Amicus Curiae Brief — Pacific Mutual Life Insurance v. Haslip

Supreme Court, U.S.

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- F. SPANIOL, JR

No. 89-1279 JOSEPH ERK

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IN THE SUPREME COURT OF

THE UNITED STATES

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

BRIEF OF MID-AMERICA LEGAL FOUNDATION

AS AMICUS CURIAE SUPPORTING

THE POSITION PETITIONER

Martha A. Churchill

Counsel of Record

MID-AMERICA LEGAL FOUNDATION

20 North Wacker Drive, Suite 1721

Chicago, Illinois 60606

312/263-5163

BEST AVAILABLE COP\

IN THE SUPREME COURT OF

THE UNITED STATES

October Term, 1989

PACIFIC MUTUAL LIFE INSURANCE COMPANY,

Petitioner,

vs.

CLEOPATRA HASLIP, CYNTHIA CRAIG, ALMA M.

CALHOUN and EDDIE HALGROVE,

Respondents.

TABLE OF CONTENTS

Page:

Table of Authorities 2

Interest of Amicus Curiae 3

Summary of Argument 6

Issue 8

Argument 8

Conclusion 16

page l

\ TABLE OF AUTHORITIES

Cases:

J. T. Brown v. Louis Maxey, 124 Wis. 2d 426;

369 N.W. 2d 677 (1985)

Browning-Ferris Industries of Vermont v.

Kel :

elco D sposaty Inc. 492 U.S. _, 109 S. Ct.

)

Moore v. Jewel Tea Co., 46 Ill. 2d 288, 263

N.E. 2d 103 (1970)

Vaselenak v. Smith, 414 Mich. 567; 327 N.W.

2d 261 (1982)

Williams v. Cunningham Drug, 429 Mich 495;

418 N.W. 2d 381 (1988)

Statutes:

Ill. Rev. Stat. ch. 110, § 2-1207

Iowa Code Annotated, §668A.1

Minnesota Statutes Annotated, 549.20 and

555.15-18

Constitutional Authority:

14th Amendment to the U. S. Constitution.

Other Authorities:

Huber, Peter W., Liability, The Legal

Revolution and Its Consequences, (1990),

Basic Books, Inc., New York.

University of Miami Law and Economics

Center, (P.O. Box 248000, Coral Gables,

Fla., 33124), "Products Liability At A

Glance, 1990", published in Triodyne, Inc.

Safety Brief, March 1990, Volume 6, No. l.

With permission.

page 2

INTEREST OF MID-AMERICA

LEGAL FOUNDATION

Mid-America Legal Foundation (MALF) is

a non-profit Illinois corporation. MALF has

an interest in the disposition of the case

which is before this Court on writ of cert-

iorari to review the judgment and opinion of

the Alabama Supreme Court in Pacific Mutual

v. Cleopatra Haslip, 553 So. 2d 537 (1989),

based on the expertise and purpose of this

Organization.

_ MALF was organized in 1975 to engage in

legal research, study and advocacy for the

benefit of the general public. MALF takes

special interest in issues of national scope

that have a direct impact on the Midwest

region, namely Illinois, Indiana, Iowa,

Michigan, Minnesota, Ohio and Wisconsin.

The Midwest region is one of the most

important manufacturing areas of the nation.

The question of punitive damages has a great

impact on our nation's producers in that

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they frequently are subjected to punitive

awards in products liability lawsuits. For

example, it is possible for one alleged

design defect in a product to bring multiple

punitive awards, a result which has develop-

ed relatively recently with the evolving

tort law of our times.

Punitive awards were once limited to

cases in which an individual had conducted

himself in such an egregious manner as to

deserve special monetary damages being

awarded against him. Today, punitive awards

are being allowed more and more frequently

against corporations, and as such there is

no particular individual to be "punished"

except the shareholders as a group, or their

insurers.

MALF is able to give this Court a

perspective from the point of view of the

Midwestern states, comparing the law in

those states with the situation at bar, and

commenting on the economic impact this case

page 4

may have on the Midwestern region as a

whole.

MALF is an advocate of the free enter-

prise system, and of individual rights as

opposed to excessive government control.

Punitive damages as applied in the instant

case have a direct effect on the ability of

American producers to compete on the world

market as our courts are functioning in a

totally unpredictable manner, akin to a

lottery, in determining the amounts of tort

awards for injured plaintiffs. Government,

acting through the courts, is effectively

crippling American industry.

Punitive damages as applied in Alabama

and in other states are a serious problem,

jeopardizing large corporations, as those

are usually the principal target of those

seeking large punitive damage awards. But

in addition, punitive damages are hurting

America's social welfare, in that American

producers are placed at a disadvantage as

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compared with foreign producers. The result

is a loss of jobs and lifestyle in America.

MALF has obtained the consent of both

parties to the filing of this brief, copies

of the letters being on file with the Clerk

of this Court or being sent to the Clerk by

counsel for the parties.

SUMMARY OF ARGUMENT

This Court has never applied the 14th

Amendment to the system by which punitive

damages are applied in many states. Brown-

ing-Ferris Industries v. Kelco Disposal,

Inc. 492 US _, 109 S. Ct. 2909 (1989).

Until relatively recently, punitive

damages were awarded only in certain unusual

cases involving individual turpitude or

purposeful malicious behavior on the part of

the defendant. However, in the last 20

years or so, punitive damages have been

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applied on a far more widespread basis. The

focus of such damages has shifted from indi-

viduals and has increasingly targeted corpo-

rations. In many cases, plaintiffs are

permitted to argue that the size of the

corporation is in itself a reason to grant a

large punitive award.

The changing focus of punitive damages

has resulted in a system which more resem-

bles a lottery than a court of law. Instead

of a legal system in which citizens can know

in advance what to expect under the law, the

system of punitive damages as it is applied

today merely introduces a large element of

chaos and uncertainty into the dispute reso-

lution process. As a side effect of the

court-imposed chaos, private insurance for

liability becomes increasingly expensive as

insurers cannot accurately predict risks for

purposes of assessing premiums.

Rather than serving its original

purpose of deterring unconscionable conduct,

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the punitive damages system as applied today

merely introduces a wildcard into the legal

process, an arbitrary and unfair confisca-

tion of property, clearly violative of the

14th Amendment to the Constitution.

ISSUE

Are punitive damages, as applied in

this case, violative of the 14th Amendment

Due Process Clause to the U.S. Constitution?

ARGUMENT

Though punitive damages have been

around for generations, this area of the law

has practically exploded in recent decades.

Under old tort law, punitive damages were

allowed only when the defendant had acted

outrageously or with wanton disregard of the

plaintiff's safety. Such awards were

directed against individuals for their own

page 8

misconduct, not against the employers of

wrongdoers or against corpo. ations.

As a trend, plaintiffs are seeking

punitive damages in more types of situations

and against more defendants. The numbers of

such cases and the amounts of the verdicts

have skyrocketed in recent years.

As Peter W. Huber points out in his

book, Liability, The Legal Revolution and

Its Consequences, the explosive growth of

punitive damage awards has completely

altered the tort landscape.

"Demands for punitive damages were

extremely rare until the 1960's; today

they are routine when the injury is

serious and a wealthy institution is

numbered among the accused. ... Before

1970, for example, only about 0.5 per-

cent of all tort claims filed against

Ford Motor Company asked for punitive

damages; by 1975 such demands had risen

tenfold; and by 1980, punitive awards

were being sought in more than a

quarter of all cases."

Huber, supra, at page 127

The reason for the punitive damage

explosion is obvious. It raises the stakes

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in the tort system by introducing a totally

open-ended factor-- a jury license to award,

as in the case at bar, literally any amount

of money out of thin air.

The totally arbitrary nature of punitive

awards can be demonstrated by the results in

products liability cases, where a manufact-

urer may be subjected to exemplary penalties

multiple times for the same product.

"Out of eleven early cases against

MER/29 [an anti-cholesterol drug], the

manufacturer won four, the plaintiff won

only compensatory damages in four, and

the plaintiff won punitive damages in

three-~ one of which was then overturned

On appeal."

Huber, supra, at page 110

Currently 29 of the 50 states specifi-

cally provide for punitive damages in one

form or another, according to a study by the

University of Miami Law and Economics Center.

The results of that study were published in

the Triodyne, Inc. Safety Brief, March, 1990,

illustrating the crazy-quilt nature of tort

law from one state to the next.

page 10

There is enormous variation as to puni-

tive damages among the Midwestern states.

Ohio allows punitive damages, but the

judge determines the amount to be paid.

In Wisconsin, the leading case involves

a landowner who paid punitive damages to an

injured tenant because of someone else's

Criminal act on his property. Brown v. Louis

Maxey, 124 Wis. 2d 426; 369 N.W. 2d 677

(1985). The defendant, who owned a federally

subsidized housing project, was ordered to

pay punitive damages for a fire which was set

deliberately by a relative of a tenant. The

Brown court observed that the landlord's

behavior, though not malicious or purpose-

ful, was "outrageous" in that he should have

taken steps to avoid the possibility of

arson-- such as "more thorough tenant select-

ivity." Brown, supra, 369 N.W. 2d at 683.

It is interesting that the Wisconsin

court allowed punitive damages against this

defendant for a fire he did not set. If the

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defendant's conduct was criminal in some

sense, presumably the fire marshal could have

issued a citation or sought criminai prose-

cution; however the Wisconsin civil judges

felt it within their province to provide the

punishment, by adding punitive damages to the

compensation this defendant was otherwise

liable for.

The Brown case also stands for the

principle that punitive awards are covered by

insurance in Wisconsin. Not all states

follow that practice, though, usually on

policy grounds that punitive damage awards

are to punish, and so insurance coverage for

them would defeat the purpose. (1)

Contrast the Wisconsin situation with

Michigan's, where landowners are not respon-

Sible for crimes by others in the first

place. Williams v. Cunningham Drugs, 429

Mich. 495; 418 N.W. 2d 381 (1988). Nor are

(1) Compare: the U.S.S.R. prohibits liabi-

lity imsurance for negligence, on policy

grounds. It is felt that personal respon-

sibility for tort deters negligent behavior.

page 12

punitive damages allowed under Michigan

common law, since plaintiffs are considered

fully compensated by their recovery for

non-economic damages. Vaselenak v. Smith,

414 Mich. 567; 327 N.W. 2d 261 (1982).

Iowa allows punitive damages, but the

system is tightly controlled by statute. See

Iowa Code Annotated, §668A.1. Iowa plain-

tiffs may receive only 25 percent of the

punitive award unless it can be proven that

the defendant directed his conduct specifi-

cally at the claimant. The remainder of the

award is paid to a state fund for uninsured

litigants, which has the salutary effect of

preventing undeserved windfalls to plain-

tiffs. That provision may, however, put the

statute in jeopardy of an 8th Amendment con-

stitutionacl challenge pursuant to Browning Vv.

Kelko, supra.

Illinois has a statutory provision

allowing the judge to apportion punitive

damages among the plaintiff, plaintiff's

page 13

Ys

counsel, and the Illinois Department

of Rehabilitation Services. See Ill. Rev.

Stat. ch. 110, § 2-1207. Though that

provision may be violative of Browning,

Supra, it was part of a 1986 reform package

which parallels Iowa's provision in that

respect.

Illinois is somewhat liberal in awarding

punitive damages, applying a standard which

is not sharply distinguishable from that of

negligence. The test is "willful and wanton

conduct" which can be proven without showing

any specific intent to injure. See Moore v.

Jewel Tea Co., 46 Ill. 2d 288, 263 N.E. 24

103 (1970).

The legislature in Minnesota recently

grappled with the danger of allowing unbrid-

led punitive awards, and took steps to cut

back some of the more blatantly unfair

aspects of the system. Compare Minnesota

Statutes Annotated, 549.20, with § 555.15-18.

Minnesota law is interesting in that it

page 14

addresses certain abuses of the punitive

damages system which are evident in the case

at bar.

The newly revised statute, M.S.A 555.15

et. seq., permits a party bifurcation of the

trial where the issue of punitive damages has

been raised. Bifurcation eliminates the pro-

blem of inflammatory evidence being intro-

duced during the trial in chief, such as the

wealth of defendant, which may well influence

the jury's assessment of the compensatory

damages issue.

Minnesota has addressed the problem

faced by subsequent plaintiffs when the first

claimants, through use of punitive damages,

have dried up the source of compensation for

future litigants, as happened in the instance

of Searle and its IUD litigation. A Minne-

sota defendant is permitted to introduce

evidence at trial showing its liability to

other plaintiffs, in an effort to reduce the

punitive award. That provision is seldom

page 15

ae

used by defendants, though, as its negative

impact on the jury could well outweigh any

benefit it might have to the defendant.

The fact that Minnesota has dealt with

the problem legislatively is evidence that

the Minnesota legislature has perceived the

basic unfairness of unbridled punitive

damages, and without analyzing it as a due

process question has attempced to mitigate

some of the more harmful aspects of the

punitive damages system.

CONCLUSION

The procedure for application of puni-

tive damages in Alabama, as shown in the case

at bar, has clearly evolved into an oppres-

sive and arbitrary system which effectively

turns the courtroom into a gambling casino.

This insurance company could not by any

stretch of the imagination have intended the

harm to plaintiffs, nor even had advance

knowledge of the harm. The Alabama court

page 16

would nevertheless subject it to an award

which bears no relation whatsoever to the

"crime" of its employee. Rather, the jury

was given the opportunity to vent its

prejudice against big business and its

frustration against insurance companies in

general; all of which serves no legal,

judicial, or social purpose.

This Court has the sstuntendes to rule,

once and for all, that punitive damages as

applied in this instance are in fact a

violacion of the 14th Amendment to the

Constitution of the United States.

THE MID-AMERICA LEGAL FOUNDATION

Martha A. Churchill, General Counsel

20 North Wacker Drive, Suite 1721

Chicago, Illinois 60606

(312) 263-5163

Dated: June l, 1990

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