Chapter 64: Punitive Damages
The Case: Hodges v. S.C. Toof and Company , 833 S.W.2d 896 (Tenn. 1992).
The Basic Facts: Plaintiff, a long-time employee of Defendant company, was fired after Plaintiff served jury duty for approximately three months. Plaintiff brought suit against Defendant, alleging a retaliatory discharge.
The Bottom Line:
- "In Tennessee, therefore, a court may henceforth award punitive damages only if it finds a defendant has acted either (1) intentionally, (2) fraudulently, (3) maliciously, or (4) recklessly." 833 S.W.2d at 901
- A person acts intentionally when it is the person's conscious objective or desire to engage in the conduct or cause the result. Cf. [Tenn. Code Ann. § 39-11-302(a) (1991) (criminal definition of 'intentional')]. A person acts fraudulently when (1) the person intentionally misrepresents an existing, material fact or produces a false impression, in order to mislead another or to obtain an undue advantage, and (2) another is injured because of reasonable reliance on that misrepresentation. See First Nat'l Bank v. Brooks Farms, 821 S.W.2d 925, 927 (Tenn. 1991). A person acts maliciously when the person is motivated by ill will, hatred or personal spite. A person acts recklessly when the person is aware of, but consciously disregards, a substantial and unjustifiable risk of such a nature that its disregard constitutes a gross deviation from the standard of care that an ordinary person would exercise under all the circumstances. Cf. [Tenn. Code Ann. § 39-11-302(c) (1991) (criminal definition of 'reckless')]. Id.
- Further, because punitive damages are to be awarded only in the most egregious of cases, a plaintiff must prove the defendant's intentional, fraudulent, malicious, or reckless conduct by clear and convincing evidence.FN3 This higher standard of proof is appropriate given the twin purposes of punishment and deterrence: fairness requires that a defendant's wrong be clearly established before punishment, as such, is imposed; awarding punitive damages only in clearly appropriate cases better effects deterrence.
FN3 Clear and convincing evidence means evidence in which there is no serious or substantial doubt about the correctness of the conclusions drawn from the evidence."Id.
- "In a trial where punitive damages are sought, the court, upon motion of defendant, shall bifurcate the trial. During the first phase, the factfinder shall determine (1) liability for, and the amount of, compensatory damages, and (2) liability for punitive damages in accordance with the standards announced above. During this phase, evidence of a defendant's financial affairs, financial condition, or net worth is not admissible." Id.
- "If the factfinder finds a defendant liable for punitive damages, the amount of such damages shall then be determined in an immediate, separate proceeding. During this second phase, the factfinder shall consider, to the extent relevant, at least the following:
- The defendant's financial affairs, financial condition, and net worth;
- The nature and reprehensibility of defendant's wrongdoing, for example
- The impact of defendant's conduct on the plaintiff, or
- The relationship of defendant to plaintiff;
- The defendant's awareness of the amount of harm being caused and defendant's motivation in causing the harm;
- The duration of defendant's misconduct and whether defendant attempted to conceal the conduct;
- The expense plaintiff has borne in the attempt to recover the losses;
- Whether defendant profited from the activity, and if defendant did profit, whether the punitive award should be in excess of the profit in order to deter similar future behavior;
- Whether, and the extent to which, defendant has been subjected to previous punitive damage awards based upon the same wrongful act;
- Whether, once the misconduct became known to defendant, defendant took remedial action or attempted to make amends by offering a prompt and fair settlement for actual harm caused; and
- Any other circumstances shown by the evidence that bear on determining the proper amount of the punitive award.
- "After a jury has made an award of punitive damages, the trial judge shall review the award, giving consideration to all matters on which the jury is required to be instructed. The judge shall clearly set forth the reasons for decreasing or approving all punitive awards in findings of fact and conclusions of law demonstrating a consideration of all factors on which the jury is instructed." Id.
Other Sources of Note: In Flax v. DiamlerChrysler Corp., 272 S.W.3d 521, (Tenn. 2008), the Tennessee Supreme Court reinstated a punitive damages judgment against a motor vehicle manufacturer that had been vacated by the Tennessee Court of Appeals. The opinion discusses whether the evidence supported an award of recklessness (and held that it did), the impact of compliance with government regulations and industry standards on the availability and amount of punitive damages, and also addresses due process issues (excessiveness and harm to non-parties). Readers who are filing or defending a punitive damages case are encouraged to read this opinion, including the dissenting opinions on this issue filed by Justice Clark and Justice Koch; Culbreath v. First Tennessee Bank Nat. Ass'n, 44 S.W.3d 518, 529 (Tenn. 2001) (holding that a trial court shall make findings of fact and conclusions of law adequately addressing each of the relevant factors listed in Hodges to arrive at the appropriate amount of punitive damages); Metcalfe v. Waters, 970 S.W.2d 448, 451-2 (Tenn. 1998) (recognizing that punitive damages may be awarded in a legal malpractice claim, provided the culpable conduct established in Hodges, i.e., intentional, fraudulent, malicious, or reckless, is proven by clear and convincing evidence). Note also that the United States Supreme Court has weighed in on this issue on multiple occasions over the last few years and that the decisions in those cases may impact the application of Hodges.
Overton v. Westgate Resorts, LTD., L.P., No. E2014-00303-COA-R3-CV, 2015 WL 399218 (Tenn. Ct. App. Jan. 30, 2015) (punitive damage award of $600,000 affirmed, but reduced due to statutory cap, where defendants made fraudulent misrepresentations when selling plaintiffs a timeshare then refused to rescind despite statutory basis for rescission in Tennessee Consumer Protection Act); Wilson v. Americare System, Inc., No. M2013-00690-COA-RM-CV, 2014 WL 791936 (Tenn. Ct. App. Feb. 25, 2014) (court upheld punitive damages award of $5 million even though compensatory damages were only $300,000; award was reduced to $3 million because of ad damnum clause; this case was decided before tort reform punitive damages cap went into effect); McLemore v. Elizabethton Medical Investors, Limited Partnership, No. E2010-01939-COA-R3-CV, 2012 WL 2369350 (Tenn. Ct. App. June 22, 2012) (affirming punitive damages that were 18.8 times higher than compensatory damages award); Scott v. Houston, No. E2009-01118-COA-R3-CV, 2010 WL 680984 (Tenn. Ct. App. Feb. 26, 2010) (holding punitive damages permitted for wrongful repossession if intentional, fraudulent, malicious, or reckless).
Davis v. Conner , No. M2008-00661-COA-R3-CV, 2009 WL 3415284 (Tenn. Ct. App. Oct. 22, 2009) (upholding punitive damages award in promissory fraud case); Fisher v. Johnson, No. W2008-02165-COA-R3-CV, 2009 WL 2588906 (Tenn. Ct. App. Aug. 24, 2009) (affirming summary judgment on punitive damages claim in automobile wreck case involving underage drinking finding affidavit of police officer opining defendant could operate a motor vehicle safely that evening went unrebutted by the plaintiff); Ellis v. Sprouse, No. E2009-00654-COA-RM-CV, S.W.3d, No. E2009-00654-COA-RM-CV, 2009 WL 1871930 (Tenn. Ct. App. Jun. 30, 2009) (upholding punitive damages award in trespass claim); Sanford v. Waugh, No. M2007-02528-COA-R3-CV, 2009 WL 1910957 (Tenn. Ct. App. Jun. 30, 2009) (reversing directed verdict on punitive damages finding material evidence to support a finding by the jury by clear and convincing evidence that the defendants filed a lawsuit against the plaintiff in bad faith); Smartt v. NHC Healthcare/McMinnville, LLC, No. M2007-02026-COA-R3-CV, 2009 WL 482475 (Tenn. Ct. App. Feb. 24, 2009) (reversing directed verdict on punitive damages claims finding trial court applied incorrect legal standard, reasonable minds could differ as to recklessness of defendants, and liability for punitive damages could have been imposed indirectly on defendants as principal or employer); Estate of French v. The Stratford House, No. E2008-00539-COA-R3-CV, 2009 WL 211898 (Tenn. Ct. App. Jan. 29, 2009) (reversing trial court's grant of summary judgment on punitive damages claim finding the defendants had not successfully shifted the burden of persuasion to the plaintiff); Mohr v. DaimlerChrysler Corp., No. W2006-01382-COA-R3-CV, 2008 WL 4613584 (Tenn. Ct. App. Oct. 14, 2008) (reducing punitive damages award to comply with due process requirements of the United States Constitution); Anderson v. U.S.A. Truck, Inc., No. W2006-01967-COA-R3-CV, 2008 WL 4426810 (Tenn. Ct. App. Oct. 1, 2008) (upholding directed verdict dismissing punitive damages claim finding insufficient evidence to support claim); Duran v. Hyundai Motor America, Inc., No. M2006-00282-COA-R3-CV, 2008 WL 425942 (Tenn. Ct. App. Feb. 13, 2008) perm. appeal denied (Aug. 25, 2008) (upholding directed verdict on punitive damages claim finding no reasonable person would conclude plaintiff met the relevant burden of proof on this claim); Collins v. Arnold, No. M2004-02513-COA-R3-CV, 2007 WL 4146025 (Tenn. Ct. App. Nov. 17, 2007) perm. appeal denied (Apr. 14, 2008) (reversing the award of punitive damages because the conduct of defendant bar's personnel in attempting to prevent its customer from driving while impaired did not reach the level of recklessness necessary to sustain an award for punitive damages).§64.2 Allowable in Breach of Warranty Claim
The Case: Mohr v. DaimlerChrysler Corp. , No. W2006-01382-COA-R3-CV, 2008 WL 4613584 (Tenn. Ct. App. Oct. 14, 2008).
The Basic Facts: The defendant automobile manufacturer appeals the verdict of the jury awarding, inter alia, punitive damages.
The Bottom Line:
- "DCC argues that it is entitled to a new trial on the punitive damage claim because the jury's verdict could have been based on a breach of warranty and Tennessee law does not allow the recovery of punitive damages for a breach of contract." 2008 WL 4613584 at *14.
- "Int (sic) this case, the jury was presented with three independent theories of liability: (1) strict liability, (2) negligence, and (3) breach of the implied warranty of fitness and merchantability. The jury returned a verdict for the plaintiff with respect to each theory of liability and then answered yes to this question: Do you find that the plaintiffs proved by clear and convincing evidence that the Defendant's conduct was intentional or reckless?" Id.
- "DCC's position is that the finding of intentional and reckless conduct may have applied only to the breach of warranty claim. Therefore, we can't be sure that the punitive damage award was for the tort claims rather than the contract claim. See Concrete Spaces, Inc. V. Sender, 2 S.W.3d 901 (Tenn. 1999). Id. at *15.
- "We find this argument to be unpersuasive for two reasons. First, the jury clearly awarded damages for the tort claims and the finding of intentional and reckless conduct appears to apply to all three theories of recovery. Verdicts should be construed in a manner that upholds the jury's findings, Concrete Spaces, at 911. Therefore, we conclude that the jury found intentional and reckless conduct on the part of DCC for all the theories of recovery." Id.
- "In the second place, even if the intentional and reckless finding only applied to the breach of warranty claim, that finding would place this case in the class of cases where the courts have found an exception to the rule that no punitive damages may be awarded for breach of contract. In Medley v. A.W. Chesterson Co., 912 S.W.2d 748 (Tenn. Ct. App. 1995) the Court said:
As to the issues relative to the directed verdict as to the punitive damages feature of the breach of contract claim, we first note that as a general rule punitive damages are not proper in breach of contract cases. Bland v. Smith, 197 Tenn. 683, 277 S.W.2d 377 (1955); Johnson v. Woman's Hospital, 527 S.W.2d 133 (Tenn. App. 1975). There are exceptions, however, in cases involving 'fraud, malice, gross negligence or oppression.' Bryson v. Bramlett, 204 Tenn. 347, 321 S.W.2d 555 (1958), quoting from Louisville, N. & G.S.R. Co. V. Guinan, 79 Tenn. 98 (1883)."Id.
- "We think the Court recognized that where a defendant breached a contract with conduct that would entitle the plaintiff to punitive damages, the punitive damage claim would not be defeated simply because the action was on the contract." Id.