No. 13-0764 - Quicken Loans, Inc. v. Brown
FILED
November 25, 2014
RORY L. PERRY II, CLERK
SUPREME COURT OF APPEALS
OF WEST VIRGINIA
LOUGHRY, Justice, concurring, in part, and dissenting, in part:
A mere five months after mishandling a substantial punitive damages verdict
in Manor Care v. Douglas, ___ W.Va. ___, 763 S.E.2d 73 (2014), the majority has chosen
to ignore federal jurisprudence by affirming a punitive damage verdict that violates principles
of due process. I write separately not only to express my disagreement with the majority’s
decision to affirm the punitive damage award in the instant case, but to articulate my staunch
disagreement with the Court’s related decision in Quicken Loans, Inc. v. Brown, 230 W.Va.
306, 737 S.E.2d 640 (2012) (hereinafter “Quicken I”), to characterize attorney’s fees and
costs as compensatory damages. Therefore, while I agree with the majority’s conclusion that
the circuit court exceeded the mandate of Quicken I on remand and its commensurate
reduction of the damages and application of the off-set, I wholly reject the majority’s
decision to uphold the original award of punitive damages assessed in this matter.
I. Attorney’s Fees and Costs as Compensatory Damages under West
Virginia Code § 46A-5-104
As an initial matter, I recognize that the issue of attorney’s fees and costs as
compensatory damages was not before this Court in the instant appeal because this issue was
fully resolved in Quicken I–a decision issued before my term of office began. To avoid any
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confusion regarding my endorsement of the holdings of Quicken I, however, I feel compelled
to expose the analytical cracks in Quicken I’s conclusion that attorney’s fees and costs are
compensatory damages under West Virginia Code § 46A-5-104 (2006).
In Quicken I, this Court held that when punitive damages were “available”1 in
a civil action where attorney’s fees and costs were awarded under West Virginia Code §
46A-5-104, such fees and costs must be included in the punitive damages ratio. See Syl. Pt.
11, Quicken I, 230 W.Va. 306, 737 S.E.2d 646. In conceding that attorney’s fees and costs
were not “specifically articulated” as compensatory under our consumer credit and protection
act, the Court was careful to recognize in Quicken I that fee-shifting statutes have been
considered compensatory “in general.” Id. at 331-32, 737 S.E.2d at 665-66. The Court then
proceeded to “cherry-pick” various language from fee-shifting statutes and a handful of cases
to suggest that attorney’s fees and costs should be considered compensatory because they
serve the general purpose of reimbursement and making plaintiffs whole.
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The use of the term “available” in the holding in Quicken I was designed to obfuscate
the fact that punitive damages are not authorized by the statute under which the attorney’s
fees and costs were awarded. Accordingly, the Court “borrowed” discretionary, statutory
damages from one cause of action to justify the punitive damages awarded under a different
cause of action. Not surprisingly, rather than analyzing the intellectual dishonesty of this
procedure, the majority conveniently declared in a footnote that the petitioner provided no
legal authority in support of this observation and therefore it would not be addressed.
Quicken I, 230 W.Va. 306, 333 n.43, 737 S.E.2d at 667 n.43.
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Addressing this issue with the imprecision of a buzz-saw, the Court in Quicken
I failed to examine the type and purpose of each fee-shifting statute and the nature of the
underlying cause of action–factors necessary to a determination of whether fees and costs are
compensatory in a given instance. If the Court had carefully examined the fee-shifting
statutes upon which it relied, it would have recognized that several of the cited statutes are
mandatory fee-shifting statutes. See, e.g., W.Va. Code § 29B-1-7 (providing for mandatory
fee-shifting in successful FOIA actions); Orndorff v. W.Va. Dept. Of Health, 165 W.Va. 1,
267 S.E.2d 430 (1980) (authorizing mandatory attorney’s fees for successful appeals of
adverse Civil Service Commission determinations).2 In clear and stark contrast, West
Virginia Code § 46A-5-104 is discretionary. Id. (providing that “the court may award all or
a portion of the costs of litigation, including reasonable attorney fees, court costs and fees,
to the consumer”). Logic suggests that recovery of such an award would have been
structured as mandatory if the Legislature had intended attorney’s fees and costs to be
deemed compensatory in nature under the consumer credit and protection act.
Had the Court employed its analysis with greater care in Quicken I, it would
have been forced to acknowledge that even in those cases relied upon as authority for
2
Similarly, in Farley v. Zapata Coal Corp., 167 W.Va. 630, 281 S.E.2d 238 (1981),
we held that although the statutory fee-shifting language of the West Virginia Wage Payment
and Collection Act was permissive, an award of attorney’s fees and costs to a successful
litigant was essentially mandatory: “We feel that costs, including attorney fees, should be
awarded to prevailing plaintiffs as a matter of course. . . .” Id. at 639, 281 S.E.2d at 244.
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viewing fees and costs as permissive, it was the nature of the causes of action at issue that
justified characterizing the fees and costs as compensatory. More specifically, in the cases
cited by the Court in Quicken I, the underlying litigation was instituted to compel defendants
to honor existing statutory or contractual obligations, thereby making an award of fees and
costs plainly compensatory. See Farley, 167 W.Va. 630, 281 S.E.2d 238 (collection of due
and owing wages); Willow Inn, Inc. v. Public Service Mut. Ins. Co., 399 F.3d 224 (3d Cir.
2005) (bad faith claim requiring insurer to honor insurance contract). Where a citizen is
compelled to institute litigation and incur attorney’s fees and costs to force recalcitrant
defendants to comply with their legal or contractual obligations, there is no question that the
expenditure of attorney’s fees and costs have caused “actual harm” akin to special damages.
In failing to judiciously examine the fee-shifting statutes relied upon, the Court
in Quicken I overlooked the fact that the conduct at issue herein is simply “bad behavior”–the
type of behavior that may warrant punishment in the form of attorney’s fees and costs and
thereby permits such an award to be properly characterized as punitive. The Court in
Quicken I utterly ignored this Court’s jurisprudence with respect to fraud or other “bad
behavior” wherein we have stated that the “obvious purpose of awarding attorney fees and
costs in a case involving fraud is that intentional conduct such as fraud should be punished
and discouraged. . . . [Defendant] has been sufficiently discouraged from future fraudulent
conduct by the sizable punitive damages awarded by the jury.” Boyd v. Goffoli, 216 W.Va.
552, 569, 608 S.E.2d 169, 186 (2004). Our leading case on punitive damages establishes that
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the “cost of litigation” is a factor in determining whether the punitive assessment is justified;
thereby signifying that such “costs” are more closely associated with deterrence than
compensation. Syl. Pt. 4, Garnes v. Fleming Landfill, Inc., 186 W.Va. 656, 413 S.E.2d 897
(1992). Using the rationale employed by the Court in Quicken I, a prevailing plaintiff could
always claim that his or her attorney’s fees and costs were necessary to make them “whole”
or provide “restitution” because such fees and costs would not have been incurred but for the
offending conduct. Critically, it is the nature of the conduct that gives rise to the attorney’s
fees and costs which must impel the inquiry as to whether the fees and costs are
compensatory.
II. Excessiveness of Punitive Damages
Even assuming for purposes of this case that attorney’s fees and costs should
be included in the punitive damage ratio, the majority has still improperly affirmed the
punitive damage verdict. Conforming to the errant analysis employed in Manor Care, the
majority has again chosen to brazenly ignore the United States Supreme Court’s
jurisprudence regarding punitive damages, virtually begging to be reversed by that body upon
certiorari. In this case, however, the majority now appears to be under the astonishingly
mistaken belief that federal punitive damage jurisprudence is not applicable to a punitive
damages review conducted by this Court.
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A. Punitive Damage Awards Must Be Reviewed for Due Process Violations
Laboring under the misapprehension that a due process challenge is not before
this Court with respect to the punitive damages verdict, the majority has chosen to disregard
the United States Supreme Court’s recent directives set forth in BMW of North America, Inc.
v. Gore, 517 U.S. 559, 582 (1996), and State Farm Mutual Automobile Insurance Co. v.
Campbell, 538 U.S. 408 (2003). In reaching this conclusion, the majority is flatly wrong.
First, there is no question that the petitioners plainly asserted a due process
challenge to the punitive damages award in both Quicken I and in the instant appeal. In
Quicken I, one of the petitioner’s most significant assignments of error was that the punitive
damages award was “grossly excessive and deprived Quicken Loans of due process.”
Without addressing the merits of the punitive damages challenge, the Quicken I Court merely
remanded for an order compliant with Garnes v. Fleming Landfill, Inc., 186 W.Va. 656, 413
S.E.2d 897 (1991). In its appeal from the order issued on remand, the petitioner reasserted
a substantive due process challenge: in fact, the petitioner made six separate assignments of
error directed at the various aspects of the substantive due process deprivation arising from
the punitive damages award.
Regardless of how the petitioner framed its punitive damage challenge, this
Court’s review of such awards is necessarily constrained by due process considerations. The
entirety of our punitive damages jurisprudence is centered on the objective of eradicating the
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due process deprivation that excessive punitive damage awards represent. To the extent the
majority believes that a Garnes-based challenge is an independent, state-based challenge
unencumbered by the United States Supreme Court’s punitive damages jurisprudence, it is
seriously misguided and patently incorrect.
It should not be overlooked that Garnes itself involved a due process challenge
to an excessive punitive damage award that was remanded to this Court from the United
States Supreme Court for reconsideration in light of Pacific Mutual Life Insurance Co. v.
Haslip, 499 U.S. 1 (1991), which held that the punitive damages award in that case did not
violate the Due Process Clause of the Fourteenth Amendment. In Garnes, the reversal of the
jury’s award was expressly “reverse[d] based on Haslip.” Garnes, 186 W.Va. at 659, 413
S.E.2d at 900. Moreover, in creating the “Garnes factors,” the Court prefaced that
“[f]ollowing the dictates of Haslip, we here set out a new system for the review of punitive
damages awards in West Virginia.” Id. at 667, 413 S.E.2d at 908. The import of Garnes,
therefore, is the establishment of factors that ensure adequate due process of law–under both
state and federal law.
Thereafter, in TXO Production Corp. v. Alliance Resources Corp., 187 W.Va.
457, 474, 419 S.E.2d 870, 887 (1992), this Court sought to elaborate on the Garnes
requirement that punitive damages bear a “reasonable relationship to compensatory
damages.” We noted in TXO that the Garnes factors were created “to provide both
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procedural and substantive due process to defendants against whom punitive damages are
awarded in accordance with the U.S. Supreme Court’s directive in Haslip[.]” Id. (emphasis
added). While rejecting a “mechanical mathematical formula to use in all punitive damages
cases,” the Court in TXO created the 5:1 “outer limit” ratio for comparison of punitive
damages to compensatory damages. Syl. Pt. 15, TXO. Critically, the damages ratio review
is not a procedure independent of the Garnes factors, but rather, a means of evaluating one
of the most critical factors set forth in Garnes–the “reasonable relationship” factor. That
factor, like the Garnes factors, was adopted–to ensure adequate due process–under state and
federal principles. Syl. Pt. 3, Garnes.
Subsequent to TXO, this Court further distilled the construct of a review of
punitive damages:
Every post-trial analysis as to the amount of the punitive damage
award should be conducted by the trial court exclusively within
the boundaries of Syllabus Points 3 and 4 of Garnes v. Fleming
Landfill, Inc., 186 W. Va. 656, 413 S.E.2d 897 (1991), and
Syllabus Point 15 of TXO Production Corp. v. Alliance
Resources Corp., 187 W. Va. 457, 419 S.E.2d 870 (1992).
Syl. Pt. 6, in part, Alkire v. First Nat’l Bank of Parsons, 197 W.Va. 122, 475 S.E.2d 122
(1996) (emphasis added). Further, in syllabus point six of Perrine v. E. I. Du Pont de
Nemours and Co., 225 W.Va. 482, 694 S.E.2d 815 (2010), this Court held:
When this Court, or a trial court, reviews an award of punitive
damages, the court must first evaluate whether the conduct of
the defendant toward the plaintiff entitled the plaintiff to a
punitive damage award under Mayer v. Frobe, 40 W. Va. 246,
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22 S.E. 58 (1895), and its progeny. If a punitive damage award
was justified, the court must then examine the amount of the
award pursuant to the aggravating and mitigating criteria set out
in Garnes v. Fleming Landfill, Inc. W. Va. 656, 413 S.E.2d 897
(1992), and the compensatory/punitive damage ratio established
in TXO Production Corp. v. Alliance Resources Corp, 187 W.
Va. 457, 419 S.E.2d 870 (1992).
Perrine further clarified that even if a punitive damages award met the due process
protections of the ratio analysis under TXO, it could still be reduced under the Garnes
mitigating factors. What Perrine did not do was to establish a Garnes/TXO analysis as a
wholly independent manner of reviewing punitive damage awards separate from federal law.
Both holdings are steeped in due process; both cases emanate from and are inextricably
linked to the United States Supreme Court’s directives aimed at ensuring that adequate due
process is provided by state courts. Why this Court believes it may ignore the more recent
United States Supreme Court cases–namely Gore and State Farm–under the guise of
employing a state as opposed to federal due process review simply defies logic.
It is axiomatic that state-level constitutional protections may not fall short of
those established by the federal constitution. In fact, this Court has previously observed that
West Virginia’s due process protections are more protective than those guaranteed by the
federal Constitution: “Although our due process clause does not significantly differ in terms
of its language from the Fifth and Fourteenth Amendments to the federal constitution, this
Court has determined repeatedly that the West Virginia Constitution’s due process clause is
more protective [] than its federal counterpart.” Women’s Health Center v. Panepinto, 191
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W.Va. 436, 441-42, 446 S.E.2d 658, 663-64 (1993). As a result, the majority’s stubborn
refusal to review the punitive damage award in this case against the edicts of Gore and State
Farm–decisions that enhance previously-adopted and clearly-applicable due process
protections–can only be viewed as decidedly misguided. Even worse, the majority’s decision
may forecast yet another West Virginia punitive damage award being accepted for review
by the United States Supreme Court.
B. The Punitive Damage Award Violates Due Process
Had the majority applied the proper analysis, it would have realized that
approval of the punitive damage award simply because the multiplier fell below the 5:1
“outer limit” TXO ratio was improper under recent rulings addressing what satisfies due
process. “[W]e have consistently rejected the notion that the constitutional line is marked
by a simple mathematical formula, even one that compares actual and potential damages to
the punitive award.” Gore, 517 U.S. at 582. The United States Supreme Court has
admonished that where compensatory damages are substantial, only a 1:1 ratio will pass
constitutional muster:
[T]he State Farm Court stated that “[w]hen compensatory
damages are substantial, then a lesser ratio, perhaps only equal
to compensatory damages, can reach the outermost limit of the
due process guarantee.” Id. at 425, 123 S.Ct. 1513 (emphasis
added). As such, it is clear that the United States Supreme
Court has sanctioned, at most, a 1:1 ratio for cases where the
compensatory damages are substantial.
Manor Care, ___ W.Va. at ___, 763 S.E.2d at 119 (Loughry, J., dissenting).
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Given that the compensatory damages (as calculated by the majority) total
$613,676.61, there is little question that a 1:1 ratio is the maximum award allowed in the
instant case. Instead, the majority adds to the “stark unpredictability of punitive awards” by
implicitly endorsing the 3.53:1 ratio in the instant case despite the existence of a substantial
award of compensatory damages. Manor Care, ___W.Va. at ___, 763 S.E.2d at 120 (quoting
Exxon Shipping Co. v. Baker, 554 U.S. 471, 499-500 (2008)). While not as large as the
compensatory damage award in Manor Care, the more than $600,000.00 in “compensatory”
damages in this case are nevertheless “substantial.” See Jones v. United Parcel Serv., Inc.,
674 F.3d 1187, 1207 (10th Cir. 2012), cert. denied, 133 S.Ct. 413 (2012) (reducing punitive
damages from slightly more than 3:1 punitive-to-actual damages ratio to 1:1 ratio in part
because plaintiff's actual damages of $630,307 were substantial); Bridgeport Music, Inc. v.
Justin Combs Pub., 507 F.3d 470, 490 (6th Cir. 2007) (“Given the large compensatory
damages award of $366,939 . . . a ratio of closer to 1:1 or 2:1 is all that due process can
tolerate in this case.”); Bach v. First Union Nat. Bank, 486 F.3d 150, 156-57 (6th Cir. 2007)
(finding that where plaintiff had recovered $400,000 in compensatory damages, a 1:1 ratio
of compensatory to punitive damages was “the outer boundary of what the Constitution will
permit.”); Williams v. ConAgra Poultry Co., 378 F.3d 790, 799 (8th Cir. 2004) (concluding
that “large compensatory award” of $600,000 in racial harassment claim “is a lot of money”
and reducing punitive damages from 10:1 to 1:1 ratio); Burton v. Zwicker and Associates,
PSC, 2013 WL 5652646 (E.D. Ky. 2013) (reducing ratio to 1:1 due to “substantial” $350,000
compensatory damages); Thomas v. iStar Fin., Inc., 508 F. Supp.2d 252, 263 (S.D.N.Y.2007)
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(“[T]he Court believes the [3:1 to 4:1] ratio in this case is excessive because Thomas was
awarded a very substantial amount in compensatory damages [$443,500], making a punitive
award equal to the compensatory damage award more appropriate.”); see also Phelps v.
Louisville Water Co., 103 S.W.3d 46, 54 (Ky. 2003) (noting “the relatively small amount of
compensatory damages awarded” to determine appropriate ratio).
Moreover, the fact that the Court felt the need to artificially inflate the
compensatory damages in Quicken I as a means of effectively reducing the ratio of punitive
to compensatory damages is further evidence of the majority’s misapprehension of the
manner in which punitive damages must be reviewed by this Court. A tortured inclusion of
attorney’s fees and costs under West Virginia Code § 46A-5-104 is entirely unnecessary to
ensure adequate compensation and behavior-deterring punishment. This is evident from the
following observation of the United States Supreme Court:
Indeed, low awards of compensatory damages may properly
support a higher ratio than high compensatory awards, if, for
example, a particularly egregious act has resulted in only a small
amount of economic damages. A higher ratio may also be
justified in cases in which the injury is hard to detect or the
monetary value of noneconomic harm might have been difficult
to determine.
Gore, 517 U.S. at 582 (emphasis added). Rather than creating the artifice that attorney’s
fees and costs are compensatory damages in this case, the actual compensatory damage
award of $17,476.72 should have been used to examine the award in terms of an acceptable
multiplier. Instead, the Court in Quicken I felt the need to artificially inflate the
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compensatory damages which in turn enabled it to sanction a single-digit multiplier and
simultaneously enhance the ultimate verdict.
What all of the foregoing makes clear is that a majority of this Court fails either
to understand or properly apply United States Supreme Court precedent when reviewing
awards of punitive damages. Disturbingly reminiscent of the majority’s mishandling of the
Manor Care verdict, the majority again exhibits its decision to turn a blind eye to the United
States Supreme Court’s admonition that a reviewing court has a duty to “promot[e] systemic
consistency” with regard to punitive awards. Manor Care, ___ W.Va. at ___, 763 S.E.2d at
121 (quoting Exxon Shipping Co. v. Baker, 554 U.S. 471, 502 (2008) (Loughry, J.,
dissenting)). At this juncture, the only “consistency” to be found in this Court’s review of
punitive damage awards is its contumacious refusal to heed the United States Supreme
Court’s holdings and its insistence on a result-oriented analysis to uphold plainly-excessive
punitive damage awards. For these reasons, I respectfully concur, in part, and dissent, in
part.
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