BMW of North America, Inc. v. Gore

• Decision Date: 19 August 1994
• Parties: BMW OF NORTH AMERICA, INC. v. Ira GORE, Jr. BAYERISCHE MOTOREN WERKE, A.G. v. Ira GORE, Jr. 1920324, 1920325.
• Court: Alabama Supreme Court

Page 619

646 So.2d 619

BMW OF NORTH AMERICA, INC. v. Ira GORE, Jr.

BAYERISCHE MOTOREN WERKE, A.G. v. Ira GORE, Jr.

1920324, 1920325.

Supreme Court of Alabama.

Aug. 19, 1994.

Certiorari Granted Jan. 23, 1995. See 115 S.Ct. 932.

Michael C. Quillen and Samuel M. Hill of Walston, Stabler, Wells, Anderson & Bains, Birmingham, for appellants.

Andrew L. Frey and Evan M. Tager of Mayer, Brown & Platt, Washington, DC, for BMW of North America, Inc.

Michael A. Epstein, Steven Alan Reiss and Beth K. Neelman of Weil, Gotshal & Manges, New York City, for Bayerische Motoren Werke, A.G.

Andrew W. Bolt II, Paula I. Cobia and Stephen K. Wollstein of Bolt, Isom, Jackson and Bailey, Anniston, and John W. Haley and Bruce J. McKee of Hare, Wynn, Newell & Newton, Birmingham, for appellee.

C. Clay Torbert III of Capell, Howard, Knabe & Cobbs, P.A., Montgomery, for amicus curiae Alabama Development Office in support of appellants.

Hobart A. McWhorter, Jr., Linda A. Friedman and John E. Goodman of Bradley, Arant, Rose & White, Birmingham, and Charles A. Newman and Lawrence C. Friedman of Thompson & Mitchell, St. Louis, MO, for amici curiae American Auto. Mfrs. Ass'n, Inc., and Ass'n of Intern. Auto. Mfrs., Inc.

Fourier J. Gale III of Maynard, Cooper & Gale, P.C. and S. Allen Baker, Jr. of Balch & Bingham, Birmingham, for amicus curiae Business Council of Alabama, in support of appellants.

On Application for Rehearing

PER CURIAM.

The opinion released October 29, 1993, is hereby withdrawn and the following opinion is substituted therefor.

The primary issues presented by these appeals are (1) whether a German automobile manufacturer had sufficient contacts with Alabama to permit the courts of this state to exercise personal jurisdiction over it, and (2) whether a jury's award of $4,000,000 in punitive damages against the manufacturer and its distributor is excessive.

The appeals are by BMW of North America, Inc. ("BMW NA"), and Bayerische Motoren Werke, Aktiengesellschaft ("BMW AG") from a judgment entered on a jury verdict awarding the plaintiff, Dr. Ira Gore, Jr., compensatory damages of $4,000 and punitive damages of $4,000,000. The specific issues presented in regard to the excessiveness question are: (1) Whether punitive damages were properly assessed, and, if so, whether the amount of the award is excessive; and (2) whether, without evidence that any state other than Alabama requires disclosure of minor cosmetic repairs by a manufacturer, the trial court erred in admitting evidence that BMW NA had sold 983 vehicles throughout the country that had incurred damage similar to that incurred by Gore's automobile and that had been repaired without BMW NA's disclosing that it had made repairs.

As to BMW NA, we have considered the oral arguments of the parties and the briefs of the parties and the amicus curiae briefs, and we have reviewed the verdict according to the principles set out in Hammond v. City of Gadsden, 493 So.2d 1374 (Ala.1986), Green Oil Co. v. Hornsby, 539 So.2d 218 (Ala.1989), Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991), and TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443, 113 S.Ct. 2711, 125 L.Ed.2d 366 (1993). After thoroughly and carefully reviewing the record and verdict, considering the gravity of the wrong and the nature and extent of the injury inflicted upon the plaintiff, and comparing the punitive damages award in this case with other awards allowed in similar cases involving the sale of automobiles, we hold that the trial court's order denying BMW NA's motion for a new trial is due to be affirmed on the condition that the plaintiff file with this Court within 21 days a remittitur of damages of $2,000,000. Otherwise, the judgment will be reversed and this cause remanded for a new trial.

Facts

The plaintiff, Dr. Ira Gore, Jr., bought a new 1990 BMW 535i automobile from German Auto, Inc., a Birmingham dealership, for $40,750.88. He had no direct dealings with either BMW AG or BMW NA. At the time of the sale, Dr. Gore, a graduate of Harvard College and Duke Medical School, signed a "Retail Buyers Order" and an "Acknowledgement of Disclosure" in which he acknowledged that the automobile might have sustained damage at some point and that he had inspected it and had agreed to accept it. This disclosure form did not list the repair that is the subject of this action. Gore drove the car for approximately nine months before taking it to "Slick Finish," an independent automobile detailing shop, to make the car look "snazzier than it normally would appear," even though he was not unsatisfied with the car's appearance and had not noticed any flaws in the finish on the car.

The detailer informed Gore that the car had been partially refinished; Gore later determined that the refinishing had been done because of acid rain damage to the car's paint finish sustained during transit between BMW AG's manufacturing plant in Germany and BMW NA's vehicle preparation center in Brunswick, Georgia. BMW NA, the American distributor of BMW automobiles, had adopted a company policy that it would not disclose any damage to a dealer or to a customer if the cost of repairing the damage was less than three percent of the manufacturer's suggested retail price (MSRP). The cost of refinishing Gore's automobile was $601, less than three percent of the MSRP; consequently, BMW NA did not disclose that the automobile had been refinished. The jury found that the damage devalued the car by $4,000 or about 10 percent of the price paid by Gore.

Upon his discovery that the automobile had been refinished, Gore sued German Auto, BMW AG, and BMW NA, alleging that the failure to disclose the refinishing constituted fraud, suppression of a material fact, and breach of contract. With respect to the BMW defendants, only the suppression claim was submitted to the jury. The jury returned a verdict against all three defendants for $4,000 in compensatory damages, and it assessed $4,000,000 in punitive damages against the BMW defendants jointly, based on a determination that the BMW defendants had been guilty of gross, malicious, intentional, and wanton fraud. The trial court entered a judgment on that verdict and subsequently denied post-judgment motions filed by the BMW defendants, after reviewing the verdict under the Hammond and Green Oil standards. The BMW defendants appealed.

I

First, we address the contentions of BMW AG. BMW AG is the German manufacturer of BMW automobiles, including Gore's 1990 BMW 535i. BMW AG does not sell automobiles directly to consumers. It sells automobiles in Germany to distributors, including BMW NA. The distributors then sell the automobiles to authorized BMW dealers, who in turn sell the automobiles to the ultimate consumers. BMW AG is a separate legal entity from BMW NA. BMW AG relinquishes all ownership, control, and liability for the automobiles it manufactures when it sells them to distributors such as BMW NA.

BMW AG argues that it is a foreign corporation, entirely separate from BMW NA, and that it lacks sufficient contacts with Alabama to allow Alabama courts to exercise personal jurisdiction over it. BMW AG also argues that Gore's automobile had become the property of BMW NA long before any refinishing or other repairs were performed.

It is undisputed that BMW AG did not know of BMW NA's three percent damage disclosure policy, and there was no evidence presented to show a legal relationship between BMW AG and BMW NA that would support a finding that BMW AG had such contacts with Alabama that it would be "fair and reasonable to require [BMW AG] to come to this state to defend [this] action." Rule 4.2(a)(2)(I), Ala.R.Civ.P. In Ex parte Pope Chevrolet, Inc., 555 So.2d 109 (Ala.1989), this Court discussed at length the tests to be applied when applying the provisions of Rule 4, and there adopted what could be called the "purposeful availment" and "stream of commerce" tests in applying the minimum contacts rule, following the principles stated in World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980).

Based on our examination of the applicable law, and in view of the particular facts and circumstances of this case, we find insufficient evidence to support a finding that BMW AG was the alter ego of BMW NA or that it knowingly and intentionally suppressed any fact upon which Gore's claim was based. We need not address whether BMW AG, if the facts were different, could be subject to suit in Alabama. We conclude, therefore, that BMW AG did not have such contacts with the State of Alabama that it would be fair and reasonable to require it to come to this state and defend against this particular action. The trial court should have granted BMW AG's motions to dismiss, for a directed verdict, and for a J.N.O.V. We, therefore, reverse the judgment as to BMW AG and enter a judgment for that defendant. ¹

II

We now consider the arguments of BMW NA. It first argues that there is no evidence, much less "clear and convincing evidence that [BMW NA] consciously or deliberately engaged in oppression, fraud, wantonness or malice with regard to the plaintiff," as required by Ala.Code 1975, § 6-11-20, to assess punitive damages. BMW NA contends that it presented substantial evidence of a good faith belief that refinished vehicles suffer no diminution in value. BMW NA also argues that the three percent standard for nondisclosure of defects is customary in the automobile manufacturing industry and that it adopted this standard so that it would be in compliance with various state laws defining what constitutes sufficient damage to a new vehicle that the manufacturer, distributor, or dealer would be obligated to disclose under the provisions of consumer protection laws.

Alabama had no such law at the time of the events giving rise to this action, but during its 1993 Regular Session, the Alabama Legislature enacted Act No. 93-203,...