Pacific Mutual Life Insurance Company v. Haslip

PETITIONER:Pacific Mutual Life Insurance Company
RESPONDENT:Haslip
LOCATION:Clark County Jail

DOCKET NO.: 89-1279
DECIDED BY: Rehnquist Court (1990-1991)
LOWER COURT: Supreme Court of Alabama

CITATION: 499 US 1 (1991)
ARGUED: Oct 03, 1990
DECIDED: Mar 04, 1991

ADVOCATES:
Bruce A. Beckman – on behalf of the Petitioner
Bruce J. Ennis, Jr. – on behalf of the Respondents

Facts of the case

Question

Audio Transcription for Oral Argument – October 03, 1990 in Pacific Mutual Life Insurance Company v. Haslip

William H. Rehnquist:

We’ll hear argument first in Number 89-1279, Pacific Mutual Life Insurance Company v. Cleopatra Haslip.

Mr. Beckman.

Bruce A. Beckman:

Mr. Chief Justice, and may it please the Court:

This matter is here on writ of certiorari to review a judgment of the Alabama Supreme Court.

That judgment affirmed and awarded punitive damages against the Petitioner, Pacific Mutual Life Insurance Company, on a respondeat superior basis for fraud committed by a sales agent in collecting and pocketing premiums from a policy of group health insurance issued by another carrier, Union Fidelity Life Insurance Company, and also on individual policies of life insurance issued by Pacific Mutual.

The insurance was issued to cover employees of the City of Roosevelt, which is a small town in Alabama.

During the course of the trial, all counts asserted by plaintiffs alleging any wrongdoing against Pacific Mutual directly were dismissed and abandoned, so that the sole basis of the award was respondeat superior, or the fraud of the agent.

The major portion of the award went to Mrs. Haslip because she incurred medical expenses during a period which would have been covered by the Union Fidelity policy had the agent not misappropriated the premiums.

She was apparently unable to pay the hospital expenses, and a judgment was entered against her.

And that appears to explain the great disparity in the award that went to her, and the relatively nominal awards that went to the other plaintiffs.

Sandra Day O’Connor:

Now, I suppose we do not know the breakdown of compensatory and punitive damages here?

Bruce A. Beckman:

Justice O’Connor, under Alabama law, the punitive damage award to Mrs. Haslip would have been at least $840,000, because the maximum… she had a prayer for $3 million of punitive damages, and a prayer for her actual damages, plus emotional distress damages of $200,000.

The award to her was $1,040,000, so that if we assumed that she got the full general, actual, economic damages, and emotional distress damages, for which she prayed, the punitive award still would have been at least $840,000, and that would have been the computation under Alabama law.

The plaintiffs themselves submitted the case to the Alabama Supreme Court–

Antonin Scalia:

Excuse me.

Why do you say that would be the computation under Alabama law?

Is it impossible, under law… under Alabama law, to give a plaintiff more than the plaintiff prays for?

Bruce A. Beckman:

–Yes, and under the cases that were cited, in fact by the Respondents here, that would be the computation of the award.

It would be at least $840,000, because the actual other damages would not exceed $200,000.

And as I said, the plaintiffs here submitted–

Antonin Scalia:

Are there Alabama cases that set aside judgments for more than what is prayed for?

Bruce A. Beckman:

–It is my understanding that there are, Justice Scalia.

I cannot cite them to you at this point.

The plaintiffs–

Antonin Scalia:

I think it makes sense to say she asked for so much, and–

Bruce A. Beckman:

–Yes.

Antonin Scalia:

–and you subtract that from the total.

But the jury could have said in the jury room, couldn’t it, well, she asked for that much, but we really think that her emotional distress was even more than that and we’ll give her even more?

Bruce A. Beckman:

That could happen, but they would then have been limited to the prayer under Alabama law.

And again–

Sandra Day O’Connor:

Are you going to supply the Court with citations to establish that proposition?

Bruce A. Beckman:

–I will do that, Justice O’Connor, and I would cite the Court to the case cited by the Respondents in the Respondents brief, which laid out their position that the award would have been $840,000 and not more, because as I stated, the respondents… the plaintiffs presented this court case to the Alabama Supreme Court as an award of $1,040,000.

John Paul Stevens:

Does that mean that we should sort of treat the case as though the actual damage… I guess there were some actual pecuniary damages, a few thousand dollars, too, weren’t there?

Maybe there was about 210 of actual damages, and 840 of the other, so it’s 4… 4 to 1 ratio?

Bruce A. Beckman:

All of the… all of the plaintiffs in the case had a total of economic damages something of about $3,900, and the total award was something in the area of $1,077,000.

John Paul Stevens:

Right, but as to this particular respondent, it’s roughly… we can treat the case as though the punitive damage was roughly four times the actual damage?

Bruce A. Beckman:

Yes, Justice Stevens.

Pacific Mutual has petitioned this Court to vacate a judgment of the Alabama Court and the award of punitive damages as violating the due process clause of the Fourteenth Amendment.

Of the issues that were briefed and submitted here on behalf of the petitioner, I would like to focus my argument on three central issues:

First, that the open-ended, standardless discretion delegated by Alabama law to the jury here to determine whether or not to punish Pacific Mutual for the agent’s fraud, and if so, how much, violated due process.

Second, that the system of judicial review in place in Alabama did not cure those violations, and third, that respondeat superior on the record in this case is not a constitutionally permissible basis for imposing punishment on Pacific Mutual.

William H. Rehnquist:

You say, not a constitutional… constitutionally permissible basis for imposing punishment on Pacific Mutual.

Are you saying it was not a constitutionally permissible basis for imposing any sort of liability, or just what you call punishment?

Bruce A. Beckman:

Just the punitive award.

William H. Rehnquist:

You… there’s a different constitutional standard for respondeat superior, in your view, when you’re talking about punitive damages?

Bruce A. Beckman:

Petitioner submits that that is correct, Your Honor.

The… in… for compensatory damages under respondeat superior, the rationale of it is that where one of two innocent people should suffer because of acts of an agent, wrongful acts of an agent, the principal who put the agent in a position to cause the injury should bear the loss.

Imposing punishment on a principal who, as in this case, was in fact a victim of, in effect, embezzlement… is not a rational basis for punishment.

John Paul Stevens:

I guess that argument… well, supposing you have a corporation, and the president of the corporation does a lot of things secretly.

The directors don’t know, the stockholders don’t know, and you impose a criminal fine for violating the Sherman Act or something.

Is that unconstitutional?

Bruce A. Beckman:

There’s… there is… that is a different situation than we have here.

Under the Sherman Act, for example, or a regulatory program, the company is under a direct obligation to comply with the law.

And if in fact fines or triple damages under the Sherman Act are sought to be imposed upon it because of the violation by the company, and the company comes in and tries to defend saying well, high-level management or the responsible people didn’t authorize those acts or know that they were going on.

And the courts have held that if that action is taken in the course of the company’s business, and to further its profits, the company management can’t come in and say well, we didn’t know what was going on, and avoid liability.

But the situation is different, I submit, where the agent, even a high-level officer, is affirmatively acting against the company’s interest, and is in fact, as here, embezzling, or stealing the money–

John Paul Stevens:

Maybe they… maybe they fixed prices at a level that caused them to lose money.

That wouldn’t be a defense, would it?

Bruce A. Beckman:

–But they were still acting to benefit the corporation and seeking to increase its profits by violating the law.

I mean, here, there was no possible way that Pacific Mutual could have benefited from the agent’s thefts of the premiums, and those thefts that were actually premiums of a… due to another company, but both of those companies had liability imposed on them, under Alabama law, for their policies.

John Paul Stevens:

But wouldn’t that also… that argument also justify saying you can’t recover civil… even actual damages?

Bruce A. Beckman:

But there you have, again, an innocent third party and the innocent company, and the company put the agent in a position to cause the harm.

So for compensatory damages, vicarious liability has some purpose.

But to impose punishment on a company that has had a theft or an embezzlement from it doesn’t forward any rational goal of retribution or deterrence.

Sandra Day O’Connor:

Mr. Beckman, do you have any case authority from this Court to support this rather curious position?

Bruce A. Beckman:

Only the… the authority that we have cited in the briefing that has been submitted.

Antonin Scalia:

Mr. Beckman, if I understand the position you’re taking on this point, if… if an officer of a corporation is secretly… secretly favors polluting the environment, and at great expense to the company… not in its interests, but at some expense to the company… pollutes… intentionally causes the company to pollute the environment, a penalty could not be imposed upon the company because the officer was not acting in the company’s interest?

That’s… that’s your position?

Even though the company put this officer in a position where he could do this, you know, put him in charge of all its chemicals, so that he was in a position to dirty the earth, which is what he wanted to do, you couldn’t punish the company for that?

Bruce A. Beckman:

That is a somewhat different case than those that we have been relying on, such as the Standard Oil of Texas v. The United States case, where you had the three employees stealing oil from Standard and then selling it back.

Antonin Scalia:

It’s different from those cases, but it’s–

Bruce A. Beckman:

Yes.

Antonin Scalia:

–But it tests what I understood to be your response to Justice Stevens.

As I understood your response to Justice Stevens, you think the crucial factor is whether… whether you can impose punishment upon the principal depends upon whether the agent was acting in the principal’s interest.

Isn’t… wasn’t that your… your line?

Bruce A. Beckman:

Yes, and… and if you’re–

Antonin Scalia:

All right.

Bruce A. Beckman:

–If you are suggesting that–

Antonin Scalia:

So then your answer to my hypothetical has to be that you cannot punish the corporation.

Bruce A. Beckman:

–I would suggest that’s correct, Justice Scalia, and that would be because if you had, in effect, a disloyal employee trying to sabotage the company by putting in procedures which would in fact be causing emissions beyond EPA standards, for example, it would really not forward the goals of retribution and deterrence to punish the company because it had that employee doing that.

Antonin Scalia:

It would deter the company from putting such a nut in such a position, wouldn’t it?

Bruce A. Beckman:

That would be direct liability, not respondeat superior liability, if you’re suggesting that the basis of the punishment then would be that the company had not controlled or was… this agent, or had not properly monitored them.

William H. Rehnquist:

Mr. Beckman, we’ve been questioning you about what you say was your third point.

Perhaps you’d like to get to your first and second point.

Bruce A. Beckman:

I would indeed, Your Honor… Justice… Mr. Chief Justice.

And with respect to Pacific Mutual’s basic due process point presented here, Alabama law delegated complete discretion to the jury to determine whether or not to punish Pacific Mutual for the agent’s fraud, and if so, how much.

The Alabama legislature had never established any limits on permissible punishment for conduct, or for punitive damages generally, and the decisions of the Alabama Supreme Court recognized that in Alabama there was no legal measure which limited these awards.

Anthony M. Kennedy:

Assume that we’re just talking about punishing the agent himself.

Forget the respondeat superior problem.

Are there any standards that you could cite to the Court that would suffice for giving punitive damages against the agent himself here?

Bruce A. Beckman:

Yes.

One… well, two come to mind, and one that would not work.

If you’re talking about overall standards for limiting punitive damages awards, which I understand to be your question, it would… it… I’m sure there is a continuum of solutions which would be acceptable and meet due process requirements.

But one which certainly would be for the legislature to take various categories of conduct which are subject to this umbrella penalty, which is a whole spectrum of torts and tortious breach of contract in Alabama, and define the categories of conduct and specify the penalties for those… those specified items of conduct, much as in a penal code.

The other could be, and still meet, I think, the concerns which have been expressed by some members of this Court and… with respect to punitive damages, and have… try to have an umbrella remedy, a situation where you had either a fraction or a multiple of actual economic harm caused, which would cause the award to have some reasonable relationship to… or a necessary relationship to actual harm, plus attorney’s fees, to take care of small cases which might not otherwise be brought.

And I would suggest also a cap, and then the… even the amount of a multiple of actual damages, to take care of the cases such as cited in the amicus brief of the national accounting firms, where there would be a large corporation where a lot of money was involved but a very small degree of fault.

Sandra Day O’Connor:

Mr. Beckman, the Alabama court has handed down in the Green oil case a list of factors to be used on appellate review of punitive damages cases.

Is that correct?

Bruce A. Beckman:

That is correct, Justice.

Sandra Day O’Connor:

Now, in your view, if the Green Oil factors were spelled out to the trial jury that fixed the punitive damages, would that adequately serve to guide the jury’s discretion?

Bruce A. Beckman:

No, Justice O’Connor, it would not.

Those factors are highly judgmental, subjective, and would not remove from the jury the personal discretion to impose punishment on a… virtually a limitless amount.

The Hammond and Green Oil factors would not cure the lack of an upper limit limiting the amount of the award.

It would not–

Sandra Day O’Connor:

Well, do you take the position here today that the only possible way to meet the due process concerns that you express is to set a dollar limit?

Bruce A. Beckman:

–Not necessarily a dollar limit, if a multiple plus a cap approach were taken, as I suggested in answer to Justice Kennedy’s question.

But… but–

Sandra Day O’Connor:

That’s a form of a dollar limitation.

Bruce A. Beckman:

–Yes, Justice… Justice O’Connor.

Sandra Day O’Connor:

That’s all you’re saying would suffice.

Bruce A. Beckman:

Yes.

The… yes, the Hammond factors, there’s really only three of them that are at all substantive.

The first is that the award should bear some reasonable relationship to actual damages.

But in practice, that has proven to be a meaningless test, because any… any relationship can be and has been held to be reasonable.

And further, in Alabama, at least, about the same time the Hammond case was decided, the Alabama Supreme Court overruled an earlier decision which had required a… a… required relationship between actuals and punitives and adopted a rule that there was no necessary relationship between actuals and punitives.

And the second Hammond factor is to consider the reprehensibility of the conduct.

That is really only putting the… in different words what the jury here was instructed to consider, which was character and degree of the wrong, and it is just as vague.

And in fact this Court noted that reprehensibility was not a suitable, or a sufficiently precise basis for imposing punishment in the Giaccio v. Pennsylvania case.

The third, relatively substantive, Hammond factor was the wealth of the defendant.

The wealth of the defendant factor, when you take that into account, really only ensures that a large corporation, with a jury argument that the award has to be enough to hurt and sting, is going to ensure that there is in effect a multimillion dollar award, even if there is a very small degree of fault, and… I submit on behalf of the petitioner that those factors just would not adequately control the jury’s discretion.

Antonin Scalia:

Mr. Beckman, suppose I had a criminal statute that said for this offense the court may impose a fine up to full confiscation of all property of the defendant.

You know that the penalty is everything you own if you get convicted.

Would that… would that comport with due process, and then it’s–

Bruce A. Beckman:

I think I–

Antonin Scalia:

–It’s up to the judge to decide, you know–

Bruce A. Beckman:

–Yes, I think I understand your question, and that is that you have a penal code section which specifies in advance, and says that the maximum penalty for that specified offense is up to… in a sense, a… action.

We will take… confiscate the charter of the corporation and all of its assets.

Antonin Scalia:

–Um-hum.

Bruce A. Beckman:

Yes, I would suggest that that would meet due process, but that is different than punitive damages situation, because there the legislature has acted to tailor a remedy to a defined offense.

But with punitive damages, you have this whole spectrum of torts and tortious breach of contract, and with an umbrella that… that fits it all.

Antonin Scalia:

But the legislature has, in effect, said for each of those offenses, for any… for any civil offense, you are on notice that what you can be penalized is all of your assets.

Bruce A. Beckman:

I’d suggest that that–

Antonin Scalia:

Why isn’t that… you know.

It’s an upper limit.

Now, you may not like how high an upper limit it is, but it is certainly there.

You know, when you commit any tort, that… that that’s the penalty that… that may exist.

Bruce A. Beckman:

–That would be as if… and the situation really is as if, for example, the Alabama Penal Code, which would cover everything from minor traffic offenses to first degree murder, had a single penalty section which said, for any violation of this code the maximum penalty is capital punishment.

And I suggest that that would not be a rational and meaningful limit–

Antonin Scalia:

Well, let’s take that out of it.

Bruce A. Beckman:

–Or even notice–

Antonin Scalia:

We’ve place some limitations on capital punishment.

I mean, it can only be imposed for murder.

But let’s say… let’s say for all criminal offenses it’ll be up to… up to the judge.

Bruce A. Beckman:

–Up to life imprisonment–

Antonin Scalia:

Um-hum.

Bruce A. Beckman:

–And I would suggest that that would not be a meaningful or realistic penalty for 99.9 percent of the offenses in the code; similarly, that confiscation of all the assets would not be a meaningful or really reasonable penalty for 99.9 percent of the offenses in punitive damages.

Antonin Scalia:

Because… because it… because what?

Because of a lack of procedural due process?

Bruce A. Beckman:

Because it is so high that it wouldn’t be fair notice of what the actual penalties would be.

I mean, it’s like having life imprisonment for a traffic offense.

Bruce A. Beckman:

It wouldn’t take the discretion away from the sentencing authority to give virtually any sentence for a minor offense, and there would be no real notice to anyone of what the penalty might be, and it would certainly not cure the open-ended discretion of the sentencer in that situation.

John Paul Stevens:

Mr. Beckman, can I ask kind of a long-run, long-range question?

Are you claiming in this case that the Alabama procedure is kind of invalid on its face, and therefore, regardless of the facts of this particular case, every punitive damage award in Alabama should be set aside, or do you depend on the facts of your case?

Bruce A. Beckman:

I suggest that in any case in which the jury was instructed as it was in this case–

John Paul Stevens:

Right.

Bruce A. Beckman:

–that due process requirements would not be met, and to that extent, the answer to your question would be yes.

John Paul Stevens:

Then the other thing that’s running through my mind, to the extent that you’ve suggested that maybe we could craft rules like a ceiling and special procedures and all, are you suggesting that those procedures… that we would write a rule for the future that would not be retroactive to past awards, or… you don’t have a retroactivity problem?

Bruce A. Beckman:

I would suggest there would be no retroactivity problem and even that this Court would not have to craft rules.

I mean, State legislatures can… are certainly free to experiment with any number of possible solutions to–

John Paul Stevens:

But until they meet the minimum that you think are required, all these awards would be invalid?

Bruce A. Beckman:

–Yes, Justice Stevens, but that is our position.

Anthony M. Kennedy:

I take it you have no problem with the theory of punitive damages, then.

It’s just the standard.

Suppose you had a manufacturer of children’s play equipment.

Manufacturer A uses a rope because he thinks its safe.

Manufacturer B uses the same rope because it’s much cheaper, and he knows it’s very unsafe.

Two children are injured.

The injuries are exactly the same.

Should the recovery be the same in each case?

Bruce A. Beckman:

I would suggest not, Justice Kennedy, if in fact guilt is personal and… and if penalties are to be imposed because of guilt, as they in fact generally are not in punitive damages cases.

Anthony M. Kennedy:

So you have… you have no trouble with the proposition that, in the second case, where there was an intentionally substitution of an inferior fabric, or piece of equipment, you have no trouble at all with that child recovering substantially more, even though his injuries were the same?

Bruce A. Beckman:

No, Justice Kennedy, and that is because punitive damages are not a matter of compensation, and… and I suggest that it is not the perspective to look at them from any entitlement of someone injured to recover them.

I mean, supposedly they are imposed to punish and deter because of wrongful conduct.

The plaintiff gets them is a mere windfall.

Anthony M. Kennedy:

And you have no quarrel with that element in the law?

Bruce A. Beckman:

Well, I have a quarrel with it, but to… to seriously quarrel with it would require a position that there could be no civil penalties in any case, and that is not in the history of the decisions of this Court.

Back to the basic due process point that I was discussing, the… it’s the legislature in… neither the courts nor the legislature in Alabama had set any limits to punishment.

The jury here was told that it had complete discretion to either punish or not punish, as it chose, and with respect to fixing the amount of the award, it was told only to–

Antonin Scalia:

Excuse me.

That’s been going on since 1791, as I understand it.

Antonin Scalia:

Do… do… do you have any… do you have any cases that… that have imagined in the past that this violates the due process clause, and how… you know, who… who whispers in my ear that it… it is in violation of due process when it’s been going on since 1791 and nobody has thought so?

Bruce A. Beckman:

–I suggest, Justice Scalia that the situation here is… is essentially the same as it was in Williams v. Illinois, when you have the practice which had extended from medieval England down through the United States from the time of the Revolution and the adoption of the Constitution to the time of that decision, of… of increasing penalties of prisoners beyond the maximum allowed by statute when they were unable to pay fines or court costs, and there, as here, if that had been analyzed and looked at, the Court would probably have found that it violated due process, just as I submit that punitive damages… the procedures–

Antonin Scalia:

What was the basis of that decision?

Bruce A. Beckman:

–That… the basis of the decision was that it was a violation of due process to sentence… to allow a prisoner to be required to serve time beyond the maximum allowed by the statute because he was unable to pay a fine or court costs, and the court recognized that even though that had been the practice from medieval England through all the history of the United States, it still violated due process, and recognized that it had only come to the attention of the Court because that practice’s impact on society had changed radically.

And I submit that that–

Antonin Scalia:

But this one has come to the attention of this Court before, and this Court has… has opinions that… that have approved it before, doesn’t it?

Bruce A. Beckman:

–The… the due process validity of punitive damages has not been decided by the Court and been directly before it.

The Court has, in some prior opinions, recognized the doctrine and assumed or accepted it.

But the issues have not been placed before it for… for an actual determination.

I see that I am about out of time, and with the Court’s permission, if there are no further questions, I’d reserve the balance of my time for rebuttal.

William H. Rehnquist:

Very well, Mr. Beckman.

Mr. Ennis, we’ll hear now from you.

Bruce J. Ennis, Jr.:

Mr. Chief Justice, and may it please the Court:

Alabama provides two levels of protection for defendants facing the possibility of punitive damages.

First, the jury sets the award pursuant to the traditional common law standards, then, trial and appellate courts independently reassess the award pursuant to even more protective standards.

Let me talk first about the jury instructions.

The jury was instructed, with respect to the State’s purpose in punitive damage awards, that they are to punish and deter, that they are not to compensate the plaintiff, or not to be a windfall to the plaintiff, and the jury was instructed that the amount of the award must be tailored to the character and the degree of the wrong as shown by the evidence in that particular case.

Pacific Mutual did not object to those common law instructions at the trial, and did not request any more specific instructions at trial.

Those common law standards, by themselves, certainly satisfy traditional notions of fair play and substantial justice.

They have been used and approved by courts throughout the land for 200 years, and no court has ever found them violative of due process.

Despite enormous pressure on State legislatures and Congress in the past 15 years, those are still the standards that are used in nearly every State today.

These standards, as the Court recognized in Day v. Woodworth, were well established before the due process clause was adopted.

In fact, in another Alabama case, Louis Pizitz, decided by this Court in 1927, this Court upheld those very common law standards and unanimously rejected precisely the same due process challenge Pacific Mutual is raising again… that these common law standards gave the jury “unbridled discretion” to fix the punitive amount

“without any method of ascertainment and without any limit to the amount it may impose. “

That argument was rejected unanimously in Pizitz.

Earlier, in Standard Oil v. Missouri, this Court also upheld against due process attack a punitive fine where there were no standards for determining the amount and no maximum.

That was a State antitrust fine, but the Court relied for its decision expressly on the analogy to punitive damage proceedings.

I think that there is simply no anchor in the text of the due process clause, and there is certainly no established societal norm from which the Court could define or develop new standards.

In this circumstance, where these standards have been used and thought to be fair for over 200 years, and where, even today, Pacific Mutual does not suggest specific standards for determining what is the right amount, merely a cap on whatever amount is awarded–

Sandra Day O’Connor:

Well, let’s say a jury is instructed by the trial court to… that it may find punitive damages and it’s within their discretion to make that determination.

Bruce J. Ennis, Jr.:

–Purely… wholly within their discretion?

Sandra Day O’Connor:

Yes, sir.

Bruce J. Ennis, Jr.:

Well, that… that would be more–

Sandra Day O’Connor:

Do you think that would raise any due process concern about standardless discretion?

Bruce J. Ennis, Jr.:

–I think, Justice O’Connor, that even such minimal instructions as that would satisfy the due process clause as that clause is constructed.

Sandra Day O’Connor:

Well, that is a very strange notion of what due process means, then, isn’t it?

Bruce J. Ennis, Jr.:

I think not.

Sandra Day O’Connor:

Doesn’t the clause suggest to us that wholly standardless discretion in these matters is unauthorized?

Bruce J. Ennis, Jr.:

Well, Justice O’Connor, I think not, for two reasons.

First, this Court’s due process decisions in the past have always applied with respect to clarity in the conduct that can trigger a punishment of any type.

There must be clear notice of the conduct.

That was certainly true in this case.

Pacific Mutual was punished for intentional fraud.

There is no claim that the conduct at issue in this case was vague.

Second, even in the case of capital punishment, in the McGautha decision, this Court ruled that the due process clause does not require more specific standards for determining the sentence of death.

In that case, the jury was instructed that it had

“absolute discretion to decide whether to sentence to death or not. “

and there was absolutely no legislative or judicial guidance as to whether to impose that penalty.

The Court decided that, as a matter of due process, that did not violate the Constitution.

The next year, in Furman, the Court, of course, did decide under the higher, more rigorous standards of the Eighth Amendment, that capital cases do require guided discretion, but the due process clause does not, as this Court ruled in Pizitz, and ruled in Standard Oil v. Missouri.

Let me turn to the second level of protection that Alabama gives defendants in punitive damages cases.

Antonin Scalia:

Excuse me.

Before you get off the first, I don’t… I don’t quibble with your assertion that that has been accepted for many years, but I do… do you really think it’s fair to call it a standard?

I mean, you say that the standard is telling the jury, essentially, be sure that the punishment fits the crime.

That… that is what you describe as a standard.

Bruce J. Ennis, Jr.:

Yes.

That is actually–

Antonin Scalia:

It’s just like telling them, don’t punish too much, and don’t punish too little.

Punish just enough.

Bruce J. Ennis, Jr.:

–That is actually… the hypothetical that Justice O’Connor posed is actually less protective of defendants than the traditional common law standards.

Bruce J. Ennis, Jr.:

The traditional common law standards do more than that.

They say, here’s the purpose of punitive damage awards, to punish and deter, and they say that you must base your amount on the character and the degree of wrongdoing as shown by the evidence in this case.

Antonin Scalia:

Well, of course.

I mean, in other words, don’t punish too much for… for, you know, how bad the wrong was.

Bruce J. Ennis, Jr.:

Yes.

I think that that standard, which was the standard before the Court in Pizitz and all the other cases cited in our brief, and all the cases that have been upheld over the 200-year history in which that standard has been used, do find that that’s–

Antonin Scalia:

I would rely more on the 200 years than I would upon the standard.

[Laughter]

Bruce J. Ennis, Jr.:

–Justice Scalia, let me turn to the next level of protection.

Anthony M. Kennedy:

Counsel, before you get there, suppose the rule in the State were that one out of every four defendants is subject to a punitive damage award, and it just rotates based on the docket number?

Bruce J. Ennis, Jr.:

No.

I think that would certainly not satisfy due process, because that would go to the conduct issue that punitive damages–

Anthony M. Kennedy:

Suppose… suppose it were shown that, in effect, that’s what’s happening in our legal system?

Bruce J. Ennis, Jr.:

–Well, I don’t think there has been–

Anthony M. Kennedy:

But suppose it were?

Bruce J. Ennis, Jr.:

–Well, if it were, then that would be a different question entirely, about an arbitrary and unequal application of a supposedly neutral principle of law.

Anthony M. Kennedy:

So if… if… if… it could be established that, in a particular State, and there was simply no rhyme or reason at all to the award of punitive damages, you would then think it would be a due process problem?

Bruce J. Ennis, Jr.:

I think it would be a different issue from the issue posed by the facts of this case.

Anthony M. Kennedy:

Would there be a due process problem?

Bruce J. Ennis, Jr.:

I think, Your Honor, that if it could be shown through empirical evidence that there wasn’t just an occasional aberrational decision, but that, in a substantial number of cases it was entirely arbitrary and fortuitous whether a particular defendant got hit with a punitive damage award or not, that would raise a due process question with respect to conduct that can subject one to a punitive damage award.

But that is not this case at all.

Anthony M. Kennedy:

Wouldn’t it raise due process standards because we’ve lost confidence in the operation of the system to operate with predictability, with fairness–

Bruce J. Ennis, Jr.:

Justice Kennedy, let me say that there is no basis in the record of this case or this Court to have lost confidence in the punitive damage–

Anthony M. Kennedy:

–No, but I’m talking about what the standards of due process are, and you seem to indicate that predictability, evenness, fairness, proportionality–

Bruce J. Ennis, Jr.:

–In Alabama today–

Anthony M. Kennedy:

–are all some indices of due process, and you indicate at the outset you don’t think there’s any due process standard, I had thought, with reference to the jury.

Now, I know you’re going to rush to the second point, but let’s just talk about the jury instruction.

Isn’t there… isn’t there some due process component that requires predictability?

Bruce J. Ennis, Jr.:

–I think there is a due process component that requires predictability with respect to the nature of conduct that can trigger a punitive award.

Pacific Mutual has not cited any cases which take the very big next step, and ruled that there must also be predictability with respect to the precise punishment that a defendant can incur when they violate a clear conduct norm.

Bruce J. Ennis, Jr.:

And there is no case in the history of this Court’s jurisprudence, that I am aware of, that takes that step.

Byron R. White:

What about ex post facto cases?

Bruce J. Ennis, Jr.:

Well, Your Honor, I am talking right now with respect to civil cases.

This is not, obviously, a criminal case where the ex post facto case… ex post factor clause would apply.

The ex post facto clause also, I think, is different because it requires… it applies to conduct that was not criminal at the time of the crime.

Antonin Scalia:

Mr. Ennis, would you apply your principle that unpredictability produces a violation of the due process clause to substantive liability as well, so that if one can show that, gee, lawyers really never know what’s going to happen when you send a case to the jury, except to the extent that it hinges upon factors that really should have no bearing… like whether the defendant has deep pocket or not.

If… if you could show that, then the whole system would be infected?

Or does this just apply to the amount of the liability, not to the liability itself, which would seem very peculiar?

You’d extend that to the whole system, I assume.

Bruce J. Ennis, Jr.:

Well, Justice Scalia, I’m not entirely sure I understand your question, but–

Antonin Scalia:

What I’m asking is, if it is true that the amount of damages must be predictable in order for due process to be… roughly predictable–

Bruce J. Ennis, Jr.:

–I don’t think that’s true.

Antonin Scalia:

–I thought that was your answer to Justice Kennedy, that if the system were entirely unpredictable–

Bruce J. Ennis, Jr.:

Whether a defendant would be subjected to any punitive damage award at all, if it was just fortuitous–

Antonin Scalia:

–Right.

Bruce J. Ennis, Jr.:

–whether every fourth defendant gets punitive awards against them–

Antonin Scalia:

Right.

Bruce J. Ennis, Jr.:

–that would go to the conduct that would trigger a punitive award, and I think that would implicate a due process concern.

Antonin Scalia:

And the same would be true about whether the jury finds liability at all?

Bruce J. Ennis, Jr.:

I think the same would not be–

Antonin Scalia:

I mean, did you think jury verdicts are predictable in that sense?

Do you… has that ever been a requirement?

Bruce J. Ennis, Jr.:

–I think that it’s not a requirement that jury verdicts be predictable.

That’s the point I was trying to make.

This Court’s decisions have never required that due process requires predictability of the amount of a particular punishment.

Antonin Scalia:

But they have to be just nonarbitrary?

Bruce J. Ennis, Jr.:

They just have to have some rational basis, and not be arbitrary, that’s correct.

And Alabama today ensures that it is not an arbitrary process.

The Hammond Hornsby Standard of Review which the Alabama Supreme Court has been adopting since 1986, expressly provides that jury verdicts will be independently reassessed by trial and appellate courts in order to determine whether the amount set by the jury is more than would be necessary to accomplish society’s goals of punishment and deterrence.

That test has actually been advocated by the insurance industry amicus brief supporting Pacific Mutual as a workable and appropriate test that will protect against arbitrary and irrational punitive awards.

Bruce J. Ennis, Jr.:

That’s the test that Alabama applies today.

William H. Rehnquist:

Was that test applied in this case?

Bruce J. Ennis, Jr.:

Yes, it was, Your Honor.

William H. Rehnquist:

Do you think the trial judge’s memorandum really reflected what the test is supposed to reflect?

Bruce J. Ennis, Jr.:

Well, the trial judge’s memorandum does refer to the Hammond opinion and does state that the award was reviewed by the trial court under Hammond.

The important thing to understand that it is not just the trial court but the Alabama Supreme Court itself that independently applies these factors.

The Alabama Supreme Court has itself reduced or set aside many punitive damage awards, even when the trial court thought they were appropriate.

For example, one of the Hammond-type reviews requires a comparability review to ensure fairness of punitive amounts across a range of similar cases.

Using that comparability review, which is not equally available to the trial courts because they are not as aware as the Alabama Supreme Court of the range of cases, the Alabama Supreme Court has regularly reduced punitive damage awards when it finds that the amount is outside that reasonable range.

Just within the past 10 days, the Alabama Supreme Court has done that twice.

Byron R. White:

The argument is that punitive damages don’t need all these protections, these specific factors that Alabama Supreme Court has imposed, and that there doesn’t need to be appellate review.

Bruce J. Ennis, Jr.:

Justice White–

Byron R. White:

There’s just no due process problem at all.

Bruce J. Ennis, Jr.:

–Justice White I think there is no due process problem at all simply with the common law standards and standards for review, but in this case–

Byron R. White:

Well, what is… is there… is there some due process requirement that the punitive damages not be excessive?

Bruce J. Ennis, Jr.:

–Yes, Your Honor, I think that there are decisions of this Court that do impose an outer limit regardless of the fairness of the standard of procedure.

Byron R. White:

What, there’s not a limit like, excessive?

Bruce J. Ennis, Jr.:

The outer limit would be, under the substantive component of the due process clause–

Byron R. White:

Yes?

Bruce J. Ennis, Jr.:

–that the punitive award not exceed an amount that would rationally further the State’s legitimate objectives.

Now, in this case, I think that there can be no serious argument that this award violates that standard, for the simple reason–

Byron R. White:

And you say this excessiveness comes out of the due process clause, this… you say?

How does it do that?

You say that… I thought you started out saying the due process clause just doesn’t read on punitive damages?

Bruce J. Ennis, Jr.:

–I think that the due process clause does not apply to whether… to predictability of the amount of the punitive damage award.

I think that’s right.

Byron R. White:

But it does apply, you say… it can be too great?

Bruce J. Ennis, Jr.:

There is, perhaps, a substantive component of the due process clause.

Byron R. White:

Well, you said there was awhile ago.

Bruce J. Ennis, Jr.:

Well, Your Honor, I think that the cases that established such a substantive limit on what is State economic regulation are very old cases and may not be good law today, but for purposes of this case.

Bruce J. Ennis, Jr.:

I’m not challenging those old cases in which the Court did say that a civil fine or civil penalty which is wholly arbitrary and irrational may violate the substantive component of the due process clause.

Byron R. White:

Do you know of any States around that not only agree with that notion but have set down some more specific standards than just excessiveness or irrationality?

Bruce J. Ennis, Jr.:

Well, I–

Byron R. White:

Have they put down some overall limits, or some proportionality rules?

Bruce J. Ennis, Jr.:

–Your Honor, in the past… since 1986, a majority of the States have actually legislatively revisited their punitive damages systems, but only nine States today impose caps on the upper limit of punitive awards.

Byron R. White:

Well, what about… nine States put caps on, but how about others that have set some standards, other than just these vague… rather vague standards?

Bruce J. Ennis, Jr.:

We have cited in our… actually in our opposition to certiorari… the four States that have legislatively established some standards.

Those standards are remarkably identical to the standards that Alabama applies as a matter of common law.

They are remarkably similar to the Hammond Hornsby Standards of Review.

So far as I’m aware–

Byron R. White:

You don’t think… I gather you don’t think the due process clause need go any farther than just to say to a jury or to an appellate court, the award should not be excessive?

Do you think that requires any more specific guide… guidelines than that?

Bruce J. Ennis, Jr.:

–No, Your Honor, I don’t think it does.

In this case, let me make very clear that the standard of review that was used by the Alabama Supreme Court is much more protective than the traditional, common law standard of review that was at issue in Browning-Ferris and Bankers Life.

There, the courts applied the traditional standard of whether the verdict was the result of bias, passion, prejudice, or corruption.

Here, the Alabama Supreme Court applies a much more protective standard, and it will explicitly reduce or set aside a punitive award even if that award was not the result of bias, passion, or prejudice, if the award is greater than is reasonably necessary to accomplish society’s objectives of punishment and deterrence, and it measures whether the award exceeds that test by an application of the seven standards in the Hammond Hornsby Standard of Review.

In 15 cases since 1986, the Alabama Supreme Court has reduced or set aside jury awards under that standard.

This is a standard with teeth.

It is a meaningful, meaningful constraint on–

William H. Rehnquist:

Let’s just–

–15 out of how many?

Of… if… in 15… it has set them aside out of how many punitive damages cases that it’s heard?

Bruce J. Ennis, Jr.:

–I’m not sure of the exact total, Your Honor, but I think it is at least 15, and I would be happy in a post-trial submission to try to get that information to the Court.

William H. Rehnquist:

Thank you.

How… how much of a penalty… let’s assume you have a defendant with a net worth of $1 billion.

How much is necessary to deter that… that defendant?

The standard you recite sounds very nice.

Does it… does it mean anything?

How do I go about deciding, as a judge of the Alabama Supreme Court, or any other court–

Bruce J. Ennis, Jr.:

Well, Your Honor–

Antonin Scalia:

–That it is no more than is necessary to deter–

Bruce J. Ennis, Jr.:

–Your Honor, there are at least two parts of an answer to that question.

The first is, you can’t determine how much is appropriate to deter based simply on knowledge of the wealth of a defendant.

The jury is instructed they must look at character and the degree of the wrongdoing.

Under the Hammond standards, the reviewing courts are instructed to look at how much knowledge the defendant had.

Antonin Scalia:

–Oh, so it… so it isn’t just… just what’s necessary to deter, but also how bad is the thing that you want to deter?

Bruce J. Ennis, Jr.:

The character and the degree of the wrongdoing.

That’s right.

Antonin Scalia:

So it… so it’s not just how much is necessary to deter, but also how much do you hate what was done?

Bruce J. Ennis, Jr.:

That’s right.

Antonin Scalia:

Okay.

Yes.

Bruce J. Ennis, Jr.:

It’s a societal judgment.

That’s correct.

Antonin Scalia:

Right.

Now, how do you decide how much you hate what was done?

Bruce J. Ennis, Jr.:

Well–

Antonin Scalia:

As a judge, in order to apply this standard?

Bruce J. Ennis, Jr.:

–Your Honor, it’s… it’s very much the process that judges go through and juries go through every day in deciding difficult questions that are–

Antonin Scalia:

Juries I would agree, but… but is this really a legal… you know, legally determinable issue, how much we hate this particular act?

Bruce J. Ennis, Jr.:

–Your Honor, the Alabama Supreme Court looks at those factors.

For example, whether the defendant had continuing notice of the particular wrongdoing at issue, whether it took corrective steps or not.

There very specific standards, cited at page 32, 33 of our brief, which the courts use to reach that decision.

In a recent case, for example, the Alabama Supreme Court noted that the degree of the wrongdoing was sufficient to merit a punitive award by itself, but noted, as the jury does not know, that that same defendant had been hit with a punitive award in another case, and therefore decided that it was not necessary to have a second punitive award against the defendant for the same conduct.

That would not rationally further the State’s objectives, and so it set aside the punitive award entirely, based upon that factor.

The Alabama Supreme Court does the same thing with respect to comparability reviews.

It says to itself, all right, here’s another insurance bad faith case and a punitive award was set at this amount; we have had seven of these insurance bad faith cases in the past 3 years, and here is what seems to be a reasonable range of punishment in these cases; we think this one exceeds that reasonable range, and reduces it accordingly.

It is not a standard of review that simply rubber-stamps the jury.

Far from it.

In Alabama, I think, unlike any other State of which I’m aware, there is a right for a post-verdict evidentiary hearing at which the defendant can present new evidence that was never presented to the jury in… in support of reducing the punitive award.

Bruce J. Ennis, Jr.:

The defendant can come in and say, the award should be reduced because I am quite poor, and this would absolutely bankrupt me and cripple me.

The defendant can come in and say, the award should be reduced because I have already been subjected to a criminal fine for similar conduct.

That kind of information would be extremely prejudicial to a jury… for a jury to hear at the liability phase.

But Alabama courts give the defendant an evidentiary opportunity to present all relevant evidence, and then, based on that evidence, the courts independently reassess.

They are not simply rubber-stamping jury verdicts.

Byron R. White:

Is it… is it anticipated that juries given this kind of an instruction will often refuse to give any punitive damages?

Bruce J. Ennis, Jr.:

Yes, Your Honor, I think that that… whether to award punitive damages is discretionary with the jury, because it is supposed to reflect a societal judgment about whether this conduct is deserving of punishment.

Byron R. White:

Some… deserving of imposing something on the defendant other than compensatory–

Bruce J. Ennis, Jr.:

That’s correct.

Byron R. White:

–damages?

Bruce J. Ennis, Jr.:

That’s correct.

Let me just say–

Byron R. White:

Is that… that’s just the standard the jury has?

If you think this fellow really deserves it, give it… let him have it, eh?

Bruce J. Ennis, Jr.:

–No, that’s not quite as simple as that, Justice White.

Byron R. White:

Well, the degree of the crime?

How much you hate it?

Bruce J. Ennis, Jr.:

The standard is that before a jury can even consider whether it wants to impose a punitive amount, it must find that the conduct violates the conduct standard requisite for a punitive award.

In this case, the conduct standard was intentional fraud.

You can’t simply–

Byron R. White:

No.

Bruce J. Ennis, Jr.:

–impose punitive damages because you think somebody was a little negligent, or a little sloppy, in Alabama.

There must be some element of intentional wrongdoing.

Once that threshold has been crossed, however, it is discretionary.

Byron R. White:

You don’t think… you don’t… you don’t think you can be just so negligent that punitive damages are authorized in Alabama?

Bruce J. Ennis, Jr.:

Not in Alabama, Your Honor.

Some States do authorize punitive damages for reckless conduct, for gross recklessness.

This Court in Smith v. Wade adopted that as the appropriate standard for actions under 1983, without requiring–

Byron R. White:

Product liability cases?

Bruce J. Ennis, Jr.:

–Private liability cases, Your Honor.

Bruce J. Ennis, Jr.:

But in Alabama–

Byron R. White:

Product.

Product liability.

Bruce J. Ennis, Jr.:

–Product liability cases?

In Alabama, there has to be an intentional wrongdoing element.

I’m sure some other States have somewhat lesser degrees of a mental wrongdoing component, but almost everybody–

Byron R. White:

Well, everybody intends to put out the product.

Is that just enough?

Bruce J. Ennis, Jr.:

–No, that’s not enough.

It’s not just putting the product into commerce that’s enough.

There has to be an element of wrongdoing, a mental element of intent to commit wrong.

Byron R. White:

And are juries told that?

Bruce J. Ennis, Jr.:

Yes, Your Honor.

Antonin Scalia:

It doesn’t have to be an element of wrongdoing by the defendant personally, though.

It can be by one of his agents, right?

Bruce J. Ennis, Jr.:

That’s correct, Your Honor.

Antonin Scalia:

That’s a strange use of “intentionally”, then.

I mean, I’m perfectly innocent.

I haven’t committed any fraud, and I’ve been negligent enough to hire somebody who commits a fraud.

That’s intentional wrongdoing on my part.

Bruce J. Ennis, Jr.:

Well, let me… let me turn to that, Your Honor.

First, Pacific Mutual’s argument on vicarious liability is that there must… constitutionally, there must be some element of benefit to the principal.

First, that issue is not before the Court, because at the trial level and in the Alabama Supreme Court level, Pacific Mutual never argued that benefit is a constitutional requirement for vicarious liability.

It’s argument was on quite different grounds.

Furthermore, this would be a very inappropriate case to consider that, because indisputably in this case, there was economic benefit to Pacific Mutual.

There were at least 3 months of premiums on life insurance policies that Pacific Mutual received and never refunded as a result of these frauds.

But turning to the merits of that vicarious liability argument, in both punitive damages cases and antitrust cases and even in criminal cases, this Court has expressly approved vicarious liability without either fault by the principal or benefit to the principal.

Again, in the Pizitz case, decided unanimously in 1927, the Court squarely ruled that Alabama, the same system we’re talking about here, could impose vicarious liability for punitive damages without fault by the principal.

That was a unanimous ruling of this Court.

In the Hydro-level case, this Court even went so far as to adopt as rational and wise social policy a rule of vicarious liability for Federal antitrust cases that is indistinguishable from the Alabama rule at issue here.

Bruce J. Ennis, Jr.:

In Hydro-level, this Court ruled that, under the antitrust laws, a principal can be held vicariously liable for antitrust violations by an agent even if the principal was not at all at fault, and even if the principal did not benefit.

Now, I know that some justices of this Court dissented from Hydro-level and did not think that was the wisest or most rational… the best policy choice, but the fact that the Court as a Court reached that conclusion shows that that decision is at least a rational judgment.

Alabama has made that rational judgment, and it should be upheld.

Finally, even in criminal cases–

Antonin Scalia:

Do I have to do it as a policy choice, Mr. Ennis?

Bruce J. Ennis, Jr.:

–No, you don’t, Your Honor.

Antonin Scalia:

Or because I think it’s the law?

Bruce J. Ennis, Jr.:

No, you don’t, Your Honor, not at all.

This is not a policy case.

This is a constitutional case before the Court, and you certainly don’t have to as a policy matter.

Even in criminal cases, this Court has upheld vicarious criminal liability without fault or benefit.

In the Park and Daughterwite cases, the Court even went so far as to rule that an individual officer of a company can be held criminally liable on vicarious liability principles for the wrongdoing of an agent of which the principal was not aware, and from which the principal did not benefit.

It seems to me to follow a fortiori that if vicarious liability is appropriate even in that criminal context, it is appropriate here.

Let me simply conclude, since my time is almost to expire, by saying that the principal issue here I think is the standards issue.

I think that Alabama has developed a rational system for achieving legitimate and very important State objectives.

Alabama provides substantially more protection than the common law standards that were well established when the due process clause was adopted and that are still the prevailing standards today.

This Court should not expand upon that traditional understanding of due process and throw settled State tort law into complete disarray without compelling evidence that the punitive damage awards are fundamentally unfair in the majority of cases, and without compelling reason to believe that the legislative process is closed or is incapable of addressing that problem.

There does not have to be a constitutional remedy for every social problem.

In this case, I think this is a paradigmatic case for judicial restraint, not judicial activism.

Thank you very much.

Thank you, Mr. Ennis.

Mr. Beckman, you have 2 minutes remaining.

Bruce A. Beckman:

The jury instruction in this case, and the common law jury instruction in Alabama really left the jury entirely to its own internal resources in deciding whether or not to punish and, if so, how much.

It was recognized rather forthrightly by Justice Houston of the Alabama Supreme Court in a subsequent decision to ours that that instruction was incomprehensibly vague and incomprehensible as a gauge for the jury to use in measuring the amount of a punitive award.

And he noted the consequences of that vagueness in two recent cases that had come before the Alabama Supreme Court, where he found the facts to be identical and the jury instructions to be identical, and in fact identical to the instruction here, and in one the jury came in with an award of $2,500,000, and in the other, $21,000.

In the jury room when the question came up, shall we punish Pacific Mutual for the agent’s fraud, all it had to go on was its own notions of right and wrong or whether or no.

All it was told by Alabama law was that you have discretion.

You can if you want.

Similarly, when it had decided to make the award and say, we’re going to punish Pacific Mutual for the agent’s fraud, how much should we award, all the instructions told them was, you’ve got discretion.

It’s any amount you want.

Bruce A. Beckman:

I suggest that that is exactly the arbitrary and discriminatory enforcement that due process condemns, and would respond… in response to Respondent’s contention that due process requires no notice of penalty, I’d suggest that that’s a rather crabbed and narrow view of due process, and prior decisions of this Court have held that the fair notice portions… concerns of the ex post facto clauses are included within the concept of fundamental fairness included in the due process clauses of both the Fifth and Fourteenth Amendments.

If you could imagine a statute–

William H. Rehnquist:

Thank you, Mr. Beckman.

The case is submitted.