankers Life, 108 S.Ct.

at 1651; see Aetna Life Ins. Co., 475 U.S. 8138, 828-829

(question whether punitive damages award is imper-

missible under the Excessive Fines Clause “raise[s

an] important issue[] which, in an appropriate setting,

must be resolved”) ; see also City of Yonkers v. United

States, 57 U.S.L.W. 3183, 3184 (Sept. 1, 1988); (Mar-

shall, J., concurring in denial of stay) (quoting Bankers

Life and Casualty Co., 108 8.Ct. at 1651).

1. Despite the fact that punitive damages commonly

are considered to be an element of “civil” damages, this

characterization alone should not preclude application of

the Eighth Amendment. As this Court noted in Jngra-

ham Vv. Wright:

[s]ome punishments, though not labeled “criminal”

by the State, may be sufficiently analogous to crim-

inal punishments in the circumstances in which they

are administered to justify application of the Eighth

Amendment.

430 U.S. 651, 669 n.87 (1977); see also id. at 685

(White, J., dissenting) ; Smith v. Wade, 461 U.S. 30, 59

(1983) (Rehnauist, J., dissenting) ; Kennedy v. Mendoza-

Martinez, 372 U.S. 144, 165-166 (1963).

U.S. Dept. of Justice, Tort Policy Working Group, Update on

the Liability Crisis, 47 (1987).

16

In determining whether a penalty that is nominally

civil has the characteristics of a criminal punishment,

and therefore is subject to constitutional restrictions pri-

marily applicable to criminal proceedings, the Court has

looked to a variety of factors, including:

Whether the sanction involves an affirmative dis-

ability or restraint, whether it has historically been

regarded as a punishment, whether it cornes into

play only on a finding of scienter, fand] whether

its operation will promote the traditional aims of

punishment—retribution and deterrence... .

Kennedy v. Mendoza-Martinez, 372 U.S. 144, 168-69

(1963) (footnotes omitted). Applying these standards,

punitive damages possess most of the characteristics of

a criminal-type sanction. Indeed, as this Court stated,

“Tplunitive damages ‘are not compensation for injury.

Instead, they are private fines levied by civil juries to

punish reprehensible conduct and to deter its future oc-

currence.’”’ Electrical Workers v. Foust, 442 U.S. at 48

(quoting Gertz, 418 U.S. at 350). Given the undisputed

nature and purpose of punitive damage awards—bdoth in

general and in this case (app., 116)—application of the

Eighth Amendment’s Excessive Fines Clause piainly is

warranted.

Moreover, the language of the Excessive Fines Clause

is fully consistent with the application of that constitu-

tional provision to sanctions imposed in civil cases. Com-

pare U.S. Const. amend. VIII (“Excessive bail shall not

be required, nor excessive fines imposed... .”) with

U.S. Const. amend. V (“No person shall be . . . compelled

in any criminal case to be a witness against himself’’) ;

U.S. Const. amend. VI (provisions of amendment apply

“fijn all criminal prosecutions”). It is clear that when

the draftsmen of the Bill of Rights intended to limit

their guarantees to the criminal context, they knew how

to do so.

17

2. Having shown that the Eighth Amendment applies

to civil actions, the issue remains what constitutes an

“excessive fine.” Although there are a variety of poten-

tially relevant measures of excessiveness (Browning-

Ferris Pet. 24-28), one of the core concepts embodied

in the Eighth Amendment generally is the notion of pro-

portionality between the punished activities and the pen-

alty imposed. See Solem v. Helm, 463 U.S. 277 (1983).

The punishment—in this case a “fine’—must in some

measure fit the offense. Furman v. Georgia, 408 U.S.

238, 279-280 (1972) (Brennan, J., concurring) ; O'Neil

v. Vermont, 144 U.S. 323, 323-340 (1892) (Field, J., dis-

senting). As we have demonstrated previously (supra,

—), the punitive award in this case was imposed with-

out regard to the fault of General Host or its particular

knowledge of any wrongdoing, but rather on the basis

of its ownership of American Salt and General Host’s

net worth. A multimillion dollar award imposed on such

a basis is not only arbitrary, but also it is grossly ex-

cessive. Compare Solem v Heim, 463 U.S. at 287 (1983).

In any event, this case should be held pending this

Court’s decision in Browning-Ferris. On December 5,

1988, this Court granted the petition for a writ of cer-

tiorari in Browning-Ferris on the question whether “an

award of $6,000,000 in punitive damages ... is ex-

cessive under the Eighth Amendment or otherwise.”

Browning-Ferris Petition, at I. That case involves a

claim of predatory pricing, in violation of Section 2 of

the Sherman Act, and a pendent state-law claim for tor-

tious interference with business relations under Vermont

law. The jury awarded compensatory damages of

$51,000 on both the federal and state claims and puni-

tive damages of $6 million. Browning-Ferris argues that

such a punitive damage award, which was measured in

terms of the defendant’s net worth and annual revenues,

is “grossly excessive’ under “any objective standard”

and therefore violates the Excessive Fines Clause of the

Eighth Amendment. Browning-Ferris Petition at 24.

18

Any decision by this Court of the question presented

in Browning-Ferris clearly would affect the proper dis-

position of the similar issue in this case. If this Court

holds that the Excessive Fines Clause is applicable to

an award of punitive damages, then the decision below—

which flatly rejected that argument—should be vacated

and the court below ordered to reconsider its decision in

light of whatever standards for excessiveness this Court

sets out in Browning-Ferris. Alternatively, even if the

Court rejects the Eighth Amendment argument in

Browning-Ferris, the question will remain whether a

standardless, limitless award of punitive damages is

permissible under the Due Process Clause. Because this

case squarely presents that question, this Court should

grant this petition.

Il. THIS COURT SHOULD CONSIDER WHETHER

THE COMPENSATORY DAMAGE AWARD IN THIS

CASE VIOLATED THE TAKINGS AND DUE

PROCESS CLAUSES OF THE FIFTH AND FOUR-

TEENTH AMENDMENTS

The courts below have already awarded respondents

“temporary” compensatory damages that are more than

twice the allowable award for permanent damage (i.e.,

the diminishment of respondents’ land values) and that

are virtually equal to the full fair market value of their

land. According to respondents’ own calculations, the

total fair market value of their land is $3.1 million and

the diminishment in value, if the damage is permanent,

is $1.26 million. Respondents already have been awarded

$3.06 million in compensatory damages for the temporary

and partial diminution in the value of that land for a

nine year period.

Moreover, under the decision below, respondents are

still permitted to bring suit to recover additional dam-

ages every two years for a period of time that may last

19

over a century. Respondents already have filed two addi-

tional, separate actions for “temporary” injury to their

land in which they have sought an additional two mil-

lion dollars annually in compensatory damages for each

two year period. Using the damage formula applied by

the courts below and assuming that such biennial actions

were allowed to continue until the aquifer is usable

again, respondents could be awarded total damages for

the partial temporary damage to their land in an amount

anywhere from 10 to 20 times the fair market value of

that land.

Obviously, the decisions below will have a resounding

impact, not only on petitioners, but on any industry

which is concerned with environmental liability or any

other conduct which could be characterized as a continu-

ing nuisance. The potential exposure to liability arising

out of _a continuing nuisance theory that permits ‘“‘tem-

porary” damage recovery to continue for decades until

the effects of pollution have been entirely remediated is

staggering. Indeed, if virtually unlimited awards of ac-

tual and punitive damages can be imposed in addition

to multi-million dollar voluntary cleanup costs, the de-

cision below creates a strong disincentive towards in-

vestment in any remedial efforts and a strong incentive

towards abandonment of a previously polluting facility.

Review of the Tenth Circuit’s theory of recovery is nec-

essary to eliminate this perverse disincentive.

At first blush, the notion that compensatory damages

ean constitute an unconstitutional taking is admittedly

odd; all damage awards are in some sense a “taking.”

The state is requiring one private party to pay money

over to another. And obviously, such awards are rou-

tinely granted without any serious constitutional objec-

tion. What distinguishes the damage award in this case,

however, is not only its magnitude, but also its recurring

20

nature. This combination of features converts an ordi-

nary damage award into a confiscatory taking.

By analyzing the effect of the “temporary damages”

problem presented in this case against generally accepted

principles in the Takings Clause, it becomes apparent that

the Takings Clause does have a legitimate role to play

in restricting the recovery available to respondents.’*

it is axiomatic that the State of Kansas could not en-

act a statute which permitted petitioners physically to

invade respondents’ property (or otherwise substantially

destroy or interfere with its use) without paying com-

pensation for such a “taking.’’ See Loretto v. Telepromp-

ter Manhattan CATV Corp., 458 U.S. 419 (1982). It is

equally clear that the State could not—consistent with

the Due Process and Takings Ciause—limit the damages

for such a “taking” to 50% of the fair market value of

the property. Boston Chamber of Commerce v. Boston,

217 U.S. 189, 195 (1910) (Holmes, J.); see Freund,

Constitutional Law, 1102 (1977) (“the elementary prin-

ciple is that market value at the time of the taking is

the proper measure’ of damages for the taking of prop-

Orty }.

it follows naturally from these principles that the

Due Process Clause and the Takings Clause would pro-

hibit a state from giving a landowner the right, at his

option, to require his neighbor to “purchase” his prop-

erty at 10 to 20 times its fair market value.’® But, that

18 The prohibition against the government taking private prop-

erty without just compensation has been extended to the states

through the Due Process Clause of the Fourteenth Amendment.

Chicago, B. & Q. R. Co. Vv. Chicago, 166 U.S. 226, 239 (1897).

19 At the very least, the state should be required to demonstrate

that such a massive shifting of private resources is “substantially”

related to some legitimate public interest. Sce Nollan v. California

Coastal Comm’n, 107 S.Ct. 3141 (1987). No such showing has been

attempted here.

21

is, in effect, what the state law damage rules, applied in

this case by a federal court, provide. In fact, based on

the rulings below, respondents probably would be unwill-

ing to sell their “damaged” property for anything less

than a significant multiple of its full market value be-

cause the potential income stream of future damages so

far exceeds the amount. The lower courts’ judgments

have effectively converted respondents’ farmlands into

a gold mine.”°

The property damage laws of the State of Kansas

(as they have been interpreted by the courts below)

conceivably permit a decades-long shifting of peti-

tioners’ assets to respondents. The “compensatory” dam-

ages awarded to date far exceed the amounts necessary

to achieve the goal of prcviding compensation for the

injury to respondents’ land; instead, they simply amount

to a shifting of private resources, which is prohibited by

the Takings Clause.*! See Monongahela Navigation Co.

20 The remedy for the Due Process Clause claim may not be

identical to that for the Takings Clause claim. To the extent that

this rule of compensatory damages is arbitrary or fails to meet

the rationality requirement of the Due Process Clause, the rule

would be an invalid exercise of the police power and its opera-

tion could be enjoined—-even if compensation were paid. See

Stoebuck, Police Power, Takings, and Due Process, 37 Wash. & Lee

L. Rev. 1057, 1081-82 (1980). If, however, the state has a legitimate

interest in ‘“‘overcompensating” respondents for the dimunition in

the value of their land (and the payment of such damages con-

stitutes a public use), then operation of the rule could not be

enjoined. See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1016

(1984). Nevertheless, the “taking” of petitioners’ property to pro-

vide such “damages” (far in excess of any rational computation of

the harm caused by petitioners) constitutes an unconstitutional

shifting of private resources.

21 The only legitimate state purpose at issue is the provision of

a damage award that will fully compensate for the damages suf-

fered. Other potential state interests, such as punishment, deter-

rence or restitution of environmental conditions, are furthered

through other means, such as an award of punitive damages (pun-

22

v. United States, 148 U.S. 312, 325 (1893) (Takings

Clause “prevents the public from loading upon one in-

dividual more than his just share of the burdens of

government”). In addition, because there is no “ra-

tional basis” for the state law damage rules (as applied

by the courts below), the imposition of the excessive

damages upon petitioners for conduct long since abated

(and, in fact, positively remediated) also violates the

guarantee of Due Process.

Unquestionably, the decision below will have a long-

lasting and detrimental impact that extends far beyond

this petition. The decision will create significant un-

certainty in areas of this country where historical min-

ing or manufacturing techniques (no longer in use) may

give rise to a threat of open-ended damage awards for

contamination of water or land which primarily occurred

in decades gone by. While compensation for injury to

property certainly should be available, even up to the

total fair market value of that property, the recovery

permitted by the courts below is grossly excessive and

therefore this court should grant certiorari and consider

the important and fundamental questions of federal law

presented in this case.

ishment or deterrence) or through state environmental! law (restitu-

tion). See Kan. Stat. Ann. § 65-170d (Kansas environmental law

providing specific range of penalties).

CONCLUSION

The petition for a writ of certiorari should be granted.

JOHN LOGAN O'DONNELL

E. SHERRELL ANDREWS

OLWINE, CONNELLY, CHASE,

O’DONNELL & WEYHER

299 Park Avenue

New York, New York 10171

(212) 207-1800

THOMAS D. KITCH

RON CAMPBELL

FLEESON, GOOING,

COULSON & KITCH

125 N. Market

16th Floor

Wichita, Kansas 67201

(316) 267-7361

Respectfully submitted,

REX E. LEE *

GERALD A. AMEBROSE

CARTER G. PHILLIPS

MARK D. HOPSON

SIDLEY & AUSTIN

1722 Eye Street, N.W.

Washington, D.C. 20006

(202) 429-4000

ROBERT G. KUHBACH

General Host Corporation

22 Gate House Road

Stamford, Conn. 06902

(203) 357-9900

Counsel for Petitioners

January 18, 1989

* Counsel of Record