Smith v. Price Development Co.

Decision Date02 December 2005
Docket NumberNo. 20040675.,20040675.
PartiesArmand L. SMITH, individually and as trustee for the Armand L. Smith, Jr., and Shannon S. Windham Trusts; and Virginia L. Smith, individually, Plaintiffs and Appellees, v. PRICE DEVELOPMENT COMPANY, a Utah corporation, nka Fairfax Realty, Inc.; North Plains Land Company, Ltd., a Utah limited partnership; and North Plains Development Company, Ltd., a Utah limited partnership, Defendants. State Treasurer Edward T. Alter of the State of Utah, for and on behalf of the State of Utah, Additional Rule 19 Defendant and Appellant.
CourtUtah Supreme Court

Robert S. Campbell, Jennifer Anderson Whitlock, Salt Lake City, for plaintiffs.

Reed L. Martineau, Rex E. Madsen, James S. Jardine, Salt Lake City, for defendants.

Mark L. Shurtleff, Att'y Gen., Kevin V. Olsen, Asst. Att'y Gen., Salt Lake City, for appellant.

PARRISH, Justice:

¶ 1 Following a jury trial, plaintiffs Armand and Virginia Smith obtained a substantial punitive damages award against defendant Fairfax Realty, Inc. The State of Utah claimed a share of the award pursuant to the 1989 version of Utah's split recovery provision, which gave the State an interest in qualifying punitive damages awards. The Smiths challenged the constitutionality of the provision, and the district court ruled in their favor, holding that it effected an unconstitutional taking of the Smiths' property in violation of article I, section 22 of the Utah Constitution and the Fifth and Fourteenth Amendments of the United States Constitution. We agree and affirm.

FACTUAL BACKGROUND

¶ 2 In 2001, the Smiths obtained a jury verdict against Fairfax.1 The jury awarded the Smiths $410,000 in compensatory damages, $690,000 in prejudgment interest, and $5,500,000 in punitive damages. On appeal, we affirmed each component of the award except for the prejudgment interest, which we remitted to $597,221. Smith v. Fairfax Realty, Inc., 2003 UT 41, ¶ 49, 82 P.3d 1064 ("Smith I"). Fairfax then unsuccessfully petitioned the United States Supreme Court for certiorari review. Fairfax Realty, Inc. v. Smith, 541 U.S. 960, 124 S.Ct. 1716, 158 L.Ed.2d 401 (2004).

¶ 3 Though the Smiths were successful in defending the punitive damages award on appeal, they stood to lose a sizeable portion of the award pursuant to the 1989 version of Utah's split recovery provision, Utah Code Ann. § 78-18-1(3) (Supp.1989).2 That provision gave the State the right to half of the punitive damages in excess of $20,000 in those cases where punitive damages were awarded and paid. Id.

¶ 4 The Smiths asserted that the split recovery provision was unconstitutional and asked the district court to join the State as a party so that it could defend the constitutionality of the provision. The district court granted the motion to join the State, and Fairfax paid the Smiths the undisputed portion of the award.3 The disputed portion was placed in a mutually agreed-upon, interest-bearing depository.

¶ 5 The Smiths sought summary judgment, arguing that they were entitled to the entire punitive award, including the interest that had accrued thereon. They asserted that the split recovery provision effected an unconstitutional taking of their property without just compensation. Alternatively, they argued that the provision violated separation of powers and equal protection principles.

¶ 6 The State defended the constitutionality of the provision, arguing that it was merely a manifestation of the State's power to define the availability of punitive damages. Specifically, the State argued that its interest in the award arose contemporaneously with the entry of the judgment itself and that the Smiths consequently lacked any protectable interest in the disputed funds. It asserted that it did not illegally take the Smiths' property, but rather merely claimed what it had been awarded in the first instance.

¶ 7 The district court granted the Smiths' motion for summary judgment and declared the split recovery provision unconstitutional. Noting that the provision failed to give the State any interest in either the underlying cause of action or the judgment when it was entered, the district court concluded that the Smiths had a protectable interest in the entire punitive damages award and that the provision effected an unconstitutional taking of that interest. The district court reasoned that accepting the State's argument "would require [the] Court to read something into the statute that simply is not there." The district court's ruling in favor of the Smiths on their takings claim obviated the need to reach their alternative claims.

¶ 8 The district court certified its summary judgment order as final, and the State appealed. We have jurisdiction pursuant to Utah Code section 78-2-2(3)(j) (2002).

ANALYSIS

¶ 9 "Summary judgment is appropriate only when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law." Norman v. Arnold, 2002 UT 81, ¶ 15, 57 P.3d 997; see Utah R. Civ. P. 56(c). Here, because there are no disputed issues of material fact, we need only review the district court's interpretation of section 78-18-1(3). That interpretation "presents a question of law, which we review for correctness, granting no deference to the [district] court." Pugh v. Draper City, 2005 UT 12, ¶ 7, 114 P.3d 546.

¶ 10 On appeal, the State argues that the district court erred in holding the split recovery provision unconstitutional and that the provision did not effect an illegal taking. Although the district court did not reach the separation of powers and equal protection arguments, the State asserts that the split recovery provision passes constitutional muster under these provisions as well. Finally, the State contends that it is entitled to postjudgment interest on the award. We hold that the split recovery provision effected an unconstitutional taking and therefore reach neither the separation of powers argument nor the equal protection argument. Consistent with our holding on the takings claim, we further hold that the State is not entitled to any interest on the disputed portion of the award.

I. DID SECTION 78-18-1 EFFECT AN UNCONSTITUTIONAL TAKING?

¶ 11 Both the United States and Utah Constitutions contain a prohibition against the taking of private property. Article I, section 22 of the Utah Constitution states that "[p]rivate property shall not be taken or damaged for public use without just compensation." The Fifth Amendment to the United States Constitution, made applicable to the State under the Fourteenth Amendment, Penn Central Transp. Co. v. New York City, 438 U.S. 104, 122, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978), contains a similar prohibition. U.S. Const. amend. V (stating that "nor shall private property be taken for public use, without just compensation").

¶ 12 "To recover under article I, section 22 [of the Utah Constitution], a claimant must possess a protectable interest in property that is taken or damaged for a public use." Bagford v. Ephraim City, 904 P.2d 1095, 1097 (Utah 1995). The Fifth Amendment analysis is virtually identical. See Brown v. Legal Found., 538 U.S. 216, 233, 123 S.Ct. 1406, 155 L.Ed.2d 376 (2003) (noting that "[w]hen the government physically takes possession of an interest in property for some public purpose, it has a categorical duty to compensate the former owner" (internal quotation marks omitted)).4

¶ 13 We analyze whether the split recovery provision effected an unconstitutional taking in two steps. We first determine whether the Smiths had a protectable interest in the disputed portion of the punitive damages judgment. We then determine whether the Smiths' interest, if any, was "taken" within the meaning of article I, section 22 of the Utah Constitution and the Fifth and Fourteenth Amendments to the United States Constitution.

A. Did the Smiths Have a Protectable Interest in the Disputed Portion of the Punitive Damages Judgment?

¶ 14 It has long been recognized that rights fixed by judgment are a form of property protected by the takings clause. In the seminal case of McCullough v. Virginia, 172 U.S. 102, 123-24, 19 S.Ct. 134, 43 L.Ed. 382 (1898), the United States Supreme Court recognized:

It is not within the power of a legislature to take away rights which have been once vested by a judgment. Legislation may act on subsequent proceedings, may abate actions pending, but when those actions have passed into judgment the power of the legislature to disturb the rights created thereby ceases.

Id.

¶ 15 The first step in our analysis is therefore to determine whether the Smiths had a vested interest in the disputed portion of the punitive damages judgment. Though the district court found that they did, the State argues that the Smiths never acquired any interest in the disputed portion of the judgment because the split recovery provision vested that portion of the judgment in the State. The Smiths, on the other hand, argue that the State's interest in the award arose only when the punitive damages were actually paid.

¶ 16 Our "primary objective" in interpreting the split recovery provision "is to give effect to the legislature's intent." Gohler v. Wood, 919 P.2d 561, 562 (Utah 1996). The legislature's intent is manifested by the language it employed. See Green River Canal Co. v. Olds, 2004 UT 106, ¶ 18, 110 P.3d 666. We may turn to secondary principles of statutory construction or look to a provision's legislative history only if we find the provision ambiguous. Wilcox v. CSX Corp., 2003 UT 21, ¶ 8, 70 P.3d 85; see also Dep't of Natural Res. v. Huntington-Cleveland Irrigation Co., 2002 UT 75, ¶ 13, 52 P.3d 1257 ("Unless a statute is ambiguous, we will not look beyond the plain language of the statute.").

¶ 17 Because the first step in statutory construction is an analysis of the language actually employed by the legislature, we start with the language of the...

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