Statutory Cap on Punitive Damages Deemed Unconstitutional
By Onika K. Williams, Litigation News Contributing Editor – December 19, 2014

Statutory caps on punitive damages violate an individual’s right to trial by jury pursuant to Article I, Section 22(a) of the Missouri Constitution, a unanimous Missouri Supreme Court has held. In Lewellen v. Franklin, the court invalidated Missouri Revised Statute (RSMo) Section 510.265, which caps punitive damages.

Fraudulent Misrepresentation and Unlawful Practice Suit
Lillian Lewellen, a 77-year-old widow living on a fixed monthly income of $920, visited Chad Franklin National Auto Sales dealership (National) in search of a new vehicle after seeing National’s advertisements. One of National’s advertising campaigns promoted a program through which consumers could purchase a vehicle for monthly payments of $49, $69, or $89. After reiterating to several National employees that she could only afford the $49-per-month payment plan, Lewellen selected a 2002 Lincoln, valued at $19,940.45. An employee of National explained to Lewellen that the $49-per-month program was a five-year plan in which National would send her a check for the difference between her monthly payments of $387.45 and her $49-per-month obligation.

Initially, Lewellen did not receive the promised check from National. After contacting National multiple times, Lewellen eventually received a check for $3,287.30, which covered only nine months of her car payments. Lewellen’s vehicle was eventually repossessed due to her inability to make her payment in full.

Lewellen sued Chad Franklin, National’s owner, and National for common-law fraudulent misrepresentation and unlawful merchandising practice under the Missouri Merchandising Practice Act (MMPA), RSMo § 407.010, et seq. A jury awarded Lewellen $25,000 in actual damages for her fraudulent misrepresentation claim and $25,000 in actual damages for her MMPA claim. The jury also awarded punitive damages of $1 million for each claim. Because the harm suffered by fraudulent misrepresentation was identical to that caused by the MMPA violation, Lewellen had to elect under what theory to recover against each defendant. Lewellen elected to recover actual and punitive damages for fraudulent misrepresentation against Franklin and actual and punitive damages for the MMPA violation against National.

The circuit court reduced the punitive damage awards against Franklin and National to $500,000 and $539,050 respectively, pursuant to RSMo § 510.265. Section 510.265 limits punitive damage awards to $500,000, or to five times the net amount of the judgment awarded.
Lewellen appealed the reduction of the punitive damage award against Franklin, claiming Section 510.265 violated her right to a jury trial. Franklin and National cross-appealed, arguing that the circuit court abused its discretion by overruling their motion to further reduce the punitive damage awards as a violation of their due process rights.

Missouri High Court Overturns Reduction in Punitives
The Missouri Supreme Court overturned the circuit court’s reduction of punitive damages for the fraudulent misrepresentation claim. Relying on Watts v. Lester E. Cox Medical Centers, the court reasoned that since the Missouri Constitution provides that the right of a trial by jury “shall remain inviolate,” any change in the right to a jury determination of damages as it existed in 1820 is unconstitutional. Thus, the court held that “section 510.265’s cap on punitive damages awards is unconstitutional because the statute imposes a legislative limit on the jury’s assessment of punitive damages when such limits did not exist in 1820.”

As to the defendants’ due process argument, the court explained that its holding “does not imply that a right conferred by the Missouri Constitution overrides the United States Constitution and does not discharge courts from their duty to review a punitive damages award under the Due Process Clause.” The court used three factors to determine whether the punitive damage award conformed to due process: “(1) the reprehensibility of the defendant’s misconduct; (2) the disparity between the harm and the punitive damages award; and (3) the difference between the punitive damages award and penalties authorized or imposed in comparable cases.” The high court concluded that the punitive damage awards assessed against Franklin and National were “not grossly excessive considering their intentional and flagrant trickery and deceit employed to target a financially vulnerable person” like Lewellen.

Each State’s Approach Is Its Own
The Missouri Supreme Court’s analysis of the constitutionality of punitive damage caps as impeding on an individual’s right to trial by jury contrasts with that of several other jurisdictions. In fact, this case has caused some ABA Section of Litigation leaders to reflect on the role of punitive damages in conjunction with a right to trial by jury. “If . . . punitive damages are for the purpose of punishment and deterrence related to rights and property belonging to society as a whole, should not the elected legislatures of the states be empowered to decisively speak as to those rights and that property?” wonders Douglas L. McCoy, Mobile, AL, cochair of the ABA Section of Litigation’s Trial Practice Committee.

Regardless of how other jurisdictions view the issue, the Watts and Lewellen cases represent Missouri’s apparent movement towards invalidating damage caps applied to common-law claims that existed in 1820. “[That is] why we have 50 state courts and 50 state constitutions,” says Joseph P. Beckman, Minneapolis, MN, cochair of the Section’s Trial Practice Committee. Only time will tell if this trend continues in Missouri. For now, litigants should be aware of the potential for massive punitive damage awards in the jurisdiction.

Keywords: statutory limit, punitive damages, trial by jury, fraudulent misrepresentation, Missouri Merchandising Practice Act (MMPA)

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