TXO Production Corp. v. Alliance Resources Corp. (1993)

TXO Production Corp. v. Alliance Resources Corp. (1993)

509 U.S. 443

In common-law slander of title action, Alliance Resources Corp. convinced a West Virginia jury that TXO Production Corp. knew that Alliance had good title to the oil and gas development rights at issue; that TXO acted in bad faith by advancing a claim on those rights on the basis of a worthless quitclaim deed in an effort to renegotiate its royalty arrangement with Alliance; that the anticipated gross revenues from the oil and gas development (and therefore the amount of royalties that TXO sought to renegotiate) were substantial; that TXO was a large, wealthy company; and that TXO had engaged in similar bad faith challenges to title in other parts of the country. The jury thereupon awarded Alliance $19,000 in actual damages and $10,000,000 in punitive damages. TXO appealed to the West Virginia Supreme Court, claiming that the large punitive damages award violated the Due Process Clause of the Fourteenth Amendment in that it arbitrarily deprived TXO of its property. The West Virginia Supreme Court, in an opinion written by Justice Richard Neely, upheld the award, drawing a distinction between defendants who are ”really stupid” (and for whom the “outer limit of punitive damages” is approximately five times compensatory damages) and those who are “really mean” (and for whom “even punitive damages 500 times greater than compensatory damages are not per se unconstitutional”). The U.S. Supreme Court granted certiorari.

Opinion of the Court: Stevens, Blackmun, Kennedy, Rehnquist.

Concurring opinions: Kennedy; Scalia, Thomas.

Dissenting opinion: O’Connor, Souter, White.

MR. JUSTICE STEVENS delivered the opinion of the Court in which THE CHIEF JUSTICE and MR. JUSTICE BLACKMUN join, and in which MR. JUSTICE KENNEDY joins in part.

In a common-law action for slander of title, respondents obtained a judgment against petitioner for $19,000 in actual damages and $10 million in punitive damages. The question we granted certiorari to decide is whether that punitive damages award violates the Due Process Clause of the Fourteenth Amendment, either because its amount is excessive or because it is the product of an unfair procedure.

TXO first argues that a $10 million punitive damages award—an award 526 times greater than the actual damages awarded by the jury—is so excessive that it must be deemed an arbitrary deprivation of property without due process of law.

In determining whether a particular award is so “grossly excessive” as to violate the Due Process Clause of the Fourteenth Amendment, we return to what we said two Terms ago in  Pacific Mutual Life Insurance Company v. Haslip 499 U.S. 1 (1991), “We need not, and indeed we cannot, draw a mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case. We can say, however that [a] general concer[n] of reasonableness … properly enter[s] into the constitutional calculus.” And, to echo Haslip once again, it is with this concern for reasonableness in mind that we turn to petitioner’s argument that the punitive award in this case was so “grossly excessive” as to violate the substantive component of the Due Process Clause. 

In support of its submission that this award is “grossly excessive,” TXO places its primary emphasis on the fact that it is over 526 times as large as the actual damages award. TXO correctly notes that state courts have long held that “exemplary damages allowed should bear some proportion to the real damage sustained.” Moreover, in our recent decision in Haslip in which we upheld a punitive damages award of four times the amount of compensatory damages, we noted that that award “may be close to the line” of constitutional permissibility.

However, both State Supreme Courts and this Court have eschewed an approach that concentrates entirely on the relationship between actual and punitive damages. It is appropriate to consider the magnitude of the potential harm that the defendant’s conduct would have caused to its intended victim if the wrongful plan had succeeded, as well as the possible harm to other victims that might have resulted if similar future behavior were not deterred. In this case the State Supreme Court of Appeals concluded that TXO’s pattern of behavior “could potentially cause millions of dollars in damages to other victims.”

In sum, we do not consider the dramatic disparity between the actual damages and the punitive award controlling in a case of this character. On this record, the jury may reasonably have determined that petitioner set out on a malicious and fraudulent course to win back, either in whole or in part, the lucrative stream of royalties that it had ceded to Alliance. The punitive damages award in this case is certainly large, but in light of the amount of money potentially at stake, the bad faith of petitioner, the fact that the scheme employed in this case was part of a larger pattern of fraud, trickery and deceit, and petitioner’s wealth, we are not persuaded that the award was so “grossly excessive” as to be beyond the power of the State to allow.

MR. JUSTICE SCALIA, with whom MR. JUSTICE THOMAS joins, concurring in the judgement.

The jury in this case was instructed on the purposes of punitive damages under West Virginia law, and its award was reviewed for reasonableness by the trial court and the West Virginia Supreme Court of Appeals. Traditional American practice governing the imposition of punitive damages requires no more. It follows, in my view, that petitioner’s claims under the Due Process Clause of the Fourteenth Amendment must fail. I therefore have no difficulty joining the Court’s judgment.

I do not, however, join the plurality opinion, since it makes explicit what was implicit in Haslip: the existence of a so-called “substantive due process” right that punitive damages be reasonable. I am willing to accept the proposition that the Due Process Clause of the Fourteenth Amendment, despite its textual limitation to procedure, incorporates certain substantive guarantees specified in the Bill of Rights; but I do not accept the proposition that it is the secret repository of all sorts of other, unenumerated, substantive rights—however fashionable that proposition may have been (even as to economic rights of the sort involved here) at the time of the Lochner-era cases the plurality relies upon. It is particularly difficult to imagine that “due process” contains the substantive right not to be subjected to excessive punitive damages, since if it contains that it would surely also contain the substantive right not to be subjected to excessive fines, which would make the Excessive Fines Clause of the Eighth Amendment superfluous in light of the Due Process Clause of the Fifth Amendment.

To say (as I do) that “procedural due process” requires judicial review of punitive damages awards for reasonableness is not to say that there is a federal constitutional right to a substantively correct “reasonableness” determination—which is, in my view, what the plurality tries to assure today.… Procedural due process also requires, I am certain, judicial review of the sufficiency of the evidence to sustain a civil jury verdict, and judicial review of the reasonableness of jury-awarded compensatory damages (including damages for pain and suffering); but no one would claim (or at least no one has yet claimed) that a substantively correct determination of sufficiency of evidence and reasonableness of compensatory damages is a federal constitutional right. So too, I think, with punitive damages: judicial assessment of their reasonableness is a federal right, but a correct assessment of their reasonableness is not.

The Court’s decision is valuable, then, in that the great majority of due process challenges to punitive damages awards can henceforth be disposed of simply with the observation that “this is no worse than TXO.” I would go further, to shut the door the Court leaves slightly ajar. As I said in Haslip, the Constitution gives federal courts no business in this area, except to assure that due process (i.e., traditional procedure) has been observed. State legislatures and courts have ample authority to eliminate any perceived “unfairness” in the common-law punitive damages regime, and have frequently exercised that authority in recent years. The Court’s continued assertion that federal judges have some, almost-never-usable, power to impose a standard of “reasonable punitive damages” through the clumsy medium of the Due Process Clause serves only to spawn wasteful litigation, and to reduce the incentives for the proper institutions of our society to undertake that task.

MS. JUSTICE O’CONNOR, with whom MR. JUSTICE WHITE joins, and with whom MR. JUSTICE SOUTER joins in part, dissenting.

In Pacific Mutual Life Ins. Co. v. Haslip, this Court held out the promise that punitive damages awards would receive sufficient constitutional scrutiny to restore fairness in what is rapidly becoming an arbitrary and oppressive system. Today the Court’s judgment renders Haslip‘s promise a false one. The procedures that converted this commercial dispute into a $10 million punitive verdict were wholly inadequate. Rather than producing a judgment founded on verifiable criteria, they produced a monstrous award—526 times actual damages and over 20 times greater than any punitive award in West Virginia history. Worse, the State Supreme Court of Appeals rejected petitioner’s challenge with only cursory analysis, observing that petitioner, rather than being “really stupid,” had been “really mean.” In my view, due process does not tolerate such cavalier standards when so much is at stake. Because I believe that neither this award’s size nor the procedures that produced it are consistent with the principles this Court articulated in Haslip, I respectfully dissent.

In my view, due process at least requires judges to engage in searching review where the verdict discloses such great disproportions as to suggest the possibility of bias, caprice, or passion. As Justice Stevens observed in a different context, “[o]ne need not use Justice Stewart’s classic definition of obscenity—’I know it when I see it’—as an ultimate standard for judging” the constitutionality of a punitive damages verdict “to recognize that the dramatically irregular” size and nature of an award “may have sufficient probative force to call for an explanation.”

This $10 million punitive award, returned in a case involving only $19,000 in compensatory damages, is a dramatically irregular, if not shocking, verdict by any measure. At the very least it should raise a suspicious judicial eyebrow.

Confronted by a $10 million verdict on damages of $19,000, the State Supreme Court of Appeals in this case did not engage in searching review. Instead it added insult to injury, applying cavalier standards in the course of a cursory examination of the case. 

It distinguished between two categories of defendants: those who are “really stupid” and those who are “really mean.”

Reference to categories like “really stupid” and “really mean” are a caricature of the difficult task of determining whether an award may be upheld consistent with due process. It is simply not enough to observe that the conduct was malicious and conclude that, as a result, the sky (or 500 times compensatory damages) is the limit. Instead, post-trial review must be sufficient to “ensur[e] that punitive damages awards are not grossly out of proportion to the severity of the offense and have some understandable relationship to” some measure of harm. Aside from its two-page dissertation on the difference between “really stupid” and “really mean,” however, the State Supreme Court of Appeals offered only three conclusory sentences in a single paragraph to bolster its conclusion that the damages here were not excessive. Because I believe that such cursory review is inconsistent with the Court’s decision in Haslip, I cannot join my colleagues in affirming.