Originally published by Lauren Bridges.
Case: Warren v. Shelter Mutual Ins. Co., No. 2016-C-1647 (La. 10/18/17), ___ So. 3d ___.
Factual Background
A recreational boating accident occurred on navigable inland waters of Louisiana in May of 2005 resulting in the death of a 22-year old passenger. While the boat was on plane, the hydraulic steering system manufactured by defendant Teleflex suddenly failed due to fluid loss, causing the boat to turn violently with the motor going into a free spin (known in the industry as a “J-hook” or “kill spin”). Decedent and other passengers were ejected from the boat, and thereafter, the boat continued to spin around with its propeller striking decedent 19 times, resulting in death.
Decedent’s parents[1] filed suit under general maritime law and products liability for the wrongful death of their son, and sought punitive damages under the general maritime law. Their claims against Teleflex, a sophisticated boating industry manufacturer, centered on its failure to warn unsuspecting users of the inherent danger in its product—that a very small loss of fluid would result in loss of steering and potentially cause ejection and death.
Following trial,[2] the jury rendered a verdict in favor of the Plaintiff and against Teleflex for failure to warn, awarding compensatory damages of $125,000 and punitive damages of $23 million. Teleflex appealed the verdict, and the Louisiana Third Circuit Court of Appeal affirmed.
Defendant Teleflex’s Appeal
In its appeal to the Louisiana Supreme Court, Teleflex did not assign error to the court of appeal’s conclusion regarding negligence and compensatory damages. However, Teleflex argued that the Third Circuit erred in: a) affirming the trial court’ finding of liability for punitive damages despite a lack of evidence of reckless, wanton, or callous conduct; and b) affirming the amount of punitive damages awarded, which Teleflex argued was grossly excessive as a matter of federal maritime and constitutional law.[3]
a) Availability of Punitive Damages
It is well-settled in Louisiana that punitive damages are available only where authorized by statute. The Louisiana Supreme Court noted that lower state appellate courts in Louisiana, as well as federal courts, have found punitive damages to be an available remedy under general maritime law where a defendant’s intentional or wanton and reckless conduct amounted to a conscious disregard for the rights of others.
After reviewing the record in this case, the Louisiana Supreme Court affirmed the Third Circuit’s ruling that the evidence supported the jury’s finding that Teleflex had acted wantonly, recklessly, or in callous disregard for the safety of its customers:
The evidence showed that Teleflex was well aware that a small fluid loss could result in total loss of steering control, that there had been numerous complaints about fluid loss, that total loss of steering control when the boat was on plane could result in ejection and severe injury, that applicable standards at the time the product was sold provided for a warning sticker on the product itself, and that it had had the opportunity to warn. Yet, as the record shows, Teleflex failed to take any action to advise its end users of the risk of severe injury and possible death. This failure was more than simple negligence. Instead, it evinces a conscious disregard for, or indifference to, the safety of its customers, justifying the imposition of punitive damages.[4]
This case is the first pronouncement from the Louisiana Supreme Court that punitive damages are available under general maritime law.
b) Excessiveness of Punitive Damages
Despite affirming the finding of liability for punitive damages under general maritime law in this case, the Louisiana Supreme Court ultimately reduced the jury’s punitive damages award of $23 million to $4.25 million on grounds that it was unconstitutionally excessive. In analyzing whether the jury’s punitive damages award crossed the constitutional line, the Court thoroughly analyzed the three guideposts set out in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996) and also recognized a non-BMW factor traditionally considered by Louisiana courts—the defendant’s wealth—as set forth in Mosing v. Domas, 02-0012 (La. 10/15/02), 830 So. 2d 967, 973.
i. Reprehensibility of the Defendant’s Conduct
The Louisiana Supreme Court concluded that Teleflex’s awareness of the serious risks (ejection and severe injury) that could result from a small loss of hydraulic fluid, yet its failure to warn customers, was reprehensible conduct. However, the Court did not find that Teleflex’s conduct was on the extreme end of the reprehensibility spectrum so as to constitute “malicious behavior and dangerous activity carried on for the purpose of increasing a tortfeasor’s financial gain.”[5]
ii. Ratio between the Punitive Damages Award and the Harm the Defendant’s Conduct Caused, or Could Have Caused
The Louisiana Supreme Court rejected Teleflex’s argument that Exxon Shipping Co. v. Baker, 554 U.S. 471 (2008) limited the ratio of punitive damages to compensatory damages in maritime cases at 1:1. Instead the Court relied on BMW, which refused to set a mathematical bright line, and State Farm Mut. Auto. Ins. v. Campbell, 538 U.S. 408 (2003), which noted that the ratio must be reasonable and should generally not exceed 9 to 1 in order to satisfy due process.[6] The Court reasoned that in this case, the harm caused was great (physical injury resulting in the violent death of a young man), while the defendant’s conduct was not the most egregious on the spectrum of punishable cases, and the $125,000 compensatory damages actually awarded were relatively small.[7]
In considering the disparity between punitive damages and compensatory damages, the Louisiana Supreme Court stated that actual harm is a relevant consideration in general maritime cases.[8] Although Decedent’s mother settled her claims prior to trial, the Louisiana Supreme Court factored in the compensatory damages she could have received for the purposes of determining “actual harm.” The Court assumed the value of the mother’s compensatory damages to be $2 million based on a commensurate award to the parent of a decedent in a products liability action, and therefore assumed that “relevant compensatory damages in this case could reasonably total $2,125,000.”[9] The Louisiana Supreme Court concluded that the $2.125 million in compensatory damages when compared to the $23 million in punitive damages awarded by the jury would result in an impermissibly high 10.8 to 1 ratio, which was “beyond the single digit limits of constitutional due process as well as the upper limits in Exxon.”[10]
iii. Civil or Criminal Penalties for Similar Misconduct
The Louisiana Supreme Court found no codal authority that would impose monetary civil or criminal penalties for the conduct of Teleflex in this case.
iv. Defendant’s Wealth
The Louisiana Supreme Court noted that the wealth of defendant may be considered in determining an amount that would deter future commission of the same actions and misconduct under Mosing, but that it “should not be a driving factor behind a punitive damage award in the absence of a showing that the defendant’s conduct was motivated by malice or greed.” [11] In this case, even though Teleflex is a wealthy corporation, the Louisiana Supreme Court found that the award of punitive damages in the amount of $23 million was higher than reasonably required to satisfy the objective of punitive damages awards: punishment, general deterrence, and specific deterrence.[12]
Applying the factors set forth by the BMW and Mosing courts, the Louisiana Supreme Court ultimately concluded that the $23 million in punitive damages violated Teleflex’s due process rights. The Court went on to reason that “based on the actual harm, and the relevant compensatory damages as outlined in the Exxon line of cases, we find that a punitive damage award of $4,250,000, with a ratio of 2:1 to relevant compensatory damages of $2,125,000, more appropriately furthers the goal of punitive damages, that is, to punish and deter future conduct, while protecting the defendant’s right to due process.”[13]
[1] Decedent’s mother settled her claims prior to trial.
[2] A jury originally found for Teleflex and dismissed the claims against it. However, the trial court granted a new trial on discretionary grounds based on what it believed to be prejudicial error during trial. The verdict above resulted from the second trial.
[3] Teleflex argued additional assignments of error which are not the subject of this article. The full opinion can be accessed here: http://ift.tt/2yLMRnP
[4] Warren v. Shelter Mutual Ins. Co., No. 2016-C-1647, p. 31 (La. 10/18/17), ___ So. 3d ___.
[5] Exxon Shipping Co. v. Baker, 554 U.S. 471, 510 (2008).
[6] Warren, No. 2016-C-1647 at p. 37-8, citing BMW, 517 U.S. at 575 and State Farm, 538 U.S. at 425.
[7] The Third Circuit noted that decedent’s death was violent but mercifully quick, and the jury awarded the father $100,000 for decedent’s survival damages. The Court further surmised that the award of $25,000 to Plaintiff father for his own wrongful death damages reflected the fact that decedent had not been raised by his father.
[8] Warren, No. 2016-C-1647 at p. 46 citing Exxon, 554 U.S. 471.
[9] Warren, No. 2016-C-1647 at p. 46; see also See Hutto v. McNeil-PPC, Inc., 2011-609 (La. App. 3 Cir. 12/7/11), 79 So. 2d 1199, writ denied, 86 So. 3d 628 (La. 4/27/12) (affirming general damages in the amount of $2 million to each parent for the death of their child in a products liability case).
[10] Warren, at p. 46.
[11] Id. at p. 48.
[12] Id. at p. 46 citing Mosing, 830 So. 2d at 978.
[13] Warren, No. 2016-C-1647 at p. 48-09, emphasis added.
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