Sand Hill Energy, Inc. v. Smith
| Decision Date | 26 August 2004 |
| Docket Number | No. 2000-SC-0444-DG.,No. 1999-SC-1028-DG.,No. 1999-SC-1029-DG.,2000-SC-0444-DG.,1999-SC-1028-DG.,1999-SC-1029-DG. |
| Citation | 142 S.W.3d 153 |
| Parties | SAND HILL ENERGY, INC., Appellant, v. Brenda SMITH, Administratrix of the Estate of Tommy Smith; and Ford Motor Company, Appellees, and Brenda Smith, Administratrix of the Estate of Tommy Smith, Appellant, v. Sand Hill Energy, Inc.; and Ford Motor Company, Appellees, and Ford Motor Company; and Mid-East Ford Mercury, Inc., Appellants, v. Brenda Smith, Administratrix of the Estate of Tommy Smith; and Sand Hill Energy, Inc., Appellees. |
| Court | United States State Supreme Court — District of Kentucky |
Appeal from the Supreme Court, Lambert, C.J.
Clint Harris, Manchester, Counsel for Sand Hill Energy, Inc.
Rickey D. Bailey, Mary Latta Lee, R. Scott Madden, Manchester, Ned Miltenberg, Center for Constitutional Litigation, P.C., Washington, D.C., Roy Glenn Collins, McKinnley Morgan, Manchester, Sharon K. Allen, McKee, Counsel for Brenda Smith, Administratrix of the Estate of Tommy Smith.
John A. Rogovin, Brian P. Brooks, Jonathan D. Hacker, Walter E. Dellinger, III, Matthew M. Shores, O'Melveny & Myers, Washington, D.C., B. Todd Thompson, Sallie Jacobs Stevens, R. Thaddeus Keal, Thompson, Miller & Simpson, P.L.C., Louisville, Amy Crosland Sullivan, Arlington, VA, Counsel for Ford Motor Company.
John A. Rogovin, Brian P. Brooks, O'Melveny & Meyers, Washington, D.C., B. Todd Thompson, Thompson, Miller & Simpson, Louisville, Amy Crosland Sullivan, Arlington, VA, Counsel for Mid-East Ford Mercury, Inc.
Virginia Hamilton Snell, Wyatt, Tarrant & Combs, Louisville, Evan M. Tager, Mayer, Brown & Platt, Washington, D.C., Hugh F. Young, Jr., Product Liability Advisory Council, Inc., Reston, VA, Jay C. Johnson, Mayer, Brown, Rowe & Maw, Robin S. Conrad, National Chamber Litigation Center, Inc., Washington, D.C., Counsel for Amicus Curiae, Product Liability Advisory Council, Inc.
Bridget H. Papalia, Brown, Todd & Heyburn, Louisville, Henry P. Sorett, Cynthia D. Craig, Brickley, Sears & Sorett, Boston, MA, Counsel for Amicus Curiae, Equitable Resources, Inc.
Bridget H. Papalia, Brown, Todd & Heyburn, Louisville, Henry P. Sorett, Cynthia D. Craig, Brickley, Sears & Sorett, Boston, MA, Counsel for Amicus Curiae, Equitable Production Company.
Bridget H. Papalia, Brown, Todd & Heyburn, Louisville, Counsel for Amicus Curiae, Associated Industries of Kentucky.
Bridget H. Papalia, Brown, Todd & Heyburn, Louisville, Counsel for Amicus Curiae, Kentucky Oil and Gas Association.
In a 4-3 plurality decision in Sand Hill Energy, Inc. v. Ford Motor Company,1 this Court reversed a decision of the Court of Appeals and reinstated a $3 million compensatory award and $15 million of the original $20 million punitive damages award in this wrongful death action. When Sand Hill I became final, Ford Motor Company ("Ford") filed a petition for a writ of certiorari before the United States Supreme Court, arguing that the $15 million punitive damages award was unconstitutional. While Ford's petition was pending, the United States Supreme Court decided State Farm Mutual Insurance Co. v. Campbell,2 in which it invalidated a $145 million punitive damages award in a Utah case involving bad faith and fraud in the context of an insurance settlement. Thereafter, the United States Supreme Court granted Ford's petition for certiorari, vacated Sand Hill I, and remanded the matter to this Court "for further consideration in light of" State Farm. Because Ford's petition for certiorari addressed only the constitutionality of the punitive damages award, Ford has since paid the full value of the compensatory damages award, with interest—a total amount of $5,596,425.00—and the parties agree that the only issue remaining before the Court is the viability of the $20 million punitive damages award.
After reviewing State Farm and the evidence of the defendant's out-of-state conduct presented to the jury in Sand Hill, we vacate the punitive damages award and remand the case for a new determination of the amount of punitive damages because the trial court's jury instructions failed to include a limiting instruction concerning extraterritorial punishment.
In State Farm, the plaintiffs pursued punitive damages in their bad faith claim on the basis that the insurance company employed a scheme to cap payouts on the company's claims. To prove this scheme the plaintiffs presented testimony about State Farm's fraudulent practices occurring nationwide. The trial court determined that such evidence was admissible for the determination of whether State Farm's conduct was reprehensible. After deliberation, the jury returned a punitive damages award of $145 million against State Farm.
The United States Supreme Court ("Supreme Court") granted State Farm's petition for certiorari, reversed the decision of the Supreme Court of Utah, which had reinstated the punitive damages award, and remanded the case for further proceedings with regard to punitive damages. Citing its previous decisions in Cooper Industries, Inc. v. Leatherman Tool Group, Inc.,3 BMW of North America, Inc. v. Gore,4 TXO Production Corp. v. Alliance Resources Corp.,5 and Pacific Mutual Life Insurance Company v. Haslip,6 the Supreme Court stated that although the States "possess discretion over the imposition of punitive damages, ... the Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary punishments."7 The Supreme Court held that the punitive damages award in State Farm violated the Due Process Clause of the Fourteenth Amendment as it was grossly excessive and expressed particular concern over the evidence of State Farm's out-of-state/extraterritorial conduct:
Lawful out-of-state conduct may be probative when it demonstrates the deliberateness and culpability of the defendant's action in the state where it is tortious, but that conduct must have a nexus to the specific harm suffered by the plaintiff. A jury must be instructed, furthermore, that it may not use evidence of out-of-state conduct to punish a defendant for action that was lawful in the jurisdiction where it occurred.8
In the Supreme Court's opinion, the conduct upon which the punitive damages award was based bore no relation to the plaintiffs' harm, which resulted in the 9 instead of being used to condemn State Farm for its conduct towards the plaintiffs.
The Supreme Court held that the punitive damages award was unreasonable and irrational and remanded the case for further proceedings with appropriate instructions.
Similar to what occurred in State Farm, the jury in Sand Hill considered Ford Motor Company's conduct on a nationwide scale in arriving at the punitive damages award of $20 million. The jury heard testimony regarding the number of vehicles sold nationwide that contained the "defective" transmission (6.5-7 million), the number of reports nationwide of similar incidents of inadvertent shifts from "park" to "reverse" (by 1980 the count was 23,000), and the number of individuals who were killed by such incidents nationwide (hundreds). Counsel for the plaintiff advised the jury in closing that "we have to make them pay" and proceeded to discuss the number of "defective" Ford transmissions that were "on the road." It is clear that the jury was encouraged to punish Ford for its conduct throughout the country.
In applying the analysis set forth in State Farm, we find that the nexus between the conduct and the specific harm to the plaintiff in Sand Hill is evident from the fact that the incidents were of a similar nature. While the jury may evaluate those incidents in determining Ford's culpability, a new trial on the amount of punitive damages is required since the jury instructions contained no limitations on extraterritorial punishment.
One important question that this Court must answer before remanding the case is whether Ford fairly and adequately presented its position regarding extraterritoriality to the trial court via its four (4) page proposed punitive damage instruction.
On remand from the United States Supreme Court, Ford's Supplemental Brief contains passing comments upon the overall constitutional inadequacy of the punitive damages instructions. However, the only instructional error that Ford pursues in support of relief concerns the trial court's failure to instruct the jury that it could not punish Ford for its conduct outside the Commonwealth of Kentucky. Ford made this same argument in its earlier brief in the case. The punitive damages instruction that the trial court gave to the jury provided as follows:
You have found for the Estate of Tommy Smith against Ford Motor Company and determined that the Estate was entitled to a sum or sums of money for compensatory damages. If you are further satisfied from the evidence that Ford Motor Company acted toward Tommy Smith with malice, you may in your discretion award punitive damages against Ford Motor Company in addition to the damages you have already awarded. The plaintiff must prove malice with clear and convincing evidence, and you may consider the evidence introduced in the first phase of this trial as well as the second phase of this trial.
As used in this instruction:
(a) malice means either conduct which is specifically intended by Ford Motor Company to cause tangible or intangible injury to the plaintiff or
(b) conduct that is carried out by Ford Motor Company both with a flagrant indifference to the rights of the plaintiff and with a subjective awareness that such conduct will result in human death or bodily harm.
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...trial court’s jury instructions failed to include a limiting instruction concerning extraterritorial punishment. Sand Hill Energy, Inc. v. Smith, 142 S.W.3d 153, 156 (Ky. 2004). Since that time, our Court of Appeals has reduced punitive damage awards in Ragland, 352 S.W.3d at 924 (reducing ......
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