Lithia Medford LM, Inc. v. Yovan , 254 Or. App. 307 ( 2012 )

WOLLHEIM, J.,

concurring in part, dissenting in part.

In light of the Supreme Court’s analysis in Hamlin v. Hampton Lumber Mills, Inc., 349 Or 526, 246 P3d 1121 (2011) (.Hamlin II), I would conclude that an award of $25,000 is the maximum award of punitive damages that due process will allow and therefore, like the majority, concur in reversing and remanding. However, I respectfully dissent from the majority opinion that would reinstate the jury verdict awarding $100,000 in punitive damages.

LITHIA MOTORS I

Even though the majority opinion sets out the facts in detail, I too will summarize the facts to set the stage for my dissent. The following facts are taken from the concurring opinion in Lithia Motors, Inc. v. Yovan, 226 Or App 572, 204 P3d 120 (2009) (Lithia Motors I), vac’d and rem’d, 349 Or 663 (2011), and from the record, in the light most favorable to the jury’s verdict, consistently with our standard of review. Parrott v. Carr Chevrolet, Inc., 331 Or 537, 556, 17 P3d 473 (2001) (“[W]hen reviewing a punitive damages award for excessiveness, the reviewing court must view the facts in the light most favorable to the jury’s verdict if there is evidence in the record to support them.”).

On December 2,2000, defendant bought a used 1993 Toyota 4Runner for $13,799, with a $300 down payment and $2,000 credit for his trade-in from plaintiff Lithia Medford LM, Inc., an auto dealership. 226 Or App at 574-75 (Edmonds, J., concurring). Defendant had previously worked at a used car dealership for three months and had bought five cars from dealerships before making this purchase.¹ Plaintiff informed defendant that it did not do financing and that the interest rate would be set by the finance company. Five days later, the retail installment contract was purchased by TranSouth Financial Corporation. Id. at 575 (Edmonds, J., concurring). After purchasing the car, defendant obtained a report stating that the car had been driven 25,500 miles more than the odometer indicated. Id. (Edmonds, J., concurring). Then, defendant contacted the plaintiff There is no evidence in the record that plaintiff was aware of the mileage discrepancy before defendant brought it to its attention. Id. (Edmonds, J., concurring). The parties were unsuccessful in reaching resolution. In late December, defendant’s counsel sent a letter to plaintiff stating that defendant had decided to keep the vehicle, to continue making payments on his installment contract, and to sue plaintiff for damages, unless the parties could reach a settlement. Id. at 576 (Edmonds, J., concurring). Plaintiff responded that defendant had the choice of paying the full balance on the car or returning the car in exchange for his trade-in and deposit. In a phone conversation between defendant and plaintiff’s manager, the manager threatened defendant with criminal prosecution for “Grand Theft Auto” if he did not return the car by the end of the week. Id. at 577 (Edmonds, J., concurring).

Several days later, a man came to defendant’s house and told him that the dealership had contracted with him to repossess the car for nonpayment. Id. (Edmonds, J., concurring). Defendant told the man that his first payment was not yet due and that the installment contract was not held by the dealership. Id. (Edmonds, J., concurring). The man said that he would call the police and that defendant was obstructing justice. Id. (Edmonds, J., concurring). Defendant then placed the car in storage for three months. Id. (Edmonds, J., concurring).

After repurchasing the retail installment contract from TranSouth, plaintiff sent defendant a page from the sales contract, noting that, “if Seller is unable to assign the retail installment contract/lease agreement * * * Seller may to rescind the retail installment contract/lease agreement,” which presumably was intended to provide a basis for plaintiff’s position that it could rescind the contract. Id. at 577-78 (Edmonds, J., concurring) (emphasis omitted). Defendant pointed out that TranSouth had not rejected the financing arrangement; instead, plaintiff had repurchased the contract. Id. at 578 (Edmonds, J., concurring). In January, plaintiff made a final attempt to settle the matter by offering to lower the financing amount by $1,000. Id. at 578-79 (Edmonds, J., concurring). Defendant rejected the offer, and the parties proceeded to trial.² Id. at 579 (Edmonds, J., concurring). Plaintiff brought an action for rescission based on mutual mistake, and defendant counterclaimed for violation of the Oregon Unlawful Debt Collections Practices Act. The trial court granted the claim for rescission.

At trial, defendant testified that his difficulties had caused disagreements with his wife and had contributed to his marriage ending. However, defendant’s former wife testified that the marriage ended because defendant broke her nose. Id. (Edmonds, J., concurring). A clinical psychologist also testified that defendant had trouble sleeping, felt threatened, lost his job and his house, and that the conflict with the dealership was “a significant contributing factor to his distress.” Id. at 579-80 (Edmonds, J., concurring). The parties stipulated that Lithia MTLM, Inc., had sufficient income and assets to pay a total of approximately $535,000 in damages and up to $100,000 in punitive damages. The jury did not award defendant any economic damages, but awarded him $500 in noneconomic damages for emotional injury and $100,000 in punitive damages. Id. at 574 (Edmonds, J., concurring). The trial court granted plaintiff’s motion for remittitur, ruling that the maximum constitutionally permissible punitive damages award based on the facts of the case was $2,000. Id. (Edmonds, J., concurring).

Defendant appealed, and we affirmed by an equally divided court. Id. at 573. Because the concurring and dissenting opinions in Lithia Motors I provide background and inform my analysis, I describe those opinions in detail. The concurrence began its analysis by quoting from our opinion in Hamlin v. Hampton Lumber Mills, Inc., 222 Or App 230, 238-39, 193 P3d 46 (2008) (Hamlin I), rev’d, 349 Or 526, 246 P3d 1121 (2011), in which we stated:

‘“Grossly excessive’ punitive damage awards violate the Due Process Clause of the Fourteenth Amendment to the United

States Constitution, primarily because such damages serve no legitimate purpose and constitute arbitrary deprivations of property.[³] BMW of North America, Inc. v. Gore, 517 US 559, 568, 116 S Ct 1589, 134 L Ed 2d 809 (1996) (Gore). In reviewing whether a punitive damage award is grossly excessive, we adhere to the following methodology set forth by the Oregon Supreme Court in Goddard v. Farmers Ins. Co., 344 Or 232, 179 P3d 645 (2008). First, we review the evidence in the record in the light most favorable to the party that obtained the award to determine whether there is a factual predicate for a punitive damage award. Id. at 261. Second, we apply ‘constitutionally prescribed guideposts to those predicate facts to determine if, as a matter of law, the award is grossly excessive.’ Id. Those guideposts, first identified by the United States Supreme Court in Gore, are:

“‘(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 by the jury and the civil penalties authorized or imposed in comparable cases.’

“State Farm Mut. Ins. v. Campbell, 538 US 408, 418, 123 S Ct 1513, 155 L Ed 2d 585 (2003) (Campbell)-, see also Goddard, 344 Or at 261-65, (describing and applying Gore guideposts). Finally, if that analysis leads us to conclude that the award is grossly excessive, we then use those same guideposts to determine the maximum lawful amount of punitive damages that a rational juror could award. Goddard, 344 Or at 261-62.”

Under the first guidepost — the degree of reprehensibility of plaintiff’s misconduct — the concurrence stated, “In this case, plaintiff’s most egregious actions were its threat to commence criminal prosecution against defendant because of his failure to voluntarily return the car and its attempt to repossess the car from defendant.” Lithia Motors I, 226 Or App at 581 (Edmonds, J., concurring). The concurrence added that “defendant was not a particularly vulnerable target of plaintiffs actions,” and, “[t]o the extent that plaintiffs actions violated ORS 646.639, they are reprehensible, but, on a sliding scale of reprehensibility, they fall at the lower end of the scale * * Id. at 582 (Edmonds, J., concurring).

Under the second guidepost — the disparity between the actual or potential harm suffered by a plaintiff and the punitive damages award — the concurrence stated that “the ratio of punitive damages to compensatory damages is 200 to 1, far exceeding the four-to-one ratio established as the general ceiling for punitive damages where the only harm is financial and the putative single-digit limit for punitive damages involving personal injury.”Id. (Edmonds, J., concurring). The concurrence noted again that “plaintiffs conduct was on the low end of the scale of reprehensibility” and concluded that “it cannot be said that the conduct was ‘particularly egregious’ so as to the due process ceiling in order to provide an incentive to bring an action.” Id. at 583 (Edmonds, J., concurring). The concurrence compared the award that defendant sought for emotional harm ($150,000) with the damages for emotional harm that the jury awarded ($500). “The award of $500 is not substantial in the sense that it is not a large amount, but it is substantial in the sense that it has actual value in excess of the $200 nominal damage award provided for in ORS 646.641(1) in the event of a violation of the act ” Id. (Edmonds, J., concurring).

Under the third guidepost — the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases — the concurrence stated that “[t]he most comparable sanction created by the legislature is in ORS 646.641(1), which provides a remedy in the amount of actual damages or $200, whichever is greater” and concluded that “the analysis under the third guidepost neither militates against nor supports a more substantial punitive damage award than the four-to-one ratio imposed by the trial court.” Id. at 584 (Edmonds, J., concurring).

Based on the guideposts, the concurrence concluded that the jury’s punitive damages award of $100,000 was grossly excessive. Id. (Edmonds, J., concurring). Although the degree of reprehensibility of plaintiff’s conduct was “significant,” it was “not egregious.” Id. at 585 (Edmonds, J., concurring). In addition, the jury’s verdict demonstrated that the emotional damage that plaintiff caused to defendant was “relatively minimal.” Id. (Edmonds, J., concurring). In conclusion, the concurrence stated:

“Balancing all of the relevant factors discussed above, I conclude that any amount in excess of a four-to-one ratio would constitute a grossly excessive award that would serve no legitimate purpose and if upheld, would constitute an arbitrary deprivation of plaintiff’s property. Accordingly, I would hold that the trial court did not err in reducing defendant’s punitive damage award to $2,000 or a four-to-one ratio.”

Id. (Edmonds, J., concurring).

In his dissenting opinion, Judge Armstrong argued that “the ratio loses its usefulness when we are confronted with a small compensatory award, as we are here.” Id. at 588 (Armstrong, J., dissenting). Judge Armstrong stated that “deterrence has much less meaning when we apply the suggested single-digit ratios to smaller awards.” Id. at 589 (Armstrong, J., dissenting). He went on to say:

“The fact that the jury found only $500 of the $150,000 in emotional harm that defendant sought goes to the issue of defendant’s damages, not plaintiff’s conduct. What is more telling, in my view, is that the jury determined that plaintiff had engaged in very offensive behavior, and that that behavior warranted a punitive damage award of $100,000.”

Id. at 590 (Armstrong, J., dissenting) (emphasis in original). Under the third guidepost in Gore, Judge Armstrong noted that the legislative policy permits civil penalties up to $25,000 and that “provides a more appropriate proportionality gauge for punitive damage awards in this and comparable circumstances — where egregious, prohibited conduct yields a small amount of compensatory damages — than does the single-digit formula.” Id. at 592 (Armstrong, J., dissenting). Accordingly, he concluded that an award of $25,000 in punitive damages would not offend due process. Id. (Armstrong, J., dissenting). Thus, in Judge Armstrong’s view, the jury’s award of $100,000 did offend due process.

Judge Sercombe also wrote a dissenting opinion, stating, “In my view, due process prohibits a punitive damages award in excess of $4,500.” Id. at 593 (Sercombe, J., dissenting). Judge Sercombe agreed with the majority that “plaintiff’s conduct in this case falls on the lower end of the reprehensibility scale” and that “there are no special circumstances in this case that would justify a punitive damages award that would exceed the compensatory damages by more than a single-digit ratio.” Id. (Sercombe, J., dissenting). However, Judge Sercombe argued that, under the second guidepost,

“[t]he concurrence goes astray when it uses a four-to-one ratio as its starting point in determining the maximum punitive damages award that due process will permit. Rather, the ‘rough numerical reference point’ that the Supreme Court has established in a noneconomic injury case such as this one is nine to one. In my view, because nothing in the record in this case requires an adjustment to that initial amount, due process requires only a reduction of the $100,000 punitive damages award to $4,500.”

Id. at 596-97 (Sercombe, J., dissenting) (quoting Goddard v. Farmers Ins. Co., 344 Or 232, 259, 179 P3d 645 (2008)). Judge Sercombe reiterated that he agreed that “plaintiff’s conduct is not very reprehensible in the universe of cases in which juries have awarded punitive damages.” Id. at 598 (Sercombe, J., dissenting). But he would only have limited the judgment to $4,500 because “no court of which I am aware has used ‘low reprehensibility as the basis to decrease the amount of punitive damages below a single-digit ratio to compensatory damages.” Id. (Sercombe, J., dissenting).

HAMLIN

After our decision in Lithia Motors I, the Supreme Court issued its opinion in Hamlin II, 349 Or 526. In that case, the plaintiff sustained a compensable injury to his hand and was unable to work for four months. Id. at 528. The defendant, his employer, assured the plaintiff that his job was secure, but, when the plaintiff returned to work, the defendant “deliberately decided not to reinstate plaintiff and falsely asserted that he was a ‘safety risk.’” Id. at 529. The plaintiff filed an action against the defendant, and, following trial, the jury awarded the plaintiff lost wages of $6,000 and punitive damages of $175,000. Id. at 530. On appeal, this court held that the punitive damages verdict was unconstitutionally large and “the nearly 30:1 ratio between punitive and compensatory damages was well outside the asserted 4:1 limit for such cases[.]” Id. at 531. We concluded that “the constitutional limit on the punitive damages award was four times the amount of the compensatory damages award (i.e., four times $6,000 plus prejudgment interest).”⁴ Id.

The Supreme Court allowed review. After reviewing the decisions of the United States Supreme Court that discuss the limitations that the Due Process Clause imposes on awards of punitive damages — in particular, the three guideposts — our Supreme Court held that we had erred in reversing the jury’s punitive damages verdict and reinstated it. Id. at 543-44. The court stated, “Key to understanding the second guidepost is the Supreme Court’s repeated refusal to set any ‘rigid benchmark’ beyond which a punitive damages award becomes unconstitutional.” Id. at 533. The court noted that the United States Supreme Court “also has recognized that a state may be unable to achieve its goals of deterrence and retribution if awards of punitive damages must, in all instances, be closely proportional to compensatory damages.” Id. But, “when the compensatory damages award is small and does not already serve an admonitory function, the second guidepost — the ratio between punitive and compensatory damages — is of limited assistance in determining whether the amount of a jury’s punitive damages award meets or exceeds state goals of deterrence and retribution.” Id. at 536-37.

Before considering the ratio between the punitive and compensatory damages, the court said that it had to identify the damages awarded and calculate the ratio between them; in that case, the ratio was approximately 22 to 1 .Id. at 537. The court stated that “the process of identifying due process limits demands flexibility and a consideration of the facts and circumstances that each case presents,” but noted that it had “characterized an award of compensatory damages of less than $25,000 as ‘relatively small’ and ‘low.’” Id. (quoting Williams v. Philip Morris Inc., 340 Or 35, 127 P3d 1165 (2006), vac’d, 549 US 346, 127 S Ct 1057, 164 L Ed 2d 940 (2007)). The court concluded that $6,000 in lost wages was a relatively small recovery that it would not expect to serve an admonitory, as well as a compensatory, function and that “the fact that the ratio between punitive and compensatory damages is greater than a single digit does not, in itself, indicate that the punitive damages that the jury awarded were ‘grossly excessive.’” Id. at 538 (footnote omitted). The court also cited Campbell to note that the reprehensibility guidepost is the most important indicium of the reasonableness of a punitive damages award. Hamlin II, 349 Or at 539. The court stated that the “defendant’s conduct was more than minimally reprehensible,” and the “defendant’s conduct may justify an award of punitive damages in excess of a single-digit multiplier of the compensatory damages award.” Id. at 541. Ultimately, the court concluded:

“In this case, the compensatory damages are small and the ratio between the punitive and compensatory damages — 22:1—is in the low double digits. That ratio is higher than would be constitutionally permissible if the compensatory damages were more substantial, but is not so high that it makes the award ‘grossly excessive.’”

Id. at 543.

PUNITIVE DAMAGES ANALYSIS

After its decision in Hamlin I, the Supreme Court vacated our decision in Lithia Motors 1,226 Or App 572, and remanded for reconsideration in light of Hamlin. 349 Or 663. On remand, plaintiff asserts that our previous decision in this case is not affected by Hamlin II and, therefore, our earlier opinion should remain undisturbed. Defendant responds that, in Hamlin I, the Supreme Court adopted a new methodology and, based on the analysis in that case, this court should reinstate the jury’s $100,000 punitive damages award. Thus, as the majority correctly states, 254 Or App at 309, the narrow question for the court to address on remand is whether this court erred in affirming the trial court’s award of punitive damages in a ratio of 4 to 1 under the Supreme Court’s decision in Hamlin II. I agree with the majority that this court erred in affirming the trial court. However, in applying the three guideposts from Gore in light of the Supreme Court’s decision in Hamlin II to the facts of this case, I would reach a different result than the majority.

As noted, the first guidepost requires the court to assess the degree of reprehensibility of plaintiff’s conduct. Importantly, the court in Hamlin II stated that the reprehensibility guidepost is the most important indicium of the reasonableness of a punitive damages award. 349 Or at 539. Relying on Exxon Shipping Co. v. Baker, 554 US 471, 494, 128 S Ct 2605, 171 L Ed 2d 570 (2008), the court noted in Hamlin II that, to come within the small compensatory damages exception, the defendant’s conduct must be particularly egregious. Hamlin, 349 Or at 534. Here, the concurrence stated repeatedly that plaintiff’s conduct was on the low end of the scale of reprehensibility. Lithia Motors I, 226 Or App at 583 (Edmonds, J., concurring); cf. Parrott, 331 Or at 560, 562 (concluding that defendant “committed an extraordinarily egregious violation of the UTPA” and his “conduct was highly reprehensible” (internal quotation marks omitted)).⁵ In addition, in his dissent in Lithia Motors I, Judge Sercombe agreed that “plaintiff’s conduct in this case falls on the lower end of the reprehensibility scale.” Id. at 593 (Sercombe, J., dissenting). Thus, a majority of the judges on this court agreed that plaintiff’s conduct was on the low end of the reprehensibility scale. Plaintiff’s conduct did not change following the Supreme Court’s decision on remand: its conduct was on the low end of the reprehensibility scale. Plaintiff’s conduct was sufficiently improper that an award of punitive damages was appropriate, but there is no evidence that plaintiff’s conduct was particularly egregious to warrant a ratio that would allow an award of $100,000 in punitive damages.⁶

The second guidepost requires the court to examine the ratio between the punitive damages award and the potential harm suffered by defendant as the result of plaintiff’s actions. The concurrence in Lithia Motors I stated that the 4 to 1 ratio has been “established as the general ceiling for punitive damages where the only harm is financial and the putative single-digit limit for punitive damages involving personal injury.” 226 Or App at 582 (Edmonds, J., concurring). However, the Supreme Court in Hamlin II stated that the 4 to 1 ratio is of limited assistance when the compensatory damages award is small and does not already serve an admonitory function. 349 Or at 536-37. Thus, the goalpost for the second guidepost moved after our decision in Lithia Motors I.

The award in this case of $500 in noneconomic damages for emotional injury is well under the $25,000 that the Supreme Court has characterized as “relatively small” and “low.” Hamlin II, 349 Or at 537 (internal quotation marks omitted). Accordingly, I agree with the majority that $500 is a small recovery that would not serve an admonitory, as well as compensatory, function. As noted, the ratio of punitive damages to compensatory damages awarded by the jury was 200 to 1. But, even if the punitive damages award may exceed a single-digit multiplier of the compensatory damages award without violating due process, the court still must decide whether the amount of punitive damages suggested by the jury’s verdict is “grossly excessive.” Id. at 541-42.

Finally, the third guidepost requires the court to consider comparable civil sanctions. As Judge Armstrong pointed out in his dissent, “the unlawful trade practice statutes also authorize the state, through district attorneys and the Attorney General, to bring actions to enjoin unlawful trade practices, ORS 646.632, and to recover civil penalties up to $25,000 for each trade practice violation.” Lithia Motors I, 226 Or App at 591 (Armstrong, J., dissenting).⁷ Accordingly, I would conclude that punitive damages of $25,000 — the amount that would be allowed as a civil sanction for an unlawful trade practice — are appropriate.

In sum, under the three guideposts, I would conclude that plaintiff’s conduct was on the low end of the reprehensibility scale and not particularly egregious, the compensatory damages award is small and the 200 to 1 ratio of punitive damages to compensatory damages awarded by the jury is grossly excessive, and the comparable civil sanctions provide civil penalties, paid to the state, of up to $25,000. Based on these factors, punitive damages of $25,000 — a ratio of 50 to 1 — would be appropriate and would not violate due process in this case.

For those reasons, I respectfully dissent.

Haselton, C. J., Schuman, and Hadlock, JJ., join in this dissent.

1 Defendant testified that, because ofhis experience inworkingfor a dealership, he knew “some of the tricks and the manipulation tactics that are [used].”

2 Defendant did not raise the issue of the high interest rate in his operative amended answer, affirmative defenses and counterclaims, which the majority states is a basis for the jury’s verdict. 254 Or App at 309, 324-25.

3 The Fourteenth Amendment to the United States Constitution provides, in part, that “[n]o state shall *** deprive any person of life, liberty, or property, without due process of law[.]”

4 Thus, at the time of our decision in Lithia Motors I, our decision in Hamlin I was “controlling.” An award of punitive damages could not exceed a single-digit ratio to compensatory damages.

5 The majority relies largely on Parrott and implies that it is factually similar to this case. 254 Or App at 326 n 4. In Parrott, however, there was evidence that the defendant dealership knew of the title and odometer discrepancy and concealed those facts from the plaintiff, that it “used abusive tactics to cover its deceptions,” the defendant routinely asked customers to sign blank, undated, or incomplete forms, the defendant’s failures to disclose prior damage to the vehicle showed indifference to the health and safety of the public, and the jury could infer that it had no intention of altering its practices in the future. 331 Or at 560-61.

Here, there is no evidence that plaintiff knew of the odometer discrepancy and there is no evidence in the record that this was more than an isolated incident. Neither is there evidence of hiding damage to the 4Runner, nor evidence that plaintiff’s conduct showed indifference to the health and safety of the public. That is why I disagree with the majority’s attempt to describe the facts in Parrott as similar to plaintiff’s acts. In addition, it is worth repeating that plaintiff sought and obtained rescission of the contract based on mutual mistake.

6 The majority notes that, in Hamlin II, the Supreme Court added a subfactor of legislative intent in punishing a party’s statutory violation. 254 Or App at 323. The majority goes on to say that, “[b]y authorizing punitive damages, the Oregon legislature has recognized the harm that creditors may inflict on consumers and debtors, such as defendant, and has indicated its intent to deter and to punish creditors who engage in that type of conduct.” Id. at 324. However, that is true of any statute in which the legislature has authorized punitive damages. Accordingly, I do not agree that the punitive damages that the legislature authorized in ORS 646.641(1) add to plaintiff’s reprehensibility.

7 ORS 646.642(1) provides:

“Any person who willfully violates the terms of an injunction issued under ORS 646.632 shall forfeit and pay to the state a civil penalty to be set by the court of not more than $25,000 per violation. For the purposes of this section, the court issuing the injunction shall retain jurisdiction and the cause shall be continued, and in such cases the prosecuting attorney acting in the name of the state may petition for recovery of civil penalties.”