Louisiana 3rd Circuit Court of Appeals Affirms Maritime Punitive Damage Award of 184:1 Ratio

Louisiana 3rd Circuit Court of Appeals Affirms Maritime Punitive Damage Award of 184:1 Ratio

By: Morgan Moone

Warren v. Shelter Mut. Ins. Co., 2016 La. App. LEXIS 1319, 15-354 (La.App. 3 Cir. 06/29/16).

 This case involves three appeals. The most important one focuses on the issue of punitive damages in a marine casualty in state territorial waters, specifically the reasonableness of the $23 million punitive damage award and $125,000 award for compensatory damages. Ron Warren (hereinafter “Warren”), filed a survival action and wrongful death suit seeking to recover damages when his son, Derek Hebert, was killed in a boating accident on the Calcasieu River in Louisiana. The decedent was a passenger in a pleasure craft when the steering failed, causing the boat to spin, and throw him overboard.  He was struck by the propeller nineteen times, inflicting fatal injuries. While the cause of death was brutal, Hebert died almost instantaneously as a result of a deep cut along the torso. In a lengthy opinion with extensive analysis of U.S. Constitutional law on punitive damages as well as under maritime law, a divided panel of the Louisiana Third Circuit Court of Appeal affirmed the large punitive damage award representing a punitive to compensatory damage ratio of 184:1.After nine years of litigation and an investigation by the Louisiana Department of Wildlife and Fisheries, it was determined that the boat lost its steering due to a hydraulic oil/fluid leak in one of the steering system’s hydraulic lines. While Teleflex was the manufacturer and supplier of the boat’s original hydraulic steering system, one of the hoses had been replaced with a non-Teleflex hose by an unknown person. During the course of the trial, it was concluded that Teleflex knew of a defect in the system that resulted in steering loss after the loss of a few teaspoons of fluid. Typically, the loss of fluid was first indicated by clicking noises, upon which Teleflex claimed that the driver of the boat should have immediately ceased driving and returned to dock. The plaintiff claimed that Teleflex’s steering system was defective because of an inherent danger unknown to users, and Teleflex breached its duty to warn users of the risk in using its product.The lower court found Teleflex, the defendant, liable for the death of Herbert and awarded Warren compensatory damages of $125,000 ($100,000 for the survival action and $25,000 for wrongful death), and punitive damages of $23,000,000, from which Teleflex and Warren both appeal. Teleflex sought JNOV, in the alternative a new trial or remittitur on punitive damages; Warren sought JNOV confirming the award of pre-judgment interest on compensatory damages and sought pre-judgment interest on punitive damages. Teleflex’s motions were denied. Warren’s JNOV for legal interest was upheld, but the JNOV for pre-judgment interest on punitive damages was denied.In upholding Teleflex’s liability in failure to warn of unknown danger, the court affirmed the compensatory and punitive damages. The jury, by finding Teleflex liable, implicitly found that Teleflex had a duty to warn users that a hydraulic fluid leak in the steering system would cause the boat to spin out of control. As a result of the breach of that duty, Teleflex was found liable for compensatory damages for failure to warn. The court found that Teleflex’s warnings in the manual for the boat were insufficient to satisfy its duty to warn and that the warnings should have also been on the steering system itself. Therefore, because the user was unaware of the warning and it was proven that, had the user been aware of the warning, he would have heeded them, Teleflex was liable for compensatory damages.In maritime cases, punitive damages generally require a higher degree of fault than simple negligence, calling for a showing of willful, wanton and callous disregard. Bergeron v. Mike Hooks, Inc., 626 So.2d 724, 728 (La. App. 3 Cir. 1993). Relying on Bergeron, Teleflex contended that there was no evidence of wanton, reckless or callous conduct, therefore eliminating punitive damages. The court upheld the jury’s decision to award punitive damages, citing Teleflex’s numerous test results between 1989, nine years before the system was sold and the date of the accident, as well as the fact that the difference between an operational boat and a seizure of the steering system rested on a difference of just a few tablespoons of oil. In addition, the consideration that a warning decal, which would cost roughly thirty cents, could have prevented the accident in question justifies the application of punitive damages.In the alternative, Teleflex argued that even if the punitive damages are applicable, the award of punitive damages is excessive as a matter of federal maritime and constitutional law. The Supreme Court developed three factors for determining whether a punitive damage award violates the Due Process Clause of the Fourteenth Amendment:

1. The reprehensibility of the defendant’s conduct;
2. The ration between the exemplary damage award and the harm the defendant’s conduct caused, or could have caused; and
3. The size of any civil or criminal penalties that could be imposed for comparable misconduct.

The Supreme Court further held that state courts may conduct de novo reviews of punitive damages awards that are grossly excessive and in violation of the Due Process Clause. Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424 (2001). The Due Process Clause places limits on the discretion of lower courts to impose punitive damages; when an award is grossly excessive, it does not further any legitimate state purpose, thereby limiting the ability of lower courts to impose unregulated punitive damages.In determining whether the punitive damages awarded against Teleflex were grossly excessive, the court first reviewed the reprehensibility of the defendant’s conduct. The court upheld the jury’s determination that Teleflex’s conduct in failing to warn of a dangerous condition was egregious conduct, especially in comparison to the low cost of properly warning its consumers. In addition, the court upheld the jury’s consideration of frequency when determining the callousness of Teleflex’s behavior: thousands of similar steering incidents were brought to Teleflex’s attention over the years with no change in procedure or protocol regarding the warning labels. Finally, the court found that since the harm was physical, not economic, and included the loss of life, the decision not to warn was egregious conduct.Second, the Court considered the proportionality of the punitive damages by considering the ratio of punitive to compensatory damages which, in this case, came to 184:1. In supporting its decision to uphold the damages, the Court relied on TXO, 509 U.S. at 480, arguing that low awards of compensatory damages justify higher punitive damages and vice versa. Further, the Court in TXO argued that it is impossible “to draw a mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable” in determining punitive damages. Id. The Court reasoned that the potential harm Hebert, the deceased, could have suffered had he survived the attack, could reasonably have exceeded $10,000,000. In addition, under TXO and Louisiana law, the court found that the wealth of the defendant is a factor in determining the amount that would deter future commission of similar misconduct. Teleflex’s worth in 2013 was over $4 billion dollars, rendering the $23,000,000 punitive damages only 1/74^th of the company’s wealth.Next, the Court considered punitive damages in comparison to similar civil or criminal penalties that could be imposed. The Court justified increased punitive damages because of the relatively low compensatory damages awarded to the plaintiff, making the punitive damages reasonable when taken in consideration of the harm caused by Teleflex’s negligence.The majority also affirmed the award of pre-judgment interest on the compensatory damages which was appealed by Teleflex. The plaintiff also appealed the denial of pre-judgment interest on punitive damages which was denied. The court reasoned that punitive damages are not compensatory but principally for retribution and to deter harmful conduct. Relying on Ill. Cent. R. Co. v. Tex. E. Transmission Corp., 551 F.2d 943 (5th Cir. 1977), it affirmed the denial of pre-judgment interest on the punitive damage award.Judge John E. Connery dissented and focused his dissent on the appeal of Teleflex of the trial court’s awarding of a new trial. The first trial resulted in a jury finding in favor of Teleflex. The trial judge granted a new trial on the basis that the manual for the steering system which was introduced into evidence was the wrong one. Judge Connery maintained that the depositions of experts indicated that the manual which was introduced into evidence was a later one and was introduced into evidence by the plaintiff. Thus, he maintained that the trial judge abused his discretion in granting a new trial and would reinstate the first jury verdict in favor of Teleflex. He concurred with the award of pre-judgment interest on compensatory damages and denial of pre-judgment interest on punitive damages should the judgment become final.