Oct. 2, 2014, Trial News | The American Association For Justice

Oct. 2, 2014, Trial News

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Missouri Supreme Court invalidates punitive damages caps on common law claims

Cindy Gierhart

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In a case that arose out of an auto dealer’s alleged fraudulent misrepresentation, the Missouri Supreme Court recently held that limits on punitive damages for common law torts are unlawful under the state constitution.
 

The Supreme Court of Missouri recently held that limits on punitive damages for fraudulent misrepresentation are unlawful under the state constitution. (Lewellen v. Franklin, 2014 WL 4425202 (Mo. Sept. 9, 2014).)

The court did not strike down all punitive damages caps—only those for common law torts, including fraud, the issue in this case. “I think it really is a tremendous precedent,” said Douglass Noland, who represents the plaintiff. “The court is basically saying we’ll leave it up to the jury to say what’s a fair amount of punitive damages, at least in a common law claim.”

The state high court has upheld punitive damages caps on causes of action that arose after 1820, when Missouri enacted its constitution. Punitive damages can be capped, for example, for unlawful merchandising practices under the Missouri Merchandising Practice Act, which was also at issue in this case and for which the punitive damages cap on that cause of action still stands. 

The 1820 cutoff comes from the language of article I, §22(a) of the Missouri Constitution: “That the right of trial by jury as heretofore enjoyed shall remain inviolate.” Missouri courts have interpreted this to mean that any right to a jury trial existing in 1820 will continue to be protected. Therefore, any later-enacted statutes that alter a then-existing right to a jury trial are unconstitutional.

Noland emphasized that courts still have the discretion to reduce punitive damages awards that are grossly excessive or arbitrary. He said it is better for courts to reduce awards “on a case-by-case basis according to due process standards, and not an artificial cap imposed by the legislature that has no regard for the facts and circumstances of the case.”

The circumstances in this case warranted a $1 million punitive damages award, Noland said—and the court agreed—because of the defendants’ particularly egregious conduct.

Lillian Lewellen, a 77-year-old widow, sued a Kansas City auto dealer for fraudulent misrepresentation after the dealer promised she would have to pay just $49 a month for a car but honored that promise for only nine months. 

Lewellen told the dealer her monthly income was $920, entirely from Social Security benefits. But the paperwork the dealer filled out  listed her monthly income as $18,000, making her monthly payments $387.45. National Auto Sales sent her a check for the difference between the higher payment and the promised $49 payment, but the check covered only nine months of payments, and the company sent no further checks.

Lewellen was unable to afford the higher payments, so the bank sued her for breach of contract and repossessed her car.

More than 400 complaints were filed with the Missouri and Kansas attorneys general (as Kansas City sits on the border of the two states) alleging that this dealership did not honor its $49 deal, Noland said.

The Missouri Supreme Court appears to be the first state high court to find punitive damages caps unconstitutional, according to William Angelley, a plaintiff attorney in Dallas.

However, Montana is poised to follow in Missouri’s footsteps. The Montana Supreme Court heard oral arguments in Masters Group International, Inc. v. Comerica on Sept. 26 to determine whether its cap on punitive damages is unconstitutional. Even so, Angelley said, the Missouri opinion is not likely to be repeated elsewhere.

A few other states have struck down caps on noneconomic damages, and they have distinguished between the two types of damages, finding that punitive damages do not implicate the constitutional right to a jury trial. Determining the amount of noneconomic damages is a fact question for the jury and part of its traditional function, whereas determining an amount sufficient to punish or deter is not a question of fact and does not implicate the right to a jury trial, some courts have found.

The Missouri court’s finding that certain punitive damages caps are unconstitutional while others are not is also unique. Angelley said other courts that have struck down noneconomic damages caps have done so wholesale.

Angelley noted that states in the South and Midwest—including Georgia, Florida, and Missouri—are the ones most recently to overturn damages caps.

“Maybe the tide is slowly starting to turn,” Angelley said.