Petition for Writ of Certiorari — State Farm Mutual Automobile Insurance v. Campbell

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INTHE OFFICE OF THE CLERK

Supreme Court of the Anited States

STATE FARM MUTUAL AUTOMOBILE

INSURANCE COMPANY,

Petitioner,

INEZ PREECE CAMPBELL and MATTHEW C. BARNECK,

Special Administrator and Personal Representative of the

ESTATE OF CURTIS B. CAMPBELL,

Respondents.

On PETITION FOR A WRIT OF CERTIORARI

TO THE UTAH SUPREME COURT

PETITION FOR A WRIT OF CERTIORARI

SHEILA L. BIRNBAUM*

BARBARA WRUBEL

DoucLas W. DUNHAM

ELLEN P. QUACKENBOS

SKADDEN, ARPS, SLATE,

MEAGHER & FLOM LLP

Four Times Square

New York, New York 10036

(212) 735-3000

* Counsel of Record

Attorneys for Petitioner

188588

QUESTION PRESENTED

Whether the Utah Supreme Court's decision on remand

directly contravened this Court's mandate in State Farm Mu-

tual Automobile Insurance Co. v. Campbell, 538 U.S. 408

(2003), and fundamental due process principles, by imposing

a punitive damages award vastly in excess of the amount this

Court deemed constitutionally permissible, by contradicting

and rejecting specific holdings and findings of this Court in

its application of the constitutional punitive damages guide-

posts, and by relying on the defendant's perceived lack of

remorse in its defense and appeal of this case as a basis for

punitive damages?

PARTIES TO THE PROCEEDING AND

DESIGNATION OF CORPORATE RELATIONSHIP

Petitioner State Farm Mutual Automobile Insurance Com-

pany is a mutual insurance company. It has no parent com-

pany.

Respondent Inez Preece Campbell is an individual. Re-

spondent Matthew C. Barneck is the special administrator

and personal representative of the Estate of Curtis B. Camp-

bell.

ill

TABLE OF CONTENTS

Page

QUESTION PRESENTED .......----- +s sss eeeccee: i

PARTIES TO THE PROCEEDING AND DESIGNA-

TION OF CORPORATE RELATIONSHIP ....-.------ ii

TABLE OF AUTHORITIES .........-- +2 eset terres Vv

PE ELOOW .... 2.0.0.5 ese cee sree seen 1

STATEMENT OF JURISDICTION .......----+-+-+++: l

CONSTITUTIONAL PROVISION INVOLVED ......-- l

STATEMENT OF THE CASE ......------ss2 ese 00? 1

REASONS FOR GRANTING THE WRIT .....-------- 5

I. The Utah Supreme Court's Analysis of

Reprehensibility Is Inconsistent with This Court's

Opinion and Contrary to the Constitutional Princi-

ples Governing Punitive Damages .....----------- 8

A. The Utah Supreme Court's Analysis Dis-

torts and Misapplies the Five

Reprehensibility Factors .....----+++++++555 8

B. The Utah Supreme Court's Invocation of

"Utah's Values and Traditions" and State

Farm's Alleged Lack of Remorse Do Not

Justify the Utah Supreme Court's Depar-

ture from This Court's Reprehensibility

Es aed Wek hae tie OR eee es 16

C. The $9 Million Punitive Award Improp-

erly and Unconstitutionally Punishes

State Farm for Its Litigation Conduct and

Arguments in Defending the Bad Faith

and Punitive Damages Case............ ee

II. The Utah Supreme Court's Application of the Ratio

Guidepost Is Erroneous and Inconsistent with This

Court's Opinion ....... aeeh ck eh ane nae eke tek 25

Ill. The Utah Supreme Court's Analysis of the Compa-

rable Penalties Guidepost Is Inconsistent with This

Court's Opinion and Does Not Support the $9 Mil-

lion Punitive Damages Award .................. 28

ee ee ey eee 30

TABLE OF AUTHORITIES

Cases Page(s)

American Surety Co. v. Baldwin, 287 U.S. 156

(1932) ..sscssssecessesnsesssscssesssnnseneesenensenssossrensnnenneonorenes 21

BMW of North America, Inc. v. Gore, 517 U.S. 559

(1996) ......ceceeseseereeseeeeeesees 2,9, 10, 13, 14, 17, 18, 24

Bielicki v. Terminix International Co., 225 F.3d 1159

(1Oth Cir. 2000) .......scscecsssessssesnesersenessesensnnensennene 11

Blanchard v. Morris, 15 Il. 35 (1853) ....-::ssssesseeeeereeneres 11

Bordenkircher v. Hayes, 434 U.S. 357 (1978) ......ecceeseeeees 24

Briggs vV. Pennsylvania Railroad Co., 334 U.S. 304

(1948) ....ceccsscoonssecsscsssssssvcnsessensensnssssenrovenssnecnscensenseens 5

Browning-Ferris Industries of Vermont, Inc. v. Kelco

Disposal, Inc., 492 U.S. 257 (1989) ...-ssceceeeeees 18, 30

Clemons v. Mississippi, 494 U.S. 738 (1990) ......seeseeeeseees 12

Cooper Distributing Co. v. Amana Refrigeration, Inc.,

~ 180 F.3d 542 (3d Cir. 1999) ........cesseerereeretssseerenserees 6

De Anza Santa Cruz Mobile Estates Homeowners

Association v. De Anza Santa Cruz Mobile Estates,

94 Cal. App. 4th 890 (Ct. App. ZOOL). ..cesvesreccernssoee 22

Green v. Louder, 29 P.3d 638 (Utah 2001) ....-.--ssssssseeeree 15

Hollock v. Erie Insurance Exchange, 842 A.2d 409

CR BE GA, CI eeasininsinravssssnpivsdamsisartuciines 22, 23

Louisville & Nashville Railroad Co. v. Brown,

SOG Fh. Fe Cas LOUOD sissseinsssancissteinceaccinntiasaenins 11

Mathias v. Accor Economy Lodging Inc., 347 F.3d 672

ann (PUL Eas SET Giivormcaiicinamadinoueeananae 22

Nelson v. Adams USA, Inc., 529 U.S. 460 (2000) .............. 21

Palmer v. Ted Stevens Honda, 193 Cal. App.3d 530

TX. ARR BGT) csuciiinidensaniaeunibealanmemes 22

In re Sanford Fork & Tool Co., 160 U.S. 247 (1895) .......... 6

Solem v. Helm, 463 U.S. 277 (1983) .......cccescccssssceeeseseees 11

State Farm Mutual Automobile Insurance Co.

v. Campbell, 538 U.S. 408 (2003) ...............0 passim

Statutes and Constitutional Provisions Pages(s)

Uae. Coomet. SNM, FEV, 6 8 icccinccsinsemininnenes l

Be UAL. & TSG TD cxcesscersssinasitnaeeaaenianeaaaan 1

Pree Be. GOV. EG ssossiis anaes sinasiliasioaiaes 21

FOG. B.. AOD. 2. BG. ssnissxcsnennaitaininnaaaadaaane 21

Utah Code Ann. § 76-3-301 (2003) scccccccscsessssssssssssssssses0 29

Re ee ee ee call

Vil

Other Authorities - Page(s)

Restatement (Second) of Torts § 908, cmt.

(1977) ....csssoscsssvssverrerssansenssnennenseneeiaaepecsesnencnnenennenees 25

State Farm Mutual Automobile Insurance Co. Vv. Campbell,

Oral Argument Transcript, No. 01-1289, 2002 WL

31808900 (U.S. Dec. 11, 2002) ........cseeeeeerreeerrreess 12

Petitioner State Farm Mutual Automobile Insurance

Company ("State Farm") respectfully petitions for a writ of

certiorari to review the judgment of the Utah Supreme Court

entered on remand from this Court's decision in State Farm

Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408

(2003).

OPINION BELOW

The opinion of the Utah Supreme Court (A.1), which is

available at 2004 WL 869188, is not yet officially reported.

STATEMENT OF JURISDICTION

The judgment of the Utah Supreme Court was entered

on April 23, 2004. No petition for rehearing was filed. The

jurisdiction of this Court is invoked pursuant to 28 U.S.C. §

1257(a).

CONSTITUTIONAL PROVISION INVOLVED

The Due Process Clause of the Fourteenth Amendment

to the United States Constitution provides: "No state

shall . . . deprive any person of life, liberty, or property, with-

out due process of law." U.S. Const. amend. XIV, § 1.

STATEMENT OF THE CASE

In State Farm Mutual Automobile Insurance Co. v.

Campbell, 538 U.S. 408 (2003), this Court vacated a $145

million punitive damages award and remanded the case to

the Utah Supreme Court for proceedings not inconsistent

with this Court's opinion. Despite this Court's admonition

that the outermost due process limit for a punitive damages

award under the facts of this case specifically would be "at or

near the amount of compensatory damages" of $1 million, id.

at 429, the Utah Supreme Court has now imposed a $9 mil-

lion punitive damages award. The Utah Supreme Court's

decision is contrary to the due process principles limiting

punitive damages awards articulated by this Court in this

very case and to this Court's application of those principles to

State Farm's alleged conduct toward the Campbells.

Mr. Campbell's Case. This case began with State Farm's

handling of claims asserted by third parties against a State

Farm insured, Curtis Campbell, after a 1981 automobile acci-

dent. State Farm declined an offer to settle the claims

against Mr. Campbell for the policy limits ($50,000) and pro-

ceeded to trial. Mr. Campbeil was found 100% at fault, and

judgment was entered against him in the amount of $136,000

over his policy limits. The excess judgment against Mr.

Campbell was the only instance in Utah where a State Farm

insured was exposed to the possibility of execution on an

excess judgment after a refusal by State Farm to settle within

policy limits.

After the excess judgment against Mr. Campbell was

affirmed on appeal, Mr. Campbell and his wife, represented

by the attorneys for the third-party plaintiffs who had sued

him, sued State Farm alleging bad faith failure to settle, in-

tentional infliction of emotional distress, and fraud, and as-

serting a claim for punitive damages. The jury found against

State Farm and awarded $1.4 million and $1.2 million emo-

tional distress damages to Mr. and Mrs. Campbell, respec-

tively, $911.25 for the Campbells’ out-of-pocket legal ex-

penses, and $145 million in punitive damages. The tnal

court remitted the emotional distress damages to $1 million

in total and remitted the $145 million punitive award to $25

million. On appeal, the Utah Supreme Court reinstated the

$145 million punitive award.

This Court's Decision. This Court granted certiorari and

reversed the $145 million punitive award as excessive as a

matter of due process under the three guideposts established

by this Court in BMW of North America, Inc. v. Gore, 517

U.S. 559 (1996), for evaluating the constitutionality of puni-

tive damages awards. In its opinion, this Court held that pu-

nitive damages may not be imposed to punish conduct that

was dissimilar to and bore no relation to the conduct directed

against the plaintiffs, but must be "based upon the facts and

circumstances of the defendant's conduct and the harm to the

plaintiff." Campbell, 538 U.S. at 425. The Court also gave

guidance as to how the three Gore guideposts should be ap-

plied and analyzed those guideposts with specific reference

to the facts and circumstances in this case.

With regard to reprehensibility, this Court observed that

State Farm's conduct toward the Campbells "merits no

praise." Jd. at 419. Nonetheless, this Court characterized the

harm in the case as "ar[ising] from a transaction in the eco-

nomic realm, not from some physical assault or trauma," and

» «acceded

noted that "there were no physical injuries." Jd. at 426. This

Court also recognized that "State Farm paid the excess ver-

dict before the complaint was filed, so the Campbells suf-

fered only minor economic injuries for the 18-month period

in which State Farm refused to resolve the claim against

them." Jd. Moreover, the Court found that the punitive

award could "not be justified on the grounds that State Farm

was a recidivist" because the Campbells had "shown no con-

duct by State Farm similar to that which harmed them." Jd.

at 423-24. In assessing State Farm's reprehensibility, this

Court had before it not only the parties’ briefs, which dis-

cussed the reprehensibility guidepost and the conduct at issue

at length, but also the opinions of the Utah Supreme Court

and the Utah trial court, and a voluminous joint appendix

("JA") of the record in this case.

With regard to ratio, this Court made clear that while

few punitive awards in a ratio of more than single digits to

compensatory damages would pass constitutional muster, in

many cases, "[w]hen compensatory damages are substantial,

then a lesser ratio, perhaps only equal to compensatory dam-

ages, can reach the outermost limit of the due process guar-

antee." Jd. at 425. The Court also stressed that emotional dis-

tress damages, such as those awarded to the Campbells, are

likely to contain a punitive element and therefore support a

smaller ratio. Jd. at 426. Addressing the third guidepost,

civil penalties authorized or imposed in comparable cases,

this Court opined that the "most relevant civil sanction under

Utah state law for the wrong done to the Campbells appears

to be a $10,000 fine for an act of fraud." Jd. at 428.

Pursuant to its application of the three Gore guideposts

to this case, this Court concluded that, because the compen-

satory damages awarded to the Campbells were substantial

and contained a punitive element, a punitive award in an

amount "at or near the amount of compensatory damages"

(i.e., $1 million) likely would be the constitutionally permis-

sible maximum. /d. at 429. Noting that the "proper calcula-

tion of punitive damages under the principles [the Court]

ha[d] discussed should be resolved, in the first instance, by

the Utah courts," this Court reversed the judgment and re-

manded the case "for proceedings not inconsistent with this

opinion." Jd.

The Proceedings Before the Utah Supreme Court on Re-

mand. On remand, the parties briefed and argued before the

Utah Supreme Court the meaning and scope of this Court's

mandate and the proper calculation of punitive damages in

light of this Court's decision. State Farm argued that, in ac-

cordance with this Court's opinion, the punitive award should

be set in an amount at or near the compensatory damages of

$1 million. See, e.g., State Farm's Motion for Judgment Re-

garding Punitive Damages at 2-4; State Farm's Memorandum

in Opposition to Plaintiffs/Appellees' Cross-Motion for De-

termination of Punitive Damages at 2, 26. Plaintiffs dis-

agreed, urging that this Court's overall conclusion regarding

the constitutionally appropriate amount of punitive damages

in this case was "little more than the expression of a judicial

hunch," "not having even the status of dictum" and "obvi-

ously . . . not binding" on the Utah Supreme Court. Memo-

randum of Plaintiffs/Appellees/Cross-Appellants in Opposi-

tion to State Farm's Motion for Judgment Regarding Punitive

Damages at 2, 3.

In its opinion following remand, the Utah Supreme

Court, apparently agreeing with plaintiffs, dismissed as a

mere "prediction" this Court's determination that proper ap-

plication of the Gore guideposts in this case "likely would

justify a punitive damages award at or near the amount of

compensatory damages," i.e., $1 million. A.5. Instead, the

Utah Supreme Court imposed a punitive damages award of

$9,018,780.75, based on its reanalysis of the Gore guideposts

in light of "Utah's values and traditions." A.7. In assessing

State Farm's reprehensibility, the Utah Supreme Court classi-

fied the Campbells' emotional distress as "akin to physical

assault" and characterized State Farm's conduct as showing

"indifference or reckless disregard for the health and safety

of the Campbells." A.10,12. Although acknowledging this

Court's finding that State Farm was not a recidivist, the Utah

Supreme Court opined that the "absence of prior bad acts

does not mean that State Farm has forsworn the conduct that

caused the Campbells’ injury." A.13. The Utah Supreme

Court also stressed State Farm's "protestations of blameless-

ness" and "obdurate insistence" in appealing this case, State

Farm's purported "feelings of pride and victimization," and

its "defiance" and lack of remorse. A.13; see also A.12

("State Farm has not voiced so much as a whisper of apology

bbe

Boreal. LAG NH Af obi D ODD AR WAS RS

or remorse;" State Farm "refuses in its brief on appeal to con-

cede any error or impropriety in the handling of the Camp-

bell case").

In reanalyzing the ratio guidepost, the Utah Supreme

Court asserted that it found "ample grounds" to justify a pu-

nitive damages award of $9 million, with a ratio of 9 to 1 to

compensatory damages. A.13. The Utah Supreme Court

rejected this Court's characterization of the compensatory

emotional distress damages awardec¢ in this case as contain-

ing a punitive element and thus warranting a lower ratio.

The Utah Supreme Court concluded instead that the $1 mil-

lion emotional distress damages in this case were purely

compensatory and corresponded objectively to the actual "de-

gree of emotional harm inflicted on the Campbells." A.15.

Finally, the Utah Supreme Court acknowledged that in

this case the civil penalty for comparable conduct would be,

as this Court stated, a $10,000 fine. A.17 & n.8. The Utah

Supreme Court held, however, that the $9 million punitive

award it imposed on State Farm did not "dwarf" the compa-

rable $10,000 fine and thus was "in line" with this guidepost.

A.17.

REASONS FOR GRANTING THE WRIT

The Utah Supreme Court's decision to award $9 million

in punitive damages against State Farm contradicts this

Court's opinion in this case and is inconsistent with the fun-

damental due process principles that limit punitive damages

awards. The Utah Supreme Court characterized this Court's

overall conclusion that application of the Gore guideposts in

this case "likely would justify a punitive damages award at or

near the amount of compensatory damages" as a mere "pre-

diction." A.5. Thus, the Utah Supreme Court believed it

could re-examine and reject numerous specific aspects of this

Court's opinion, as incorrect and inapplicable in light of

"Utah's values and traditions.” A.7.

It is well settled that on remand for further proceedings

from this Court, the lower court must proceed in accordance

with this Court's mandate. Briggs v. Pa. R.R. Co., 334 US.

304, 306 (1948). The lower court must implement both the

letter and spirit of the mandate, and "cannot vary it, or exam-

ine it for any other purpose than execution; or give any other

or further relief; or review it, even for apparent error, upon

any matter decided on appeal; or intermeddle with it, further

than to settle so much as has been remanded." Jn re Sanford

Fork & Tool Co., 160 U.S. 247, 255 (1895). Where, as in

this case, this Court's mandate requires the lower court to

proceed in a manner not inconsistent with the opinion of the

this Court, the "effect is to 'make the opinion a part of the

mandate." Cooper Distrib. Co. v. Amana Refrigeration,

Inc., 180 F.3d 542, 546 (3d Cir. 1999) (citation omitted).

This Court remanded this case for "proper calculation

of punitive damages under the principles [the Court] ha[d]

discussed." Campbell, 538 U.S. at 429. State Farm respect-

fully submits that this Court's remand for "proper calcula-

tion" of punitive damages was not an invitation to the Utah

Supreme Court to impose a punitive damages award vastly in

excess of what this Court reasoned would be the constitu-

tionally permissible maximum. Rather, this Court's remand

permitted the Utah Supreme Court to set an amount of puni-

tive damages in light of and consistent with this Court's dis-

cussion. The Utah Supreme Court's new analysis of the ap-

plication of the three Gore guideposts in this case, its repudi-

ation of specific findings by this Court, and its resurrection

of arguments and points rejected by this Court do not fall

within the narrow zone of discretion granted to the Utah Su-

preme Court under this Court's opinion.

In its analysis, the Utah Supreme Court misapplied and

distorted the three Gore guideposts. Its analysis of

reprehensibility ignored or discounted the objective factors

specifically identified by this Court as mitigating the

reprehensibility of State Farm's conduct toward the Camp-

bells. Contradicting this Court's specific findings that the

harm to the Campbells "arose from a transaction in the eco-

nomic realm, not from some physical assault or trauma" and

that "there were no physical injuries" (538 U.S. at 426) the

Utah Supreme Court reclassified the harm as "akin to physi-

cal assault." A.9,10. The Utah Supreme Court also dis-

counted this Court's specific finding that State Farm was not

a recidivist. Instead, the Utah Supreme Court invoked State

Farm's purported failure to show remorse as a basis for spec-

ulating that "vigorous deterrence" (A.13) was needed — de-

spite the plaintiffs' inability (expressly noted by this Court) to

“ “A nih AbD she ot ihe

point to any evidence that State Farm had engaged in any

conduct in Utah similar to its conduct toward the Campbells.

Moreover, the Utah Supreme Court's opinion makes clear

that the purported lack of remorse it invokes to support its

imposition of a $9 million punitive damages award is the

lack of remorse supposedly evinced by State Farm during the

litigation of this case and in its arguments on appeal. That

purported lack of remorse (occurring moie than a decade af-

ter the conduct toward the Campbells) was not part of and

bore no similarity to the only conduct that this Court held

would be relevant to punitive damages, namely, the alleged

bad faith failure to settle the third-party claims against Mr.

Campbell within policy limits. The Utah Supreme Court's

punishment of State Farm's purported lack of remorse not

only contravenes this Court's prohibition on the use of puni-

tive damages to punish dissimilar conduct, but unconstitu-

tionally burdens a defendant's right to defend itself in civil

litigation.

The Utah Supreme Court also found that it was not

bound by the ratio analysis that this Court specifically ap-

plied to the circumstances of this case. Thus, while this

Court stated that a ratio of approximately 1 to 1 was appro-

priate on the facts of this case, the Utah Supreme Court

found "ample" support for a ratio nine times greater, and

found as well that the punitive element that this Court dis-

cerned in the emotional distress damages in this case did not

in fact exist. The Utah Supreme Court did follow this

Court's guidance in looking to a $10,000 civil fine as the

touchstone for the civil penalties guidepost, but improperly

concluded that this $10,000 civil penalty supported not a $1

million punitive award, but a $9 million award.

The Utah Supreme Court rationalized its divergence

from this Court's opinion, particularly with respect to the

reprehensibility guidepost, by invoking "Utah's values and

traditions." A.7. No state's "values and traditions" override

due process limitations on excessive and arbitrary punitive

damages. The Utah Supreme Court's reliance on state "val-

ues and traditions" would improperly transform the federal

constitutional due process standard for punitive damages into

an uncertain analysis yielding different and unpredictable

answers in every state, depriving defendants, particularly

non-resident businesses and corporations, of the constitution-

~ ally required notice that particular conduct is punishable and

of the severity of the punishment that may be incurred. Per-

mitting the grossly excessive punitive damages award now

imposed by the Utah Supreme Court against State Farm to

stand will turn back the clock on this Court's constitutional

punitive damages jurisprudence and allow state courts to im-

pose large and arbitrary punitive awards — in violation of due

process constraints — whenever they invoke amorphous and

ill-defined state "values and traditions."

For these reasons and those set forth below, this Court

should grant State Farm's petition for a wnt of certiorari.

State Farm submits that, because the Utah Supreme Court's

decision is palpably inconsistent with this Court's mandate

and with fundamental constitutional principles, this Court

should summarily reverse the Utah Supreme Court's decision

pursuant to Supreme Court Rule 16 and instruct the Utah

Supreme Court to enter a punitive damages award in an

amount "at or near the amount of compensatory damages,"

i.e., no more than $1 million. See Campbell, 538 U.S. at

429. In the alternative, this Court should permit full briefing

and oral argument and afford plenary consideration to the

important constitutional issues raised by the Utah Supreme

Court's decision.

I. The Utah Supreme Court's Analysis of

Reprehensibility Is Inconsistent with This Court's

Opinion and Contrary to the Constitutional Princi-

ples Governing Punitive Damages

To justify imposition of a $9 million punitive award

against State Farm, the Utah Supreme Court improperly re-

jected this Court's analysis of the reprehensibility guidepost

as applied to the facts of this case. The Utah Supreme

Court's distorted and erroneous analysis of reprehensibility

contradicts this Court's express conclusions and findings and

contravenes the broad standards enunciated by this Court in

its constitutional punitive damages jurisprudence.

A. The Utah Supreme Court's Analysis Distorts and

Misapplies the Five Reprehensibility Factors

This Court has identified five factors that courts must

consider in determining the reprehensibility of a defendant's

conduct: "whether: the harm caused was physical as opposed

to economic; the tortious conduct evinced an indifference to

or a reckless disregard of the health or safety of others; the

target of the conduct had financial vulnerability; the conduct

involved repeated actions or was an isolated incident; and the

harm was the result of intentional malice, trickery, or deceit,

or mere accident." Campbell, 538 U.S. at 419 (citing Gore,

517 U.S. at 576-77).

In its decision on remand, the Utah Supreme Court re-

jected this Court's application of the five reprehensibility fac-

tors to the record in this case. In substituting its own analysis

for that of this Court, the Utah Supreme Court misapplied

and distorted each of the factors, producing a result that is

directly contrary to this Court's opinion and dismantling the

effectiveness of this Court's reprehensibility analysis as a

rational, objective framework for evaluating the

reprehensibility of a defendant's conduct.

1. Whether the harm was economic or physical

In its opinion in this case, this Court specifically found

that "there were no physical injuries". and that the "harm

arose from a transaction in the economic realm, not from

some physical assault or trauma."’ Campbell, 538 U.S. at

426. The Utah Supreme Court, although purporting to be

"mindful" of these findings, reclassified the harm in this case

as "akin to physical assault." A.9, 10. The Utah Supreme

Court's recharacterization of the harm as akin to physical as-

sault directly contradicts this Court's analysis and does not

provide a permissible basis for the punitive damages award

now imposed by the Utah Supreme Court.

The Utah Supreme Court's equation of State Farm's de-

cision not to settle claims against its insured to "physical as-

sault" would improperly allow a finding of extreme

reprehensibility and hence high punitive damages in any case

in which a breach of an insurance contract or failure to per-

form under an insurance contract causes emotional distress

' In addition, as this Court observed, "State Farm paid the excess verdict

before the complaint was filed, so the Campbells suffered only minor

economic injuries for the 18-month period in which State Farm refused to

resolve the claim against them." Campbell, 538 U.S. at 426.

damages. Such a result is contrary to this Court's opinion,

which made clear that there was no physical assault or injury

in this case and that emotional distress damages both gener-

ally and in this case contain a punitive element and thus sup-

port a lower ratio. See Point II infra.”

Moreover, the Utah Supreme Court's characterization

of the Campbells' harm as "akin to physical assault" ignores

the fact that, as the trial court found, the record was devoid

of "objective evidence of emotional or mental distress."* JA

3364. To fill this evidentiary and analytic void, the Utah Su-

preme Court focused its lengthy analysis of whether the harm

in this case was economic or physical on such matters as the

purported statement by the lawyer retained by State Farm to

represent Mr. Campbell that the Campbells should put a "for

sale" sign on their house, the "unnecessar[y] subject[ion of]

the Campbells to the risks and rigors of a trial," the failure to

"voice[] so much as a whisper of apology or remorse," and so

forth. A.11, 12. These matters are largely irrelevant to the

classification of the Campbells’ harm, and the Utah Supreme

Court's discussion of them serves only to circumvent the pur-

pose of this factor, which is to incorporate into the

reprehensibility analysis the long-standing recognition that

tortious conduct that results in physical injury is particularly

blameworthy.* Neither the record nor this Court's opinion

? To bolster its reprehensibility analysis, the Utah Supreme Court also

noted that some insureds purchase insurance to provide peace of mind.

A.10. Under this analysis, every wrongful denial of an insurance claim

becomes "likely to cause injury more closely akin to physical assault or

trauma than to mere economic loss." A.10-11. The purpose of the puni-

tive damages analysis is not to contrive a one-size-fits-all justification of

high punitive damages against insurance companies, but to weigh the

facts of each case in a balanced and fair manner, as this Court did in its

opinion in this case.

3 As the trial court additionally noted, "[t]here was a retetively limited

period of time in which the primary stressor, i.e., the threat of financial

ruin, was 2 real threat to the Campbells." JA 3364.

* This Court's recognition of the heightened reprehensibility of tortious

conduct involving physical injury or the threat of physical injury is based

both on long-standing common law punitive damages principles and on

analogous principles of criminal law. See Gore, 517 U.S. at 575-76

("[W]e have said that 'nonviolent crimes are less serious than crimes

(continued...)

pe a a

permitted the Utah Supreme Court to inflate its estimate of

the reprehensibility of State Farm's conduct by classifying the

Campbells' emotional distress in this case as "akin to physi-

cal assault."

2. Indifference or reckless disregard for the health

and safety of others

The Utah Supreme Court's analysis of the second

reprehensibility factor, whether State Farm showed "indiffer-

ence or reckless disregard for the health and safety of others,"

is similarly skewed. The Utah Supreme Court, incorrectly,

found that this factor was met because State Farm "evinc[ed]

a reckless disregard for the Campbells’ peace of mind."

A.12. This factor, like the first factor, looks to physical in-

jury or danger caused by a defendant's wrongful conduct as

an indicator of heightened reprehensibility. See, e.g., Bielicki

y. Terminix Int'l Co., 225 F.3d 1159, 1165 (10th Cir. 2000)

(applying Gore analysis; finding that indifference and reck-

less disregard for the health and safety of others was shown

where the defendant's "atmosphere of condoning disregard of

safety concerns resulted in permanent physical injuries to the

plaintiffs"). An insurer's delay in paying an excess verdict is

simply not the kind of conduct to which this factor applies.

3. Whether the target of the conduct had financial

vulnerability

The Utah Supreme Court's reliance upon the third fac-

tor, whether the "target of the conduct had financial vulnera-

bility," 538 U.S. at 419, is inconsistent with this Court's

opinion and with the record in this case. Plaintiffs’ argu-

ments regarding the Campbells’ purported vulnerability were

fully briefed before this Court and urged by plaintiffs’ coun-

sel at oral argument. See Resp't Br. at 11-14; Pet'r Reply Br.

4(...continued)

marked by violence or the threat of violence") (citing Solem v. Helm, 463

U.S. 277, 292-93 (1983), Blanchard v. Morris, 15 Ill. 35, 36 (1853) (up-

holding punitive damages for extortion accomplished through imprison-

ing and blindfolding victim and threatening to bleed him to death and

hang him), and Louisville & Nashville R.R. Co. v. Brown, 106 S.W. 795,

799 (Ky. 1908) (reversing punitive damages award; stating: "We are not

aware of any case in which the court has sustained a verdict as large as

this one unless the [physical] injuries were permanent”)).

at 6; State Farm Mut. Auto. Ins. Co. v. Campbell, Oral Argu-

ment Transcript, No. 01-1289, 2002 WL 31808900, at *28

(U.S. Dec. 11, 2002). This Court in its opinion did not ad-

dress this factor in its application of the reprehensibility anal-

ysis to the facts of this case and hence implicitly rejected

plaintiffs' arguments regarding the Campbells' purported vul-

nerability. See Clemons v. Mississippi, 494 U.S. 738, 747

n.3 (1990) (this Court "implicitly rejected" arguments "by

refusing to address them"). The Utah Supreme Court's reli-

ance on this ground for differing from this Court's assess-

ment of reprehensibility is therefore impermissible.

In any case, the record does not support the Utah Su-

preme Court's portrayal of the Campbells as unsophisticated

and vulnerable. Mr. Campbell! had a B.A. in mathematics

and an M.A. in meteorology from Utah State University. JA

747-48. He had taught high school and worked for 15 years

for Boeing in engineering management. At the time of the

accident he was working as an electrical contractor and was

63 years old. JA 747-48, 792-93. At the time of the acci-

dent, Mrs. Campbell was 51 years old and was working as a

teller and in the bookkeeping department at Lewiston State

Bank. R. 10312: 1-3; 25-26. Moreover, there was no testi-

mony of any kind that the Campbells were targeted by State

Farm. Although Ray Summers, the State Farm adjuster who

handled the claims against Mr. Campbell testified as a plain-

tiffs' witness, he never in his testimony stated or suggested

that the Campbells were "targeted" because they were finan-

cially vulnerable.

The Utah Supreme Court based its assumption that the

Campbells’ "vulnerability enabled, if not motivated," State

Farm's conduct on the supposed "post-judgment advice given

to the Campbells by State Farm's attorney that they put a 'for

sale' sign on their house." A.12. Wendell Bennett, the law-

yer retained by State Farm to defend Mr. Campbell, categori-

> In addition, Justice Ginsburg's dissent discusses the Campbells’ pur-

ported vulnerability, demonstrating beyond contradiction that these argu-

ments were brought to the attention of and rejected by the Court. See 538

U.S. at 434 (Ginsburg, J., dissenting).

cally denied giving such advice to the Campbells.° In any -

event, Mr. Bennett's purported advice to the Campbells to

put a "for sale" sign on their house has no logical or proba-

tive connection to the Utah Supreme Court's conclusion that

State Farm was "enabled" or "motivated" by the Campbells'

purported vulnerability. In addition, Mr. Bennett testified

without contradiction that, after the verdict against Mr.

Campbell, he suggested to the Campbells that they "gu see

another attorney" (JA 360), and, in fact, Mr. Campbell did

consult with another attorney a day or two after the verdict.

JA 749. Mr. Bennett's advice to consult another attorney is

clearly inconsistent with the Utah Supreme Court's conclu-

sion that State Farm (or Mr. Bennett) was motivated by the

belief that Mr. Campbell would not "protect himself" from

State Farm's "predations." A. 12. More importantly, the al-

leged advice to put a "for sale" sign on their house was be-

fore this Court, recited in this Court's opinion, and part of the

basis for this Court's conclusion that State Farm's conduct

"merit{ed] no praise." Campbell, 538 U.S. at 419. Consis-

tent with this Court's opinion, that alleged advice cannot now

serve as support for the proposition that State Farm's conduct

was so extraordinarily reprehensible as to warrant a punitive

damages award far in excess of that authorized by this Court.

4. Repeated actions or an isolated incident

This Court has stated that "repeated misconduct is more

reprehensible than an individual instance of malfeasance"

and that "evidence that a defendant has repeatedly engaged in

prohibited conduct while knowing or suspecting that it was

unlawful would provide relevant support for an argument

that strong medicine is required to cure the defendant's disre-

spect for the law." Gore, 517 U.S. at 576-77; see also Camp-

bell, 538 U.S. at 423. Conversely, in the absence of a "his-

tory of noncompliance," a court cannot justify a large puni-

lutely didn't" tell the Campbells to put a for sale sign on the house. JA

359. He testified that after the original trial "[i]t was either Mr. or Mrs.

Campbell said, ‘Should we put a sign for sale on our property?’ And I

said no... . I said that I was going to file post trial motions, and if that

failed, if I wasn't able to get the relief at that level, I planned to file an

appeal to the Supreme Court." JA 360.

tive award on the ground that it was necessary to deterrence

without considering whether a "less drastic" penalty would

adequately protect the state's citizens. Gore, 517 US. at

584-85. Thus, the recidivism factor is directly related to the

need for deterrence.

In this case, this Court found that State Farm was not a

"recidivist" because the Campbells had "shown no conduct

by State Farm similar to that which harmed them." Camp-

bell, 538 U.S. at 423-24. In its reprehensibility analysis, the

Utah Supreme Court conceded that it was "bound by [this]

Court's finding that State Farm was not a recidivist." A.13.

Nonetheless, the Utah Supreme Court entirely subverted that

finding, theorizing that the "absence of prior bad acts does

not mean that State Farm has forsworn the conduct that

caused the Campbells’ injury, and that the citizens of Utah

therefore have no reason to deter State Farm's future con-

duct." A.13. The Utah Supreme Court's reliance on the pur-

ported need to deter State Farm, despite the "absence of a

history of noncompliance," Gore, 517 U.S. at 584, is contrary

to this Court's constitutional punitive damages jurisprudence

and to this Court's opinion in this case.

The record in this case, moreover, showed not only an

absence of similar prior bad acts, but also an absence of simi-

lar subsequent bad acts by State Farm in the decade and a

half between the Campbells' automobile accident and the bad

faith/punitive damages phase of the trial of the Campbells'

claims against State Farm. The record established that be-

tween 1980 and 1994, State Farm handled more than 29,000

third-party bodily injury claims against its insureds in Utah.

Of these more than 29,000 claims, Mr. Campbell's case was

the only instance where a State Farm insured was exposed to

the possibility of execution on an excess verdict after a re-

fusal by State Farm to settle within policy limits.’ See JA

” The unrebutted testimony of State Farm's regional vice president Buck

Moskalski established that in the five excess verdict cases in Utah since

1989, State Farm had determined it should bear the responsibility for its

decision to proceed to trial rather than accept a settlement offer within

policy limits. In those cases, State Farm either paid the excess verdicts in

full or settled with the third-party claimants so that the insureds paid

(continued...)

a EEE oo EEE ______________________

287-97, 1851-53, 3005. Thus, this Court concluded in its

opinion that "the adverse effect [of State Farm's handling of

the claims against Mr. Campbell] on the State's general pop-

ulation was in fact minor." Campbell, 538 U.S. at 427.

In view of the record, the constitutional principles set

forth in Gore and Campbell, and this Court's conclusion that

State Farm was not a recidivist, the need for deterrence hy-

pothesized by the Utah Supreme Court is wholly imaginary.

The Utah Supreme Court's subjective and speculative im-

pression that State Farm might not have "forsworn" the con-

duct alleged in this case — despite the uncontradicted, objec-

tive evidence to the contrary — is inconsistent with this

Court's opinion and does not support the excessive punitive

award imposed on remand by the Utah Supreme Court.

5. Whether the harm was the result of intentional

trickery or malice

The Utah Supreme Court based its conclusion that the

harm sustained by the Campbells was the result of trickery or

malice upon the purported "false story" that State Farm man-

ager Bob Noxon allegedly instructed State Farm claims han-

dler Ray Summers to "manufacture," namely, that Todd

Ospital "was speeding because he was on his way to see a

pregnant girlfriend." A.14. This purported fact was before

this Court when it made its reprehensibility analysis in this

case. See Pet'r Br. at 5; Resp't Br. at 13; Campbell, 538 U.S.

at 432 (Ginsburg, J., dissenting). Therefore, even assuming

7(...continued)

nothing. JA 1851-52. Mr. Moskalski also testified as to his decision

made during the trial to formalize State Farm's policy of paying excess

verdicts by sending letters to insureds prior to trial, promising to pay any

compensatory damages that a jury might award in excess of policy limits.

JA 1854, 1890. State Farm submitted examples of such "peace of mind"

letters sent to Utah policyholders in accordance with Mr. Moskalski's de-

cision, both in support of its motion for JNOV, new trial or remittitur be-

fore the trial court (which refused to accept the letters) and in support of

its petition for rehearing to the Utah Supreme Court. See Pet'r Lodging

("L") 594-98; 599-607. State Farm's policy of sending such letters is also

reflected in the Utah Supreme Court's opinion in Green v. Louder, 29

P.3d 638, 642, 648-49 (Utah 2001), in which the court specifically refer-

enced such a letter provided by State Farm when it decided to litigate the

third-party claims asserted against its insureds in that case.

the truth of this allegation and assuming that the Campbells'

harm was somehow caused by the purported "manufacture"

of this story,® that circumstance does not support the Utah

Supreme Court's racheting up the punitive award from an

amount "at or near the amount of compensatory damages" —

as this Court concluded might be constitutionally justifiable

— to an amount nine times in excess of that.

B. The Utah Supreme Court's Invocation of "Utah's

Values and Traditions" and State Farm's Alleged Lack

of Remorse Do Not Justify the Utah Supreme Court's De-

parture from This Court's Reprehensibility Analysis

In its zeal to punish State Farm severely, the Utah Su-

preme Court defied this Court's admonition that only a mod-

est punishment was warranted. The Utah Supreme Court

defended its departure from this Court's reasoned evaluation

of the circumstances of this case by invoking "Utah's values

and traditions." A.7. Utah values and traditions, in the con-

text of the Utah Supreme Court's opinion, appear to consist

primarily of vague notions of punishing pride, defiance and

lack of remorse and contrition. See, e.g., A.12, 13 (State

Farm "has not voiced so much as a whisper of apology or

remorse;" has not "forsworn the conduct that caused the

Campbells' injury;" "we voiced our incredulity over Stace

Farm's protestations of blamelessness;" State Farm refuses

"to concede any error or impropriety;" "lack of remorse").

® The allegation that Mr. Noxon "manufactured" the story of the preg-

nant girlfriend is not supported by the record. The only trial testimony

regarding the pregnant girlfriend came from plaintiffs’ expert Stephen

Prater, who, based on his reading of a deposition of Ray Summers,

claimed that "[t]here was no evidence of any pregnant girlfriend." JA

2171. By a February 27, 2004 order of the Utah Supreme Court, the

record in this case has now been supplemented with the Summers’ deposi-

tion relied upon by Prater. In that deposition, Summers testified that he

heard either "from a roommate" of Mr. Ospital or "from the man who

owned the car" driven by Mr. Ospital at the time of the accident that Mr.

Ospital was on his way to Ogden because of a phone call from his girl-

friend saying that she was pregnant. Deposition of Ray Summers,

10/16/1995, at 87-88. Moreover, the record establishes that the "story"

that Mr. Ospital was speeding, although not later accepted by the jury,

was supported by the testimony of the state trooper who responded to the

accident and by the assessment of the accident made by Mr. Ospital's

insurance company. L. 1047-50, L. 1051-52; JA 3326.

The Utah Supreme Court's imposition of $9 million in

punitive damages for State Farm's purported failure to apolo-

gize and show remorse directly contravenes the controlling

federal constitutional principles articulated by this Court in

this case and in Gore. This Court's opinion in this case made

clear that punitive damages must address "the conduct that

harmed the plaintiff" and that dissimilar conduct may not be

punished under the guise of evaluating reprehensibility.

Campbell, 538 U.S. at 420-24. State Farm's purported fail-

ure to apologize and express remorse while defending itself

against the Campbells’ bad faith claims was not part of and is

by no means similar to the alleged wrongdoing in this case —

i.e., the purported bad faith failure to settle the third-party

claims against Mr. Campbell within policy limits. Conse-

quently, the Utah Supreme Court's emphasis on lack of re-

morse is plainly improper under the reprehensibility guide-

post as defined and analyzed in this Court's opinion.

The Utah Supreme Court's invocation of "Utah's values

and traditions" does not justify its departure from the federal

constitutional principles governing punitive damage awards.

See Campbell, 538 U.S. at 427 ("While States enjoy consid-

erable discretion in deducing when punitive damages are

warranted, each award must comport with the principles set

forth in Gore."). Indeed, the Utah Supreme Court's insis-

tence on its own ad hoc evaluation of blameworthiness based

upon Utah values and traditions is inconsistent with and un-

dermines this Court's adoption in this case and in Gore of a

five-factor analysis for reprehensibility. See Campbell, 538

US. at 419; Gore, 517 U.S. at 576-77. The five factors pro-

vide an objective, uniform framework, based upon traditional

tort law principles, for evaluating reprehensibility. See id.

The Utah Supreme Court's reliance on ill-defined, Utah-

based notions of "reprehensibility" and the role of remorse

and contrition in assessing punitive damages improperly

transforms the federal constitutional due process standard for

punitive damages into a subjective, arbitrary inquiry that may

be answered differently in every state and in every court.

Such a vague and variable standard would encourage unrea-

sonable and excessive awards.” It would deprive defendants,

particularly non-resident defendants engaged in interstate

commerce, of the constitutionally required notice of the se-

verity of the punishment that their conduct might incur. See

Gore, 517 U.S. at 574 ("Elementary notions of fairness en-

shrined in our constitutional jurisprudence dictate that a per-

son receive fair notice . . . of the severity of the penalty that a

State may impose."). State Farm certainly did not have con-

stitutionally adequate notice that Utah's "values and tradi-

tions" required State Farm to apologize or repent or else face

a huge, multi-million dollar punitive award.

This is not to say that states may not make different

judgments as to the seriousness of particular acts or conduct

or that differing state standards have no place in the punitive

damages analysis. Differing state standards are incorporated

into the constitutional punitive damages analysis through

substantive state tort law, whether statutory or decisional,

through which the states may declare conduct tortious or un-

lawful, thus opening the way to a potential punitive damages

award. Campbell, 538 U.S. at 422. Differing state standards

are also incorporated into the constitutional punitive damages

analysis through the comparable penalties guidepost, which

looks to the relevant state's legislative judgments as to the

seriousness of the conduct at issue. Consideration of legisla-

tively set penalties in the punitive damages analysis ensures

that a state's value determinations are reflected in a punitive

award, provides some measure of impartiality, and helps en-

sure that defendants receive constitutionally adequate notice

of the severity of the punishment that a particular jurisdiction

may impose. Cf. Browning-Ferris Indus. of Vt., Inc. v. Kelco

Disposal, Inc., 492 U.S. 257, 301 (1989) (O'Connor, J., con-

curring in part and dissenting in part) (a comparable civil

° The Utah Supreme Court itself acknowledged that "any determination

of reprehensibility inevitably implicates moral judgments and is therefore

susceptible to an arbitrary, inexplicable, and disproportionate outcome"

and that the five factor analysis is intended to provide more objective

"measuring tools." A.8. The Utah Supreme Court, however, applied the

Campbell reprehensibility factors in an arbitrary and unsupportable way

so as to reach a disproportionate outcome. See Point I.A. supra. That

outcome cannot be justified through an invocation of Utah values and

traditions.

penalty reflects "legislative judgments concerning appropri-

ate sanctions for the conduct at issue").

In marked contrast to a legislative determination em-

bodied in a statute, the Utah Supreme Court's invocation of

state "values and traditions" in its assessment of

reprehensibility produces an ad hoc, subjective inquiry that is

untethered to any objective standard that would restrain puni-

tive damages. If permitted to stand as precedent, the Utah

Supreme Court's reliance on state "values and traditions" to

trump the required constitutional analysis would result in a

return to arbitrary and grossly excessive punitive awards un-

restrained by definite and ascertainable standards. As such,

it is contrary to the punitive damages jurisprudence of this

Court. See Campbell, 538 U.S. at 416 ("The Due Process

Clause of the Fourteenth Amendment prohibits the imposi-

tion of grossly excessive or arbitrary punishments on a tort-

feasor"). There is no place in our civil justice system for by-

passing the due process protections in the United States Con-

stitution to punish pride and a lack of remorse, which in any

case do not constitute unlawful conduct.

Moreover, in punishing State Farm's perceived pride

and lack of remorse the Utah Supreme Court is not punishing

State Farm's conduct toward the Campbells, but is punishing

State Farm for what it perceives as State Farm's general

moral failings as well as for defending itself and appealing

this case in court. See Point I.C infra. Such punishment is

foreclosed by this Court's opinion in this case, which makes

clear that "[a] defendant should be punished for the conduct

that harmed the plaintiff, not for being an unsavory individ-

ual or business." Campbell, 538 U.S. at 423.

In sum, the Utah Supreme Court's skewed analysis of

the reprehensibility of State Farm's conduct toward the

Campbells improperly placed that conduct at the far extreme

of reprehensibility. Given the Utah Supreme Court's analy-

sis, it is difficult to fathom where on the reprehensibility

scale such matters as conduct aimed at intentionally causing

severe physical injuries or conduct involving deliberate, re-

peated violations of a plaintiff's constitutional rights would

find room. Clearly, the Utah Supreme Court has improperly

inflated and overdrawn the reprehensibility of State Farm's

conduct. The Utah Supreme Court's reprehensibility analysis

with its emphasis on remorse, pride and repentance cannot,

as a matter of due process, support the imposition of a $9

million punitive award.

C. The $9 Million Punitive Award Improperly and

Unconstitutionally Punishes State Farm for Its Litigation

Conduct and Arguments in Defending the Bad Faith and

Punitive Damages Case

In its analysis of reprehensibility and of State Farm's

purported lack of remorse, the Utah Supreme Court relied

heavily upon State Farm's efforts in defending itself at the

bad faith/punitive damages trial and in pursuing its appeal.

Indeed, the Utah Supreme Court is emphatic in directing its

opprobrium to arguments made by State Farm's attorneys, as

well as to testimony by State Farm employees, who said that

they were proud of State Farm. Reiterating its earlier opin-

ion in this case, the Utah Supreme Court stated:

State Farm's obdurate insistence that its treatment

of the Campbells was proper clearly calls out for

vigorous deterrence.

In Campbell I, we voiced our incredulity over

State Farm's protestations of blamelessness. We

noted: "State Farm refuses in its brief on appeal

to concede any error or impropriety in the han-

dling of the Campbell case. Rather, testimony at

trial indicated that State Farm was ‘proud’ of the

way it treated the Campbells. Further, State Farm

asserts [in its appellate brief] that it is in fact a

‘victim' in this case because it is the target of the

secret 'conspiracy' perpetrated by the Campbells,

Ospital, Slusher, and their attorneys to bring this

bad faith lawsuit and to share any recovery re-

ceived." . . . The Supreme Court did not take issue

with this observation. Since Campbell I, State

Farm has directed us to no evidence suggesting

that it has gained insight into the wrongfulness of

its behavior or has reconsidered its feelings of

pride and victimization. A.13.'°

Surely, this Court's opinion in this case cannot be read

to endorse imposition of punitive damages on the basis of a

litigant's exercise of its constitutionally protected right to

defend itself. But that is precisely what the Utah Supreme.

Court has done by using State Farm's litigation decisions,

testimony, and legal arguments in defending against the

Campbells' bad faith claims and appealing the judgment

against it as a predicate for a determination of extreme

blameworthiness meriting severe punishment.'' The Utah

Supreme Court's decision impermissibly threatens increased

punitive damages whenever a defendant chooses to contest

tort liability, unconstitutionally burdening the due process

rights of defendants in civil litigation. See Nelson v. Adams

USA, Inc., 529 U.S. 460, 466 (2000) (due process requires

that defendants in civil litigation have an adequate opportu-

nity to defend against the imposition of liability) (citing

American Sur. Co. v. Baldwin, 287 U.S. 156 (1932)).

The Utah Supreme Court's punitive condemnation of a

'0 The Utah Supreme Court's criticism of State Farm's feelings of "vic-

timization" is directed at arguments made by State Farm on appeal con-

cerning the exclusion of evidence of the secret agreement, entered into by

Slusher and the Ospitals, the third-party claimants in the underlying acci-

dent case, to pursue a bad faith claim against State Farm should the un-

derlying trial result in an excess verdict. That secret agreement provided

that the Ospitals and their attorneys would aid Slusher first in the trial of

Slusher's claims against Campbell and later in litigation to be brought

against State Farm for bad faith. See L.1647. The Ospitals' attorney

explained to Slusher's attorney that "[b]efore this [bad faith] action can be

filed, we would have to obtain a Judgment against . .. Campbell[] which .

. . would exceed his policy limits. We then obtain an assignment of all

claims from Mr. Campbell, in turn for an agreement not to execute

against him personally, and we then bring a bad faith action against State

Farm." R. 5897. On appeal before the Utah Supreme Court, State Farm

argued that it should have been allowed to present evidence of this agree-

ment in the bad faith trial, as the agreement (which was unknown to State

Farm at the time of the original trial) was relevant to the jury's assessment

of the reasonableness of State Farm's decision not to settle and helped

explain why that trial resulted in so poor an outcome for Mr. Campbell.

See Bnef of Appellant, 6/7/1999, at 46-52.

'' Of course, under Fed. R. Civ. P. 11 and Fed. R. App. P. 38 and their

state analogs as well as under their inherent. power, courts are authorized

to sanction frivolous or improper briefs and improper courtroom conduct.

defendant's efforts in litigation is not without parallel. Other

courts, in decisions post-dating this Court's opinion in this

case, also have improperly relied upon a defendant's litiga-

tion strategy as justifying a higher punitive damages award.

See, e.g., Mathias v. Accor Econ. Lodging, Inc., 347 F.3d

672, 677 (7th Cir. 2003) (citing defendant's "aggressive de-

fense" and “host of frivolous evidentiary arguments" in up-

holding punitive damage award); Hollock v. Erie Ins. Exch.,

842 A.2d 409, 419-22 (Pa. Super. Ct. 2004) (affirming $2.8

million punitive award, with a 10:1 ratio, largely on the basis

of the defendant insurer's conduct during trial of bad faith

claim against it rather than the underlying conduct giving rise

to the bad faith claim).

In contrast to these decisions and the decision of the

Utah Supreme Court, California courts have consistently

held that, as a matter of law, a "defendant's trial tactics and

litigation conduct may not be used to impose punitive dam-

ages in a tort action." De Anza Santa Cruz Mobile Estates”

Homeowners Ass'n v. De Anza Santa Cruz Mobile Estates,

94 Cal. App. 4th 890, 918 (Ct. App. 2001); accord, e.g.,

Palmer v. Ted Stevens Honda, 193 Cal. App.3d 530, 537-40

(Ct. App. 1987). In so ruling, California courts have looked

to the constitutional and tort law principles that mandate that

there can be "no tort of ‘malicious defense’ arising from a

defendant's conduct in defending a lawsuit, or ‘malicious fil-

ing of an appeal' for filing an appeal in bad faith." De Anza,

94 Cal. App. 4th at 918 (citations omitted). As one Califor-

nia court explained, "due process considerations are impli-

cated to the extent that tort damages are based on evidence

that a defendant filed motions, appeals and other legal pro-

ceedings during the course of litigation or opposed motions

filed by the other party." Jd. "Pursuing authorized forms of

relief before courts or other governmental tribunals is a pro-

tected right and cannot be the basis for tort liability" except

in the narrow circumstances where a properly pleaded action

for malicious prosecution may be brought. Jd. Likewise, a

defendant's conduct of its defense or its briefs on appeal do

not form a constitutional basis for iaposing punitive dam-

ages. Id. at 918-19.

The Utah Supreme Court's imposition of punitive dam-

ages for State Farm's failure to concede liability at trial, for

testimony by its employees that they were proud of State

Farm, and for arguments made by State Farm's counsel dur-

ing the trial and on appeal, punishes conduct that is dissimi-

lar and unrelated to State Farm's conduct toward the Camp-

bells — i.e., the alleged bad faith failure to settle the third-

party claims against Mr. Campbell within policy limits. That

punishment is contrary to the constitutional principle enunci-

ated by this Court that punitive damages must be based upon

the defendant's conduct toward the plaintiffs upon which the

plaintiffs' claims are based and that a defendant's dissimilar

conduct does not furnish a permissible basis for punitive

damages. See Campbell, 538 U.S. at 422-23, 427. As Judge

Klein reasoned in his dissent in Hollock, punitive damages

in a bad faith case should be directed toward punishing "only

conduct that relates to the bad faith harm." 842 A.2d at 423

(Klein J., dissenting). Basing punitive damages on a defen-

dant's actions during the bad faith trial itself contravenes this

Court's holding that "[a] defendant's dissimilar acts, inde-

pendent from the acts upon which liability was premised,

may not serve as the basis for punitive damages." Jd. at 423

(Klein, J., dissenting) (quoting Campbell, 538 U.S. at 422).

As Judge Klein pointed out, defense strategy and actions dur-

ing a bad faith trial are not part of the original conduct:

[B]ecause the duty of good faith and fair dealing

is extinguished once a settlement has been

reached or a judgment entered, the insurer's fidu-

ciary duty does not extend past that point. Thus,

no bad faith can be imputed to the insurer for ac-

tions taken post-judgment or post-settlement . . . .

No action taken by [defendant] in defense of the

bad faith claim can be considered in determining

whether [defendant] committed bad faith in the

investigation and handling of the underlying UIM

claim. /d. at 423.

The Utah Supreme Court's continued reliance on State

Farm's appellate briefing as a basis for punitive damages is

particularly egregious, given that State Farm has been shown

to have been right in its objections to the Utah trial proce-

dures that unconstitutionally allowed this case to be "used as

a platform to expose, and punish, the perceived deficiencies

of State Farm's operations throughout the country," Camp-

bell, 538 U.S. at 420, and that the $145 punitive damages

award reinstated by the Utah Supreme Court was unconstitu-

tional and in violation of State Farm's due process rights. /d.

at 429. Nevertheless, the Utah Supreme Court in its new

opinion reiterates its earlier criticism of State Farm's appel-

late briefing as showing "defiance" and feelings of "victim-

ization." A.13. Likewise, the Utah Supreme Court also re-

peats its criticism of State Farm's feeling of "pride," based on

the individual testimony of certain State Farm employees

who (when asked by plaintiffs' counsel) stated that they were

proud of State Farm and of being State Farm employees.’

It is evident that meting out punitive damages in the

millions of dollars based upon a defendant's arguments on

appeal or upon its attempts to defend against liability and/or

the imposition of punitive damages at trial will, if permitted

to continue, have a chilling effect on the defendant's lawful

exercise of its due process rights to defend itself. This Court

in its opinion in this case held that "[a] State cannot punish a

defendant for conduct that may have been lawful where it

occurred." Campbell, 538 U.S. at 421; see also Gore, 517

USS. at 572-73 & n.19 ("Alabama does not have the power . .

. to punish BMW for conduct that was lawful where it oc-

curred") (citing Bordenkircher v. Hayes, 434 U.S. 357, 363

(1978) ("To punish a person because he has done what the

law plainly allows him to do is a due process violation of the

'2 The preposterousness of the Utah Supreme Court's citing that testi-

mony as supporting the $9 million punitive damages award it has now

imposed is shown by the testimony itself. Paul Short, a State Farm claims

adjuster who was not involved in handling the claims against the Camp-

bells, testified as follows:

Q [Plaintiffs' attorney] You would be proud to have State Farm

treat any insured the way they've treated the Campbells.

A I'm proud of the way State Farm treats everybody. State Farm

- believed in Mr. Campbell, when the underlying case was tried —

MR. CHRISTENSEN: That's all right, you've answered my ques-

tion. Thank you.

JA 2712. Mr. Short's innocuous testimony, according to plaintiffs' expert

Stephen Prater, "suggests that they're proud and they've done nothing

wrong in this case, which I think is outrageous." JA 2453. State Farm

adjuster Jerry Stevenson, who worked on the Campbell file, also testified

that he was "proud" of State Farm although "sorry" for any policyholder's

trauma, worry or sleepless nights. See JA 2831-2833.

most basic sort")). The Utah Supreme Court, in punishing

State Farm for vigorously defending itself at trial and on ap-

peal, is punishing conduct that is lawful in Utah and every-

where else in this country. No legitimate state purpose is

served by penalizing such lawful conduct, and a punitive

damages award based upon such lawful conduct is arbitrary

and violates due process. See Campbell, 538 U.S. at 416-17,

421. The multiple and serious due process considerations

raised by the Utah Supreme Court's assessment of punish-

ment based on a defendant's efforts to defend itself at trial

and on appeal warrant resolution by this Court.

II. The Utah Supreme Court's Application of the Ra-

tio Guidepost Is Erroneous and Inconsistent with

This Court's Opinion

In determining that a 9 to 1 ratio comported with constitu-

tional limits in this case, the Utah Supreme Court flatly re-

fused to honor the spirit and letter of this Court's opinion. In

its opinion, this Court set forth a basic principle limiting the

ratio of punitive damages to compensatory damages in cases

where compensatory damages are substantial. This Court

opined: "When compensatory damages are substantial, then

a lesser ratio, perhaps only equal to compensatory damages,

can reach the outermost limit of the due process guarantee."

Campbell, 538 U.S. at 425. The Court then specifically de-

termined that this principle governed the punitive damages

award in this case. In reaching that conclusion, the Court

stressed that the substantial emotional distress damages of $1

million awarded to the Campbells already contained a puni-

tive element. Jd. at 426, 429. The Court explained that

[t]he compensatory damages for the injury suf-

fered here . . . likely were based on a component

which was duplicated in the punitive award.

Much of the distress was caused by the outrage

and humiliation the Campbells suffered at the

actions of their insurer; and it is a major role of

punitive damages to condemn such conduct.

Compensatory damages, however, already con-

tain this punitive element.

Id. at 426 (citing Restatement (Second) of Torts § 908, cmt.

c, p. 466 (1977)). Accordingly, this Court concluded that

"(a]n application of the Gore guideposts to the facts of this

case, especially in light of the substantial compensatory dam-

ages awarded (a portion of which contained a punitive ele-

ment), likely would justify a punitive damages award at or

near the amount of compensatory damages." /d. at 429.

The Utah Supreme Court turned this Court's ratio analysis

on its head. The Utah Supreme Court began its analysis by

inaccurately restating and limiting this Court's rule on puni-

tive damages in cases where substantial compensatory dam-

ages have been awarded as “applicable where a sizeable

compensatory damages award for economic injury is coupled

with conduct of unremarkable reprehensibility." A.15-16

(emphasis added). The Utah Supreme Court also concluded

that, contrary to this Court's opinion, the emotional distress

damages in this case contained no punitive component be-

cause the trial court had remitted such damages from $2.6

million to $1 million so as to reflect the purported actual

worth of the Campbells' distress. A.15.'° The Utah Supreme

Court then proceeded to the conclusion that conduct which

"causes $1 million of emotional distress and humiliation is

markedly more egregious than conduct which results in $1

million of economic harm" and that "such conduct is a candi-

date for the imposition of punitive damages in excess of a 1-

to-1 ratio to compensatory damages." A.16. Thus, according

to the Utah Supreme Court, "[s]imply put, the trial court's

determination that State Farm caused the Campbells $1 mil-

lion of emotional distress warrants condemnation in the up-

'3 With regard to the Utah Supreme Court's reliance on the "efforts of the

jury" "ensur[ing] that the compensatory damages award was . . . based on

considered evaluation of the degree of emotional harm inflicted on the

Campbells by State Farm" (A.15), it is worth noting that plaintiffs’ coun-

sel in his closing statement stressed to the jury that if they awarded an

insufficient amount of compensatory damages, any punitive damages

award they made would be "subject to attack in motions hereafter or on

appeal." JA 3243 ("Anything less [than $1.5 million] in compensatory

damages will then call into question whether or not the punitive damages

may be awarded, because again I emphasize the compensatory damages

are needed to sustain a large punitive damage award. Without it, it is

subject to attack in motions hereafter or on appeal."). Moreover, in its

oral ruling, the trial court expressly included the "outrageousness of State

Farm's overall plan" among the factors "justifying the amount of [emo-

tional distress] damages that the Court has awarded.” R. 10292:115.

per single-digit ratio range rather than the 1-to-1 ratio urged

by State Farm." A.16. The Utah Supreme Court's logic is

directly contrary to this Court's opinion and improperly relies

upon the $1 million dollar emotional distress damages to

jack up the punitive award, rather than to mitigate it in accor-

dance with this Court's opinion.

The Utah Supreme Court was not free to reject this Court's

determination that the emotional distress damages in this

case contained a punitive element as an "abstract proposi-

tion" that failed to take into account that the trial court had

purportedly "purged" the emotional distress damages of any

punitive element when it remitted them to $1 million. A.15.

Contrary to the Utah Supreme Court's contention, this

Court's determination that emotional distress damages con-

tain a built-in punitive component was not merely "an ab-

stract proposition." Rather, as discussed above, this Court

expressly applied that proposition to the emotional distress

damages in this case. See Campbell, 538 U.S. at 426, 429.

Moreover, the evidence regarding the degree of the Camp-

bells' emotional distress was discussed by the parties in their

briefing before this Court, and the trial court's decision re-

garding remittitur was reproduced in the parties’ joint appen-

dix and was cited to this Court in the parties’ briefing. JA

3322, 3359-69; Pet'r Br. at 5; Resp't Br. at 3. Consequently,

the Utah Supreme Court's claim that the trial court's reduc-

tion of the emotional distress damages had "purged" those

damages of any punitive component is contrary to this

Court's opinion and impermissible under the Court's man-

date. Moreover, even a cursory reading of the trial court's

opinion reveals that in setting the Campbells’ emotional dis-

tress damages at $1 million, the trial court relied as much on

evidence of what it perceived to be the outrageous nature of

State Farm's conduct as upon evidence of the emotional dis-

tress actually suffered by the Campbells. JA 3367; see also

p. 26 n.13 supra. Indeed, the trial court acknowledged that

"[t]here was a relatively limited period of time in which the

primary stressor, i.e., the threat of financial ruin, was a real

threat to the Campbells" and that "[t]here was a lack of ob-

jective evidence of emotional or mental distress." JA 3364.

Thus, the trial court's opinion in fact confirms the correctness

of this Court's conclusion that the emotional distress dam-

ages in the case contained a punitive element.

In any case, the principle enunciated by this Court — that,

in cases where substantial compensatory damages have been

awarded, a 1 to 1 ratio may represent the outermost limit of

due process — was reinforced by, but not dependent upon,

this Court's conclusion that the emotional distress damages in

this case contained a punitive element. In its opinion, this

Court acknowledged that any substantial compensatory

award may have a punitive and deterrent effect. See Camp-

bell, 538 U.S. at 419 (stating that "[i]t should be presumed a

plaintiff has been made whole for his injuries by compensa-

tory damages, so punitive damages should only be awarded if

the defendant's culpability, after having paid compensatory

damages, is so reprehensible as to warrant the imposition of

further sanctions to achieve punishment or deterrence") (em-

phasis added). Indeed, an award of emotional distress dam-

ages, whether or not it reflects a deterrent or punitive intent

upon the part of the judge or jury, normally has a consider-

able deterrent and punitive effect. As State Farm argued be-

fore this Court, "the $1 million compensatory award has a

substantial deterrent effect in itself, because it is far in excess

of the amount (the $50,000 policy limit minus the cost of

litigation) that State Farm could have hoped to save by liti-

gating rather than settling the third-party claims against Mr.

Campbell." Pet'r Br. at 32 n.30.

In sum, the Utah Supreme Court's disregard of the 1 to I

ratio approved by this Court was constitutionally erroneous

as well as inconsistent with the mandate of this Court. This

Court should grant State Farm's petition to correct the Utah

Supreme Court's refusal to follow the mandate of this Court.

Ill. The Utah Supreme Court's Analysis of the Compa-

rable Penalties Guidepost Is Inconsistent with This

Court's Opinion and Does Not Support the $9 Mil-

lion Punitive Damages Award

Under the Utah Supreme Court's opinion on remand, the

comparable penalties guidepost is stripped of its function of

imposing reasonable limits on punitive damages. Although

the Utah Supreme Court acknowledged that the relevant civil

penalty under Utah law was a $10,000 fine, the Court found

that its $9 million award did not "dwarf" that fine and there-

fore "hfeJld fast to [its] conviction that a punitive damages

award of $9,018,780.75 is in line with the third Gore guide-

post.” A.17. The Court reasoned that because this Court had

"endorsed" a $1 million punitive damages award, "which is

one hundred times greater than the $10,000 fine,” then, pre-

sumably, a $9 million award, 900 times greater than the rele-

vant civil penalty, must also pass constitutional muster.

A.17. State Farm respectfully submits that the comparable

$10,000 civil penalty in no way supports a $9 million puni-

tive award in this case, but rather requires a substantial low-

ering of that award.

The Utah Supreme Court's opinion improperly discounted

the importance of the comparable penalties, terming the

"quest" to apply this guidepost "quixotic." A.17. The Court

attempted to justify its disregard of the legislative judgment

reflected in the $10,000 penalty provided by Utah law for

fraudulent acts by insurers by noting that "while a $10,000

fine for fraud may appear modest in relationship to a multi-

million dollar punitive damages award, it is identical to the

maximum fine which may be imposed on a person in Utah

for the commission of a first degree felony, the classification

assigned our most serious crimes." A.17. Whether the Court

meant that the Utah legislature is somehow equating an act

of insurer misconduct with the most serious felonies or

whether it simply meant that the Utah legislature is somehow

irrational in the penalties it sets and that its judgments may

therefore be accorded less weight, the Court's disparagement

of the comparable penalties guidepost is illogical and errone-

ous. The fact that the criminal penalties provided by Utah

law for serious felonies committed by persons" include a

$10,000 fine in addition to lengthy prison sentences has little

or no relevance to the fact that the Utah legislature has seen

fit to impose a modest $10,000 fine for a single act of fraud

by insurance companies and certainly does not authorize the

Utah Supreme Court to disregard the comparable penalties

guidepost.'°

14 Utah Code Ann. § 76-3-301 (2003), cited by the Utah Supreme Court,

expressly states that it does not apply to corporations, but only to natural

persons.

” Despite this Court's rejection of the Utah Supreme Court's

"speculat{ion] [in its previous opinion] about the loss of State Farm's

(continued...)

The Utah Supreme Court's reluctance to give meaning and

force to the comparable penalties guidepost belies the Court's

asserted allegiance to Utah values, which are embodied in the

"legislative judgments concerning appropriate sanctions for

the conduct at issue," Browning-Ferris, 492 U.S. at 301

(O'Connor, J. concurring in part and dissenting in part), and

not in the subjective and personal views of judges. The com-

parable penalties guidepost in this case, if the Utah Supreme

Court had been willing to heed it, clearly points to the exces-

siveness of the $9 million punitive damages award.

CONCLUSION

This Court should grant State Farm's petition for a wnt of

certiorari. Because the Utah Supreme Court's decision is

plainly inconsistent with this Court's mandate in its opinion

in this case, this Court should summarily reverse the Utah

Supreme Court's decision pursuant to Supreme Court Rule

16 and instruct the Utah Supreme Court to enter a punitive

damages award in an amount "at or near" the amount of com-

pensatory damages, i.e., no more than $1 million. See Camp-

bell, 538 U.S. at 429. In the alternative, this Court should

afford plenary review, with briefing and oral argument by the

parties, of the important constitutional issues raised by the

Utah Supreme Court's decision.

“.. .continued)

business license," Campbell, 538 U.S. at 428, the Utah Supreme Court

repeated in its new opinion its unsupported surmise that "State Farm's

behavior, particularly if it were to become a pattern in Utah, may indeed

be justification for termination of its license ... ."_ A.17 n.8. The Court

cites no Utah statute or regulation that would subject an insurance com-

pany to termination of its license for a single act of the kind at issue in

this case. Nor can the Court's insistence on imagining that this excess

verdict case could "become a pattern in Utah" justify using the loss of

license as a comparable penalty in this case.

Respectfully Submitted,

Sheila L. Bimbaum

(Counsel of Record)

Barbara Wrubel

Douglas W. Dunham

Ellen P. Quackenbos

Skadden, Arps, Slate,

Meagher & Flom LLP

Four Times Square

New York, NY 10036

(212) 735-3000

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.