BMW of North America, Inc. v. Gore

• Citation: 701 So.2d 507
• Parties: BMW OF NORTH AMERICA, INC. v. Ira GORE, Jr. 1920324.
• Decision Date: 09 May 1997
• Court: Supreme Court of Alabama

Page 507

701 So.2d 507

65 USLW 2800

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

1920324.

Supreme Court of Alabama.

May 9, 1997.

Rehearing Denied Aug. 15, 1997.

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, D.C.; 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 Automobile Manufacturers Association, Inc., and Association of International Automobile Manufacturers, Inc.

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

On Remand from the United States Supreme Court

PER CURIAM.

The United States Supreme Court has vacated our earlier judgment in this case and has remanded the cause for our further consideration in accordance with BMW of North America, Inc. v. Gore, 517 U.S. 559, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996).

The facts are set out in their entirety in BMW of North America, Inc. v. Gore, 646 So.2d 619 (Ala.1994), ¹ and we note them here only briefly: Dr. Ira Gore, the purchaser of a BMW automobile, sued BMW of North America, Inc. ("BMW"), alleging, among other things, that BMW and Bayerische Motoren Werke, A.G., the foreign manufacturer of the automobile, had fraudulently failed to disclose to him that the automobile he was purchasing had been repainted after being damaged by acid rain during its shipment from Germany. At trial, BMW admitted that the car had been damaged and that BMW had a nationwide policy not to advise its dealers of predelivery damage to new cars when the cost of repair did not exceed three percent (3%) of the car's suggested retail price. The jury returned a verdict for Gore, awarding him $4,000 in compensatory damages and $4 million in punitive damages. The trial court denied BMW's post-trial motion challenging the punitive damages award as excessive; however, on appeal, this Court determined that the $4 million award was excessive and ordered a reduction to $2 million. ² The United States Supreme Court granted BMW's petition for certiorari review.

The United States Supreme Court announced, for the first time and by a 5-4 vote, that a punitive damages award, even one that is the product of a fair trial, may be so large as to violate the Due Process Clause of the Fourteenth Amendment of the United States Constitution. The Supreme Court determined that, under the Due Process Clause, a defendant has the right to fair notice not only of the conduct that may subject him to punishment, but also of the severity of the penalty that a state may impose for such conduct. BMW, 517 U.S. at ----, 116 S.Ct. at 1598. The Supreme Court recognized that a state may impose punitive damages to further its legitimate interest in punishing misconduct and deterring a repetition of that conduct. 517 U.S. at ----, 116 S.Ct. at 1595. To that end, a state has flexibility in determining the level of punitive damages the state will allow in different classes of cases. Id. The Supreme Court held that an award of punitive damages enters "the zone of arbitrariness that violates the Due Process Clause only when that award can be fairly categorized as 'grossly excessive' " in relation to those legitimate interests. Id. The Supreme Court then set out the following three "guideposts" by which a reviewing court could determine whether a punitive damages award is constitutionally excessive: (1) the degree of reprehensibility of the defendant's conduct; (2) the ratio between the plaintiff's award of compensatory damages and the amount of the punitive damages; and (3) the difference between the punitive damages award and the civil or criminal sanctions that could be imposed for comparable misconduct. 517 U.S. at ----, 116 S.Ct. at 1599.

Charting its review by these guideposts, the Supreme Court found that BMW's action was not highly reprehensible and noted that BMW could have incurred only a mere $2,000 fine under Alabama consumer fraud law for its action. It also emphasized that the plaintiff, a successful medical doctor who was not "financially vulnerable," had suffered only $4,000 in purely economic damages. Id. Under these facts, the Supreme Court concluded that BMW could not have reasonably anticipated that its actions could incur a punitive damages award of $4 million or even a reduced award of $2 million; thus, the Supreme Court held, the award violated BMW's due process rights. The Supreme Court then remanded the case to this Court, for us to reassess the punitive damages award for excessiveness in view of its opinion.

We point out that, in providing three guideposts by which to review the excessiveness of a punitive damages award, the majority in BMW did not dismiss the review process already established by this Court in Hammond v. City of Gadsden, 493 So.2d 1374 (Ala.1986), and Green Oil Co. v. Hornsby, 539 So.2d 218 (Ala.1989), and upheld by the United States Supreme Court in Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991). Indeed, the first two "guideposts" are already included in a Hammond-Green Oil review; the first consideration of the review is the relationship of the amount of the punitive damages award to the harm that the defendant's action has caused or is likely to cause, and the second consideration is the degree of reprehensibility of the defendant's conduct.

Moreover, in his special concurrence in BMW, Justice Breyer discussed the Green Oil factors as a means of reasonable constraint upon arbitrary and fundamentally unfair punitive damages awards. Joined by Justices O'Connor and Souter, Justice Breyer specifically stated that the factors of the Hammond-Green Oil review may make up for the lack of significant statutory constraint against excessive punitive damages awards in Alabama. 517 U.S. at ----, 116 S.Ct. at 1605. It was not the Green Oil factors themselves, but this Court's application of them in this case that Justice Breyer found objectionable.

Thus, as we read the BMW opinion, the United States Supreme Court's guideposts are not intended to exclude judicial consideration of other factors that might bear on the question of excessiveness; this Court has considered other such factors for some years. We see the three guideposts as factors to be emphasized in a judicial review of a punitive damages award pursuant to Hammond, Green Oil, and Ala.Code 1975, § 6-11-23(b). In sum, the United States Supreme Court's BMW decision seems to hold that the presumption of validity Alabama extends to a jury verdict must yield to a more meaningful judicial review of that verdict when it is challenged by a tortfeasor as excessive.

I.

Until the United States Supreme Court released its decision in BMW, it was generally assumed that a statute stating that intentional fraud would subject a tortfeasor to such punitive damages as a jury might assess in a fair trial was sufficient notice of the severity of the punishment that might be inflicted. The Supreme Court held in BMW that "[e]lementary notions of fairness enshrined in our constitutional jurisprudence dictate that a person receive fair notice not only of the conduct that will subject him to punishment but also of the severity of the penalty that a State may impose." 517 U.S. at ----, 116 S.Ct. at 1598. The Supreme Court cited only criminal cases in support of this proposition and acknowledged that "[t]he strict constitutional safeguards afforded to criminal defendants are not applicable to civil cases." 517 U.S. at ---- n. 22, 116 S.Ct. at 1598 n. 22. However, the Court went on to state that "the basic protection against 'judgments without notice' afforded by the Due Process Clause, Shaffer v. Heitner, 433 U.S. 186, 217, 97 S.Ct. 2569, 2587, 53 L.Ed.2d 683 (1977) (Stevens, J., concurring in judgment), is implicated by civil penalties." 517 U.S. at ---- n. 22, 116 S.Ct. at 1598 n. 22 (emphasis original). The Court concluded that each of the three guideposts (the reprehensibility of BMW's conduct, the ratio of the punitive damages award to the compensatory damages award, and comparison with applicable civil and criminal sanctions) indicated to it that BMW did not receive adequate notice of the magnitude of the sanction that Alabama might impose on it for its misconduct.

The Supreme Court's decision in BMW now requires that state courts reviewing jury verdicts challenged as violating the federal Due Process Clause determine whether the tortfeasor had adequate notice that the conduct for which the jury found him liable could subject him to punishment. Due process also requires, and state courts must now determine, whether the tortfeasor had adequate notice of the severity of the penalty that might be imposed for the activity he engaged in.

Alabama, by statute, provides notice concerning the conduct that will subject one to punitive damages in this state. Ala.Code 1975, § 6-11-20, expressly sets forth and defines the acts, as well as the state of mind:

"(a) Punitive damages may not be awarded in any civil action, except civil actions for wrongful death pursuant to Sections 6-5-391 and 6-5-410, other than in a tort action where it is proven by clear and...