Tort Reform In Texas: Loser Pays Rule Signed Into Law

With a hat tip to the California Civil Justice Blog, earlier this week Texas enacted a "loser pays" system that proponents say will help rid the system of meritless cases. House Bill 274 takes effect September 1, 2011 and directs the Texas Supreme Court to enact rules providing for the early dismissal of "causes of action that have no basis in law or fact on motion and without evidence." For cases that fall within this "no basis in law or fact" category, the trial court may award the prevailing party costs and "reasonable and necessary attorney's fees . . . that the court determines are equitable and just" whenever it grants or denies a motion to dismiss, in whole or in part.

Given the rulemaking yet to occur and the discretion vested in the trial courts in whether to award fees, the exact contours of this law will take some development, and it remains to be seen whether Texas civil litigants will be ordered to pay attorneys fees rarely or with some frequency. Still, an interesting experiment in civil justice reform that will bear watching.

Civil Justice Reform Ideas For California

The California Civil Justice Blog has a link to John Fund's article in The Wall Street Journal  "California Dreamin' - Of Jobs In Texas" discussing California lawmakers' recent legislative fact-finding trip to Texas, where they met with businesses that had relocated from California -- and throws a few legal-system reform ideas of its own into the mix, modeled on some changes Texas has made in recent years. Among them: Making the grant of class certification appealable - not just the denial of class certification, and a punitive damages cap.

China's New Tort Liability Law Takes Effect on July 1, 2010

China's long-awaited Tort Liability Law, passed on December 26, 2009 by the Standing Committee of the National People’s Congress of China, will take effect on July 1, 2010. The law, which serves to provide a stronger basis for the development of tort law and practice in China, offers standard guidance on issues ranging from product liability, environmental pollution, medical malpractice to employee-related liabilities. For example, prior to the enactment of the law, defective product recall obligations were only applied to a limited number of products, including medicine, food, toys and automotive products. The new law, however, expands the recall system to cover all products manufactured or sold in China.

Reed Smith Beijing Counsel Mao Rong and Michael H. Dardzinski and Consultant Joyce Sun recently drafted a brief summary of China's new tort law provisions regarding product liability, medical-related damages and environmental pollution. Read the full summary here.

Supreme Court Denies Review of 5.35-to-1 Ratio For Punitive Damages

This post was written by Kevin G. Lohman.

On May 26, 2009, the U.S. Supreme Court denied a petition for writ of certiorari to review a decision from the Supreme Court of Tennessee that upheld an award of punitive damages for over $13 million dollars, which amounted to a 5.35-to-1 ratio of punitive damages to actual damages. See DaimlerChrysler Corp. v. Flax, NO. 08-1010, 2009 WL 357533, (2009). ProductLiability.com deserves recognition for flagging this decision. 

The case arose out of a motor vehicle accident in June 2001, which resulted in the death of an eight-month-old baby. Plaintiffs, the parents of decedent, filed suit alleging wrongful death and negligent infliction of emotional distress (NIED) against the other driver involved in the accident and against DaimlerChrysler Corp., who was the manufacture of plaintiffs’ 1998 Dodge Caravan. The jury assigned fault evenly against the defendant driver (for speeding) and DaimlerChrysler Corp. (for defective design of the car seats), and awarded plaintiffs $5 million dollars in compensatory damages for their wrongful death claim, and $2.5 million damages for their NIED claim. During the second phase of the trial, evidence was presented that DaimlerChrysler Corp. was aware of the defective design of their car seats, they failed to warn customers, they hid evidence of the of the defective design, and they continued to market the Caravan as a vehicle that put safety first. The jury awarded punitive damages against DaimlerChrysler Corp. in the amount of $65.5 million for the wrongful death claim, and $32.5 million for the NIED claim. The trial judge remitted the punitive damages down to $13,367,345.00 for the wrongful death claim and $6,632,655.00 for NIED. 

On appeal, the Tennessee Court of Appeals reversed, holding that there was insufficient evidence to award any damages pertaining to the NIED claim. Further, the court held that there was not clear and convincing evidence that DaimlerChrysler Corp. acted recklessly or intentionally in order to warrant punitive damages, and struck the entire punitive damage award.

On further appeal, the Supreme Court of Tennessee affirmed the court of appeal’s holding pertaining to the NIED. However, they reversed the portion of decision pertaining to punitive damages. Holding that there was in fact sufficient evidence to support a finding of punitive damages, the court reviewed whether the size of the punitive damages award is excessive in violation of the due process standards set out by the United States Supreme Court in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996) and State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408 (2003). Specifically, the court relied on the first two guideposts set out in Gore and Campbell (the reprehensibility of the defendant’s conduct; and the ratio between the punitive damage award and the compensatory damages). 

With regard to the first guidepost, the court noted that the evidence in this case “clearly demonstrates that [DaimlerChrysler Corp.’s] conduct was reprehensible.” As to the second guidepost, the court noted that the punitive-to-compensatory ratio was 5.35-to-1 and acknowledged the language of the Supreme Court decisions in Gore (suggesting that a ratio of greater than 4-to-1 approaches the outer limits of constitutionality) and Campbell (suggesting that a ratio of 1-to-1 may be all that is permissible in cases where compensatory damages are “substantial”). However, the court also noted that in Campbell the Supreme Court declined to adopt a fixed mathematical formula to determine the appropriateness of punitive damages and stated that “the precise award in any case, of course, must be based upon the facts and circumstances of defendant’s conduct and the harm to the plaintiff.” The Tennessee court held that “In light of the first two guideposts, we believe that a ratio of 1 to 5.35 would be warranted in this case,” noting that the evidence pertaining to the defendant’s conduct demonstrated their conduct was reprehensible and the harm to the plaintiffs in this case was tragic (the death of an eight-month-old baby). 

Interestingly, the Tennessee court chose not to acknowledge the Supreme Court’s most recent punitive damage decision from Exxon Shipping Co. v. Baker, ___ U.S. ___, ___, 128 S. Ct. 2605 (2008), which was decided one month prior and established a 1-to-1 ratio between punitive and compensatory damages under federal maritime law and contained implications for applying the 1-to-1 ratio to limit punitive damages in state court actions. (The Exxon decision is discussed in this prior post). Despite the fact that Supreme Court of Tennessee did not acknowledge Exxon, the United States Supreme Court denied DaimlerChrysler’s petition for writ of certiorari.

Santa Delivered A 1:1 Ratio For Punitive Damages

The Third Circuit delivered a Christmas present Dec. 24, issuing an opinion - albeit "not precedential" - that reduced a 3.13:1 ratio for punitive damages down to a 1:1 ratio. Hat tip to law.com for catching the decision.

Jurinko v. Medical Protective Co. involved a bad faith insurance lawsuit arising out of a medical malpractice policy. The physician plaintiff was awarded more than $1.6 million in compensatory damages against his insurer, as well as $6.25 million in punitive damages, for the insurer's "bad faith failure to settle" for the policy limits before trial.

Although the Third Circuit found sufficient evidence to support the punitive judgment, its analysis of the constitutional limits on the amount of the punitive-damage award led it to reduce the judgment. The court employed a 1:1 ratio as its starting "guidepost," and analyzed the punitive-damage award using the factors from State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003).

With regard to the reprehensibility of the insurance company's conduct, the court noted that there was no evidence of physical harm to the insured, no evidence of recidivism, nor any reckless disregard of health or safety. In addition, "the compensatory damages [were] substantial, [the insured] suffered only economic harm, and the harm was easily measured" because it was the amount of the judgment that exceeded the policy limits. The amount of punitive damages also far exceeded the civil penalties and sanctions possible for the insurer's conduct. On the other hand, the Third Circuit recognized that the insurer's conduct was intentional, and the insured was financially vulnerable. 

In finding a 3:13:1 ratio of punitive damages to compensatory to be excessive, the Third Circuit noted that many courts start with a 1:1 guidepost (although the Ninth Circuit is not necessarily one of them). In addition, while the Supreme Court has declined to explicitly set a 1:1 ratio as a constitutional limit, it has employed that ratio in Exxon Shipping Co. v. Baker, ___ U.S. ___, ___, 128 S. Ct. 2605, 2633 (2008), this year's maritime decision (discussed in this prior post). The court concluded that "[i]n light of the substantial compensatory award and the harm being exclusively economic, this guidepost advises a reduced award."

While it is not entirely clear why the decision is marked "not precedential," footnote 1 may suggest an answer. It states: "The Honorable Maryanne Trump Barry participated in the oral argument but discovered facts causing her to recuse from this matter prior to filing of the Opinion. The remaining judges are unanimous in this decision, and this Opinion and Judgment are therefore being filed by a quorum of the panel."

Finding The Proper Ratio For Punitive Damages

On Friday, the Ninth Circuit took another run at determining due process limits on punitive damages in Southern Union v. Irvin. The court previously vacated a punitive award in excess of 153 times compensatory damages [see S. Union Co. v. Sw. Gas Corp., 415 F.3d 1001, 1009 (9th Cir. 2005)], but defendant appealed again after Southern Union accepted the trial court's remittitur to $4 million in punitive (just over ten times compensatory damages).

As Judge Noonan described the jury's findings in his dissent, "Irvin, the chairman of the Arizona Corporation Commission, worked determinedly for a period of four months to promote the merger of an Arizona utility company with another utility and to defeat a merger proposed by Southern Union over $100 million more beneficial to the Arizona company" in exchange for a "bribe" that was never paid, because Southern Union filed suit.

Using the Supreme Court's three touchstones from State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003) - “(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases” - the Ninth Circuit concluded that a three-to-one ratio was the constitutional maximum in the case before it.

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A Baby Step Toward Reasonable Class Action Fees?

On Monday, the District Court of Massachusetts issued a notable attorney's fee award decision in a class action arising from a data privacy breach, In re TJX Companies Retail Securities Litig. Along with a class settlement, class counsel urged the court to approve a $6.5 million attorney's-fees award, arguing that hundreds of millions of dollars in potential value had been created for the class. However, the payout depended entirely on class members making claims, and only a small fraction of the supposed potential - $6 million - were made. The court quite reasonably rejected class counsel's suggestion that the potential (but unrealized) claims supported the requested fees. That said, the court still approved the fee request pursuant to the lodestar method ($3.3m in lodestar * 1.97 multiplier = $6.5m).

The court finished with a cautionary note, which is where the baby step comes in: "In the future . . . Plaintiff's counsel can expect that this court, when confronted with reversionary common fund or claims-made settlements, will award attorney's fees by reference to the value of benefits actually put in the hands of class members." (emphasis in original). In reality, however, it would have been entirely reasonable for the court to use this standard for attorney's fees now, without waiting for the next time.

UPDATE: Drug and Device Law also has a November 11, 2008 post about this TJX case.

Exxon Shipping Co. v. Baker: Will the 1:1 Punitive Damages Ratio in Maritime Law Become the Paradigm for a Due Process Evaluation of Punitive Awards?

This article discusses the U.S. Supreme Court’s decision in Exxon Shipping Co. v. Baker, 128 S. Ct. 2605 (2008). In Exxon, the Supreme Court established a 1:1 ratio between punitive and compensatory damages under federal maritime law, and implications for applying the 1:1 ratio to limit punitive damages in state court actions. Originally published in the International Association of Defense Counsel's Drug, Device and Biotech Committee Newsletter for September 2008. Reprinted with permission of IADC.

Who Pays the Bill for Asbestos Claims: Recent Developments in Asbestos-Related Disease Liability in the UK

This post was written by Darren Smith, Julia Dodds, and Claire Hamm.

The UK has an estimated 3,000 deaths per year from mesothelioma, the lung cancer caused by inhalation of asbestos fibres. This rate of incidence shows no signs of slackening, a result of the historic exposure of the UK workforce to asbestos, and is not expected to peak until 2018. With the average award of damages for mesothelioma currently around £150,000 ($300,000), defendants and their insurers are already paying out close to $1 billion a year to settle mesothelioma claims alone; and to this must be added the cost of claims for non-fatal asbestos-related diseases.

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