September 2, 2009

Patton v. Target Corp.: Ninth Circuit Certifies Punitive Damages Question to Oregon Supreme Court

A Ninth Circuit panel consisting of Judges Pregerson, Rymer, and Tashima issued this published order today, certifying a question to the Oregon Supreme Court.

The dispute in this case centers around Oregon's split-recovery statute (OR REV. STAT. section 13.735), which provides that the state of Oregon is entitled to 60 percent of any punitive damages award rendered under Oregon law. The statute applies to punitive damages cases decided under Oregon law in federal court.

The statute gives parties a strong incentive to settle whenever punitive damages are awarded. Settlement benefits both parties because the plaintiff can obtain more, and the defendant can pay less, by cutting the state out of the deal. Or at least the parties here thought they could achieve that result. The state had other ideas.

The jury in this case awarded roughly $85,000 in compensatory damages and $900,000 in punitive damages. After the verdict, but before the district court entered judgment, the parties settled and jointly moved for a judgment dismissing the case. The motion did not disclose the amount of the settlement and did not provide for any payment to the state. The state intervened, arguing that it had a vested interest in its share of the punitive damages award and that the parties could not settle without its consent. The district court (Judge Brown of the District of Oregon) allowed the state to intervene but ultimately granted the parties' motion. The state appealed.

On appeal, the Ninth Circuit determined that the split-recovery statute is ambiguous with respect to the state's ability to block this kind of settlement. The statute provides that the state becomes a "judgment creditor" upon rendition of a punitive damages verdict, which doesn't really make any sense because ordinarily there can be no judgment creditor without an actual judgment. The statute doesn't explain what rights the state has as a judgment creditor before judgment has been entered. Rather than interpreting the statute itself, the Ninth Circuit has certified the following question to the Oregon Supreme Court:

When a jury has returned a verdict that includes an award of punitive damages under Oregon law, is the State of Oregon’s consent necessary before a court may enter a judgment giving effect to any settlement between the parties that would result in a reduction or elimination of the punitive damages to which the State would otherwise be entitled under Oregon Revised Statutes § 31.735?

The Oregon Supreme Court is almost certain to accept this issue. As we noted in a previous post, this same issue was pending before the Oregon Supreme Court in another case, but the court never reached the issue because the state decided to settle its claim for a share of the punitive damages award.

Related posts:

Oregon Drops Punitive Damages Claim in Order to Save Jobs

Man v. Freightliner—Oregon Court of Appeals Allows State to Pursue a Share of $350 Million Punitive Damages Verdict After Parties Settle