THE BERT COMPANY D/B/A NORTHWEST INSURANCE SERVICES v. MATTHEW TURK, WILLIAM COLLINS, JAMIE HEYNES, DAVID MCDONNELL, FIRST NATIONAL INSURANCE AGENCY, LLC, FIRST NATIONAL BANK, AND FNB CORPORATION
No. 13 WAP 2022; No. 14 WAP 2022
IN THE SUPREME COURT OF PENNSYLVANIA WESTERN DISTRICT
DECIDED: JULY 19, 2023
TODD, C.J., DONOHUE, DOUGHERTY, WECHT, MUNDY, BROBSON, JJ.
[J-59A-2022 and J-59B-2022]
Appeal from the Order of the Superior Court entered May 5, 2021 at No. 817 WDA 2019, affirming the Judgment of the Court of Common Pleas of Warren/Forest County entered June 3, 2019 at No. AD 260 of 2017
ARGUED: October 25, 2022
THE BERT COMPANY D/B/A NORTHWEST INSURANCE SERVICES v. MATTHEW TURK, WILLIAM COLLINS, JAMIE HEYNES, DAVID MCDONNELL, FIRST NATIONAL INSURANCE AGENCY, LLC, FIRST NATIONAL BANK AND FNB CORPORATION
MATTHEW TURK v. THE BERT COMPANY, NORTHWEST BANK, AND NORTHWEST BANCSHARES, INC.
Appeal from the Order of the Superior Court entered May 5, 2021 at No. 975 WDA 2019, dismissing as moot the cross-appeal from the Judgment of the Court of Common Pleas of Warren/Forest County entered June 3, 2019 at No. AD 260 of 2017
ARGUED: October 25, 2022
APPEAL OF: MATTHEW TURK, FIRST NATIONAL INSURANCE AGENCY, LLC, FIRST NATIONAL BANK, AND FNB CORPORATION
JUSTICE DONOHUE
In this appeal by permission, we consider the application of jurisprudence of the United State Supreme Court1 addressing the constitutionality of an award of punitive damages2 by a civil jury in this Commonwealth.3 We specifically address the ratio calculation first discussed in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), and developed in State Farm Mutual Automobile Ins. Co. v. Campbell, 538 U.S. 408 (2003). Our grant of allowance of appeal narrowly encompasses the appropriate ratio calculation measuring the relationship between the amount of punitive damages awarded
The Superior Court calculated the punitive to compensatory damages ratio using a per-defendant approach, as calculated by the trial court, which resulted in ratios ranging from 1.81 to 1 to 6 to 1, rather than a per-judgment approach, which resulted in a ratio of 11.2 to 1. For the reasons discussed, we generally endorse the per-defendant approach as consistent with federal constitutional principles that require consideration of a defendant‘s due process rights. Further, we conclude that under the facts and circumstances of this case, it was appropriate to consider the potential harm that was likely to occur from the concerted conduct of the defendants in determining whether the measure of punishment was both reasonable and proportionate. Thus, we affirm the order of the Superior Court.
BACKGROUND
The Bert Company, dba Northwest Insurance Services (“Northwest“), is an insurance brokerage firm with clientele in northwestern Pennsylvania and western New York. In 2017, Northwest realized gross earnings of $9.4 million. Beginning in 2005, Matthew Turk (“Turk“) was employed as an insurance broker with Northwest. In 2009, he became head of the property and casualty division, and then worked as senior vice president of that division from January 2013 until his departure in May 2017. First National Insurance Agency, LLC (“FNIA“) is an insurance brokerage firm. FNB Corporation is the parent company of First National Bank (“FNB“) and FNIA (collectively and with FNIA “First National“).
Through the fall and winter of 2016, Turk repeatedly met with First National about the plan with the hope that First National could gut Northwest by hiring the bulk of its highest producers, acquiring their clients, and ultimately forcing that company to sell its remaining book of clients to First National. This course of conduct included Turk providing First National with sensitive pieces of Northwest‘s data, such as his book of business and a list of profitable employees that Turk believed would be willing to leave Northwest to work for First National. Turk‘s interactions with First National included various correspondence with two Senior Vice Presidents of FNB regarding the plan to raid Northwest.
Correspondence and multiple meetings occurred among various representatives of First National and Northwest employees regarding the takeover of Northwest; all the while Turk attempted to undermine Northwest‘s operations. For example, in May 2017, Northwest held a staff retreat where Turk was charged with overseeing a session regarding a new software program. Rather than covering that topic, Turk “furthered [First National‘s] plan to create discontent among [Northwest‘s] employees by opening the floor for grievances.” The Bert Co. v. Turk, 257 A.3d 93, 106 (Pa. Super. 2021). Two days after the retreat, Turk and Jamie Heynes (“Heynes“), another Northwest employee covertly participating in the plan, met with Linda Wallin (“Wallin“), an account manager at another agency who was planning to join Northwest where she would have reported to Turk. They informed Wallin that they were leaving Northwest for FNIA and encouraged
Toward the middle of May 2017, the plan began to come to fruition as several Northwest employees resigned and accepted offers from First National. Pursuant to the plan, Turk remained at Northwest to convince the company to sell its remaining business to First National. Northwest refused, choosing instead to fire Turk and initiate legal action.
Northwest initially sued several of its ex-employees, including Turk and William Collins, alleging breach of their NSND Agreements. The trial court issued an injunction barring the ex-employees from soliciting or servicing Northwest customers and from soliciting other Northwest employees to leave the company. Northwest then filed an amended complaint, adding First National as defendants and seeking compensatory and punitive damages. In addition, Northwest asserted: (1) breach of contract and fiduciary duties and theft of trade secrets against its ex-employees; (2) unfair competition against First National; and (3) misappropriation of trade secrets, tortious interference with contract, and civil conspiracy against Turk and First National.
The case proceeded to a jury trial on December 10, 2018, resulting in verdicts on December 21, 2018 against Turk, FNIA, FNB, and FNB Corporation (collectively the “Defendants“). The jury found Turk liable for breach of contract, breach of fiduciary duty,
| Turk | Breach of Contract, $164,9439 |
| Breach of Fiduciary Duty, $90,000 | |
| Turk, FNB Corp., FNB, FNIA | Civil Conspiracy, $164,943 |
| FNB Corp., FNB, FNIA | Unfair Competition, $250,000 |
The trial court instructed the jury that Northwest would receive only the largest award of any compensatory damages and that Northwest could not recover on each theory separately. Trial Court Opinion on Post-Trial Motions for Relief (“PTM Opinion“), 4/29/2019, at 14 (citing N.T., 12/20/2018, at 180).10 The verdict slip also reflected this instruction.11 The largest compensatory damages award for which Turk and First National
| Turk | Breach of Contract & Fiduciary Duty, Civil Conspiracy | $ 300,000 |
| FNB Corp. | Civil Conspiracy and Unfair Competition | $ 500,000 |
| FNB | Civil Conspiracy and Unfair Competition | $ 500,000 |
| FNIA | Civil Conspiracy and Unfair Competition | $1,500,000 |
Northwest and the Defendants filed post-trial motions, challenging, inter alia, the compensatory and punitive damages awards. The trial court denied the post-trial motions,13 but it granted Northwest‘s request to assess Turk with attorney‘s fees pursuant
and any others, it will collect the largest sum awarded on any particular claim (but not any other lesser or equal sums awarded), together with whatever amount of punitive damages you award below, if any.
Verdict Slip, 12/21/2018, at 2, 3, 5, 7, 8, and 10. Except for the claims for breach of contract and misappropriation of trade secrets, in addition to the foregoing instructions, the jury was instructed to answer whether any of the Defendants were liable for punitive damages and, if so, with respect to any such defendant, in what amount. In other words, the jury was instructed to award a specific amount of punitive damages individually against each of the Defendants it found liable for punitive damages.
A majority of a three-judge panel of the Superior Court affirmed the judgment in a published opinion. The Bert Co. v. Turk, 257 A.3d 93 (Pa. Super. 2021). The Defendants raised seven issues, the one relevant to the instant appeal being a challenge to the constitutionality of the jury‘s award of punitive damages to Northwest. The Defendants argued that the Due Process Clause of the Fourteenth Amendment to the United States Constitution14 prohibits, as grossly excessive, the punitive damages assessed against them on the grounds that the aggregate ratio of punitive to compensatory damages in this case was 11.2 to 1, resulting in an award of punitive damages that was unconstitutionally excessive. In advancing this as the appropriate ratio, the Defendants argued that the federal constitution required the trial court to cumulate all the punitive damages that the jury imposed and use that total as the numerator in its ratio calculation. Id. at 119.
In reviewing this claim, the Superior Court observed that the trial court had rejected the Defendants’ math, explaining that the trial court computed the ratio using the amount of the punitive damages assessed against each of the Defendants compared to the compensatory damage imposed on that defendant. This resulted in ratios of 1.8 to 1 for Turk; 2 to 1 for FNB; 2 to 1 for FNB Corporation; and 6 to 1 for FNIA. The Bert Co., 257 A.3d at 118-19 (citing PTM Opinion, 4/29/2019, at 25). Using this per-defendant approach, the trial court concluded that the ratios would be constitutionally sound under
The Superior Court explained that punitive damages serve the important state interest of deterring and punishing egregious behavior. The Bert Co., 257 A.3d at 119. As to the “historical context of punitive damages generally” and federal constitutional case law pertaining to punitive damages awards, the court observed that, in Pacific Mutual Life Insurance v. Haslip, 499 U.S. 1 (1991),16 the Supreme Court of the United States determined that the Fourteenth Amendment limits punitive damages based on “general concerns of reasonableness“; however, the High Court did not “draw a mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case.” The Bert Co., 257 A.3d at 120-21 (quoting Haslip, 499 U.S. at 18-19). Indeed, the Superior Court noted that the High Court affirmed punitive damages that exceeded the compensatory award by 526 times in TXO Product Corp. v. Alliance
The Superior Court next addressed BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), wherein the High Court vacated a punitive damages award.18 In so doing, the Court provided three “guideposts” for determining whether a punitive damages award is grossly excessive: “(1) the degree of reprehensibility of defendant‘s conduct; (2) the relationship of the punitive verdict to the harm or potential harm suffered by the victim; and (3) any sanctions for comparable misconduct in statutory or decisional law.” The Bert Co., 257 A.3d at 121 (citing Gore, 517 U.S. at 574, 583, & 585). The Superior Court observed that the Gore rationale was refined in State Farm, 538 U.S. 408 (2003).19
- 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 was vulnerable;
- 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.
The Bert Co., 257 A.3d at 121-22 (citing State Farm, 538 U.S. at 419-20).
Regarding the second Gore guidepost (the relationship of the punitive verdict to the harm or potential harm suffered by the victim), the Superior Court explained that State Farm reiterated there is no bright-line ratio for determining whether an award of punitive damages meets constitutional muster. However, it opined that “few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” The Bert Co., 257 A.3d at 122 (quoting State Farm, 538 U.S. at 425). In concluding its summary of the High Court‘s precedent in this area, the Superior Court expressed that, “[l]ike any substantive-due-process inquiry then, the issue is whether the jury‘s award of punitive damages is reasonable under the facts.” Id.
The Superior Court then turned its attention to determining how to calculate the punitive to compensatory damages ratio when multiple defendants are involved in a verdict. In so doing, the Superior Court initially rejected the Defendants’ suggestion that the alleged 11.2 to 1 punitive to compensatory damages ratio is grossly excessive as a matter of law. In support of this conclusion, the court reiterated that the High Court has repeatedly declined to draw a bright-line ratio that punitive damages cannot exceed.
The Superior Court recounted that, in Planned Parenthood, the Ninth Circuit adopted the formula proposed by Northwest and employed by the trial court in this case, i.e., the Ninth Circuit‘s “math compared each plaintiff‘s individual compensatory damages and punitive damages awards as to each defendant.” The Bert Co., 257 A.3d at 125 (internal quotation marks and citation omitted). The Superior Court explained that the “Ninth Circuit found this defendant-by-defendant approach ‘more accurately reflects the true relationship between the harm for which a particular defendant is responsible, and the punitive damages assessed against that defendant.‘” Id. (quoting Planned Parenthood, 422 F.3d at 961).
The Superior Court noted that the Texas Supreme Court reached the same result in Horizon Health. In so doing, the Texas Supreme Court stated that the “proper basis for assessing the constitutional excessiveness of an exemplary-damages award20 is per
After adopting the per-defendant ratio, the Superior Court stated that the ratio guidepost, i.e., the second Gore guidepost, “is not strictly a compensatory-to-punitive damages question.” The Bert Co., 257 A.3d at 128 (emphasis in original). Rather, the court opined, “that guidepost can also consider the ’potential harm’ a plaintiff could have suffered due to the defendant‘s misconduct.” Id. (citing Gore, 517 U.S. at 575) (emphasis in original). According to the Superior Court, ”Gore indicates that, in addition to the amount of harm inflicted, the Due Process Clause allows juries to impose punitive damages based on the potential damage that defendants wantonly risked or intentionally sought to inflict on a plaintiff.” Id. (emphasis in original). The court reasoned that “[f]actoring potential harm into the calculus is well-suited where defendants demonstrate knowledge that an act or omission is unlawful, yet deliberately break the law. This is particularly so where, as here, the tort is perpetrated with a desire to injure the plaintiff.” Id. at 129.
The Superior Court then reviewed the evidence of record which the court concluded clearly demonstrated that the Defendants intended to do as much economic damage as possible to Northwest, “to the point of forcing [Northwest] into sacrificing its entire staff and book of business to the First National Family.” The Bert Co., 257 A.3d at
assessing the degree of reprehensibility of the defendant‘s conduct, and recording the jury‘s sense of moral outrage as an expression of societal norms.” See Andrew W. Marrero, Punitive Damages: Why the Monster Thrives, 105 Geo. L.J. 767, 777 (2017) (citing Wilkes v. Wood, 98 Eng. Rep. 489 (1763), and Huckle v. Money, 95 Eng. Rep. 768 (1763)).
The Superior Court reiterated that the jury imposed punitive damages of $300,000 against Turk, $1.5 million against FNIA, $500,000 against First National Bank, and $500,000 against FNB Corporation; thus, these defendant-specific awards of punitive damages “pale in comparison to the staggering, potential harm that they all wanted to inflict on [Northwest].” The Bert Co., 257 A.3d at 132 (emphasis in original). The court then stated that “the punitive-damages-to-potential-harm ratios, per-defendant, are significantly less than even a one-to-one ratio. They are as follows: a one-to-31.333 ratio for Mr. Turk, a one-to-6.266 ratio for FNIA, and a one-to-18.8 ratio for First National Bank and F.N.B. Corp.” Id. Ultimately concluding that the Defendants’ constitutional claim was “frivolous,” the court opined, “Given the total disregard for the rule of law that [the Defendants] displayed, the punitive damages that the jury awarded are light years away from the outer limits of the Due Process Clause.” Id. (emphasis in original).
Judge Colins rejected, however, the Defendants’ contention that, because the compensatory damages award was substantial, any ratio of punitive to compensatory damages above 2 to 1 is unconstitutionally excessive as a matter of law.21 In so doing, Judge Colins observed that, in State Farm, the High Court ultimately held that “because there are no rigid benchmarks that a punitive damages award may not surpass, ratios greater than those we have previously upheld may comport with due process where a particularly egregious act has resulted in only a small amount of economic damages.” The Bert Co., 257 A.3d at 141 (Colins, J., concurring and dissenting) (quoting
- Whether in cases involving joint and several liability—where compensatory damages are awarded, cumulatively, against all defendants and not on an individualized basis—the constitutionally permissible ratio of punitive-to-compensatory damages is calculated on a per-judgment basis and not a per-defendant basis?
- Whether, in reviewing the constitutionality of a punitive damages award, a court cannot consider the speculative potential harm that the plaintiff could have suffered and introduce it as a post hoc justification for the award, especially when the plaintiff did not present evidence of potential harm to the jury?
- Whether, in cases where the compensatory damages award is substantial, a punitive-to-compensatory damages ratio exceeding 9:1 is presumptively unconstitutional under U.S. Supreme Court precedent?
The Bert Co. v. Turk, 275 A.3d 958 (Pa. 2022) (reordered).
DISCUSSION
I. Scope and Standard of Review
A challenge to the constitutionality of a punitive damages award triggers de novo review. Cooper Indus., Inc. v. Leatherman Tool Grp., Inc., 532 U.S. 424, 436 (2001). An appellate court should, however, adhere to the trial court‘s findings of fact unless they are clearly erroneous. Id. at 440 n.14 (citing United States v. Bajakajian, 524 U.S. 321, 336-37 n.10 (1998)). The issues accepted for review involve deciding the appropriate calculation of the ratio of punitive to compensatory damages pursuant to the second Gore factor where the defendants are jointly and severally liable under Pennsylvania law, and
language favoring single-digit ratios). Reading Radio involved multiple defendants, a single compensatory damages award, and separate punitive verdicts. The court employed the per-defendant approach used by the lower court in the case at hand.
II. Legal Background
The focal point of this appeal is the relationship between compensatory and punitive damages. Compensatory and punitive damages are typically awarded at the same time by the same decisionmaker, but they serve distinct purposes. Leatherman, 532 U.S. at 432. The distinguishing feature of compensatory or actual damages is that they serve “to compensate for a proven injury or loss.” Damages, Black‘s Law Dictionary (10th ed. 2014). Compensatory damages “are intended to redress the concrete loss that the plaintiff has suffered by reason of the defendant‘s wrongful conduct.” Leatherman, 532 U.S. at 432 (2001); State Farm, 538 U.S. at 416. To that end, compensatory damages may include not only out-of-pocket loss and other monetary harms, but also such injuries as “impairment of reputation and standing in the community, personal humiliation, and mental anguish and suffering.” Memphis Cmty. Sch. Dist. v. Stachura, 477 U.S. 299, 307 (1986) (quoting Gertz v. Robert Welch, Inc., 418 U.S. 323, 350 (1974)). Given their purpose, “compensatory damages are measured by the harm the defendant has caused the plaintiff.” Philip Morris USA v. Williams, 549 U.S. 346, 358 (2007).
“Punitive damages have long been a part of traditional state tort law.” Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 255 (1984). The common-law method for assessing punitive damages has been recognized in every state and federal court for over two hundred years—since before enactment of the Fourteenth Amendment in 1868. Day v. Woodworth, 54 U.S. 363 (1852); Haslip, 499 U.S. at 17. Punitive damages “are aimed at
The common law approach to punitive damages, including its unpredictability and appellate review based on an undefined concept of excessiveness, was the subject of constitutional challenge in the High Court on numerous occasions beginning in, at least, the 1970s.26 As stated in Haslip:
[T]he constitutional status of punitive damages, therefore, is not an issue new to this Court or unanticipated by it. Challenges have been raised before; for stated reasons, they have been rejected or deferred. … But the Fourteenth Amendment due process challenge is here once again.
Given the embedded root in state tort law of the common-law approach, the High Court declined to say that the method “is so inherently unfair as to deny due process and be per se unconstitutional.” Haslip, 499 U.S. at 17. The High Court went on to note, however, that “[i]t would be just as inappropriate to say that, because punitive damages have been recognized for so long, their imposition is never unconstitutional.” Id. at 18. In Haslip, the High Court determined that substantive due process principles serve as protections in punitive damages awards, invoking the “fair notice” principle embedded in
Consistent with the Supreme Court’s unwillingness in Haslip to impose a bright line or concrete limit on how to determine if an award of punitive damages meets constitutional muster, federal constitutional law in this area remained elastic. In TXO Production Corp., 509 U.S. at 460, the High Court held that punitive damages must have a “reasonable relationship to the harm that is likely to occur from the defendant’s conduct as well as to the harm that actually occurred.” In Gore, 517 U.S. at 560, the Court invoked statutory multiples of compensatory damages as instructive, and again declined to impose a bright-line rule. It also articulated three “guideposts” for determining if an award of punitive damages is grossly excessive: (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. Id. at 575.
More recently, in State Farm the Supreme Court further developed Gore’s second guidepost by adding more structure. In discussing the relationship between a punitive damages award and the harm or potential harm suffered by the victim, the Supreme Court articulated a non-binding single-digit ratio test.
We decline again to impose a bright-line ratio which a punitive damage award cannot exceed. Our jurisprudence and the principles it has now established demonstrate, however, that in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process. In Haslip, in upholding a punitive damages award, we concluded that an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety. We cited that 4–to–1 ratio again in Gore. The [Gore] Court further referenced a long legislative history, dating back over 700 years and going forward to today, providing for sanctions of double, treble, or quadruple damages to deter and punish. While these ratios are not binding, they are instructive. They demonstrate what should be obvious: Single-digit multipliers are more likely to comport with due process, while still achieving the State’s goals of deterrence and retribution.
State Farm, 538 U.S. at 425 (citing Haslip, 499 U.S. at 23–24, and Gore, 517 U.S. at 581 & n.33). The State Farm Court identified two exceptions to its suggested preference for a single-digit ratio: cases in which “a particularly egregious act has resulted in only a small amount of economic damages,” and cases in which “the injury is hard to detect or the monetary value of non-economic harm might have been difficult to determine.” State Farm, 538 U.S. at 425.
In Pennsylvania, the purpose of compensatory damages is also “to make the plaintiff whole.” Feingold v. Se. Pa. Transp. Auth., 517 A.2d 1270, 1276 (Pa. 1989). For decades, the alleged excessiveness of a compensatory verdict was measured by a “criterion of shockability.” Howarth v. Segal, 232 F.Supp. 617, 620 (E.D. Pa. 1964) (citing Flank v. Walker, 157 A.2d 163, 165 (Pa. 1960)). As for punitive damages, their purpose in Pennsylvania, consistent with the norm, is “to punish the wrongdoers and to deter future conduct.” Feingold, 517 A.2d at 1276. Pennsylvania continues to follow the common law approach except in the medical malpractice arena. See
In the era predating the United States Supreme Court’s fashioning of measurement tools for punitive damages, like the use of “guideposts” and ratios, the law in Pennsylvania was well settled that a jury verdict would be interfered with on the grounds of excessiveness only in cases where an award shocked the conscience of the court,27 in which case the reviewing court could grant a remittitur or remand for a new trial. See, e.g., Kirkbride v. Lisbon Contractors, Inc., 555 A.2d 800 (Pa. 1989) (“[A]t some point the amount of punitive damages may be so disproportionate when compared to the character of the act, the nature and extent of the harm and the wealth of the defendant, that it will shock the court’s sense of justice. In those rare instances, the court is given discretion to remit the damages to a more reasonable amount.”); DiSalle v. P.G. Pub. Co., 544 A.2d 1345 (Pa. Super. 1988) (addressing request for new trial based on excessiveness of
Punitive damages may be awarded for conduct that is outrageous, because of the defendant’s evil motive or his reckless indifference to the rights of others. In assessing punitive damages, the trier of fact can properly consider the character of the defendant’s act, the nature and extent of the harm to the plaintiff that the defendant caused or intended to cause and the wealth of the defendant.
Restatement (Second) of Torts § 908(2).28
Pennsylvania continues to follow the common law in the punitive damages arena. The United States Supreme Court’s jurisprudence overlays its operation to prevent constitutionally excessive awards. While the High Court has developed various
III. Whether the ratio for punitive to compensatory damages awarded in a multi-defendant case should be calculated on a per-judgment or per-defendant basis
The ratio calculation in this case involves two factors: a single compensatory damages award entered against multiple defendants who are jointly and severally liable for the award29 and distinct punitive damages awards against each of the Defendants. In multiple defendant cases, the ratio of punitive to compensatory damages has been calculated by other courts in one of two ways, i.e., on a per-defendant or a per-judgment basis. The per-defendant approach divides the punitive damages assessed against a defendant by the compensatory damages assessed against that defendant, and the per-judgment approach divides the total of punitive damages assessed against the defendants by the total of compensatory damages assessed against the defendants. Compare Planned Parenthood, 422 F.3d 949 (applying per-defendant ratio calculation), Horizon Health, 520 S.W.3d 848 (same), and Chicago Title Ins. Corp. v. Magnuson, 487 F.3d 985 (6th Cir. 2007) (same) with Advocat, Inc. v. Sauer, 111 S.W.3d 346, 363 (Ark.
A. Arguments of the Parties
According to the Defendants, the Superior Court erroneously held that the ratio calculation in multi-defendant cases is computed on a per-defendant basis, rather than by aggregating all of the punitive damages as the numerator in one ratio calculation, i.e., computed on a per-judgment basis. In support of that position, the Defendants first assert that courts and commentators have expressed the need to calculate punitive damages on a per-judgment basis when joint tortfeasors are in the same corporate family. The Defendants’ Brief at 37, 38 (citing Advocat, 111 S.W.3d at 363, and The ratio guidepost in the lower courts, 5 Bus. & Com. Litig. Fed. Cts. § 48:54 (“[W]hen multiple defendants are members of the same corporate family and the compensatory award is joint and several, it is more appropriate to calculate a single ratio using the full compensatory award as the denominator and the total punitive awards as the numerator, as opposed to comparing each separate punitive award to the total awards of compensatory damages.”)).32 Here, the Defendants contend, the Superior Court erred in rejecting the per-judgment calculation approach, even though, “according to the majority, the jury viewed [First National] as one singular entity, thus eliminating any factual predicate for an
The Defendants further assert that the Superior Court’s approach to calculating punitive damages fails to account for how compensatory damages are awarded in multi-defendant cases. They argue that punitive damages, like compensatory damages, should be awarded depending upon the type of tortfeasor at issue: “In cases involving consecutive or successive tortfeasors, the jury assesses compensatory damages on a per-defendant basis. In contrast, in cases involving joint or concurrent tortfeasors, the jury assesses compensatory damages, cumulatively, against all defendants, because joint and several liability applies.” The Defendants’ Brief at 39. Based upon this premise, the Defendants submit that calculating the punitive to compensatory damages ratio on a per-defendant basis in a case involving joint or concurrent tortfeasors is “to perpetuate a fiction,” i.e., “to count the same compensatory damages award multiple times…despite the fact that it is logically impossible that each defendant will pay the full amount of a compensatory damages award in a joint and several liability scenario.” Id. (citation omitted).
The Defendants reason that the per-defendant calculation of punitive damages approach is not appropriate among joint tortfeasors for several additional reasons. First, because the jury assesses compensatory damages as a whole and punitive damages individually, the punitive to compensatory damages comparison is not an apples-to-
Northwest challenges the Defendants’ position that a due process analysis of a punitive damages award mandates a ratio that compares Northwest’s actual harm on a per-judgment basis, i.e., a ratio that compares the compensatory damages award to the aggregate of the individual amounts the jury assessed against each of the Defendants in punitive damages (here, $2.8 million). Northwest asserts that the Defendants fail to offer any principles of law to support their contention. More specifically, Northwest asserts that the Superior Court’s individualized, per-defendant ratio calculation “is beyond reproach” because a punitive damages award implicates personal rights, specifically, a person’s right to fair notice of the potential penalties for tortious conduct. Northwest’s Brief at 30. Northwest explains that many courts have employed this method, including the Planned
According to Northwest, calculating the ratios individually by using the punitive award assessed against each defendant as the numerator and the total compensatory award for each jointly and severally defendant as the denominator is the correct formulation for multiple reasons: (1) the per-defendant “approach serves to best assess ‘the reasonable relationship’ between punitive damages and harm”; (2) it “advances the task of determining whether due process rights have been upheld”; and (3) it respects the jury’s verdict because “the jury found differing degrees of egregious behavior for punitive damages, while finding joint and several liability for compensatory harm.” Northwest’s Brief at 31 (citing Planned Parenthood, 422 F.3d at 960–62, and Ingham v. Johnson & Johnson, 608 S.W.3d 663 (Mo. Ct. App. 2020)). Thus, Northwest continues, “a plaintiff’s actual harm is represented by the amount a plaintiff is awarded in compensatory damages for the injury the defendant caused[.]” Id. at 34 (citing State Farm, 538 U.S. at 424–25). So, in calculating a ratio for each of the Defendants, it was proper to include the individual punitive damages awards as the numerator and the joint and several $250,000 compensatory damages award as the denominator for each First National entity and, as to Turk, it was proper to include the individual $300,000 punitive damages award as the numerator and the compensatory damages award of $164,943 as the denominator.
Next, Northwest points to the uncontroverted fact that it sustained “a single, indivisible injury” as a result of the Defendants’ misconduct; that is, the actual economic harm to Northwest could not be divided into separate, distinct parts. Northwest’s Brief at 36. Northwest asserts that the per-defendant approach adheres to that principle. In short,
Northwest also finds unavailing the Defendants’ single-corporate-entity argument, echoing the trial court’s observations that First National “insisted on their separate corporate existence and repeatedly made every effort to separate themselves, one from the other,” and that the jury was instructed to “decide whether punitive damages are to be assessed against each Defendant by that Defendant’s conduct alone[,]” which the jury did. Northwest’s Brief at 38 (citing Trial Court Opinion, 4/29/2019, at 3; N.T., 12/20/2018, at 172); Special Verdict Sheet, 12/21/2018, at 10. Finally, Northwest contests the Defendants’ reliance on the observation in State Farm that, in many cases, compensatory damages include a component that is duplicated in a punitive damages award.
B. Analysis
The Superior Court found the reasoning expressed in Planned Parenthood, 422 F.3d 949, and Horizon Health, 520 S.W.2d 848, persuasive: “computation of damages ratios in multi-defendant cases are on a per-defendant basis, rather than by aggregating all of the compensatory and punitive damages on a per-judgment basis.” The Bert Co., 257 A.3d at 128. In Planned Parenthood, the jury awarded individualized compensatory damages to six plaintiffs that were identical as to each of fourteen defendants, for a total, joint and several compensatory award of $526,336.14.37 Planned Parenthood, 422 F.3d at 952, 960. After grouping the defendants into different tiers for purposes of exemplary damages, “the jury awarded each plaintiff punitive damages in a discrete amount from each defendant,” for a total punitive damages award of $108.5 million. Id. at 960. In assessing the ratio calculation, the Ninth Circuit Court of Appeals reminded that due process “prohibits the imposition of grossly excessive or arbitrary punishments on a
it makes sense to compare each plaintiff’s individual compensatory damages and punitive damages awards as to each defendant because this approach simplifies the task of assessing constitutional reasonableness. If it appears that the envelope is pushed too far, the reviewing court can figure out who is to receive what amount of money from whom, and remit on a per plaintiff, per defendant basis.
In Horizon Health, the jury awarded $55,049.24 in actual damages to a single plaintiff, Horizon Health, finding the five individual defendants39 caused the loss in varying degrees. Horizon Health, 520 S.W.3d at 871–72. The jury awarded a total of $1,750,000 in exemplary damages against the individual defendants, but the intermediate appellate court suggested a remittitur to $220,196.96, using a per-defendant approach; the suggested remittitur would result in a ratio of 4 to 1 as to each defendant. In reviewing the intermediate court’s ratio calculation, the Texas Supreme Court voiced the same
Planned Parenthood and Horizon Health involve joint and several compensatory damages awards that are distinguishable from the compensatory damages award in this case. In those sister court cases, the juries entered individual amounts of compensatory damages against each defendant. While the defendants were jointly and severally liable to the plaintiffs for the cumulative compensatory damages award, the ratios were calculated using the individual compensatory damages awards as the denominator, not the cumulative joint and several amount of compensatory damages. Those cases represent straightforward per-defendant ratio calculations. In contrast, pursuant to the agreement of the parties in this case, the jury entered a joint and several compensatory damages award without allocating responsibility for that amount among the Defendants or assigning a specific amount of compensatory damages against each of the Defendants (which would later be cumulated for entering judgment against each of the jointly and severally liable Defendants).
A more analogous situation is reported in the Missouri intermediate appellate court’s decision in Ingham, 608 S.W.3d 663. There, twenty-two consumers filed an action against a cosmetics manufacturer and its parent company, asserting claims for strict liability and negligence based on evidence that the consumers developed ovarian cancer due to their use of talcum powder. The jury awarded $550 million in actual damages ($25 million multiplied by twenty-two Plaintiffs) jointly and severally against the defendants. “The jury recommended, and the trial court awarded, $990 million in punitive damages
As to the appropriate calculation, the defendants argued that the ratio for each defendant should be calculated for each defendant individually and the denominator in the individual calculations should be the reduced compensatory damages award ($787,500) divided by four (to reflect an equal division among the four defendants) rendering a denominator of $196,875. Using this method resulted in ratios of 8.9 to 1, 8.9 to 1, 3.8 to 1, 3.8 to 1.
In contrast, the plaintiffs argued that the ratios should not be calculated individually and should be measured using the total compensatory damages unreduced by plaintiff’s comparative fault ($5 million) as the denominator and the total punitive damages award as the numerator. This calculation, $5 million divided by $1.25 million, resulted in a ratio of 4 to 1.41
The Cooley Court rejected using the per-defendant approach advanced by the defendants (which resulted in the highest ratios) because dividing the compensatory damages award equally among the defendants for purposes of the calculation was “misleading.” Cooley, 776 F.Supp.2d at 552. At trial, it was determined that, “due to the secret joint-defense agreement, the jury would not be instructed to allocate compensatory damages separately.” Id. at 552 n.203. Consequently, it was not possible for the district court to accurately calculate the ratio for each defendant individually. Id. at 552.
For purposes of our consideration, it is important to emphasize that the Cooley Court did not chose the per-judgment approach to calculate the ratio because it best reflected the purpose of the second Gore factor. There was no consideration of whether the per-judgment approach under the circumstances reflected the impact on each defendant’s due process rights. Nor were the defendants related in a “corporate family”
As in the case before us, by agreement of the parties,43 there was no allocation of compensatory damages as a result of the manner in which the jury was instructed. Thus, as in Cooley, we have no basis to determine what amount of the $250,000 compensatory damages award correlates with the conduct of any specific defendant.
Neither the plaintiff nor the defendants in Cooley advocated for the per-defendant approach invoked by Northwest, i.e., doing a ratio calculation for each of the Defendants using the total compensatory damages award as the denominator and the individual punitive damages award against each of the Defendants as the numerator. Based on our survey of other jurisdictions addressing this scenario, Missouri and the Virgin Islands have used this calculation to determine the Gore ratio.44 It also appears that our Superior Court has used this approach. See supra note 23 (discussing Reading Radio, 833 A.2d 199). In addition, as seen in Horizon Health and Planned Parenthood, Texas and the Ninth Circuit have endorsed the per-defendant approach to calculating the ratio, albeit where
We emphasize, as evidenced by the High Court‘s rulings, an analysis of the constitutionality of a punitive damages award must account for its impact on a defendant‘s right to due process. State Farm, 538 U.S. at 416–17 (“Elementary notions of fairness enshrined in our constitutional jurisprudence dictate that a person receives fair notice not only of the conduct that will subject him to punishment, but also of the severity of the penalty that a State may impose.“). The per-defendant ratio assesses the individualized impact intended by the punitive damages awards, whereas the per-judgment approach
Punitive damages awards must be tailored to each defendant. Unlike responsibility for causing the harm, which as to jointly and severally liable defendants is indivisible for purposes of liability, reprehensibility is a determination that must be individualized as to each defendant. In this case, the jury deliberated and assessed the reprehensibility of the conduct of each of the Defendants and determined the punitive damages verdict necessary to punish and deter each of the Defendants. See The Bert Co., 257 A.3d at 124 (“Here, the jury found each defendant‘s misconduct morally reprehensible but to varying degrees.“). The per-defendant approach reflects this reality.
Contrary to the Defendants’ argument, this case was not tried as a single-corporate-entity case. Trial Court Opinion, 4/29/2019, at 3; N.T., 12/20/2018, at 172; Special Verdict Sheet, 12/21/2018, at 10. Northwest was required to prove wrongdoing by each defendant. The jury was charged in that manner and determined liability and punitive damages in that manner as instructed on the verdict sheet.
In the trial of this case, the principles of joint and several liability were recognized in the parties’ agreement to instruct the jury to award a single compensatory damages award as to all the Defendants. Pursuant to Pennsylvania statute: “A defendant‘s liability in [an intentional tort action] shall be joint and several, and the court shall enter a joint and several judgment in favor of the plaintiff and against the defendant for the total dollar amount awarded as damages[.]”
The purpose of joint and several liability is to enhance the collectability of the plaintiff‘s verdict. The plaintiff can recover the full amount of an award against any jointly and severally liable defendant, avoiding the barrier to compensation created by defendants without the financial resources to satisfy the judgment. See AAA Mid-Atlantic Ins. Co. v. Ryan, 84 A.3d 626, 631 (Pa. 2014) (“[Joint and several liability] allows an injured party to recover an entire judgment from any one responsible tortfeasor.“).
The fact that defendants are jointly and severally liable as a matter of law does not mean that a jury cannot allocate responsibility for the harm among those defendants. If separate compensatory damages awards had been entered against the Defendants in this case, the amounts would have been cumulated for purposes of Northwest entering judgment against each of them. The fact that this did not occur here was because the parties chose not to have the jury allocate the responsibility for the harm to Northwest.46
As a result, utilizing the per-defendant approach to calculate the Gore ratio does not perfectly reflect a comparison of the Defendants’ responsibility for the harm to the reprehensibility of the Defendants’ conduct. It is certainly possible that the jury believed that the takeover scheme could not have been accomplished without Turk working from the inside of Northwest and that he bore a greater responsibility for the compensatory
Cumulating the punitive verdicts as required under the per-judgment approach obliterates the jury‘s assessment of each defendant‘s reprehensibility, and we cannot conceive a reason for doing so where the Defendants are not a single corporate entity. Here, the single compensatory damages award reflects the parties’ decision to have the jury consider the harm as indivisible. Consequently, under the circumstances, the per-defendant calculation of the Gore ratio—dividing the individualized punitive damages awards by the total compensatory damages award—is appropriate. This was the methodology used by the trial court and the Superior Court.
We reject the Defendants’ contention that the utilization of this approach “perpetuates a fiction” by utilizing the compensatory damages award multiple times in a case involving jointly and severally liability defendants. Instead, this approach effectuates the parties’ agreement to have the compensatory damages award reflect the General Assembly‘s directive that such tortfeasors are in fact individually liable to the victim of an intentional tort for the full amount of damages. As a result, the verdict returned by the jury reflected an indivisible harm. Tampering with this determination is not within our
Utilizing the per-defendant approach, the trial court correctly calculated the ratio of punitive damages to compensatory damages contemplated under the second Gore factor as follows:
| Turk | 1.8 to 1 |
| First National Bank | 2 to 1 |
| FNB Corp. | 2 to 1 |
| FNIA | 6 to 1 |
Trial Court Opinion, 8/6/2019, at 4. The trial court concluded that, while the individual calculations fall within the single-digit ratio explained in State Farm, the “global ratio” (per-judgment ratio of 11.2 to 1) only slightly exceeds it. Id. Recognizing that there is no explicit ratio that a punitive damages award may not surpass, and that the award must be based on the facts and circumstances of the Defendants’ conduct and harm to Northwest, the trial court validated the jury award, finding that it did not shock the court‘s conscience. Id. While the trial court‘s ultimate conclusion is expressed in pre-Haslip terminology, its opinion as a whole reflects a thorough consideration of the evidence of record, the requisite reprehensibility, and a recognition of the due process implications of the relationship between the compensatory and punitive damages awards. Although the trial court did not decide that the per-defendant ratio calculation was preferable to the per-
Determination of the ratio of punitive to compensatory damages is not the end of the examination of the relationship between the plaintiff‘s harm as reflected in the compensatory damages award and the reprehensibility of the defendant‘s conduct. “[C]ourts must ensure that the measure of punishment is both reasonable and proportionate to the amount of harm to the plaintiff and the general damages recovered.” State Farm, 538 U.S. at 426. We emphasize that the second Gore factor does not operate mechanically. Without regard to the totality of the circumstances, the Defendants view the calculation of the ratio as the endgame. Either it is too high or too low, and the constitutional question is answered. This is wrong.47
The Defendants contend that the Superior Court erroneously injected potential harm into the case sua sponte as a post hoc justification for the jury‘s punitive damages awards. Northwest considers the court‘s discussion to be relevant and supported by the record.
A. Arguments of the Parties
According to the Defendants, at trial Northwest made only passing reference to the concept of potential harm to Northwest if the lift out and ultimate hostile takeover were successful. Furthermore, it never offered a developed argument to the Superior Court that the court should consider such harm in evaluating the constitutionality of the $2.8 million punitive damages award. Thus, the Defendants reason, whatever role potential harm has under the Gore guideposts, it cannot be used as an after-the-fact justification to save an otherwise unconstitutional punitive damages award. Yet, the Defendants assert, the Superior Court utilized the potential harm to Northwest for this exact purpose. The Defendants support this argument by selectively referring to the record, which, they claim, demonstrates that a Northwest executive wrote to Northwest‘s remaining customers that the company had the resources to service and retain them all.
The Defendants also believe that Northwest offers this Court a flawed argument on potential harm, insisting that Northwest fails to point to anything in the record that would suggest either party introduced the issue of potential harm in the lower courts, let alone that the jury considered potential harm in crafting its punitive damages award. In addition, the Defendants challenge Northwest‘s suggestion that “potential harm” encompasses everything that could have happened in a case. On this point, the
The Defendants further submit that the Superior Court‘s potential harm analysis conflicts with Supreme Court precedent. Specifically, the Defendants argue that the Gore Court did not hold that potential harm is a valid consideration when reviewing the constitutionality of a punitive damages award in all cases. Rather, the Defendants assert, the Supreme Court merely stated that “there is no suggestion that Dr. Gore or any other BMW purchaser was threatened with any additional potential harm by BMW‘s nondisclosure policy.” The Defendants’ Brief at 47 (quoting Gore, 517 U.S. at 582). Assuming arguendo that potential harm is a valid consideration under the circumstances of this case, the Defendants maintain that the Superior Court ignored the fact that Northwest eliminated any hypothetical “potential harm” by obtaining a preliminary injunction in the early stages of litigation, thereby rendering potential harm an inapplicable consideration.
Contrary to the Defendants’ argument that potential harm should not be considered in these circumstances, Northwest highlights cases, such as Gore and State Farm, wherein the Supreme Court clearly spelled out that courts can assess the potential harm from tortious conduct when contemplating the constitutionality of punitive damages awards. According to Northwest, because no defendant “has to pay” compensatory damages for potential harm, the amount of harm that a defendant could have caused “only has a relationship to the degree of wrong,” i.e., to the assessment of punitive
Concerning the Defendants’ contention that the Superior Court improperly injected potential harm into this case sua sponte, Northwest posits that the court merely applied the law that Northwest presented to the court, i.e., Gore and State Farm. Northwest‘s Brief at 46–47 (citing the Defendants’ First Superior Court Brief at 49–50). In fact, Northwest maintains, in relying on Gore and State Farm, the Defendants put at issue the question of potential harm, because those cases refer to such harm as part of the equation. Northwest further notes that, with regard to its arguments in the Superior Court as an appellee, it had no issue preservation responsibilities; therefore, the Defendants’ attempted waiver argument fails. Id. at 47 n.16.
Next, Northwest refutes the Defendants’ argument that the Superior Court created a new rule that potential harm should be considered in cases such as this one. Northwest contends that the Superior Court did not craft a new rule regarding potential harm; it merely applied this well-settled law. Concerning the Defendants’ contention that potential harm was not a factor in this case because Northwest obtained a preliminary injunction enjoining First National from further gutting Northwest, Northwest argues that the Defendants cannot invoke its resistance to the takeover and business resilience to exculpate itself. Its ability to thwart the Defendants’ scheme does not mean the “potential harm ratios cannot be calculated under Gore guidepost two and, in this case, the evidence was more than sufficient to establish the value of the potential harm [Northwest] would
B. Analysis
In assessing the constitutionality of a punitive damages award, the United States Supreme Court first took account of the potential harm that might result from a defendant‘s tortious conduct in Haslip. The High Court endorsed the Alabama Supreme Court‘s standard of “whether there is a reasonable relationship between the punitive damages award and the harm likely to result from the defendant‘s conduct as well as the harm that actually has occurred.” Haslip, 499 U.S. at 21. The TXO plurality noted the High Court‘s previous endorsement of the potential harm standard:
Thus, both State Supreme Courts and this Court have eschewed an approach that concentrates entirely on the relationship between actual and punitive damages. It is appropriate to consider the magnitude of the potential harm that the defendant‘s conduct would have caused to its intended victim if the wrongful plan had succeeded, as well as the possible harm to other victims that might have resulted if similar future behavior were not deterred.
Then in Gore, the Supreme Court granted certiorari to clarify “the character of the standard that will identify unconstitutionally excessive awards of punitive damages.” Gore, 517 U.S. at 568 (citation omitted). As part of that standard, the High Court associated potential harm with its second guidepost: “the disparity between the harm or
Although in Leatherman the Supreme Court was focused mainly on the correct standard of review in assessing the constitutionality of a punitive damages award, it again commented on potential harm as part of the second Gore factor, discussing potential harm in relation to a realistic evaluation of the record evidence. See Leatherman, 532 U.S. at 442 (“Even if that estimate [of potential harm] were correct, however, it would be unrealistic to assume that all of Cooper‘s sales of the ToolZall would have been attributable to its misconduct in using a photograph of a modified PST in its initial advertising materials.“). The TXO plurality explained that the potential harm that is properly included in the due process analysis is “harm that is likely to occur from the defendant‘s conduct.” TXO, 509 U.S. at 460.
In this case, the Superior Court never discussed the constitutionality of the single-digit ratios resulting from the per-defendant ratio calculation using the compensatory damages as the denominator in the equation. Instead, the Superior Court viewed the
We have determined that the second Gore guidepost requiring an analysis of the relationship between the punitive damages award to the harm suffered by Northwest—as measured by the mathematical ratio of the punitive damages awards to the compensatory damages award—does not bump up against the single-digit ratio earmarked for concern in State Farm. However, as discussed, the calculation of the ratio is not the end of the analysis. The Defendants’ argument in this Court against the Superior Court‘s consideration of the potential but unrealized harm to Northwest starts with the premise that the ratio must be calculated on a per-judgment basis. Applying that calculation results in an 11.2 to 1 ratio. Again, in a mechanical fashion, the Defendants posit that this ratio is presumptively unconstitutional, and the Superior Court‘s only reason for considering potential harm was to rationalize an otherwise presumptively unconstitutional punitive verdict. Even though the Defendants’ argument is couched in an attack on a ratio calculation that we have rejected, whether potential harm has a place
First, the Defendants’ contention that the Superior Court‘s “sua sponte” consideration of potential harm in its analysis of the second Gore factor was error demonstrates a misunderstanding of the de novo review required when a specific challenge is made to the unconstitutional excessiveness of a punitive damages award as required by Leatherman, 532 U.S. at 431. In the Superior Court, the Defendants challenged the punitive damages awards in light of the second Gore guidepost: the relationship of the punitive damages award to the harm or potential harm suffered by the victim. Its consideration of evidence of potential harm as part of its de novo review of the relationship between the punitive and compensatory damages awards was sound.
Second, contrary to the Defendants’ assertion, evidence of record supports the calculation of potential harm intended by the Defendants. As detailed by the Superior Court and supplemented by our review of the record, the Defendants’ scheme to gut Northwest of its personnel, capture the business of those employees, and force a fire sale of the remaining business was thwarted by Northwest through resistance and prompt legal action. The jury‘s compensatory damages award did not and could not capture the harm that was the goal of the Defendants’ conduct and that was likely to result from their conduct. TXO, 509 U.S. at 460. At a minimum, the expert testimony established through the pro forma analysis prepared by FNIA to evaluate the acquisition of Turk and Collins and their books of business showed a value of $5.3 million over a five-year period. N.T., 12/17/2018, at 231–32. As described, this was just one aspect of the planned takeover. The Superior Court relied on the 2017 revenue of Northwest as verified by the testimony
Finally, the jury was instructed that in considering the award of punitive damages it could consider “any or all of the follow[ing] factors. … Two, the nature and extent of the harm to Plaintiff the Defendant caused or intended to cause.” N.T., 12/20/2018, at 171. The trial court derived this language from well-established Pennsylvania law. The element of an award of punitive damages for averted harm has long been recognized in Pennsylvania. Feld v. Merriam, 485 A.2d 742 (Pa. 1984) (adopting Restatement (Second) of Torts § 908(2), which provides that jury can consider nature and extent of harm defendant caused or intended to cause); Kirkbride, 555 A.2d at 803 (citing Feld and Section 908(2) instruction on punitive damages); SHV Coal, Inc. v. Continental Grain Co., 587 A.2d 702 (Pa. 1991) (same). The charge given by the trial court accurately reflects the concept of potential harm as articulated by the High Court and consistently applied in this Commonwealth. This case involved the commission of intentional torts, and the charge appropriately conveyed to the jury that it could award punitive damages for both
Under the facts and circumstances of this case, the Superior Court did not err in considering potential harm in its de novo review of the relationship between the compensatory and punitive damages awards in this case. Although we reject its point of analysis for the amount of potential harm, using the described pro forma analysis as the potential harm likely to occur if the Defendants’ scheme was not thwarted was a relevant factor to consider in analyzing the relationship between the punitive and compensatory damages awards.
However, we are not convinced that the appropriate treatment of the amount of potential harm is to mechanically add it to the amount of compensatory damages and then recompute the ratio under the second Gore factor. The magnitude of the potential harm that was intended by the Defendants in this case sheds light on the proportionality of the punitive to compensatory damages. The jury decided, appropriately based on the evidence, that punishment and deterrence were warranted because the goal of the entire scheme was to destroy a competitor without regard to the existing non-solicitation agreements and by way of months-long planning, surreptitious meetings, disruption of employment arrangements with newly hired employees, and timing the transfer of personnel to FNIA so that the key Northwest employee (who helped mastermind the scheme) was last to leave so that he could broker the fire sale of the remaining business of Northwest. We do not go so far as to say that the amount of the potential harm that
V. Whether, in cases where the compensatory damages award is substantial, a punitive-to-compensatory damages ratio exceeding 9:1 is presumptively unconstitutional under U.S. Supreme Court precedent?
As discussed, the issues upon which we granted allowance of appeal were narrowly tailored to address the appropriate calculation of the ratio of punitive to compensatory damages required by Gore. See supra at p. 18. Having concluded that the appropriate methodology is the per-defendant approach, none of the resulting ratios applicable to the individual Defendants’ punitive damages awards exceeds the single-digit ratio earmarked by the High Court in State Farm as potentially constitutionally suspect. State Farm, 538 U.S. at 425. The Defendants’ argument regarding a ratio in excess of a single digit (i.e., the global ratio of 11.2 to 1) is moot in that it is based on a calculation of the ratio using the per-judgment approach. Although we have rejected the Defendants’ preferred methodology, we find it prudent to address certain aspects of the Defendants’ contentions because they interface with the general framework of the Gore ratio analysis.
In arguing that the punitive to compensatory damages ratio in this case presumptively violates the Due Process Clause of the Fourteenth Amendment of the United States Constitution, the Defendants start from the premise that a per-judgment ratio of 11.2 to 1 is presumptively unconstitutional. The Defendants’ Brief at 31 (citing State Farm, 538 U.S. at 425 (“[I]n practice, few awards exceeding a single-digit ratio between punitive damages and compensatory damages, to a significant degree, will satisfy due process.“)). The Defendants consider the Pennsylvania appellate court precedent cited by the Superior Court, Hollock v. Erie Insurance Exchange, 842 A.2d 409 (Pa. Super. 2004), and Grossi v. Travelers Personal Insurance Co., 79 A.3d 1141 (Pa. Super. 2013), to be exceptions to the single-digit cut-off of 9 to 1. They reason that, in those statutory bad faith actions, compensatory damages are limited to fees, expenses, and interest. As a result, an award of compensatory damages in such cases is relatively low, which, pursuant to federal precedent, may justify a higher ratio of punitive damages. In this case, however, the Defendants insist that the substantial award of $250,000 in compensatory damages does not justify the double-digit ratio of punitive to compensatory damages and that, instead, the amount of punitive damages should be at most equal to the compensatory damages award, i.e., 1 to 1.
In response, Northwest challenges the Defendants’ characterization of the $250,000 award of compensatory damages as “substantial,” highlighting that courts have characterized damages that far exceed that amount as “limited,” “little,” or “not substantial.” Northwest‘s Brief at 42 (citing cases to establish that $250,000 is not substantial for purposes of assessing ratio). Northwest also rejects Defendants’ assertion
B. Analysis
Although the State Farm Court opined that, “[w]hen compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee,” it did not define “substantial” for purposes of evaluating compensatory damages. State Farm, 538 U.S. at 425. The question is, what is a “substantial” award.
The term “substantial” is not self-explanatory, and its meaning is not self-evident.49 Does substantial have meaning only in relation to something else or is it merely the
In a commercial tort or breach of contract action, for example, some courts have opined that the substantiality of a compensatory damages award has meaning in relation to the amount of damages demanded, which the plaintiff presents to the jury as a sum certain. See, e.g., Williams v. First Advantage LNS Screening Solutions Inc., 947 F.3d 735, 755 (11th Cir. 2020) (holding $250,000 award of compensatory damages was substantial where lost wages resulting from negligence of consumer reporting agency totaled $78,272). Other courts have used the degree of reprehensibility of the defendant‘s conduct to assess whether the compensatory damages award was substantial. See Bullock v. Philip Morris USA, Inc., 131 Cal. Rptr. 3d 382, 406 (Ct. App. 2011) (upholding $13.8 million punitive damages award where compensatory damages award was $850,000 “because of the extremely reprehensible degree of defendant‘s misconduct“), and Flax v. DaimlerChrysler Corp., 272 S.W. 3d 521, 539 (Tenn. Ct. App. 2008) (upholding $13 million punitive damages award where compensatory damages award was $2.5 million because “a 1:1 ratio would [not] adequately punish or deter defendant‘s reckless conduct“). As we previously discussed, the amount of potential harm that was likely to result from a defendant‘s conduct compared to the actual damages awarded is a relevant factor in determining whether a compensatory damages award is substantial.
Given the multitude of factors that might influence a determination of whether a compensatory damages award is or is not substantial, the Defendants’ contention that the dollar amount of an award alone suggests the answer is misplaced. Like the other
Again straining for mathematical certainty, the Defendants’ argue that a ratio of punitive to compensatory damages higher than 9 to 1 is presumptively unconstitutional. United States Supreme Court precedent does not lend itself to such a doctrinaire assertion. The overall concern of the United States Supreme Court in limiting the discretion-based common-law approach to the assessment of punitive damages was to curtail punitive awards that “run wild” and offend “judicial sensibilities,” Haslip, 499 U.S. at 18, or that amount to an arbitrary deprivation of property in violation of due process, TXO, 509 U.S. at 453–54.51 The High Court “rejected the notion that the constitutional line [of excessiveness] is marked by a simple mathematical formula, even one that compares actual and potential damages to the punitive award.” Gore, 517 U.S. at 582. In fact, the Court has remarked that “[i]n most cases, the ratio will be within a constitutionally acceptable range, and remittitur will not be justified on this basis.” Id. at 583.
Even taking into account the High Court‘s observation that a 4 to 1 ratio “might be close to the line of constitutional impropriety,” State Farm, 538 U.S. at 425, we cannot escape the Court‘s steadfast refusal to create a bright line for delineating excessive
While the State Farm Court also observed that “in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process,” State Farm, 538 U.S. at 425, again the High Court did not explain what it meant by “a significant degree.” Nor did it say that if a ratio exceeds single digits beyond that nebulous degree, it is unconstitutional. Rather, we view the observation to mean at most that such a ratio requires a closer examination of the justification for the punitive damages award. Borrowing a phrase from another context, a court should “raise a suspicious judicial eyebrow” at a punitive damages award that does not bear a reasonable relationship to the harm. TXO, 509 U.S. at 481 (O‘Connor, J., dissenting). At
Conclusion
In this appeal involving a challenge based on the alleged unconstitutional excessiveness of punitive damages awards against multiple defendants, we granted discretionary review to consider the appropriate ratio calculation that is part of the due process analysis contemplated by the second guidepost articulated in Gore and further refined in State Farm: the relationship of the punitive verdict to the harm or potential harm suffered by the victim. Gore, 517 U.S. at 575; State Farm, 538 U.S. at 425. We adopt the per-defendant approach to calculate the ratio, where the punitive damages award is the numerator and the compensatory damages award is the denominator. This methodology reflects the impact of the punitive verdict on each of the Defendants as required under the Due Process Clause.
Based on the agreement of the parties in this case, a jury entered a single compensatory damages award against the Defendants who were jointly and severally liable to the plaintiff, Northwest. The jury entered separate punitive damages awards against each of the Defendants in varying amounts. Although the jury was not instructed to allocate responsibility among the Defendants for the harm caused to Northwest, we conclude that the per-defendant methodology is appropriate. The calculation for each of the Defendants includes the total compensatory damages award as the denominator and
In addition, the second Gore guidepost anticipates consideration of the potential harm likely to occur from the Defendants’ conduct. Where, as here, the record includes evidence of the potential harm intended by the Defendants and the jury was instructed that such harm could be considered in its award of punitive damages, the Superior Court did not err in considering the amount of potential harm as part of its consideration of the relationship between the punitive damages awards and the compensatory damages award. While the value of the potential harm is not directly added to the compensatory damages award to create a new denominator in the ratio, it is a relevant factor to consider in evaluating whether a punitive damages award is excessive.
In the absence of any other basis to review the constitutionality of the punitive damages awards based on the scope of our allowance of appeal, we affirm the order of the Superior Court.
Chief Justice Todd and Justices Dougherty and Wecht join the opinion.
Justice Dougherty files a concurring opinion.
Justice Wecht files a concurring opinion.
Justice Mundy files a concurring opinion.
Justice Brobson files a concurring opinion.
Notes
Note to jurors: While you may choose to award Northwest Insurance Services damages on this claim and any others, Northwest Insurance Services will only be permitted to recover once for the same injury. Therefore, if you choose to award Northwest Insurance Services damages on this claim (continued…)
As to the remaining ratios of 2 to 1 or less, we note that Defendants posit that such ratios are acceptable because they are consistent with prior punitive damages awards in Pennsylvania. The Defendants’ Brief at 58 (citing Reading Radio and B.G. Balmer).
We observe that the Defendants additional citation to King v. GEICO Indemnity Co., 712 Fed. App‘x 649 (9th Cir. 2017), as a “substantial” award case is misplaced. Therein, the court did not use the term “substantial” at all, let alone to describe the compensatory damages awarded. In calculating the ratio pursuant to the second Gore guidepost, the King Court simply calculated the ratio using the $266,070.61 compensatory damages award—without qualification—to assess whether the punitive damages award violated due process. Id. at 650–51.
If the Supreme Court intends 1:1 to represent a significant restraint on punitive damages in cases involving ‘substantial’ compensatory damages, that message is not being well received [as most courts] do not expressly consider the ‘substantial’ rationale at all.
Laura J. Hines & N. William Hines, Constitutional Constraints on Punitive Damages: Clarity, Consistency, and the Outlier Dilemma, 66 Hastings L.J. at 1302.Determining when compensatory awards are sufficiently substantial to limit the punitive damages to a 1: 1 ratio obviously depends heavily on how the reviewing court interprets the amount of the compensatory damages in relation to the facts of the case, particularly the degree of reprehensibility involved, and arguably interjects a disturbing degree of subjectivity into the review process.