DeMendoza v. Huffman

• Citation: 51 P.3d 1232,334 Or. 425,334 Ore. 425
• Parties: Frank Leon DeMENDOZA and Javier Mendoza, Plaintiffs, v. Bruce HUFFMAN, William Huffman, and Evelene Huffman, Defendants, and State of Oregon, Intervenor-Defendant.
• Decision Date: 08 August 2002
• Court: Supreme Court of Oregon

51 P.3d 1232

334 Or. 425

334 Ore. 425

Frank Leon DeMENDOZA and Javier Mendoza, Plaintiffs, v. Bruce HUFFMAN, William Huffman, and Evelene Huffman, Defendants, and State of Oregon, Intervenor-Defendant.

(CV 95-3071-PA; SC S48430).

Supreme Court of Oregon, En Banc.

Argued and Submitted January 16, 2002.

Decided August 8, 2002.

Kathryn H. Clarke, Portland, argued the cause and filed the brief for plaintiffs. With her on the brief was David V. Gilstrap, of Davis, Gilstrap, Hearn, Shaw, & Saladoff, Ashland.

No appearance for defendants.

Mary H. Williams, Assistant Solicitor General, Salem, argued the cause and filed the brief for intervenor-defendant. With her on the brief were Hardy Myers, Attorney General, Michael D. Reynolds, Solicitor General, and Julie A. Smith, Assistant Attorney General.

Charles J. Merten, Beaverton, filed the brief for amicus curiae Oregon Trial Lawyers Association.

Elizabeth A. Earls, of Associated Oregon Industries, Salem, filed the brief for amicus curiae Associated Oregon Industries.

BALMER, J.

This case is before the court on certified questions of Oregon law from the United States District Court for the District of Oregon under ORS 28.200 et seq. and ORAP 12.20. See generally Western Helicopter Services v. Rogerson Aircraft, 311 Or. 361, 811 P.2d 627 (1991) (discussing factors court considers in exercising discretion to accept certified questions). The certified questions ask whether ORS 18.540,¹ which allocates 60-percent of each punitive damages award in Oregon to the state's Criminal Injuries Compensation Account, violates specified provisions of the state constitution. For the reasons that follow, we conclude that it does not.

We take the facts from the District Court certification order. A jury assessed punitive damages against defendants in the amount of $550,000 for the wrongful use of civil proceedings and fraudulent transfer of real property. The Ninth Circuit affirmed the jury's decision. DeMendoza v. Huffman, 1 Fed.Appx. 665 (9th Cir.2001) (unpublished opinion). Defendants have abandoned further appeal, and the only issue remaining is the proper distribution of the punitive damages award.

On April 9, 2001, the District Court granted the state's motion to intervene as a judgment creditor to assert the state's claim under ORS 18.540 to a portion of the punitive damages award. Plaintiffs then challenged the constitutionality of ORS 18.540 on multiple grounds, arguing that they were entitled to the entire award. Because Oregon appellate courts have not previously decided whether, by allocating to the state a 60 percent share in punitive damage awards, ORS 18.540 violates provisions of the state constitution, the District Court certified to this court the following five questions:

"1. Does ORS 18.540 violate Article I, section 18, of the Oregon Constitution?

"2. Does ORS 18.540 violate Article IV, section 18, and Article IX, sections 1 and 3, of the Oregon Constitution?

"3. Does ORS 18.540 violate the right to jury trial protected by Article I, section 17, and Article VII (Amended), section 3, of the Oregon Constitution?

"4. Does ORS 18.540 violate the `remedy' or `justice' clauses of Article I, section 10, of the Oregon Constitution?

"5. Does ORS 18.540 violate the separation of powers doctrine protected by Article III, section 1, and Article VII (Amended), section 1, of the Oregon Constitution?"

We accepted certification of those questions and, because the case involved state law claims that were tried in federal court under that court's diversity jurisdiction, we added an initial question of law:

"Did the Oregon legislature contemplate the application of ORS 18.540 in federal cases arising under state law?"

See Western Helicopter Services, 311 Or. at 370-71, 811 P.2d 627 (court has discretion to reframe questions presented). We begin with that threshold question.

I.

Since 1987, Oregon statutes have directed that a portion of any punitive damages award be paid into a state fund for victims of crime. See Or. Laws 1987, ch. 774, § 3 (creating state fund). Codified at ORS 18.540, the legislature has amended that so-called "split-recovery" statute several times, most recently in 1997. See Or. Laws 1997, ch. 73, § 1. Plaintiffs filed their complaint on September 25, 1995. At that time, ORS 18.540 provided:

"(1) Upon the entry of a verdict including an award of punitive damages, the Department of Justice shall become a judgment creditor as to the punitive damages portion of the award to which the Criminal Injuries Compensation Account is entitled pursuant to paragraph (b) of this subsection, and the punitive damage portion of an award shall be allocated as follows:

"(a) Forty percent shall be paid to the prevailing party. The attorney for the prevailing party shall be paid out of the amount allocated under this paragraph, in the amount agreed upon between the attorney and the prevailing party. However, in no event may more than 20 percent of the amount awarded as punitive damages be paid to the attorney for the prevailing party.

"(b) Sixty percent shall be paid to the Criminal Injuries Compensation Account to be used for the purposes set forth in ORS chapter 147. However, if the prevailing party is a public entity, the amount otherwise payable to the Criminal Injuries Compensation Account shall be paid to the general fund of the public entity.

"(2) The party preparing the proposed judgment shall assure that the judgment identifies the judgment creditors specified in subsection (1) of this section.

"(3) Upon the entry of a verdict including an award of punitive damages, the prevailing party shall provide notice of the judgment to the Department of Justice. The notice shall be in writing and shall be delivered to the Department of Justice within five days after the entry of the verdict.

"(4) Whenever a judgment includes both compensatory and punitive damages, any payment on the judgment by or on behalf of any defendant, whether voluntary or by execution or otherwise, shall be applied first to compensatory damages, costs and court-awarded attorney fees awarded against that defendant and then to punitive damages awarded against that defendant unless all affected parties, including the Department of Justice, expressly agree otherwise, or unless that application is contrary to the express terms of the judgment.

"(5) Whenever any judgment creditor of a judgment which includes punitive damages governed by this section receives any payment on the judgment by or on behalf of any defendant, the judgment creditor receiving the payment shall notify the attorney for the other judgment creditors and all sums collected shall be applied as required by subsections (1) and (4) of this section, unless all affected parties, including the Department of Justice, expressly agree otherwise, or unless that application is contrary to the express terms of the judgment."

As noted, we first must determine whether the Oregon legislature contemplated that ORS 18.540 would apply in federal cases arising under state law. In that regard, plaintiffs emphasize that the statute specifies, in part, a procedure by which the state is "identified" as a judgment creditor. See ORS 18.540(2). Federal courts follow their own procedures, which do not similarly provide for the identification of judgment creditors. See In re Stein, 236 B.R. 34, 37 (D.Or. 1999) (so stating). Therefore, plaintiffs argue, the legislature did not intend ORS 18.540 to apply in federal courts, because the application of that statute would impose a state rule of procedure upon federal courts in violation of the Supremacy Clause of the federal constitution. See U.S. Const, Art VI, cl 2; Finley v. Empiregas Inc. of Potosi, 28 F.3d 782, 785 n. 7 (8th Cir.1994) (refusing to enforce, as violation of Supremacy Clause, state procedure requiring court clerks to notify state of final judgment awarding punitive damages, when no "parallel provision" existed in federal rules of procedure).

As further support for their position, plaintiffs note that the text of ORS 18.540 indicates that the split-recovery provision would not apply to all punitive damage awards; rather, it would apply only to "punitive damages governed by this section." ORS 18.540(5) (emphasis added). According to plaintiffs, that statement is evidence that the legislature contemplated that some punitive damages awards—including, plaintiffs argue, those determined in federal courts—are to be excluded from the requirements of ORS 18.540.

The state, in response, concedes that subsection (2) of ORS 18.540 specifies a procedure and that federal courts generally have been unwilling to adopt it. See, e.g., Stein, 236 B.R. at 37 (noting that ORS 18.540(2) does not require federal courts to identify state as judgment creditor, because that provision "is procedural and does not apply to federal court judgments"). However, the state contends that the legislature nonetheless intended that other provisions of ORS 18.540 would apply in federal cases arising under state law, including the provisions that establish the state's substantive right to 60 percent of all punitive damages awards.

We agree with the state. Contrary to plaintiffs' assertions, the legislature's intent with respect to ORS 18.540 as substantive law cannot be determined from the possibility that procedural aspects of the statute may be inapplicable in federal court. ORS 18.540 unambiguously creates in the state a substantive right as a judgment creditor to 60 percent of any punitive damages award. That right exists whether or not a federal court lists the state as a judgment creditor under ORS 18.540(2), and, indeed, the state may enforce its right by other means.² For example, in this case, as in others, the Oregon federal district court has recognized the state's ability to intervene under FRCP 24³ to enforce its substantive rights under ORS 18.540. See Stein, 236 B.R. at 37 (noting that state may become judgment creditor...