Amicus Curiae Brief — State Farm Mutual Automobile Insurance v. Campbell

Supreme Court, U.S.

FILED

AUG 23 2004

OFFICE OF THE CLERK

No. 04-116

IN THE

Supreme Court of the Cinited States

STATE FARM MUTUAL AUTOMOBILE

INSURANCE COMPANY,

Petitioner,

if

INEZ PREECE CAMPBELL AND MATTHEW C. BARNECK.

Special Aministrator and Personal Representative of the

Estate of Curtis B. Campbell.

Respondents.

On Petition for a Writ of Certiorari

to the Utah Supreme Court

BRIEF OF AMICUS CURIAE

FREEDOMWORKS

IN SUPPORT OF PETITIONER

CARTER G. PHILLIPS

GENE C. SCHAERR*

PAUL J. ZIDLICKY

ROBERT A. KLINCK

SIDLEY AUSTIN BROWN &

WoOoD LLP

1501 K Street. N.W.

Washington, D.C. 20005

(202) 736-8000

Counsel for Amicus Curiae

August 23, 2004 * Counsel of Record

RET CC OER: REE RCE RU oT NNN NET

WILSON-EPES PRINTING Co., INC. — (202) 789-0096 -— WASHINGTON, D.C. 20001

QUESTIONS PRESENTED FOR REVIEW

Whether the Utah Supreme Court’s decision on remand

contravened this Court’s mandate in State Farm Mutual

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 rejecting

specific holdings and findings of this Court in its application

of the constitutional punitive damages guideposts, and by

relying on the defendants’ perceived lack of remorse in its

defense and appeal of this case as a basis for punitive

damages?

The following three distinct issues (among others) are

encompassed within this question:

l. Did the Utah Supreme Court err in failing to compare

the punitive damages award to the civil sanction that could

have been applied in the most relevant provision of Utah law

because the court viewed this exercise, which is required by

this Court’s decisions, as “quixotic”?

2. Did the Utah Supreme Court err in equating

transgressions that occur in the economic realm with physical

assaults for purposes of the reprehensibility analysis, even

though this Court’s decisions draw a clear distinction between

the two?

3. Did the Utah Supreme Court err in punishing State

Farm for successfully appealing the $145 million punitive

award to this Court on the ground that its decision to appeal,

and its presentations on appeal, demonstrated a lack of

remorse?

(i)

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW ..............0.-

TABLE OF AUTHORITIES ee eae eat

REASONS FOR GRANTING THE PETITION..............

I.

Il.

THIS COURT SHOULD GRANT CERTIORARI

TO ESTABLISH THAT THE ANALYSIS OF

“SIMILAR PENALTIES” REQUIRED BY THIS

COURT’S DECISIONS CANNOT BE DISRE-

GARDED OR CIRCUMVENTED SIMPLY BE-

CAUSE A REVIEWING COURT DISAGREES

WITH THIS COURT’S JUDGMENT ABOUT

THE NEED FOR THAT ANALYSIS .........0..e

A. The Utah Supreme Court’s Decision Conflicts

With This Court’s Requirements.................0000+.

B. As A Matter Of Sound Economic Policy, It Is

Important To Look Closely At Similar

Penalties Because They Embody A Legislative

Judgment About The Proper Amount Of

Punishment Needed To Provide Adequate

Deterrence Against The Type Of Conduct At

ERED SEE EISETENT SE eo a Nae ee

THIS COURT SHOULD GRANT CERTIORARI

TO ESTABLISH THAT ECONOMIC AND

EMOTIONAL HARM CANNOT BE EQUATED

WITH “PHYSICAL ASSAULT” IN THE

“REPREHENSIBILITY” ANALYSIS ...................

(iii)

iV

TABLE OF CONTENTS—continued

A. The Utah Supreme Court’s Decision Conflicts

With This Court’s Analysis Of The Repre-

Se I sacentinsccansienscasncdactentiinacbeietniisigaes 9

B. As A Matter Of Sound Economic Policy, It

Makes No Sense To Punish Business Conduct

That May Impose Economic Or _ Even

Emotional Harm As Severely As Physical

PIII scsiiciaiinsiaiesitentinioiesasntbaincitaliseaaaastiainsincbciicliaaiiae 11

lil. THIS COURT SHOULD GRANT CERTIORARI

TO ESTABLISH THAT A GOOD-FAITH

VIGOROUS DEFENSE IN COURT CANNOT

BE CONSIDERED EVIDENCE OF “REPRE-

HENSIBILITY” IN THE REVIEW OF PUNI-

ppg eee OF of” |}. nr eeeierene 14

A. The Decision Below Conflicts With Control-

ling Decisions Of This Court............cccceeeeeeeeees 14

B. As A Matter Of Sound Economic Policy, It

Makes No Sense To Punish Or Deter A

Vigorous But Good-Faith Defense..................... 17

SFA RAE intnssnaxinsennssaiselhsaibnarpeneuldaiaiaaenunmnaamaaadia 19

ee eee

Vv

TABLE OF AUTHORITIES

CASES Page

BMW of N. Am. v. Gore, 517 U.S. 559 (1996)...... passim

Bordenkircher v. Hayes, 434 U.S. 357 (1978)... 15, 16

Griffin v. California, 380 U.S. 609 (1965)......... 4,15, 16

Herring v. New York, 422 U.S. 853 (1975).......0.00. 18

North Carolina v. Pearce, 395 U.S. 711 (1969)..... 4, 15,

16

Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1

Lj: MANOEL Mord keener ei Sty ny Eh Sines 12

Polk County v. Dodson, 454 U.S. 312 (1981)......... 18

State Farm Mut. Auto. Ins. Co. v. Campbell, 538

Pv, SITE sidnonceouindatctteicmea tecteue tate passim

United States v. Bass, 404 U.S. 336 (1971) wu... 12

United States v. Cronic, 466 U.S. 648 (1984)......... 18

SCHOLARLY AUTHORITY

C. R. Sunstein et al., Assessing Punitive Damages

(With Notes On Cognition And Valuation In

Law), 107 Yale L.J. 2071 (1998) voce eeeeseeeeee 13

OTHER AUTHORITIES

Battle Brews in Arkansas Over Nursing-Home

Liability, Best’s Ins. News, Oct. 10, 2001,

available at 2001 WL 24725205 ......cccceeeeeeeeees 8

Insurance Companies, Fearing Jury Verdicts, Shy

Away From State, Associated Press State &

Regional Wire, June 19, 2001, available at

eR Pua WORs We OTROS snscscusenniincsinaneepsspinsnnnmnlantenss 8

INTEREST OF AMICUS CURIAE

FreedomWorks is a nonprofit, nonpartisan organization

with approximately 360,000 members. One of its missions is

to educate citizens on, and to promote the adoption of, free-

market policies that inure to the benefit of consumers and

citizens generally. Accordingly, FreedomWorks and one of

its affiliated organizations, Citizens for a Sound Economy

(“CSE”), have taken an active part in the public debate on

antitrust enforcement, regulation of the Internet, deregulation

of the telecommunications industry and a host of other issues

that affect the Nation’s economy.

FreedomWorks has an interest in this case because it is

vitally interested in assuring that tort liability, including

punitive damage liability, is calibrated to promote sound

economic principles. When this case was last before the

Court, an affiliate of CSE, the CSE Foundation, filed an

amicus curiae brief. FreedomWorks and CSE continue to

; have a strong interest in the outcome of this litigation, and

believe that the path chosen by the Utah Supreme Court is

both inconsistent with the legal principles embodied in this

Court’s due process cases as applied to punitive damages

awards and rational economic theory.

INTRODUCTION AND SUMMARY OF ARGUMENT

In State Farm Mutual Automobile Insurance Co. Vv.

Campbell, 538 U.S. 408 (2003), this Court brought much-

' The parties have filed blanket written consents with the Clerk to the

filing of amicus briefs in this case. Pursuant to Rule 37.6, amici certify

that no counsel for a party authored this brief in whole or in part. No

person or entity other than the amici curiae and their counsel made any

monetary contribution to the preparation or submission of this brief.

Amicus Curiae adopts the facts and procedural history set forth in the

petition for writ of certiorari.

2

needed clarity to the limits imposed by the Due Process

Clause on court-imposed punitive damage awards. In a way

that this Court’s prior cases had not, State Farm gave notice

to potential defendants of the scope of potential punitive

damage awards, thereby facilitating greater certainty in

economic planning. It is thus imperative that the Court

vigilantly guard its pronouncements in State Farm against

erosion by lower courts—state and _ federal. The

constitutional rulings of this Court deserve substantially more

respect than State Farm received in the Utah Supreme Court.

If this Court does not respond, it will send a regrettable signal

that lower courts may disregard State Farm with impunity.

For example, in its decision, this Court noted that “few

awards exceeding a single-digit ratio between punitive and

compensatory damages, to a significant degree, will satisfy

due process.” Jd. at 425. This Court went on to reason that

the facts of this case would not justify nearly so high an

award:

An application of the Gore guideposts to the facts of this

case, especially in light of the substantial compensatory

damages awarded (a portion of which contained a

punitive element), likely would justify a punitive

damages award at or near the amount of compensatory

damages.

Id. at 429.

On remand, the Utah Supreme Court wholly ignored this

Court’s conclusion that a punitive award approximating the

compensatory award was appropriate, calling it a mere

“prediction.” Pet. App. Sa. Having dismissed this Court’s

ruling out of hand, the Utah Court then proceeded to award

plaintiffs punitive damages equal to nine times the

compensatory award. That award approached the limit of this

Court’s single-digit ratio guideline, even though this Court’s

earlier opinion made clear that State Farm’s conduct did not

3

approach the upper end of the “reprehensibility scale”

outlined in that opinion.

As aptly demonstrated by the Petition for Certiorari, this

Court should grant review in this case to ensure compliance

with its prior ruling and to provide additional guidance to the

lower courts on these important issues. Amicus wishes to

highlight three more specific reasons why this Court’s review

is needed:

First, this Court should grant certiorari to enforce its earlier

directive that lower courts consider similar penalties in their

assessment of punitive damages. Here, the Utah Supreme

Court ignored this Court’s directive that it compare the

punitive award to the magnitude of “‘civil penalties

authorized or imposed in comparable cases,"” 538 U.S. at

428 (quoting BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 575

(1996)), and that the “most relevant civil sanction under Utah

state law .. . appears to be a $10,000 fine for an act of fraud.”

Id. at 428. The Utah Supreme Court decided that this

comparison would not affect its analysis of the proper damage

award in this case, referring to the comparison as “quixotic.”

Pet. App. 17a.

The Utah Supreme Court’s decision to disregard this

Court’s instruction to compare the punitive award to other

legislatively authorized penalties is particularly troubling, and

worthy of review, because it creates a very real risk of

overdeterrence. Inherent in this Court’s rulings is an

understanding that courts should give significant deference to

the legislature’s considered judgment of what level of

punishment should be applied in a given case. Failing to give

such deference creates a very real risk of overdeterrence,

which can force manufacturers to stop producing useful

products or can force insurance companies to stop offering

certain forms of insurance. This Court should grant certiorari

to ensure that courts give some weight to the carefully

considered judgments of legislatures on the necessary level of

4

deterrence in considering the size of a punitive damage

award.

Second, certiorari is likewise appropriate because the Utah

Supreme Court, in its reprehensibility analysis, improperly

equated economic conduct with “physical assault.” This

Court’s decisions, including its prior decision in this case,

make plain that transgressions that occur in the economic

realm simply are not as reprehensible as physical assaults or

other physical invasions. See, e.g., BMW of N. Am., Inc. v.

Gore, 514 U.S. 559, 575-76 (1996); State Farm, 538 U.S. at

426. To justify the excessive punitive damage award in this

case, however, the Utah Supreme Court ignored these

precedents and concluded that State Farm’s actions were

especially reprehensible because they were “likely to cause

injury more closely akin to physical assault or trauma than to

mere economic loss.” Pet. App. 10a-1 la.

If left undisturbed, the Utah Supreme Court's ruling would

make punitive damages wholly unpredictable. It would

thereby undermine the deterrent value of punitive damages

because potential defendants will be unable to determine what

actions are likely to lead to an exorbitant punitive award.

This Court should grant certiorari so that it can make clear

that economic transgressions are categorically not as

reprehensible as physical assaults.

Third, certiorari is also appropriate because the Utah

Supreme Court improperly concluded that State Farm could

be punished for vigorously contesting the $145 million

punitive award that this Court found excessive. This Court

has held on numerous occasions that individuals (and

companies). may not be punished for exercising their

constitutionally protected rights. See, eg., Griffin v.

California, 380 U.S. 609 (1965); North Carolina v. Pearce,

395 U.S. 711 (1969). On remand from this Court, however,

the Utah Supreme Court proceeded to punish State Farm for

daring to challenge that court’s ruling that a $145 million

punitive award was justified. This Court should grant

5

certiorari to establish that a litigant cannot be punished, via an

enhanced punitive damage award, for advocacy that is

vigorous yet undertaken in good faith.

REASONS FOR GRANTING THE PETITION

I. THIS COURT SHOULD GRANT CERTIORARI

TO ESTABLISH THAT THE ANALYSIS OF

“SIMILAR PENALTIES” REQUIRED BY THIS

COURT’S DECISIONS CANNOT BE_ DISRE-

GARDED OR CIRCUMVENTED SIMPLY BE-

CAUSE A REVIEWING COURT DISAGREES

WITH THIS COURT’S JUDGMENT ABOUT THE

NEED FOR THAT ANALYSIS.

One important reason to grant plenary review, or even

summary reversal, in this case is to enforce the Court’s earlier

directive that lower courts consider similar penalties in their

assessment of punitive damages. In State Farm, this Court

specifically reiterated that a court reviewing a punitive

damages award should be guided by the magnitude of “‘civil

penalties authorized or imposed in comparable cases.’” 538

U.S. at 428 (quoting Gore, 517 U.S. at 575). In particular,

“legislative judgments concerning appropriate sanctions for

the conduct at issue’” should be accorded “‘substantial

deference’” Gore, 517 U.S. at 583 (quoting Browning-Ferris

Indus. of Vt., Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 301

(1989) (O’Connor, J., concurring in part and dissenting in

part)). And here, this Court explained 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,”

which is “dwarfed by the $145 million punitive damages

award.” State Farm, 538 U.S. at 428.

Despite that clear ruling, on remand, the court below

concluded that this guidepost would have no impact on its

analysis of the appropriate punitive award. Indeed, the court

below was openly hostile to such comparisons, asserting that

6

“the quest to reliably position any misconduct within the

ranks of criminal or civil wrongdoing based upon penalties

aftixed by a legislature can be quixotic.” Pet. App. 17a. The

court thus concluded, without further elaboration, “that

$9,018,780.75 is amply supported by the $10,000 civil

penalty.” /d. at 18a. That conclusion warrants this Court’s

review, for reasons of both law and sound economic policy.

A. The Utah Supreme Court’s Decision Conflicts

With This Court’s Requirements.

First of all, the decision below clearly conflicts with this

Court’s decisions. In Gore, this Court explained that

“[e]lementary notions of fairness” require “that a person

receive fair notice not only of the conduct that will subject

him to punishment, but also of the severity of the penalty that

a State may impose.” 517 U.S. at 574. There, the Court

observed that the “maximum civil penalty authorized by the

Alabama Legislature” for conduct comparable to the non-

disclosure at issue in that lawsuit was $2,000. /d. at 584.

Given this maximum statutory penalty, the Gore Court

concluded that a defendant would not have “fair notice” that a

failure to disclose information “might subject an offender to a

multimillion dollar penalty.” /d. Moreover, the Court

explained that the statutory penalties for comparable conduct

were relevant to determine whether the sanction imposed

“was necessary to deter future misconduct” in that the

maximum statutory fine reflected the State legislature’s

assessment that “less drastic remedies could be expected to

achieve that goal.” Jd.; see also State Farm, 538 U.S. at 428

(explaining that punitive award “dwarfed” the “civil sanction

under Utah state law”).

In its decision below, the Utah Supreme Court rendered this

guidepost and its underlying principles a nullity by approving

a punitive award more than 900 times larger than the

maximum civil penalty authorized by the Utah Legislature for

the “most relevant civil sanction.” State Farm, 538 U.S. at

428. The court reached that result by suggesting that this

j

Court’s decision implicitly “endorsed a punitive damages

award of $1 million which is one hundred times greater than

the $10,000 fine.” Pet. App. 17a. The court then reasoned

that a punitive award 900 times greater than the fine must,

therefore, still be “in line with the third Gore guidepost.” /d.

The court thus reduced the inquiry to an absurdity.

In doing so, the Utah Supreme Court ignored the principle

that statutory penalties are critical to an evaluation of the

excessiveness of a punitive damages award because they (1)

provide “notice” of the “severity of the penalty that a State

may impose,” Gore, 517 U.S. at 574, and (2) reflect the

legislature's judgment regarding the magnitude of the

sanction “necessary to deter future misconduct,” id. at 584.

Nowhere did the court below consider whether State Farm

was somehow on notice that its conduct in this case could

subject it to a penalty more than 900 times greater than the

maximum sanction authorized by the Utah Legislature.

Similarly, the court did not consider the Utah Legislature’s

judgment about the appropriate sanction necessary to “deter

future misconduct” of the sort at issue in this case, and

whether State Farm could be deterred through a puntive

damages award more in keeping with the Utah Legislature’s

judgment. /d.

B. As A Matter Of Sound Economic Policy, It Is

Important To Look Closely At Similar Penalties

Because They Embody A Legislative Judgment

About The Proper Amount Of Punishment

Needed To Provide Adequate Deterrence Against

The Type Of Conduct At Issue.

Not only does the decision below flout this Court's

established precedent, it ignores the importance of legislative

judgments about the appropriate level of sanction necessary to

provide adequate deterrence.

Ideally, a tort system should perform two functions:

compensate victims and deter and punish bad acts. With

8

regard to deterrence and punishment, it is critically important,

from an economic perspective, to avoid excessive punitive

awards. Often, a significant compensatory award both makes

the plaintiff whole, and creates powerful economic incentives

for a defendant to avoid future improper conduct. See State

Farm, 538 U.S. at 425. To be sure, “a multimillion dollar

penalty” may “prompt[] a change in policy” but that “sheds

no light on the question whether a lesser deterrent would have

adequately protected the interests of [a State’s] consumers.”

Gore, 538 U.S. at 584.

Indeed, excessive punitive awards impose significant

economic costs reflected in higher product prices or the

disappearance of desirable products from the market.? The

costs associated with excessive awards impose unnecessary

economic hardship on the defendant when a smaller award

would be sufficient to deter the same future, improper

conduct. These costs, in turn, may impose unnecessary

hardship on consumers forced to pay higher prices or to forgo

useful products.

In striking the appropriate balance, this Court has properly

counseled that special deference be paid to legislative

judgments about the magnitude of a sanction necessary to

punish and deter similar conduct. /d. Given the judgment of

the Utah legislature here, the decision of the court below to

insist upon a punishment more than 900 times greater than the

maximum penalty authorized by the legislature for

comparable conduct imposes an excessive punitive award on

? E.g., Insurance Companies, Fearing Jury Verdicts, Shy Away From

State, Associated Press State & Regional Wire, June 19, 2001, available

at LEXIS NEWS/APST (noting that 40 insurers doing business in

Mississippi have stopped selling certain kinds of insurance or pulled out

of the state entirely as a response to excessive jury verdicts); Battle Brews

in Arkansas Over Nursing-Home Liability, Bert’s Ins. News, Oct. 10,

2001, available at 2001 WL 24725205 (explaining that only two of 80

insurers that have authority to write liability policies for nursing homes in

Arkansas are doing so).

9

State Farm. At the same time it harms the economic interests

of consumers who will, directly or indirectly, be required to

bear this unwarranted burden in the form of higher prices,

reduced consumer choice, or both.

Il. THIS COURT SHOULD GRANT CERTIORARI

TO ESTABLISH THAT ECONOMIC AND EMOT-

IONAL HARM CANNOT BE EQUATED WITH

“PHYSICAL ASSAULT” IN THE “REPREHENSI-

BILITY” ANALYSIS.

Another reason to grant review is the lower court’s

departure from this Court’s teaching about the difference

between economic conduct and physical violence. In State

Farm, this Court made clear that one factor to be considered

in the reprehensibility analysis is whether “the harm caused

was physical as opposed to economic.” State Farm, 538 U.S.

at 419 (quoting Gore, 517 U.S. at 576-77). On remand, the

Utah Supreme Court ignored the clear mandate of this Court’s

ruling—that transgressions committed in the economic realm

are inherently not as reprehensible as are physical harms.

Instead the court below concluded that “misconduct which

occurs in the insurance sector of the economic realm is likely

to cause injury more closely akin to physical assault or trauma

than to mere economic loss.” Pet. App. 10a-1 la.

This Court should grant certiorari to review the Utah

Supreme Court’s equation of damages that result from an

economic transgression and those that result from a physical

assault. This ruling is contrary to this Court’s precedents and

threatens to interfere with sound economic policy by making

- the award of punitive damages less predictable.

A. The Utah Supreme Court’s Decision Conflicts

With This Court’s Analysis Of The Reprehensi-

bility Issue.

This Court’s prior decision made clear that economic

transgressions are not as reprehensible as are physical

assaults. Indeed, in noting that reprehensibility did not weigh

10

heavily in favor of a high punitive award in this case, this

Court explained that “[t]he harm arose from a transaction in

the economic realm, not from some physical assault or

trauma; there were no physical injuries.” State Farm, 538

U.S. at 426. This Court made plain that State Farm’s actions,

while tortious, were not as reprehensible as a physical assault.

As noted earlier, the Utah Supreme Court ignored this clear

mandate by concluding that State Farm’s conduct was just as

reprehensible as a physical assault because its actions were

“likely to cause injury more closely akin to physical assault or

trauma than to mere economic loss.” Pet. App. 10a-lla. To

reach this conclusion, the court below was forced to shift the

focus of the inquiry away from the nature of the conduct that

it criticized toward the harm caused. In doing so, the court

below attached an implausible meaning to this Court’s words:

“The Supreme Court’s observation is carefully phrased. It

does not classify the injury inflicted on the Campbells by

State Farm as “economic.” Rather, it notes that the transaction

which gave rise to the injury was in the “economic realm.’”

Id. at 9a.

But that word-play should not be allowed to stand. This

Court’s precedents, including its prior opinion in this case,

make clear that the relevant question in the reprehensibility

analysis is the blameworthiness of the defendant—an inquiry

that focuses on the nature of the defendant's conduct. As this

Court explained in Gore, “[the reprehensibility] principle

reflects the accepted view that some wrongs are more

blameworthy than others. Thus, we have said _ that

‘nonviolent crimes are less serious than crimes marked by

violence or the threat of violence.” 517 U.S. at 575-76

(quoting Solem v. Helm, 463 U.S. 277, 292-93 (1983)).

The Court’s guidance on the application of the

reprehensibility factor thus tracks a basic intuition built into

an legal culture—that certain acts are, by their very nature,

more blameworthy than others. And one of the primary

1]

indicators of such blameworthiness is whether an act is

violent or carries an inherent risk of physical injury.”

Accordingly, in its statement in Gore, this Court focused on

the nature of the activity—not the nature of the harm. This

focus makes good sense. In determining the reprehensibility

of the defendants’ actions, courts should focus on what the

defendant did—i.e., did the wrongdoing occur in the context

of an economic transaction or was it an act aimed at causing

physical harm to the plaintiff.

In accord with this basic intuition, this Court has already

decided that State Farm’s behavior is categorically different

than a case involving “physical assault or trauma.” State

Farm, 538 U.S. at 426. Certiorari is thus appropriate to

overturn the Utah Supreme Court’s disregard for this Court’s

precedents, including the Court’s earlier decision in this very

case.

B. As A Matter Of Sound Economic Policy, It

Makes No Sense To Punish Business Conduct

That May Impose Economic Or Even Emotional

Harm As Severely As Physical Assault.

The Utah Supreme Court’s decision to punish business

conduct that may impose economic and emotional harm as

severely as physical assaults should also be rejected because

it creates vast uncertainty, thereby undermining the deterrence

value of punitive damages.

One of the primary goals of punitive damages is to deter

individuals from engaging in reprehensible behavior. See.

e.g., State Farm, 538 U.S. at 416 (“[P]unitive damages serve

a broader function; they are aimed at deterrence and

* Other relevant considerations include whether the defendant targeted a

particularly vulnerable individual or demonstrated a reckless disregard for

the health and safety of others. State Farm, 538 U.S. at 419. As with the

distinction between a violent and non-violent act, these factors focus on

the behavior of the defendant.

Ee

12

retribution.”). From an economic. standpoint, punitive

damages are useful because the threat of a potential punitive

award creates an economic incentive not to engage in

reprehensible conduct. But punitive damages can be effective

at deterring such conduct only to the extent that individuals

can foresee liability. If a defendant cannot foresee punitive

liability accruing as a result of given conduct, the threat of

punitive damages will not have any deterrent effect.

Accordingly, rules for imposing punitive damages should

be ordered to create the greatest degree of foreseeability

possible. Bright-line rules that clearly delineate what

behavior will be punished should thus be favored over ad hoc

rules, which necessarily create uncertainty.’

The Utah Supreme Court’s ruling ignores the necessity of

bright-line rules governing punitive liability. By contrast, this

Court’s decisions provided a clear dividing line between

damages caused by transgressions in the economic realm and

physical injuries suffered as a result of physical assaults.

Gore, 517 U.S. at 575-76; State Farm, 538 U.S. at 426.

While this Court’s decisions do not rule out punitive liability

‘In the context of punitive damages, bright-line rules are also

appropriate for non-economic reasons: potential defendants are entitled,

as a matter of due process, to know that their actions can lead to punitive

damage liability and at what level of severity. Pacific Mut. Life Ins. Co. v.

Haslip, 499 U.S. 1, 59 (1991) (O’Connor, J., dissenting) (“Indeed, the

point of due process—of the law in general—is to allow citizens to order

their behavior. A State can have no legitimate interest in deliberately

making the law so arbitrary that citizens will be unable to avoid

punishment based solely upon bias or whim.”). Favoring bright-line rules

in the punitive context also is in accorc with this Court’s more general

statements that, in the context of criminal statutes, potential defendants

must be put on notice that their actions will create liability. See, e.g.,

United States v. Bass, 404 U.S. 336, 348 (1971) (explaining that the rule

of lenity is designed to ensure that “*fair warning [is] given to the world in

language that the common world will understand, of what the law intends

to do if a certain line is passed.””).

13

for actions that merely cause economic harms, they clearly

indicate that such liability should be relatively modest.

The Utah Supreme Court’s decision effectively uprooted

this principle, substituting in its place what amounts to a

regime of “we know reprehensible economic conduct when

we see it.” That is, under Utah Supreme Court’s decision,

economic transgressions that courts deem particularly

egregious will be held to warrant much higher punitive

awards. But this category of behavior is not well-defined and

a potential defendant cannot, with any confidence, predict

whether its behavior will be deemed to fall within this

category.

The decision, if not reversed, thus makes it nearly

impossible for companies and individuals to predict, ex ante,

what activities are sufficiently “reprehensible” to create

disproportionately high punitive liability. The uncertainty

created by the Utah Court’s decision will lead, in turn, to

negative economic effects. As one prominent commentator

has put it:

If awards are unpredictable . . . resources are likely to be

wasted on [the calculation of the risk of a punitive

award], and as a practical matter, a risk of extremely

high awards is likely to produce excessive caution in

risk-averse managers and companies. Hence unpre-

dictable awards create both unfairness and (on

reasonable assumptions) inefficiency, in a way that may

overdeter desirable activity.

C. R. Sunstein et al., Assessing Punitive Damages (With

Notes On Cognition And Valuation In Law), 107 Yale L.J.

2071, 2077 (1998) (footnote omitted).

This Court should grant certiorari so that it can reestablish

the bright-line rule laid down in State Farm, ie., that

transgressions in the economic realm do not warrant punitive

liability as severe as those for violent actions such as physical

assaults.

ae

RIE ae ah Waa Ae me Revive

14

Ill. THIS COURT SHOULD GRANT CERTIORARI

TO ESTABLISH THAT A GOOD-FAITH

VIGOROUS DEFENSE IN COURT CANNOT BE

CONSIDERED EVIDENCE OF “REPREHENSI-

BILITY” IN THE REVIEW OF PUNITIVE

DAMAGE AWARDS.

A final reason to grant review in this case is to resolve the

issue of whether a vigorous defense can be considered a

factor in the reprehensibility analysis. In State Farm, this

Court reiterated that “*[T]he most important indicium of the

reasonableness of a punitive damages award is the degree of

reprehensibility of the defendant’s conduct.’” 538 U.S. at 419

(quoting Gore, 517 U.S. at 575). With regard to that factor, a

“State cannot punish a defendant for conduct that may have

been lawful where it occurred.” /d. at 421. Thus, a State may

not “punish and deter conduct that b[ears] no relation to the

[plaintiff's] harm” or that is “independent from the acts upon

which liability was premised.” /d. at 422.

On remand, the Utah Supreme Court nevertheless

proceeded to justify a $9 million punitive award based upon

its disagreement with State Farm’s litigation strategy in

defending against plaintiff's lawsuit. Pet. App. 12a-14a.

Thus, the court criticized State Farm’s “‘refus[al] in its brief

on appeal to concede any error or impropriety in the handling

of [plaintiff's] case’ and State Farm’s “defiance” in failing to

demonstrate to the lower court’s satisfaction “that it has

gained insight into the wrongfulness of its behavior or has

reconsidered its feelings of pride and victimization.” /d. at

13a. That ruling merits this court’s review because it is

contrary to this Court’s decisions and would improperly chill

legitimate advocacy.

A. The Decision Below Conflicts With Controlling

Decisions Of This Court.

1. This Court consistently has held that the Due Process

Clause of the Fourteenth Amendment prevents imposition of

15

a punishment against a party based upon the exercise of a

constitutional right. For example, in Griffin v. California,

380 U.S. 609 (1965), this Court ruled that a defendant’s

exercise of his right to remain silent, as guaranteed by the

Fifth and Fourteenth Amendments, could not be penalized by

a court through an instruction informing the jury that “such

silence is evidence of guilt.” /d. at 615. Such an instruction

was unconstitutional because it was “a penalty imposed by

courts for exercising a constitutional privilege.” /d. at 614.

Similarly, in North Carolina v. Pearce, 395 U.S. 71]

(1969), the Court considered the limitations imposed by the

Due Process Clause on the punishment of a defendant who

successfully challenged a court’s prior judgment. /d. at 724.

The Court explained that it “would be a flagrant violation of

the Fourteenth Amendment for a state trial court to follow an

announced practice of imposing a heavier sentence” where a

defendant successfully challenges the original punishment

meted out by the court. /d. at 723-24. The Court reasoned

that “the imposition of a penalty upon the defendant for

having successfully pursued a statutory right of appeal...

would be . . . a violation of due process of law,” id. at 724,

because “vindictiveness against a defendant for having

successfully attacked his first conviction must play no part in

the sentence he receives” thereafter, id. at 725.

Thereafter, in Bordenkircher v. Hayes, 434 U.S. 357

(1978), this Court underscored the continuing vitality of cases

such as Pearce by contrasting a plea bargain—which

generally involve give-and-take negotiation—from “State’s

unilateral imposition of a penalty upon a defendant who had

chosen to exercise a legal right to attack his original

conviction.” /d. at 362. The former conduct was permissible

but the latter violated due process because, “for an agent of

the State to pursue a course of action whose objective is to

penalize a person’s reliance on his legal rights is ‘patently

unconstitutional.’” Id. at 363 (quoting Chaffin v.

Stynchcombe, 412 U.S. 17, 33 & n.20 (1973)). The critical

16

factor for the Court was the bedrock principle that “[t]o

punish a person because he has done what the law allows him

to do is a due process violation of the most basic sort.” /d.

In Gore, this Court applied these same due process

limitations to analyze the proper scope of punitive damages

awards. 517 U.S. at 572-73 & n.19. Relying upon

Bordenkircher, the Gore Court held that a state could not

— impose a punishment to deter out-of-states conduct that “

lawful in other jurisdictions.” /d. at 573. That limitation on a

State’s power to punish and deter out-of-state conduct that

was legal where it occurred followed directly from the well-

developed rule that a sentencing court could not “properly

punish lawful conduct.” Jd. at 573 n.19; accord State Farm,

538 U.S. at 421.

2. The decision below creates a direct conflict with these

decisions. That is because it unapologetically seeks to justify

a punitive award in excess of $9 million on State Farm’s

exercise of its right to defend itself against plaintiff's claims

at trial and the conduct of its appeal of the jury’s verdict. Pet.

App. at 12a-14a. The court below, pointing to State Farm’s

original appeal brief, held that (1) State Farm’s “obdurate

insistence that its treatment of the Campbells was proper

clearly calls out for vigorous deterrence” and (2) “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.” Jd. at

13a. Thus, the court below viewed State Farm’s exercise of

its statutory appellate rights—and perhaps even its resort to

this Court—as “defiance” and “callousness” that justified an

increased punitive award. /d.

This Court’s cases, however, make plain that a party cannot

be punished for engaging in conduct that is lawful. Gore, 517

U.S. at 572-73; Bordenkircher, 434 U.S. at 362; Pearce, 395

U.S. at 724; Griffin, 380 U.S. at 615. It follows that a

defendant’s exercise of its constitutional right to defend itself

17

in litigation cannot be used to justify imposition of a more

severe punishment.

B. As A Matter Of Sound Economic Policy, It

Makes No Sense To Punish Or Deter A Vigorous

But Good-Faith Defense.

The decision below also creates harmful economic policy

consequences by deterring and punishing legally protected

conduct and undermining the efficient operation of the

adversary system.

This Court has noted that punitive damages may be

imposed “to further a State’s legitimate interests in punishing

unlawful conduct and deterring its repetition.” Gore, 517

U.S. at 568; see also State Farm, 538 U.S. at 416. At the

same time, “[a] defendant’s dissimilar acts, independent from

the acts upon which liability was premised, may not serve as

the basis for punitive damages.” /d. at 422-23. Indeed, even

when such dissimilar conduct might be illegal, punitive

damages may not be awarded because to do so “creates the

possibility of multiple punitive damages awards for the same

conduct.” /d. at 423.

The decision below, however, reflects a hostility to zealous

advocacy that, if left uncorrected, would create powerful and

dangerous economic incentives.

First, the court engaged in the very sort of over-deterrence

condemned by this Court in State Farm by punishing

defendant’s “dissimilar acts.” 538 U.S. at 422. Under State

Farm, dissimilar conduct—even if unlawful—cannot be the

basis of a punitive award. /d. at 423 (highlighting danger of

“double counting”). Indeed, if dissimilar conduct is punished,

the deterrence value of punishing the conduct at issue in the

litigation—the conduct found unlawful-—will be seriously

diluted.

Here, there can be no question that State Farm’s litigation

strategy in defending against the Campbell’s claims had

18

nothing to do with the underlying conduct at issue in the

Campbell's lawsuit. Accordingly, punishing that conduct

serves no useful deterrence function and, indeed, dilutes and

undermines the deterrence value of punishing the conduct that

was in fact at issue in the litigation.

Second, the “conduct” relied upon by the court below to

justify an increased penalty manifestly was not unlawful

conduct. To the contrary, State Farm was punished for

contesting the jury’s verdict on appeal and successfully

seeking review of the Utah Supreme Court’s decision.

As this Court has explained in the context of criminal trials,

the very notion of an adversarial system of justice is that

“truth ... is best discovered by powerful statements on both

sides of the question.” United States v. Cronic, 466 U.S.

648, 655 (1984) (quoting Kaufman, Does the Judge Have a

Right to Qualified Counsel?, 61 A.B.A. J. 569, 569 (1975)).

Indeed, “[t]he very premise of our adversary system of

criminal justice is that partisan advocacy on both sides of a

case will best promote the ultimate objective that the guilty be

convicted and the innocent go free.” Herring v. New York,

422 U.S. 853, 862 (1975); Polk County v. Dodson, 454 U.S.

312, 318 (1981) (“The system assumes that adversarial testing

will ultimately advance the public interest in truth and

fairness”). This adversarial system is dependent upon zealous

counsel promoting the interests of their clients within

properly circumscribed ethical and legal limits. Cronic, 466

U.S. at 656 n.19. To punish zealous advocacy solely because

it is zealous (rather than, say, contumacious) is to undermine

that entire system.

Under the decision below, then, defendants in a lawsuit

may be deterred from defending themselves zealously for fear

that their advocacy will be interpreted as “defiance” that will

be used to justify an additional layer of punishment that

dwarfs the actual harm allegedly caused by their conduct.

Such punishment will not only dilute the law’s effort to deter

the conduct found unlawful, but will also deter other

te

mets att

initia ctr rset nts cane te.

19

conduct—vigorous advocacy—that is highly valued by our

society and, indeed, by our Constitution.

CONCLUSION

For the foregoing reasons, the Court should grant the

petition for a writ of certiorari.

Respectfully submitted,

CARTER G. PHILLIPS

GENE C. SCHAERR*

PAUL J. ZIDLICKY

ROBERT A. KLINCK

SIDLEY AUSTIN BROWN &

WOOD LLP

1501 K Street, N.W.

Washington, D.C. 20005

(202) 736-8000

Counsel for Amicus Curiae

August 23, 2004 * Counsel of Record