Amicus Curiae Brief — Continentalenental Carbon Co. v. Action Marine Marine, Inc. (No. 07-257)

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No. 07-257 i OFFICS: GS fe 58 ae

Hn the Supreme Court of the United States

CONTINENTAL CARBON CO. AND

CHINA SYNTHETIC RUBBER CORP.,

Petitioners,

V.

ACTION MARINE, INC., ET AL..,

Respondents.

On Petition for a Writ of Certiorari to

the United States Court of Appeals

for the Eleventh Circuit

BRIEF OF THE AMERICAN CHEMISTRY COUNCIL

AND THE NATIONAL ASSOCIATION OF

MANUFACTURERS AS AMICI CURIAE

IN SUPPORT OF PETITIONERS

DONALD D. EVANS ALAN UNTFREINFR*

American Chemisirv Council — Robbins, Russell, Englert,

1300 Wilson Boulevard Orseck, Untereiner &

Arlington, VA 22209 Sauber LLP

(703) 741-5153 L801 K Street, N_W.

Suite 4/1

JAN S. AMUNDSON Washington, D.C. 20006

QUENTIN RIEGEL (202) 775-4500

National Association of

Manufacturers

1331 Pennsvivania Ave., NW.

Washington, D.C. 20004

(202) 637-3000 * Counsel of Record

TABLE OF CONTENTS

Page

TIT PAeT EET ng Sine hee cee vecdupeuens il

INTERES! OF THE AARCICURIAE ..... 2.0 cceweees I

IR IS i RE GIO oe a Oe ee 2

INTRODUCTION AND SUMMARY

eS Oe ae ki ee es veh saa ws 6

I chr ie a Geka bs 6646's WA mai 4 che vacete Oe Ose 10

1. The Eleventh Circuit’s Decision Conflicts With This

Court’s Decisions Concerning The Meaning Of The

wie Lt

ll. The Eleventh Circuit’s Decision Exacerbates Conflicts

And Confusion In The Lower Courts Over The Proper

Interpretation Of The Third BMW Factor .......... 17

SE Laie rai uaa Ss ANCA eae Hoek ERNE OO et 20

TABLE OF AUTHORITIES

Page(s)

Cases:

BMW of N. Am., Inc. v. Gore,

SEF Os ae ce Ono wib-vc er eee passim

Bouie v. City of Columbia, 378 U.S. 347 (1964) ......... 6

Bowers v. Hardwick, 478 U.S. 186 (1986) ............ 13

Clark v. Chrvsler Corp.,

436 FB Fe CE ecco rece c cc ec ccces 18

Cooper Indus., Inc. v. Leatherman Tool

Group, inc., 532 U.S. 424 (2001) ........ 8, 12, 17, 18

In re Exxon Valdez, 490 F.3d 1066 (9th Cir. 2007),

pet. for cert. filed, 76 U.S.L.W. 3073 (U.S. Aug. 20,

BOTS ee ee ee eb cece ceeees 19

Johansen v. Combustion Eng ‘g, Inc..

170 F.3d 1320 (1 ith Cir.), cert. denied,

DEO Chey ee bcc cc cre cee: 3,4

Lankford v. Idaho, 500 U.S. 110 (1991) 2.0 0.00000.... 13

Leatherman Tool Group, Inc. v. Cooper

Indus., Inc., 285 F.3d 1146 (9th Cir. 2002) |... 12

Mathias v. Accor Econ. Lodging, Inc..

S47 FSO 1 CE bigs cocci c ce eecees 18

11

TABLE OF AUTHORITIES — Cont’d

Page(s)

Pac. Mut. Life Ins. Co. v. Haslip,

i ees eter eke 10

State Furm Mut. Auto. Ins. Co. v. Campbell,

oe > a er ee passim

Union Pac. R.R. v. Barber, 149 S.W. 3d 325 (Ark.),

cert. denied, 543 U.S. 940 (2004) ................ 18

Willow Inn, Inc. v. Pub. Serv. Mut. Ins. Co..

Pg in Te ES ai sal as me nC Eeg 18, 19

Statutes:

sd so o's 9.6 Veo ae ew beeen 3

Eg og 8 a wn gt le kin iallg bik 3,14

pT ge ge eS 8 | a 3

Alabama Code § 22-22A-S(18)c ................. passim

Miscellaneous:

ALABAMA DEPARTMENT OF ENVIRONMENTAL

MANAGEMENT, ENVIRONMENTAL SUMMARY 2000... 16

ALABAMA DEPARTMENT OF ENVIRONMENTAL

MANAGEMENT, ENVIRONMENTAL SUMMARY 2001 ... 15

ALABAMA DEPARTMENT OF ENVIRONMENTAL

MANAGEMENT, ENVIRONMENTAL SUMMARY 2002 ... 16

iV

TABLE OF AUTHORITIES — Cant’'d

Page(s)

ALABAMA DEPARTMENT OF ENVIRONMENTAL

MANAGEMENT, ENVIRONMENTAL SUMMARY 2003 ... 16

ALABAMA DEPARTMENT OF ENVIRONMENTAL

MANAGEMENT, ENVIRONMENTAL SUMMARY 2004 ... 16

ALABAMA DEPARTMENT OF ENVIRONMENTAL

MANAGEMENT, ENVIRONMENTAL SUMMARY 2005 ... 16

ALABAMA DEPARTMENT OF ENVIRONMENTAL

MANAGEMENT, ENVIRONMENTAL SUMMARY 2006... 16

Steven Chanenson & John Yotanda, The Foggy Road

for Evaluating Punitive Damages: Lifting the Haze

From the BMW/State Farm Guideposts, 37 U. MICH.

pA ee er mene 19, 20

Jenny Jiang, Comment, Whimsical Punishment: The Vice

of Federal Intervention, Constitutionalization, and

Substantive Due Process in Punitive Damages Law,

94 CAL. L. REV. 793 (2006)

Andrew Moskowitz, Comment, Meaning Is In The Eve

of The Beholder: BMW v. Gore and its Potential

Impact on Toxic Tort Actions Brought Under State

Common Law, 8 FORDHAM ENVT'L L.J. 221 (1996) .. 20

BRIEF OF THE AMERICAN CHEMISTRY

COUNCIL AND THE NATIONAL ASSOCIATION

OF MANUFACTURERS AS AMICI CURIAE

IN SUPPORT OF PETITIONERS

INTEREST OF THE AMICI CURIAE'

The American Chemistry Council (“ACC”) represents the

leading companies engaged in the business of chemistry, a $635

billion enterprise that accounts for ten cents of every dollar in

exports and js a critical component of the nation’s economy.

ACC members apply the science of chemistry to create and

manufacture innovative products and services that make the

lives of people throughout the country and abroad better, safer,

and healthier.

The National Association of Manufacturers (““NAM_’’) is the

nation’s largest industrial trade association, representing small

and large manufacturers in every industrial sector and in all 50

states. NAM’s mission ts to enhance the competitiveness of

manufacturers by shaping a legislative and regulatory

environment that is conducive to economic growth. NAM also

seeks to increase understanding among policymakers, the

media, and the public about the vital role of manufacturing to

America’s economic future and living standards.

In support of these objectives, ACC and NAM regularly file

briefs as amici curiae in this Court and in other courts in cases

that are significant to their respective members. This is such a

case. Because ACC and NAM members are often the subject of

suits seeking punitive damages, they have a substantial interest

in the development of sound legal principles governing the

power of juries to mete out punishment in civil litigation.

' The parties* letters of consent to the filing of this brief have been lodved

with the Clerk. Pursuant to S.Ct. Rule 37.6, amici state that no counsel

for a party has written this brief in whole or in part and that no person or

entity, other than amici, their members, or their counsel, has made a

monetary contribution to the preparation or submission of this brief.

%

-~

STATEMENT

In BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 574 (1996),

this Court explained that “[ejlementary notions of fairness

enshrined in our constitutional jurisprudence dictate 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.” To ensure such fair notice,

and ultimately to determine whether “a more modest

punishment * * * could have satisfied the State’s legitimate

objectives” of punishment and deterrence (State Farm Mut.

Auto. Ins. Co. v. Campbell, 538 U.S. 408, 419-20 (2003)), this

Court has instructed reviewing courts to examine three

guideposts in evaluating whether a punitive damages award is

constitutionally excessive. This case provides a valuable

opportunity to clarify all three guideposts, including the oft-

misunderstood “comparable penalties” guidepost, and to bring

the Eleventh Circuit into line with the decisions of this Court

and other federal and state appellate courts.

|. This is an environmental case involving discoloration and

damage to property (but no claim of physical illness or injury)

flowing from the release of “carbon black,” a compound with

many useful commercial applications, from a manufacturing

plant in Phenix City, Alabama. The plant is owned by petitioner

Continental Carbon Co. (“CCC”), which is an indirect

subsidiary of petitioner China Synthetic Rubber Corporation.

Respondents are the City of Columbus, Georgia; city resident

Owen Ditchfield; a boat dealership, Action Marine, Inc.; and the

dealership’s owner. John Tharpe. The jury returned a verdict

for respondents, awarding $570,000 to the City for remediation

costs, $45,000 to Ditchfield for property damage, $1.2 million

to Action Marine for lost business value, and $100,000 to

Tharpe for emotional distress. The jury also awarded

respondents $1,294,000 in attorneys® fees and $17.5 million in

punitive damages. The district court ordered extensive

injunctive relief (with an estimated cost to petitioners of $4.2

million). See Pet. 6.

3

2. The district court denied petitioners’ post-trial motion,

including their request that the $17.5 million punishment be

vacated or substantially remitted because it was excessive when

judged under the BMW factors. Pet. App. 33a, 41a-47a. With

respect to the third BMW guidepost — “the difference between

the punitive damages awarded by the jury and the civil penalties

authorized or imposed in comparable cases” (id. at 42a) — the

district court acknowledged its crucial importance in ensuring

that a defendant receive fair notice. *** Whether a defendant had

constitutionally adequate notice that his conduct might result in

a particular damages award,’” the court explained, “*depends in

large part upon the available civil and criminal penalties the

state provides for such conduct.”” /d. at 46a (quoting Johansen

v. Combustion Eng'g, Inc., 170 F.3d 1320, 1337 (1 Ith Cir.),

cert. denied, 528 U.S. 931 (1999)) (emphasis added). At the

same time, the district court noted that under Eleventh Circuit

precedent the comparable-penalties factor “is accorded less

weight” than the first two BMW factors. /d. at 30a (internal

quotation marks omitted).

Next, the district court held that the relevant point of

comparison was “the civil penalties that could have been

imposed by the Alabama Department of Environmental

Management (“ADEM’),” the agency with responsibility over

the Phenix City plant, “for air pollution pursuant to Alabama

Code §§ 22-22A-4 and 22A-5.” Pet. App. 46a. Those

provisions authorize ADEM to impose a civil penalty that “shall

not be less than $100.00 or exceed $25,000” for any violation of

certain provisions of the Alabama environmental statutes or of

“any rule, regulation or standard promulgated by the department.

any provision of any order, or any condition of any permit,

license, certification or variance issued by the department.” Ala.

Code §§ 22-22A-5(18)a, 22-22A-5(18)c.° “[T] hose statutes,” the

’ The statute requires ADEM to consider the following factors in

selecting the penalty for each violation from within the $100-$25.000

range: “the seriousness of the violation. including any irreparable harm

to the environment and any threat to the health and safety of the public:

4

court explained, also “impose a $250,000 cap on the ‘total

penalty [that is] assessed in an order issued by the department.’

Ala. Code § 22A-5(18)c.” Pet. App. 46a.

Rather than evaluate how many violations petitioners had

committed, how severe those violations were, and what civil

penalties ADEM realistically would have imposed for the

violations given the considerations ADEM must evaluate in

setting penalties (see note 2, supra), the district court simply

assumed that ADEM would have found at least ten violations

and issued an order imposing the maximum of $250,000 in civil

penalties. In making that assumption over petitioners’

objections, the district court declined to give any weight to

ADEM‘ s actual practice of imposing civil penalties — which had

resulted in no penalties in this case. See Pet. App. 46a & n.7.

Having made this assumption, the district court proceeded to

rely primarily on Johansen, a pre-State Furm case, in which the

Eleventh Circuit had upheld a punitive damages award that was

$4.25 million higher than the $10,000 civil penalty that the State

actually had imposed. Pet. App. 45a n.6, 46a. Focusing on the

ratio of the $17.5 million punitive damages award to the

maximum available penalty of $250,000 (70:1), the district court

deemed it significant that Johansen had upheld a punitive

damages award that was “400 times greater than the fine the

mining company had received.” Pet. App. 47a. “In light of this

precedent,” the court reasoned, petitioners received “adequate

notice that their conduct could result in a substantial penalty for

pollution.” /bid. Thus, although the punitive damages award in

this case exceeded the $250,000 statutory cap by $/ 7.25 million,

the district court concluded that petitioners had adequate notice

that they might receive the vastly larger punishment.

the standard of care manifested by such person; the economic benefit

which delayed compliance may confer upon such person: the nature.

extent and degree of success of such person's efforts to minimize or

mitigate the effects of such violation upon the environment, such

person's history of previous violations: and the abrlity of such person to

Bet

Fh

5

3. The Eleventh Circuit affirmed but relied on a somewhat

different analysis. Like the district court, it “assumed from the

parties’ arguments that Alabama law” — and Ala. Code § 22A-

5(18)c in particular — was “the appropriate guide” in determining

whether petitioners had received adequate notice that they “could

be ordered to pay” a $17.5 million penalty. Pet. App. 30a. But

the court of appeals disagreed that the $250,000 cap placed an

upper limit on the potential civil penalty:

While it is true that the relevant provision * * * limits “the

total penalty assessed in an order issued” (emphasis added)

by the regulating agency, the statute does not limit the

number of such orders the agency may issue. In other words,

ADEM is empowered to assess a penalty of up to $25,000

per violation up to a total of $250,000 per order. That does

not mean that after issuing such an order, [the agency]

cannot again assess penalties against a polluter who was the

subject of a $250,000 fine.

hid. (emphasis altered; citations omitted). “Conceivably, then,”

the Eleventh Circuit reasoned, “Alabama could fine” petitioners

"$250,000 for every ten violations.” /d. at 31a.

Having concluded that a fine above the $250,000 cap was

“conceivabl[e],” the Eleventh Circuit was quick to add that “we

cannot simply presume that Alabama would have fined

[petitioners] an incalculable number of times or would have

assessed the maximum amount cach time.” Pet. App. 31a. “Nor

are we capable of guessing,” the pancl explained, “as to the

frequency of [petitioners’| violations, though evidence in the

records indicates that it did indeed violate conditions of its

permit and thus the {Alabama statute]. /bid.

Despite these disclaimers, the Eleventh Circuit concluded

that, “[c]onsidering the reprehensibility of [CCC's] conduct.” it

was possible to “surmise that if Alabama citizens had found

themselves the victims of [CCC's] malfeasance, ADFM would

have vigorously entorced the relevant statutes and fined [CCC]

closer to the maximum amount, perhaps several times ¢/

necessary.” Pet. App. 31a (emphasis added). Thus, the court of

6

appeals concluded, petitioner CCC was “on notice that its actions

could result in civil penalties that far exceed the per-order cap

limiting ADEM’s discretion, and we do not believe it implausible

that vigorous enforcement would have led to an accrual of fines

totaling several million dollars.” Ibid. (emphasis added). On the

strength of that analysis — which apparently envisioned at least

eight separate ADEM orders, each imposing the maximum

$250,000 penalty (each of which, in turned, was based on

ADEM'’s imposition of the maximum $25,000 penalty for ten

violations) — the Eleventh Circuit concluded that petitioners

received adequate notice that they might receive a punishment

of $17.5 million because that figure “was not gross/ly

disproportionate to the [civil] penalties [CCC] faced for its

actions.” /d. at 32a (emphasis added). Like the district court, the

Eleventh Circuit made no effort to test the plausibility of its

chain of assumptions by examining ADEM’s actual track record

of imposing civil penalties on petitioners or anyone else for

violations of the State’s environmental laws.

INTRODUCTION AND

SUMMARY OF ARGUMENT

The Due Process Clause of the Fourteenth Amendment

embodies the “basic principle that a criminal statute must give

fair warning of the conduct that it makes a crime.” Bouie v. City

of Columbia, 378 U.S. 347, 350-51 (1964). The requirement of

fair warning protects the rights of individuals against arbitrary

and unforesceable actions by state actors (including lay juries);

it also disciplines and checks government power by requiring

precision in the definition of crimes before the government may

bring to bear the full weight of its prosecutorial authority.

In BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996), this

Court noted that, although “[t}he strict constitutional safeguards

afforded to criminal defendants are not applicable to civil cases,”

the “basic protection against ‘judgments without notice’ afforded

by the Due Process Clause * * * is implicated by civil penalties.”

Id. at 574 n.22 (emphasis in original). Moreover. “[e]lementary

notions of fairness enshrined in our constitutional jurisprudence

dictate that a person receive fair notice not only of the conduct

j

that will subject him to punishment, but also of the severity of

the penalty that a State may impose.” Id. at 574 (emphasis

added). Applying these fundamental guarantees of fair notice,

the Court invalidated as grossly excessive a $2 million punitive

damages award that was “tantamount to a severe criminal

penalty.” /d. at 585. In so doing, the Court identified three

“guideposts’” — “the degree of reprehensibility” of the

defendant’s conduct; the ratio of the amount of punitive damages

imposed to the “harm or potential harm suffered by” the

plaintiff; and the difference between the punitive damages

awarded and “the civil remedies authorized or imposed in

comparable cases” — “each of which indicate[d] that BMW did

not receive adequate notice of the magnitude of the sanction that

Alabama might impose.” /d. at 574-75.

The third BMW guidepost, “the civil remedies authorized or

imposed in comparable cases,” 517 U.S. at 575, is particularly

important in assuring that defendants receive fair notice of the

magnitude of possible punishment. Beyond its crucial role in

ensuring notice, this guidepost ensures that judicial

determinations concerning excessiveness are firmly rooted in the

soil of legislative or administrative judgments. Precisely

because legislatures are in a better position to determine the need

for punishment and deterrence, BMW instructed that courts must

give “substantial deference” to the “legislative judgments

concerning appropriate sanctions for the conduct at issue.” /d.

at 583. And where, as here, the relevant civil penalties are

embedded in a complex regulatory scheme that is administered

by an expert state agency delegated the authority to do so by the

legislature, these concerns are heightened. The actual

enforcement activities of specialized regulators under such a

scheme are a far better measure of the need for deterrence and

punishment than is the ad hoc decision of a lay jury.

1. Under this Court's cases, the proper focus of the third

BMW factor is on the absolute difference between (a) the

punitive damages award and (b) the legislative and/or

administrative civil penalties that might realistically be imposed

for the defendant's conduct vis-a-vis the plainuffs. In BAW

8

itself, the Court not only pointed out that the $2 million punitive

award was “substantially greater than the statutory fines

available in Alabama and elsewhere for similar malfeasance,”

but it also emphasized that there was no evidence that such a

large punishment had ever been meted out in the real world. See

517 U.S. at 584 (noting absence of “any judicial decision in

Alabama or elsewhere indicating that the application of

{BMW’s] policy might give rise to such severe punishment’’).

Similarly, in Cooper Indus., Inc. v. Leatherman Tool Group,

Inc., 532 U.S. 424, 442 (2001), the Court made clear in ordering

a remand that a reviewing court should avoid “unrealistic”

assumptions in applying the BMW factors to assess ex-

cessiveness. The Court refused to credit the plaintiff's argument

that the defendant would have received the maximum penalty for

each of the chousands of offending pieces of promotional

materials that it sent out, explaining that it was more realistic to

think that this conduct would have been treated as a single

violation. /d. at 442-443. And in State Farm Mut. Auto. Ins. Co.

v. Campbell, 538 U.S. 408 (2003), the Court again cautioned

against relying on “remote possibilit[ies]” and “speculat[ion]” in

evaluating the comparable-penalties factor. /cd. at428. Although

the Court framed the second BMW factor as a ratio, it re:terated

that the critical issue under the third BMW factor was the

absolute “disparity between the punitive damages award” and

the comparable civil penalties that might realistically be

imposed. /hid. (emphasis added).

This Court's realistic approach to the comparable-penalties

factor makes eminent sense. It effectuates both the notice and

the comparable institutional competence concerns that underlie

this important barometer of excessivencss. Although the

theoretical availability of a range of civil penalties for the

relevant conduct provides a defendant with notice that he may

receive punishment within the range prescribed by the

legislature, it does not answer the question of where within that

range the defendant's civil penalty would likely fall. To answer

that question, a reviewing court must consider the severity of the

defendant's conduct and the civil penalties such conduct would

9

likely receive. Where, as in this case, the civil penalty provision

is administered by an expert agency of state government — the

Alabama Department of Environmental Management (ADEM)

~ there is all the more reason to consider the regulator’s actual

practice in imposing civil penalties on the defendant and others.

Not surprisingly, many lower federal and state appellate courts

have heeded this Court’s teachings by applying the comparable-

penalties guidepost with a healthy dose of realism.

In the decision below, the Eleventh Circuit departed from

this Court’s teachings. Not only did it effectively ignore the

$250,000 cap on civil penalties under Ala. Code § 22-22A-

5(18)c, but it relied on a series of speculative and unfounded

assumptions about ADEM's likely punishment actions as well as

petitioners’ likely recalcitrance in the face of agency oversight.

Thus, the Eleventh Circuit assumed that ADEM would

determine that petitioners had committed ten separate violations

of the permit (or of some other, unspecified law or regulation)

and would impose the maximum penalty of $25,000 for each

such violation; assumed that petitioners would be recalcitrant in

the face of this large punishment and would continue to violate

the permit or Alabama law in multiple ways; and assumed that

ADEM would go through the same exercise of finding ten

violations, imposing $25,000 fines for each violation, and

levying a total punishment of $250,000 — at /east seven more

times. See Pet. App. 31a (“we do not believe it implausible that

vigorous enforcement would have led to an accrual of fines

totaling several million dollars”).

Notably, the court of appeals failed to test any of these

assumptions against the available evidence of ADEM’s actual

practice of imposing civil penalties against petitioners or others

evidence that shows that the $17.5 million punitive damages

award was grotesquely excessive. See pp. 15-16. infra. Relying

on nothing more than a chain of speculative assumptions, the

Eleventh Circuit brushed aside the massive “disparity between

the punitive damages award” (State Farm, 538 U.S. at 428) and

the $250,000 maximum civil penalty (or even the “several

million dollars” imagined by the court of appeals, see Pet. App.

10

31a). And it did so even though that disparity — of $/7.25 (or

$15.5) million — is vastly larger than the disparity this Court held

in BMW was sufficient to deprive a defendant of fair notice that

the larger punishment was a realistic possibility.

Ii. Further review is also warranted because the Eleventh

Circuit’s decision exacerbates conflict and confusion in the

lower federal and state appellate courts over the meaning of the

third BMW guidepost. Like the Eleventh Circuit in this case,

some circuits and state appellate courts have continued, even

after State Furm, to rely on speculation about severe, but highly

unlikely, legislative penalties in applying this important indicium

of excessiveness, whereas other courts have taken the teachings

of BMW, Cooper and State Farm to heart. The issue is both

important and recurring; it arises in potentially every case where

the size of a punitive damages award is challenged under the

Due Process Clause. And this case is an excellent vehicle for at

least two reasons. First, it is representative of a significant and

growing category of punitive damages cases involving

environmental torts. Second, the Eleventh Circuit’s reliance on

a chain of utterly speculative assumptions stands in sharp

contrast to this Court’s teachings and the available evidence of

what a comparable penalty realistically would have been under

ADEM's enforcement practices.

ARGUMENT

This case presents a valuable opportunity not only to rectify

a glaring example of punitive damages “run wild” (Pac. Mut.

Life Ins. Co. v. Haslip, 499 U.S. 1, 18 (1991)), but also to ensure

that the BMW’ factors will function as intended: as meaningful

guidance for appellate review of punitive damages and as a safe-

guard to ensure that defendants who are punished through the

imposition of exemplary damages receive the fair notice required

by the Due Process Clause. As petitioners persuasively

demonstrate, the Eleventh Circuit's interpretation of all three

BMW factors is squarely at odds with this Court's decisions and

contrary to the decisions of many lower federal and state

appellate courts. Accordingly, and for all the reasons set forth

in the petition, further review 1s clearly warranted.

11

For reasons of space, amici focus in this brief on the

Eleventh Circuit’s flawed understanding of the third BMW

guidepost — “the civil remedies authorized or imposed in

comparable cases” (517 U.S. at 574). That guidepost is

especially important in assuring defendants constitutionally

adequate notice of the magnitude of possible punishment.

I. The Eleventh Circuit’s Decision Conflicts With This

Court’s Decisions Concerning The Meaning Of The

Third BMW Factor

In at least two critical respects, the Eleventh Circuit's

decision strays from this Court’s teachings concerning the

meaning of the comparable-penalties guidepost. Under this

Court’s decisions, the proper focus of the third BMW factor is on

the ubsolute difference between (a) the punitive damages award,

and (b) the legislative and/or administrative civil penalties that

might realistically be imposed for the defendant’s conduct

vis-a-vis the plaintiffs. In the decision below, the Eleventh

Circuit made no attempt to evaluate the realistic odds of a $17.5

million civil penalty by the Alabama environmental agency, and

instead relied on a series of wholly speculative assumptions that

were designed to render meaningless the $250,000 statutory cap

on civil penalties. Second, the Eleventh Circuit ignored the fact

that — even under its wholly speculative assumptions about the

civil penalties faced by petitioners — the $17.5 million

punishment meted out by the jury was af /east $15.5 million

higher than the imagined civil penalty (and $17.25 million

higher than the statutory cap). That disparity is far greater than

the less-than-$2 million disparity this Court held in BMW was

sufficient to deprive the defendant of adequate notice.

a. In BMW, this Court noted that “the $2 million” exaction

imposed by the jury was “substantially greater than the statutory

fines available in Alabama and elsewhere for similar

malfeasance” (which ranged from a maximum fine of $2.000 to

$10.000). S17 U.S. at 584. “None of these statutes.” the Court

explained, “would provide an out-of-state distributor with fair

notice that the first violation — or indeed the first 14

violations * * * - might subject an offender to a multrmillion

MT ae Ty ee ee Se ee

5 aie

~

a

12

dollar penalty.” /bid. (emphasis added). Thus, the Court was of

the view that the availability of even a civil penalty of $140,000

would not provide constitutionally adequate notice of the

possibility of a punitive damages award $1,860,000 higher. And

in reaching that result, the Court emphasized the absence of any

evidence that such a large punishment had ever been meted out

in the real world. See id. at 584 (noting absence of “any judicial

decision in Alabama or elsewhere indicating that the application

of [BMW’s] policy might give rise to such severe punishment’’).

In Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532

U.S. 424 (2001), the Court made clear in ordering a remand that

a reviewing court should avoid “unrealistic” assumptions im

applying the BMW factors to assess excessiveness. /d. at 442.

In discussing the comparable-penalties guidepost, the Court

refused to credit the plaintiff's argument that the defendant

would have received the maximum penalty for each of the

thousands of offending pieces of promotional materials that it

sent out, explaining that it was more realistic to think that this

conduct would have been treated as a single violation. /d. at

442-43. On remand, the Ninth Circuit understood this Court to

have |instructed it to look not at what penalties theoretically

might have been imposed on the defendant, but at whether

“Cooper's conduct /ikelvy would * * * have been subject to civil

penalties in any amount approaching the punitive damages

awarded by the jury.” which the court concluded it would not.

Leatherman Tool Group, Inc. v. Cooper Indus., Inc., 285 F.3d

1146, 1148 (9th Cir. 2002) (emphasis added). The Ninth Circuit

on remand accordingly cut the punitive award by almost 90%,

from $4.5 million to $500,000.

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

U.S. 408 (2003), the Court reiterated that the critical issue under

the third BMW factor was “the disparity between” the punitive

damages award and the comparable civil penalties. /d. at 428

(emphasis added). In addition, the Court again cautioned against

relying on “remote possibilit{ies]” and “speculat[ion]” in

evaluating the comparable-penalties factor. /bid. It noted that

while the Court had previously “looked to criminal penalties” in

13

conducting this analysis, the mere existence of a criminal penalty

“has less utility” when “used to determine the dollar amount of

the award” because “[p]unitive damages are not a substitute for

the criminal process, and the remote possibility of a criminal

sanction does not automatically sustain a punitive damages

award.” /hid. Moreover, this Court criticized the Utah Supreme

Court for having “speculated about the loss of State Farm’s

business license, the disgorgement of profits, and possible

imprisonment” when, in fact, 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.” /hid. Because

a fine in that amount was “dwarfed” by the $145 million punitive

award, the Court reasoned, the third BMW factor further showed

that the award was constitutionally excessive. /bid.

b. This Court’s approach to the third BMW factor makes

eminent sense. Ina world in which severe statutory penalties are

often theoretically available for conduct that is widespread and

generally not punished at all, see Bowers v. Hardwick, 478 U.S.

186, 197 (1986) (Powell, J., concurring), surely attention to

realistically likely penalties is the only approach that will

provide meaningful constitutional protection against grossly

excessive penalties. Cf. Lankford v. Idaho, 500 U.S. 110(1991)

(although death penalty was theoretically available against

defendant at all times, course of proceedings led him reasonably

to believe that it was not a realistic possibility, and duc process

was violated when death sentence was imposed without adequate

chance to argue against it) (cited in BMW, 517 U.S. at 574 n.22).

Moreover, where, as here, the most comparable civil penalties

are entrusted by the legislature to enforcement by an expert

administrative agency, it would be strange indeed to ignore the

agency's actual behavior in evaluating what civil penalties

realistically were likely to be imposed. The agency’s actual

enforcement activities are the most reliable basis for a

defendant's notice of the penalty that could be expected.

c. Contrary to this Court's decisions. the Eleventh Circuit

failed to examine the civil penalties that might rea/istically be

imposed on petitioners by ADEM and gave no indication that it

be

14

was properly focusing on the $/5.5-/7.25 million disparity

between the massive exaction imposed by the jury and the civil

penalties the court of appeals believed were likely to be imposed

by ADEM. To be sure, the Eleventh Circuit did acknowledge

that, under Alabama law, “[a]ny civil penalty assessed or

recovered * * * shall not be less than $100 or exceed $25,000 for

each violation, provided however, that the total penalty assessed

in each order issued by the department * * * shall not exceed

$250,000.00.” Ala. Code § 22-22A-5(18)c. See Pet. App. 30a.

But the court of appeals rendered the $250,000 cap meaningless

by resorting to a series of unwarranted assumptions grounded in

nothing more than speculation. First, it posited that ADEM

might have issued an order imposing the maximum penalty of

$25,000 for each of ten separate violations, thus fining

petitioners the statutory maximum of $250,000. Next, it

supposed that ADEM might have issued multiple orders, each of

which imposed the $250,000 maximum for another ten

violations. Pet. App. 3la (“Conceivably, * * * Alabama could

fine [petitioners] $250,000 for every ten violations.”). Finally,

the Eleventh Circuit arrived at the conclusion that it was not

“implausible that vigorous enforcement” by ADEM “would have

led to an accrual of fines totalling several million dollars.” Ibid.

(emphasis added). Thus, the court of appeals evidently

envisioned that ADEM would tssue at least eight separate

orders, each imposing the maximum penalty of $250,000 on

petitioners — and do so based on a sum total of at least 80

separate violations, each of which would be punished by the

maximum fine of $25,000.

As the Eleventh Circuit came close to admitting, the

assumptions underlying this imaginary scenario are entirely

speculative. “[W]e cannot simply presume,” the court of appeals

correctly observed, “that Alabama would have fined Continental

an incalculable number of times or would have assessed the

maximum amount each time.” Pet. App. 3la. “Nor are we

capable,” the court added, “of guessing as to the frequency of

Continental's violations * * * .” /bid. Despite those disclaimers,

the Eleventh Circuit evaluated the comparable statutory penalties

15

faced by petitioners under Ala. Code § 22-22A-5 based on the

assumption that petitioners would commit at least 80 separate

violations, would receive the maximum penalty of $25,000 for

each of those violations, and would be subjected by ADEM to at

least eight separate orders notwithstanding the $250,000 cap

placed by the legislature on a single order.

The only basis for this series of wild assumptions, apart from

the Eleventh Circuit’s unfounded view that petitioners” conduct

was highly reprehensible, was the court of appeals’ statement

that there was “evidence in the record” that petitioners had on

one occasion “violate[d} conditions of its permit.” Pet. App.

31a. The court of appeals made no effort to justify the leap from

evidence of one violation to an assumption of at least 80 separate

violations — indeed, it conceded that it was not incapable of

making that leap without “guessing.” /bid. Nor did the Eleventh

Circuit, in its analysis of the comparable penalties factor, attempt

to justify its apparent assumption that 1t would take at least eight

separate orders, each imposing penalties of $250,000, before

petitioners would cease their supposed but unspecified violations

of the permit or of Alabama law. As petitioners demonstrate

(Pet. 13-14 n.4), the image of intransigence or truculence painted

by the Eleventh Circuit in other portions of its opinion lacks

support in the record.

As if that were not enough, the Eleventh Circuit's

assumptions are easily refuted by examining ADEM’s actual

practice of imposing civil penalties. For starters, it is undisputed

that ADEM imposed no civil penalties on petitioners for the

conduct underlying this litigation. Beyond that, ADEM’s actual

practice of imposing civil penalties generally — as reported in

official publications that are available on the agency's website

and subject to judicial notice — would have provided no warning

that a $17.5 million punishment was realistically possible. See,

v.g.. ALABAMA DEPARTMENT OF ENVIRONMENTAI

MANAGEMENT, ENVIRONMENTAL SUMMARY 2001 (72001

Annual Report”) <available at http: www.aden state.alus

Publications EnvSummary EnvSumhtm= Those materials

show, for example, that in all of Fiscal Year 2001, ADEM

ir? ae

16

imposed a total of on/y $389,2/0 in civil penalties for a//

violations relating to air pollution statewide. /d. at 25.

Moreover, in 2001, ADEM imposed total penalties for all types

of pollution (land, water, and air) of only $2,054,260 (versus

$1.85 million in 2000 and $1.2 million in 1999). /bid. This level

of penalty assessment hardly gave petitioners fair warning that

they would receive a punishment of $/7.5 million. Indeed, the

jury’s $17.5 million exaction was $4.5 million higher than the

total of a// civil penalties imposed by ADEM in the eight years

spanning 1998-2006. See note 3, infra.

Equally at odds with actual experience is the Eleventh

Circuit's assumption that ADEM was likely to issue at /east

eight separate orders, each imposing the maximum exaction of

$250,000. The agency’s own data show that, in 2001, ADEM

issued a total of 225 administrative orders, 208 of which

imposed monetary penalties - for an average civil penalty of

only $9,876.50. J/bid.’ Moreover, of those 208 penalties

imposed in 2001, the most that could have reached the maximum

level was eight (which would require the assumption that the

remaining 200 penalties totaled $54,260). Even assuming that

there were eight such orders (and it may be that there were

none), that would still represent on/y 4% of the agency's total

orders imposing civil penalties. In light of this data, the notion

that ADEM would have imposed at /east eight consecutive

orders, each imposing a $250,000 civil penalty, 1s fanciful.

Nor is there any basis in the record or common sense for the

Eleventh Circuit's unstated assumption that petitioners would

* The data from other fiscal years are similar. For example. the average

penalty imposed by ADEM in FY 2000 was $8,919.50. 2000 Annual

Report, at 29 (227 administrative orders, 208 of which impose monetary

penalties. with total penalties of $1.855,255). Notably. the total amount

of civil penalties imposed by ADEM in the entire eight years spanning

FY 1999 to FY 2006 was only approximately $13 million — still far below

the punitive award in this case. See 2006 Annual Repon, at 22 ($1.22

million): 2005 Annual Report. at 21 ($1.38 million); 2004 Annual

Report. at 5 ($1.16 million); 2003 Annual Report, at 4 ($1.71 millon):

2002 Annual Report. at 25 ($2.44 million); 2001 Annual Report, at 25.

17

have continued to engage in violations and to incur successive

$250,000 penalties after receiving the maximum punishment

from ADEM. Not only does that assumption ignore the duties

owed by petitioners to their shareholders (and the controversy

such a course of conduct would have created), but it is also

refuted by the record evidence showing that petitioners took

various steps to identify and remedy the causes of the carbon

black emissions. Pet. 3-4, 13-14 n.4.

The Eleventh Circuit's reliance on speculative assumptions

and improbable scenarios is squarely at odds with this Court’s

decisions in BMW, Cooper and State Farm. Indeed, it is

reminiscent of the approach of the Utah Supreme Court that was

rejected in State arm. In that case, the Utah Supreme Court had

concluded that the third BMW factor did not require a reduction

of the jury’s $145 million punishment because State Farm

supposedly could have been required under Utah law to (1) “pay

a $10,000 fine for each act of fraud” in the sprawling nationwide

“scheme” alleged by plaintiffs; (2) “renounce its business license

or have its Utah operations dissolved”; and (3) “disgorge all the

illicit profits gained by the scheme, plus pay a fine of twice the

value of those profits.” 65 P.3d 1134, 1154-55 (Utah 2001). In

addition, “State Farm’s officers could be imprisoned or removed

from office for up to five years.” /d. at 1155. In reversing, this

Court made clear that the lower court was wrong to consider all

manner of hypothetical penalties of the Chicken-Little variety,

including revocation of State Farm’s license to do business and

potential criminal penalties. Instead, it should have avoided

these “speculat{1ons]” and focused solely on the statutory penalty

for the fraud concerning the Campbells. 538 U.S. at 428. The

Eleventh Circuit in this case made exactly the same mistake.

il. The Eleventh Circuit’s Decision Exacerbates Conflicts

And Confusion In The Lower Courts Over The Proper

interpretation Of The Third BMW Factor

As petitioners persuasively demonstrate (Pet. 18-22), there

is widespread contusion in the lower courts over the proper

interpretation of the comparable-penalties guidepost. Like the

Eleventh Circuit in this case, some circuits have continued, even

ht

ea

18

after State Farm, to rely on speculation about severe, but highly

unlikely, legislative penalties, whereas others have taken the

teachings of BMW, Cooper and State Farm to heart. Compare

Mathias v. Accor Econ. Lodging, Inc., 347 F.3d 672, 678 (7th

Cir. 2003) (Posner, J.) (in upholding $186,000 punitive award

based on conduct that was punishable by a fine of $2,500,

relying on fact that defendant was also “subject to revocation of

its license” to do business, and noting that “[w]e are sure that the

defendant would prefer to pay the punitive damages assessed in

this case than to lose its license’?) and Union Pac. R.R. v. Barber,

149 §.W.3d 325, 349-50 (Ark.) (examining “total civil penalties

authorized by law” under both state and federal provisions and

assuming that penalties would be imposed for each of 450

consecutive days), cert. denied, 543 U.S. 940 (2004) with Clark

v. Chrysler Corp., 436 F.3d 594, 608 (6th Cir. 2006) (relying on

maximum civil penalties fixed by statute and refusing to rely on

possibility that defendant “could potentially be subjected to a

larger civil penalty if * * * its corporate license was suspended

or revoked” because there was no evidence presented that the

latter scenario was likely). See also Pet. 19-20 (citing and

discussing additional cases).*

In light of these disagreements, it should come as no surprise

that some courts have expressed either consternation, or a desire

for greater guidance from this Court, or both. Illustrative is the

Third Circuit's decision in Willow Inn, Inc. v. Pub. Serv. Mut.

* Further demonstrating the need for guidance, the district court took a

different approach to the comparable-penalties inquiry than did the court

of appeals. even though both reached the same result. See pp. 3-6, supra.

The district court did not adopt the speculative assumptions of the

Eleventh Circuit concerning the supposed possibility of multiple ADEM

orders. each imposing the $250.000 maximum penalty. Instead, it treated

the $250,000 as a true ceiling. but then relied on Johansen for the

questionable proposition that even a large mu/tiple of that figure would

be expected by a defendant. As explained above. however, it is the

absolute difference between the punitive award and the likely civil

penalty (not their ratio, which is the basis for the second BMW factor)

that is most important under the comparable-penalties guidepost.

19

Ins. Co., 399 F.3d 224 (2005), where the court of appeals noted

that “the Supreme Court has not declared how courts are to

measure civil penalties against punitive damages, and many

courts have noted the difficulty in doing so.” /d. at 237. “We

are similarly unsure,” the Third Circuit added, * as to how to

properly apply this guidepost, and we are reluctant to overturn

the punitive damages award on this basis alone.” /d. at 238.

The pervasive confusion in the lower courts has not gone

unnoticed by commentators. See, e.g., Jenny Jiang, Comment,

Whimsical Punishment: The Vice of Federal Intervention,

Constitutionalization, and Substantive Due Process in Punitive

Damages Law, 94 CAL. L. REV. 793, 807-12 (2006) (describing

divergent approaches to the comparable-penalties guidepost that

have developed in lower courts since State Farm and arguing

that these divisions “have substantially undercut” this Court's

“effort to bring uniformity and coherence to * * * punitive

damages law’’); Steven Chanenson & John Yotanda, The Foggy

Road for Evaluating Punitive Damages: Lifting the Haze From

the BMW/State Farm Guideposts, 37 U. Micu.J.L. REFORM 441,

443 (2004) (“The third guidepost remains shrouded in fog.”’); id.

at 472 (“both state and federal courts have grappled with

applying the third guidepost with little uniform success”).

Perhaps most troubling of all, some courts have simply

ignored the third BMW factor altogether or treated it as a trivial

component of the excessiveness inquiry. Onc recent example is

In re Exxon Valdez, 490 F.3d 1066 (9th Cir. 2007), pet. for cert.

filed, 76 U.S.L.W. 3073 (U.S. Aug. 20. 2007) (No. 07-219),

where the Ninth Circuit noted that its most recent cases had

“gencrally not attempted to quantity legislative penalties” but

had instead merely considered “whether or not the misconduct

was treated seriously under state civil and criminal laws.” /c. at

1094. Morcover, in some recent cases the Ninth Circuit had “not

discussed the factor at all.” //icd. (citing cases). Having

determined that Exxon’s misconduct “was taken quite seriously

by legislatures.” the Ninth Circuit) concluded that the

comparable-penalties guidepost supported a punishment of $2.5

billion. /d. at 1094-95. See also Chanenson & Yotanda,. supra,

ee ees

20

37 U. MICH. J.L. REFORM at 471 (“[A] number of lower courts

have simply stated that an award of punitive damages does not

run afoul of the third guidepost if there exists a state law that

gives the defendant notice that the conduct at issue may give rise

to some form of criminal or civil liability.”); Pet. 22 (citing

additional cases).

Review should be granted to dispel the pervasive confusion

and bring greater uniformity to this important area of federal

law. As the large number of cases cited by the petitioner and by

commentators suggests, the issue is recurring; indeed, it arises in

almost every case where a due process challenge is mounted to

the excessiveness of a punitive damages verdict. Finally, for

several reasons this case is an especially good vehicle for

clarifying the comparable-penalties guidepost. First, it is

representative of a large and growing category of punitive

damages cases involving environmental harms that have caused

substantial difficulty for the lower courts.’ Second, the Eleventh

Circuit's reliance on a chain of utterly speculative assumptions

stands in dramatic contrast to the available evidence of what

civil penalties might realistically have been imposed by the

expert administrative agency charged by the State with the

responsibility for policing, punishing, and _ deterring

environmental harms. To anyone familiar with the agency’s

actual practice of imposing civil penalties (including its failure

to impose anv penalties on petitioners), the jury’s imposition of

a massive $17.5 million punishment would have been as

unexpected as a lightning bolt out of a clear blue sky.

CONCLUSION

Che petition for a writ of certiorari should be granted.

~ See Andrew Moskowitz, Comment. Meaning Is In The Eve of The

Beholder: BMW v. Gore and Its Potential Impact on Toxic Tort Actions

Brought Under State Common Law, 8 FORDHAMENVT’LL.J. 221, 223-24

(1996) (describing the “increasing importance of common-law tort

actions in environmental law” and attributing this development, among

other things. to the fact that many state and federal environmental

statutes “do not provide for * * * punitive damages’).

Respectfully submitted.

DONALD D. EVANS

American Chemistry Council

1300 Wilson Boulevard

Arlington, VA 22209

(703) 741-5153

JAN S. AMUNDSON

QUENTIN RIEGEL

National Association of

Manufacturers

1331 Pennsylvania Ave., N.W.

Washington, D.C. 20004

(202) 637-3000

SEPTEMBER 26, 2007

21

ALAN UNTEREINER*

Robbins, Russell, Englert,

Orseck, Untereiner &

Sauber LLP

1801 K Street, N.W.

Suite 411

Washington, D.C. 20006

(202) 775-4500

* Counsel of Record