Lead Opinion
Defendant and counterclaim plaintiff Shawn Yovan (defendant) prevailed on his claim under the Oregon Unlawful Debt Collection Practices Act (the Act), ORS 646.639 to 646.641, against plaintiff and counterclaim defendant Lithia Medford LM, Inc. (plaintiff). The jury-awarded defendant $500 for his noneconomic damages and $100,000 in punitive damages. The trial court concluded that the punitive damage award was unconstitutional under the Due Process Clause of the Fourteenth Amendment to the United
FACTS
The relevant facts are those supporting the Jackson County jury’s verdict on defendant’s third counterclaim under the Act. In that counterclaim, defendant alleged that plaintiff and its agents and employees violated the Act by “threatening arrest or criminal prosecution of [defendant], in violation of ORS 646.639(2)(b)” and by “attempting to or threatening to enforce a right or remedy with knowledge or reason to know that the right or remedy did not exist, in violation of ORS 646.639(2)(k).” Defendant also alleged entitlement to punitive damages. This court recounts the facts consistently with the jury’s verdict in favor of defendant, including resolving all factual disputes and drawing inferences in favor of the verdict, both as to liability and punitive damages. Parrott v. Carr Chevrolet, Inc.,
In 2000, defendant purchased a used Toyota 4Runner from plaintiff, which owned and operated a Toyota dealership in Medford, for close to $14,000. Five days later, the retail installment sales contract was purchased by a finance company, TranSouth Financial Corporation (TranSouth). Defendant then discovered a report showing that the car’s actual mileage was some 25,500 more than what appeared on the odometer at purchase (98,000 miles).
After bringing the mileage discrepancy to the attention of plaintiff, which had not known of the discrepancy, defendant and plaintiff were unsuccessful in reaching a resolution regarding the reduced value of the car. Plaintiff demanded that defendant either pay the balance on the car, less $1,000, or return the car in exchange for his trade-in and deposit. Defendant demanded that plaintiff provide him with a used 4Runner of the type that he thought he had purchased in Medford, and defendant identified such a car for sale at a Lithia dealership in Colorado, but plaintiff refused to settle on that basis. Defendant decided to keep the car and told plaintiff that he would pursue his legal remedies.
Plaintiff’s manager insisted on obtaining defendant’s car and attempted to intimidate defendant into giving it up. Plaintiff’s manager became aggressive and threatened defendant with criminal prosecution for “Grand Theft Auto” if he did not return the car. Next, plaintiff’s managers lied to the collection manager of plaintiff’s parent company when they told him to have defendant’s car repossessed for nonpayment, even though they knew that plaintiff had assigned the installment contract for defendant’s purchase of the car to TranSouth and that plaintiff had no legal right to seek repossession of the 4Runner. When the repossession agent tried to take away the car, defendant informed the agent that his first payment was not yet due and the installment contract was not even held by plaintiff. Nevertheless, plaintiff’s repossession agent told defendant that he would call the police and that defendant was obstructing justice. After that encounter, defendant placed the car in storage for three months.
Thereafter, plaintiff repurchased the installment contract from TranSouth, and the dealership again offered to lower the purchase price by $1,000, via the amount to be financed, plus offered to provide a $500 cash payment as incentive for an agreement. When defendant rejected the dealership’s offer, plaintiff brought an action against defendant
After repurchasing the retail installment contract from TranSouth, plaintiff misrepresented to defendant and his attorney that defendant no longer had a valid purchase contract. First, plaintiff faxed a page from the sales contract to defendant’s counsel that included the following provision:
“In consideration of Seller agreeing to deliver the vehicle, Buyer agrees that if Seller is unable to assign the retail installment contract/lease agreement to any one of the financial institutions with whom Seller regularly does business pursuant to terms of assignment acceptable to Seller, Seller may to rescind the retail installment contract/ lease agreement. In the event Seller to rescind the retail installment contract/lease agreement, I will return the vehicle immediately upon their request.”
Plaintiff then sent a letter to defendant’s counsel indicating, falsely, that TranSouth had rescinded the retail installment contract. Plaintiff told defendant that it was willing to enter into a new retail installment contract and then, as noted above, offered to reduce the purchase price of the car by $1,000 and, if defendant agreed to settle the matter by January 25, 2001, offered defendant an additional $500 to compensate him for “his perceived inconvenience.” In fact, TranSouth had not rescinded the contract; plaintiff had repurchased the still-valid contract that plaintiff later sought to rescind in this case.
The jury heard evidence that plaintiff was acting selfishly and maliciously to further its own economic interests as it tried to intimidate or deceive defendant into relinquishing the car. The retail installment contract that plaintiff sold to TranSouth in this case and in other car sales was on a nonrecourse basis, meaning that, if the customer defaulted on loan payments, TranSouth could not go beyond the collateral to recover the balance owed. But, if there had been a misrepresentation as to the collateral for the loan, TranSouth could require plaintiff to repurchase the contract and thereby bear the risk of nonpayment on the under-secured loan. The credit application that plaintiff submitted to TranSouth showed that defendant earned more than he actually did, listed accessories that the car did not in fact have, and stated a lower mileage figure than the 125,000 miles the car apparently actually had, due to an odometer rollback. TranSouth’s branch manager testified that plaintiff repurchased the contract because of the problem with the actual value of the collateral. The jury could have concluded that plaintiff, having been caught after misrepresenting the value of the 4Runner, intimidated defendant to get it back so that it could recover the full amount it had paid for the car from the seller in Idaho, rather than having to risk a loss on the car as a result of the sale to defendant.
The jury also understood that defendant had limited financial resources and limited ability to obtain financing to buy a car. Approximately a year before defendant purchased the car from plaintiff, he had graduated from the Oregon Institute of Technology and obtained a new job in Yreka, California. Defendant’s job required him to commute approximately 100 miles to work daily, and so he had to spend $350 a month on gas for his car. He was married with four children, and his annual income from his job in California was approximately $34,000. He purchased the Toyota 4Runner because he wanted a second car that would provide reliable transportation for his family while he was away at work. Around the time when defendant was purchasing the 4Runner, he and his wife were not making installment payments on their house. Some time after the incidents with plaintiff, defendant lost his job and later lost the residence through a foreclosure.
Moreover, plaintiff knew that defendant was financially vulnerable. Plaintiff’s practice was to have the salesperson fill out the customer credit application and to obtain a credit report on the customer. Plaintiff knew the amount of money defendant earned because defendant had disclosed that information to plaintiff for the credit application and had provided a pay stub. Plaintiff then submitted the credit application to TranSouth to seek financing for defendant’s car purchase. TranSouth is a “non-prime lender.” The financing defendant obtained was,
Defendant also provided the jury with evidence concerning the level of deterrence required and plaintiff’s ability to pay punitive damages. That evidence, though, was limited, given plaintiff’s dissolution several months before trial. In December 2003, defendant moved to add Lithia Motors, Inc., as a party plaintiff.
Defendant submitted to the jury, among other things, plaintiff’s balance sheets from 2001 and 2002, which indicated that plaintiff’s total assets ranged from approximately $2.5 million to $3 million during that time period. In addition, the parties submitted the following stipulation to the jury:
“Plaintiff in this case Lithia Medford LM, Inc., which operated the Toyota Lincoln Mercury Suzuki dealership entered into an assignment and indemnification agreement on May 31st, 2004 with Lithia MTLM Inc. which operates the Lithia Toyota dealership at the new lot * * *. Under that agreement, Lithia MTLM Inc. — the new Lithia dealership lot has agreed to pay all damages you may assess against Lithia Medford LM Inc. in this case. *** It [has] further been stipulated that Lithia MTLM Inc. the new Lithia Toyota dealership has sufficient assets to fully pay all of the claims for damages of [defendant] including the punitive damages claims of 100,000 dollars on the Unlawful Debt Collection Practices Act and 250,000 dollars on his claim for punitive damages under Unlawful Trade Practices Act.”
Thus, the jury understood from the stipulation that plaintiff — through the successor Toyota dealership — had sufficient income or assets to pay a total of approximately $535,000 in claimed damages that could be awarded in a judgment against plaintiff, including up to $100,000 in punitive damages on the counterclaim under the Act on which defendant prevailed.
THE VERDICT AND MOTION FOR REMITTITUR
The jury returned a special verdict in favor of defendant on the counterclaim and awarded him $500 in noneconomic damages. The jury further found that defendant is “entitled to punitive damages against Plaintiff[.]” Accordingly, the jurors found, as they were instructed, that defendant proved “by clear and convincing evidence” either that (1) plaintiff had shown “a reckless and outrageous indifference to a highly unreasonable risk of harm” and had acted “with a conscious indifference to the health, safety, and welfare of others,” or (2) plaintiff had “acted with malice,” i.e., had engaged in a wrongful act “intentionally, without just cause or excuse,” or had acted with “intentional disregard of the interest of another.”
To assess the amount of punitive damages to award against plaintiff, the jury was instructed, without objection, to consider the following items:
“(1) The character of the Plaintiff’s conduct;
“(2) The Plaintiff’s motive;
“(3) The sum of money that would be required to discourage the Plaintiff and others from engaging in such conduct in the future; and,
“(4) The income and assets of the Plaintiff.”
The jury determined that $100,000 was the proper amount of punitive damages. The ratio between the punitive damages and the noneconomic damages awarded was 200 to 1.
After the verdict, plaintiff filed a motion for remittitur to reduce the amount of the punitive damages award or, alternatively, for a new trial. Plaintiff contended that the punitive damages award was disproportionate and violated the Due Process Clause of the Fourteenth Amendment.
Citing BMW of North America, Inc. v. Gore,
Defendant opposed the motion, arguing that, as in Parrott, the jury’s award of $100,000 in punitive damages was within the range of damages that a “rational juror” could award to punish and deter plaintiff, and others, from committing the unlawful debt collection practices inflicted upon defendant. In Parrott, a case concerning violations of the Unlawful Trade Practices Act (UTPA), ORS 646.605 to 646.652, the Supreme Court affirmed a $1,000,000 award of punitive damages and a compensatory award of $11,496, despite the more than 86-to-l ratio between punitive and compensatory damages.
The trial court agreed with plaintiff. It described plaintiff’s actions in its order on post-trial motions as “at worst deceitful and threatening” and “not actions which showed a ‘wanton disregard for the health and safety of others.’” The court ruled that, based on Gore and Waddill, the maximum amount of punitive damages that could be constitutionally awarded was $2,000. The court entered a general judgment in favor of defendant for $500 in noneconomic damages and $2,000 in punitive damages on his counterclaim under the Act.
LITHIA I VACATED AND REMANDED
Defendant appealed. The trial court’s judgment was affirmed by an equally divided court, with five judges concurring in the result. Lithia Motors I,
“(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.”
Lithia Motors I,
In deciding whether the jury’s award was unconstitutionally excessive, the concurrence relied on the first two guideposts (reprehensibility and the ratio between punitive and compensatory damages awards), concluding that the third guidepost (civil penalties in comparable cases) “neither militates against nor supports a more substantial punitive damage award.” Id. at 581-84 (Edmonds, J, concurring). In assessing the reprehensibility of plaintiff’s conduct, the concurrence reasoned that, because plaintiff’s “most egregious actions were its threat to commence criminal prosecution against defendant because of his failure to voluntarily return the car and its attempt to repossess the car from defendant” and because “defendant was not a particularly vulnerable target of plaintiff’s actions [,]” the degree of reprehensibility was “at the lower end of the scale.” Id. at 581-82 (Edmonds, J., concurring). Under the second guidepost — disparity between the harm and the punitive damages award — the concurrence explained that the
“ratio between the punitive damages awarded and the potential harm suffered by defendant as the result of plaintiff’s actions * * * is 200 to 1, far exceeding the four-to-one ratio established as the general ceiling for punitive damages where the only harm is financial and the putative single-digit limit for punitive damages involving personal injury.”
Id. at 582 (Edmonds, J., concurring). Thus, based on two of three guideposts described in Gore, the concurrence concluded that the jury’s punitive damages award of $100,000 was grossly excessive. Id. at 584 (Edmonds, J., concurring).
Consequently, the concurrence determined the maximum amount that defendant could recover to comport with due process, using those same guideposts. Id. (Edmonds, J., concurring). In reconsidering the guideposts, the concurrence again noted that the degree of reprehensibility of plaintiff’s conduct, “while significant, [was] not egregious” and that “the emotional damage to defendant caused by plaintiff [was] relatively minimal[.]” Id. at 585 (Edmonds, J., concurring). The concurrence concluded that “any amount in excess of a four-to-one ratio would constitute a grossly excessive award that would serve no legitimate purpose and if upheld, would constitute an arbitrary deprivation of plaintiff’s property.” Id. (Edmonds, J., concurring).
In his dissent, however, Judge Armstrong, along with two other judges, concluded that an award of $25,000 in punitive damages could not offend due process. Id. at 592 (Armstrong, J., dissenting). Examining the third guidepost, Judge Armstrong compared civil sanctions authorized in comparable cases. He noted that statutes prohibiting unlawful debt collection practices are comparable to statutes prohibiting unlawful trade practices, and that the state was entitled “to recover civil penalties up to $25,000 for each trade practice violation.” Id. at 591 (Armstrong, J., dissenting); see ORS 646.642(3). He further reasoned that “[t]he legislature’s decision to establish such a penalty effectively means that, although punitive damage awards greater than $25,000 on unlawful trade practice claims may be permitted without violating due process, an award of $25,000 on such a
Defendant then successfully petitioned the Supreme Court for review of our decision. The court allowed the petition and vacated and remanded with instructions for us to reconsider our decision in light of its decision in Hamlin II. Lithia Motors, Inc. v. Yovan,
HAMLIN II AND SMALL-DAMAGE CASES
Ken Hamlin filed an action against his employer, Hampton Lumber Mills, Inc., for its failure to reinstate him after he sustained a hand injury at work. He alleged that his employer had violated ORS 659A.043, which provides rights to reinstatement for injured employees, and the jury awarded Hamlin $6,000 in lost wages and $175,000 in punitive damages. Hamlin II,
The Supreme Court explained the limitations that the Due Process Clause imposes on punitive damages awards, noting that due process prohibits “grossly excessive” punitive damage awards that “serve no legitimate state purpose and constitute an arbitrary deprivation of property.” Id. at 532 (citing Campbell,
After discussing the Due Process Clause generally, the Supreme Court turned to the three guideposts set out in Gore. Id. The court began with the second guidepost — the disparity between the punitive and compensatory damages awards — because Hamlin had challenged that analysis. Id. at 532-33. The court explained that the United States Supreme Court’s “repeated refusal to set any ‘rigid benchmark’ beyond which a punitive damages award becomes unconstitutional” is key to a proper understanding of the second guidepost. Id. at 533 (citing Campbell,
A low compensatory damages award, the Hamlin II court explained,
“‘may properly support a higher ratio than high compensatory awards, if, for example, a particularly egregious act has resulted in only a small amount of economic damages. A higher ratio may also be justified in cases in which the injury is hard to detect or the monetary value of noneconomic harm might have been difficult to determine. It is appropriate, therefore, to reiterate our rejection of a categorical approach.’”
Id. at 534-35 (emphasis in Hamlin II) (quoting Gore,
Another example, which the Supreme Court noted that this court had not considered in Hamlin I, is “‘when the value of injury and the corresponding compensatory award are small.’” Id. (quoting Exxon Shipping Co. v. Baker,
The Supreme Court in Hamlin II also cautioned against slavish adherence to ratios between punitive damage and compensatory damage awards in small damage cases. It held that, regardless of the level of egregiousness of the tortfeasor’s conduct,
“when the compensatory damages award is small and does not already serve an admonitory function, the second guidepost — -the ratio between punitive and compensatory damages — is of limited assistance in determining whether the amount of a jury’s punitive damages award meets or exceeds state goals of deterrence and retribution.”
After determining that the ratio between the punitive damages award and compensatory damages award was, in fact, above a single digit at 22 to 1, the Supreme Court held that “$6,000 in lost wages is a relatively small recovery that we would not expect to serve an admonitory, as well as a compensatory function.” Id. at 538. The court further noted that the defendant did not argue that, due to its financial circumstances, the compensatory damages award had a greater effect on it than on another defendant; thus, the court concluded that “the fact that the ratio between punitive and compensatory damages is greater than a single digit does not, in itself, indicate that the punitive damages that the jury awarded were ‘grossly excessive.’” Id. at 538.
The Supreme Court then described the first guidepost — the degree to which a defendant’s conduct is reprehensible — as ‘“[t]he most important indicium of reasonableness of a punitive damages award [.]’” Id. at 539 (brackets in Hamlin II) (quoting Campbell,
‘“the harm caused was physical as opposed to economic, the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident.’”
Id. (quoting Campbell,
The Supreme Court also included an additional reprehensibility subfactor in its analysis, namely, a defendant’s statutory violation. The court reasoned that, by authorizing an award of punitive damages in ORS 659A.043, “the Oregon legislature has indicated its intent to deter and punish” employers that breach their obligations to reinstate injured workers and that, “[although the Supreme Court did not specifically identify the interest protected by ORS 659A.043 as a reprehensibility subfactor in Campbell and Gore, we think that the Oregon legislature’s affirmative action to protect qualitatively similar state interests permits us to consider defendant’s statutory violation in our reprehensibility analysis.at 540-41. After considering all the reprehensibility subfactors, including the fact that the defendant’s conduct included “intentional malice, trickery, or deceit,” the court concluded that “defendant’s conduct was more than minimally reprehensible.” Id. at 541.
The Supreme Court then examined the third guidepost — comparable civil or criminal sanctions. Id. The court decided that the punitive damages award could exceed a single-digit multiplier without violating due process and that the amount of the punitive damages award was not “grossly excessive.” Id. at 543-44. The court acknowledged that the jury’s award in the case was different in order of magnitude from the multimillion dollar punitive damages award that United State Supreme Court invalidated in Gore. The court then examined awards of punitive damages in similar circumstances, specifically the punitive damages caps applicable in Title VII employment discrimination cases. See id. at 542 (“Title VII places limits on the total amount of compensatory and punitive damages that may be awarded, ranging from a limit of $50,000 *** to a limit of $300,000.”). Lastly, the court also cited similar cases from numerous jurisdictions in which appellate courts had approved punitive damages awards that were in amounts and in ratios greater than the one present in Hamlin II. See id. at 542-43. Accordingly, the court concluded that the “ratio is higher than would be constitutionally permissible if the compensatory damages were more substantial, but is not so high that it makes the award ‘grossly excessive.’” Id. at 543.
APPLYING HAMLIN II
Without doubt, a case in which the jury awards $500 in compensatory damages is a small-damage case. The analysis in Hamlin II, with its focus on the first and third guideposts under Gore, therefore, applies. Applying Hamlin II, we conclude that the trial court erred by reducing the jury’s award of $100,000 in punitive damages to $2,000. The jury’s punitive damages verdict in this case comports with due process and should be reinstated.
Hamlin II requires us to reexamine the facts pertaining to the reprehensibility of plaintiff’s conduct given the Supreme Court’s emphasis on reprehensibility as the most important guidepost and its explication of the subfactors in the reprehensibility analysis. See Hamlin II,
In addition, it is bedrock law that, in Oregon, “calculating punitive damages is the function of the jury.” Parrott,
Financial vulnerability of the litigant who is awarded punitive damages is one of the subfactors in the reprehensibility analysis highlighted in Hamlin II.
Whether plaintiff engaged in malicious and deceitful conduct is another subfactor of the reprehensibility analysis. Campbell,
In addition, the jury was entitled to conclude that plaintiff engaged in trickery or deceit to further its own financial interests. The credit application plaintiff submitted to TranSouth showed that defendant earned more than he actually did, that plaintiff had
In sum, this record establishes that plaintiff’s conduct was “more than minimally reprehensible.” Cf. Hamlin II,
Turning to the third guidepost — civil penalties in comparable cases — the Act provides a civil damages remedy rather than monetary penalties and, as a result, the Act itself is not significant in the analysis. Hamlin II,
Our conclusion that we are not bound to impose a single-digit ratio between the punitive damage and compensatory damage awards in this case leads to the last step of the analysis called for in Hamlin II — namely, “whether the amount of punitive damages actually awarded *** is, nevertheless, ‘grossly excessive.’”
In Hamlin II, the Supreme Court reviewed punitive damages awards in cases brought under other employment discrimination statutes, such as Title VII cases, as well as cases involving a variety of other torts and contract issues. See id. at 542-43 (citing representative cases). The Oregon Supreme Court has repeatedly approved punitive damages awards in amounts equal to or greater than $100,000, the amount in question here. See, e.g., id. at 542, 543 ($175,000 for committing an unlawful employment practice); Parrott,
Finally, $100,000 was a serious sanction, but the jury properly determined the amount of the sanction pursuant to their instructions to consider the sum of money that would be required to discourage plaintiff and others from engaging in such conduct in the future and plaintiff’s income and assets. Plaintiff was fully on notice that the jury could assess punitive damages of that magnitude. In fact, plaintiff agreed that, if defendant were awarded all of the damages he sought, a judgment in his favor for $535,000 could and would be paid and specifically told the jury in the stipulation that it could pay $100,000 in punitive damages for violations of the Act:
“[T]he new Lithia Toyota dealership has sufficient assets to fully pay all of the claims for damages of [defendant] including the punitive damages claims of 100,000 dollars on the Unlawful Debt Collection Practices Act and 250,000 dollars on his claim for punitive damages under Unlawful Trade Practices Act.”
The amount the jury awarded as punitive damages is not grossly excessive given the deterrent function that it serves and the resources that plaintiff has to pay it.
The problem with rigidly applying rules concerning ratios in small-damage cases is illustrated by this case: an incremental change in the amount of compensatory damages awarded in small-damage cases will result
In conclusion, the jury properly found from the evidence and its instructions that $100,000 was an appropriate amount of punitive damages in this case, and the trial court’s invalidation of the jury’s punitive damages award and its substitution of a $2,000 punitive damages award does not comport with Hamlin II and Parrott. The jury’s award serves Oregon’s interest in deterring and punishing violations of the Act and does not violate due process. We therefore reverse and remand for the trial court to reinstate the jury’s award of punitive damages.
Reversed and remanded with instructions to reinstate the jury’s award of punitive damages.
Notes
In 2001, Lithia Motors, Inc., plaintiff’s parent company, brought the action against defendant, but it later amended its complaint so that the action was brought by plaintiff instead, because plaintiff was the actual entity that had contracted with defendant.
Accordingly, the dissent’s contrary reading of Hamlin II — “to come within the small compensatory damages exception, the defendant’s conduct must be particularly egregious,”
Por example, it is an unlawful debt collection practice to “[u]se or threaten the use of force or violence to cause physical harm”; “[threaten arrest or criminal prosecution”; “[t]hreaten the seizure, attachment, or sale of a debtor’s property when such action can only be taken pursuant to court order without disclosing that prior court order proceedings are required”; “[u]se profane, obscene, or abusive language in communicating with a debtor”; or “[ajttempt to or threaten to enforce a right or remedy with knowledge or reason to know that the right or remedy does not exist, or threaten to take any action that the debt collector does not take in the regular course of business.” ORS 646.639(2).
In Parrott, the Supreme Court reiterated the facts establishing the “high degree of social irresponsibility” exhibited by the car dealership in that case:
“[t]here was evidence from which the jury could have found that defendant knew of the extensive defects of the Suburban and of its branded title and odometer discrepancy, and that it concealed those facts from plaintiff. There was evidence from which the jury could have concluded that defendant’s treatment of plaintiff was not an isolated incident in that it had established business procedures that it could employ to cover any failure to disclose. There was evidence that defendant also used abusive tactics to cover its deceptions. Furthermore, from the evasive, inconsistent, and implausible explanations given by defendant’s representatives as to defendant’s business practices, the jury could infer that defendant had no intention of altering its practices in the future.”
And, although in this case the ratio of punitive damages to compensatory damages is 200 to 1, that fact alone does not make the punitive damages award “grossly excessive.” See TXO Production Corp. v. Alliance Resources Corp.,
Concurrence in Part
concurring in part, dissenting in part.
In light of the Supreme Court’s analysis in Hamlin v. Hampton Lumber Mills, Inc.,
LITHIA MOTORS I
Even though the majority opinion sets out the facts in detail, I too will summarize the facts to set the stage for my dissent. The following facts are taken from the concurring opinion in Lithia Motors, Inc. v. Yovan,
On December 2,2000, defendant bought a used 1993 Toyota 4Runner for $13,799, with a $300 down payment and $2,000 credit for his trade-in from plaintiff Lithia Medford LM, Inc., an auto dealership.
Several days later, a man came to defendant’s house and told him that the dealership had contracted with him to repossess the car for nonpayment. Id. (Edmonds, J., concurring). Defendant told the man that his first payment was not yet due and that the installment contract was not held by the dealership. Id. (Edmonds, J., concurring). The man said that he would call the police and that defendant was obstructing justice. Id. (Edmonds, J., concurring). Defendant then placed the car in storage for three months. Id. (Edmonds, J., concurring).
After repurchasing the retail installment contract from TranSouth, plaintiff sent defendant a page from the sales contract, noting that, “if Seller is unable to assign the retail installment contract/lease agreement * * * Seller may to rescind the retail installment contract/lease agreement,” which presumably was intended to provide a basis for plaintiff’s position that it could rescind the contract. Id. at 577-78 (Edmonds, J., concurring) (emphasis omitted). Defendant pointed out that TranSouth had not rejected the financing arrangement; instead, plaintiff had repurchased the contract. Id. at 578 (Edmonds, J., concurring). In January, plaintiff made a final attempt to settle the matter by offering to lower the financing amount by $1,000. Id. at 578-79 (Edmonds, J., concurring). Defendant rejected the offer, and the parties proceeded to trial.
At trial, defendant testified that his difficulties had caused disagreements with his wife and had contributed to his marriage ending. However, defendant’s former wife testified that the marriage ended because defendant broke her nose. Id. (Edmonds, J., concurring). A clinical psychologist also testified that defendant had trouble sleeping, felt threatened, lost his job and his house, and that the conflict with the dealership was “a significant contributing factor to his distress.” Id. at 579-80 (Edmonds, J., concurring). The parties stipulated that Lithia MTLM, Inc., had sufficient income and assets to pay a total of approximately $535,000 in damages and up to $100,000 in punitive damages. The jury did not award defendant any economic damages, but awarded him $500 in noneconomic damages for emotional injury and $100,000 in punitive damages. Id. at 574 (Edmonds, J., concurring). The trial court granted plaintiff’s motion for remittitur, ruling that the maximum constitutionally permissible punitive damages award based on the facts of the case was $2,000. Id. (Edmonds, J., concurring).
Defendant appealed, and we affirmed by an equally divided court. Id. at 573. Because the concurring and dissenting opinions in Lithia Motors I provide background and inform my analysis, I describe those opinions in detail. The concurrence began its analysis by quoting from our opinion in Hamlin v. Hampton Lumber Mills, Inc.,
‘“Grossly excessive’ punitive damage awards violate the Due Process Clause of the Fourteenth Amendment to the United
States Constitution, primarily because such damages serve no legitimate purpose and constitute arbitrary deprivations of property.[3 ] BMW of North America, Inc. v. Gore,517 US 559 , 568,116 S Ct 1589 ,134 L Ed 2d 809 (1996) (Gore).In reviewing whether a punitive damage award is grossly excessive, we adhere to the following methodology set forth by the Oregon Supreme Court in Goddard v. Farmers Ins. Co., 344 Or 232 ,179 P3d 645 (2008). First, we review the evidence in the record in the light most favorable to the party that obtained the award to determine whether there is a factual predicate for a punitive damage award. Id. at 261. Second, we apply ‘constitutionally prescribed guideposts to those predicate facts to determine if, as a matter of law, the award is grossly excessive.’ Id. Those guideposts, first identified by the United States Supreme Court in Gore, are:
“‘(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.’
“State Farm Mut. Ins. v. Campbell,538 US 408 , 418,123 S Ct 1513 ,155 L Ed 2d 585 (2003) (Campbell)-, see also Goddard,344 Or at 261-65 , (describing and applying Gore guideposts). Finally, if that analysis leads us to conclude that the award is grossly excessive, we then use those same guideposts to determine the maximum lawful amount of punitive damages that a rational juror could award. Goddard,344 Or at 261-62 .”
Under the first guidepost — the degree of reprehensibility of plaintiff’s misconduct — the concurrence stated, “In this case, plaintiff’s most egregious actions were its threat to commence criminal prosecution against defendant because of his failure to voluntarily return the car and its attempt to repossess the car from defendant.” Lithia Motors I,
Under the second guidepost — the disparity between the actual or potential harm suffered by a plaintiff and the punitive damages award — the concurrence stated that “the ratio of punitive damages to compensatory damages is 200 to 1, far exceeding the four-to-one ratio established as the general ceiling for punitive damages where the only harm is financial and the putative single-digit limit for punitive damages involving personal injury.”Id. (Edmonds, J., concurring). The concurrence noted again that “plaintiffs conduct was on the low end of the scale of reprehensibility” and concluded that “it cannot be said that the conduct was ‘particularly egregious’ so as to the due process ceiling in order to provide an incentive to bring an action.” Id. at 583 (Edmonds, J., concurring). The concurrence compared the award that defendant sought for emotional harm ($150,000) with the damages for emotional harm that the jury awarded ($500). “The award of $500 is not substantial in the sense that it is not a large amount, but it is substantial in the sense that it has actual value in excess of the $200 nominal damage award provided for in ORS 646.641(1) in the event of a violation of the act ” Id. (Edmonds, J., concurring).
Under the third guidepost — the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases — the concurrence stated that “[t]he most comparable sanction created by the legislature is in ORS 646.641(1), which provides a remedy in the amount of actual damages or $200, whichever is greater” and concluded that “the analysis under the third guidepost neither militates against nor supports a more substantial punitive damage award than the four-to-one ratio imposed by the trial court.” Id. at 584 (Edmonds, J., concurring).
Based on the guideposts, the concurrence concluded that the jury’s punitive damages award of $100,000 was grossly excessive. Id. (Edmonds, J., concurring). Although the degree of reprehensibility of plaintiff’s conduct was “significant,” it was “not egregious.” Id. at 585 (Edmonds, J., concurring).
“Balancing all of the relevant factors discussed above, I conclude that any amount in excess of a four-to-one ratio would constitute a grossly excessive award that would serve no legitimate purpose and if upheld, would constitute an arbitrary deprivation of plaintiff’s property. Accordingly, I would hold that the trial court did not err in reducing defendant’s punitive damage award to $2,000 or a four-to-one ratio.”
Id. (Edmonds, J., concurring).
In his dissenting opinion, Judge Armstrong argued that “the ratio loses its usefulness when we are confronted with a small compensatory award, as we are here.” Id. at 588 (Armstrong, J., dissenting). Judge Armstrong stated that “deterrence has much less meaning when we apply the suggested single-digit ratios to smaller awards.” Id. at 589 (Armstrong, J., dissenting). He went on to say:
“The fact that the jury found only $500 of the $150,000 in emotional harm that defendant sought goes to the issue of defendant’s damages, not plaintiff’s conduct. What is more telling, in my view, is that the jury determined that plaintiff had engaged in very offensive behavior, and that that behavior warranted a punitive damage award of $100,000.”
Id. at 590 (Armstrong, J., dissenting) (emphasis in original). Under the third guidepost in Gore, Judge Armstrong noted that the legislative policy permits civil penalties up to $25,000 and that “provides a more appropriate proportionality gauge for punitive damage awards in this and comparable circumstances — where egregious, prohibited conduct yields a small amount of compensatory damages — than does the single-digit formula.” Id. at 592 (Armstrong, J., dissenting). Accordingly, he concluded that an award of $25,000 in punitive damages would not offend due process. Id. (Armstrong, J., dissenting). Thus, in Judge Armstrong’s view, the jury’s award of $100,000 did offend due process.
Judge Sercombe also wrote a dissenting opinion, stating, “In my view, due process prohibits a punitive damages award in excess of $4,500.” Id. at 593 (Sercombe, J., dissenting). Judge Sercombe agreed with the majority that “plaintiff’s conduct in this case falls on the lower end of the reprehensibility scale” and that “there are no special circumstances in this case that would justify a punitive damages award that would exceed the compensatory damages by more than a single-digit ratio.” Id. (Sercombe, J., dissenting). However, Judge Sercombe argued that, under the second guidepost,
“[t]he concurrence goes astray when it uses a four-to-one ratio as its starting point in determining the maximum punitive damages award that due process will permit. Rather, the ‘rough numerical reference point’ that the Supreme Court has established in a noneconomic injury case such as this one is nine to one. In my view, because nothing in the record in this case requires an adjustment to that initial amount, due process requires only a reduction of the $100,000 punitive damages award to $4,500.”
Id. at 596-97 (Sercombe, J., dissenting) (quoting Goddard v. Farmers Ins. Co.,
HAMLIN
After our decision in Lithia Motors I, the Supreme Court issued its opinion in Hamlin II,
The Supreme Court allowed review. After reviewing the decisions of the United States Supreme Court that discuss the limitations that the Due Process Clause imposes on awards of punitive damages — in particular, the three guideposts — our Supreme Court held that we had erred in reversing the jury’s punitive damages verdict and reinstated it. Id. at 543-44. The court stated, “Key to understanding the second guidepost is the Supreme Court’s repeated refusal to set any ‘rigid benchmark’ beyond which a punitive damages award becomes unconstitutional.” Id. at 533. The court noted that the United States Supreme Court “also has recognized that a state may be unable to achieve its goals of deterrence and retribution if awards of punitive damages must, in all instances, be closely proportional to compensatory damages.” Id. But, “when the compensatory damages award is small and does not already serve an admonitory function, the second guidepost — the ratio between punitive and compensatory damages — is of limited assistance in determining whether the amount of a jury’s punitive damages award meets or exceeds state goals of deterrence and retribution.” Id. at 536-37.
Before considering the ratio between the punitive and compensatory damages, the court said that it had to identify the damages awarded and calculate the ratio between them; in that case, the ratio was approximately 22 to 1 .Id. at 537. The court stated that “the process of identifying due process limits demands flexibility and a consideration of the facts and circumstances that each case presents,” but noted that it had “characterized an award of compensatory damages of less than $25,000 as ‘relatively small’ and ‘low.’” Id. (quoting Williams v. Philip Morris Inc.,
“In this case, the compensatory damages are small and the ratio between the punitive and compensatory damages — 22:1—is in the low double digits. That ratio is higher than would be constitutionally permissible if the compensatory damages were more substantial, but is not so high that it makes the award ‘grossly excessive.’”
Id. at 543.
PUNITIVE DAMAGES ANALYSIS
After its decision in Hamlin I, the Supreme Court vacated our decision in
As noted, the first guidepost requires the court to assess the degree of reprehensibility of plaintiff’s conduct. Importantly, the court in Hamlin II stated that the reprehensibility guidepost is the most important indicium of the reasonableness of a punitive damages award.
The second guidepost requires the court to examine the ratio between the punitive damages award and the potential harm suffered
The award in this case of $500 in noneconomic damages for emotional injury is well under the $25,000 that the Supreme Court has characterized as “relatively small” and “low.” Hamlin II,
Finally, the third guidepost requires the court to consider comparable civil sanctions. As Judge Armstrong pointed out in his dissent, “the unlawful trade practice statutes also authorize the state, through district attorneys and the Attorney General, to bring actions to enjoin unlawful trade practices, ORS 646.632, and to recover civil penalties up to $25,000 for each trade practice violation.” Lithia Motors I,
In sum, under the three guideposts, I would conclude that plaintiff’s conduct was on the low end of the reprehensibility scale and not particularly egregious, the compensatory damages award is small and the 200 to 1 ratio of punitive damages to compensatory damages awarded by the jury is grossly excessive, and the comparable civil sanctions provide civil penalties, paid to the state, of up to $25,000. Based on these factors, punitive damages of $25,000 — a ratio of 50 to 1 — would be appropriate and would not violate due process in this case.
For those reasons, I respectfully dissent.
Defendant testified that, because ofhis experience inworkingfor a dealership, he knew “some of the tricks and the manipulation tactics that are [used].”
Defendant did not raise the issue of the high interest rate in his operative amended answer, affirmative defenses and counterclaims, which the majority states is a basis for the jury’s verdict.
The Fourteenth Amendment to the United States Constitution provides, in part, that “[n]o state shall *** deprive any person of life, liberty, or property, without due process of law[.]”
Thus, at the time of our decision in Lithia Motors I, our decision in Hamlin I was “controlling.” An award of punitive damages could not exceed a single-digit ratio to compensatory damages.
The majority relies largely on Parrott and implies that it is factually similar to this case.
Here, there is no evidence that plaintiff knew of the odometer discrepancy and there is no evidence in the record that this was more than an isolated incident. Neither is there evidence of hiding damage to the 4Runner, nor evidence that plaintiff’s conduct showed indifference to the health and safety of the public. That is why I disagree with the majority’s attempt to describe the facts in Parrott as similar to plaintiff’s acts. In addition, it is worth repeating that plaintiff sought and obtained rescission of the contract based on mutual mistake.
The majority notes that, in Hamlin II, the Supreme Court added a subfactor of legislative intent in punishing a party’s statutory violation.
ORS 646.642(1) provides:
“Any person who willfully violates the terms of an injunction issued under ORS 646.632 shall forfeit and pay to the state a civil penalty to be set by the court of not more than $25,000 per violation. For the purposes of this section, the court issuing the injunction shall retain jurisdiction and the cause shall be continued, and in such cases the prosecuting attorney acting in the name of the state may petition for recovery of civil penalties.”