Appendix — Alley v. Gubser Development Co.

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: f, . :.. Supreme Court, U.S.

86-314" crTLen

NO. | AUG 26 1986

IN THE | | JOSEPH F. SPANIOL, JR,

CLERK

SUPREME COURT OF THE UNITED STATES

October Term, 1986

BARBARA ANN ALLEY

and

W.H. ALLEY,

Petitioners,

VS.

GUBSER DEVELOPMENT COMPANY,

NATIONAL GYPSUM COMPANY, and

WEYERHAUSER COMPANY,

’

Respondents.

APPENDIX FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF THE UNITED STATES

John S. Evangelisti

LaFOND & EVANGELISTI

1756 Gilpin Street

Denver, Colorado 30218

(303) 388-4551

Attorney for Petitioners

APPENDIX A

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLORADO

No. 80-Z2-986

BARBARA ANN ALLEY and W.H. ALLEY,

Plaintiffs,

vs.

GUBSER DEVELOPMENT CO., an Oklahoma corpo-

ration; NATIONAL GYPSUM COMPANY, a Delaware

corporation d/b/a DMH COMPANY; WEYERHAEUSER

COMPANY, a Washington corporation; and

LOUISIANA-PACIFIC CORPORATION, a Delaware

corporation,

Defendants.

Order from the United States District

Court for the District of Colorado

Decided and Filed August 10, 1983

Before: Zita L. Weinshienk, Judge

—_-

Action was brought against various de-

fendants, alleging breach of implied warranty

of merchantability, negligent failure to warn,

and products liability, relating to defen-

dants' use of materials containing urea-for-

maldehyde in construction of mobile home.

After judgment was rendered in favor of plain-

tiffs, defendants filed various posttrial

motions. The District Court, Weinshienk, J.,

which had presided over the trial, held that:

(1) evidence was sufficient to warrant find-

ing that there was urea formaldehyde in

plaintiffs' mobile home and that it caused

injury; (2) compensatory damages awards were

not excessive; (3) evidence was sufficient to

create inference that management personnel of

each defendant corporation knew of potentici

problems caused by exposure to urea jenmnke

dehyde, and hence, corporations could be held

liable for punitive damages; and (4) punitive

damages award of $510,000 in favor of man who

sustained various personal and economic injur-

-l-

ies as a result of exposure to urea formal-

dehyde was so disproportionate to $20,000

compensatory damages award as to shock the

judicial conscience, and remittitur would

be ordered to reflect award in total amount

of three times the compensatory award given

to man and his wife, resulting in $150,000

in punitive damages; denial of motions for

new trial would be conditioned upon accept-

ance of the remittitur.

So ordered.

John S. Evangelisti, LaFond & Evangelisti

Denver, Colo., for plaintiffs.

Hugh Q. Gottschalk, Holland & Hart,

Denver, Colo., for Gubser Development Co. and

National Gypsum Co.

Richard L. Schrepherman, O. Russell

Murray, Holme, Roberts & Owen, Denver, Colo.,

for Weyerhaeuser Co,

Christopher M, Brandt, Wood, Ris &

Hames, P.C., Denver, Colo. for Louisiana-

Pacific Corp.

ORDER

WEINSHIENK, District Judge.

Plaintiffs Barbara Ann and William H.

Alley, husband and wife, sued the defendants,

Gubser Development Company (Gubser), National

Gypsum Company (National Gypsum), Weyer-

haeuser Company (Weyerhaeuser), and Louisiana

Pacific Corporation (Louisiana-Pacific), for

injuries and losses allegedly caused by the

manufacture and sale of a mobile home which

the plaintiffs purchased and lived in for six

months in 1978. Jurisdiction was based on

diversity of citizenship. 20 U.S.C. §1332.

Plaintiffs relied upon three theories of

liability: breach of implied warranty of

merchantability, negligent failure to warn

and products liability.

The case was tried to a jury of seven,

which returned a verdict for plaintiffs and

) against defendants as follows: $20,000 in

compensatory damages for Mrs. Alley; $30,000

in compensatory damages for Mr. Alley; and

punitive damages for Mr. Alley against

-—3-

RA .S wi iy wae bs

A A i NIA Als NO Neal oak i ais ete

Gubser in the amount of $10,000, against

National Gypsum in the amount of $200,000,

against Weyerhaeuser in the amount of

$150,000, and against Louisiana-Pacific in

the amount of $150,000. Judgment was entered

on August 31, 1982; a stay of execution of

the judgment was granted on September 10,

1982.

The case is now before the Court on the

post-trial motions filed by the defendants.

These include: (1) Motion for Judgment

Notwithstanding the Verdict or in the Alter-

native for a New Trial, by defendants Gubser

and National Gypsum; (2) Defendant Louisiana

Pacific Corporation's Motion to Alter or

Amend Judgment or for Judgment Notwithstand-

ing the Verdict or for Remittitur or New

Trial; and (3) Motion of Defendant Weyer-

haeuser Company for Judgment Notwithstanding

the Verdict on Punitive Damages; or to Alter

or Amend Judgment; or, in the Alternative,

for Remittitur or a New Trial on all Claims.

Memorandum Briefs were filed by each defen-

-4-

dant in support of these motions. Plaintiffs

filed a Reply to Defendants’ Motions to

Amend and for New Trial, and all defendants

filed reply memoranda. There also have been

supplemental memoranda filed by all parties.

The Court has considered all of these

motions and memoranda, the relevant case law,

and all the facts and circumstances of the

case, and now is prepared to rule on the

defendants' motions.

The issues raised by defendants fall

into two main categories: (1) issues invol-

ving compensatory damages, including (a)

whether there was sufficient evidence to

support the verdicts; and (b) whether the

amounts awarded were excessive; and (2)

issues involving punitive damages, including

(a) whether punitive damages were barred by

the statute of limitations found in C.R.S.

1973 §13-80-104; (b) whether exhibits were

properly admitted against defendants Weyer-

haeuser and Louisiana-Pacific; (c) whether

{

;

}

there was sufficient evidence to support an

-5-

award of punitive damages; and (d) whether

the award of punitive damages was excessive.

I. COMPENSATORY DAMAGES

Defendants argue that there was insuff-

icient evidence to support the award of comp-

ensatory damages to plaintiffs, urging that

there was no showing that their products off-

gassed urea formaldehyde, nor that there was

any causal connection between the presence of

urea formaldehyde and the injuries suffered

by the plaintiffs. More specifically, they

point out that the elements of permanent in-

jury, loss of credit, loss of reputation and

impairment of earning capacity were all

removed from the case, They further urge

that because the evidence indicated that the

plaintiffs bankruptcy and anxiety were caused

by facts other than the presence of urea

formaldehyde in the mobile home, and because

the evidence relating to the liver attack of

Mr. Alley was supported only by the testi-

mony of James R, Beall, Ph.D., the resulting

verdicts were both unsupported by the evi-

dence and excessive,

In addition, Louisiana-Pacific argues

that the evidence tying it to the manufacture

of the particleboard was insufficient because

the number on the piece of particleboard

taken from the plaintiffs' home, Exhibit 102,

was illegible; the testimony of Ron King was

improperly admitted; and Exhibit 154, which

indicated that the defendant used mill number

"42," was also improperly admitted.

The Tenth Circuit has set down guide-

lines for determining an award by a jury of

either compensatory or punitive damages can

be set aside:

We have said that absent an award so

excessive as to shock the judicial

conscience and to raise an irresist-

able inference that passion, prejudice,

corruption or other improper cause in-

vaded the trial, the’jury's determin-

ation of the damages is considered

inviolate. Metcalfe v. Atchison,

Topeka and Santa Fe Railway Co., 491

F.2d 892, 898 (lOth Cir.) ... Such

bias, prejudice, or passion can be

inferred from excessiveness. Wells v.

Colorado College, 478 F,2d 158, 162

(10th Cir,) ... However, a verdict

will not be set aside on this bias

unless it is so plainly excessive as

to suggest that it was the product of

such passion or prejudice on the part

of the jury....

Such cases recognize the principle that

if the court determines that the verdict

; was the result of passion or prejudice,

; or for any other reason it appears that

; the jury erred or abused its discretion

not only on the issue of damages but

also on the issue of liability, the

court must unconditionally order a new

trial and cannot give the plaintiff the

option to accept a lesser amount....

PR Gata eeealeaX

Seti aed eae

However, another remedy is also recog-

nized. Where the court concludes there

was error only in an excessive damage

award, but not one also tainting the

finding of liability, the appellate

court may order a remittitur and alter-

natively direct a new trial if the plain-

tiff refuses to accept the remittitur, a

widely recognized remedy. See Holmes v.

Wack, 464 F.2d 86, 89 and n.3 (10th Cir.)

be mer as POG yt,

A Wr Olle need

ibe th EN Sa Nit

: Malandris v. Merrill Lunch, Pierce, Fenner &

Smith, Inc., 703 F.2d 1152 at 1168 (10th Cir.

1981) sustained on rehearing en banc, March

31, 1983. (Footnote and citations omitted).

fi, 2] Although plaintiffs presentation

on liability issues was based primarily on

. circumstantial evidence and inference, there

was sufficient evidence to support a finding

| that there was urea formaldehyde in plaintiffs

home and that it did cause injury to the

-8-

PE ee en —

i ee A

plaintiffs. The jury so found. This Court

does not conclude that the compensatory

damage awards are so excessive as to shock

the judicial conscience, and, thus, will not

substitute her judgment for that of the jury.

See Burns v. McGraw-Hill Broadcasting, 659

P.2d 1351, 1355-6 (Colo. 1983). The awards

of compensatory damages will not be disturbed.

The admissibility of the testimony of Mr.

King and of Exhibit 154 were reviewed at

trial, and the Court finds that both were

properly considered by the jury.

Defendants' motions for judgment not-

withstanding the verdict or for an altered

Or amended judgment or for remittitur will

therefore be denied as to compensatory

damages.

II. PUNITIVE DAMAGES

A. Statute of Limitations

[3] All defendants argue that allowing

punitive damages to be considered by the jury

was error because this is an action involv-

ing a penalty, and punitive damages are

therefore barred by the one year statute of

limitations provided in C.R.S. 1973 §13-80-

104. The Court's earlier holding that the

claim for punitive damages is not barred by

this statute of limitations is correct. The

plaintiffs' claim is based on the underlying

tort claim, and is not just a suit for penal-

ty under §13-80-104. See Dorney v. Harris,

482 F.Supp. 323, 325 (D. Colo. 1980), and

Griffin v. Pate, 644 P.2d 51, 53 (Colo. App.

1981).

B. Admissibility of Exhibits

[4] 1. Weyerhaeuser: Defendant Weyer-

haeuser argues that the Court erred in admit-

ting Exhibits 266, 302, 320, 331, and 352,

all of which relate to the issue of whether

punitive damages should be allowed against

this defendant. The Court carefully consid-

ered the question of the admissibility of

these documents at trial. The documents

were properly admitted as statements against

interest, and will remain as a part of the

record.

2. Louisiana-Pacific: Defendant Louisi-

ana-Pacific objects to the admission of

Exhibit 154 on the ground that it was not

listed in the Pre-Trial Order, and was there-

fore wrongfully admitted into evidence.

Defendant argues that, without this exhibit

there is no evidence tying Louisiana-Pacific

to the manufacture of the particleboard.

Defendant also objects to the admission of

Exhibits 155, 157, 163 and 187 on the ground

that they do not fall within an exception to

the hearsay rule. These issues were consid-

ered at length at the Pretrial Conference on

August 8, 1982, at which time the Court deci-

ded that the documents were admissible. The

documents will remain as a part of the record.

C. Sufficiencv of the Evidence

[5] Defendants argue that before a cor-

poration can be held liable for punitive

damages, it must be shown that the corporate

management authorized or approved the culp-

able conduct or participated in the wrong.

This is a correct statement of the law in

@oiji=

Colorado. See Malandris, supra, at 1174.

[6] Weyerhaeuser argues that there was

no evidence that management was aware of

the harmful characteristics of urea formal-

dehyde, or that people named in disputed

Exhibits 266, 302, 331 and 352 were part of

Weyerhaeuser's management. Gubser, National

Gypsum and Louisiana-Pacific also argue that

there is no evidence that the management of

the three corporations were aware of or part-

icipated in the conduct which caused the

plaintiffs' injury.

However, the Court concludes, as a mat-

ter of law, that there was sufficient evi-

dence to create an inference that management

personnel of each defendant corporations

knew of the potential problems caused by

exposure to urea formaldehyde. Testimony

of Bill Watkins, an employee of Gubser,

revealed that the doors of the newly manu-

factured mobile homes had to be tied open

in order to keep the formaldehyde odor from

permeating the home. The disputed exhibits

=12<

listed above and offered against Weyerhaeuser

are sufficient to create an inference that

management employees of the corporation were

aware of the urea formaldehyde problem.

Exhibits 136 and 137, offered against National

Gypsum, and Exhibits 157 and 163, offered

against Louisiana-Pacific, are also suffi-

cient to create such an inference.

The award of punitive damages will not

be disturbed on the grounds that the corpor-

ate management of defendants did not know of

or participate in the wrongful conduct.

D. The Excessiveness of the Punitive

Damages

Defendants also argue that the award of

punitive damages was grossly excessive, that

it was not related to the award of compen-

satory damages, that it shocks the consci-

ence, and that it was the result of passion

and prejudice on the part of the jury.

[7,8| The purpose of punitive damages

is to punish the wrongdoer and to deter

similar conduct in the future and by others.

-13-

Frick v. Abell, 602 P.2d 852, 853-4 (Colo.

1979). Several factors must be taken into

consideration in determining whether an

award of punitive damages is excessive: (1)

whether is bears some reasonable relation to

the actual damages awarded; (2) the degree

of malice involved; (3) the gravity of the

plaintiff's injury; (4) the desire for

meaningful punishment. Taylor v. Sandoval,

442 F.Supp. ‘491 (D. Colo. 1977). The Court

in Taylor found that there is no precise

mathematical ratio for determining the reason-

ableness of the punitive damage award.

However, it has been held in the Tenth Circuit

that an award of punitives can be "{sjo

extremely disproportional that we must assume

that the jury acted either with passion or

prejudice...." Dearmore v. Gold, 400 F.2d

887, 888 (10th Cir. 1968). In the Dearmore

case, a ratio of punitive to compensatory

damages of 11:1 was struck down as being exces-

sive.

9] The award of punitive damages to

=-léo

Mr. Alley was $510,000. Mr. Alley was found

to have suffered $30,000 in actual damages,

and Mrs. Alley, $20,000. The ratio of puni-

tive to compensatory damages for Mr. Alley

is 17:1. Even if the compensatory awards

are combined, the ratio of punitive to actual

damages is greater than 10:1.

This Court finds this to be a dispro-

portion that is "so excessive ... as to shock

the judicial conscience and to raise an irr-

esistible inference that passion, prejudice

--. Or other improper cause invaded the

trial." See Barnes v. Smith, 305 F.2d 226,

228 (10th Cir. 1962). See also Malandris,

supra, at 1168.

In so finding, the Court has considered

the many factors set out by the Colorado

courts as they apply to this case: the ex-

tent of the plaintiffs' harm was not so

great as to merit an extremely high punitive

award; the award of punitives was not reason-

ably related to the compensatory damages;

the plaintiffs did not prove a high degree of

-15-

Yer ee ee

malice on the part of the defendants.

The punitive damage award will there-

fore be reduced, in order to effect a more

reasonable relationship between the comp-

ensatory and punitive damage awards and yet

not defeat the purpose behind the punitive

awards. The defendants must still be made

to feel the "sting" of the jury's finding

that they acted with a wanton and reckless

disregard of the plaintiffs' rights and

feelings. The punitive award must retain

its deterrent effect.

Although the Court finds that the puni-

tive award was excessive and unreasonable

in view of the evidence and the injuries

sustained by the plaintiffs, thereby infer-

ring that the punitive award was the result

of a passion or prejudice on the part of the

jury, the Court finds that the liability

determination was not similarly tainted.

See Malandris, supra, at 1168. Had the

entire trial been so tainted, the Court

would have no choice but to order a new trial.

-16-

7 —_—_ rE ao atl a eee ee ee ee oe ee —~ ee ee ee eee ee eee eS a ee ee a ee — 2

ET TT ray eee a ae pe. vy "7" ae te alt eh 4 Te a ar F

Under the circumstances here, however, the

Court will order a remittitur, conditioned

on the plaintiffs' acceptance of the reduced

punitive damages award. If the plaintiffs

choose to reject the remittitur, the Court

will grant the defendants' motions for a new

trial. See Holmes v. Wack, 464 F.2d 86, 89

(10th Cir. 1972).

A remittitur of the punitive award to a

total amount that is three times the combined

compensatory awards given to the plaintiffs,

$150,000, will therefore be ordered. This

amount will be apportioned based on the ori-

ginal punitive damages awards, as follows:

National Gypsum $58,800

Weyerhaeuser $44,150

Louisiana-Pacific $44,150

Gubser Development $ 2,900

Plaintiffs will have 20 days from the |

date of this Order in which to accept or

reject the remittitur. If they choose to

reject the remittitur, a new trial will be

ordered on all issues, because a trial on the

issue of punitive damages alone would create

o17=

andue confusion. See Malandris, supra, at

1178. |

[II. STATUTE OF LIMITATION ISSUE

| 10} Defendant Louisiana-Pacific again

raises the issue of whether the pilaintiffs'

claims against the company were barred by

the three year statute of limitations pro-

vided in C.R.S. 1973 §13-80-127.5. The

jefendant has raised this issue several times

before. The Court will once again deny the

jefendant's motion, and hereby incorporates

by reference, as if fully set forth, the oral

conclusions of law previously made.

It is therefore, ORDERED that ail

defendants’ motions are denied except to the

extent that a remittitur is ordered as set

forth above. If plaintiffs reject the remit-

titur, the motions for new trial on all

issues will be granted. It is

FURTHER ORDERED that the plaintiff

shall notify the Court of the acceptance or

rejection of the remittitur by August 30,

1983,

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Nos. 83-2415, 83-2423 and 83-2424

BARBARA ANN ALLEY

and

W.H. ALLEY,

Plaintiffs-Appellants,

Cross-Appellees,

VS.

GUBSER DEVELOPMENT COMPANY,

NATIONAL GYPSUM COMPANY and

WEYERHAEUSER COMPANY,

Defendants-Appellees,

Cross-Appellants.

On Appeal from the United States District

Court for the District of Colorado

Decided and Filed March 3, 1986

Before: Barrett, McWilliams and Anderson,

Circuit Judges.

—<————

FACTS

In April, 1978, the Alleys, after

considerable "shopping," purchased a new

"American" mobile home from Gubser d/b/a

Best Mobile Homes (Best). At the time

Best was a dealer for NGC, the

manufacturer of the home. The home was

built April 24, 1978, in accordance with a

special order placed by Best with NGC on

behalf of the Alleys. The Alleys moved

into the ‘ home. on April 27, 1978.

Immediately after occupying the home the

Alleys were bothered by an odor which

burned and stung their eyes, noses, and

throats. The Alleys complained to Best

employees who related that the odor came

from formaldehyde releasing products in

the home, that the Alleys should “air-out"

the home, and that the smell would go

away.

Although the smell did not go away,

the Alleys continued to reside in the home

throughout the summer months. During this

time the Alleys made a number of

complaints to Best and others about the

smell in their home. The Alleys were also

treated by several doctors for various

ailments, including Mr. Alley's treatment

for hepatitis.

In August of 1978, the Alleys decided

to move to Denver, Colorado, and _ soon

thereafter the Alleys arranged to have

their home moved to Colorado. After

relocating in Colorado, the Alleys fell

behind on their home payments. They filed

for bankruptcy and vacated the home on

November 18, 1978.

On July 25, 1980, the Alleys brought

Suit against Gubser, NGC, and Weyerhaeu-

ser2, seeking damages for permanent

2Neither Georgia Pacific nor Louisiana

Pacific who were subsequently joined as

parties are before us on appeal.

personal injuries and property loss as a

result of exposure to formaldehyde gas in

their home. The Alleys' complaint raised

claims of enterprise liability, strict

liability, negligence, breach of warranty,

and alleged violations of the Consumer

Product Safety Commission Act, the

National Manufactured Home Construction

and Safety Standards Act and the

Magnuson-Moss Warranty Act.

TRIAL

At trial, which extended over’ two

weeks, the Alleys testified in detail

relative to the problems created by the

odor in their home and their attempts to

have the problem corrected. Clarence

Lott, a chemist for the Colorado

Department of Health testified for the

Alleys. He stated that products

containing urea-formaldehyde can “off-gas”

low levels of formaldehyde, and that at

the time the air was tested in the Alleys'

houe, formaldehyde levels between .49 and

-97 parts per million (ppm) were detected.

Lott did not identify the source of

forupiaekeat in the home.

Dr. Beall, a board certified

toxicologist, also testified as an expert

for the Alleys. Dr. Beall testified,

inter alia: there is a wide variability of

individual sensitivity to formaldehyde;

various wood products, including particle

board, can off-gas formaldehyde; reports

as early as 1905 discussed the effects of

formaldehyde on. people; and that in the

1970's there was information produced and

circulated by “industry” on ways’ to

mitigate or decrease the levels of

formaldehyde that may be irritating to a

person owning a mobile home. Although Dr.

Beall did not define what he meant by

"industry", the court allowed him to

The eee es ee ee ee eee

testify that, in his opinion, "industry"

should have warned the public of the

effects of formaldehyde.

The Alleys also presented the

testimony of Edna Conyers who purchased

the mobile home in October, 1979, less

than one year after the Alleys vacated it.

She testified that the home had an odor

when she first moved into it but that

"after you live in there a while, cooking

odors and smoke and things like that kind

of mask it (odor)." R., Vol. XVI at 736.

She did not indicate any dissatisfaction

with the home.

During trial Weyerhaeuser stipulated

that it produced the paneling in the

Alleys' home, that the paneling was

produced from plywood “blanks,” and that

the adhesive used to glue the "blanks"

together included urea-~formaldehyde.

Weyerhaeuser acknowledged that during the

first four months’ of 1978, it sold

particle board to the plant that built the

Alleys" home and that all of the particle

board it sold to the plant was purchased

from Louisiana Pacific.

Throughout the trial the defendants

defended on the basis that although they

were aware of the odor related problems

with formaldehyde, they were unaware of

the serious health related problems as

alleged by the Alleys. The defendants

introduced the testimony of Dr. Kornberg,

who stated that none of Mr. Alley's

medical problems “can be related to his

formaldehyde exposure at that time," and

that "the exposure was insufficient to

Cause any permanent damage of any sort;

and the substance is not known to cause

problems at this concentration beyond a

very short period.” Id. at 996.

The trial court admitted several

exhibits proffered by the Alleys to which

NGC and Weyerhaeuser vigorously objected.

First, NGC objected to Plaintiffs'

Exhibits 136 and 137 which detailed the

odor problems encountered by a purchaser

of an American mobile home in November,

1969. While stipulating to the authenti-

city of the letters, NGC argued that the

letters were unsubstantiated and overly

prejudicial because they contained the

statement that the odor in the home

nauseated the owner, who was pregnant, and

that her doctor had suggested that she

stay somewhere else during the last month

of her pregnancy.

Second, Weyerhaeuser also vigorously

objected to the court's admission of

Plaintiffs' Exhibits 266, 302, 320, 352,

and 331. These exhibits, which were

obtained from Weyerhaeuser files,

discussed formaldehyde odor problems

emanating from particle board and the need

to correct the problem. Although

Weyerhaeuser acknowledged the fact that

the exhibits came from its files and

"appeared" to be on Weyerhaeuser's

stationary, Weyerhaeuser argued that the

documents were irrelevant because they all

related to particle board and not to

paneling; thus, because > ee FP not

manufacture any of the particle board in

the Alley home, but only the paneling, the

exhibits were inadmissible.

Prior to admitting the exhibits, the

trial court specifically ruled that

Weyerhaeuser could not be held liable on

an enterprise theory on the particle

board:

THE COURT: Well are you going to

have any evidence to connect it up

-- no, I don't think we can

connect it up, because you haven't

told me where in the complaint the

allegation is. There is simply no

enterprise liability theory

against Weyerhaeuser on the

particle board in your complaint.

-s = @

That is the court's opinion;

and I think that is very clear in

the complaint, and there is just

no allegation of enterprise

liability acainst Weyerhaeuser on

the particle board.

The court will rule that that is not

the case. Re, Vole XX at 1125-1126.

Inasmuch as Louisiana-Pacific had

manufactured the particle board in the

Alleys’ home, Weyerhaeuser was dismissed

on an enterprise liability theory with

respect to the particle board. However,

Weyerhaeuser remained in the case with

respect to particle board on claims of

implied breach of warranty, products

liability, and negligent failure to warn.

MOTIONS FOR DIRECTED VERDICT

Approximately midway . through

presentation of their defense, Weyerhaeu-

ser and NGC moved for directed verdicts.

In arguing for a directed verdict

dismissing all the Alleys' claims against

it, Weyerhaeuser contended that there was

insufficient evidence to support a finding

that its paneling in the Alley home had

off-gassed, much less that it off-gassed

to an extent sufficient to create the

injuries of which the Alleys complained.

(Re, Vol. XXI at 1358-1359.) Weyerhaeuser

further argued for a directed verdict on

all claims for punitive damages on the

basis that although the evidence

established “an awareness of aan _ odor

problem,” there was "no evidence that

Weyerhaeuser knew that the paneling could

cause physical harm to people and acted

with a wanton and reckless disregard of

the harm to people that might be caused by

disregarding that concern.” Id. at 1365.

NGC moved for a directed verdict by

incorporating Weyerhaeuser's motion in

total. Id. at 1378., In its motion for a

directed verdict on Alleys' punitive

damage claim, NGC argued, inter alia:

Alleys' complaints were directed to an

odor problem; the Alleys did not make

health related complaints and did not

relate any serious problems to Best or

NGC; although Best and NGC may not have

properly responded to the Alleys'

complaints about smell in the home, which

gave rise to the level of negligence,

there is no evidence that the actions of

Best and NGC gave rise to willful and

wanton conduct supportive of punitive

damages. Id. at 1380-86.

Prior to ruling on Weyerhaeuser's and

NGC's motions for a directed verdict, the

district court observed:

It has been pointed out in

the arguments by defendants what

the plaintiff could have done and

what they hav2 not done in making

a presentation in this ‘case.

Normally in a products liability

case, there is an expert witness

who specifically says this product

is defective in that expert's

Opinion and why it is defective.

We have not had such an expert in

this case. I don't know what the

problem has_ been. From the

literature that I have looked at,

including all the exhibits that

haven't come in, it looks’ like

there surely should have been such

an expert to testify; but the

closest we've come is Dr. Beall,

who really didn't testify at any

length about wood product’ and

specifically did not testify about

any testing he did on the floor

board or the wall paneling.

However, the Court certainly

has to consider inferences --

reasonable inferences, circum-

stantial evidence, and try to make

this decision as fair as we can at

this point to the Plaintiff; and

when the Court is in doubt, which

I am on a couple areas, I will

resolve those doubts by letting it

go to the jury.

Re, Vol. XXII at 1449-50.

Thereafter the district court granted

NGC's and Weyerhaeuser's motions for a

directed verdict on the following claims:

Magnuson-Moss, because “there is no

evidence of any damage to property or

direct damage in this case” -(R., Vol,

XXII at 1450); impaired earning capacity,

"there is no reasonable inference that can

be drawn that he has impaired earning

Capacity ... nor is there any evidence of

permanent physical injury," id. at

1450-1451; lost reputation, "no eee

evidence that the plaintiffs have lost

their reputation in any way" id.; lost

credit, “no evidence of impaired credit"

id. at 1452; and enterprise liability, “is

no longer in the case" id. However, the

court denied NGC's and Weyuerhaeuser's

motions for a directed verdict on the

Alleys’ claims for punitive damages. In

so doing, the court, after noting its

concern about the claims, found that the

claims should remain in the case. The

court then ruled that the following causes

of action would be presented to the jury:

implied warranty of merchantability,

product liability, and negligent failure

to warn. |

After all the parties had rested, the

defendants renewed their motions’ for

directed verdicts. (Re, Vol. XDXIV at

1965, et seq.) These motions were denied

and the case was presented to the jury.

At the time the jury received the case,

the Alleys had presented evidence which

tended to establish: their purchase of

the home ; Louisiana-Pacific as the

manufacturer of the particle board in the

home; Weyerhaeuser as the supplier of the

particle board and the manufacturer and

supplier of wood paneling in the home; the

presence of formaldehyde in the home

(without identifying the source of the

formaldehyde) ; complaints to various

individuals and entities about the smell

in their home; periods of illness which

for both Mr. and Mrs. Alley required

medical treatment while residing in the

home (yet the Alleys acknowledged that

they did not tell their doctors about the

formaldehyde) ; people have different

reactions to formaldehyde; moving their

home from Oklahoma to Colorado; petition-

ing for bankruptcy; and vacating the home.

The Alleys also acknowledged that Mr.

Alley = had fully recovered form his

hepatitis.

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The defendants had presented evidence

which tended to establish that: they were

aware of smell related problems caused by

formaldehyde but not health related

problems as alleged by the Alleys; the

Alleys’ health problems during the time

they resided in the home were not related

to the formaldehyde in the home; Mr. Alley

could not have recovered from his

hepatitis, had it actually been formalde-

hyde induced, because he continued to live

in the home during his recovery (which was

unrebutted); and that the Alleys did not

have to file for bankruptcy but did so on

the erroneous advice of their attorney.

The jury returned a verdict in favor

of the Alleys and awarded: $20,000.00 in

compensatory damages to Mrs. Alley;

$30,000.00 in compensatory damages to Mr.

Alley. The jury also awarded punitive

damages to Mr. Alley against: Gubser in

the amount of $10,000.00; NGC in the

amount of $200,000.00; Weyerhaeuser in the

amount of $150,000.00; and Louisiana-

Pacific in the amount of $150,000.00.

POST-TRIAL MOTIONS

The defendants filed three post-trial

motions. Gubser and NGC moved _ for

judgment n.o.v. or, in the alternative, a

new trial. Louisiana-Pacific moved to

alter or amend the judgment, Or

alternatively for judgment n.o.v., for

remittitur or for a new trial. Weyerhaeu-

ser moved for judgment n.o.v. on punitive

damages, to alter or amend judgment, or,

alternatively, for remittitur or a new

trial on all claims.

After a review of the motions and

memoranda, the court entered an order

upholding the compensatory damage awards

and remitting the punitive damage awards.

In upholding the compensatory damages

awarded to the Alleys the court, after

quoting from Malandris v. Merrill Lynch,

Pierce, Fenner & Smith, Inc., 703 F.2d

1152 (10th Cir. 1983), cert. denied, 464

U.S. 824 (1983), ruled that although the

evidence was largely circumstantial, there

was evidence to support ,a finding that

there was urea-formaldehyde in the Alleys'

home and that it caused injury to the

Alleys.

In remitting the punitive damages

awarded to Mr. Alley from $510,000.00 to

$150,000.00, the court found:

The purpose of punitive

damages is to punish the wrongdoer

and to deter similar conduct in

the future by others. Frick v.

Abell, 602 P.2d 852, 853-54 (Colo.

1979). Several factors must be

taken into consideration in

determining whether an award of

punitive damages is excessive: (1)

whether it bears some reasonable

relation to the actual damages

awarded; (2) the degree of malice

involved; (3) the gravity of the

plaintiff's injury; (4) the desire

for meaningful punishment. Taylor

v. Sandoval, 442 F.Supp. 491 (D.

Colo. 1977). The Court in Taylor

found that there is no precise

mathematical ratio for determining

the reasonableness of the punitive

damage award. However, it has been

held in the Tenth Circuit that an

award of punitives can be "[s]Jo

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extremely disproportional that we

must assume that the jury acted

either with passion or preju-

dice...." Dearmore v. Gold, 400

F.2d 887, 888 (10th Cir. 1968).

In the Dearmore case, a ratio of

punitive to compensatory damages

of 1l1l:l was struck down as being

excessive.

The award of punitive damages

to Mr. Alley was $510,000.00. Mr.

Alley was found to have suffered

$30,000.00 in actual damages, and

Mrs. Alley, $20,000.00. The ratio

of punitive to compensatory

damages for Mr. Alley is 17:1 .

Even if the compensatory awards

are combined, the ratio of

punitive to actual damages is

greater than 10:1.

This Court finds this to be a

disproportion that is "so

excessive .e.- aS to shock the

judicial conscience and to raise

an irresistible inference that

passion, prejudice ... or other

improper cause invaded the trial."

See Barnes v. Smith, 305 F.2d

226, 228 (10th Cir. 1962). See

also Malandris, supra, at 30.

In so finding, the Court has

considered the many factors set

out by the Colorado courts as they

apply to this case: the extent of

the plaintiffs' harm was not so

great as to merit an extremely

high punitive ward; the award of

punitives was not reasonably

related to the compensatory

damages; the plaintiffs did not

prove a high degree of malice on

the part of the defendants.

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The punitive damage award

will therefore be reduced, in

order to effect a more reasonable

relationship between the

compensatory and puntive damage

awards and yet not defeat the

purpose behind the punitive

awards. The defendants must still

be made to feel the “sting™ of the

jury's finding that they acted

with a wanton and reckless

disregard of the plaintiffs'

rights and feelings. The punitive

award must retain its deterrent

effect.

Re, Vol. IV at 768-69. The judgment, as

remittited was accepted “under protest” by

the Alleys.

ISSUES

Weyerhaeuser and NGC contend the

evidence is insufficient to support an

award of punitive damages and the district

court erred in denying their motions for a

directed verdict on the punitive damages

claim. We agree and hold that’ the

district court erred in submitting the

issue of punitive damages to the jury.

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In Colorado exemplary damages are a

creature of statute. Mince v. Butters,

616 P.2d 127, 128 (Colo. 1980). Exemplary

damages may be recovered under section

13-21-102, C.R.S. 1973, which provides as

follows:

In all civil actions in which

damages are assessed by a jury for

a wrong done to the person, or to

personal or real property, and the

injury complained of is attended

by circumstances of fraud, malice

or insult, or a wanton~ and

reckless disregard of the injured

party's rights and feelings, the

jury, in addition to he actual

damages sustained by such party,

may award him reasonable exemplary

damages.

The standard of proof to recover

exemplary damages is also prescribed by

statute. "Exemplary damages ... shall

only be awarded in a civil action when the

party asserting the claim proves beyond a

reasonable doubt the commission of a wrong

under the circumstances set forth in

section 13-21-102...." C.R.S. 1973 §

13-25-127(2). Therefore, in order to

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recover exemplary damages under Colorado

law, the plaintiff must prove beyond a

reasonable doubt that the injury inflicted

by the defendant was "attended by

circumstances of fraud, malice or insult,

Or a wanton or reckless disregard" of the

plaintiff's rights and feelings.

In cases properly involving punitive

damage claims, it is within the province

of the jury to determine the proper amount

of punitive damages. The question of the

sufficiency of evidence to justify an

award of exemplary damages, however, is

question of law for the court. Mince v.

Butters, 616 P.2d 127-29 (Colo. 1980).

For instance, in disposing of a motion for

a directed verdict on a punitive damage

claim, the Colorado Supreme Court has held

that the district court must determine

whether, viewing the evidence in a light

most favorable to the plaintiff, "a

reasonable jury could find beyond a

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reasonable doubt that [defendant's]

injury-causing conduct was ‘attended by

circumstances of fraud' or a ‘wanton and

reckless disregard of the injured party's

rights and feelings' as _ provided in

section 13-21-102." Palmer Ve A.H.

Robins, Co., 684 P.2d 187, 218 (Colo.

1984). In our view there is no evidence

in the record from which a reasonable jury

could find such conduct.

The defendants in this case were found

liable under one or more theories for the

injuries sustained by the plaintiffs, as

evidenced by the jury's award of

compensatory damages. There is, however,

no evidence in the record to show that the

defendants’ conduct should be punished or

deterred. "Conduct which is’ merely

negligent cannot serve as a basis for a

punitive damage award." Sunward Corp. v.

Dunn & Bradstreet, 568 F. supp. 602, 608

(D. Colo. 1983), citing Frick v. Abell,

198 Colo. 508, 602 P. 2d 852 (Colo.,

1979). Nor can selling a product in a

condition unreasonably Sentacon to the

user or consumer under section 402A of the

Restatement (Second) of Torts serve as the

sole basis for a punitive damage award.

Damages are awarded under- either a

negligence or a strict liability claim to

compensate the plaintiff for actual

losses. In contrast, "[a] punitive damges

Claim ...is calculated to punish wrongful

conduct and to deter a repetition of that

conduct." Palmer v. A.H. Robins, Co., 684

P.2d at 217-18.

Upon review of the record it appears

that plaintiffs base their punitive damage

claim on defendants' "conduct" of

constructing mobile homes with wood

products containing formaldehyde which

plaintiffs allege was in wanton = and

reckless disregard of their rights. See,

Malandris v. Merrill Lynch, Pierce, Fenner

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and Smith, 703 F.2d 1152, 1177 (10th Cir.

1981), cert. denied, 464 U.S. 824 (1983)

(nature of the act which caused the injury

is to be considered.) The Colorado

Supreme Court has defined the phrase

"wanton one reckless disregard" in the

exemplary damage statute as follows: "If,

conscious of this conduct and the existing

conditions, he [defendant] knew or should

have known, that the injury would probably

result, the requirements of the statute

are met." Foster v. Redding, 97 Colo. 4,

45 P.2d 940-41 (1935) (emphasis added).

The record fails to establish that the

defendants did anything other than conform

to industry standards in producing the

wood products and in constructing the

mobile home. Therefore under the

plaintiffs' theory, the “wrongful conduct”

sought to be deterred is the mobile home

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industry's practice of constructing mobile

homes with wood products’ containing

formaldehyde.

The evidence admitted -at trial shows

the defendants had knowledge that

formaldehyde caused unpleasant odors and

minor irritation when it off-gassed from

their wood products. Evidence against

Weyerhaeuser was introduced showing that

employees at the wood products' plant

experienced some of these symptoms. In

addition, an internal report was offered

to show that Weyerhaeuser knew’ these

symptoms were caused by formaldehyde.

Evidence introduced against NGC consisted

of several letters written by one customer

over a period of time in which the

customer complained of aloce and

irritation. The evidence admitted also

showed that these problems can usually be

alleviated with minimal ventilation or

certain other precautions. Customer and

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employee complaints regarding off-gassed

formaldehyde are infrequent and are easily

resolved by remedial measures.

In submitting the issue of punitive

damages to the jury, the district court

would have to conclude that a reasonable

jury could find that the industry's use of

wood products containing formaldehyde is a

wanton and reckless disregard of the

plaintiffs' rights such that defendants

knew or should have known it would

probably cause the plaintiffs' injury.

There is simply no evidence in the record

to support such a finding, which in effect

would determine that the industry's

practice of using these wood products in

mobile homes is unreasonable per se. The

only evidence in the record to support

such a finding consists of a few isolated

consumer complaints regarding odors and

minor irritation. This simply falls short

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of the evidence required to show that

injury would probably result from

defendants’ conduct.

Applying these standards, we must hold

that the district court erred in denying

NGC and Weyerhaeuser's motions for a

directed verdict on punitive damages and

permitting the issue to go to the jury.

Viewing the evidence in a light most

favorable to the plaintiffs and drawing

all reasonable inferences to support the

verdict, we cannot hold that a reasonable

jury could find beyond a reasonable doubt

that defendants’ conduct as a "wanton and

reckless disregard of the injured party's

rights and feelings" as required under

section 13-21-102.

Bi.

In their cross appeal, the Alleys

challenge the district court's remittitur

of punitive damages, denial of attorneys'

fees under the Magnuson-Moss Act, and the

denial of prejudgment’ interest. The

Alleys contend that they have the right to

appeal the remittited judgment, including

the court's remittitur of punitive

damages, denial of attorney's fees under

the Magnuson-Moss Act, and the denial of

prejudgment interest which they accepted

under protest. The defendants contend

that the Alleys’ acceptance of the

remittitur waives their objections to the

judgment entered and precludes them from

raising them on cross-appeal.

In its Order, the district court ruled

as follows with respect to the remittitur:

"Plaintiffs will have 209 days from the

date of this Order in which to accept or

reject the remittitur. If they choose to

reject the remittitur, a new trial will be

ordered on all issues, because a trial on

the issue of punitive damages alone would

create undue confusion." (Emphasis

added.) We hold that the district

court's remittitur embraced all issues

considered in the case and that’ the

Alley's acceptance of the remittited

judgment waives their right to appeal

these issues.

A party cannot accept a remittitur

"under protest" and thereby appeal matters

otherwise not appealable. Challenges

similar to the Alleys, in which parties

have attempted to appeal remittited

judgments accepted under protest, have

been repeatedly rejected. In Donovan v.

Penn Shipping Co., Inc., 429 U.S. 648,

649-50 (1977) the Court succinctly stated:

The Court of appeals properly

followed our precedents in holding

that a plaintiff cannot “protest"

a remittitur he has accepted in an

attempt to open it to challenge on

appeal. A line of decisions

streching back to 1889 has firmly

established that a plaintiff

cannot appeal the propriety of a

remittitur order to which to which

he has agreed. Kennon v. Gilmer,

131 U.S. 22, 29-30 (1889); Lewis

v. Wilson, 151 U.S. 551, 554-555

(1894); Koenigsberger v. Richmond

Silver Mining Co., 158 U.S. 41, 52

(1895); Woodworth v. Chesbrough,

244 U.S. 79, 82 (1917).

There are decisions in the

Federal Courts of Appeals’ that

depart from these unbroken

precedents. Those decisions held

Or intimated that a plaintiff who

accepts a remittitur "under

protest" may challenge on appeal

the correctness of the remittitur

order.

. 2 ®

The proper role of the trial

and appellate courts in the

federal system in reviewing the

size of jury verdicts is, however,

a matter of federal law, see Hanna

ve. Plumer, 380 U.S. 460, 466-469

(1965); Byrd v. Blue Ridge Rural

Electric Coop., 356 U.S. 343

(1958), and that law has always

prohibited appeals in the

Situation at bar. The Court of

Appeals for the Second Circuit

correctly adhered to the

consistent rule established by

this Court's decisions. In order

to clarify whatever uncertainty

might exist, we now reaffirm the

longstanding rule that a plaintiff

in federal court, whether

prosecuting a state or federal

cause of action, may not appeal

from a remittitur order he has

accepted.