# Amicus Curiae Brief — Shell Oil Co. v. Hebble

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_2466%3A6

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2010
- **Citation:** 562 U.S. 1124

## Text

MOTION FILED
SEP 30 200 (2)
V2

No. 10-349

In The
Supreme Court of the GAnited States

Shell Oil Company, and SWEPI LP (as successor-in-
interest to Shell Western E & P, Inc.),
Petitioners,
Vv.
Nancy Fuller Hebble, et al.,
Respondenis.

On Petition for Writ of Certiorari
to the Court of Civil Appeals
for the State of Oklahoma

MOTION OF THE INTERNATIONAL
ASSOCIATION OF DEFENSE COUNSEL AND
THE NATIONAL ASSOCIATION OF
MANUFACTURERS FOR LEAVE TO FILE BRIEF
AS AMICI CURIAE AND BRIEF IN SUPPORT OF
PETITION FOR WRIT OF CERTIORARI

Robert M, (Randy) Roach, Jr.
Counsel of Record

Amy J. Schumacher*

Daniel W. Davis*

ROACH & NEWTON, L.L.P.

1111 Bagby Street, Suite 2650

Houston, Texas 77002

(713) 652-2032

rroach@roachnewton.com
* Admission pending: supervised
by principals of the firm

Counsel for Amici Curiae

TS Sen /NeAeSNTeeTNelritirsereintacsen mee eit
WILSON-EPES PRINTING CO , INC. — (202) 789-0096 — WASHINGTON, D C. 20002

U

MOTION FOR LEAVE TO FILE BRIEF
AS AMICI CURIAE

Pursuant to Rule 37.2 of the Rules of this
Court, Amici Curiae International Association of
Defense Counsel (“the I[ADC”) and the National
Association of Manufacturers (“the NAM”) move for
leave to file the accompanying brief as amici curiae
in support of the petition for a writ of certiorari.
Counsel for petitioner has consented to the filing of
this brief, but counsel for the respondents has
refused Amici’s request for consent.

The IADC is an association of insurance and
corporate attorneys whose practice is concentrated
on the defense of civil lawsuits. The IADC
membership is comprised of the world’s leading
corporate and insurance lawyers. They are partners
in large and small law firms, senior counsel in
corporate law departments, and corporate and
insurance executives. Members represent the largest
corporations around the world, including’ the
majority of companies listed in the FORTUNE 500.
Since 1920, the [ADC has been dedicated to the just
and efficient administration of civil justice and the
continual improvement of the civil justice system.
The IADC supports a justice system in which
plaintiffs are fairly compensated for genuine injuries,
responsible defendants are held liable only for
appropriate damages, and non-responsible
defendants are exonerated without unreasonable
cost: The LADC’s activities benefit the approximately
2,500 invitation-only, peer-reviewed members and
their clients as well as the civil justice system and
the legal profession. The IADC regularly files briefs

ll

in pending cases throughout the United States on
civil justice issues of broad application.

The National Association of Manufacturers
(‘the NAM”) represents the _ interests. of
manufacturers in court. The NAM is the nation’s
largest industrial trade association, representing
small and large manufacturers in every industrial
section and in all fifty states. The NAM’s mission is
to enhance the competitiveness of manufacturers by
shaping a legislative and regulatory environment
conducive to United States economic growth and to
increase understanding among policymakers, the
media, and the general public about the vital role of
manufacturing to America’s economic future and
living standards. The NAM monitors legal trends
and developments affecting the ability of
manufacturers to be treated fairly by the legal
system. The NAM is actively involved in tracking
major lawsuits impacting manufacturers and in
related activities to promote a fair and balanced legal
system for resolving disputes. With manufacturers
facing legal costs of some $865 billion annually, the
efforts of the NAM have a direct effect on the
competitive position of American manufacturers and
complement the NAM’s legal’ reform policy
endeavors.

Amici curiae are particularly interested in this
case because it demonstrates how the Court's
punitive damage jurisprudence is unable to provide
civil defendants with fair notice of the magnitude of
their exposure to punitive damages and how the
resulting unpredictability in evaluating punitive
exposure produces practical problems for all parties
and their counsel in settlement evaluation. This case
thus presents this Court with an opportunity clarify

iii

that punitive damage awards must bear a reasonable
relationship to the damages compensating the
plaintiff for the actual harm suffered—and that other
types of “additional damages” should not be
permitted to skew the ratio between actual damages
and punitive damages.

The LADC and the NAM’s motion for leave to
file the accompanying brief as amici curiae should be
granted.

Respectfully submitted,

Robert M. (Randy) Roach, Jr.
Counsel of Record
Amy J. Schumacher”
Daniel W. Davis*
ROACH & NEWTON, L.L.P.
1111 Bagby Street, Suite 2650
Houston, Texas 77002
(713) 652-2032
rroach@roachnewton.com
* Admission pendings supervised
by principals of the firm

Counsel for Amici Curiae

September 2010

iv

TABLE OF CONTENTS

Motion for Leave to File Brief as Amici Curiae a
ee Oe Ce vaicacdetiesvakess canvetceeeact an iV
Table of Authorities................. Vil
Interest of the Amici Curiae.................0............ eae
Background and Introduction ...............6c.ccccccccceeeeceeee I
PRIMED, sosccnssnnsescnuchaseonusdsuissslunecccasanissassatiene ‘adcavunlel 3
1. Amici agree with Shell that the absence of

clear guidance on how to calculate the
punitive damage ratio frustrates due
RTOs vocncavecuéscecdodesccnsoncedescubsnscadseatbeacevssedeuseos: 3
A. The current jurisprudence
regarding how the punitive damage
ratio is calculated frustrates due

process because it leads to

unpredictable punitive damage

Ic aves cdcvccunauskeccaarsatdbadtaseusecasaaseniease: 3
B. The absence of clear guidance from

this Court invites state legislatures

and courts to skew the ratio.................. 6
C. The absence of clear guidance on

how to consistently calculate the
punitive damage ratio leads to a
result that violates procedural due
DRO OGG, caccacctscteces jdiabn des oediuessebheoks dudasenen 3
IT, The absence of clear guidance on how to
consistently calculate the punitive damage
ratio and the resulting absence of
procedural due process. notice is of
particular concern to Amici | 9

7)

A. The absence of clear guidance on
how to calculate the punitive
damage ratio frustrates the ability
of counsel and the clients they
advise to make informed settlement

recommendations and decisions. ........

13. The absence of clear guidance on
how to calculate the punitive
damage ratio is especially
troublesome because the
insurability of punitive damages is

constantly questioned by insurers. .....

Shell's petition provides this Court with
the opportunity to clarify that the relevant
ratio 1s the relationship between only the
amount of punitive damages and_ the

amount of actual damages. .................cccccec ees

A. This Court’s punitive damage
jurisprudence has long and correctly
focused on the relationship between
the damages awarded Lo
compensate ae plaintiff for the
“actual harm inflicted” relative to

the punitive damage award. ............. |

B. The lower courts’ inconsistent

inclusion of additional types of
compensatory damages as part of

the punitive damage ratio reveals
that those types of damages differ
from the “actual harm inflicted” on
the plaintiff. .......

10

12

13

Conclusion

vu

A ratio comparing punitive damages
only to damages that compensate a
plaintiff for the “actual harm
inflicted” would provide much
needed guidance to the lower courts
and is consistent with this Court’:
jurisprudence

VIL

TABLE OF AUTHORITIES

Cases
Ala. Dep't of Conservation & Natural Res. v.

Exxon Mobil Corp.,

£2 Bo. Sa B04 Ala. BOOB) once ccc ccccssesessccnsesss 7
Blount v. Stroud,

914 N.E.2d 925 (Ill. App. Ct. 2009) «2.0.0.0... 5, 7
BMW of N. Aim., Inc. v. Gore,

517 U.S. SES (1996) .........<0-..ese.ccs00s: 4, 12, 13, 16
Boyd v. Goffolt,

608 S.E.2d 169 (W. Va. 2004) ..00.. eee 5
Bridgeport Music, Inc. v. Justin Combs Publ g,

BOT OS 470 GU Cie, BOOT) ooo isin sccsececccsseness 5
Clark v. Chrysler Corp.,

O96 FS G8 Gr Cie, DOG) ooo ceccecdss ck. 5
Cooper Indus., Inc. v. Leatherman Tool Group,

Inc.,

UE RE 2) | Ee a ae ean eRe en 14
Daka, Inc. v. McCrae,

839 A.2d 682 (D.C. Ct. App. 2003).................. 5
Exxon Shipping Co. v. Baker,

bP ae 1. | cr 4
Flannery v. Baltimore & Ohio R.R. Co.,

BA se Fe hy | Rete en een enn einen 13
Grant v. McDonogh,

F he I ire setecsesperseccienes 13
Groth v. Hvundat Precision & Indus. Co.,

149 P.3d 333 (Or. Ct. App. 2006)..................... 5
Hayes Sight & Sound, Inc. v. ONEOK, Inc.,

156 F.3d 426 Cham. DO0G) ono. cic.cccccnceserscsssecdsas 5

Houston & McCarthy v. Niskern,
DS WERT. DO CTT il vcs sics cs cinetasacaxseensevensevs is

VILL

Jurinko v. Med. Protective Co.,
305 F: Appx 13 Gd Cir. 2008) «.....0.5..00605.5.55. 5
Lawnwood Med. Ctr., Inc. v. Sadow,

__ So.3d , No. 4D08-1968, 2010 WL

1066833 (Fla. Ct. App. Mar. 24, 2010)............ 7
Phelps v. Loutsville Water Co.,

103 S.W.30 46 URy. 2008) ..5 oie, 5
Rhone-Poulene Agro, S.A. v. DeKalb Genetics

Corp.,

2i2 F.3d 1335 (Fed. Gir. 20010) sncic..cccactscesccss. 5
Roby v. McKesson Corp.,

101 Cal. Rptr. 773 (Cal. Ct. App. 2010).......... 5
Saunders v. Mullen,

66 Iowa 728, 24 N.W. 529 (1885).....00000.0000... 13
State Farm Mut. Ins. Co. v. Campbell

SSG U.S. 406 (R008) onsen cccccccccresevsscs 2, 4, 14, 16
Tony Gullo Motors I, L.P. v. Chapa,

212 S.W.3d 299 (Tex. 2006) ........0.. cece. 5
USA Truck, Inc. v. West,

189 S.W.3d 904 (Tex. Ct. App. 2006)............... 5
Wallace v. DTG Operations, Inc.,

563 F.3d 357 (8th Cir. 2009)...................ccccce08 5
Willow Inn, Inc. v. Pub. Serv. Mut. Ins. Co.,

399 F.3d 224 (3d Cir. 2005) .......................0000 §

Constitutional Provisions
Fs FE i ei oes vss endeseninwteuelevazspelass 8

INTEREST OF THE AMICI CURIAE!

The interest of the amici curiae is described in
the accompanying motion for leave to file this brief.

BACKGROUND AND INTRODUCTION

The two issues presented in Shell's petition
raise a fundamental question in desperate need of
this Court's guidance—7Z7o what types of actual
damages must a punitive damage award reasonably
relate? Because courts in different states categorize
different types of damages as “compensatory” for
comparison to the punitive damage award, this
Court’s ratio analysis is untethered to any
predictable guidepost. As applied by various lower
courts, this Court’s ratio guideline essentially
involves two open variables—if the types of
additional damages that may be considered
“compensatory” are changeable and uncertain, then
so too is the range of constitutionally permitted
punitive damages. ”

1 Pursuant to this Court’s Rule 37.6, amici curiae the IADC and
the NAM certify that no counsel for a party to this case
authored any part of this brief, nor did any party, or counsel to
any party, make any monetary contribution to fund the
preparation or submission of this brief. Pursuant to this
Court's Rule 37.2(a), amici curiae file this brief on September
29, 2010, ten days before its due date of October 13, 2010.

2 Shell’s petition also presents an opportunity for the Court to
clarify its jurisprudence on what has become another source of
unpredictability in punitive damage awards: the maximum
constitutionally permissible ratio when compensatory damages
are “substantial.” The state and federal courts’ inconsistent
application of this Court’s statement that “[w]hen compensatory
damages are substantial, then a lesser ratio, perhaps only equal
to compensatory damages, can reach the outermost limit of the
due process guarantee,” has left businesses lke those
represented by amici curiae rudderless in evaluating punitive

2

This case exemplifies the necessity for a
predictable starting point in actual damages for
calculating the punitive damage ratio. Often, the
denominator of the punitive damage ratio depends
more on the particular state in which the issue
happens to arise and less on the character of the
award or the extent of the injury to the plaintiff.
Here, because the injury occurred in Oklahoma, the
Oklahoma court included a special 12% compounded
prejudgment interest in the denominater and
thereby determined that a $53 million punitive
damage award was reasonably related to an
underpayment of $750,000 in oil and gas contractual
net profit payments. Such creative manipulation of
the punitive damage ratio is common and recurring.

Amici cannot overstress the importance of
having a consistent rule. This case provides this
Court with the opportunity to provide a rule that
would:

e Provide consistent constitutional protections
for defendants across the country,

e Incentivize settlement by equipping plaintiffs
and defendants with consistent case valuation
parameters,

e Conserve judicial resources by eliminating the
case-by-case categorization of continually
changing statutory damage schemes, and

e Preserve legislative flexibihty to craft
remedies.

damage exposure. State Farm Mut. Ins. Co. v. Campbell, 538
U.S. 408, 429 (2003). Although this brief does not focus on the
havoc caused by the lower courts’ inconsistent rulings on this
issue, the same kind of damaging unpredictability described in
this brief accompanies both issues raised in Shell's petition, and
both are of real and ongoing concern to amici curiae.

3

By granting certiorari, the Court can answer
the broad question of what effect—if any—damages
that have both compensatory and punitive qualities
should have on the constitutional ratio between the
actual harm suffered by the plaintiff and punitive
damages awarded based on the reprehensibility of a
defendant’s conduct.

ARGUMENT

& Amici agree with Sheil that the absence of
clear guidance on how to calculate the punitive
damage ratio frustrates due process.

Amici agree with Shell that the lack of clear
guidance on how to calculate the punitive damage
ratio requires clarification from this Court. /. ©* »ugh
the Court has weighed in on the constitutio: ity of
various punitive damage ratios, the Court has not
squarely confronted the issue here. The issue here
illustrates that the calculation of the ratio itself, by
including additional variable damage components,
threatens the due process rights of defendants.

A. The current jurisprudence regarding
how the punitive damage ratio is
calculated frustrates due process
because it leads to unpredictable
punitive damage awards.

This case illustrates the unpredictability of
punitive damage awards in the absence of clear
guidance on how the punitive damage ratio should be
calculated. The plaintiffs suffered actual harm of
approximately $750,000 from the underpayment of
oil and gas contractual net profit payments. Based
on this Court’s guidance on the permissible punitive
damage ratio in £xxon and State Farm, Shell would
have been on notice that it could likely face exposure

d

te punitive damages in a 1°:1 ratio, or $750,000.
Exxon Shipping Co. v. Baker, 128 S. Ct. 2605, 2633
(2008); State Farm Mut. Ins. Co. v. Campbell, 538
U.S. 408, 429 (2003). Some courts, also relying on
State Farm, have issued decisions suggesting
possible notice that punitive damages could reach a
4:1 ratio, or $3 million. See State Farm, 538 U.S. at
425. Shell had no notice, however, that an award of
$53 million in punitive damages would be upheld as
constitutional. See BMW of N. Am., Inc. v. Gore, 517
U.S. 559, 574 (1996).

The Okiahoma _ court’s justification for
upholding that $53 million punitive damage award
illustrates the jurisprudential gap. The Oklahoma
court relied on ae_=e special interest rate—12%
compound pre-judgment interest—to increase the
amount of “compensatory” damages even though the
Oklahoma legislature candidly described it as a
“penalty” in previous iterations of the statute. The
dramatic increase in the amount of purported
“compensatory” damages moved the ratio to punitive
damages from a clearly unconstitutional 70:1 to 4:1.
Thus, the ad hoc modification of the punitive damage
calculation dramatically altered Shell’s punitive
damage exposure without regard to procedural due
process concerns regarding adequate notice.

If the Oklahoma court’s ad hoc modification of
the punitive damage ratio was an outlier, this case
would not warrant special attention. Unfortunately,
the lack of guidance from this Court on how to
determine whether additional recoveries beyond the
actual harm inflicted should be included as part of
the “harm to the plaintiff’ has produced conflicts in a
variety of contexts, for example:

5

Emotional distress with a partially punitive
aspect. Compare Roby v. McKesson Corp., 101
Cal. Rptr. 773, 797-99 (Cal. Ct. App. 2010);
Tony Gullo Motors I, L.P. v. Chapa, 212
S.W.3d 299, 308-10 (Tex. 2006); Daka, Inc. v.
McCrae, 839 A.2d 682, 697-701 (D.C. Ct. App.
2003); with Boyd v. Goeffoli, 608 S.E.2d 169,
182-84 (W. Va. 2004).

Lost profits. Compare Bridgeport Music, Inc.
v. Justin Combs Publ’zg, 507 F.3d 470, 489 (6th
Cir. 2007), with Rhone-Poulenc Agro, S.A. Vv.
DeKalb Genetics Corp., 272 F.3d 1335 (Fed.
Cir. 2001).

Attorneys’ fees. Compare Willow Inn, Inc. v.
Pub. Serv. Mut. Ins. Co., 399 F.3d 224, 235 (Sd
Cir. 2005); Jurinko v. Med. Protective Co., 305
F. App’x 13, 28 n.16 (3d Cir. 2008), with
Wallace v. DTG Operations, Inc., 563 F.3d 357
(8th Cir. 2009). The inconsistent use of
attorneys’ fees to dilute the punitive damage
ratio is currently before this Court in Stroud v.
Blount, No. 09-1572, on petition for writ of
certiorari from Blount v. Stroud, 914 N.E.2d
925 (Ill. App. Ct. 2009).

Capped or reduced awards. Compare Hayes
Sight & Sound, Inc. v. ONEOK, Inc., 136 P.3d
428, 447-48 (Kan. 2006); USA Truck, Inc. v.
West, 189 S.W.3d 904, 906, 911 (Tex. Ct. App.
2006), with Phelps v. Louisville Water Co., 103
S.W.3d 46, 54 (Ky. 2003). See also Clark v.
Chrysler Corp., 436 F.3d 594 (6th Cir. 2006)
(splintering on how to calculate the ratio);
Groth v. .{vundai Precision & Indus. Co.. 149
P.3d 333, 340-41 (Or. Ct. App. 2006)
(discussing complexity of computing ratio
when award was limited by statute).

6

Clear guidance from the Court on how the
punitive damage ratio should properly be calculated
we d provide defendants with the constitutionally
required notice and greatly enhance the ability to
accurately predict the maximum size of a punitive
damage award.

B. The absence of clear guidance from this
Court invites state legislatures and
courts to skew the ratio.

Absent clear guidance from this Court, state
legislatures and state courts are able to perform ad
hoc calculations of the ratio that dramatically alter
defendants’ potential punitive damage liability. As
the law now. stands, a_= state legislature’s
characterization of a monetary award = as
compensation or as a penalty—whether the impact
on the punitive damage ratio is intentional or not—
can dramatically change a defendant’s punitive
damage exposure from state-to-state and from year-
to-year. Here, the Oklahoma legislature’s 1985
deletion of the descriptive term “penalty” from the
interest statute was all that the Oklahoma court
needed to dramatically alter the result of this case,
even though:

1) The legislature did not substantively change
the pre-judgment interest calculation from the
pre-1985 punitive statute.

2) The pre-judgment interest does not bear any
relation to the actual harm suffered by the
defendant, even when the time value of money
is taken into account. In terms of 2010
dollars, the 1973 underpayments would still
only be $3.3 million.

3) The statute singled out a particular class of
disfavored oil and gas defendants for

7

especially high pre-judgment interest. Rather
than 12% compound interest, other defendants
are only subject to 6% simple interest.

The ability of state legislatures and courts to
skew the punitive damage ratio and sidestep this
Court’s punitive damage jurisprudence 1S
demonstrated by the fact that when faced with the
same situation—deletion of the word “penalty” from
an oil and gas payment statute—the Alabama
Supreme Court reached the opposite conclusion. See
Ala. Dep't of Conservation & Natural Res. v. Exxon
Mobil Corp., 11 So. 3d 194, 200-01 (Ala. 2008).
Leaving the issue to state law makes the federal
Constitution not merely disuniform but also
infinitely manipulable.

Unfortunately, the creative minds_ of
attorneys, and the state legislatures and courts in
which they ply their trade, will never run dry trying
to find such ways to manipulate this Court’s punitive
damage ratio. Currently on writ of certiorari to this
Court are examples of that creativity—Stroud v.
Blount, No. 09-1572, where the Illinois court used
attorneys’ fees to push the punitive damage ratio
from 10:1 down to 2:1, and Lawnwood Medical
Center, Inc. v. Sadow, No. 10-371,where the Florida
court permitted an infinite ratio of $5 million in
punitive damages to zero compensatory damages.
See Blount, 914 N.E.2d at 943; Lawnwood Med. Ctr.,
Inc. v. Sadow, ___ So.38d __, No. 4D08-1968, 2010
WL 1066833, at *13 (Fla. Ct. App. Mar. 24, 2010) .
The financial stakes are too high, the pot of gold at
the end of the punitive damage lottery too big, for the
creative juices not to flow toward finding new ways
to characterize legislatively and judicially created
additional damages as “compensatory” damages to

8

dilute the punitive damage ratio. Without clear
guidance from this Court, state-by-state
determinations will continue to threaten the due
process notice rights of companies represented by
Amici.

C. The absence of clear guidance on how to
consistently calculate the punitive
damage ratio leads to a result that
violates procedural due process.

Amici do not suggest that a// remedies should
be consistent across all states—doing so would
intrude upon the state’s rights. Amici merely
suggest that this Court provide guidance on how the
punitive damage ratio governed by the Fourteenth
Amendment should be calculated. U.S. CONST.
amend. XIV, § 1.

Inconsistency in calculations defeats the
purpose of the punitive damage ratio—providing
notice and predictability for what constitutes a
constitutionally impermissible punitive damage
award. Amici acknowledge the difficulty of crafting a
ratio that can apply to every situation—whether 4°1,
1:1, or some form of sliding scale based on the nature
of the harm or conduct. However, flexibility
regarding the ratio cannot be compounded by
vagueness regarding the definition of compensatory
damages. Providing guidelines in the form of a
numeric ratio, without any guidance on how to
calculate that ratio in practical application, is no
guidance at all. Given the inclusion of the clearly
penal pre-judgment interest in the compensatory
side of the punitive damage ratio, this case provides
the perfect opportunity for the Court to provide
additional guidance.

9

II. The absence of clear guidance on how to
consistently calculate the punitive damage
ratio and the resulting absence of procedural
due process notice is of particular concern to
The Court has long recognized that excessive

punitive damages bearing no reasonable relationship
to the actual harm suffered threaten constitutional
protections. Amici, its members, and clients of its
members must rely on these protections. Therefore,
Amici focus on the procedural due process problem
inherent with the current jurisprudence
unpredictability. In the absence of clear guidance on
the calculation of the punitive damage ratio, clients
and their counsel, such as Amici, cannot accurately
assess the true magnitude of a defendant’s punitive
damage exposure.

Unpredictability also hinders settlement. The
absence of clear guidance on the method of
calculating the punitive damage ratio prevents
plaintiffs and their counsel from accurately (and
reasonably) assessing possible verdict value. Thus,
the absence of this clear guidance prevents plaintiffs
and defendants from collectively assessing
settlement value and frustrates the agreed resolution
of disputes. This uncertainty is compounded by the
possible exposure for uninsured punitive damages
coercing settlements with plaintiffs and defendants’
own insurers.

10

A. The absence of clear guidance on how to
calculate the punitive damage ratio
frustrates the ability of counsel and the
clients they advise to make informed
settlement recommendations and
decisions.

In the absence of a state statutory cap on
punitive damage awards, the ratio guidance provided
by this Court is the only vehicle available to
attorneys and clients for predicting the eventual
amount of a potential punitive damage award. For
example, a defendant would expect that if it is facing
actual harm exposure of $1 million, the Constitution
and this Court's jurisprudence would suggest that
the punitive damage exposure would also be $1
million, a 1:1 ratio.

However, absent further clarification from this
Court, the defendant cannot accurately estimate the
effect of statutory and common-law “add-ons.” The
possibility that state legislatures or state courts
might arbitrarily define add-ons as “compensatory
damages” leads to unpredictable dilution of the
punitive damage ratio. Who could have predicted
that an underpayment of $750,000 in oil and gas
contractual net profit payments would produce a
purportedly constitutional $53 million punitive
damage award?

For a _ defense attorney, evaluating a
defendant’s punitive damage exposure is a key part
of evaluating the potential verdict and settlement
ranges confronting the client. For our system of
justice to work in practice, the client’s decision
regarding whether to try or settle a case must be
based on a more predictable accounting for maximum

Il

punitive damage exposure than is_ currently
permitted.

For a plaintiffs attorney, the absence of clear
guidance in calculating the ratio turns punitive
damage claims into a lottery where the rewards are
uncertain but possibly immense. The uncertainty
encourages gaming the system by forum-shopping in
an attempt to avoid states that faithfully adhere to

the Constitution. Absent clear guidance, that
behavior will only continue.
B. The absence of clear guidance on how to

calculate the punitive damage ratio is
especially troublesome because’ the
insurability of punitive damages is
constantly questioned by insurers.

The unpredictability in evaluating’ the
maximum range of punitive damages exposure takes
on even greater importance because insurers usually
take the position that punitive damages potentially
are not covered by their insurance policy. The
prospect of a massive amount of potentially
uninsured punitive damages creates a financial
nightmare for any business. How many businesses
could survive a $53 million uninsured punitive
damage award as a result of losing a lawsuit worth
$750,000 in actual damages?

This is not a Chicken Little scenario. In
practice:

e Insurers routinely reserve their rights to later
deny coverage in a case presenting the
potential for an award of punitive damages.

e Insurers who have previously negotiated an
express exclusion of coverage for punitive
damages in their policy will deny coverage
outright.

12

e Even when their insurance policies do not
expressly exclude coverage’ for punitive
damages, insurers frequently invoke their
insurance policies’ exclusions for intentional
acts in order to” reserve their right to
ultimately deny insurance coverage — for
punitive damages.

Faced with providing coverage for a substantial
punitive damage award, insurers predictably try to
shift the risk of the punitive damages onto the
insured. Some form of this scenario plays out in
almost all cases involving punitive damages and
compounds the many practical problems that Amici
face because of the current uncertainty inherent in
calculating the punitive damage ratio.

Ill. Shell's petition provides this Court with the
opportunity to clarify that the relevant ratio
is the relationship between only the amount of
punitive damages and the amount of actual
damages.

Shell's petition exemplifies the need for
guidance that provides clear notice of the proper
method of calculating the punitive damage ratio, For
example, Amici believe that it would be possible (and
appropriate) to articulate a bright line rule that
establishes which types of damages should be
included in which side of the ratio. Consistent with
this Court’s punitive damages jurisprudence, the
damages that represent the actual or potential “harm
inflicted” on the plaintiff should be compared to the
punitive damage award. See Gore, 517 U.S. at 575.
Amici would suggest that other types of damages,
whether created by state statute or by state common
law, should be excluded from calculation of the ratio.
Adopting this rule would provide invaluable

13

clarification on how the components of the ratio
should be calculated, resolve current confusion and
disagreement among the lower’ courts, and
substantially advance the Court’s punitive damages
jurisprudence.

A. This Court’s punitive damage
jurisprudence has long and correctly
focused on the relationship between the
damages awarded to compensate a
plaintiff for the “actual harm inflicted”
relative to the punitive damage award.

“The principle that exemplary damages must

bear a ‘reasonable relationship’ to compensatory
damages has a long pedigree.” Gore, 517 U.S at 581.
However, for purposes of evaluating this
relationship, the Court has recognized that it is not
the label used to describe the damages designed to
compensate a plaintiff for the actual harm suffered
that matters, but rather the substance of those
damages. See Gore, 517 U.S. at 581 n.32 (citing
Grant v. McDonogh, 7 La. Ann. 447, 448 (1852)
(“[E]lxemplary damages allowed should bear some
proportion to the real damage sustained’) (emphasis
added); Saunders v. Mullen, 66 Iowa 728, 729, 24
N.W. 529 (1885) (“When the actual damages are so
small, the amount allowed as exemplary damages
should not be so large”) (emphasis added); Flannery
v. Baltimore & Ohio R.R. Co., 15 D.C. 111, 125 (1885)
(when punitive damage award “is out of all
proportion to the znyuries received, we feel it our duty
to interfere”) (emphasis added); Houston &
McCarthy v. Niskern, 22 Minn. 90, 91-92 (1875)
(punitive damages “enormously in excess of what
may justly be regarded as compensation” for the

*

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injury must be set aside “to prevent injustice”)
(emphasis added)).

In distinguishing the purposes served hv
compensatory and punitive damages, the Court has
characterized compensatory damages as “intended to
redress the concrete loss that the plaintiff has
suffered by reason of the defendant’s wrongful
conduct.” State Farm, 538 U.S. at 416 (quoting
Cooper Indus., Inc. v. Leatherman Tool Group, Inc.,
532 U.S. 424, 432 (2001)). This is in contrast to
punitive damages, which are “aimed at deterrence
and retribution.” State Farm, 538 U.S. at 416.
Although the Court has at times used different
terminology to describe what type of damages should
be compared to a punitive damage award for
constitutional purposes, the Court’s meaning—in
part demonstrated by its interchangeable use of the
terms “actual damages” and “compensatory
damages’—has remained focused on the harm
inflicted on or suffered by the plaintiff.

B. The lower courts’ inconsistent inclusion
of additional types of compensatory
damages as part of the punitive damage
ratio reveals that those types of
damages differ from the “actual harm
inflicted” on the plaintiff.

The types of compensatory damages that the
lower courts sometimes include in their calculation of
the punitive damage ratio run the gamut. Courts
across the nation vary widely in their treatment of
“add-on” damages like pre-judgment interest, special
interest, post-yjudgment interest, attorney’s fees,
costs, and penalty interest for purposes of calculating
the punitive damage ratio. This is not surprising,
given that the schemes of different states depend on

15

the imponderable vagaries and development of the
law by state supreme courts as well as by state
legislatures. Nevertheless, the differences in those
state schemes should not become an unconstitutional
obstacle to what should be a uniform calculation for
deciding whether a punitive damage award complies
with constitutional requirements. The differences in
those schemes should instead become the impetus to
adopting a uniform calculation of that ratio that
provides the notice needed for defendants to evaluate
their maximum potential punitive exposure and then
to modify their conduct accordingly.

C. A ratio comparing punitive damages

only to damages that compensate a
plaintiff for the “actual harm inflicted”
would provide much-needed guidance to
the lower courts and is consistent with
this Court’s jurisprudence.

Amici suggest that this Court clarify that the
ratio should compare only the harm suffered by
plaintiff against the punitive damage award. This
rule would provide both the clear direction needed by
the lower courts and the adequate notice to
defendants required under procedural due process.
Further, the rule flows directly from this Court’s
original formulation of the _ ratio. Instead of
determining what additional types of damages
should be included in the ratio on a case-by-case
basis or state-by-state basis, the Court can resolve
the question with a simple calculation that is
consistent with the Court’s historic description of the
relevant inquiry.

By limiting the punitive damage ratio to the
harm suffered by the plaintiff, and stripping away
the varying and continually changing legislative

16

enhancements to “compensatory damages,” this
Court. would adopt a more easily administered rule.
That rule would allow parties, counsel, and the lower
courts real predictability in applying this Court’s
jurisprudence under the punitive damage _ ratio
guidepost. It would eliminate the problem presented
by this case and so many others encountered by |
Amici across the country where different state courts
interpret the add-on as compensatory damages in
order to dilute the ratio. It would make unnecessary
this Court adjudicating, on a case-by-case basis, all of
the state legislative intent issues and state supreme
court rulings that might justify the classification of a
particular type of “compensatory” damage as “actual
damages” under this Court’s punitive damage ratio.

Although this Court has “consistently rejected
the notion that ...a simple mathematical formula”
‘an determine a bright line between a constitutional
punitive damage award and an unconstitutional one,
the Court’s jurisprudence does not preclude the
creation of a bright line to determine what types of
damages should be considered when evaluating
whether the measure of punishment is “reasonable
and proportionate” to the harm suffered by the
plaintiff. State Farm, 538 U.S. at 424-25, 426
(quoting Gore, 517 U.S. at 582). Adopting a bright-
line rule here would provide a predictable foundation
for evaluating punitive damage award, and therefore
make meaningful the flexibility built into the Court’s
punitive damage jurisprudence.

CONCLUSION

For the foregoing reasons, and for the reasons
stated by petitioner, the petition for a writ of
certiorari should be granted.

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Respectfully submitted,

Robert M. (Randy) Roach, Jr
Counsel of Record
Amy J. Schumacher*
Daniel W. Davis*
ROACH & NEWTON, L.L.P.
1111 Bagby Street, Suite 2650
Houston, Texas 77002
(713) 652-2032
rroach@roachnewton.com
* Admission pending; supervised
by principals of the firm

Counsel for Amici Curiae

September 2010

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_2466%3A6. Public record. Not legal advice.