Damages: Punitive Damages addressed in Crutcher v. Harrod Concrete, Pub. COA, 3/22/2013

Kentucky courts award punitive damages “to punish and to discourage

[the defendant] and others from similar conduct in the future.” KRS 411.184(1)(f); see also Schneider, 15 S.W.3d at 375. They are an option only upon a clear and convincing showing that a defendant acted with “oppression, fraud or malice.”9 KRS 411.184(2). They “are allowed because the injury has been increased by the manner it was inflicted.” Chiles v. Drake, 59 Ky. (2 Metc.) 146, 151, 74 Am.Dec. 406 (1859). They are “not awarded for mere inadvertence, mistake, errors of judgment and the like, which constitute ordinary negligence.” Restatement (Second) of Torts § 908 cmt. b. (1979).

One may fail to exercise slight, or any care, resulting in an accident, which will not make him liable for punitive damages; but in order to justify the assessment of such damages there must be the element, either of malice or willfulness, of such an utter and wanton disregard of the rights of others as from which it may be assumed he was acting either maliciously or willfully.

W.T. Sistrunk & Co. v. Meisenheimer, 205 Ky. 254, 265 S.W. 467, 468 (1924). Unlike the goal of compensatory damages, which is to make an injured party whole by allowing him to recover all the actual damage he has sustained, punitive damages are not intended to make the plaintiff whole. They serve a broader function; they are aimed at deterrence and retribution. State Farrm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003). “[A]lthough usually awarded at the same time by the same decisionmaker, (they) serve different purposes.” Campbell, 538 U.S. at 416, 123 S.Ct. 1519 (citing Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 432, 121 S.Ct. 1678, 149 L.Ed.2d 674 (2001)). When awarded, punitive damages provide a windfall to a plaintiff who has already been fully compensated and a punishment to the defendant whose outrageous conduct society seeks to prevent from recurring.

Harrod’s actions were particularly reprehensible because the encroachment and taking were hidden from view and could have been avoided had Harrod verified its aboveground boundaries and correlated them to its underground mining activities. We heard no testimony at trial that technology was nonexistent to accomplish that feat in 2002, only that techniques subsequently employed were “cutting edge.” It seems curious that the Kentucky Office of Surface Mining Regulation and Enforcement, not Harrod, discovered the encroachment and apprised Harrod he had mined Crutcher’s land without a permit by issuing a citation. Thus, Harrod should expect no praise for its confession of error to Crutcher. But for issuance of that citation and the subsequent events associated with this case, Harrod may still be blissfully unaware of its precise underground location and Crutcher’s ground could be minus even more limestone.

As expressed in the Restatement (Second) of Torts § 908(2) (1979), “[p]unitive damages may be awarded for conduct that is outrageous, because of the  defendant’s evil motive or his reckless indifference to the rights of others.” See also Hensley v. Paul Miller Ford Inc., 508 S.W.2d 759, 762 (Ky. 1974). In a tort case, the threshold for determining whether punitive damages are authorized is not whether the injury was inflicted negligently or intentionally, but whether it had “the character of outrage[.]” Id. A proper instruction defines this as “a wanton or reckless disregard for the lives, safety or property of other persons.” Horton v. Union Light, Heat & Power Co., 690 S.W.2d 382, 389 (Ky. 1985) (citing Fowler v. Mantooth, 683 S.W.2d 250 (Ky. 1984)). The instruction given on punitive damages in this case required jurors to find that Harrod “acted in reckless disregard for the property of others.” However, before reaching this instruction, jurors had already found Harrod had committed a trespass10—the equivalent of failing to exercise reasonable care. States Corporation v. Shull, 216 Ky. 57, 287 S.W. 210 (1926) (Evidence of a trespass tends “to show the want of reasonable care[.]”).

As further explained in Horton,

to justify punitive damages there must be first a finding of failure to exercise reasonable care, and then an additional finding that this negligence was accompanied by “wanton or reckless disregard for the lives, safety or property of others.” This bears an element not distinguishable from malice implied from the facts.

The concept of punitive damages represents more than mere blind adherence to ancient precedent. It is as just a principle and as fair to the litigants today as it ever was. Improperly applied, it may indeed be nothing more than a windfall or a double recovery. But there are few if any principles of law which could not be criticized as sometimes misapplied.

It would be simplistic to characterize this virtual unanimity [among the states in adhering to the concept of punitive damages] as mere blind adherence to an outmoded principle. Rather, the doctrine of punitive damages survives because it continues to serve the useful purposes of expressing society’s disapproval of intolerable conduct and deterring such conduct where no other remedy would suffice. Mallor and Roberts, Punitive Damages Toward a Principled Approach, 31 Hastings L.J. 639, 641 (1980).

Horton, 690 S.W.2d at 389-90.
According to the proof developed at trial, Harrod knew its mining operation was headed toward Crutcher’s land, but rather than confirming its proximity to Crutcher’s land, it assumed—always a dangerous strategy—it was well within its own sizeable acreage and continued mining. Harrod’s actions were unacceptable and can be neither condoned nor encouraged.

In Holliday v. Campbell, 873 S.W.2d 839, 841-42 (Ky. App. 1994), “not tak[ing] the trouble to locate” a property line marked by a partial wire fence was sufficient evidence on which to award punitive damages for trespass and unauthorized logging. The similarities in Holliday, involving logging, and the case sub judice, involving unobservable underground mining, are too compelling to ignore. Harrod’s conduct in not bothering to confirm its precise location was outrageous and, therefore, an award of punitive damages was appropriate.

Having determined an award of punitive damages was authorized in this case, we cannot, however, agree that an award of $902,000.00 was appropriate.

In Kentucky, the assessment of punitive damages requires consideration of not only the nature of the defendant’s act, but also the extent of the harm resulting to the plaintiff. Fowler v. Mantooth, Ky., 683 S.W.2d 250, 253 (1984). In other words, the jury is to consider not only the defendant’s conduct, but the relationship of that conduct to the injury suffered by this particular plaintiff.

Owens-Corning Fiberglas Corp. v. Golightly, 976 S.W.2d 409, 412 (Ky. 1998). It was appropriate for jurors to know the market value of the limestone Harrod removed, both to determine the award of compensatory damages, and to quantify the nature of Crutcher’s harm. However, it was erroneous to award Crutcher the market value of the limestone as punitive damages because there is no direct correlation between punitive damages and Crutcher’s loss, Campbell, 538 U.S. at 416.

More importantly, punitive damages cannot be transformed into compensatory damages without negating the specific purpose of the award. While there is no standard for setting punitive damages, Kentucky’s legislature identified five factors in KRS 411.186(2) that jurors are to consider:

(a) The likelihood at the relevant time that serious harm would arise from the defendant’s misconduct;

(b) The degree of the defendant’s awareness of that likelihood;

(c) The profitability of the misconduct to the defendant;

(d) The duration of the misconduct and any concealment of it by the defendant; and

(e) Any actions by the defendant to remedy the misconduct once it became known to the defendant.

Since we are vacating and remanding the case for a new determination of punitive damages, we need not address whether the trial court correctly reduced the jury verdict from $902,000.00 to $144,000.00 other than to say an award of punitive damages at a rate 25 times the award of compensatory damages could easily “cross the line into the area of constitutional impropriety” when it has been recognized that a ratio of just 4:1 “might be ‘close to the line[.]’” McDonald’s Corporation, 309 S.W.3d at 300 (quoting BMW of North America, Inc. v. Gore, 517 U.S. 559, 581, 116 S.Ct. 1589, 1602, 134 L.Ed.2d 809 (1996) (citing Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 23-24, 111 S.Ct. 1032, 1046, 113 L.Ed.2d 1) (1991)).

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