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Sep 30, 2014

Navigating Missouri Punitive Damages in the Wake of Lewellen v. Franklin

ABSTRACT: The Missouri Supreme Court continues its trend of reversing damages caps as violative of the Missouri Constitution.

The Missouri Supreme Court continued its trend of reversing damages caps as unconstitutional in a decision handed down September 9, 2014. The court struck down the R.S.Mo. § 520.365 cap on punitive damages as it relates to common law claims in the case of Lillian Lewellen v. Chad Franklin and Chad Franklin Auto Sales North, LLC (SC92871). 

The suit centered on Ms. Lewellan’s purchase of a vehicle from defendants. Defendants engaged in widespread and aggressive print and television advertising campaign offering vehicles for $49, $69, and $89 per month. Ms. Lewellen, a 77 year old widow on a fixed income of $920.00 per month, needed a new car and went to defendants’ dealership asking for the $49 per month vehicle she had seen in the advertisements. Ms. Lewellen repeatedly told defendants she could not pay any more than $49 per month.  Defendants sold Ms. Lewellen a 2002 Lincoln (for $19,950.00) from the section of the lot labeled $49/month and explained that they would send Ms. Lewellen a check to pay the difference between her financed car payment of $387.43 and the $49.00 she “actually” owed.  

Ms. Lewellen did not receive the promised checks from defendants. After making numerous phone calls, defendants ultimately sent her a check allowing her to pay the first 9 months of her car payment as agreed but thereafter, defendants refused to pay the difference. The bank repossessed Ms. Lewellen’s vehicle when she could not pay the full amount of the payment and filed suit against her for breach of contract.

Ms. Lewellen brought suit against defendants alleging one count of fraudulent misrepresentation and one count pursuant to the Missouri Merchandising Practices Act (MMPA).  The jury awarded Ms. Lewellen actual damages of $25,000.00 and punitive damages on each count of $1,000,000.00. Upon motion by defendants, the Court reduced the punitive damages award to $500,000.00 pursuant to R.S.Mo. § 510.265. 

The Missouri Supreme Court overturned the reduction in punitive damages as to the fraudulent misrepresentation claim. The court held R.S.Mo. § 510.265 unconstitutional as it applies to common law claims because application of the cap infringes upon plaintiff’s right to trial by jury. The court found that since the Missouri Constitution provides that the right to a jury trial “shall remain inviolate,” any change to the rights of a jury determination of damages existing when Missouri adopted its constitution in 1820, is unconstitutional. Here, the court held plaintiff’s fraudulent misrepresentation claim was a common law claim in 1820, and therefore, the damages cap could not be applied. The court upheld the application of the punitive damages cap to the statutorily created cause of action under the MMPA. Finally, the court upheld the amount of damages awarded to Ms. Lewellen under a due process analysis even though the punitive damages amounted to a 40:1 and 22:1 ratio (actual damages to punitive damages). 

The Missouri Supreme Court’s analysis is contrary to most other jurisdictions faced with similar constitutional claims. Nearly every state court considering the constitutionality of punitive damages caps in conjunction with the right to trial by jury, have found the caps constitutional. Generally, these jurisdictions reasoned that there is no “right” to punitive damages and therefore, the legislature can limit or even abolish punitive damages without infringing upon the right to a trial by jury. Additionally, while it is the exclusive province of the jury to determine the facts of the case, it is within the legislature’s province to alter the legal remedies available for the jury to award. This line of cases is further legitimized by Justice Scalia, who, in writing a concurring opinion stated: “State legislatures and courts have the power to restrict or abolish the common-law practice of punitive damages, and in recent years have increasingly done so.” Pacific Mutual Life Ins. Co. v. Haslip, 499 U.S. 1, 39 (1991) (Scalia, J., concurring). See for example, the analysis in the following jurisdictions: 4th Circuit (Boyd v. Bulala, 877 F.2d 1191, 1196 (4th Cir., 1989)); Alabama Supreme Court (Ex. Parte Apicella, 809 So. 2d 865 (Ala. 2001)); Alaska Supreme Court (Evans ex rel. Kutch v. State, 56 P.3d 1046 (Alaska 2002)); Kansas Supreme Court (Smith v. Printup, 866 P.2d 985 (Kan. 1993)); North Carolina Supreme Court (Rhyne v. K-Mart Corp., 594 S.E.2d 1 (N.C. 2004)); Ohio Supreme Court (Arbino v. Johnson & Johnson, 880 N.E.2d 420 (Ohio 2007)); Texas Court of Appeals (Seminole Pipeline Co. v. Broad Leaf Partners, Inc., 979 S.W.2d 730, 758 Tex. Ct. App. Hous. 1998)); Virginia Supreme Court (Pulliam v. Coastal Emergency Services of Richmond, Inc., 509 S.E.2d 307 (Va. 1999)).  

Regardless of the majority of jurisdictions’ analysis, the Missouri Supreme Court determined the cap to be unconstitutional. In 2012, the court found a similar cap on non-economic damages in medical malpractice unconstitutional and violative of the right to trial by jury. See Watts v. Lester E. Cox Medical Centers, 376 S.W.3d 633 (Mo. banc 2012).  Given the similarity between Watts and Lewellen, it is clear Watts was not an anomaly, but represents a Missouri trend toward invalidating any damages cap applied to common law claims.

The take away from this case and the line of cases preceding it is that there is a two step process for determining the constitutionality of a punitive damages award on a claim in Missouri. First, the court must determine if the cause of action was one that existed prior to 1820. If the cause of action existed in 1820, then the Court cannot constitutionally apply a statutory cap to limit the punitive damages. If the cause of action did not exist prior to 1820 – for example, as in the Lewellen case, a statutorily created cause of action such as the MMPA – then a punitive damages cap can be constitutionally applied. 

Whether a cap applies or not, the defendant is further entitled to an analysis of the constitutionality of the resulting punitive damages award under the due process clause of the U. S. Constitution. The court held “[m]erely because an award is within the bounds of section 510-265 does not relieve a court from its duty to review it in light of the particular facts of the case when a party claims the award violates due process.” Lewellen, at *13, fn 14. In order to determine the constitutionality under due process, the United States Supreme Court requires courts to consider three factors (1) the reprehensibility of the defendant’s misconduct; (2) the disparity between the harm and the punitive damages award; and (3) the difference between the punitive damages award and penalties authorized or imposed in similar cases.  BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 574-75 (1996). 

Numerous jurisdictions have interpreted United State Supreme Court guidance on due process to generally preclude damages in excess of single digit ratios. Nevertheless, the Missouri Supreme Court upheld double digit ratios (22:1 and 40:1 ratios) in the Lewellen case, and even triple digit ratios (more than 100:1 ratio in Estate of Overbey v. Chad Franklin National Auto Sales North, LLC, 361 S.W. 3d 364 (Mo. banc 2012) –the same defendant in the Lewellen case).  The court held that such a large award was justified in this case because defendants were preying upon financially vulnerable individuals and engaging in “intentional and flagrant trickery and deceit.” This may be a classic example of the axiom that “bad facts make bad law”, and accordingly, it is wise for defendants to beware of the risk of large punitive damages awards when defending actions in Missouri.