Owens-Corning Fiberglas Corp. v. Malone

• Decision Date: 25 August 1998
• Docket Number: OWENS-CORNING,Nos. 96-0287,96-0512,s. 96-0287
• Citation: 972 S.W.2d 35
• Parties: Prod.Liab.Rep. (CCH) P 15,274, 41 Tex. Sup. Ct. J. 877 FIBERGLAS CORPORATION, Petitioner, v. Roy MALONE et al., Respondents.FIBERGLAS CORPORATION, Petitioner, v. Barbara WASIAK, et al., Respondents.
• Court: Texas Supreme Court

Page 35

972 S.W.2d 35

Prod.Liab.Rep. (CCH) P 15,274, 41 Tex. Sup. Ct. J. 877

OWENS-CORNING FIBERGLAS CORPORATION, Petitioner, v. Roy MALONE et al., Respondents.

OWENS-CORNING FIBERGLAS CORPORATION, Petitioner, v. Barbara WASIAK, et al., Respondents.

Nos. 96-0287, 96-0512.

Supreme Court of Texas.

Argued Nov. 21, 1996.

Decided June 5, 1998.

Rehearing Overruled Aug. 25, 1998.

Larry L. Simms, Mark A. Perry, Washington, DC, Kevin F. Risley, Houston, for Petitioner in No. 96-0287.

Kevin F. Risley, N. Terry Adams, Jr., Houston, Larry L. Simms, Mark A. Perry, Washington, DC, for Petitioners in No. 96-0512.

David M. Gunn, Lawrence Madeksho, Robert E. Ballard, Houston, for Respondents in No. 96-0287.

Brent M. Rosenthal, Russell W. Budd, Janice Pennington, Dallas, for Respondents in No. 96-0512.

BAKER, Justice, delivered the opinion of the Court in which GONZALEZ, SPECTOR, ABBOTT and HANKINSON, Justices, join, and in which PHILLPS, Chief Justice, and ENOCH, Justice, join in all but part II.B.1.

We granted applications for writ of error in these product liability cases to consider two issues. First, in Owens-Corning Fiberglas Corporation v. Malone, we consider what evidence, beyond a defendant's net worth, is relevant and admissible when a defendant offers the evidence to mitigate punitive damages. Second, in Owens-Corning Fiberglas Corporation v. Wasiak, we consider whether the trial court's punitive damage awards, either in this case alone or when aggregated with previous punitive damages awards for the same course of conduct, violate the Fourteenth Amendment's Due Process Clause.

We hold in Malone that evidence about the profitability of a defendant's misconduct and previously paid punitive damage awards or previously paid settlement amounts for punitive damages for the same course of conduct is relevant and may be admitted when a defendant offers it to mitigate punitive damages. We nevertheless conclude that the trial court's error, if any, in excluding this evidence was harmless. We conclude in Wasiak that neither the punitive damage awards, in this case alone or when aggregated with other punitive damages OCF has previously paid for the same wrongful conduct, violate the Fourteenth Amendment's Due Process Clause. For the reasons set forth below, we affirm the courts of appeals' judgments.

I. BACKGROUND

Malone involves three consolidated suits for injuries allegedly caused by asbestos-containing products that OCF produced or marketed. The parties tried Malone under Texas substantive law. Based on the jury's verdict, the trial court rendered judgment for the plaintiffs for $3.03 million total actual damages and $1.5 million total punitive damages. The court of appeals affirmed the trial court's judgment. 916 S.W.2d 551.

Wasiak involves four consolidated asbestos cases against OCF. In two cases, the decedents died of mesothelioma, a cancer related to asbestos exposure. In the other two cases, the plaintiffs were diagnosed with asbestosis, a scarring of the lungs caused by exposure to asbestos. The parties tried Wasiak under Alabama substantive law. After reducing the jury's verdict to reflect settlement credits from settling defendants, the trial court rendered judgment for the plaintiffs for about $1.6 million total actual damages and about $3.7 million total punitive damages. The court of appeals affirmed the trial court's judgment. 917 S.W.2d 883.

II. OCF v. Malone

A. OCF'S EVIDENCE IN MITIGATION OF PUNITIVE DAMAGES

In an attempt to introduce mitigating evidence for the jury's consideration, OCF offered evidence from Peter Frank, a certified public accountant, about how much profit it earned from sales of Kaylo (an asbestos-containing insulation product), the adverse economic impact asbestos litigation has had on OCF, its past and future insurance coverage, OCF's out-of-pocket litigation costs, and the total amount of punitive damages awarded against OCF in asbestos litigation. After the trial court decided, over the plaintiffs' objections ¹, that it would only allow Frank to testify about OCF's current net worth, OCF made an offer of proof for a bill of exception. For its offer of proof, OCF tendered the transcript of Frank's previous testimony and certain exhibits, that OCF stated that Frank would use if he were allowed to testify about matters beyond OCF's net worth. The thrust of Frank's prior testimony and accompanying exhibits about punitive damages against OCF was that "enough is enough." The court of appeals held that the trial court did not abuse its discretion when it sustained, in part, the plaintiffs' objections and excluded all but the net worth evidence.

Frank's prior testimony reflects that: OCF had received about 186,000 Kaylo-related asbestos claims; that about 62,000 of those claims were unresolved; that in 1992 alone, OCF received 27,000 claims, the highest annual number yet; that claims were resolved for about $10,000 on average; that OCF's net profit ² from Kaylo sales totaled about $1.5 million; that OCF's total costs to date due to Kaylo litigation exceeded $1 billion; that these costs have been covered, predominantly, by insurance; that $540 million to $675 million in available insurance remained for unresolved pending and future claims; that OCF's out-of-pocket costs to date for indemnity payments to plaintiffs and litigation expenses was about $20 million; that OCF's financial statements disclosed a $950 million accounting reserve to pay future uninsured Kaylo-related claims; that OCF predicted it would be able to fund this reserve with future earnings; that future unreserved and uninsured costs arising out of asbestos claims would not have a material adverse effect on OCF's financial position; that OCF was solvent, but had a negative net worth; that the original cause of OCF's negative net worth was fending off a hostile takeover bid by the Wicks Corporation; and that, if OCF's earnings trend continued, OCF could work out its negative net worth posture over the next fifteen years.

The Frank transcript does not include testimony about prior punitive damage awards against OCF. Instead, OCF offered an affidavit with attached exhibits from Robert McOmber, a former OCF lawyer, that included this information. OCF offered the McOmber affidavit with attached exhibits (cumulatively "the McOmber affidavit") along with the Frank transcript as its complete offer of proof. In its briefing, OCF asserts that if the trial court had allowed Frank to testify about matters beyond net worth, Frank's testimony, including the McOmber affidavit, would have established that twenty-eight prior Kaylo-related punitive damage judgments totaling $51,710,200 had been awarded against OCF. However, the "enough is enough" evidence shows, and OCF's counsel conceded in oral argument before this Court, that OCF has only paid about $3 million in punitive damages for Kaylo-related claims.

OCF argues that the excluded evidence is relevant to the punitive damages determination consistent with the purposes of punishment and deterrence. OCF also argues that the excluded evidence is relevant to the factors that the trial court instructed the jury to consider in determining punitive damages: (1) the nature of the wrong; (2) the character of the conduct involved; (3) the culpability of the wrongdoer; (4) the situation and sensibilities of the parties; and (5) the extent to which the defendant's conduct offends the public's sense of justice and propriety. See Alamo Nat'l Bank v. Kraus, 616 S.W.2d 908, 910 (Tex.1981)(the Kraus factors); see also TEX. CIV. PRAC. & REM.CODE § 41.011(statutory adoption of Kraus factors for trier of fact's consideration).

B. APPLICABLE LAW AND STANDARD OF REVIEW

1. Admissibility of Evidence in Mitigation of Punitive Damages

Punitive damages are not designed or intended to compensate or enrich individual victims. See Transportation Ins. Co. v. Moriel, 879 S.W.2d 10, 16 (Tex.1994); see also BMW of North America, Inc. v. Gore, 517 U.S. 559, 568, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996). Instead, the purpose of punitive damages is to punish a party for its "outrageous, malicious, or otherwise morally culpable conduct" and to deter it and others from committing the same or similar acts in the future. See Moriel, 879 S.W.2d at 16-17; Lunsford v. Morris, 746 S.W.2d 471, 471-72 (Tex.1988).

We have approved the Kraus factors as instructions for juries about punitive damages. See George Grubbs Enters., Inc. v. Bien, 900 S.W.2d 337, 338 (Tex.1995). Moreover, although we have never considered what type of evidence is admissible to mitigate punitive damages, we have recognized that a "defendant's 'ability to pay' bears directly on the question of adequate punishment and deterrence." See Lunsford, 746 S.W.2d at 472; see also Wal-Mart Stores, Inc. v. Alexander, 868 S.W.2d 322, 329 (Tex.1993)(Gonzalez, J., concurring)(contending that jury should hear net worth evidence "plus any other evidence" relevant to the amount of punitive damages).

Other courts have held that factors about a party's financial situation beyond net worth are relevant to the punitive damages amount necessary to satisfy the purposes of punitive damages. See, e.g., Viking Ins. Co. v. Jester, 310 Ark. 317, 836 S.W.2d 371, 379 (1992)(holding that jury may consider defendant's "financial condition" when assessing punitive damages); Stevens v. Owens-Corning Fiberglas Corp., 49 Cal.App.4th 1645, 57 Cal.Rptr.2d 525, 536-37 (1996)(holding that defendant may inform the jury about other punitive damages awards for the same conduct, but the impact of those awards can only be measured if the awards have actually been paid); W.R. Grace & Co.--Conn. v. Waters, 638 So.2d 502, 506 (Fla.1994)(allowing defendant to introduce evidence about previous punitive damage awards in second stage of bifurcated trial); Spaur v. Owens-Corning Fiberglas Corp., 510 N.W.2d 854, 868 (Iowa 1994)(allowing for consideration of past awards actually paid by defendant...