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Saturday, June 12, 2004

Law - A Utah court declares its punitive damages sharing statute unconstitutional

"Utah's split-recovery law declared unconstitutional" is the headline to this story today in the Deseret Morning News. The Indiana Law Blog has had a number of entries on the punitive damages split-recovery concept, as Indiana is one of the eight states with such a law, and a similar law has been proposed recently in California. Check here and here for earlier ILB entires. And here is a NY Times chart comparing the laws in the eight states.

This is a decision of the Utah 3rd District Court. According to the Utah Court site, the District Court is the state trial court of general jurisdiction. There are 70 full-time district judges serving in the state's eight judicial districts. Decicisons do not appear to be available online.

As reported by the Deseret Morning News:

A 3rd District judge Friday declared a Utah law unconstitutional in a decision that could have sweeping ramifications for Utahns who win financial awards in civil lawsuits. Judge Frank Noel's potentially precedent-setting decision ruled that Utah's government cannot take half of the punitive damage judgment awarded in a civil lawsuit. * * *

[Attorney Robert S. Campbell] argued the law was unconstitutional because it violates the Fifth Amendment to the U.S. Constitution as well as a similar portion of the Utah Constitution, which says the government cannot take private property without paying compensation. "The court (via Judge Noel's Friday ruling) recognized that the statute was a taking of my clients' property rights in the judgment," Campbell said. * * *

[Assistant Attorney General Kevin Olsen] said the law was enacted in 1989 as part of general tort reform. During the 1980s, concerns arose on both national and state levels about juries awarding huge punitive damage sums in civil cases. More and more such cases were being filed. Some states simply abolished punitive damages, while others put caps on how much juries could award. Olsen said Utah was one of about a dozen states that chose a third way — a split-recovery statute.

"It still allows you to keep the punitive damages there. Originally they were allowed in the law to punish bad behavior. But then it takes away incentive from plaintiffs to expect a windfall by having them split that with the state," Olsen said.

There have been unsuccessful legal challenges to such laws in some states, according to the conservative Internet news forum, FreeRepublic.com, and a few states have let their split-recovery laws expire or be repealed. Currently, Georgia, Illinois, Indiana, Iowa, Oregon, Alaska, Missouri and Utah have such statutes on their books, according to the Web site.

Utah prosecutor Olsen said it appeared a key sticking point for Judge Noel was language in the Utah law that specifically addresses when a judgment is awarded and paid. "The state's argument is that when a judgment is entered right after a jury decision, the punitive damages award is divided with the state. The Smiths never owned 100 percent of the judgment, and, therefore, there is no taking of their property," Olsen said.

The Smiths disagreed, arguing that the money was already their property at the time the jury rendered its decision, and Noel agreed with the couple's position.

The Salt Lake Tribune reports in a story today:
Although it has been on the books since 1989, the law was all but ignored until 2002 after two blockbuster jury awards grabbed the attention of lawmakers.

So far, officials say the state has collected just under $100,000, although demand letters representing hundreds of thousands have been sent out.

In a brief ruling from the bench, 3rd District Judge Frank Noel declared the statute an unconstitutional taking of property in the case of Utah mall magnate John Price, the U.S. ambassador to the African nation of Mauritius. * * *

But don't count the statute out yet. Noel's decision is not binding on other courts, and applies to the law as it read before lawmakers amended it earlier this year. The amendment eliminated dire tax consequences for plaintiffs, but also made the law less vulnerable to attack by patterning it after a Georgia statute that has withstood legal challenges.

Assistant Attorney General Kevin Olsen said the state does not yet know if it will appeal Noel's ruling. Both he and state Treasurer Ed Alder said they are unsure whether Noel's ruling could affect punitive damage monies already paid to the state or those in the pipeline.

Utah is one of eight states that take some portion of punitive awards. Such laws are based in part on the idea that the public should benefit because punitive awards aim to punish the wrongdoer and discourage similar conduct rather than compensate the plaintiff.

Utah, Alaska and Missouri take half of punitive awards. Oregon takes 60 percent of punitive awards, and Georgia, Indiana and Iowa take 75 percent. Illinois leaves the amount up to judges. But unlike some of these states, Utah deposits the money it collects into its general fund rather than earmarking it for a special account such as Indiana's fund for victims of violent crime.

California Gov. Arnold Schwarzenegger has recently proposed his state enact a law to take 75 percent of all punitive awards.

[Credit to Howard Bashman's How Appealing for the Utah links.]

Posted by Marcia Oddi on June 12, 2004 05:59 PM
Posted to General Law Related