Petition for Writ of Certiorari — Pacific Mutual Life Insurance v. Haslip
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Sunreme Court, V26«
\ | |
89-1279, FILED
a i} eg 7 Be
JOSEPH F. SPANIOL, JR,
IN THE GrERK
Supreme Court of the Hnited-Stetes
OcTOBER TERM, 1989
PACIFIC MUTUAL LIFE INSURANCE COMPANY,
Petitioner,
vs.
CLEOPATRA HASLIP, CYNTHIA CRAIG,
ALMA M. CALHOUN and EDDIE HALGROVE,
Respondents.
ON PETITION FOR WRIT OF CERTIORARI
TO THE SUPREME COURT OF ALABAMA
PETITION FOR WRIT OF CERTIORARI
Of Counsel: BRUCE A. BECKMAN
VICKI W.W. LAI Counsel of Record
ADAMS DUQUE & HAZELTINE ADAMS DUQUE & HAZELTINE
523 West Sixth Street 523 West Sixth Street
Los Angeles, California 90014 Los Angeles, California 90014
(213) 620-1240 213) 620-1240
OLLIE L. BLAN, Jr. J. MARK HART
BERT S. NETTLES SPAIN, GILLON, GROOMS,
SPAIN, GILLON, GROOMS, BLAN & NETTLES
BLAN & NETTLES. 2117 Second Avenue North
2117 Second Avenue North Birmingham, Alabama 35203
Birmingham, Alabama 35203 (205) 328-4100
(205) 328-4100
Attorneys for Petitioner
Pacific Mutual Life Insurance Company
Lawyers Brief Service / Légal Printers / (213) 383-4457 / (714) 720-1510
oy PP
ie
QUESTIONS PRESENTED
The following questions are presented by the Petition
for Writ of Certiorari:
1. Whether Alabama Law, as applied below, violates
Due Process by allowing the jury to award punitive
damages as a matter of “moral discretion,” without ade-
quate standards as to the amount necessary to punish and
deter and without a necessary relationship to the amount
of actual harm caused.
2. Whether Alabama law violated Pacific Mutual’s
right to Due Process under the Fourteenth Amendment
by allowing punitive damages to be awarded against it
under a respondeat superior theory.
3. Whether the amount of punitive damages in this
case was excessive, in violation of Pacific Mutual’s Due
Process right to be free of grossly excessive, dispropor-
tionate damages awards.
4. Whether the suit below, although nominally civil,
must be considered criminal in nature as to the punitive
damages awarded therein, entitling Pacific Mutual to
protection under the Fifth, Sixth and Fourteenth Amend-
ments to the United States Constitution.
5. Whether Alabama law discriminates against those
defendants subjected to open-ended punitive damages by
limiting the amount of such damages which may be
awarded against other classes of defendants, without
rational basis.
6. Whether the constitutional defects in the award of
punitive damages against Pacific Mutual were cured by
judicial review and the potential for a remittur.
=
RULE 29.1 STATEMENT
Pursuant to Rule 29.1 of the Rules of this Court, peti-
tioner Pacific Mutual Life Insurance Company states that
it is a California mutual insurance company. It has no
parent company, nonwholly owned subsidiary or
affiliate.
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TABLE OF CONTENTS
Page
es i
yy re ii
TAmee GF AUTHORITIES. .........cccceees Vili
db obs p ects ecceseces 1
ee kes awed cen seccccces l
CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED..................0-. l
STATEMENT OF THE CASE
ce eo ccc ce ses cece cccess 2
CME MEMO... ccc cscs es cccees 3
EE ee ee 3
es cee ose skeet e nee ees 3
3. Pacific Mutual’s Appeal............... 4
4. The Decision of the Alabama
TC cos kee ec ecscesccceces 4
5. Pacific Mutual’s Petition for Rehearing .. .4
C. STATEMENT OF FACTS................. 4
1. Respondents’ Prior Coverage........... 4
. Mr. Ruffin’s Solicitation .............. 4
3. Pacific Mutual Did Not Issue Group
as ks tee eee eee 5
- iv -
4. The Separate Applications to Union
Fidelity and Pacific Mutual......... ;
5. Issuance of the Separate Health
CE cc du ck aseuscteues
6. Pacific Mutual’s Agents’ Contract
Forbade Mr. Ruffin’s Conduct .......
7. Cancellation of Union Fidelity’s
Ee eee
Haslip’s Hospitalization............
“PRED Gn ct ke edhe sencceaus
ae SE rarer
A SC 6 seep ek deen cease y as
oo
c. The Punitive Damage Jury
RE ESE cao ne Meee Da
G wees 6 os bs bia ee eee
e. Pacific Mutual’s Appeal ........
f. The Alabama Supreme Court
RN I Pe laa Re UML AL
g. Pacific Mutual’s Petition for
CE eee Tee
REASONS FOR GRANTING THIS PETITION.. .11
I.
ALABAMA LAW, AS HERE APPLIED,
AND PUNITIVE DAMAGES DOCTRINE
GENERALLY, VIOLATES DUE PROC-
ESS BY ALLOWING THE JURY TO
AWARD PUNITIVE DAMAGES AS A
MATTER OF “MORAL DISCRETION,”
WITHOUT ADEQUATE STANDARDS
AS TO THE AMOUNT NECESSARY TO
PUNISH AND DETER AND WITHOUT
A NECESSARY RELATIONSHIP TO
THE AMOUNT OF ACTUAL HARM
GE Ro vc Neweeepeadeebeuneteuees
ae
Il.
Ill.
IV.
ALABAMA LAW VIOLATED PACIFIC
MUTUAL’S RIGHT TO DUE PROCESS
UNDER THE FOURTEENTH AMEND-
MENT, BY ALLOWING PUNITIVE
DAMAGES TO BE AWARDED
AGAINST IT UNDER A RESPONDEAT
SUPERIOR THEORY ..cccccccccccsces
A. Respondeat Superior Is Not a Constitu-
tionally Permissible Basis for the
Imposition of Punitive Damages......
THE AMOUNT OF THE AWARD OF
PUNITIVE DAMAGES IN THIS CASE
WAS EXCESSIVE, IN VIOLATION
OF PACIFIC MUTUAL’S DUE PRO-
CESS RIGHT TO BE FREE OF
GROSSLY EXCESSIVE, DISPROPOR-
TIONATE DAMAGES AWARDS.......
THE SUIT BELOW, ALTHOUGH
NOMINALLY CIVIL, MUST BE CON-
SIDERED CRIMINAL IN NATURE
AS TO THE PUNITIVE DAMAGES
AWARDED THEREIN, ENTITLING
PACIFIC MUTUAL TO PROTECTION
UNDER THE FIFTH, SIXTH AND FOUR-
TEENTH AMENDMENTS TO_ THE
UNITED STATES CONSTITUTION.....
A. The Controlling Test Established by
_ the United States Supreme Court .....
Page
-Vil-
B. In Alabama, Punitive Damages Are
Expressly Imposed for Punishment
and Deterrence and Therefore Meet
the Mendoza-Martinez Test .........
C. The Fact That Punitive Damages Are
Sought in These Cases by Private
Plaintiffs, Rather Than the Govern-
ment. Does Not Prevent the Actions
fr Seing Deemec Criminal in
.\W DISCRIMINATES
- DEFENDANTS SUB-
=\-ENDED PUNITIVE
DAMA LIMITING THE
\MOLNT OF SUCH DAMAGES WHICH
MAY BE AWARDED AGAINST OTHER
CLASSES OF DEFENDANTS, WITH-
OUT RATIONAL, Tes ssc sc cceneces
VI. THE CONSTITUTIONAL DEFECTS IN
THE AWARD OF PUNITIVE DAMAGES
AGAINST PACIFIC MUTUAL IN THIS
CASE WERE NOT CURED BY JUDI-
CIAL REVIEW AND THE POTENTIAL
a Rg PTT TE eee
| _ ER TREE RE CTECCUCETTE ECC CTS
-
Page
- Vil -
LIST OF APPENDICES
APPENDIX A
OPINION, JEFFERSON COUNTY CIR-
CUIT COURT, DATED DECEMBER 11,
PE Gases crises epee hue ihennee cas
APPENDIX B
OPINION, SUPREME COURT OF
ALABAMA, RELEASED SEPTEMBER
SG EE bas bveckbadutus suwdeseuwas<
APPENDIX C
ORDER DENYING REHEARING BY
THE SUPREME COURT OF ALABAMA,
~ DATED NOVEMBER 9, 1989...........
APPENDIX D
ORDER DENYING A~ PETITION FOR
STAY BY THE SUPREME COURT OF
ALABAMA, DATED DECEMBER 6,
Pee UTeRe TT Tere eT Te eee
APPENDIX E
ORDERS GRANTING STAY BY THE
SUPREME COURT OF THE UNITED
STATES, DATED DECEMBER 22, 1989
AND JANUARY 8, 1990...............
Page
- Vill -
TABLE OF AUTHORITIES
Page
Cases
Aetna Life Ins. Co. v. Lavoie
470 So.2d 1060 (Ala. 1985) ..... cc cceveees 23
Aetna Life Insurance Co. v. Lavoie
ok 8 Eee ee ee 12
American Scciety of M.E.’s v. Hydrolevel Corp.
RR rr eee 18
Autrey v. Blue Cross & Blue Shield Of Alabama
4SB1 SO.28 S45 CARB. IFES)... ccccccesccesss 17
Badgett v. McDonald
re ee ee I RUD oc cc tc wen een wena 23
Bankers Life & Casualty Co. v. Crenshaw
Pe 6-6 6 nea e deen es woe 12, 13
Bell v. Wolfish
og Rt RTT ee eee eT eee 23
Browning-Ferris Industries Of Vermont v.
Kelco Disposal, Inc. 10, 11, 13
492 U.S. __, 109 S.Ct. 2909 (1989). .... 14, 16, 20
Coates v. City of Cincinnati
— 3 2 eee 13, 15
Devlin v. Kearny Mesa AMC/Jeep/Renault, Inc.
155 Cal.App.3d 381 (1984).............. 14, 15
- ix 7
Page
Dunn v. Blumstein
ee ee er ie 26
Electrical Workers v. Foust
ee ed oh 4 kes beee enue 12
Furman v. Georgia
ns on a ad ee 28
Gertz v. Welch
418 U.S. 323 (1974), cert. denied,
ewe ae 68 we 12
Greenbelt Coop. Publishing Assn. v. Bresler
UR I 2 oe Go a tag 28, 29
Gregg v. Georgia
I: GR a on bea Oe wae wes eee 21
Hammond v. City of Gadsden
GES BOA US TO CR TOD 6o ccc eccccccwces 27
Henderson v. Croom
403 F. Supp. 668 (N.D. Ala. 1975) ........... 18
In Re Paris Air Crash
622 F.2d 1315 (9th Cir. 1980), cert. denied,
eS ate waa te eae 24
In Re Winship
i oa kd dng 6g kw eed oe ee 24
Jenkins v. Werger
564 F. Supp. 806 (D. Wyo. 1983) ............ 15
Kennedy v. Mendoza- Martinez
eS 4 PPT ePerreLrerTe
Kollender v. Lawson
oP ee
Lake Shore & Southern Michigan
Railway Co. v. Prentice
Pe Ses Oe ROE 6 vec oneewesnenens
Massachusetts Mutual Life Ins. Co. v. Russell
ee eM ot | ere ee
Mathews v. Eldridge
oe Be rare
McGuffie v. Transworld Drilling Co.
625 F.Supp. 369 (W.D. La. 1985).......
National States Ins. Co. v. Jones
393 So.2d 1361 (Ala. 1980) ...........
Police Dept. of Chicago v. Moseley
ee Sls Pe GOVE ook aoe cseee coxue
Rosener v. Sears, Roebuck & Co.
110 Cal.App.3d 740 (1980), app. dism’d,
Ge Gr DUPE COED occ cceseccscunns
Smith v. Gaquen
oR rere er er ere
Smith v. Wade
oe | ee ere
-xi-
Page
Solem v. Helm
ee es Se OE oe kao eG eRe wes beeen 21
Tele-Communications of Key West, Inc.
v. United States
re ye Ok yi oe Ae. | 26
The Amiable Nancy
16 U.S. (3 Wheaton) 546 (1818) ............. 19
Trop v. Dulles
BE, UE sob cascevacetesanusbeeer 21
2-D’s Logging, Inc. v. Weyerhauser Co.
og we Eh FR) ee 28
U.S. v. Halper
490 U.S. __, 109 S.Ct. 1892 (1989)........... 21
United States Ex. Rel. Marcus v. Hess
ee a ee Ee 8s % x6 ob ks hee ee ROS 21, 24
United States Constitution
, < Saaremaa eruerrct 26
ET aa ye
ee oh 1, 21, 23, 26
ola Sa de ba eo oe as y ee
ID 6 0 45 ka ku acdeees vache seer 10, 23
Fourteenth Amendment ... 2, 10, 16, 19, 21, 22, 25, 26
- Xli -
Page
Statutes
Be Sees SEED BRPOUED 6 0 8 osc ces weneet cence ]
42 U.S.C. Section 1983 (1976 Ed., Supp. IV)....... 12
Publications
Owen, “Punitive Damages in Products
Liability Litigation,”
ee 1]
Restatement, Agency §217c, Comment C, ......... 18
Wheeier, “The Constitutional Case for
Reforming Punitive Damages,”
fe OR ot errr eres ee 25
PETITION FOR WRIT OF CERTIORARI
Pacific Mutual Life Insurance Company (“Pacific Mutual”)
respectfully petitions for a writ of certiorari to review the
judgment of the Supreme Court of Alabama in this case.
OPINIONS BELOW
The opinion of the Jefferson County Circuit Court is un-
reported [App., infra, Al-A16]. The opinion of the Supreme
Court of Alabama [App., infra, B1-B16] is reported as Pacific
Mutual Life Ins. Co. v. Cleopatra Haslip, et al., No. 87-482
(Sept. 15, 1989) (to be reported at 553 So.2d 537 (1989)).
JURISDICTION
The jurisdiction of this Court is invoked under 28 U.S.C.
Section 1251(a).
The judgment of the Supreme Court of Alabama was en-
tered on September 15, 1989. A timely petition for rehearing
was denied on November 9, 1989 [App., infra, Cl], and a
petition for stay was denied on Dec. 6, 1989 [App., infra, D1).
On December 22, 1989 Justice Kennedy issued an order grant-
ing Pacific Mutual’. application for stay, which was con-
firmed by the full Court on January 8, 1990. [App., infra, E1.]
CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED
1. The Fifth Amendment to the United States Constitution
provides in relevant part:
“No person shall ... be subject for the same
offense to be twice put in jeopardy of life or limb;
nor shall be compelled in any criminal case to be a
witness against himself, nor be deprived of life,
= ee
liberty or property, without due process of law; nor
shall private property be taken for public use, witn-
Out just compensation.”
2. The Sixth Amendment to the United States Constitution
provides:
“In all criminal prosecutions, the accused shall
enjoy the right to a speedy and public trial, by an
impartial jury of the state and district where the
crime shall have been committed, which district
shall have been previously ascertained by law, and
to be informed of the nature and cause of the accusa-
tion; to be confronted with true witnesses against
him; to have compulsory process for obtaining
witnesses in his favor and to have the assistance of
counsel for his defense.
The Fourteenth Amendment, Section 1 of the United States
Constitution provides in relevant par:
“.. No state shall make or enforce any law which
shall abridge the privileges or immunities of citizens
of the United States; Nor shall any State deprive any
person of life, liberty, or property, without due
process of law; nor deny to any person within its
jurisdiction the equal proiection of the laws.”
STATEMENT OF THE CASE
A. THE PARTIES
Petitioner is Pacific Mutual Life Insurance Company
(“Pacific Mutual’’).
Respondents Cleopatra Haslip, Cynthia Craig, Alma Cal-
houn and Eddie Hargrove (‘respondents’) are employees of
the City of Roosevelt (“the City”) in the State of Alabama.
Respondents were participants in an insurance plan sponsored
by the City in which Pacific Mutual provided individual life
insurance coverage.
= *
B. THE ACTION BELOW
Respondents’ action against Pacific Mutual involved a suit
seeking punitive damages for the misconduct of one of Pacific
Mutual’s soliciting agents, Lemmie L. Ruffin, Jr. (“Mr. Ruf-
fin”), who at the time of the alleged acts was acting on behalf
of another company, Union Fidelity Life Insurance Company
(“Union Fidelity”) with respect to a health insurance policy
issued by Union Fidelity, not Pacific Mutual.
1. The Complaint
On May 25, 1982 respondents filed their complaint against
Pacific Mutual and Mr. Ruffin in the Jefferson County Circuit
Court. The complaint claimed damages against Pacific
Mutual and Mr. Ruffin for (1) fraud, (2) breach of contract
and (3) “bad faith.” [CT 4-11.]! Mr. Ruffin and Pacific
Mutual filed separate Answers. [CT 19, 21.] Later, counsel
for Mr. Ruffin filed a Motion to Withdraw which was granted
on June 21, 1984. From that time on Mr. Ruffin was not
represented by counsel and did not appear at any subsequent
proceedings, including the trial. [CT 24.]
Respondents’ complaint was amended several times.
[CT 12-14, 66-67.} Pacific Mutual filed timely answers to
each amended complaint, raising additional defenses and
broad based constitutional challenges to an award of punitive
damages. [CT 199-205, 225.]
2. The Trial
At trial, the issue of fraud was submitted to the jury.
Pacific Mutual was found vicariously liable for the acts
committed by Mr. Ruffin. On August 7, 1987, the jury ren-
dered a verdict for respondents in the amount of $1,077,978.
[CT 342-43.] Pacific Mutual timely filed motions for a new
| The Clerk’s Transcript will hereinafter be designated as “CT.”
The Reporter’s Transcript of the proceeding will hereinafter be
designated as “RT.”
wie
trial or, clternatively, a judgment notwithstanding the verdict.
The motions were denied by the trial court. [CT 344.]
3. Pacific Mutual’s Appeal
Pacific Mutual appealed) [CT 345-350.j] The matter was
briefed, and argued on November 22, 1988. Post-argument
letter briefs were submittea vy both sides at the request of the
court. Pacific Mutual raised its constitutional challenges to
an award of punitive damages at the answer stage, preserved
such issues at trial and vigorously advanced those issues on
appeal, in its briefs, at oral argument, in the post-trial letter
briefs and in its petition for rehearing.
4. The Decision of the Alabama Supreme Court
The Alabama Supreme Court filed its decision affirming
the judgment below, and rejecting Pacific Mutual’s federal
constitutional challenges to the punitive damages award on
September 15, 1989. [App., infra, B1-B16.] Two dissenting
justices voted to vacate the punitive damages award on con-
stitutional grounds.
5. Pacific Mutual’s Petition for Rehearing
Pacific Mutual filed a timely petition for rehearing in the
Alabama Supreme Court. The Alabama Supreme Court denied
the petition by an order dated November 9, 1989. [App.,
infra, C1.)
C. STATEMENT OF FACTS
1. Respondents’ Prior Coverage
Respondents are employees of the City of Rooseve't. The
City allowed its employees to purchase a group health insur-
ance policy through the municipality. A policy originally is-
sued by Blue Cross/Blue Shield (“Blue Cross’) was cancelled
sometime before 1981. [RT 92.]
2. Mr. Ruffin’s Solicitation
Sometime in 1981, Mr. Ruffin, who was then a soliciting
agent for both Pacific Mutual and Union Fidelity, forwarded a
ce.
mail solicitation to the City asking if it was interested in
discussing insurance. [RT 431.] The City stated it was. [/d.]
Mr. Ruffin later met with the City’s mayor, city attorney
and city clerk. [RT 131, 433.] Mr. Ruffin presented his Pacific
Mutual business card and discussed the City’s interest in
obtaining health and life insurance. [RT 93, 96, 98-99, 429. ]
3. Pacific Mutual Did Not Issue Group Health Policies
While Pacific Mutual issued individual life policies to City
employees. it did not underwrite group health insurance poli-
cies for municipalities. [RT 429, 442.] Pacific Mutual did,
however, allow its agents to broker business with other insur-
ance companies. [RT 469.] Mr. Ruffin at that time was also a
licensed agent of Union Fidelity. Union Fidelity, a separate
and distinct company from Pacific. Mutual, did issue group
health insurance to municipalities. [RT 262-63.]
4. The Separate Applications to Union Fidelity and
Pacific Mutual
Mr. Ruffin submitted a proposal to the City indicating he
would place life insurance with Pacific Mutual and health
insurance with Union Fidelity. [RT 219-20, 221, 283, 312-16,
335.]} Ti. City approved the proposals, and on August 19,
1981, Mr. Ruffin completed separate applications for the City
and its employees for group health coverage with Union
Fidelity and individual life policies with Pacific Mutual. [RT
219-21, 283, 312-16, 335.] Mr. Ruffin then submitted the
City’s application for health insurance to Union Fidelity. The
City’s application for life insurance was submitted to Pacific
Mutual. Pacific Mutual and Union Fidelity are separate com-
panies without any affiliation. [RT 262-60.]
5. Issuance of the Separate Health and Life Policies
Union Fidelity approved the health application and issued
group health policy to the City effective September 1, 1981.
[RT 255.] Union Fidelity iater confirmed the health coverage
by letter with the city clerk. [RT 138-139.) Pacific Mutual
approved the applications for individual life insurance and
x
began issuing life insurance coverage to the City’s employees.
The premium checks for both ihe life and health insurance
policies were collected by Mr. Ruffin. [RT 115-16, 141-42.]
6. Pacific Mutual’s Agents’ Contract Forbade
Mr. Ruffin’s Conduct
Mr. Ruffin arranged with Union Fidelity to have premiums
and other notices for the group health insurance to be sent to
him at his office in the Pacific Mutual branch office in Bir-
mingham. This practice, as to Pacific Mutual, was forbidden
under Mr. Ruffin’s sales agent’s contract with Pacific Mutual.
[RT 841.] It appears that Mr. Ruffin failed to remit premiums
received by him from the City to Union Fidelity, and Union
Fidelity sent lapse notices to respondents through Mr. Ruffin,
who did not forward them to respondents. [RT 724-25, 837.)
Pacific Mutual’s agent in charge of the Birmingham office,
Patrick Lupia, was also licensed with Union Fidelity and other
companies. There was testimony that Mr. Lupia was aware
that Mr. Ruffin was having the Union Fidelity notices sent to
him at the Pacific Mutual office. Mr. Lupia denied this, but
the jury apparently disbelieved him. [RT 724-75].
7. Cancellation of Union Fidelity’s Health Coverage
In the fall of 1981, the Union Fidelity health coverage for
the City was cancelled. Shortly thereafter, Mr. Ruffin at-
tempted to obtain replacement health insurance coverage for
the City’s employees. [RT 472-75, 478-79.] He submitted an
application therefor to John Alden Company, apparently an
independent insurance broker for Union Fidelity. [RT 455,
456, 479.] Mr. Ruffin’s deposition testimony, which was read
at trial, was that he continued to collect the health portion of
the premiums so that he would have the premium money to
submit to the replacement carrier. [RT 454.] An application
for health insurance was submitted by Mr. Ruffin to John
Alden. Mr. Ruffin received preliminary approval and was
assigned a case number. [RT 455, 456-58.] However, before
a policy was ever issued, respondent Cleopatra Haslip was
hospitalized. [/d.}
«¥.
8. Haslip’s Hospitalization
Haslip was hospitalized for a kidney infection on January
23, 1982 before a replacement policy was ever issued. [RT
455, 456-58.] Haslip incurred $2,500 in hospital bills. Be-
cause the hospital could not confirm insurance coverage it
required her to pay a cash sum toward her final bill upon her
discharge. The hospital records for Haslip’s hospitalization
do not list Pacific Mutual as the insurer, but instead list an-
other company, Commercial Insurance Company. A claim for
the hospitalization was never filed with Pacific Mutual. [RT
235.]
Mr. Ruffin tes*ified that Haslip called him after her dis-
charge, angered about having to write a check to the hospital
and demanded her premium payment back. [RT 458-60, 480.]
With the deletion of Haslip, there were not enough participat-
ing employees for issuance of the replacement policy, so
Union Fidelity issued a premium refund check to Mr. Ruffin,
which he said he tendered to the city clerk. [RT 460.]
9. The Litigation
a. The Complaint
Respondents commenced this action on May 25, 1982 in
the Jefferson Circuit Court alleging that Mr. Ruffin collected
premiums but failed to remit them to the insurers so that
respondents’ coverage lapsed without their knowledge. The
complaint claimed damages against Pacific Mutual and Mr.
Ruffin for fraud, breach of contract and bad faith. [CT 4-11.]
Union Fidelity was not named as a defendant. On June 22,
1982 respondents amended the complaint to add claims for the
tort of outrage. Respondents later amended the complaint to
further restate claims for fraud and conspiracy. [CT 66-67.]
Pacific Mutual filed timely answers to each complaint raising
affirmative defenses including constitutional challenges to an
award of punitive damages. [CT 199-205, 225.]
b. The Trial
The case was submitted to the jury on respondents’ fraud
claims on both the health and life insurance policies against
Pacific Mutual. The trial court charged the jury that it could
impose liability for fraud on Pacific Mutual if Mr. Ruffin
knew the representation was false or should have known it was
false, suggesting an impermissible negligence standard. [RT
885-86.)
c. The Punitive Damage Jury Instructions
Following the trial court’s charge on the issue of liability,
the jury was instructed that once it determined there was
liability for fraud, it could award punitive damages in its
discretion. The court charged as follows:
“Damages is a money award which the law says
you should award the plaintiffs. One, to reasonably
compensate that plaintiff for the loss that he sus-
tained. Two, in the case of fraud, if you find fraud,
you may at your discretion award what is known as
punitive damages.
x* * *
“Now, if you find that fraud was perpetrated ‘then
in addition to compensatory damages you may in
your discretion, when I use the word discretion, I
say you don’t have to even find fraud, you wouldn't
have to, but you may, the law says you may award
an amount of money known as punitive damages.
“This amount of money is awarded to the plain-
tiff but is not to compensate the plaintiff for any
injury. It is to punish the defendant. Punitive means
to punish or it is also called exemplary damages,
which means to make an example. So, if you feel or
not feel, but if you are reasonably satisfied from the
evidence that the plaintiff, whatever plaintiff you
are talking about, has had a fraud perpetrated upon
them and as a direct result they were injured and in
fin
addition to compensatory damages you may in your
discretion award punitive damages.
“Should you award punitive damages, in fixing
the amount, you must take into consideration the
character and degree of the wrong as shown by the
evidence and the necessity of preventing similar
wrongs.” [RT 895, 897-98.]
d. The Verdict
On August 7, 1987 the jury rendered a verdict in favor of
each of the respondents and determined:
(i) Pacific Mutual was held liable for Mr. Ruffin’s acts
under the doctrine of respondeat superior. Mr. Ruffin was
found to have been acting within the course and scope of his
employment with Pacific Mutual when he committed the acts
at issue in the instant suit;
(ii) Mr. Ruffin had not abandoned his agency relationship
with Pacific Mutual; and
(iii) Mr. Ruffin acted fraudulently.
Pacific Mutual was fined over $1,000,000 for the acts
committed by Mr. Ruffin on behalf of Union Fidelity.
Respondents were awarded the following amounts:
Cleopatra Haslip — $1,040,000;7
Cynthia Craig — $12,400;
Alma Calhoun — $15,290;
Eddie Hargrove — $10,288.
[CT 342-43.]
Pacific Mutual timely filed a Motion for New Trial, or in
the Alternative, Judgment Notwithstanding the Verdict, which
was denied on December 11, 1987. [CT 344.]
2 Mrs. Haslip’s claim was as to the Union Fidelity health insurance
policy. Pacific Mutual was therefore fined on a respondeat superior
basis with respect to insurance it did not issue.
_ -
e. Pacific Mutual’s Appeal
Pacific Mutual raised a number of state law grounds of
error, and raised each of the constitutional arguments regard-
ing the award of punitive damages set forth in the Questions
Presented section, above.
f. The Alabama Supreme Court Decision
The Alabama Supreme Court, in a 5 to 2 decision, upheld
the award against Pacific Mutual, and filed its decision affirm-
ing the judgment below on September 15, 1989.
With respect to Pacific Mutual’s constitutional challenges
to the punitive damages award, the court held that:
(1) The Excessive Fines Clause of the Eighth Amendment
does not apply to punitive dam: es awards in cases between
private parties under Browning-Ferris Industries Of Vermont
v. Kelco Disposal, Inc.; 492 U.S. __, 109 S.Ct. 2909 (1989);
(2) The Alabama Supreme Court had previously rejected
the remaining constitutional arguments submitted by Pacific
Mutual in past decisions;
(3) The guidelines previously adopted by tne court to be
used by tral courts in reviewing punitive damages awards
requiring the trial judge to reflect on the record his or her
reasons for either interfering or not interfering with a jury's
verdict, provided sufficient guidelines and protections against
improper jury awards. |App., infra, B1-B16.]}
(4) The Dissent
Justice Maddox and Justice Steagall of the Alabama
Supreme Court voted to vacate the punitive damages award,
finding that the punitive damages award in this case violated
the Due Process Clause of the Fourteenth Amendment. They
also concluded that Alabama’s judicial review processes did
not cure the violation. [App., infra, B14-B16.]
g. Pacific Mutual’s Petition for Rehearing
A timely petition for rehearing was filed by Pacifi¢ Mutual
further addressing the constitutional validity of punitive
damages, citing the concurrences in Browning-Ferris
~~
Industries Of Vermont v. Kelco Disposal, Inc., 492 U.S. _.,
109 S.Ct. 2909 (1989). The Alabama Supreme Court denied
that petition by an order dated November 9, 1989. [App.,
infra, C1.]
REASONS FOR GRANTING THIS PETITION
Over approximately the past fifteen years, punitive dam-
ages have changed from a seldom-used remedy reserved for
cases of intentional injury and actual malice, involving a
strong element of outrageous behavior, to a commonplace part
of virtually every tort action, products liability case (even
those based upon strict liability), and in many breach of con-
tract cases, based upon an allegation of “bad faith,” tortious
breach. Perhaps most perniciously, in these days of “Rembo
litigation,” punitive damages are frequently sought in “defen-
sive’ ceunter-claims raised in an effort to deprive plaintiffs of
their day in court through the in terrorem effect of the cost of
defense and the unpredictable, discretionary nature of these
awards.
This explosion of punitive damages claims has (i) rapidly
escalated both the number and the size of these awards, (ii)
expanded the types of actions in which they are awarded, most
notably into contract cases, and (iii) changed the criteria
justifying such awards. The requirement of actual malicious,
Outrageous behavior with evil intent has been replaced by
“conscious” or “reckless” disregard of the rights of others.
The situation has so changed that an advocate of such
damages, if properly controlled, Professor Owen, in “Punitive
Damages in Products Liability Litigation,” 49 U.Chi.L.Rev. 1
(1982), wrote, conceming multimiliion dollar awards, at
page 6: :
“Such awards have become well accepted in
principle, and my concern is now that large awards
of this type are becoming almost common....
Large assessments of punitive damages may not yet
be a major threat to the continued viability of most
-.
manufacturing concems, but the increasing number
and size of such awards may fairly raise concern
for the future stability of American industry.”
{Emphasis added. }
As shown by the award against Pacific Mutual in this case,
juries, and reviewing trial and appellate courts, have free and
untrammelled discretion regarding whether and how much to
punish.
Justice Elkington, in Rosener v. Sears, Roebuck & Co., 110
Cal.App.3d 740 (1980), app. dism’d, 450 U.S. 1051 (1981)
Stated this matter succinctly, at page 759:
“Placing unrestricted power in a jury to direct
punishment for “evil intent” by compelling the
“evildoer” to pay money to another without right
thereto, seems foreign to any concept of due process
known to me.”
Judicial oversight at present does no more than shift discre-
tion to the judge or panel of judges. All of the “tests” for the
validity of these awards boil down to the subjective deter-
mination of whether the particular court feels the award was
excessive, based upon, as with jurors, their individual back-
grounds, temperament and societal concerns.
While this Court has never determined whether or not the
procedures involved in civil punitive damages cases satisfy
Due Process requirements, it has banned punitive damages in a
broad category of defamation cases [Gertz v. Welch, 418 U.S.
323, 350 (1974), cert. denied, 459 U.S. 1226 (1983)], banned
punitive damages im union fair representation cases [Electrical
Workers v. Foust, 442 U.S. 42, 53 (1979)], found ERISA
pre-emption precluded punitive damages in self-funded em-
ployee benefit plans [Massachusetts Mutual Life Ins. Co. v.
Russell, 473 U.S. 134 (1985)); split 5-4 over the availability of
such damages in actions under 42 U.S.C. Section 1983 (19745
Ed., Supp. IV) [Smith v. Wade, 461 U.S. 30 (1983)]; and
expressed recognition of serious constitutional issues as to
punitive damages in Aetna Life Insurance Co. v. Lavoie, 475
U.S. 813 (1986); Bankers Life & Casualtm Co. v. Crenshaw,
= 28
486 U.S. 71 (1988); and Browning-Ferris Industries Of
Vermont, Inc. v. Kelco Disposal, Inc., 492 U.S. __, 109 S.Ct.
2909 (1989), but found that such issues had not been properly
raised in those cases.
This is an appropriate case for this Court to examine the
present state of punitive damages doctrine to determine
whether Due Process standards are met, considering the free
reign given to juries by that doctrine to punish selectively, to
indulge bias, prejudice and any wealth redistribution inclina-
tions they may have, aiid to exercise standardless discretion to
render awards bearing no necessary relationship to actual
harm caused.
I. ALABAMA LAW, AS HERE APPLIED, AND
PUNITIVE DAMAGES DOCTRINE GENER-
ALLY, VIOLATES DUE PROCESS BY iLLOW-
ING THE JURY TO AWARD "UNITIVE
DAMAGES AS A MATTER OF “MORAL DIS-
CRETION,” WITHOUT ADEQUATE STAND-
ARDS AS TO THE AMOUNT NECESSARY
TO PUNISH AND DETER AND WITHOUT A
NECESSARY RELATIONSHIP TO THE
AMOUNT OF ACTUAL HARM CAUSED
Punitive damages are clearly punishment. As such, they
must be awarded under constitutionally adequate standards to
guide juries and reviewing court as to when they should be
imposed, and as to how much is appropriate to punish and
deter [Mathews v. Eldridge, 424 U.S. 319, 334 (1976); Coates
v. City of Cincinnati, 402 U.S. 611, 614 (1971); Kollender v.
Lawson, 461 U.S. 352, 358 (1983); Bankers Life & Casualty
Co. v. Crenshaw, 486 U.S. 71 (1988) (concurring opinion);
Browning-Ferris Industries Of Vermont, Inc. v. Kelco Dis-
posal, Inc., 492 U.S. __, 109 S.Ct. 2909 (1989)].
In the Bankers Life & Casualty Co., and Browning-Ferris
cases, above, the Court declined to rule on Due Process chal-
lenges to punitive damages because the issues were “not
ths
pressed or passed upon below.” Justice O'Connor, however,
in a concurring opinion joined by Justice Sca:ia, while con-
cluding the issues should not be reached in that case, stated at
486 U.S., at pages 87-88:
“Mississippi law gives juries discretion to award
any amount of punitive damages in any tort case in
which a defendant acts with a certain mental state.
In my view, because of the punitive character of
such awards, there is reason to think that this may
violate the Due Process Clause...
“Punitive damages are not measured against
actual injury, so there is no objective standard that
limits their amount. Hence, ‘the impact of these
windfall recoveries is unpredictable and potentially
substantial.’
“.. This grant of wholly standardless discretion
to determine the severity of punishment appears
inconsistent with due process.”
In Browning-Ferris, above, Justice Brennan, joined by
Justice Marshall, stated, at 109 S.Ct. 2909 at page 2923:
“TI join the Court’s opinion on the understanding
that it leaves the door open for a holding that the
Due Process Clause constrains the imposition of
punitive damages in civil cases brought by private
parties.”
The jury (or trial court) process which appears to trouble
the Court was described in Devlin v. Kearny Mesa AMC/Jeep!
Renault, Inc., 155 Cal.App.3d 381 (1984), in which the Court
Stated, at page 388:
“The process through which a fact finder finds
punitive damages is somewhat contradictory. On
the one hand, the court or jury must be sufficiently
disturbed to conclude the defendant must be
punished. On the other hand, although outraged, the
fact finder cannot be vindictive. The channeling of
just the correct quantum of bile to reach the correct
-15-
level of punitive damages is, to put it mildly, an
unscientific process complicated by personality
differences. Conduct which one person may view as
outrageous another may accept without feeling,
depending on such diverse characteristics as an
individual's background, temperament and societal
concerns. The process is further complicated by the
lack of objective criteria from either the Legislature
or the courts as to ‘how much’ is necessary to
punish and deter.” (Emphasis added.)
This is exactly the arbitrary and discriminatory enforcement
condemned by Due Process.
Because the decision of whether or not to award punitive
damages is committed to the moral discretion of each jury,
imposition of such punishment is necessarily arbitrary and
unpredictable. Devlin recognized that what may outrage one
jury, and lead it to award substantial punitive damages, may
leave another jury unmoved.
The constitutional invalidity of this type of situation was
described by this Court in Coates v. City of Cincinnati, 402
U.S. 611 (1971) as follows at page 614:
“Many types of behavior can be restricted or even
prohibited but not constitutionally, ‘through the
enactment and enforcement of an ordinance whose
violation may entirely depend upon whether or not a
[law enforcement officer] is annoyed.’ ”
[See also, Jenkins v. Werger, 564 F. Supp. 806, 808 (D. Wyo.
1983)).
Neither may juries be allowed to pursue their personal
predilections. [Kollender v. Lawson, 461 U.S. 352, 358
(1983); Smith v. Gaquen, 415 U.S. 566, 575 (1974)].
Here, in an instruction typical in these cases, the jury was
charged:
“Should you award punitive damages, in fixing
the amount, you must take into consideration the
character and the degree of the wrong as shown by
~” =
the evidence and the necessity of preventing similar
wrongs.” [RT 898].
As stated by Justice Brennan regarding a very similar
instruction, in Browning-Ferris Industries Of Vermont, Inc. v.
Kelco Disposal, Inc., 492 U.S. __, 109 S.Ct. 2909 at page
2923:
“(Gjuidance like this is scarcely better than no
guidance at all ... The point is .. . that the instruc-
tion reveals a deeper flaw: the fact that punitive
damages are imposed by juries guided Dy little more
than an admonition to do what they think is best.”
In this case, which again is typical, the jury was, as noted
by Justice Brennan in Browning-Ferris [109 S.Ct. 2909 at
page 2923, “ieft largely to [itself] in making this important,
and potentially devastating, decision.” Pacific Mutual’s right
to Due Process was violated by this unbridled jury discretion.
The rights of other defendants in substantially identical situa-
tions of jury discretion have been violated in the past and are
at risk in the future. Guidance from this Court is needed.
Il. ALABAMA LAW VIOLATED PACIFIC
MUTUAL’S RIGHT TO DUF PROCESS UN-
DER THE FOURTEENTH AMENDMENT, BY
ALLOWING PUNITIVE DAMAGES TO BE
AWARDED AGAINST IT UNDER A RESPON-
DEAT SUPERIOR THEORY
Pacific Mutual was “punished” by an award in excess of $1
million because of the fraudulent conduct of its former solicit-
ing agent, Lemmie Ruffin, where:
(1) Mr. Ruffin was at the time acting for Union Fidelity
not Pacific Mutual;
(2) The health insurance policy at issue in respondents’
suit was sought from and issued by Union Fidelity;
(3) Mr. Ruffin obtained Union Fidelity’s agreement to
send premium notices to Mr. Ruffin, not Pacific Mutual;
~ -
(4) Pacific Mutual never approved of such conduct;
(S) Pacific Mutual is a distinct and separate entity from
Union Fidelity and had no control over Union Fidelity;
(6) Pacific Mutual was unaware of Mr. Ruffin’s conduct
and was given no opportunity to address the situation prior to
the lawsuit.
It seems fundamental that before a corporation is fined over
one million dollars, it should be shown to have done some-
thing wrong. That was not done here. As stated in the Order
of the Trial Court dated December 11, 1987 [App., infra, A7]},
the evidence below of intentional fraud was evidence that Mr.
Ruffin intentionally converted the premiums and, the Trial
Court stated, this element of intent on Mr. Ruffin’s part was
the basis upon which plaintiffs below were awarded punitive
damages against Pacific Mutual.
When punitive damages were imposed on Pacific Mutual
on a respondeat superior basis, the focus for determination of
the amount of the damages shifted from Mr. Ruffin to Pacific
Mutual. It is self-evident that the jury would not have im-
posed a fine of over one million dollars on Mr. Ruffin. This
factor contributed greatly to the fundamental unfaimess,
excessiveness and disproportionality of the fine imposed in
this case, even though no wealth evidence was admitted.
A. Respondeat Superior Is Not a Constitu-
tionally Permissible Basis for the Im-
position of Punitive Damages
The settled law of Alabama applied by its Supreme Court
in this case allowed punitive damages to be awarded against
Pacific Mutual, as principal, for fraud by its purported sales
agent, without amy showing of authorization or ratification,
and in fact, allows such liability even if, as here, the principal
has forbidden the conduct [Autrey v. Blue Cross & Blue Shield
Of Alabama, 481 So.2d 345 (Ala. 1985); National States Ins.
Co. v. Jones, 393 So.2d 1361 (Ala. 1980)} and even though, as
- 18 -
in this case, the fraud was committed strictly for the agent’s
benefit [Henderson v. Croom, 403 F. Supp. 668 (N.D. Ala.
1975)}.
Cnce the jury below found that Mr. Ruffin was acting
within the scope of his role as a Pacific Mutual agent, Pacific
Mutual became subject to vicarious liability for both the
compensatory and punitive damages which would otherwise
have been awardable against Mr. Ruffin.
The million dollar fine imposed upon Pacific Mutual for its
sales agent’s conduct is a punitive sanction imposed for some-
one else’s unauthorized, unratified, and uncondoned wrongdo-
ing. This constituted a violation of Due Process.
In Lake Shore & Southern Michigan Railway Co. v. Pren-
tice, 147 U.S. 101 (1893), this Court held, in a diversity case,
that a company could not be held liable for punitive damages
for torts by employees unless it authorized or ratified the
action.
The Lake Shore case has been followed, questioned and
criticized but remains good law. In American Society of
M.E.’s v. Hydrolevel Corp., 456 U.S. 556 (1982), Lake Shore
was questioned by way of dictum in a footnote. In Hydrolevel,
the American Society of Mechanical Engineers (“ASME”) had
been subjected to an award of treble damages in an antitrust
action, in which the jury had found that the improper actions
had been ratified by ASME. ASME argued that it could not,
under Lake Shore, be held liable for punitive damages on an
apparent authority basis, although the jury had found ratifica-
tion. The majority opinion stated that apparent authority was
an appropriate basis for antitrust liability, given the purposes
of that legislation.
Addressing the treble damages award, the majority found,
at pages 574-75, a sufficient non-punishment purpose for such
damages in antitrust cases to distinguish Lake Shore. Further-
more, the majority cited Restatement, Agency §217c, Com-
ment C, for the proposition that the rule limiting a principal's
liability for punitive damages does not apply to special
- 19.
Statutes giving treble damages. In a footnoie, the majority
stated that Lake Shore might have been decided against the
then trend of cases, but merely distinguished the case in an
antitrust context, but did not overrule it. The Chief Justice,
and Justice Powell, joined by Justices Rehnquist and White,
dissented on the ground that apparent authority was not a
permissible basis for punitive damages, even in antitrust
actions.
The Lake Shore opinion stated sound public policy. This
was recognized in McGuffie v. Transworld Drilling Co., 625
F.Supp. 369 (W.D. La. 1985), in which the Court reviewed the
authorities in the area and concluded, at page 373:
“... 1 do not find the policy arguments made [in
favor of the Restatement rule] persuasive. Deter-
rence and punishment have been the traditional
policy arguments in favor of imposing punitive
damages.
I agree with McCormick that ‘there would seem
to be little justification for punishing the master for
willfulness or wantonness of which the agent is
alone guilty.” C.T. McCormick, Handbook on the
Law of Damages Section 80 at 282 (1935). Also, I
seriously question whether the threat of punitive
damages would enable the employer to perform the
difficult task of predicting or controlling the reck-
less Or malicious conduct of its employees which is
generally sporadic.”
It is submitted that punitive damages cannot, consistently
with the Due Process Clause of the Fourteer.th Amendment, be
imposed upon a corporation for unauthorized, unratified and in
fact forbidden conduct of an agent. This Court, as far back as
The Amiable Nancy, 16 U.S. (3 Wheaton) 546, 558-59 (1818)
announced the rule that an innocent principal could not be
held for punitive damages for lawless conduct which it did not
direct, contenance or participate in. Justice Story, in so hold-
ing, referred to punitive damages as “resting in discretion, and
- 20 -
intended to punish offenders.” An innocent principal is not an
offender.
The basic notion of fundamental fairness which Due
Process embodies requires that punishment based upon a
requisite mental state not be imposed upon innocent prin-
cipals.
The time is ripe for this Court to reassess punitive damages
including the imposition thereof on a vicarious liability basis.
This case provides both an appropriate opportunity to do so,
and points up the great need for this Court to provide guidance
in this area.
Ill. THE AMOUNT OF THE AWARD OF PUNI-
TIVE DAMAGES IN THIS CASE WAS EX-
CESSIVE, IN VIOLATION OF PACIFIC
MUTUAL’S DUE PROCESS RIGHT TO BE
FREE OF GROSSLY EXCESSIVE, DISPRO-
PORTIONATE DAMAGES AWARDS
The hospital bill of Mrs. Haslip which was not paid under
the lapsed Union Fidelity policy was $2,500. The award in
excess of this amount, in excess of $1,000,000, was punitive
damages. [{t is submitted that this award was excessive under
Due Process standards.
In Browning-Ferris Industries Of Vermont, Inc. v. Kelco
Disposal, Inc., 492 U.S. __, 109 S.Ct. 2909 (1989), Justice
Brennan, in his concurrence, suggested that Due Process for-
bids excessive damages in civil cases, stating, at page 2923:
“Several of our decisions indicate that even where
a statute sets a range of possible civil damages that
may be awarded to a private litigant, the Due Proc-
ess Clause forbids damages awards that are ‘grossly
excessive,’ Waters-Pierce Oil Co. v. Texas, 212
U.S. 86, 111 (1909), or ‘so severe and oppressive as
to be wholly disproportionate to the offense and
<M.
obviously unreasonable,’ St. Louis, 1.M. & S.R.
Southwestern Telegraph & Telephone Co. v.
Danaher, 238 U.S. 482, 491 (1915); Missouri
Pacific Railway Co. v. Humes, 115 U.S. 512, 522-23
(1885). I should think that, if anything, our scrutiny
of awards made without the benefit of a legislature’s
deliberation and guidance would be less indulgent
than our consideration of those that fall within
Statutory limits.”
Because punitive damages are punishment sanctions, it is
submitted that Due Process further constrains excessive
awards.
A number of decisions of this Court have addressed the
issue Of when nominally civil cases are penal in nature, in-
cluding U.S. Ex Rel. Marcus v. Hess, 317 U.S. 537 (1943);
Trop v. Dulles, 356 U.S. 86 (1958); and U.S. v. Halper, 490
U.S. __, 109 S.Ct. 1892 (1989).
As applied to punitive damages awards, these cases suggest
that (i) if the purpose of the sanctions is punishment, certain
Fourth, Fifth and Sixth Amendment protections would apply
under the Due Process Clause of the Fourteenth Amendment,
(ii) no remedial purpose can be found where the amount of the
sanctions exceeds the amount which can fairly be determined
to be remedial as compensation for actual loss, and (iii) in
government actions and qui tam actions, under federal
Statutes, double damages do not constitute punishment where
the aggregate amount thereof does not exceed such compensa-
tion, broadly viewed.
The general rule regarding whether a punishment sanction
is excessive appears to be that punishment must not be grossly
out of proportion to the severity of the offense [Trop v. Dulles,
356 U.S. 86 (1958); Gregg v. Georgia, 428 U.S. 153 (1976)].
In Solem v. Helm, 463 U.S. 277 (1983), this Court sought to
set some objective criteria for determining whether a sanction
was disproportionate.
.
It is submitted that the excessiveness of the award in this
case, and the number of multimillion dollar awards being
rendered shows the necessity for this Court to make a broad
review of punitive damages doctrine on Due Process grounds,
and require that they bear a necessary relationship to actual
harm caused.
IV. THE SUIT BELOW, ALTHOUGH NOMINALLY
CIVIL, MUST BE CONSIDERED CRIMINAL
IN NATURE AS TO THE PUNITIVE DAMAGES
AWARDED THEREIN, ENTITLING PACIFIC
MUTUAL TO PROTECTION UNDER THE
FIFTH, SIXTH AND FOURTEENTH AMEND-
MENTS TO THE UNITED STATES CONSTI-
TUTION
A. The Controlling Test Established by the
United States Supreme Court
In Kennedy v. Mendoza-Martinez, 372 U.S. 144 (1963), this
Court established the test and analytic process to be applied to
determine when the full protections guaranteed by the Consti-
tution to criminal defendants must be given to defendants in a
nominally civil action. In Mendoza-Martinez, a defendant had
been denaturalized under Section 401(j) of the Nationality
Action of 1940, for leaving and remaining outside of the
United States to evade or avoid military service. The court
held the statute to be invalid because it deprived the defendant
of citizenship, as punishment, without the safeguards guaran-
teed by the Fifth and Sixth Amendments.
In reaching this conciusion, this Court stated, at page 167:
“ _ .[Florfeiture of citizenship is a penalty for the
act of leaving or staying outside the country to
avoid the draft. This being so, the Fifth and Sixth
Amendments mandate that this punishment cannot
be imposed without a prior criminal trial and all its
- 23.
incidents, ... If the sanction these sections impose
is punishment, and it plainly is, the procedural
safeguards required as incidents of a criminal
prosecution are lacking. We need go no further.”
‘Emphasis added.]}
The court in Mendoza-Martinez thereby flatly stated the
posiuon that if a sanction is punishment, the procedural
safeguards of the Fifth and Sixth Amendments must be
applied.
This appears to be a single, overriding standard for deter-
mining the applicability of criminal procedural safeguards
under the Fourth, Fifth and Sixth Amendments, and logically,
the Eighth Amendment.
The criteria for determining whether or not the sanction is
punishment are (i) is the announced purpose to punish, as in
Mendoza-Martinez, or (ii) if the purpose is unstated or stated
to be a civil remedy, do other factors (enumerated in
Mendoza-Martinez) show that a non-punishment purpose can
be assigned which is not overridden by the punishment impact
of the sanction?
B. In Alabama, Punitive Damages Are
Expressly Imposed for Punishment and
Deterrence and Therefore Meet the
Mendoza-Martinez Test
Punitive damages in Alabama, as a matter of the common
law of the state, are authorized in various categories of cases,
and may be recovered by a plaintiff to punish the defendant
and deter future similar conduct. [Aetna Life Ins. Co. v.
Lavoie, 470 So.2d 1060 (Ala. 1985); Badgett v. McDonald,
304 So.2d 228 (Ala.Civ.App. 1974)).
The United States Supreme Count, in Beli v. Wolfish, 441
U.S. 520 (1979), stated at page 589, n.20:
- 24 -
“Retribution and deterrence are not legitimate
non-punitive governmental objectives.”
C. The Fact That Punitive Damages Are
Sought in These Cases by Private Plain-
tiffs, Rather Than the Government,
Does Not Prevent the Actions from
Being Deemed Criminal in Nature
Plaintiffs in these cases act as private attorneys general in
seeking punitive damages, the award of which is not a per-
sonal right, but rather, is a public interest in punishment and
deterrence [See, In Re Paris Air Crash, 622 F.2d 1315,
1319-1320 (9th Cir. 1980), cert. denied, 449 U.S. 926 (1980)].
The involvement of the states in imposing punishment through
punitive damages is clear. It is submitted that a state cannot
evade according constitutional protections in inflicting punish-
ment and retribution by providing that the punishment be
imposed by a private attorney general. Therefore, the criminal
proceeding protections must be accorded either directly under
the Amendments stated above or through the Due Process
Clause of the Fourteenth Amendment. See in this regard,
United States Ex. Rel. Marcus v. Hess, 317 U.S. 537 (1943),
in which the Court considered whether or not a sanction in a
case having a private party plaintiff was in fact a criminal
case. While finding that the purpose of the sanction was not
punishment, and therefore that the incidents of a criminal tral
were not equired, the discussion and analysis of the Court
assumed that if the purpose were punishment, such incidents
would have been required.
In this case, Pacific Mutual was denied a beyond a reason-
able doubt burden of proof [/n Re Winship, 397 U.S. 358, 364
(1970)}.
Again, this is an area in which guidance from this Court is
needed to establish the procedural safeguards to which defen-
dants are entitled in punitive damages actions.
- 23.
V. ALABAMA LAW DISCRIMINATES AGAINST
THOSE DEFENDANTS SUBJECTED TO OPEN-
ENDED PUNITIVE DAMAGES BY LIMIT-
ING THE AMOUNT OF SUCH DAMAGES
WHICH MAY BE AWARDED AGAINST
OTHER CLASSES OF DEFENDANTS, WITH-
OUT RATIONAL BASIS
Alabama punitive damages law, as it applied to Pacific
Mutual in this case, provided for punitive damages in unlim-
ited amount. The jury charge gave no guidance and imposed
no limit on the severity of the punishment.
Alabama, however, without a rational basis for the clas-
sifications, limits punitive damages to double or ireble dam-
ages in at least six categories of cases. These classifications
are wholly arbitrary, and violate the Equal Protection Clause
of the Fourteenth Amendment.
Professor Wheeler in his article “The Constitutional Case
for Reforming Punitive Damages,” 69 Va.L.Rev. 269 (1983),
analyzed this situation as follows as pages 299-300:
“A fundamental problem with all statutory
schemes that limit punitive damages for only se-
lected types of wrongful conduct and allow dis-
cretionary punitive damages for all others is that the
selective treatment is arbitrary. The whole range of
problems, risks and inconsistencies that characterize
discretionary punitive damages proceedings inheres
in all such proceedings, regardless of the type of
tortious conduct that gave rise to the cause of
action.”
No rational basis is apparent for limiting punitive damages
in cases of usury, restraint of trade, deceptive trade practices
Or various areas of consumer fraud, while leaving Pacific
Mutual subject to open-ended punitive damages for Mr.
Ruffin’s fraud.
. 2
In this case, the commercial speech rights of Pacific
Mutual aie impacted by the imposition of punitive damages
liability against it for the unauthorized, unratified fraud by its
sales agent. The potential for such liability must inhibit the
actual and symbolic speech of companies which must act
through representatives, in the selection of representatives and
in communications with such representatives.
Further, Pacific Mutual’s access to the courts is impacted
in such a case, because it cannot defend itself by showing that
it acted properly in all respects. The fine is imposed for the
“evil intent” of another, acting in a wholly unauthorized and
unratified manner, against the interest of Pacific Mutual, and
solely for the benefit of himself.
Where fundament:! rights such as First Amendment speech
rights and Fifth and Fourteenth Amendment rights of access to
courts are impacted, as it is submitted they are in these cases
through self-censorship resulting from unreasonable risk and
unpredictability, equa. protection requires more than an appar-
ent rational relationship to a proper state objective [Police
Dept. of Chicago v. Moseley, 408 U.S. 92, 99 (1972); Dunn
v. Blumstein, 405 U.S. 330, 342-43 (1972); Tele-
Communications of Key West, Inc. v. United States, 757 F.2d
1330 (D.C. Cir. 1985)]. Laws with a potential for impinge-
ment on such rights must be “tailored” to serve a substantial
governmental interest [Police Dept. of Chicago v. Moseley,
480 U.S. 92, 99 (1972)]. Punitive damages are not tailored.
VI. THE CONSTITUTIONAL DEFECTS IN THE
AWARD OF PUNITIVE DAMAGES AGAINST
PACIFIC MUTUAL IN THIS CASE WERE
NOT CURED BY JUDICIAL REVIEW AND
THE POTENTIAL FOR A REMITTITUR
The Alabama Supreme Court stated at page 11 of its opin-
ion [App., infra, B13] that review of the punitive damages
award by the trial court under the procedures established in
+,
Hammond v. City of Gadsden, 493 So.2d 1370 (Ala. 1986)
further established that the Due Process C suse had not been
violated.
In Hammond, the Alabama Supreme Court established
seven factors to be considered by the trial court in reviewing a
challenged award of punitive damages. They are:
(i) whether there is a reasonable relationship be-
tween the punitive damages and the harm done by
the defendant;
(ii) the reprehensibility of defendant’s conduct;
(iii) the profit to defendant from such conduct;
(iv) the weaith of the defendant;
(v) the costs of litigation;
(vi) whether criminal sanctions have been imposed;
and
(vii) whether other civil awards have been made
against defendant for the same conduct.
These factors are largely unreviewable, and merely transfer
discretion to the reviewing court. For example, the “reason-
able relationship” test has proved to be meaningless because
virtually any ratio of punitive to actual damages can be and
has been held to be “reasonable.” These factors amount to no
more than the “gentle test of excessiveness,” particularly
given the extraordinary deference given to the jury decisions
in these cases. At most, use of the language of these criteria
merely disguise the true bases of the court’s decisions, which
are subjective value judgments.
Justice Maddox, in his dissent below [App., infra, B16)
Stated his view of these criteria as follows:
“While I applaud the procedure this Court has
adopted to review and revise the jury’s decision
based upon its ‘standardless discretion,’ I cannot
believe that procedure is sufficient to accord to
litigants all the due process protection the Constitu-
tion envisions.” [Footnote omitted. ]
> -
It is submitted that judicial review does not and cannot cure
the constitutional defects in the punitive damages award in
this case. A procedure for review of a decision made under an
unconstitutional law does not and cannot cure the uncon-
Stitutionality of the law. [See Furman v. Georgia, 408 U.S.
238 (1972); cf. Greenbelt Coop. Publishing Assn. v. Bresler,
398 U.S. 6, 7-11 (1970).]
In Alabama, as in most states, extraordinary deference is
given to the jury’s decision as to punitive damages, and a jury
punitive damage award will only be disturbed if it is, in the
judgment of the reviewing court, so excessive as to show that
it must have been the product of bias, passion, prejudice,
corruption or other improper motive.
This standard of review leaves such a broad field for unfet-
tered jury discretion that it cannot cure underlying defects.
Unlike the appellate review process in criminal matters, in
punitive damages cases the appellate process itself lacks clear
and consistent standards. This fact creates a risk of its own
rather than curing the constitutional deficiencies found at the
trial stage. In 2-D’s Logging, Inc. v. Weyerhauser Co., 632
P.2d 1319 (Or. 1981), the appellate court made note of this
problem, stating at page 1326:
“Punitive damages doctrines have resulted in a
perplexing and contorted mode of judicial review
. which, in reality, is an imprecise pattern of
subjective judicial reactions mixed with some epi-
sodes of deference to jury verdicts.... At least in
cases where there is no specific statutory authoriza-
tion for their award, the imposition of punitive
damages involves a policy or value judgment.”
Because the jury was not instructed to adhere to any as-
certainable standard or to apply any specified set of factors, 1:
is impossible to determine whether the jury properly applied
or ignored any guidelines or set of factors. The award \s
therefore invalid.
- 29 .-
In Greenbelt Coop. Publishing Assn. v. Bresler, 398 U.S. 6
(1970), this Court stated the matter as follows, at page 13:
“For when it is impossible to know, in view of the
general verdict returned whether the jury imposed
liability on an impermissible ground, the judgment
must be reversed and the case remanded.”
[Citations omitted. ]
It is submitted that under the three-part test of procedural
Due Process set forth in Mathews v. Eldridge, 424 U.S. 319
(1976), the provision for remittitur by reviewing trial and
appellate courts does not satisfy the requirements of Due
Process for adequate limits on jury discretion.
The concern expressed by this Court, that there is a lack of
objective standards limiting the jury’s imposition of punish-
ment, and juries are left free to render awards without any
necessary relationship to actual harm, cannot be met by the
generalized, subjective and highly judgmental factors sug-
gested by the Alabama Supreme Court.
CONCLUSION
Punitive damages law, as presently applied, is overwhelm-
ingly lacking in fundamental fairness. The law gives no fair
notice of prohibited conduct because of the vague and largely
contentless criteria upon which the awards are founded. Juries
are sent io deliberate with no meaningful standards to guide
them as to the amount of punitive damages awardable. This
unbridled discretion leads to arbitrary and unpredictable
awards.
Under the jury instructions given in this case, which appear
typical, discussed above, the jury was left free
(i) to give free reign to biases and prejudices and to punish
selectively;
(ii) to allow others “guilty” of equally “reprehensible”
conduct to go unpunished;
= ee
(iii) to punish unpopular and target defendants, and;
(iv) to render awards with no necessary relationship to
actual harm caused.
Judicial review, in the absence of objective limits on jury
discretion, merely transfers discretion to the courts.
The unpredictability of the outcome of any punitive dam-
ages case submitted to a trier of fact has led to actions which
are in terrorem and extortionate in nature.
This situation requires remedy by this Court. It is submit-
ted that Pacific Mutual’s Petition should be granted.
February 7, 1990
Respectfully submitted,
Of Counsel: BRUCE A. BECKMAN
VICK! W.W. LAI Counsel of Record
ADAMS, DUQUE ADAMS, DUQUE & HAZELTINE
& HAZELTINE 523 West Sixth Street
Los Angeles, California 90014
(213) 620-1240
OLLIE L. BLAN, JR. J. MARK HART
BERT S. NETTLES SPAIN, GILLON, GROOMS,
SPAIN, GILLON, GROOMS, BLAN & NETTLES
BLAN & NETTLES 2117 Second Avenue North
Birmingham, Alabama 35203
(205) 328-4100
Attorneys for Petitioner
Pacific Mutual Life Insurance
Company
wih.
IN THE CIRCUIT COUKT OF
JEFFERSON COUNTY, ALABAMA
CLEOPATRA HASLIP, et al
Plaintiffs
VS.
PACIFIC MUTUAL LIFE
INSURANCE COMPANY, et al
Defendants
CV 82-2453
ORDER
The defendants’ motions for judgment notwithstand-
ing the verdicts or in the alternative for a new trial is
denied and the jury’s verdicts in favor of Cleopatra
Haslip, Alma Calhoun, Cynthia Craig, and Eddie
Hargrove, is to stand. Essential to this ruling is an
outline of the relevant facts and parties followed by
discussion of the legal issues raised by the defendants in
their motions.
I. FACTS:
In May, 1981 Roosevelt City seeking additional
health and life insurance for its employees, responded to
a Pacific Mutual advertisement, and contacted Mr.
Lemmie Ruffin, an agent of Pacific Mutual Life Insur-
ance Company. The purpose of this meeting was to have
issued a group health and life insurance policy for
participating employees. Mr. Ruffin presented the city
with a Pacific Mutual business card, utilized Pacific
Mutual brochures and displayed a Pacific Mutual sched-
ule of benefits, (which also had Union Fidelity’s name
typed in.) After the discussions, Ruffin issued a group
A 2.
policy for Roosevelt City, placing life insurance with
Pacific Mutual and health insurance with Union Fidelity.
The apparent reason for placing the health insurance
with Union Fidelity was that Pacific Mutual did not
write group health policies for municipalities. Though
Mr. Ruffin was an emplevee for Pacific Mutual, he had
additional licenses with other insurance companies,
including Union Fidelity. The participating employees
paid their premiums by way of payroll deductions and
the clerk of Roosevelt City wrote a check periodically to
cover the premiums. Mable Poindexter, the Clerk for
Roosevelt City, testified that Ruffin spoke only of
Pacific Mui.al and indicated that Union Fidelity was a
subsidiary of Pacific Mutual. On October Ist, unbe-
knownst to the participating employees, the policies
were cancelled for non-payment of premiums, because
the cancellation notice from both Union Fidelity and
Pacific Mutual were sent to Ruffin who continued to
collect premiums from Roosevelt City. Earlier, Mr.
Ruffin, with the aid of local Pacific Mutual office
manager, Mr. Patrick Lupia, had the cancellation notices
sent to him rather than Roosevet [sic] City. Conse-
quently, neither Roosevelt City nor its employees were
aware that the policies were cancelled and continued to
send premium payments to Mr. Ruffin. Only later, when
Ms. Cleopatra Haslip was hospitalized, was it discovered
that the policies were cancelled.
The individual parties and witnesses are as follows:
A. CLEOPATRA HASLIP
Ms. Haslip first met with Ruffin in August 1981 when
he represented himself as a Pacific Mutual agent.
Throughout their conversation about health insurance,
Ms. Haslip always believed that the insurance poli-;
would be furnished by Pacific Mutual. Beginning
~ * aabtrinatat
3
}
-A 3-
September 1, 1981, Ms. Haslip had her insurance
premiums deducted from her paycheck. These premiums
were deducted monthly and were effective from August
1981 through January 1982. Ms. Haslip only became
aware of her lack of insurance when she entered the
hospital on or about January 24, 1982. After incurring
$2500 in hospital debts and believing she was covered
by Pacific Mutual Insurance Company, she was shocked
to discover that her policy had been cancelled — espe-
cially since she had never asked Ruffin to cancel it.
Although Ms. Haslip had paid premiums from August
1981 to January 1982, in actuality she and the other
plaintiffs only had health insurance coverage for one
month (September 1981) and life insurance for two
months (October and November 1981).
While Ms. Haslip and the other plaintiffs had no
knowledge that their insurance had been cancelled,
Lemmie Ruffin knew of the cancellation, yet he contin-
ued to have the premium payments sent to him. In
September, 1981 Ruffin collected the first month’s
premium check (which was made payable to Union
Fidelity). The plaintiffs were covered their first month;
however, beginning October 1, 1981 the premiums were
made payable to Ruffin who continued to collect the
premiums. These payments were drawn on Roosevelt
City checks and were paid as follows: On August 26 a
check for $430.02 was made payable to Union Fidelity,
then twa checks which were later voided were written
and on September 4 a check was written to Pacific
Mutual in the amount of $149.16. On September 8
another check was made payable to Pacific Mutual for
$71.45. October 20 a check for $105.90 was made
payable to Lemmie Ruffin. On November 6 a check for
$268.68 was made payable to Lemmie Ruffin. Decem-
ber 11 a check for $76.90 was made payable to Lemmie
Ruffin and then again, a check for $268.68 was made
-A 4-
payable to Lemmie Ruffin on January 15. It is important
to note that at all times, Lemmie Ruffin collected the
premiums from Roosevelt City.
B. ALMA CALHOUN
Ms. Calhoun, the Sight Manager for the Elderly
Program for Roosevelt City, also discussed an insurance
program with Ruffin. Ruffin presented Ms. Calhoun with
Pacific Mutual brochures and a Pacific Mutual business
card. Ms. Calhoun filled out one application for a
package deal of health and life insurance, believing this
policy was with Pacific Mutual. She denies knowing
anything about Union Fidelity and did not receive a
lapse notice on her insurance policy. Like Ms. Haslip,
Ms. Calhoun paid her premiums monthly and only
learned oi the cancellation after news of Ms. Haslip’s
cancellation.
C. CYNTHIA CRAIG
Ms. Craig, a teacher’s aide with Roosevelt City, also
paid premiums from August 1981 through January of
1982. Her discussions with Ruffin led her to believe
that her health insurance was covered by Pacific Mutual.
She also was given no lapse notice, nor was Ms. Craig
told that her health insurance had been cancelled.
D. EDDIE HARGROVE
Mr. Hargrove was an employee in the Street Depart-
ment of Roosevelt City. He recalls discussing a “group
plan” insurance coverage with Ruffin, but decided to
purchase only life insurance from Ruffin and Pacific
Mutual. Mr. Hargrove paid premiums for life insurance
j
-A 5-
from September through January of 1982. As is the case
with the other plaintiffs, he received no lapse notice nor
notice of cancellation.
E. MABEL POINDEXTER
Mabel Poindexter is the Clerk for Roosevelt City who
wrote the premium checks to Mr. Ruffin. When, at first,
Ruffin asked her to make the checks payable to Union
Fidelity, she acquiesced upon his assurances that Pacific
Mutual was Union Fidelity’s parent company. Ms.
Poindexter never took out health insurance, nor did she
receive a lapse notice from Pacific Mutual. Ms. Poin-
dexter only learned of the cancellation when Ms. Haslip
contacted her, at which point Mr. Ruffin brought the
claim form to the city, (which turned out to be invalid
numbers). Ms. Poindexter then gave the claim forms to
Ms. Haslip’s daughter who brought them to the hospital.
F. DEBORAH AULT
Deborah Ault worked in a secretarial capacity for
Pacific Mutual, answering phones, receiving mail, typing
for agents and doing personal typing for Mr. Lupia. She
testified that she had seen insurance premium checks
made out to Lemmie Ruffin and she informed Mr. Lupia
of this news. She also recounted teiephone calls from
customers complaining about receiving premium notices
for premiums which they had already paid.
G. RALPH PASSMAN
In his deposition, Ralph Passman stated that his health
insurance policy began September 1 and was terminated
for non-payment of premiums on September 30, 1981,
-A 6-
that his termination notice was sent to Mr. Patrick Lupia,
at Mr. Lupia’s request, and further that another termina-
tion notice was sent to Mr. Lemmie Ruffin. He also
Stated that no other premiums were received for the
health insurance and that the cancellation notices sent to
Mr. Lupia and Mr. Ruffin were the only ones sent out.
In other words, the plaintiffs never received notice of
cancellation.
H. FRANK JOHNSON
Mr. Frank Johnson is a training director of Debit Life
Insurance Company, Protective Industrial Insurance
Company. Investigating a problem for a client’s mother,
Lennie B. Spencer, he discover [sic] that Mrs. Spencer
had been paying on a life insurance policy that did not
exist. Payments were made in the fall and winter of
1981 and 1982 and her agent was Lemmie Ruffin.
I. LIONEL WILLIAMS
Mr. Williams, a grocery store owner was also looking
for group health insurance for his employees and spoke
with Mr. Ruffin, as well. Mr. Williams testified that he
also was paying for insurance that he later discovered
did not exist. He recalled speaking with Mr. Lupia,
calling the main office of Pacific Mutual in California,
and then being referred locally. He was never satisfied
with his insurance, never had the medical bills paid, and
as a result, he lost an employee.
ye &
II. LEGAL ISSUES
A. CAN A PRINCIPAL BE HELD
LIABLE UNDER RESPONDEAT
SUPERIOR FOR FRAUD OF AN
AGENT?
The Supreme Court of Alabama has repeatedly stated
that a corporation is liable for the torts of its employees,
both agent and servant, based upon the principal of
Respondeat Superior, not the doctrine of agency. “The
actual question to be determined is whether the act
complained of was done either by agent or servant while
acting within the course and scope of his employment;
the corporation or principal may be liable in tort for the
acts of its servants or agents done within the scope of
employment, real or apparent, even though it did not
authorize or ratify such acts or even expressly forbade
them.” Autrey v. Blue Cross and Blue Shield of Alabama
481 So.2d 345 (Ala. 1985), National States Insurance
Company v. Jones, 393 So.2d 1361, 1367 (Alabama
1980) (Quoting from Old Southern Life Insurance
Company v. McConnell, 52 Ala. App. 296, So.2d 183,
186 (1974). The courts have further held the principal
liable for his agent’s fraud committed within the actual
Or apparent scope of his employment, even where the
fraud was committed strictly for the agent’s own benefit
and to the principal’s detriment. Henderson v. Croom,
403 F.Supp. 668 (1975). As stated in National States
Insurance Company v. Jones, 393 So.2d 1361, (Ala.
1980), “while the soliciting agent commits fraud, the
insurer’s liability is vicarious and the principal is liable
in spite of the fact that he did not participate in the fraud
or even forbade it.” National States Insurance Company
v. Jones, 393 So.2d 1381 (Ala. 1980). Gulf Electric v.
Fried, 218 Ala. 684, 119 So. 685.
-A 8-
As the above cases illustrate, the bulk of Alabama’s
law holds that a principal may be held liable in Respon-
deat Superior for the fraud of its agents. The issue as to
whether, Ruffin was an agent for Pacific Mutual was
properly given to the jury to decide, as was the abandon-
ment of agency issue. (See discussion below.)
B. ABANDONMENT OF AGENCY
Pacific Mutual based its defense on an abandonment
of agency theory. The defense argued that Lemmie
Ruffin acted on behalf of other principals at the time he
committed fraud, thereby abandoning his agency rela-
tionship with Pacific Mutual. The defense cited Hearing
Systems, Inc. v. Chandler, 512 So.2d 84, (Ala. 1987), a
hearing aid fraud case where one of the defendants was
affiliated with Montgomery Hearing Health Services
(MHHS), but was retained as a consultant for hearing
systems (HS). In reversing a verdict of fraud, the Court
held that defendant acted strictly as a consultant for HS
and made no representations on behaif of MHHS.
Further, the defendant did not receive any proceeds of
the sale to plaintiff. Hearing Ststems, [sic] Inc. v.
Chandler, 512 So.2d at 88. This case differs from the
case at bar, however, and such a verdict reversal is not
warranted here.
As stated in Brown v. Commercial Dispatch Publish-
ing Co., 504 So.2d 245 (Ala. 1987), “whether one is an
agent of another is ordinarily a question to be decided by
jury.” Also see American Pioneer Life Insurance Com-
pany v. Sandlan, 470 So.2d 657 (Alabama 1985). The
Court further charged the jury regarding abondonment
[sic] of agency. The Court clearly stated that “if, in fact,
he had abandoned that relationship, the agency principal,
the agent’s relationship between Pacific Mutual and
himself and it was reasonably apparent to everyone that
-A 9-
he was acting on behalf of another, that Pacific Mutual
cannot be held responsible for his acts committed as an
agent or within the line and scope of employment of
someone else, another insurance agency.” Trial excerpts
18-20. Having heard these instructions, the jury decided
that Lemmie Ruffin had not abandoned his agency
relationship with Pacific Mutual. The decision was not
erroneous considering the evidence before them. The
evidence showed that the plaintiffs believed that they
were dealing with Pacific Mutual. For example, Mr.
Ruffin presented the city with Pacific Mutual business
cards, distributed Pacific Mutual brochures and schedule
of benefits, and spoke as a Pacific Mutual representative.
Mrs. Haslip was always under the impression that she
was covered by Pacific Mutual, as were Alma Calhoun,
Cynthia Craig, and Eddie Hargrove. Unlike the defen-
dant in Hearing Systems, Inc. v. Chandler, Ruffin made
a definite representations [sic] that he was an agent with
Pacific Mutual.
C. FRAUD OF FUTURE ACTS
In its motion for JNOV, defendant alleges that there
was an insufficiency of evidence of material mis-
representation of a presently existing fact to each of the
plaintiffs. Where fraud is based upon a promise to
perform in the future, two elements in addition to the
fraud requirement, must be met: the defendant must
have had no intention of doing the promised act when he
made the alleged misrepresentation and he must have
had an intent to deceive. Coastal Concrete Co., Inc. v.
Patterson, 503 So.2d 824 (Ala. 1987). In the case at bar,
however, the misrepresentation is of an existing fact.
When an agent accepts the premium from a client, he is
in essence telling the client that there is a presently
existing policy. Thus, the agent is representing an
e -A 10-
existing fact, not a future act. Courts have held that
“payment of a premium is necess.u:, as a condition
precedent to an enforceable contract of insurance.
Johnson v. Dairyland Ins. Co., Ala. Civ. App. 398 So.2d
317, Queen Insurance Co. of America v. Bethell Church,
27 Ala. App. 443, 174, So. 638, cert denied, 234 Ala.
184, 174 So. 640 (1937). The premiums in this case
were in fact paid out of the employee’s paychecks and
were not merely promises to pay. By accepting these
premiums, the agent conveyed to the parties that their
policies were both present and existing.
Even if this were to involve future acts, the evidence
presented would prove that the agent had no intention of
fulfilling his promises and that he intended this decep-
tion. By accepting premiums on a policy which, un-
beknownst to the plaintiffs had been cancelled, the agent
exhibited his intentions not to perform his promises.
D. ADMISSIBLE STATEMENTS OF
WITNESSES
Deborah Ault was employed by Pacific Mutual in a
secretarial capacity, her duties composed of answering
the phone, receiving mail, typing for agents and Mr.
Lupia and doing proposals. Evidence of her phone
conversations with Ruffin’s clients was admitted at trial
and defendants contend this was inadmissible evidence
of prejudicial effect. This evidence was admissible,
however, not to prove truthfulness of the matter but to
prove Pacific Mutual’s notice »f the problem. Gamble,
McElroy’s Alabama Evidence §273.02 (3rd Edition
1977), states that: if it is material to prove that a person
at a specified time had been put on notice about a matter,
or entertained a specified belief, acted in good or bad
faith, had a specified motive to do or not to do an act
with a specified motive ... and which is c fered for the
-A 11-
purpose of showing notice, belief, good or bad faith,
motive or mental derangement is not violative of “the
Hearsay Rule.” Pannsylvania Cas. Co. v. Perdue, 164
Ala. 508. Ms. Ault’s testimony was not admitted to
prove Ruffin or Pacific Mutual’s faults, but rather to
show that Pacific Mutual had received notice of cus-
tomer complaints.
Similarly, the testimony of both Frank Johnson and
Lionel Williams was admissible to show a pattern in
Mr. Ruffin’s actions. On the issue of whether a party
did a fradulent act, proof may be made that such party
committed similar fraudulent acts against other persons
to show fraud, motive, scheme or intent. Gamble,
McElroy’s Alabama Evidence, §70.03 (1) (3rd Edition,
1977).
Both Johnson and Williams testified that each paid
Mr. Ruffin for insurance policies which did not actually
exist. This evidence simply illustrates a pattern of
behavior Mr. Ruffin engaged in. This type of evidence
was also admitted in a similar insurance fraud case. In
American Pioneer Life Ins. Co. v. Sandlin, 470 So.2d
657 (Ala. 1985), the court allowed the testimony of
several witnesses who had been sold plans oy the agent
“to show that representations by an agent as to recovery
of principal and accumulation of interest were false so as
to prove a fraudulent scheme.”
E. ACTUAL MONETARY DAMAGES
ARE NOT NECESSARY IN OR-
DER TO RECOVER PUNITARY
DAMAGES
One can recover punitive damages if the evidence
proves that the misstatements were made with an intent
to deceive or defraud. Best Plant Food Products, Inc. v.
Cagle, 510 So.2d 229 (Ala. 1987), Ex parte Lewis, 416
-A 12-
So.2d 410 (Ala. 1982). Following Curry Motor Co., Inc.
v. Hasty, 505 So.2d 347 (Ala. 1987), “punitive damages
may be recovered in fraud action if fraudulent mis-
representation was malicious, oppressive or gross or
made with knowledge of its falseness or so recklessly
made as to amount to the same thing or is made with
purpose of injuring plaintiff.” Curry Motor Co. Inc. v.
Hasty, 505 So.2d at 351; Code 1975, §6-5-101. The
evidence presented in the present trial indeed established
that Ruffin knowingly and intentionally committed fraud
by collecting insurance premiums on cancelled policies
and keeping the premiums for himself. Ruffin intention-
ally deceived not only Cleopatra Haslip, but also
deceived Alma Calhoun, Cynthia Craig and Eddie
Hargrove. All of the aforementioned names had pre-
miums deducted from their payroll for five months and
only received coverage for one month — the fraud
intentionally committed by Ruffin. This element of
intent is an important element which entitles the plain-
tiffs to punitive damages.
Punitive awards are also allowable even where only
nominal damages are incurred in fraud cases. However,
courts stress the intentional nature of the fraud and have
allowed large punitive damage awards where there was
evidence of “intentional, gross and oppressive” fraud.
American Pioneer Life Ins. Co. v. Sandlin, 470 So.2d
657 (Ala. 1985) at 669. So long as the verdict was not
SO excessive as to be considered the result of a jury with
“bias, passion, prejudice or some other improper motive,
a very large punitive damage award is not considered
excessive, especially when paired with strong evidence
of ‘ntentional fraud. Aetna life ins. co. [sic] v. Lavoie,
470 So.2d 1060 (Ala. 1985) at 1076.
-A 13-
F. JURY CHARGES
In charging the jury on the issue of fraud, the court
concedes that it erred in not distinguishing between legal
intent (a negligence standard where punitive damages
are not recoverable) and fraudulent intent (knows it is
untrue when he makes the representation.) It has been a
practice of the undersigned to instruct the jury without
notes in a conversational manner, rather than reading
verbatim from approved charges. Perhaps the phrase
“should have known” inadvertently crept into the oral
charge because of this practice, for the undersigned is at
a loss to understand why the phrase was included.
Although the “should have known” language should not
have been included, it is unlikely that this misleading
language materially confused the jury. Taken together
with the evidence, it is the opinion of this court, that the
misphrased jury instruction was not of sufficient scale to
substantially harm the defendant. Rule 61, Alabama
Rules of Civil Procedure, Wilk v. American Medical
Association, 719 F.2d 207 (7th Cir. 1983), Alabama
Farm Bureau Mutual Cas. Ins. Co., Inc. v. Smelley, 295
Ala. 346, 329 So.2d 54 (1976), Maslowski v. Beam, 288
Ala. 254, 259 So.2d 804 (1972).
In light of the above, it is important to stress that
Pacific Mutual did not base its defense of this case on
whether Lemmie Ruffin committed fraud. Rather,
Pacific Mutual focused on an abandonment of agency
theory. Pacific Mutual did not defend Ruffin. In fact,
Ruffin, a named defendant, did not even show up at trial.
Pacific Mutual simply defended its case by attempting to
show that Ruffin had abandoned his agency relationship
with Pacific Mutual. Again, the court stresses Pacific
Mutual did not defend Ruffin on his fraudulent acts.
Further, all evidence pointed to the conclusion that
Ruffin committed fraud, with malice aforethought.
-A 14-
Ruffin had the cancellation notices sent to him from
California, the premiums were still being collected after
its cancellation of its policy and Roosevelt City did no
[sic] know that the policies were cancelled. The conclu-
sion is inescapable that the fraud was intentional, gross,
oppressive and malicious.
In consideration of these facts, the jury was not
erroneous in finding fraud, the elements of which
include: “false representation of a material fact relied
upon by a party who is damaged as a proximate result of
alleged misrepresentation; [and] if fraud is based upon a
promise to perform or abstain from some act in future
... defendant’s intention at time of alleged misrepresen-
tation not to do act promised, coupled with intent to
deceive.” Coastal Concrete Co. v. Patterson, 503 So.2d
824 (Ala. 1987), Smith v. First Bank of Childersburg,
501 So.2d 1228. (Ala. Civ. App. 1987). Further, plain-
tiff may prove defendant’s intent to deceive through
“circumstantial evidence relating to events occurring
after representation was made.” Super Value Stores, Inc.
v. Peterson, 506 So.2d 317 (Ala. 1987).
G. MOTION FOR REMITTITUR
In Hammond v. The City of Gadsden, 493 So.2d 1394,
the Supreme Court made it incumbent upon the trial
judge to spread upon the record his reasons for granting
or refusing a remittitur of jury verdicts. The Court cited
certain factors to be taken into consideration by the trial
court in granting or refusing the remittitur.
As has been stated throughout this Order, it is the
opinion of this Court that the conduct in this case
evidenced intentional malicious, gross, or oppressive
fraud. In addition to the acts of Mr. Ruffin, the testi-
mony draws an inference that Mr. Patrick Lupia, Man-
ager of the local Pacific Mutual office, had notice of past
-A 15-
problems with Mr. Ruffin including, but not limited to,
prior acts of fraud, and that he participated in the deci-
sion to have the cancellation notice sent to the Pacific
Mutual agency rather than to the insured. It goes with-
out saying that it is highly desirable to discourage
others, similarly situated from similar conduct.
Although the award is for a great amount of money, it
is the considered opinion of this Court that it is not
excessive as a matter of law, though this Court would in
all likelihood have rendered a lessor amount; nor is the
verdict based upon bias, passion, corruption, or other
improper motive. The jury seems to fashioned [sic] their
awards in proportion to the damage done each plaintiff;
awarding the most damaged plaintiff, Cleopatra Haslip,
the larger award and the least damaged plaintiff, Eddie
Hargrove, the least award.
The jury was composed of male and female, white and
black and in the opinion of the Court, acted conscien-
tiously throughout the trial.
This Court has heard policy arguments against enrich-
ing a particular plaintiff under the guise of punishing a
defendant from wrongful conduct. It has been suggested
by some that punitive damage awards should not be paid
to the plaintiff as competent compensation. This Court
will leave to others the resolution of this argument, as it
is the present law that punitive damages are payable to
the particular wronged plaintiff. Though this result
might well be different under the recently enacted law,
this Court deems it imperative to follow the law as it
existed when the wrong was committed.
As stated in Hammond, supra: “We begin by recog-
nizing that the right to a trial by jury is a fundamental,
constitutionally guaranteed right, Art. I, § 11, Cost. [sic]
of 1901, and therefore, that a jury verdict may not be set
aside unless the verdict is flawed, thereby losing its
constitutional protection. It is only in those cases that a
-A 16-
trial court, pursuant to A.R.Civ.P. 59(f), and this Court,
pursuant to Code 1975, § 12-22-71, may interfere with a
jury verdict.”
As has previously been stated, this Court is not of the
opinion that the jury verdict is flawed to the point that it
should be disturbed and set aside by this Court.
DONE and ORDERED, this 11 day of December,
1987.
/s/_ Charles R. Crowder
Charles R. Crowder, Circuit Judge
APPENDIX B
= *
RELEASED SEP 15 1989
Clerk, Supreme Court of Alabama
THE STATE OF ALABAMA
JUDICIAL DEPARTMENT
THE SUPREME COURT OF ALABAMA
SPECIAL TERM, 1989
Pacific Mutual Life Insurance Company
87-482 v.
Cleopatra Haslip, et al.
Appeal from Jefferson Circuit Court
(CV-82-2453)
SHORES, JUSTICE.
The defendant, Pacific Mutual Life Insurance Com-
pany (hereinafter “Pacific Mutual”), appeals from
judgments, entered after a jury trial, in favor of the
plaintiffs, Cleopatra Haslip, Cynthia Craig, Alma
Calhoun, and Eddie Hargrove.
All four plaintiffs are employees of Roosevelt City
(hereinafter the “City”), a small incorporated community
in western Jefferson County. As many small communi-
ties do, Roosevelt City allowed its employees to pur-
chase a group health insurance policy through the muni-
cipality. Originally that policy was issued by Blue
Cross-Blue Shield. Some months prior to 1981, how-
ever, Blue Cross cancelled the policy when several City
employees dropped out of the plan, reducing the number
of eligible employees participating in the plan below the
minimum number of participants required by Blue Cross
to maintain a group policy.
Lemmie Ruffin was a soliciting agent for Pacific
Mutual. Ruffin sent a mail solicitation to the City
asking if it was interested in discussing insurance. The
City returned a card indicating that it was.
+. e
Ruffin first met with the mayor of the City, who gave
him permission to solicit business from the City’s
employees. Before apprcaching the employees, Ruffin
sought information about the employees from the city
clerk, Mabel Poindexter. As he was later to do with the
plaintiffs, Ruffin approached Mrs. Poindexter, telling her
that he was “with Pacific Mutual.” He handed her a
Pacific Mutual business card, and he explained that he
had been told that the City employees needed hospital
coverage. Testimony indicates that Ruffin never told
Mrs. Poindexter or the plaintiffs that Pacific Mutual
would not write health insurance.
In truth, while Pacific Mutual would issue individual
life policies, it did not write group health policies for
municipalities. Pacific Mutual did, however, allow its
agents to broker business with other insurance com-
panies, and Ruffin was a licensed agent of Union
Fidelity Life Insurance Company (hereinafter “Union
Fidelity”), which did issue group health insurance
through municipalities. Accordingly, Ruffin submitted a
proposal to the City on a Pacific Mutual letterhead; that
proposal indicated that he would place life insurance
with Pacific Mutual and health insurance with Union
Fidelity. While Union Fidelity and Pacific Mutual are
separate and distinct companies and have no affiliation,
Ruffin, when asked by Mrs. Poindexter, indicated that
Union Fidelity was a subsidiary of Pacific Mutual.
Employees who opted to participate in the insurance
plan paid their premiums by way of payroll deduction.
Periodically, Mrs. Poindexter collected the money
deducted from these employees’ paychecks and wrote
one check each month to cover the insurance premiums.
These checks were sent to, or were picked up by, Ruffin,
who prepared the billing each month on a Pacific Mutual
letterhead. Within a few months of the effective date
of the insurance policies, they were cancelled for
as Te
ncnpayment of premiums. Neither the City nor its
employees were made aware that the policies had lapsed,
because unknown to the City, Mr. Ruffin, with the help
of Pacific Mutual’s Birmingham manager, Patrick Lupia,
had had all correspondence between the insurers and the
City employees funnelled through Lupia’s Birmingham
Pacific Mutual office. In effect, the employees had been
paying Ruffin, but their payments had not been for-
warded to the insurers.
During this time, in January 1982, Cleopatra Haslip, a
participating member of the health insurance plan.
entered a hospital. After incurring $2,500 in hospita
bills and additional medical bills, she learned that her
insurance had been cancelled. The hospital demanded
$600 before it would agree to discharge her, and her
doctor eventually turned her case over to a collection
agency. In time, a deficiency judgment was rendered
against Mrs. Haslip. and, as a result, her credit was
adversely affected.
Mrs. Haslip and other members of the insurance plan
sued Pacific Mutual and Lemmie Ruffin. The case was
submitted to the jury on the plaintiffs’ claim of fraud;
on August 7, 1987, the jury rendered a verdict in favor
of each of the plaintiffs in the following amounts:
Cleopatra Haslip — $1,040,000; Cynthia Craig —
$12,400; Alma Calhoun — $15,290; Eddie Hargrove —
$10,288.
Pacific Mutual timely filed motions for a new trial, or
alternatively, a judgment notwithstanding the verdict.
The motions were denied by the trial court. Pacific
Mutual appeals from the judgment based on the verdict;
Lemmie Ruffin has not appealed.
Pacific Mutual raises eleven issues on appeal. To
facilitate our discussion, we address in the first section
several interrelated issues raised by Pacific Mutual.
oO4<
The first issue that Pacific Mutual presents is whether
the trial court erred in charging the jury. Pacific Mutual
Suggests three ways in which it says the jury charge was
flawed: that the trial court charged the jury on an
incorrect standard for awarding punitive damages for
fraud; that the trial court improperly charged the jury on
the standard for awarding damages for mental distress
for fraud; and that the trial court erred in refusing to give
Pacific Mutual’s requested charge regarding justifiable
reliance. We address each of these alleged errors in
turn.
In charging the jury, the trial judge indicated that the
jury could impose liability for fraud if it determined that
defendant Ruffin knew that his representations to the
plaintiffs were false or should have known that his
representations were false:
“(The Court:] The defendant must have known
at the time he made the representation that that
fact was not true or he should have known that
it was not true.
“
“That is the Defendant represents a certain
fact to be true, when in fact that fact is untrue.
The Defendant making that representation
Knows it is untrue when he makes the repre-
sentation or he should have known it was
untrue.” (Emphasis added.)
The latter phrase, “should have known it was untrue,”
Pacific Mutual contends, suggests negligence, which
constitutes only “legal fraud”: a misrepresentation made
innocently or by mistake, for which punitive damages
are not recoverable. Code 1975, § 6-5-101. Continental
Volkswagen, Inc. v. Soutullo, 54 Ala. App. 410, 309 So.
4.
2d 119 (1975). In contrast, a cause of action for deceit
or willful fraud, for which punitive damages are
recoverable, requires proof that the defendant knew his
representation was untrue at the time he made that
representation or ihat he made the representation with
reckless disregard for the truth. Code 1975, § 6-5-103.
Because punitive damages are not recoverable for “legal
fraud,” Pacific Mutual argues that the failure of the trial
court to distinguish in its jury charge between willful
fraud and legal fraud impermissibly allowed the jury to
impose punitive damages for mere legal fraud. We
disagree.
In his written opinion, the trial judge conceded that he
had erred in charging the jury on the issue of fraud by
not distinguishing between misrepresentation and fraud.
Moreover, the trial court admitted that the phrase
“should have known” had crept into the charges inad-
vertently. Nevertheless, we can not say that under the
facts of this case the misphrased jury instruction sub-
Stantially harmed the defendant.
The evidence submitted at trial indicated that Lemmie
Ruffin forged signatures on applications in order to
obtain a minimum number of applicants to meet Union
Fidelity’s membership requirements for establishing a
group insurance plan; that the plan was cancelled within
a few months of its inception for nonpayment of
premiums, event though participants in the plan had
made their premium payments to Lemmie Ruffin: that
Lemmie Ruffin continued to accept premium payments
after notice of cancellation of the insurance plan had
been received by his office; that premium payments
collected by Lemmie Ruffin were deposited into his own
account; and that Ruffin deposited funds refunded to
participants by Union Fidelity into his wife’s personal
Savings account. Given these facts, it is impossible for
this Court to entertain the suggestion that the jury could
SY *
have been confused or that it could have concluded that
Ruffin’s representations were made either innocently or
mistakenly. We, therefore, affirm the trial court’s
conclusion that if, in the context of these facts, the
charge was erroneous, then the erroneous charge can
only be characterized as harmless error. As the trial
judge stated his his opinion:
“Although the ‘should have known’ language
should not have been included, it is unlikely
that this misleading language materially con-
fused the jury. Taken together with the
evidence, it is the opinion of this court that the
misphrased jury instruction was not of suffi-
cient scale to substantially harm the defendant.
[Citations omitted. ]
“
“{Given these facts,] [t]he conclusion is
inescapable that the fraud was intentional,
gross, oppressive and malicious.”
Next, Pacific Mutual argues that the trial court erred
in charging the jury on awarding damages for mental
distress for fraud. Again, damages for mental distress
may not be awarded unless the fraud was willful.
Holcombe v. Whitaker, 294 Ala. 430, 318 So. 2d 289
(1975). As we have previously stated, when one consid-
ers the evidence presented at trial, he can reach but one
reasonable conclusion: if fraud existed in this case, that
fraud must have been willful. Thus, we will not reverse
the judgment case based upon the trial court’s failure to
distinguish willful from nonwillful fraud.
The third alleged error in the instructions to the jury
was the judge’s refusal to give a charge regarding
justifiable reliance. After careful scrutiny of the record,
and in particular the trial judge’s charge to the jury, we
+ TP
find no basis upon which we may reverse the judgment
in this case because of the judge’s refusal of this charge.
li.
The next issue Pacific Mutual presents is whether the
trial court erred in failing to grant its motions for di-
rected verdict and judgment notwithstanding the verdict.
Pacific Mutual argues that these motions were due to be
granted because, it says, 1) Ruffin was not acting
within the scope of his agency with Pacific Mutual in
placing or maintaining health insurance on the City
employees, 2) Ruffin’s acts are not imputable to Pacific
Mutual, and 3) the evidence presented at trial failed to
prove the elements of an action for misrepresentation on
the part of Pacific Mutual. We disagree with all three of
Pacific Mutua?’s arguments.
Because the trial court accurately addresses the state
of the law regarding the doctrine of respondeat superior
in Alabama, we quote at length from the trial judge’s
opinion:
“The Supreme Court of Alabama has repeat-
edly stated that a corporation is liable for the
torts of its employees, both agent, and servant,
based upon the principle of respondeat supe-
rior, not the doctrine of agency. ‘The factual
question to be determined is whether the act
complained of was done either by agent or
servant while acting within the course and
scope of nis employment; the corporation or
principal may be liable in tort for the acts of its
servants or agents done within the scope of
employment, real or apparent, even though it
did not authorize or ratify such acts or even
expressly forbade them.’ Autry v. Blue Cross
& Blue Shield of Alabama, 481 So. 2d 345,
ee.
347-48 (Ala. 1985), National States Ins. Co. v.
Jones, 392 So. 2d 1361, 1367 (Ala. 1980)
(quoting from Old Southern Life Ins. Co. v.
McConnell, 52 Ala. App. 589, 296 So. 2d 183,
186 (1974)). The courts have further held the
principal liable for this agent’s fraud committed
within the actual or apparent scope of his
employment, even where the fraud was commit-
ted strictly for the agent’s own benefit and to
the principal’s detriment. Henderson v. Croom,
403 F. Supp. 668 (1975). ...
“As the above cases illustrate, the bulk of
Alabama’s law holds that a principal may be
held liable in respondeat superior for the fraud
of its agents. The issue as to whether Ruffin
was an agent for Pacific Mutual was properly
given to the jury to decide, as was the
abandonment-of-agency issue.”
Pacific Mutual primarily based its defense of this case
on an “abandonment of agency” theory. The defense
argued that Ruffin was acting on behalf of other princi-
pals at the time he committed fraud, thereby abandoning
his agency relationship with Pacific Mutual.
As the trial court pointed out above, whether one is an
agent of another is generally a question to be decided by
the jury. Brown v. Commercial Dispatch Pub. Co., 504
So. 2d 245, 246 (Ala. 1987). Accord, American Pioneer
Life ins. Co. v. Sandlin, 470 So. 2d 657 (Ala. 1985). In
American Pioneer, the agent, McWhorter, was not a
registered agent for American Pioneer when he sold an
annuity to the plaintiff, although he became one several
months later. Because the evidence pertaining to
McWhorter’s status as an agent of American Pioneer
was conflicting, this Court deemed it a proper question
for the jury.
ee.
In this case there is no question that sufficient evi-
dence existed to support the jury’s determination that
Lemmie Ruffin and his agency manager, Patrick Lupia,
were acting within the line and scope of their employ-
ment with Pacific Mutual when Ruffin made the repre-
sentations to the plaintiffs that became the subject-of this
Suit: Ruffin was a Pacific Mutual agent and an em-
ployee of the company; Lupia was the agency manager;
Ruffin’s licensing was maintained by the Pacific Mutual
office; Ruffin was furnished training and sales material
by Pacific Mutual; Ruffin always introduced himself as
“Lemmie Ruffin with Pacific Mutual”; Ruffin’s reply
card was mailed from, and was returned to, the Pacific
Mutual office; Ruffin presented City employees with his
Pacific Mutual business card; Ruffin never told anyone
that the health insurance would be placed with a com-
pany other than Pacific Mutual; Ruffin’s proposal was
typed at Pacific Mutual’s office on Pacific Mutual
Stationery; the monthly billing statements for , remiums
were prepared at, and mailed from, Pacific Mutual office
on Pacific Mutual stationery; Lupia handled all the
finances and “the books” for the Pacific Mutual office;
all of Lupia’s business and all of Ruffin’s business was
carried on at Pacific Mutual offices; Lupia had received
complaints from policy-holders alleging that Ruffin was
engaging in fraudulent activities but he had done nothing
about those complaints; Pacific Mutual’s home office
had received complaints regarding Ruffin’s fraud: .ent
activities but had done nothing about them.
This evidence was properly submitted to the jury,
which found that Lemmie Ruffin had not abandoned his
agency relationship with Pacific Mutual, and that he had
not acted alone. The jury rendered a verdict based upon
sufficient evidence. For the foregoing reasons, we can
not find that Ruffin was acting outside the scope of his
-B 10-
agency or that his acts were not imputable to Pacific
Mutual.
Moreover, we can not say, given the evidence submit-
ted to the jury, that the plaintiffs failed to prove the
elements of an action for misrepresentation. Pacific
Mutual claims that the plaintiffs failed to adduce evi-
dence supporting a claim for fraud because, it says, there
was no misrepresentation of a material existing fact, no
justifiable reliance upon any misrepresentations, and no
actual damage to the plaintiffs. This statement simply
ignores the evidence presented at trial. When Lemmie
Ruffin accepted the premium payments from his clients,
the plaintiffs, he was in essence telling those clients that
there was an existing policy in effect. Thus, Ruffin was
misrepresenting an existing fact. Courts have held that
“payment of a premium is necessary as a condition
precedent to an enforceable contract of insurance.”
Johnson v. Dairyland Ins. Co., 398 So. 2d 317 (Ala. Civ.
App. 1981), Queen Ins. Co. of America v. Bethell
Chapel, 27 Ala. App. 443, 174 So. 638, cert. denied, 234
Ala. 184, 174 So. 640 (1937). The premiums in this
case were in fact paid out of the employees’ paychecks
and were not merely promises to pay. By accepting
these premiums, Ruffin represented to the parties that
their policies were both existing and current. The
evidence presented proves that Ruffin had no intention
of fulfilling his promises and that he intended his decep-
tion. By accepting premiums on a policy which, un-
known to the plaintiffs, had been cancelled, Ruffin
exhibited his intentions not to perform his promises. We
therefore reject Pacific Mutual’s claim that the evidence
did not prove the elements of an action for fraud.
-Bll-
Il.
Pacific Mutual next argues that the trial was tainted
by the admission of illegal evidence. At trial, the testi-
mony of a number of witnesses was admitted despite the
objections of Pacific Mutual. First, the testimony of
Debra [sic] Ault, a former secretary, regarding telephone
calls from unnamed persons complaining about Ruffin,
was admitted over objection that the proper foundation
had not been laid for the testimony. Pacific Mutual
argues that this evidence was prejudicial, because it was
offered as evidence of other frauds perpetrated by
Lemmie Ruffin. Moreover, Ault’s testimony, Pacific
Mutual claims, was improper because, although the rule
had been invoked, Ault was allowed to remain in the
courtroom during other witnesses’ testimony.
C. Gamble, McElroy’s Alabama Evidence § 273.02
(3d ed. 1977) states:
“If it is material to prove that a person at a
specified time had been put on notice about a
matter .. . proof that a statement was made to
him prior to the time in question ... and which
is offered for the purpose of showing
notice, ... is not violative of the Hearsay
Rule.”
Pacific Mutual employed Ault as a secretary. Her duties
consisted of, among other things, answering the tele-
phone. The trial court admitted evidence of her conver-
sations with Ruffin’s clients, not to prove the truthful-
ness of the matter asserted, but rather to prove Pacific
Mutual’s notice of the fraud. Lupia denied any such
complaints. Ault’s testimony showed that Pacific
Mutual had received notice of customer complaints
concerning Ruffin; therefore, the trial court’s admission
-B12-
of Ault’s testimony did not improperly prejudice the
trial.
Pacific Mutual also complains of the trial court’s
admission of the testimony of Cleopatra Haslip, one of
the plaintiffs; that of Ralph Passman, an insurance
broker who handled the Union Fidelity insurance plan
and who maintained records concerning the cancellation
of that policy; and that of Ron Gaiser, an experi witness
for the plaintiffs. After a careful review of the trial
court’s rulings in regard to each, we can not say that
Pacific Mutual was materially prejudiced by the admis-
sion of this evidence.
IV.
Finally, Pacific Mutual argues that the punitive
damages award in this case violates its rights embodied
in the first, fourth, fifth, sixth, eighth, and fourteenth
amendments to the United States Constitution.
Initially we point out that the United States Supreme
Court has recently ruled in the case of Browning-Ferris
Industries of Vermont, Inc. v. Kelco Disposal, Inc., _
U.S. _, 109 S.Ct. 2909 (1989), that the excessive fines
clause of the eighth amendment does not apply to puni-
tive damages awards in cases between private parties.
Moreover, in a series of recent cases, this Court has
rejected the remaining constitutional arguments submit-
ted by Pacific Mutual. See, Industrial Chemical &
Fiberglass Corp. v. Chandler, (Ms. 86-381, Ms., 86-385,
Sept. 30, 1968, after remand, June 16, 1989] | So. 2d
__ (Ala. 1988); United American Ins. Co. v Brumley,
542 So. 2d 1231 (Ala. 1989); HealthAmerica v. Menton,
[Ms. 87-1100, July 21] _ So. 2d _ (Ala. 1989);
Olympia Spa v. Johnson, [Ms. 87-110, May 12, 1989] __
So.2d (Ala. 1989).
-B13-
We also note that, in an abundance of concern for the
preservation and protection of a defendant’s constitu-
tional right to due process of law, this Court has adopted
guidelines to be used by the trial court in reviewing
judgments. These guidelines are found in Hammond v.
City of Gadsden, 493 So. 2d 1374 (Ala. 1986); Harmon
v. Motors Insurance Corp., 493 So. 2d 1370 (Ala. 1986);
Alabama Farm Bureau Mutual Cas. Ins. Co. v. Griffin,
493 So. 2d 1379 (Ala. 1986). They require the trial
judge to reflect on the record his or her reasons for
either interfering or not interfering with a jury’s verdict.
In reviewing the punitive damages award in this case,
the trial judge applied the principles of law adopted in
these cases, held a hearing, and set out on the record the
reasons why he felt the law did not authorize him to
order a remittitur. The facts in the record support the
trial court’s findings. Further, jury verdicts are pre-
sumed correct, and that presumption is strengthened
when the presiding judge refuscs to grant a new trial.
Super Valu Stores, Inc. v. Peterson, 506 So. 2d 317 (Ala.
1987). In view of the record, we conclude that the
judgment of the trial court, including the damages
award, which the trial court reviewed on motion for new
trial, is due to be, and it hereby is, affirmed.
AFFIRMED.
Jones, Almon, Adams, and Kennedy, J.J., concur. -
- Houston, J. concurs in the result.
Maddox and Steagall, J.J., concur in part and dissent
1) part.
-B14-
87-482
Pacific Mutual Life Ins. Co. v. Cleopatra Haslip, et al.
MADDOX, JUSTICE (concurring, in part; dissenting, in
part).
I concur in the majority op. on in all respects except
as to that aspect of the opinio:. that holds that the puni-
tive damages award in this case does not violate the due
process clause of the Fourteenth Amendment to the
United States Constitution.
While I personally agree with Justice O’Connor that
the “excessive fines clause” of the Eighth Amendment
should be applicable in civil cases, I recognize that the
Supreme Court of the United States, in Browning-Ferris
Indus. of Vermont, Inc. v. Kelco Disposal, Inc., _ U.S.
__, 109 S.Ct. 2909 (1989), has held otherwise. I think
that the United States Supreme Court, in Kelco, while
hoiding that the excessive fines clause of the Eighth
Amendment is inapplicable to a punitive damages award
in a civil case,” nevertheless left the door open for a
challenge under the federal constitution’s due process
clause. In fact, in Kelco, all nine Justices expressed
some concern with unrestrained punitive damages
awards, and as I read Kelco, the Court may consider a
challenge to an award that is properly presented and
argued under the due process clause of the Fourteenth
See my dissenting opinion in Jndustrial Chemical & Fiberglass
Corp. v. Chandler, (Ms. 86-381 & 86-385, September 30, 1988, after
remand, January 16,1989) So.2d__ (Ala. 1988).
2 The Court’s majority opinion, written by Justice Blackmun, said
that the Eighth Amendment’s excessive fines clause did not apply to
punitive damages awards in civil suits between private parties,
because “the primary focus of the Eighth Amendment was the
potential for governmental abuse of its ‘prosecutorial’ power, not
concern with the extent or purposes of civil damages.” — U.S. at
__, 109 S.Ct. at 2915.
-B15-
Amendment.”
During the last few years, individual Justices of the
Supreme Court of the United States have expressed
concern about “windfall recoveries which may be
both unpredictable and, at times, substantial”:4 “juries
[that] assess punitive damages in wholly unpredictable
amounts bearing no necessary relation to the actual harm
caused”;> and awards based upon a jury’s “wholly
Standardless discretion to determine the severity of
punishment.”°
In Aetna Life Ins. Co. v. Lavoie, 475 U.S. 813 (1986),
a case which was appealed from this Court, the Court
noted that the argument “that the lack of sufficient
Standards governing punitive damages awards in
Alabama violates the Due Process Clause of the
Fourteenth Amendment” raised important issues that “in
> In o, the Court found that the due process issue had not been
suff y raised for the Court to consider it, but the Court did
not: “[WJe have never addressed the precise question presented
here: whether .e process acts as a check on undue jury discretion
to award punitive damages in the absence of any express statutory
limit.... That inquiry must await another day.” __U.S. at__, 109
S.Ct. at 2921. Justice Blackmun stated: “There is some authority in
Our opinions for the view that the Due Process Clause places outer
limits on the size of a civil damages award.” /d.
In Kelco, in a separate concurring opinion in which Justice
Marshall joined, Justice Brennan suggested that the due process
issue could be raised: “I join the Court’s opinion on the understard-
ing that it leaves the door open for a holding that the Due Process
Clause constrains the imposition of punitive damages in civil cases
brought by private parties.” | U.S. at __, 109 S.Ct. at 2923.
. City of Newport v. Fact Concerts, Inc., 453 U.S. 247, 270-71
(1981).
> Gertz v. Welch, 418 U.S. 323, 350 (1974).
® Bankers Life & Cas. Co. v. Crenshaw, 486 U.S. 71, _, 108 S.Ct.
1645, 1656 (1988) (O’Connor, J., concurring in part and concurring
in the judgment).
-B 16-
an appropriate setting, must be resolved.” 475 U.S. at
837.
While the view I expressed in my dissent in /ndustrial
Chemical & Fiberglass Corp. was not sustained in
Kelco, | take heart that ultimately, when the due process
issue is properly presented to the United States Supreme
Court, that Court will hold that giving a jury a “standard-
less discretion” to award punitive damages in a civil case
violates the due pz:ocess clause of the Fourteenth
Amendment.
While I applaud the procedure this Court has adopted
to review and revise the jury’s decision based on its
“standardless discretion,”’ I cannot believe that pro-
cedure is sufficient to accord to litigants all the due
process protection the Constitution envisions.
Because I believe that the award of punitive damages
in this case violates the defendant’s due process rights
under the Fourteenth Amendment, I must respectfully
dissent as to that portion of the majority’s opinion.
Steagall, J., concurs.
7 Hammond v. City of Gadsden, 493 So. 2d 1374 (Ala. 1986);
Harmon v. Motors Ins. Corp., 493 So. 2d 1370 (Ala. 1986); Alabama
Farm Bureau Mut. Cas. Ins. Co. v. Griffin, 493 So. 2d 1379 (Ala.
1986).
5 in various special concurrences and dissents, I have expressed
the view that punitive damzges awarded in wrongful death cases are
in a differe... category from punitive damages awarded in other
cases. See Alabama Power Co. v. Cantrell, 507 So. 2d 1295, 1306
(Ala. 1986), appeal dismissed, _ U.S. __, 108 S.Ct. 2008 (1988);
Industrial Chemical, supra.
The Legislature, in placing a “cap” on the award of punitive
damages in all cases other than wrongful death cases (except, of
course, the $1,000,000 cap in the Medical Liability Act) has
essentially recognized the distinction that I have made and do make.
APPENDIX C
ee
MAILING ADDRESS:
P.O. BOX 157
MO! "TGOMERY, ALABAMA 36101
TELEPHONE: 261-4609
OFFICE OF
CLERK OF THE SUPREME COURT
STATE OF ALABAMA
MONTGOMERY
Re: 87-482
Pacific Mutual Life Insurance Company
Appellant
VS.
Cleopatra Haslip, et al.
Appellee
You are hereby notified that the following indicated
action was taken in the above cause by the Supreme
Court today:
Appeal docketed. Future correspondence
Should refer tache above number.
Court Reporter granted additiona! time to file
reporter's transcript to and including
Clerk/Regist*r granted additional time to file
clerk’s recor. . ecord on appeal to and in-
cludin~
Appell___gra.'ed 7 ade ional days to file
driefs to and inc'uding
Appellant(s) granted 7 additional days to file
reply briefs to and including
Record on Appeal filed
C3.
Appendix Filed
Submitted on Briefs
Petition for Writ of Certiorari denied. No
opinion.
XXXX Application for rehearing overruled. No
opinion written on rehearing.
Permission to file amicus curiae briefs granted
11/9/89
bsa
/s/ Robert G. Esdaie
Robert G. Esdale, Clerk
Supreme Court of Alabama
APPENDIX D
-Dl1-
THE STATE OF ALABAMA
JUDICIAL DEPARTMENT
IN THE SUPREME COURT OF ALABAMA
DECEMBER 6, 1989 .
87-482
Pacific Mutual Life Insurance Company
v.
Cleopatra Haslip, et al.
Jefferson County Circuit Court
CV-82-2453
ORDER
The application for stay of judgment pending petition
for writ of certiorari to the United States Supreme Court
having been filed and duly suSmitted to the Court,
IT IS ORDERED that the application for stay of
judgment pending petition for writ of certiorari to the
United States Supreme Court is denied.
Hornsby, C.J., and Maddox, Jones, Almon, Shores,
Adams, Houston, Steagall, and Kennedy, J.J., concur.
I, Robert G. Esdale, as Clerk of the Supreme Court
of Alabama, do hereby certify that the foregoing is
a full, true and correct copy of the instrument(s)
herewith set out as same appear(s) of record in said
Court.
Witness my hand this 6th day of Dec. 1989.
/s/ Robert G. Esdale
Clerk, Supreme Court of Alabama
APPENDIX E
MEA ho ek eZ
si
SUPREME COURT OF THE UNITED STATES
No. A-452
Pacific Mutual Life Insurance Company,
Applicant,
v.
Cleopatra Haslip, et al.
ORDER
UPON CONSIDERATION of the application for stay and
the response filed thereto,
It IS ORDERE®=D that execution of the judgment of the
Supreme Court of Alabama in the above-entitled matter, case
No. 87-482, filed September 15, 1989, be and the same is
hereby stayed pending referral of the application to the Court
for consideration at the Conference on Friday, January 5S,
1990.
This order is further conditioned upon the supersedeas
bond currently postec with the Circuit Court of Alabama,
Jefferson County, Civil Action No. CV 82 2453, remaining
in effect.
IT IS FURTHER ORDERED that this stay shall continue
pending further order of the Court or of the undersigned.
/s/ Anthony M. Kennedy
Associate Justice of the Supreme
Court of the United States
Dated this 22nd day of December, 1989.
/ true copy JOSEPH F. SPANIOL, JR.
Tests
Clerk of the Supreme Court of the United States
By /s/ Francis J. Corsan
Chief Deputy
-E2- -E3-
SUPREME COURT OF THE UNITED STATES Cou.t of Jefferson County, Alabama, Civil Action
OFFICE OF THE CLERK No. CV 82 2453, remaining in effect.”
WASHINGTON, D. C. 20543
Very truly yours,
JOSE.H F. SPANIOL, JR., Clerk
JOSEPH F. SPANIOL, JR., AREA CODE 202
CLERK OF THE COURT 479-3011
- ae
By /s/ Francis J. Lorson
January 8, 1990 Francis J. Lorson
Chief Deputy Clerk
Mr. Bruce A. Beckman
Adams, Duque & Hazeltine ed |
523 West Sixth Street cc: Bruce J. Ennis
Los Angeles, CA 90014 Clerk, Supreme Court of Alabama
(Your No. 87-482)
Clerk, Circuit Court of Alabama,
RE: Pacific Mutual Life Insurance Company pe rs (Your No. CV 82 2453)
efferson County (Your No. C
v. Cleopatra Haslip, et al.
No. A-452
Dear Mr. Beckman:
The Court today entered the following order in the
abov--entitled case:
“The application for stay presented to Justice
Kennedy and ty him referred to the Court is
granted and it is ordered that execution and enforce-
ment of the judgment of the Supreme Court of
Alabama, case No. 87-482, is stayed pending the
timely filing and disposition of a petition for a writ
of certiorari. J:. wie event the petition for a writ of
certiorari is denied, this order terminates automati-
cally. Should the petition for a writ of certiorari be
granted, this order is to remain in effect pending
the issuance of the mandate of this Court. This
order is further conditioned upon the supersedeas
bond presently posted with the Clerk of the Circuit
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.