November 6, 2009

Oregon Court of Appeals Reverses $7 Million Punitive Damages Award, Splits on the Appropriate Remedy

The Oregon courts are once again making news in punitive damages litigation. Last week, the Oregon Court of Appeals issued this opinion in Wieber v. Fed Ex, reversing a $7 million punitive damages award as excessive. The reversal is noteworthy, since Oregon courts rarely overturn punitive damages awards on excessiveness grounds. But even more noteworthy is the court's internal disagreement about how to remedy the excessiveness problem.

The plaintiff in Wieber, who had a delivery route with Fed Ex, argued that Fed Ex fraudulently terminated his contract without notice. The jury awarded $350,000 in compensatory damages for fraud and intentional interference with economic relations, plus $7 million in compensatory damages.

On appeal, Fed Ex challenged the liability findings and the amount of punitive damages. On liability, the court concluded Fed Ex was entitled to judgment on the claim for intentional interference with economic relations, but ruled that the plaintiff presented sufficient evidence to support the fraud verdict. Having upheld the liability findings, the court addressed Fed Ex's argument that the punitive damages were excessive. The court concluded that Fed Ex's conduct was very low on the reprehensibility scale, and therefore any award of punitive damages in excess of three times the amount of compensatory damages would violate due process.

Here's where it gets a little interesting. The court ordered a new trial, but gave the plaintiff the option of accepting the constitutional maximum award (roughly $1 million) and foregoing a new trial. A dissenting justice argued that the plaintiff should not be permitted to choose a remittitur, and that the defendant was entitled to a new trial. The dissent pointed out that the jury, while considering punitive damages, was improperly directed to award punishment for both intentional interference and for fraud.

The dissent seems to have the better argument. Ordinarily, when an appellate reverses a punitive damages award solely on the ground that the award is unconstitutionally excessive, the court has the power to reduce the award to the maximum award that would be permitted under the constitution. (See Johansen v. Combustion Engineering (11th Cir. 1999) 170 F.3d 1320, 1332, fn. 19; see also Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1187-1188 [following Johansen].) In a such a situation, the court need not give the plaintiff the option of a new trial, because the plaintiff could not possibly achieve a better result on retrial; by definition, the constitutional maximum award is the ceiling on the plaintiff's recovery.

But the analysis should be very different when a court reverses an award not just for excessiveness, but for a trial error, like an evidentiary error or an instructional error. In such cases, the defendant is entitled to a new trial so that a properly instructed jury can decide the appropriate amount of punitive damages based on proper evidence. It is unfair for an appellate court to simply order the defendant to pay the maximum constitutional award, because the jury in a properly conducted trial might have chosen to award a lesser amount.