ATTORNEY FOR APPELLANTS
Robert T. Sanders III
Elkhart, Indiana
ATTORNEYS FOR APPELLEES
John D. Ulmer
Bodie J. Stegelmann
Goshen, Indiana
__________________________________________________________________
IN THE
SUPREME COURT OF INDIANA
__________________________________________________________________
MATTHEW W. STROUD, )
and MARGARET A. STROUD, )
)
Appellants (Defendants Below), ) Indiana Supreme Court
) Cause No. 20S04-0306-CV-275
v. )
) Indiana Court of Appeals
TREVOR A. LINTS, DANIEL M. ) Cause No. 20A04-0010-CV-458
LINTS, and VICKI LINTS, Individually )
and as Parents/Natural Guardians of )
TREVOR A. LINTS )
)
Appellees (Plaintiffs Below). )
__________________________________________________________________
APPEAL FROM THE ELKHART CIRCUIT COURT
The Honorable Terry C. Shewmaker, Judge
Cause No. 20C01-9806-CT-038
__________________________________________________________________
ON PETITION TO TRANSFER
__________________________________________________________________
June 25, 2003
BOEHM, Justice.
Following a bench trial, the trial court in this personal injury case
awarded approximately $1.4 million in compensatory and $500,000 in punitive
damages against the defendant. The defendant appealed the $500,000
punitive damages award, claiming the amount was excessive, and the Court of
Appeals affirmed, finding that the award was not an abuse of the trial
court’s discretion. We grant transfer in this case and hold that the
amount of punitive damages awarded by a trial court is subject to appellate
review de novo. Applying that standard, and given the circumstances in
this case, the trial court’s $500,000 punitive damages award is clearly
excessive. We vacate the judgment, and remand this case to the trial court
for entry of a new award.
Factual and Procedural Background
Seventeen-year-old Matthew Stroud was driving a vehicle at excessive
speed while intoxicated, ran a stop sign, and collided with another
vehicle. Stroud’s passenger, Trevor Lints, was severely and permanently
injured, and the occupants of the other vehicle were killed. Stroud
pleaded guilty to criminal charges and in 1997 was sentenced to eight years
imprisonment. Lints and his parents sued Stroud and, after a bench trial,
Lints was awarded $1,381,500 in compensatory damages[1] and $500,000 in
punitive damages. Stroud appealed the punitive damages award, contending
it was excessive because, given his financial situation and prospects,
there was no possibility he could ever pay it. The Court of Appeals,
applying an abuse of discretion standard, affirmed the trial court. Stroud
v. Lints, 760 N.E.2d 1176, 1185 (Ind. Ct. App. 2002). Stroud petitioned
this Court for transfer, contending: (1) the Court of Appeals should have
reviewed the trial court’s punitive damages award under a de novo standard;
and (2) the punitive damages award was excessive.
I. Standard of Review of Punitive Damages
It is clear that a state is required, as a matter of federal
constitutional law, to provide appellate review of the amount of a punitive
damages award. Honda Motor Co. v. Oberg, 512 U.S. 415, 421 (1994); Pacific
Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 15 (1991). Stroud contends that,
in light of the United States Supreme Court’s decision in Cooper Indus.,
Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424 (2001), review of the
trial court’s punitive damages award must be conducted de novo. Cooper
Industries held that when a defendant contends a punitive damages award by
a jury is excessive under the Due Process Clause of the Fourteenth
Amendment, appellate courts are to review de novo a trial court’s decision
not to order a remittitur or new trial. Id. at 436. However, as the Court
of Appeals correctly noted, the Court in Cooper Industries also noted that
when “no constitutional claim is made, the role of the appellate court, at
least in the federal system, is merely to review the trial court’s
‘determination under an abuse-of-discretion standard.’” Id. at 433
(quoting Browning Ferris Indus. of Vt., Inc. v. Kelco Disposal, Inc. 492
U.S. 257, 279 (1989)); see also Fine v. Ryan Int’l Airlines, 305 F.3d 746,
755 (7th Cir. 2002) (“Since Ryan is not alleging a constitutional
violation, we review this decision only for an abuse of discretion.”).
After the Court of Appeals decision in this case, the United States
Supreme Court handed down its decision in State Farm Mut. Auto. Ins. Co. v.
Campbell, 123 S. Ct. 1513 (2003). State Farm, like Cooper Industries,
addressed a claim that the amount of punitive damages awarded constituted
deprivation of property without due process of law in violation of the
Fourteenth Amendment. State Farm made clear that, in reviewing such a
claim, all courts, state and federal, are required to consider: “(1) the
degree of reprehensibility of the defendant’s misconduct; (2) the disparity
between the actual or potential harm suffered by the plaintiff and the
punitive damages award; and (3) the difference between the punitive damages
awarded by the jury and the civil penalties authorized or imposed in
comparable cases.” Id. at 1520. (citing BMW of N. Am. v. Gore, 517 U.S.
559, 575 (1996)). State Farm reaffirmed that an appellate court is
required to review de novo a trial court’s ruling on a due process
challenge to a punitive award. Id.
Under these federal authorities, there is no federal constitutional
requirement that a state law challenge to the amount of an award be
reviewed de novo. Stroud raises no federal constitutional claim. Rather,
he contends only that the trial court incorrectly failed to consider his
ability to pay a $500,000 punitive damages award. Thus, we must resolve
the standard Indiana courts are to apply in reviewing a claim of an
excessive punitive damages award under state law. We conclude as a matter
of state law that review of the amount of a punitive damage award should be
de novo.
The punitive damages award in this case was assessed by the trial
court after a bench trial. Trial Rule 52(A) states, in relevant part, “On
appeal of claims tried by the court without a jury or with an advisory
jury, at law or in equity, the court on appeal shall not set aside the
findings or judgment unless clearly erroneous.” The decision to award
punitive damages must be based on facts that are supported by clear and
convincing evidence. Ind. Code § 34-51-3-2 (1998). In this case, the
trial court did not enter any specific findings of fact, but merely found
that punitive damages were appropriate.
The trial court’s findings of historical fact—for example what the
defendant did and what its motive was—and its conclusion that the evidence
warrants imposition of punitive damages are reviewed on appeal just as
other sufficiency issues. Both of these are subject to review on appeal
under the standard established in Bud Wolf Chevrolet, Inc. v. Robertson,
519 N.E.2d 135, 137 (Ind. 1988). They are to be affirmed if “considering
only the probative evidence and the reasonable inferences supporting it,
without weighing evidence or assessing witness credibility, a reasonable
trier of fact could find such damages proven by clear and convincing
evidence.” Id. These conclusions of the jury or the trial judge in a
bench trial are qualitatively different from the decision that those
findings warrant imposition of a specified amount of punitive damages. The
former are the result of a traditional fact-finding exercise. But unlike
compensatory damages, there is no entitlement to punitive damages, even if
the facts support them.
Due process limitations on punitive damages awards are grounded in
concerns for excessive punishments, unevenly administered justice, and
arbitrary results. State Farm, 123 S. Ct. at 1520-21. As Justice Breyer
put it in a phrase adopted by the full Court in State Farm, de novo review
is required to assure that an award is an “application of law, rather than
a decisionmaker’s caprice.” Id. These same considerations apply in our
state law regime, and require appellate review of the amount of punitive
damages. The Indiana statutory limitation on an award to three times the
amount of compensatory damages will usually alleviate the specific issue
addressed in State Farm of punitive awards that are excessive in relation
to compensatory damages. But concerns remain that the amount of punitive
damages may be arbitrarily imposed, or inappropriate in relation to
compensatory damages or criminal penalties for similar conduct, or grounded
on the wrong factors, including the improper consideration given to the
defendant’s wealth. In short, for the same reasons the amount of a
punitive award is reviewed de novo in a due process challenge, Indiana
appellate courts are to review de novo state law challenges to the amount
of the award.
Practical considerations also dictate de novo review of a punitive
damage award. Under State Farm, appellate courts are to review de novo
constitutional challenges to punitive damages. Plainly in the future all
competently represented parties who challenge a punitive damage award will
present constitutional claims as well as state law issues. The factors
identified by the Supreme Court in evaluating a federal constitutional
challenge to a punitive award are for all practical purposes the same as
those relevant to a state law review. For reasons of consistency and
judicial economy, Indiana state courts should apply the same standard of
review to state law issues.
De novo review of the amount of a punitive award is consistent with
Indiana precedent as well as federal law under State Farm. Bud Wolf
addressed the propriety of awarding punitive damages, not whether the
amount was excessive. Bud Wolf went on to agree explicitly with the Court
of Appeals in distinguishing the issue of whether the jury could have
awarded punitive damages from whether the amount of damages awarded was
excessive. Bud Wolf, 519 N.E.2d at 138 (“With respect to Bud Wolf’s
argument that punitive damages were excessive, we agree with the Court of
Appeals’ analysis and resulting conclusion . . . .”). The Court of
Appeals’ ruling on this point was: “Because we have concluded that the
jury’s award was supported by evidence, we must now consider whether the
damages were excessive.” Bud Wolf, 508 N.E.2d 567, 571 (Ind. Ct. App.
1987). The Court of Appeals then analyzed whether the amount awarded was
appropriate by looking at “the nature of the tort, the extent of actual
damages, and the economic wealth of the defendant.” Id. at 572. After
undertaking that exercise, the Court of Appeals came to the conclusion that
the amount awarded was not excessive, all without deference to the jury or
the trial court ruling.
Similarly, in the order of this Court denying transfer in Budget Car
Sales v. Stott, 662 N.E.2d 638 (Ind. 1996), this court pointed out that the
standard recited by the Court of Appeals had been superseded by Bud Wolf.
The Court of Appeals had observed that “a defendant is cloaked with the
presumption that tortious conduct was a noniniquitous human failing” and
recited the standard of review as “whether the evidence excluded every
reasonabl[e] hypothesis of innocent conduct.” Id. Both of these
statements plainly relate to review of the decision whether punitive
damages should be awarded at all, not to the amount. Erie Ins. Co. v.
Hickman, 605 N.E.2d 161 (Ind. 1992), also addressed these issues, and never
discussed the issue of an excessive award.
By contrast, in Hibschman Pontiac, Inc. v. Batchelor, 266 Ind. 310,
362 N.E.2d 845 (1977), which was cited in Bud Wolf, this Court also drew
the distinction the dissent between review of the propriety of a punitive
award and review of its amount. Hibschman stated that “Indiana has
followed a rule that punitive damages in a proper case may be assessed by
the jury within their sound discretion guided by proper instructions given
by the court.” Id. at 317, 362 N.E.2d at 849. However, while finding the
decision to award punitive damages “within the province of the jury,” this
Court then determined that the award itself was too high, without further
explanation and without any mention of deference to the jury or trial
court, both of which had considered the award appropriate. Id. at 317-18,
362 N.E.2d at 849.
De novo review of punitive damages is also consistent with our state
constitutional right to jury trial in civil cases. In Cooper Industries,
the Supreme Court pointed out that “[u]nlike the measure of actual damages
suffered, which presents a question of historical or predictive fact, the
level of punitive damages is not really a ‘fact’ ‘tried’ by the jury.”
Cooper Indus., Inc., 532 U.S. at 437 (quoting Gasperini v. Center for
Humanities, Inc., 518 U.S. 415, 459 (1996) (Scalia, J., dissenting)). For
that reason, among others, the Court concluded that appellate review of a
district court’s determination that a jury’s punitive damages award is
consistent with federal due process does not implicate the Seventh
Amendment right to a jury trial. In order to assure consistency with the
requirements established in BMW for a punitive award, courts of appeal are
required as a matter of federal constitutional law to review those
determinations de novo. Id. at 436-37. If, as the Supreme Court has held,
a jury’s decision as to the amount of punitive damages is not a finding of
fact for purposes of its conformity to due process, then neither is it a
fact when examined under state law, and appellate review de novo presents
no issue under our state constitutional right to a jury trial.
Applying an abuse of discretion standard, the Court of Appeals held
that the $500,000 award in this case was permissible. For the reasons
given above, we review that amount under a de novo standard. The decision
of the trial court comes to an appeal cloaked with the presumption that it
is correct. Otherwise stated, even under de novo review, a tie at the
appellate level goes to the winner in the trial court, even if that party
had the burden of proof or persuasion in the trial court. Under de novo
review, no deference is owed to the result reached by the trial court, and
if the record shows error in the judgment of the trial court, modification
of the trial court’s award is proper. Although this case, following State
Farm, applies a de novo standard, for the reasons given below we would find
the award excessive under any standard of review.
II. Considering the Defendant’s Wealth
Given Stroud’s financial circumstances, we conclude that the $500,000
award is far beyond the appropriate amount. We base that conclusion
largely on what the law is trying to do in allowing punitive damages
awards. First, and most importantly, it is not to compensate the victim or
the victim’s attorney. Neither the plaintiff nor the plaintiff’s counsel
has a right to an award of punitive damages in addition to compensatory
damages. Cheatham v. Pohle, 789 N.E.2d 467 (Ind. 2003); Durham v. U-Haul
Int’l, 745 N.E.2d 755, 762 (Ind. 2001); Reed v. Central Soya Co., 621
N.E.2d 1069, 1076 (Ind. 1993); Miller Brewing Co. v. Best Beers of
Bloomington, Inc., 608 N.E.2d 975, 983 (Ind. 1993); Travelers Indem. Co. v.
Armstrong, 442 N.E.2d 349, 362-63 (Ind. 1982).
Only in recent times have requests for punitive damages become
commonplace. Indeed, until 1988 Indiana common law precluded punitive
damages under a theory, now rejected by statute, that the threat of
criminal prosecution for the same acts barred punitive action by the State.
Eddy v. McGinnis, 523 N.E.2d 737, 741 (Ind. 1988). Current law recognizes
that punitive damages may serve the societal objective of deterring similar
conduct by the defendant or others by way of example. For that reason, if
punitive damages are appropriate, the wealth of the defendant has for many
years been held relevant to a determination of the appropriate amount.
Hibschman, 266 Ind. at 317, 362 N.E.2d at 849. As the Supreme Court
recently noted, a defendant’s wealth “cannot justify an otherwise
unconstitutional punitive damages award.” State Farm, 123 S. Ct. at 1525.
But it is nevertheless appropriate consideration. Id. (quoting BMW, 517
U.S. at 591 (Breyer, J. concurring)).
Ten thousand dollars is a significant sum to some and a trivial amount
to others. Because one legislative goal is deterring others as well as the
defendant, an assessment of the group of likely similar offenders is
appropriate. This in turn depends on the nature of the conduct to be
deterred. Thus, the perpetrator of a financial crime or a mass tort will
usually be a person of substantial resources, and a sizeable award may be
the only meaningful penalty. This wrong, however, required only an
automobile. Stroud, and others whom we might seek to deter, frequently
have no meaningful economic resources. Under these circumstances, ignoring
the defendant’s financial condition is error.
Stroud is a 17-year-old sentenced to eight years in prison for the
criminal charges stemming from this case. His sole source of income at the
time of trial was as a participant in the Elkhart County work release
program. He plainly has no ability to pay now or in the short to
intermediate future. Interest compounded at eight percent per annum on one-
half million dollars will dig him into an increasingly deeper hole. Most
significantly, he will be unable to discharge this liability through
bankruptcy. 11 U.S.C. § 523(a)(9) (2000); In re Reese, 91 F.3d 37, 38 (7th
Cir. 1996).
The defendant’s wealth is ordinarily cited as a reason to escalate a
punitive award, and that is consistent with the goal of deterrence. But
that door swings both ways. An award that not only hurts but permanently
cripples the defendant goes too far.[2] A life of financial hopelessness
may be an invitation to a life of crime. Perpetual inability to get the
financial burden of a judgment off his back leaves a defendant with few
alternatives. The wisdom of rendering an award of punitive damages
undischargeable is for the Congress. But given that that decision has been
made, courts of our state should consider punitive awards with that legal
fact in mind. Stroud has no significant assets today and will have none
for some time. Although some portion of Stroud’s future wages may be
exempt from execution, this award is of dubious benefit to the plaintiff
and its present value in dollars is close to zero. But a staggering
punitive damages award is not merely a useless act. It also traps the
plaintiff and defendant forever in a creditor-debtor relationship that
offers little if any financial reward to the plaintiff and seems far more
likely to lead to nothing but travail for both.
The trial court provided no findings of fact to indicate, first, why
a punitive damages award was appropriate, and second, why that award should
be set at $500,000. In reviewing the award, the Court of Appeals
considered helpful the factors first articulated in BMW, and recently
reaffirmed in State Farm, 123 S. Ct. at 1520. Those factors are: the
reprehensibility of conduct; the disparity between the harm suffered and
the punitive damages awarded; and the difference between the punitive
damages awarded and the civil and criminal penalties authorized or imposed
in comparable cases. BMW, 517 U.S. at 575. As the Court of Appeals noted,
the BMW factors are persuasive, but not dispositive, indicia of whether a
particular award is appropriate under Indiana common law. Stroud, 760
N.E.2d at 1181. This is so because BMW concerned a due process challenge
to an award and did not address whether the award violated any common law
theory of excessiveness. In addition, the factors were used to review a
trial court’s decision as to the constitutionality of a jury award, not to
review an award made by a court following a bench trial.
In any case, the Court of Appeals also acknowledged that Indiana
common law has historically regarded the defendant’s wealth as an important
factor in determining whether a punitive damages award is excessive.
Stroud, 760 N.E.2d at 1181; see also Hibschman, 266 Ind. at 317, 362 N.E.2d
at 849; Executive Builders, Inc. v. Trisler, 741 N.E.2d 351, 360 (Ind. Ct.
App. 2000); Ford Motor Co. v. Ammerman, 705 N.E.2d 539, 561 (Ind. Ct. App.
1999); Bright v. Kuehl, 650 N.E.2d 311, 316 (Ind. Ct. App. 1995); Archem,
Inc. v. Simo, 549 N.E.2d 1054, 1061 (Ind. Ct. App. 1990); Ind. & Mich.
Elec. Co. v. Stevenson, 173 Ind. App. 329, 341, 363 N.E.2d 1254, 1263
(1977). Stroud is incorrect to suggest that the plaintiff is required to
offer proof of the defendant’s ability to pay a punitive damages award.
That point was settled by Hibschman. 266 Ind. at 317; 362 N.E.2d at 849.
However, if there is evidence bearing on ability to pay, we disagree with
the view of the Court of Appeals that Stroud’s inability to pay this award
is inconsequential.
We do not doubt the severity of the injuries caused by Stroud. But
the judge awarded Lints compensation for his injuries in the amount of
$1,381,500.00 after allowing for comparative fault. We agree that punitive
damages are intended both to deter others and to punish the wrongdoer.
However, the common law has long held that the ability of a defendant to
pay a punitive damages award is an important consideration. This doctrine
is grounded in sound policy. It not only justifies upholding high awards
when the defendant’s resources render a lesser amount inconsequential, it
also means that in cases such as this, where the defendant is a teenager
with no assets and no apparent ability to pay in the future, an award this
substantial must be modified. As the Court of Appeals put it in Ramada
Hotel Operating Co. v. Shaffer, 576 N.E.2d 1264, 1267-68 (Ind. Ct. App.
1991):
Inasmuch as this Court should review the defendant’s economic
wealth in the situation where punishment and deterrence are the stated
purposes, the economic wealth of the defendant is material to the
issue of punitive damages so that these objectives will be fulfilled.
The economic wealth of a defendant tends to show . . . the point at
which an award of punitive damages becomes an amount which will deter
and punish the defendant.
In Stroud’s case, the punitive damages award passed the point of deterrence
and punishment long before it reached the $500,000 mark.
Conclusion
We affirm the judgment insofar as it awards compensatory damages. We
grant transfer and vacate the trial court’s award of punitive damages. We
remand so that the trial court may enter an award of punitive damages in an
amount reflecting proper consideration of the defendant’s financial status.
SHEPARD, C.J., and DICKSON, SULLIVAN, and RUCKER, JJ., concur.
-----------------------
[1] Lints’ award of $1,842,000 was reduced twenty-five percent for
comparative fault.
[2] Courts in other states have reached the same conclusion. See, e.g.,
Hollins v. Powell, 773 F.2d 191, 198 (8th Cir. 1985) (remittitur of jury’s
$500,000 punitive damage award to $2,000, observing that the defendant
“lost his position as mayor” and appeared to be “under severe financial
constraints”); City Stores Co. v. Mazzaferro, 342 So. 2d 827, 828 (Fla.
Dist. Ct. App. 1977) (punitive damages should “hurt, but not bankrupt,” the
defendant); Klimek v. Hitch, 464 N.E.2d 1272, 1276 (Ill. App. Ct. 1984)
(punitive award “should send a message loud enough to be heard, but not so
loud as to deafen the listener”).