Arizona Appellate Blog

A case about the allowable extent of punitive damages.

Metropolitan, Nardelli’s auto insurer, refused to total his damaged car, instead paying him for repairs. He sued for bad faith; the jury awarded $155,000 compensatory damage and $55 million in punitives. The trial court reduced the punitive award to 4:1, viz., $620,000. Metropolitan appealed liability and damages.

About two-thirds of this 61-page opinion rehashes the facts to conclude that there was enough evidence to send bad-faith and punitive damages to the jury. Punitives were apparently based on a company policy of being hard on claims to boost profits and adjuster’s incomes.

But the Court of Appeals reduces the punitive award to 1:1 – $155,000.  It analyzes the factors (“guideposts” is the current euphemism; even the courts are beginning to feel guilty about factors) from the U.S. Supreme Court case of State Farm v. Campbell.

“Reprehensibility” is the first one; the court feels that Metropolitans’ conduct on that score was “low to . . . middle range.” 

The ratio is the second factor (oops, sorry; “guidepost”). This court had said in Pope (2008) that 4:1 was close to the constitutional line. But this opinion says that this evidence doesn’t support even that, for reasons the court does not really explain. The fact that compensatory damages were “substantial” ($155,000 for the repair/replacement of a $35,000 Ford Explorer) had something to do with it. 

The third guidepost is the difference between the punitive award and analogous civil penalties. Unfair claims settlement practice penalties are capped at $50,000 every six months. The court then says that other cases that awarded big punitives aren’t like this one. What that has to do with this factor guidepost isn’t clear.

The dissent argues that punitives shouldn’t have gone to the jury since Metropolitan’s actions, though not good, were not malicious or outrageous. Judge Swann basically makes the points that profit motive is not evil and that you shouldn’t turn every repair-or-replace argument into a punitive case.

The majority sheds some crocodile tears over the stress of being a “gatekeeper.” But why don’t we tell the truth? On punitives an appellate court is not just the gatekeeper but the judge, jury, and executioner. Normal judges, juries, and even executioners can live with themselves because they act under the dictates and constraints of a system of law. The stress, if these folks really feel any, comes from knowing that you’re doing these things based on nothing but “factors” some court has pulled out of thin air and that you’re using to justify your emotions about the case.

(link to opinion)

If you’ve ever thought our criticisms of long opinions and extended statements of fact overdone, try meandering through this. When the facts and procedural background alone take 34 pages it’s a good bet that eyes will glaze over long before the good part – if there is one. But if you make it to page 55 you find, buried in about fifteen pages in the middle of a 91-page opinion, a statutory-construction issue of first impression, presumably the reason this was published.

The question is whether 29-833 (fees/costs in a derivative action) allows the court to award fees against the defendant or simply allows the derivative plaintiff to take expenses from the damages awarded to the successful entity.

The court first looks to decisions from other states, which take expenses from the award. Only then does it point out that another Arizona statute has “nearly identical” language which has been construed to mean that the derivative plaintiff’s expenses come from the entity’s award. This court seems to like that opinion because it is consistent with what other states say rather than the other way around. The trial court had awarded fees against the defendants, so this opinion reverses that.

We can’t find what’s publishable in the rest of this. It relies on established law and discretionary rulings. Basically, investors in a real estate deal found out – after fighting for the deal through several contract amendments and a couple of lawsuits – that the people managing it for them were trying to steal the property using entities the managers secretly controlled (this is the case you may, for various reasons, have heard about where the estranged wife of one of the defendants gave a plaintiff a disc filled with the incriminating documents). So the plaintiffs sued to undo some things, including some prior judgments. On grounds of extrinsic fraud the trial court let them do so and the Court of Appeals affirms.

There were no doubt a lot of facts to the case. It would have been nice, though, to see someone try to do something more than to lay them all out seriatim, as if this opinion were a trial court’s findings of fact. Otherwise, publishing only the 29-883 stuff would have avoided the needle-in-a-haystack phenomenon. Our readers will recall that we don’t like that practice but its surely the lesser of the evils here.

(link to opinion)

One reason for publishing is to bring attention to an overlooked principle of law. Sometimes that’s a way of saying that somebody made a fairly basic mistake.

Preese was in a car accident. She sued the tortfeasor and won at trial. Pain Management had treated her injuries and filed a lien which, for reasons not explained, it later released. But it hadn’t been paid and sued for the balance. She moved for summary judgment based on the release; the trial court granted it. Pain Management appeals.

The Court of Appeals reverses. By statute the lien is against a judgment or settlement; its effect is to allow a provider to claim a piece of those things. It has nothing to do with the provider’s rights directly against the patient.

The court then helpfully mentions in a footnote that Preese’s argument on appeal was that the claim was barred not by the mere fact of the release but by its language – the release stated that the debt had been compromised or paid. But various earlier cases have that this sort of language in a lien release doesn’t bar a claim that hasn’t actually been compromised or paid.

Having decided the case, the opinion then spends an extra page or so listing all the factual issues that must now be addressed below. This we would normally criticize as surplusage but the court may think that a trial judge who could have granted this summary judgment needs all the help he can get. Its hard to criticize a CA1 opinion that’s only seven pages long (though it does manage to squeeze in two footnotes).

(link to opinion)

The Court of Appeals defends  the concept of duty.

An unknown person stole an unlocked Gutierrez truck, collided with Delci’s car, and escaped unidentified. Delci sued it. Gutierrez moved for summary judgment on the grounds that it had no duty to Delci. The trial court granted it.

The Court of Appeals affirms, following Arizona Supreme Court precedent in Schafer, which involved a car stolen from a dealership lot. Delci argued that Schafer was overruled by Gipson (duty not measured by foreseeability). The Court of Appeals agrees that foreseeability can no longer be the test but points out that duty is now based on relationships and that there was no relationship between the parties.

Delci countered that some states have adopted a special rule involving heavy machinery, since its more dangerous and easier to steal. The court say that this rule is based on foreseeable harm and foreseeability is no longer a basis of duty.

Delci then argued the ALI has now announced, in section 7 of an add-on piece to the new Restatement of Torts called Restatement Third, Torts: Liability for Physical and Emotional Harm, “An actor ordinarily has a duty to exercise reasonable care when the actor’s conduct creates a risk of physical harm.” Delci apparently argued that Ontiveros said something that “could be interpreted” to mean the same thing; this court says that that case was narrowly based on the obligations of liquor suppliers. In any event, the court rejects section 7 because “it would substantially change Arizona’s longstanding conceptual approach to negligence law by effectively eliminating duty as one of the required elements of a negligence action.”

Section 7 is headed “duty” but its intention is indeed to eliminate the concept, as its comments make as clear as anything that turgid can. That is what Palsgraf (the source of duty based on foreseeability) and Gipson, in their own ways, went to some length to prevent. This is perhaps the clearest example of the ALI’s recent attempts to make law on the basis of professorial theorizing rather than actually to restate what judges and lawyers and real parties in real controversies have thought appropriate.

(link to opinion)