Arizona Court of Appeals Rules Excessive Punitive Damages Unconstitutional

Hudgins v. Southwest Airlines, Co., 547 Ariz. Adv. Rep. 5 (Ct. App. Div. 1, January 13, 2009) Justice Timmer

EXCESSIVE PUNITIVE DAMAGE AWARD UNCONSTITUTIONAL

Plaintiffs, Virginia-based bounty hunters, flew from Baltimore to Phoenix on a Southwest Airlines [SW] flight in pursuit of a fugitive. Prior to departure the plaintiffs contacted SW and learned the procedure for taking hand guns on board, complied and were knowingly permitted by SW agents to take their guns on board the flight despite the fact it was against FAA regulations

During the flight pilot learned the men were on board with firearms, and notified the Phoenix Police who met the plaintiffs as they disembarked the plane, interviewed them briefly, then cuffed them and put them in jail for 2 days. Later the United States charged plaintiffs with carrying concealed weapons on an aircraft and threatened civil penalties. Later, after investigation the U.S. dropped the criminal charges and advised plaintiffs no civil action would be taken because although they had violated the law, “it appeared every attempt was made to comply with the instructions given to them by the airline.”

Plaintiffs sued SW and were awarded $500,000 by a jury on their negligence claim and $4 million in punitive damages.

On appeal SW first argued the trial court erred in admitting a letter dated before the plaintiffs' incident from the FAA to SW concerning a prior similar incident and stating that this appeared to be a “prevalent problem” with SW. The court of appeals noted that rule 404(b) of Evidence precludes the introduction of evidence of prior bad acts to prove character of an individual consistent with that bad act. However, whereas here the evidence is offered to prove notice or absence of a mistake the evidence is admissible unless under rule 403 the probative value is outweighed by the prejudicial effect of the evidence. Here the court found the letter admissible to establish notice to SW of the problem and that the probative value outweighed its prejudicial effect particularly because defendant's requested limiting instruction to the jury was given and it is presumed the jury followed such an instruction to consider the evidence only as to notice.

Next the defendant argued the trial court inappropriately excluded testimony of a police sergeant that the plaintiffs were in violation of Maryland law for not having a concealed weapon license from that state and in failing to seek the help of local bounty hunters in Phoenix to apprehend the fugitive. The trial court found the exclusion appropriate because this evidence was not relevant—did not tend to make it more or less probable that plaintiffs failed to use reasonable care to determine how to carry concealed weapons by air.

Defendants then argued that three FBI reports essentially blaming SW for failing to interview its employees concerning the incident pursuant to the FBI's request and as a result the federal charges against the plaintiffs were dismissed were inadmissible hearsay. The court of appeals however agreed with plaintiff that these reports fell within the rule 803 exception for public records. The court found that the reports stated facts observed by the reporting officers pursuant to a public duty rather than mere opinion of the FBI agent author.

The defendants also claimed error in the trial court's instruction that the jury could consider evidence of the defendant's concealment of evidence on the issue of punitive damages claiming there was no evidence of concealment and the instruction was highly prejudicial. The court of appeal disagreed finding that although SW through its internal investigation determined its employees had not properly interviewed the plaintiffs and should not have told them to take the guns onto the plane, it did not give this information to the plaintiffs to assist them regarding the criminal charges and this was a concealment warranting the instruction.

Next, and of most importance, the court addressed SW's challenge of the $4 million punitive damage award. First, the appellate court agreed with the trial court that SW's in-house counsel's refusal to release an internal investigation report to plaintiffs or the FBI and obstructionist behavior was adequate to support a punitive damage award. The report demonstrated that SW had failed to properly examine plaintiffs' credentials before telling them they could take guns on the plane and it demonstrated plaintiffs had never misrepresented who they were. SW's lawyer knew the plaintiffs needed SW's cooperation to get a dismissal of the criminal charges, yet he refused to release it unless the plaintiffs released all claims against the SW saying “those rednecks from Virginia” would not get any money from SW and a conviction in the criminal matter would help SW in a civil suit. Ultimately, the attorney did suggest to the U.S. the charges should be dismissed but he continued in his refusal to release the report or put his admission that SW “may have been at fault” for letting them on the plane with guns in writing. He also refused to make employees at SW available for interview by the FBI. Cooperation by the attorney would have resulted in the immediate release of plaintiffs and saved them the emotional distress suffered asa result. Based upon this evidence the court held a jury could have found the requisite evil mind to support punitive damages.

Finally the court discussed the constitutionality of the amount of the punitive damage award acknowledging that an excessive award would violate the due process clause of the 14th amendment to the U.S. Constitution, because a defendant would not have fair notice of the extent of punishment that could be imposed.

Following Gore v. BMW of North America, Inc., 517 U.S. 559 (1996) the court analyzed three factors to determine the constitutionality of the award. First, the degree of reprehensibility “is the most important indication of the reasonableness of the punitive damage awards.” Here, although SW's conduct was found to be reprehensible, because SW knew the government already knew from the forms that had been disclosed that SW had knowingly let plaintiffs on the plane the degree of reprehensibility was found to be in the “low to middle range.”

Next the court addressed whether the ratio of punitive damages to actual or potential harm was reasonable. Here the court noted that although the Supreme Court refused to articulate a mathematical formula to evaluate the ratio, the court did find a ratio of 4 to 1 “approached the line.” The more egregious the conduct the higher the ratio could be without violating due process. Here where SW's conduct merely delayed the release of plaintiffs a ratio of 8 to 1 was found to be excessive.

The final factor considered under Gore was comparative penalties. Where the range of criminal penalties for this conduct was $500,000 to $1 million the court found was far below the $4 million awarded and also suggested a violation of due process.

Thus applying all the Gore factors to the facts of this case the court held the $4 million punitive damage award was unconstitutionally excessive. Instead the court found that the Gore factors mandated a 1 to 1 ratio between compensatory and punitive damages and reduced plaintiffs' punitive damages to $500,000 per plaintiff.