November 18, 2010

Oregon Supreme Court decides certified question from Ninth Circuit, limits Oregon's power to collect a share of punitive damages verdicts

The Oregon Supreme Court has answered a certified question from the Ninth Circuit regarding Oregon's rights under a statute that gives the state the right to recover 60 percent of any punitive damages award.

In this case, Patton v. Target, a jury awarded $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 for dismissal. 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 asked the Oregon Supreme Court to address the following question:

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 answered the question in this opinion. The court holds that the state has no right to collect any portion of a punitive damages verdict before judgment has been entered. The statutory language purporting to give the state "judgment creditor" status before entry of judgment is meaningless and unenforceable. Accordingly, the parties are free to reach a settlement without the state's consent, and without giving the state any share of the settlement.

The court's analysis seems correct to me. It also seems to guarantee that Oregon will collect little, if anything, under this statute. When a jury returns a punitive damages award, both parties will have an incentive to settle the case in order to prevent the state from collecting its share. Let's hope the state isn't counting on this statute to provide any meaningful contribution to the state budget.

UPDATE (8/4/11 - LP): The Oregon Law Review has published a student comment on this topic, "Punitive Damages: The Controversy Continues."

Related posts:

Oregon Supreme Court Accepts Certified Question on Split-Recovery Statute

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