Bayer Cropscience LP v. Schafer

• Decision Date: 08 December 2011
• Docket Number: No. 10–1246.,10–1246.
• Parties: BAYER CROPSCIENCE LP; Bayer CropScience Holding, Inc.; Bayer CropScience AG; Bayer AG; and Bayer BioScience NV, Appellants v. Randy SCHAFER; end of the Road Farms, Inc.; Schafer Planting Co.; Wallace Farms; Robert E. Moery; Kyle Moery; Carter Farms Partnership; Petrus Farms, Inc.; Robert Petrus, Individually and as Trustee of the Robert Petrus Revocable Trust; R & B Amaden Farms; Randall J. Snider; R & S Planting Co., Inc.; S & R Farms; A.S. Kelly and Sons; Neil Daniels Farms, Appellees.
• Court: Arkansas Supreme Court

2011 Ark. 518

385 S.W.3d 822

BAYER CROPSCIENCE LP; Bayer CropScience Holding, Inc.; Bayer CropScience AG; Bayer AG; and Bayer BioScience NV, Appellants

v.Randy SCHAFER; end of the Road Farms, Inc.; Schafer Planting Co.; Wallace Farms; Robert E. Moery; Kyle Moery; Carter Farms Partnership; Petrus Farms, Inc.; Robert Petrus, Individually and as Trustee of the Robert Petrus Revocable Trust; R & B Amaden Farms; Randall J. Snider; R & S Planting Co., Inc.; S & R Farms; A.S. Kelly and Sons; Neil Daniels Farms, Appellees.

No. 10–1246.

Supreme Court of Arkansas.

Dec. 8, 2011.

Held Unconstitutional

West's A.C.A. § 16–55–208.

Wright, Lindsey & Jennings, LLP, by: Edwin L. Lowther, Jr., Scott Irby, and Gary D. Marts, Jr., for appellants.

Hare, Wynn, Newell & Newton, LLP, by: Scott A. Powell, Don McKenna, Bruce J. McKee, and Paul Byrd, for appellees.

Brian G. Brooks, Attorney at Law, PLLC, by: Brian G. Brooks, for amicus curiae Arkansas Trial Lawyers Association.

Barrett & Deacon, P.A., by: Barry Deacon, Andrew H. Dallas, and Jason M. Milne, for amicus curiae Riceland Foods, Inc.

Lax, Vaughn, Fortson, Jones & Rowe, P.A., by: Roger D. Rowe, for amicus curiae USA Rice Federatio, Inc.

COURTNEY HUDSON GOODSON, Justice.

Appellants Bayer CropScience LP; Bayer CropScience Holding, Inc.; Bayer CropScience AG; Bayer AG; and Bayer BioScience NV (collectively “Bayer”) appeal the judgment entered by the Circuit Court of Lonoke County awarding $5,975,605 in compensatory damages and $42,000,000 in punitive damages to appellees, who are the following rice farmers or farming entities: Randy Schafer; End of the Road Farms, Inc.; Schafer Planting Co.; Wallace Farms; Robert E. Moery; Kyle Moery; Carter Farms Partnership; Petrus Farms, Inc.; Robert Petrus, individually and as trustee of the Robert Petrus Revocable Trust; R & B Amaden Farms; Randall J. Snider; R & S Planting Co., Inc.; S & R Farms; A.S. Kelly and Sons; and Neil Daniels Farms (collectively “rice farmers”). For reversal, Bayer contends that (1) the circuit court erred in ruling that Arkansas Code Annotated section 16–55–208 (Repl.2005) is unconstitutional; (2) the rice farmers' claims are barred by the “economic-loss doctrine”; (3) the circuit court abused its discretion by failing to exclude the testimony of Robert E. Marsh; (4) the circuit court erred by submitting the punitive-damage claim to the jury; and (5) the punitive-damage award is excessive under Arkansas common law and the Due Process Clause of the United States Constitution. As this appeal involves a challenge to the constitutionality of a statute, our jurisdiction is pursuant to Ark. Sup.Ct. R. 1–2(a)(1) and (b)(6). In all respects, we affirm the circuit court's judgment.

I. Factual and Procedural Background

To place the issues in context, a review of the record reveals the following facts. In the United States, rice is grown primarily in Arkansas, California, Louisiana, Mississippi, Missouri, and Texas. Of those states, Arkansas is the leading producer of long-grain rice. Prior to 2006, fifty-two percent of the long-grain rice grown in the United States was exported to other countries.

In the 1990s, Bayer or its corporate predecessors developed LibertyLink Rice (LLRice), a genetically engineered rice that is resistant to Bayer's “Liberty” herbicide, a broad-spectrum weed killer that is known for controlling red rice, a pernicious weed that diminishes yield and reduces the price of a rice crop. From 1999 to 2001, Bayer conducted outdoor field tests of LLRice in the United States, primarily at Louisiana State University's Rice Research Station in Crowley, Louisiana, under the supervision of Dr. Steve Linscombe.

As a genetically modified agricultural product, LLRice falls under the regulatory control of the United States Department of Agriculture (USDA). On August 18, 2006, the USDA announced that trace amounts of LLRice 601 had been detected in the United States long-grain rice supply. Initially, the strain LLRice 601 was found in Cheniere, a popular variety of long-grain rice seed. Six months later, LLRice 604 was discovered in Clearfield 131, another variety of long-grain rice. At the time of the August 2006 announcement, the USDA had not granted regulatory approval for either LLRice 601 or 604. In addition, no foreign government had authorized the commercial use of genetically modified rice for human consumption.

Because of the contamination, the USDA banned the use of Cheniere and Clearfield 131 for the 2007–2008 crop year. Those involved in the United States rice industry, including USA Rice Federation, Inc., developed a seed plan to remove the LLRice strains from the American rice supply. Before planting, all rice seed was tested to ensure that it contained no contaminant. First handlers of rice, namely mills, were required to test harvested rice for the presence of LLRice and to document that the rice was free of contamination. The plan also included an educational campaign to promote compliance with the seed plan. Another component of the plan was to clean all rice-farming equipment and storage bins to guard against the risk of further contamination. Crop rotation was encouraged to prevent the germination of any volunteers in a field where rice had been grown in 2006.

Domestically, the USDA took swift action to grant regulatory approval of LLRice 601 in November 2006. However, the world-wide reaction to the contamination of the American long-grain-rice supply with LLRice proved to be profoundly negative, due to government and consumer antipathy toward genetically altered food sources. Mexico, the largest importer of American rice, required a certification that the rice was not genetically modified before the rice would be allowed within its borders. Canada, Iraq, Korea, Taiwan, Saudi Arabia, Cuba, and Japan required testing to guard against the infiltration of LLRice. Trade with the Philippines ceased, and Russia banned the import of all American rice. Most notably, the European Union, consisting of twenty-seven countries and representing one-sixth of the American rice export market, implemented emergency measures to impose stringent testing requirements at points of entry. Between 2005 and 2008, exports of American rice decreased by 622,972 metric tons.

The rice farmers filed suit against Bayer in the Circuit Court of Lonoke County on August 29, 2006. In their fifth amended complaint, they alleged that Bayer knew that the majority of American-grown rice was exported; that Bayer knew that other countries did not import genetically modified rice; and that Bayer knew that any contamination of the United States rice supply with genetically altered rice would depress the export market and adversely affect the price of American long-grain rice.¹ As their cause of action, the rice farmers claimed that Bayer was negligent in allowing the adventitious release of LLRice 601 and 604 into the nation's rice supply by not taking adequate precautions during field trials to prevent cross-pollination or the commingling of genetically modified rice seed with conventional seed. ² As damages, they claimed that Bayer's negligence caused economic harm by driving down the market price for American long-grain rice. The rice farmers also alleged that they were entitled to punitive damages because Bayer knew, or ought to have known, that their negligent conduct would naturally and probably result in damages to them and that Bayer engaged in that conduct in reckless and wanton disregard of the consequences.

During the course of the litigation, Bayer moved in limine to exclude the testimony of Robert E. “Jay” Marsh, the rice farmers' expert on the issue of damages. Bayer argued that Marsh's assessment of past damages and his projections regarding future damages were speculative and not based on sound, scientifically reliable methods. The rice farmers responded that the methodology used by Marsh was the standard approach to econometric modeling and that Marsh's testimony satisfied the test of admissibility for expert opinion.

Bayer also filed a motion for summary judgment, arguing that the rice farmers' claims should be dismissed because the “economic-loss doctrine” precludes recovery in tort for economic loss where the plaintiff has suffered no physical injury to his person or property. In opposing the motion for summary judgment, the rice farmers asserted that this court had rejected the doctrine in other contexts and that this court had not recognized the doctrine's application in negligence cases.

The rice farmers also filed a pretrial motion asking the circuit court to declare unconstitutional the limitation on punitive damages found in Arkansas Code Annotated section 16–55–208. They argued that the statutory cap on punitive damages offends the separation-of-powers doctrine found in article 4, section 2 of the Arkansas Constitution by encroaching upon the judiciary's authority to exercise remittitur and by intruding on this court's power vested under amendment 80, section 3, to prescribe the rules of pleading, practice, and procedure for all courts. In addition, the rice farmers asserted that the statute violates article 5, section 32 of the Arkansas Constitution, which prohibits the General Assembly from limiting the amount to be recovered for injuries resulting in death or for injuries to persons or property. In response, Bayer argued that the statute's cap on punitive damages did not invade the powers of the judiciary because the law is substantive and not procedural in nature. Further, Bayer contended that the statute did not violate article 5, section 32, as its proscription applies only to compensatory damages.³

The circuit court conducted a pretrial hearing on March 22, 2010. At the hearing, the circuit court orally denied Bayer's motion in limine to exclude the testimony of Marsh, and the court refused Bayer's motion for summary judgment concerning the economic-loss doctrine. From the bench, the circuit...