Missouri Supreme Court Finds 2005 Punitive Damages Cap Unconstitutional
In Lillian M. Lewellen v. Chad Franklin and Chad Franklin Auto Sales, SC92871 (Mo. banc., September 9, 2014), the Missouri Supreme Court overturned the cap on punitive damages imposed by RSMo. Section 510.265 – passed in 2005 as part of the sweeping tort reform efforts of the Missouri General Assembly. The case was an appeal from a judgment making a car dealership and its owner liable for paying a customer an actual damages award, as well as a punitive damages award. In the opinion, the Court held that because the statutory cap on punitive damages curtails the jury determination of punitive damages as it existed at the time the state’s constitution was adopted in 1820, it unconstitutionally infringes on the right to a jury trial.
The facts of the case were that Chad Franklin, owner of Chad Franklin National Auto Sales North LLC in Kansas City, advertised on television a program in which customers could purchase vehicles for monthly payments as low as $49. In response to these advertisements, Lillian Lewellen visited the dealership after her van’s transmission failed. She told an employee she was interested in the $49-per-month payment plan and repeatedly stated she was unable to pay more than $49 per month for a vehicle. A dealership salesperson explained that, through the program, the dealership would send her a check for the difference between her $49 monthly obligation and the monthly payment owed to the bank financing the purchase. Lewellen agreed to buy the Lincoln through the program. Her payment for the Lincoln was set at $387.45 per month, but the employee assured Lewellen she was obligated to pay only $49 per month. When Lewellen did not receive a check from the dealership to make up the difference in the payments, she made multiple inquiries and eventually received a check for about $3,290. This money, plus her own $49 per month, allowed Lewellen to make nine payments to the bank. The dealership never sent her another check. Ultimately, she sued Franklin and the dealership for fraudulent misrepresentation and unlawful merchandising practices. During discovery, because Franklin and dealership representatives repeatedly failed to appear for depositions, the trial court sustained Lewellen’s motion for sanctions against them, ordering that their pleadings be struck and that any documents they did provide could be admitted in evidence against them. Following a trial, the jury awarded Lewellen actual damages awards of $25,000 each against each defendant for each claim (for $100,000 in total actual damages) plus $1 million in punitive damages against each defendant for each claim (for $4 million in total punitive damages). The trial court, pursuant to the RSMo. Section 510.265 cap on punitive damages, reduced the punitive damages awards to $500,000 against Franklin and $539,050 against the dealership. Section 510.265 provides that no award of punitive damages against any defendant shall exceed the greater of $500,000 or five times the net amount of the judgment the plaintiff is awarded against the defendant.
The Missouri Supreme Court held: (1) Because section 510.265 violates the right to a trial by jury, the trial court erred in applying this statutory cap to reduce the punitive damages the jury awarded to Lewellen for her fraudulent misrepresentation claim against Franklin. Citing previous cases, including the 2012 Watts decision overturning the medical malpractice non-economic caps on damages, the Court determined that because RSMo. section 510.265 changes that right to a jury determination of punitive damages as it existed in 1820, curtailing the jury’s determination of damages, it unconstitutionally infringed on Lewellen’s right to a jury trial. The Court did state that a trial court still must determine whether an award of punitive damages is grossly excessive or arbitrary in violation of federal and state constitutional due process. The United States Supreme Court requires courts to consider three guideposts in determining if an award of punitive damages comports with due process: the reprehensibility of the defendant’s misconduct; the disparity between the harm and the punitive damages award; and the difference between the punitive damages award and penalties authorized or imposed in similar cases. In this case, though, the Missouri Supreme Court found that the double-digit ratios between punitive and actual damages finally awarded – 40:1 against Franklin and 22:1 against the dealership – are warranted in this case and were not grossly excessive, as their conduct was particularly egregious, and upheld the original punitive damages award.