Tennessee Court of Appeals Upholds Punitive Damage Award On Due Process Grounds But Then Reduces It Because It Exceeded the Ad Damnum Clause

 In Tennessee, punitive damages may be awarded only if a defendant has acted intentionally, fraudulently, maliciously, or recklessly.  This must be proven by clear and convincing evidence.  Several factors shall be considered, which are set out in the leading case Hodges v. S.C. Toof & Co., 833 S.W.2d 896 (Tenn. 1992):

(1) The defendant’s financial affairs, financial condition, and net worth;

            (2) The nature and reprehensibility of defendant’s wrongdoing, for example

            (A) The impact of defendant’s conduct on the plaintiff, or

            (B) The relationship of defendant to plaintiff;

            (3) The defendant’s awareness of the amount of harm being caused and defendant’s motivation in causing the harm;

             (4) The duration of defendant’s misconduct and whether defendant attempted to conceal the conduct;

             (5) The expense plaintiff has borne in the attempt to recover the losses;

             (6) Whether defendant profited from the activity, and if defendant did profit, whether the punitive award should be in 902*902 excess of the profit in order to deter similar future behavior;

              (7) Whether, and the extent to which, defendant has been subjected to previous punitive       damage awards based upon the same wrongful act;

              (8) 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

               (9) Any other circumstances shown by the evidence that bear on determining the proper amount of the punitive award.

Additionally, there are constitutional considerations for punitive damages awards, which were explained in Flax v. DaimlerChrysler Corp., 272 S.W.3d 521, 537 (Tenn. 2008):

The Court [in Gore] concluded that due process requires that "a person receive 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." Accordingly, the Court adopted three guideposts for determining whether a defendant has adequate notice of the magnitude of the sanction that may be imposed. The first and most important guidepost is the reprehensibility of the defendant’s conduct. The Court indicated that the presence of violence, deceit, reckless disregard for the safety of others, or repeated misconduct may be aggravating factors that increase the reprehensibility of the defendant’s conduct. The second guidepost is the ratio between the punitive damage award and the actual harm suffered by the plaintiff. Although the Court declined to adopt any strict mathematical formula, it repeated the suggestion from a previous case that "a punitive damages award of `more than 4 times the amount of compensatory damages’ might be `close to the line’" of constitutional impropriety. The final guidepost requires courts to compare the punitive damage award to civil or criminal penalties that could be imposed for similar conduct. "[A] reviewing court engaged in determining whether an award of punitive damages is excessive should `accord "substantial deference" to legislative judgments concerning appropriate sanctions for the conduct at issue.’" These legislative judgments are relevant because they provide defendants with notice of the severity of the penalty that may be imposed upon them. (Internal citations omitted).

In Wilson v. Americare System, Inc., 2014 WL 791936 (Tenn. Ct. App. Feb. 25, 2014) a nursing home negligence action,, the jury awarded punitive damages of $10,000 and $5,000 against the two individual defendants and $5 million against the corporate defendant.  The Court of Appeals reviewed the evidence supporting each of the Hodges factors and upheld the jury’s decision to award punitive damages.  However, the Court of Appeals then went on the review the size of the awards and whether they violated the defendants’ due process rights. 

In 2011, the Tennessee General Assembly enacted a law capping the amount of punitive damages at $500,000 or twice the amount of compensatory damages, whichever is greater.  Tenn. Code Ann. § 29-39-104(a)(5).  This law does not retroactively apply to this case, which the defendants acknowledged on appeal.  However, the defendants argued that this law is a strong indication of the policy of this state.  The Court of Appeals found that the 2011 law does not apply and that the prior law was more lenient.  And, the Court of Appeals held that the size of the awards did not violate the defendants’ due process rights even though only $300,000 was awarded in compensatory damages. 

However, the Court of Appeals did reduce the award based on a Tennessee rule that says that the plaintiff cannot get more money than he or she asks for in the lawsuit.  Because the plaintiff in this case asked for $3 million in punitive damages, the Court reduced the total punitive damages award to $3 million, $2985,000 against the nursing home itself and the full $5000 and $10,000, respectively, against the individual defendants.

This decision is correct, with one small exception noted below.  The ad damnum clause rule is absolutely ridiculous, but it is a rule.  It is a rule that does not apply is health care liability actions but, at the time this case was tried the basis for the jury’s verdict did not make it a health care liability action.  Thus, the general rule of pleading applied and the ad damnum clause provides the upper cap on liability.

The one exception is this.  I agree that the total punitive damage award should have been limited to $3,000,000 but that the award against each defendant should have been reduced pro rata to bring the total down to $3,000,000.  Instead, the Court of Appeals reduced the nursing home’s portion by a full $15,000 (the amount awarded against the other defendants).  The difference?  If the nursing home refuses to pay the punitive damage award of the two individuals it gets an unfair advantage because of the cap and the individuals pay more that they should.

To be perfectly fair, each award should be reduced by 40.18%  (rounded) – the amount the total punitive damages exceeded the amount sued for by the plaintiff.

Thus, the defendant hit for $5000 should pay $2991.03 in punitive damages.  The defendant hit for $10,000 should pay $5982.05.  And the nursing home should by $2,991,026.92.

Now, at the end of the day all of that may make no difference.  Americare may agree to pay the full $3,000,000 in punitive damages, plus post-jdugment interest, and that will be that.  But, just in case, it would have been prudent to apply the result mandated by the inadequate ad damnum to each defendant and not give the benefit of it to Americare.

Under the new tort reform statute, the amount of punitive damages would have been automatically cut by the trial judge to $600,000 absent an express finding of one of the limited exceptions to the statute.