Burton v. R.J. Reynolds Tobacco Co.

• Decision Date: 09 February 2005
• Docket Number: No. 02-3262.,02-3262.
• Citation: 397 F.3d 906
• Parties: David BURTON, Plaintiff-Appellee, v. R.J. REYNOLDS TOBACCO COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

397 F.3d 906

David BURTON, Plaintiff-Appellee, v. R.J. REYNOLDS TOBACCO COMPANY, Defendant-Appellant.

No. 02-3262.

United States Court of Appeals, Tenth Circuit.

February 9, 2005.

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Robert H. Klonoff, Jones Day, Washington, D.C. (Paul R. Reichert, Jones Day, Washington, D.C., and M. Warren McCamish, Williamson & Cubbison, Kansas City, KS, and Sydney McDole and Catherine L. Bjorck, Jones Day, Dallas, TX, with him on the briefs) for Defendant-Appellant.

Kenneth B. McClain (Donald H. Loudon, Jr., and Scott B. Hall, with him on the brief), Humphrey Farrington & McClain, P.C., Independence, MO, for Plaintiff-Appellee.

Before EBEL, McKAY, and LUCERO, Circuit Judges.

LUCERO, Circuit Judge.

David Burton ("Burton") sued R.J. Reynolds Tobacco Co. ("Reynolds") alleging that it caused the loss of his legs by fraudulently concealing, failing to warn of, and failing to test for the dangers of cigarette smoking. After a thirteen day trial, the jury found in Burton's favor on three of his claims for relief, authorized punitive damages, and awarded Burton $196,416 in compensatory damages. Subsequently, the court awarded Burton $15 million in punitive damages. Reynolds appeals the jury verdict and award of compensatory and punitive damages. We exercise jurisdiction pursuant to 28 U.S.C. § 1291, and REVERSE the jury's verdict on liability in part, REVERSE the dependent award of punitive damages, and AFFIRM other aspects of the judgment.

I

In 1950, around the same time he quit high school to help support his mother, brothers, and sisters, plaintiff David Burton began to smoke Camel and Lucky Strike cigarettes. He was 14 or 15 years old. For the next 43 years, Burton continued to smoke because, as he explained, he enjoyed the taste. Burton did not go to physicians for check-ups and claimed to have never been sick. It was not until the summer of 1993, when Burton began to develop problems walking due to poor circulation, that he went to see a physician. His treating physician informed him that his circulation problems were caused by his cigarette smoking and advised him to "stop smoking or his legs were going to rot off." Doubting whether cigarettes were causing his leg problems, Burton sought two other medical opinions, both of which confirmed the initial diagnosis. The third doctor recommended vascular bypass surgery in order to resolve his circulatory problems. In the meantime, despite his doctors' warnings, he did not initially attempt to quit smoking. In the fall of 1993, Burton underwent the recommended bypass surgery, which was unsuccessful, and shortly thereafter both of his legs were amputated below the knee. He stopped smoking while he was admitted to the hospital but started again after he was discharged. Burton finally quit smoking when, as he recounts, his physician warned him: "If it took your legs, it will take your arms."

Following the amputation of his legs, Burton brought this products liability action in 1994 against Defendants, Reynolds, the manufacturer of Camel cigarettes, and The American Tobacco Co. ("American"), the manufacturer of Lucky Strike cigarettes. Basing his complaint on the fact that he had been addicted to cigarettes and that cigarette smoking caused his peripheral vascular disease ("PVD"), he alleged numerous claims under Kansas law, including defective design, negligent failure to warn, negligent failure to test, breach of express warranty, fraudulent concealment, conspiracy to conceal, and fraudulent misrepresentation.

In 1995, the district court granted defendants' joint motion for summary judgment in part, and dismissed Burton's fraudulent misrepresentation and breach of express warranty claims. Burton v. R.J. Reynolds Tobacco Co., 884 F.Supp. 1515, 1527-28 (D.Kan.1995). The court also dismissed any claims based on a post-1969 failure to warn as preempted by the Public Health Cigarette Smoking Act of 1969 ("1969 Act"). 15 U.S.C. §§ 1331-1340; Burton, 884 F.Supp. at 1521.

Proceeding to trial on the remaining claims in 2002, a jury returned a verdict for Burton on his fraudulent concealment, pre-1969 negligent failure to warn, and negligent failure to test claims. Burton v. R.J. Reynolds Tobacco Co., 205 F.Supp.2d 1253, 1255 (D.Kan.2002).

In awarding compensatory damages in the amount of $196,416 against Reynolds and $1,984 against American, the jury also authorized an award of punitive damages against Reynolds based on Burton's fraudulent concealment claim. Id. Pursuant to this authorization, the district court awarded Burton punitive damages in the amount of $15 million. Id. Defendants' motion for judgment as a matter of law and, in the alternative, for a new trial, having been denied, Burton v. R.J. Reynolds Tobacco Co., 208 F.Supp.2d 1187, 1214 (D.Kan.2002), Reynolds now appeals.

II

With regard to the jury's verdict on Burton's fraudulent concealment claim, Burton v. R.J. Reynolds Tobacco Co., 205 F.Supp.2d 1253, 1255 (D.Kan.2002), Reynolds argues, first, that Kansas courts would not recognize a claim for fraudulent concealment under the facts of this case, and, second, that the verdict is not supported by sufficient evidence. Because we agree with Reynolds' first contention, we need not address the second.

A

We review a district court's interpretation of state law de novo. Blackhawk-Cent. City Sanitation Dist. v. Am. Guar. & Liab. Ins. Co., 214 F.3d 1183, 1188 (10th Cir.2000). Under Kansas law, to establish fraudulent concealment, or "fraud by silence," the plaintiff must prove by clear and convincing evidence that: (1) the defendant had knowledge of material information the plaintiff did not have and could not have discovered through the exercise of reasonable diligence; (2) the defendant had a duty to communicate that information to the plaintiff; (3) the defendant deliberately failed to communicate the information to the plaintiff; (4) the plaintiff justifiably relied on the defendant to communicate the information; and (5) the plaintiff was injured by the defendant's failure to communicate the information. Miller v. Sloan, Listrom, Eisenbarth, Sloan & Glassman, 267 Kan. 245, 978 P.2d 922, 932 (1999).

Not every nondisclosure is a fraudulent concealment. Robinson v. Shah, 23 Kan.App.2d 812, 936 P.2d 784, 790 (1997). Nondisclosure becomes fraudulent only when it violates a duty to disclose. See id. "A party has a duty to disclose material facts if the party knows that the other is about to enter into the transaction under mistake as to such facts, and that the other, because of the relationship between them ... would reasonably expect disclosure of such facts." OMI Holdings, Inc. v. Howell, 260 Kan. 305, 918 P.2d 1274, 1300-01 (1996). Such relationships giving rise to the duty to disclose may include certain kinds of disparate contractual relationships, as well as fiduciary relationships. See DuShane v. Union Nat'l Bank, 223 Kan. 755, 576 P.2d 674, 679 (1978) (holding that a duty to disclose may arise "between two contracting parties when there is a disparity of bargaining powers or of expertise," or "[i]f the parties to a bargain are in a fiduciary relationship to one another"); Flight Concepts Ltd. P'ship v. Boeing Co., 38 F.3d 1152, 1158 (10th Cir.1994) ("The duty to disclose arises under Kansas law when there is a fiduciary relationship which may be created by contract or may arise from the relationship of the parties.").

Burton does not suggest that Reynolds was bound by a contractual relationship creating a fiduciary duty, but does argue that Reynolds owed him a fiduciary duty nonetheless. Kansas courts have identified the following principles to consider in determining whether a non-contractual fiduciary relationship exists:

A fiduciary relationship imparts a position of peculiar confidence placed by one individual in another. A fiduciary is a person with a duty to act primarily for the benefit of another. A fiduciary is in a position to have and exercise, and does have and exercise influence over another. A fiduciary relationship implies a condition of superiority of one of the parties over the other. Generally, in a fiduciary relationship, the property, interest or authority of the other is placed in the charge of the fiduciary.

Denison State Bank v. Madeira, 230 Kan. 684, 640 P.2d 1235, 1241 (1982) (emphasis added). Cautioning against an approach to fiduciary relationships that would "convert ordinary day-to-day business transactions into fiduciary relationships where none were intended or anticipated," id. at 1243, Kansas courts have warned that: "one may not abandon all caution and responsibility for his own protection and unilaterally impose a fiduciary relationship on another without a conscious assumption of such duties by the one sought to be held liable as a fiduciary." Id. at 1243-44 (holding no fiduciary relationship existed between bank and debtor). Moreover, we have noted that under Kansas law a fiduciary duty must be consciously assumed. Rajala v. Allied Corp., 919 F.2d 610, 615 (10th Cir.1990) (applying Kansas law).

Because no Kansas authority has determined whether an ordinary consumer transaction for the sale of a product creates a fiduciary relationship between the product manufacturer and the consumer, we must determine how Kansas courts would decide the issue. See United States v. DeGasso, 369 F.3d 1139, 1145-46 (10th Cir.2004) (federal courts predict state court interpretations in light of state appellate court opinions, decisions from other jurisdictions, statutes, and treatises). Applying Kansas law, however, a federal district court has stated:

A buyer/seller relationship does not create a fiduciary duty because the parties are dealing at arm's length and seeking for themselves the best advantage.... Since it almost goes without saying that the seller of a product will likely know more about its features and capabilities than would the buyer, this superior knowledge is hardly a...