Harrisburg, PA and Charleston, WV
Legal Intelligencer
(by Casey Coyle, Stefanie Mekilo and Austin Rogers)
1995 was a watershed year. Michael Jordan returned to the NBA after a two-year hiatus, Brad Pitt was named Sexiest Man Alive by People magazine, and the world met Buzz Lightyear for the first time. Today, Buzz remains a constant fixture in pop culture, thanks largely to his signature catchphrase: “To Infinity and . . . Beyond!” Indeed, Buzz himself may use that phrase to describe the Pennsylvania Supreme Court’s recent decision in Bert Co. v. Turk, 298 A.3d 44 (Pa. 2023), which calls into question the presumptive constitutional limit for punitive damages awards.
Background
In 2017, four employees with non-solicitation agreements left their employment with The Bert Company d/b/a Northwest Insurance Services and joined First National Insurance Agency, LLC. They moved as part of what is known in business parlance as a “lift-out,” a practice in which a group of employees from one company are hired by a competitor. Northwest filed suit and obtained a preliminary injunction enforcing the agreements. At the ensuing trial, the jury exonerated three employees from any liability and exonerated the corporate defendants on two claims. While they found the remaining employee and corporate defendants liable on other claims, the jury only awarded Northwest $250,000 of the roughly $4 million in compensatory damages sought; the award was joint and several. However, the jury awarded Northwest $2.8 million in punitive damages—representing an 11.2:1 ratio of punitive-to-compensatory damages on a per-judgment basis.
Appellants challenged the punitive damages award as unconstitutional. Under U.S. Supreme Court precedent, courts must consider three guideposts when determining if a punitive damages award comports with the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution: (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 and the civil penalties authorized or imposed in comparable cases. BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 575 (1996); State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 418 (2003). Appellants invoked all three guideposts, contending: (1) the degree of reprehensibility could not sustain the $2.8 million punitive damages award because, inter alia, Northwest only alleged economic harm and the challenged conduct “had [no] impact on the health or safety of others;” (2) a punitive-to-compensatory ratio over 10:1 “grossly exceeds the 4:1 guideline established by the Supreme Court;” and (3) the disparity between the jury’s punitive damages award and penalties imposed in other cases necessitated remittitur.
The trial court upheld the award. Quoting State Farm, the court acknowledged “[f]ew awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” The court nevertheless affirmed the award because, “[w]hile the individual ratios clearly fall within the single-digit ratio explained in State Farm, the global ratio only slightly exceeds this standard,” and “there is no explicit ratio that a punitive damages award may not surpass.” The court only briefly touched on the first Gore guidepost (though it confined its analysis to Appellants’ “malicious intent” without discussing the other reprehensibility factors the U.S. Supreme Court articulated in State Farm) and did not address the third Gore guidepost at all.
A divided Superior Court panel affirmed the punitive damages award on appeal. Bert Co. v. Turk, 257 A.3d 93 (Pa. Super. Ct. 2021). Preliminarily, the majority limited its entire analysis to the second Gore guidepost. The majority determined that, “‘[a]s a matter of law,’ the Supreme Court has expressly not established any bright-line ratio which a punitive damages award cannot exceed.” Treating the absence of a bright-line rule the same as there being no limitation at all, the majority held that a punitive damages award over 11 times greater than the compensatory damages award is not presumptively unconstitutional where, as there, the compensatory damages award is substantial. The majority cited just two cases to support this conclusion—both statutory bad-faith cases involving low compensatory damages awards and, thus, implicating one of the two exceptions to a single-digit multiplier.
The majority then turned to how to calculate the constitutionally permissible ratio of compensatory-to-punitive damages in a multiple-defendant case. Absent U.S. Supreme Court guidance, the majority examined cases from other jurisdictions. Finding the combined reasoning of the Ninth Circuit and Texas Supreme Court persuasive, the majority held that computation of damages ratios in multi-defendant cases is on “a per-defendant basis, rather than by aggregating all … compensatory and punitive damages on a per-judgment basis.” Notably, neither the Ninth Circuit nor the Texas Supreme Court had reconciled their holdings with the problem of “double counting” (or more), under which the same compensatory damages are counted multiple times in calculating the constitutionally permissible ratio—even though it is logically impossible in joint-tortfeasor cases that each tortfeasor will pay the full amount of compensatories. Regardless, the majority held that, because Appellants used a per-judgment basis to derive their damages ratio, “that ratio is erroneous as a matter of law.”
The majority, though, seemed to question the propriety of its ratio calculation. Instead of concluding its opinion after calculating what it believed to be the constitutionally permissible ratio in multi-defendant cases (which resulted in a single digit ratio of punitives-to-compensatories for each Appellant), the majority took a belt-and-suspenders approach and considered the potential harm Northwest could have suffered by Appellants’ conduct. The majority found that the potential harm “far exceeded” the $250,000 in actual harm sustained since the potential harm included the company’s remaining value—which the majority calculated on a cold record to be $9.15 million—for a total of $9.4 million. The majority then held: “[g]iven the total disregard for the rule of law that these four tortfeasors displayed, the punitive damages that the jury awarded are light years away from the outer limits of the Due Process Clause.”
The Pennsylvania Supreme Court affirmed the punitive damages award on further review. Bert, 298 A.3d at 48. The Court held that a per-defendant calculation of the Gore ratio—dividing individualized punitive damages by total compensatory damages—was appropriate “under the circumstances,” adding it “generally endorse[s]” that approach as being “consistent with” due-process considerations. The Court then rejected as moot Appellants’ argument regarding a ratio in excess of a single digit since that ratio was based on a per-judgment calculation. Nonetheless, the Court addressed Appellants’ argument in dicta. The Court stated that double-digit ratios “may trigger judicial scrutiny” and “require[] a closer examination of the justification” for the award, but expressly rebuffed any presumption of unconstitutionality. The Court also held that, under the facts presented, “it was appropriate to consider the potential harm that was likely to occur from the concerted conduct of the defendants in determining whether the measure of punishment was both reasonable and proportionate.”
Impact
Much like Buzz Lightyear’s flightpath, Bert’s trajectory is uncertain. The majority of courts have held based on State Farm and its progeny that, absent extraordinary circumstances, there is a presumptive 9.99:1 cutoff for punitives-to-compensatories when the compensatory damages award is substantial. However, Pennsylvania courts may cite Bert for its proposition that a double-digit ratio is not presumptively unconstitutional, even though Bert’s language to that effect is dicta and inferior courts are bound by the U.S. Supreme Court’s interpretation of the U.S. Constitution. Such a change in the law would have significant consequences, particularly given the recent trend of nuclear verdicts across the Commonwealth.
Moreover, by endorsing a “general” (as opposed to categorical) approach to calculating the constitutionally permissible ratio of punitive-to-compensatory damages, Bert leaves open the possibility that a per-judgment approach may be appropriate under certain circumstances. Though it suggested a punitive damages award against a “single corporate entity” is one such instance, the Court provided no test or other guidance for selecting between the two approaches. Nor did the Court indicate what standard of review will be applied by a reviewing court—or, if allocatur is granted, the Pennsylvania Supreme Court—in evaluating that selection.
Further, by sanctioning the Superior Court’s consideration of potential harm in the absence of a jury finding regarding same and where the trial court had issued an injunction eliminating such harm, Bert appears to authorize a reviewing court to consider potential harm in every case involving the constitutionality of a punitive damages award. While the Supreme Court seems to rein in that possibility in Bert’s penultimate paragraph, suggesting consideration of potential harm is only appropriate when “the record includes evidence of the potential harm intended by the Defendants” and the jury is instructed it can consider potential harm, this remains an issue to watch.
Finally, Bert creates tension regarding the continued viability of the Gore guideposts in Pennsylvania. The Supreme Court affirmed the finding that the punitive damages award was constitutional without applying the first or third guidepost or the intermediate appellate court doing the same. Yet, all three guideposts remain the standard for assessing the constitutionality of a punitive damages award until the U.S. Supreme Court holds otherwise.
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Casey Alan Coyle is a shareholder at Babst, Calland, Clements and Zomnir, P.C and Co-Chair of the firm’s Appellate Practice Group. He focuses his practice on appellate law and complex commercial litigation. Casey is also a former law clerk to Chief Justice Emeritus Thomas Saylor of the Pennsylvania Supreme Court. He represented the appellants in Bert during the allocatur and merits briefing stage. Contact him at 267-939-5832 or ccoyle@babstcalland.com
Stefanie Pitcavage Mekilo is a litigation associate at the firm. She focuses her practice on complex commercial disputes involving theft of trade secrets, breach of noncompete and nonsolicitation agreements and other restrictive covenants, and related business torts. She is a former law clerk to the Honorable Christopher C. Conner and the Honorable John E. Jones III of the U.S. District Court for the Middle District of Pennsylvania. Contact her at 570-590-8781 or smekilo@babstcalland.com.
Austin D. Rogers is a litigation associate at the firm. He practices in a variety of litigation practice areas, including commercial, employment and labor, environmental, and energy and natural resources. Contact him at 681-265-1368 or arogers@babstcalland.com.
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Reprinted with permission from the November 2, 2023 edition of The Legal Intelligencer© 2023 ALM Media Properties, LLC. All rights reserved.
