Reply Brief — Life Insurance Co. of Georgia v. Johnson

t ) FIL

No. 96-184 F

lit aetna 13 1995

IN THE CLERK

Supreme Court, y

Supreme Court of the Gnited Statesr

OCTOBER TERM, 1995

LIFE INSURANCE COMPANY OF GEORGIA,

Petitioner,

v.

DAISEY L. JOHNSON,

Respondent.

On Petition for a Writ of Certiorari

to the Supreme Court of Alabama

REPLY MEMORANDUM

Of Counsel: THEODORE B. OLSON

Counsel of Record

FRANCIS J. MULCAHY THEODORE J. BOUTROUS, JR.

VICE-PRESIDENT AND JERRY S. FOWLER, JR.

GENERAL COUNSEL GIBSON, DUNN & CRUTCHER LLP

LIFE INSURANCE CO. OF 1050 Connecticut Avenue, N.W.

GEORGIA Washington, D.C. 20036

(202) 955-8500

DAVIS CARR

JAMES W. LAMPKIN II

CARR, ALFORD, CLAUSEN

& MCDONALD, L.L.C.

Post Office Drawer C

Mobile, AL 36601

(334) 432-1600

Attorneys for Petitioner

PRESS OF BYRON S. ADAMS # WASHINGTON, D.C. ¢ 1-800-347-8208

TABLE OF CONTENTS

TABLE UP AUTHORITIOS ...cccccccovcccovscscsccesccses ii

REPLY MEMORANDUM ..............cccecccssseesceeseee l

CONCLUSION

iii 2D

TABLE OF AUTHORITIES

Cases Page(s)

BMW of North America, Inc. v. Gore,

116 S. Ct. 1589 (1996) .........sceceeceeeeeees passim

Dewey v. City of Des Moines, 173 U.S. 193

(1899) .. ccccccccccrccccccccccecsvececococccssoveseossces 6

Foster v. Life Ins. Co. of Georgia,

656 So. 24 S33 (ISDS) ..cccccccccccceccccccescossceses 3

Illinois v. Gates, 462 U.S. 213 (1983) .........cceeeeeeeeees 6

PruneYard Shopping Center v. Robins, 447

UB, F6 CIBED) .coccoceccssecsccccccescocsesesovceoseese 6

Raley v. Ohio, 360 U.S. 423 (1959).........ecceeeeeeeeeeees 6

Stanley v. Illinois, 405 U.S. 645 (1972) ........0ceeeeeeeees 6

Yee v. City of Escondido, 503 U.S. 519 (1992)............ 6

REPLY MEMORANDUM

Petitioner Life Insurance Company of Georgia ("Life of

Georgia") respectfully files this memorandum in reply to

respondent's brief in opposition to certiorari.

In the Petition ("Pet."), Life of Georgia demonstrated

that at the very least, the Court should grant certiorari,

vacate the judgment and remand this case for further

consideration in light of BMW of North America, Inc. v.

Gore, 116 S. Ct. 1589 (1996). Life of Georgia also

showed that the Court should grant plenary review to

decide whether the punitive damage award in this case

violates the Due Process Clause. Although this Court's

decision in BMW was not released until almost a month

after the Alabama Supreme Court issued its opinion on

- applications for rehearing in this case, respondent contends

that the Alabama court "faithfully applied” the standards set

forth in BMW. Moreover, although the Alabama Supreme

Court in this case expressly and unequivocally rejected Life

of Georgia's argument that the punitive damage award

violated the Due Process Clause, Respondent's Brief in

Opposition ("Opp.") nonetheless unaccountably argues at

length that this Court lacks jurisdiction to review three of

the four due process questions presented in the Petition and

that Life of Georgia otherwise waived its constitutional

claim. Opp. at 1, 16-23. Life of Georgia will address each

of the arguments in turn.

1. Little needs to be said about respondent's hyperbolic

reinterpretation of the factual background of this case, other

than to point out that respondent, in her strenuous efforts to

characterize Life of Georgia's conduct as “reprehensible,”

fails to dispute -- because she cannot -- that the sale of

Medicare Supplement policies to tens of thousands of older

Americans was a legitimate, lawful activity that yielded

tremendous social benefits in all but a few isolated cases.

Life of Georgia further notes the continuing confusion in

respondent's argument as to why Life of Georgia should be

held liable. Respondent first concedes that agent Barbara

Holt “knew that it was illegal and against company policy

to sell the supplement policy to Ms. Johnson if she was on

[M]edicaid,” Opp. at 3, and does not deny the undisputed

testimony that Ms. Holt asked respondent whether she was

on Medicaid, see Pet. at 11-12 & n.4. Yet, respondent

contends that Life of Georgia should be liable because it did

not provide adequate training to Ms. Holt and should have

known that Ms. Holt was “incompetent.” Opp. at 4.

There was absolutely no evidence at trial (nor is any

offered by respondent now) that Ms. Holt's purported lack

of competence caused her to sell a Medicare Supplement

policy to respondent. Indeed, after the completion of

evidence and before submission of the case to the jury,

respondent withdrew her negligent training claim.

2. Respondent's assertion that the Alabama Supreme

Court in this case “faithfully applied the three ‘guideposts'

announced in BMW," Opp. at 15-16, is fanciful. The

Alabama Supreme Court undertook in this case exactly the

same form of review that it applied in its review of the.

punitive damage award at issue in BMW. And it arrived at

an indistinguishable result: imposition of a multi-million

dollar penalty that is not moored to any standard or

benchmark. In both cases, quite simply, the Alabama court

pulled a number out of the air. As it already has done with

three similarly postured cases from Alabama, see Pet. at 8

n.3, this Court should remand for further consideration.

Respondent's attempts to reshape the decision of the

Alabama Supreme Court to reflect this Court's BMW

guidance is unpersuasive. For example, in asserting that

Life of Georgia's conduct is so “reprehensible” that it

ee he a EE ce el

deserves a $5 million penalty in this case (in addition to the

$1 million imposed for the same conduct in Foster v. Life

Ins. Co. of Georgia, 656 So. 2d 333 (1994)), respondent

emphasizes that Life of Georgia's conduct hurt “low

income, elderly individuals." Opp. at 14. In doing so,

respondent focuses on her economic status and generalizes

her case. What she fails to note, as did the Alabama

Supreme Court, is that the Medicare Supplement policies

helped thousands of lower income, elderly individuals. See

Pet. at 10-11. Moreover, what was at issue in this case

was Life of Georgia's sale of a Medicare Supplement policy

to one individual, respondent, not the propriety of such

policies. More to the point, the Alabama Supreme Court

did not articulate any "standard that readily distinguishes

between conduct warranting very small, and conduct

warranting very large, punitive damage awards." BMW,

116 S. Ct. at 1605 (Breyer, J., concurring).

Respondent not surprisingly attempts to elide the second

BMW factor -- proportionality -- which clearly was not

considered by the Alabama Supreme Court and which

clearly compels a substantial reduction of the punitive

damage award. See Pet. at 12-13. In _ particular,

respondent offers no justification to support a punitive

damage award that is 20 times "mental anguish” damages

that are themselves grossly excessive, nor does she attempt

to justify the fact that the punitive damage award is 1,600

times respondent's economic loss, other than to say in

effect that Life of Georgia's conduct is so reprehensible that

proportionality should not matter. See Opp. at 14. The

point in looking to proportionality, in addition to

reprehensibility, is to have a separate basis for assessing the

excessiveness of an award. To justify a “breathtaking”

1,600:1 ratio by pointing to alleged reprehensibility is to

read the proportionality section out of the Court's BMW

analysis.

Respondent's claim that the Alabama Supreme Court

“utilized this Court's third 'guidepost' announced in BMW

in remitting the award to $5 million," Opp. at 14, is

nonsensical. Nothing in the Alabama Supreme Court's

opinion uses any legislatively established sanction as a

benchmark for arriving at the $5 million penalty imposed in

this case. Nor could the Alabama court have found any

legislative justification for such a steep fine, because there

simply is none. Indeed, respondent herself “does not

dispute that the monetary comparisons are wide," but falls

back "upon the objective criteria presented at trial," Opp. at

15, whatever that means.

It simply is impossible to credit respondent's assertion

that the Alabama Supreme Court “faithfully applied the

three 'guideposts' announced in BMW." Opp. at 15-16.

The Alabama court did not have the benefit of the BMW

decision before it assessed millions of dollars in punitive

damages, and it did not betray any prescience that this

Court would strike down the award that the Alabama court

had assessed in BMW, which was a product of the same

procedures that it used in this case. Cf Pet. App. at 186a

(Maddox, J., dissenting from denial of stay) ("In BMW, the

Supreme Court found that this Court did not exercise its

discretion reasonably and that the constitutional protection .

of due process of law was not satisfied. I think the Court is

guilty once again."). This Court should remand to give the

Alabama Supreme Court the opportunity in reality to apply

BMW "faithfully."

3. Respondent attempts to avoid plenary review in this

Court, not by any cogent dispute on the merits, but by

arguing that Life of Georgia did not preserve its claim that

the punitive damage award violates the Due Process Clause.

This argument is utterly without basis in the record, which

is replete with assertions by Life of Georgia of its due

process claim. See Pet. App. at 155a (asserting in the

et ie

oe Ss

Answer that the “imposition of punitive damages in this

case would violate the Due Process Clause"); 156a-157a

(asserting in the Answer nine separate ways in which a

punitive damage award would violate the Fourteenth

Amendment, including that "[t]here is no limit placed on

the amount of the award," "[t}here are no provisions for

clear and consistent appellate standards of review" and

"[t]he standards of conduct upon which punitive damages

are sought are vague and ambiguous"); 159a-166a (arguing

in the post-trial brief that the Alabama punitive damage

system “violates the Due Process Clause of the Fourteenth

Amendment" for a variety of reasons, including that due

process requires “that 'a person of ordinary intelligence’

have fair notice as to what the law commands or forbids");

166a-170a (arguing in the post-trial brief that the award in

this case is “grossly excessive” in violation of “the Due

Process Clause of the Fourteenth Amendment"); 172a-181la

(arguing on appeal that the award in this case “contravenes

. . . the Due Process Clause of the Fourteenth Amendment"

for a number of reasons, including because it "subject[ed]

Life of Georgia to punishment for that alleged conduct for

the second time”).

The Alabama Supreme Court explicitly addressed Life of

Georgia's due process claim:

[T]he due process provisions of the

Fourteenth Amendment have been the basis

of constitutional challenges where, as in

this case, the defendant argues that the

award of punitive damages is grossly

excessive and fundamentally unfair and

therefore contravenes Alabama law and the

Due Process Clause of the Fourteenth

Amendment. ... These arguments have

been carefully considered by this Court.

. . . It is the opinion of this Court that $5

million is not excessive for punishment and

deterrence specific to Life of Georgia,

considering all the facts of this case.

Pet. App. at lla, 37a. This ruling on Life of Georgia's

due process claim is fatal to respondent's preservation

claims: "There can be no question as to the proper

presentation of a federal claim when the [court below]

passes on it." Raley v. Ohio, 360 U.S. 423, 436 (1959).

Respondent also appears to confuse a due process "claim"

with the particular "arguments" made in support of such a

claim. Thus, respondents seek support from Yee v. City of

Escondido, 503 U.S. 519 (1992). In Yee, this Court would

not consider whether a statute denied substantive due

process because "petitioners did not raise a substantive due

process claim in the state courts, and no state court has

addressed such a claim." Id. at 533 (emphasis added). In

this case, Life of Georgia clearly and consistently raised its

due process claim from the beginning of the litigation

through appeal to the Alabama Supreme Court, and that

court addressed the due process claim.

To the extent that Life of Georgia has refined and

supplemented its due process arguments or articulated the

due process question with greater specificity in this Court, .

it is well settled that the "[pJarties are not confined here to

the same arguments which were advanced in the courts

_ below upon a federal question there discussed.” Dewey v.

City of Des Moines, 173 U.S. 193, 197-98 (1899); see,

e.g., Stanley v. Illinois, 405 U.S. 645, 658 & n.10 (1972)

(although the precise issue was not raised in the courts

below, the issue could be considered in this Court because

it involved the same “constitutional premise raised below"

and the “method of analysis [was] readily available to the

state court"); see also PruneYard Shopping Center v.

Robins, 447 U.S. 74, 85-86 n.9 (1980); Illinois v. Gates,

462 U.S. 213, 248 & n.2 (1983) (White, J., concurring in

ee ee ES Le ee OE Se Eee ee eee ee ee teeta ae lel

the judgment) ("We have never suggested that the

jurisdictional stipulations of § 1257 require that all

argumenis on behalf ... of a federal claim be raised and

decided below.").

Respondent's various assertions that Life of Georgia did

not properly raise objections under state law -- for example,

to counsel's opening and closing arguments urging the jury

to punish Life of Georgia for out of state conduct -- are

irrelevant. See Opp. at 16-18. Life of Georgia did not and

does not contend that counsel's argument was improper as a

matter of Alabama substantive or procedural law, so it had

no obligation to object to the argument.! Rather, Life of

Georgia contends that the punishment imposed -- based as it

was in part on Life of Georgia's out of state conduct --

violated the Due Process Clause. This argument regarding

the due process claim was fully briefed on the merits in the

Alabama Supreme Court and was fairly included in the due

process claim as it was raised beginning with Life of

Georgia's Answer. See Pet. App. at 176a-178a; Opp. App.

at 2-4, 6.

4. Respondent makes no argument whatsoever on the

merits of Question 2 (extraterritoriality) of the Petition.

With regard to Question 3 (duplicative punishment),

respondent says only that this case is not a “mass tort" as

are the cases cited in the Petition. See Opp. at 20. It is

interesting that respondent concedes that Life of Georgia

has not committed a "mass tort,” in light of her explicit

claims at trial regarding an illegal pattern of fraud.

Nevertheless, the underlying and operative fact is that Life

of Georgia was punished twice for the same conduct,

1 Similarly, Life of Georgia had no obligation to object to

the trial court's oral charge to the jury in order to preserve its

due process claim. See Opp. at 21-22.

precisely the issue that vexed the lower courts in the cases

cited in the Petition. See Pet. at 17 &n.7. Thus, this case

squarely presents the important issue of the constitutionality

of duplicative punishment.

Finally, respondent resists plenary review of the

constitutionality of the Alabama punitive damage system on

the ground that the Alabama legislature and Alabama

Supreme Court have taken steps to try to improve the

system. See Opp. at 22-23. The woeful reality - which

respondent does not dispute -- is that despite minor changes

in the Alabama procedures, the system does not provide

defendants with “fair notice ... of the severity of the

penalty,” BMW, 116 S. Ct. at 1598, that Alabama may

impose to punish any given conduct. Respondent makes no

attempt to show how the Alabama system as it currently

exists provides such notice. In any event, to the extent that

the Alabama Supreme Court might recognize that Alabama

procedures are inadequate, that Court did not provide Life

of Georgia with the benefit of any means designed to

correct those shortcomings. This case provides the

opportunity for this Court to announce clear, objective and

definite procedural standards that restrict the imposition of

punitive damages.

CONCLUSION

The petition for a writ of certiorari should be granted and

the case either remanded for further consideration by the

Alabama Supreme Court in light of BMW or set for plenary

consideration.

September 13, 1996

Of Counsel:

Respectfully submitted,

THEODORE B. OLSON

(Counsel of Record)

THEODORE J. BOUTROUS, JR.

JERRY S. FOWLER, JR.

GIBSON, DUNN & CRUTCHER LLP

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 955-8500

DAVIS CARR

JAMES W. LAMPKIN II

CARR, ALFORD, CLAUSEN

& MCDONALD, L.L.C.

Post Office Drawer C

Mobile, AL 36601

(334) 432-1600

Attorneys for Petitioner