Opinion
Civil No. SA-03-CA-1118-XR.
April 13, 2005
ORDER
On this date, the Court considered Plaintiff's Motion to Enter Judgment (docket no. 89), Defendant's Response, and Plaintiff's Reply. This case was tried to a jury on Plaintiff's claims for workers' compensation retaliation and slander. The jury returned a verdict finding that Defendant Lowe's discharged Plaintiff Jana Smith because she filed a workers' compensation claim in good faith and that Defendant committed slander against Smith. The jury awarded $187,084 in economic damages and $125,000 in noneconomic damages for the workers' compensation claim, but did not award punitive damages. For the slander claim, the jury awarded $100,000 in economic damages, $200,000 in noneconomic damages, and $1 in nominal damages, and awarded punitive damages in the amount of $4,000,000.00.
Plaintiff moves the Court to enter judgment in her favor as follows: $312,084 of compensatory damages for the wrongful termination claim, $300,001 of compensatory damages for slander, plus prejudgment interest at a rate of 5.5% and exemplary damages in the sum of $4 million dollars.
In its Response, Lowe's requests that the Court apply Texas's mandatory exemplary damages cap and apply a different prejudgment interest rate. Although Plaintiff does not directly dispute the applicability of the exemplary damages cap, Plaintiff disagrees with Defendant's application of the cap. Plaintiff also reasserts her right to prejudgment interest at a 5.5% rate. The parties' contentions and the Court's analysis are set forth below.
Exemplary Damages Cap
Texas Civil Practice and Remedies Code section 41.008 provides:
(a) In an action in which a claimant seeks recovery of damages, the trier of fact shall determine the amount of economic damages separately from the amount of other compensatory damages.
(b) Exemplary damages awarded against a defendant may not exceed an amount equal to the greater of:
(1)(A) two times the amount of economic damages; plus
(B) an amount equal to any noneconomic damages found by the jury, not to exceed $750,000; or
"Economic damages" means compensatory damages intended to compensate a claimant for actual economic pecuniary loss.
"Noneconomic damages" means damages awarded for the purpose of compensating a claimant for physical pain and suffering, mental or emotional pain or anguish, loss of consortium, disfigurement, physical impairment, loss of companionship and society, inconvenience, loss of enjoyment of life, injury to reputation, and all other nonpecuniary losses of any kind other than exemplary damages.
"Economic damages" means compensatory damages intended to compensate a claimant for actual economic pecuniary loss.
"Noneconomic damages" means damages awarded for the purpose of compensating a claimant for physical pain and suffering, mental or emotional pain or anguish, loss of consortium, disfigurement, physical impairment, loss of companionship and society, inconvenience, loss of enjoyment of life, injury to reputation, and all other nonpecuniary losses of any kind other than exemplary damages.
(2) $200,000.
Defendant asserts that Plaintiff's exemplary damages are capped at $400,000. Defendant calculates this amount by using only the compensatory damages awarded for slander ((2 x $100,000 economic damages) + $200,000 noneconomic damages). Plaintiff contends that Defendant "arbitrarily concludes that the limits only apply to the damages awarded by the jury on Plaintiff's defamation claim" whereas "the statute does not calculate exemplary damages based on damages found by the jury on selected causes of action," but "on the total amount of economic and noneconomic damages found by the jury." Considering the compensatory damages for both the workers' compensation and defamation claims, Plaintiff contends that the exemplary damages award should be $899,169.00.
Neither side provides citation to any case law on point. The Court's independent research has found no Texas Supreme Court decision considering this precise issue. In addition, the Court has found no Fifth Circuit precedent on this issue. Accordingly, this Court must make an Erie guess as to how the Texas Supreme Court would rule. In doing so, this Court must conscientiously determine how that Court would decide the issue by looking to the sources of law — including appellate court opinions — that the Texas Supreme Court would look to for persuasive authority. McAvey v. Lee, 260 F.3d 359, 365 n. 5 (5th Cir. 2001). In making an Erie guess, this Court is not permitted to do merely what it thinks is best, but what it thinks the Texas Supreme Court would do. Jackson v. Johns-Manville Sales Corp., 781 F.2d 394, 397 (5th Cir. 1986).
This Court has found only one relevant case in which the Texas Supreme Court has considered the cap. The Texas Supreme Court considered the then-current version of the exemplary damages cap in 1993 in General Chemical Corp. v. De La Lastra, 852 S.W.2d 916, 922-25 (Tex. 1993). In that case, the parents of two fishermen brought a products liability action against the manufacturer of sodium metabisulfite after the men died after applying the product to their catch. The jury found that General Chemical was guilty of negligence and gross negligence in failing to provide an adequate warning and awarded the parents compensatory damages on their wrongful death claim, $16 million ($1 million for pain and mental anguish and $15 million in punitive damages) to the parents as representatives of Gustavo's estate, and $16 million ($1 million for pain and mental anguish and $15 million in punitive damages) to the parents as representatives of Jose's estate.
General Chemical argued on appeal that there was no evidence to support an award of punitive damages and that the damages awarded were excessive under the state law cap. The Supreme Court found there was some evidence upon which to base an award of punitive damages, and then turned to the proper application of the cap. At the time, section 41.007 provided that, when applicable, "exemplary damages awarded against a defendant may not exceed four times the amount of actual damages or $200,000, whichever is greater." In determining the amount of actual damages to use as a base in calculating the four to one ratio, the trial court included the parents' wrongful death recovery, resulting in an actual damage figure of $6,500,000, and thus permitting the entire $15 million punitive damages award to each estate. General Chemical argued "that including the parents' wrongful death recovery as actual damages in the ratio calculation of section 41.007 allows the parents to recover punitive damages for wrongful death in violation of Tex. Const. art. XVI, § 26" and that the actual damages to be used in determining the ratio was the $1 million awarded to each estate under the survival recovery. The Court agreed and limited the punitive damages recovery for each estate to $4 million.
The Court reasoned that, although parents are entitled to maintain a wrongful death action under the Wrongful Death statute, they are not permitted to recover punitive damages. The court of appeals had rejected General Chemical's argument, reasoning that the parents were "claimants" under the Civil Practice and Remedies Code and that the parents and the child's recovery are to be included in calculating the punitive damages ratio. The Supreme Court rejected this view, noting that section 41.007 cannot expand upon the Constitution. The Court also reasoned that, had the parents brought only a wrongful death action, they would not be entitled to recover punitive damages, and thus "it is therefore illogical to allow these damages to be included when a survival recovery is also effectuated." De La Lastra, 852 S.W.2d at 924. The Court continued:
If the parents, as representatives of the estate, were to bring a survival action only, each estate would be limited to a punitive damage recovery of $4,000,000; four times the actual damages award of $1,000,000. By including the wrongful death recovery, however, the punitive damage award of $15,000,000 falls within the permissible recovery ratio; a recovery that would not be allowed, but for the inclusion of the wrongful death damages. Thus, including these wrongful death damages effectively allows the parents to recover punitive damages of $11,000,000 for wrongful death, as opposed to receiving as beneficiaries of the estate what the estate was entitled to under their survival cause of action. Such a recovery clearly violates article XVI, § 26. Accordingly, we hold that the De La Lastra's [sic] wrongful death recovery cannot be used in calculating the amount of actual damages for purposes of determining the amount of recoverable punitive damages.Id. De La Lastra did not decide the issue presented in this case — whether a single plaintiff who brings two claims upon which punitive damages can be recovered may include compensatory damages on a claim on which the jury did not award punitive damages in calculating the amount of economic and noneconomic damages for purposes of determining the amount of recoverable punitive damages — and does not mandate an outcome in favor of either party here. Rather, it arguably supports both positions. Certainly, one could argue that, like in De La Lastra, had Smith brought only her workers' compensation claim, she would not receive any punitive damages, but by including the workers' compensation claim recovery in punitive damages cap calculation in this case, she is entitled to greater punitive damages recovery on her slander claim. By the Court's logic, this would, in effect, give Smith a punitive damages recovery on a claim for which the jury did not find it appropriate. However, the Texas Supreme Court did not limit the parents' recovery based simply on the fact that the punitive damages cap should be determined solely on the basis of the claim upon which punitive damages were awarded, but on the fact that punitive damages can never be recovered on a wrongful death claim. If punitive damages were calculated solely on the basis of the compensatory damages on the claim for which punitive damages were awarded, the Court would not have needed to resort to the argument that including the wrongful death damages would violate article XVI, § 26. Thus, the Court's use of the constitutional prohibition could, inferentially, support Plaintiff's position that, if the punitive damages on a wrongful death claim were not constitutionally disallowed, the Court would have permitted those actual damages to be factored into the cap.
Two recent court of appeals decisions have applied reasoning similar to the Texas Supreme Court's in De La Lastra, but in the context of breach of contract claims (for which punitive damages are not recoverable). In Signal Peak Enterprises of Texas, Inc. v. Bettina Investments, Inc., 138 S.W.3d 915 (Tex.App.-Dallas 2004, no pet.), the jury awarded $350,000 in economic damages for fraud and found that the defendants acted with malice, and also awarded $425,000 for breach of contract. Plaintiffs argued that the fraud damages plus the breach of contract damages totaled $775,000 in economic damages for purposes of the exemplary damages cap. The court held that the breach of contract economic damages could not be included, stating: "Appellees, however, do not cite authority for the proposition that damages from their breach of contract claim against Signal Peak may be included in the calculation of economic damages on which an award of exemplary damages is to be based. Exemplary damages are not recoverable in a breach of contract action, and it follows that economic damages arising from a breach of contract may not be used to increase the statutory cap under section 41.008." Id. at 928. Soon after, the Corpus Christi court of appeals followed suit and held that the exemplary damages awarded should not include economic damages awarded on the plaintiff's breach of contract claim. Celanese, Ltd. v. Johnston, 2005 WL 167272 (Tex.App.-Corpus Christi 2005, Rule 53.7(f) motion granted) (citing Signal Peak). The basis for these courts' holdings was that exemplary damages may not be awarded on a breach of contract claim, not that only claims on which a jury awarded punitive damages may be considered. Thus, they may be distinguished on the basis that exemplary damages may be awarded on a workers' compensation retaliation claim.
This Court has located only one case that directly considers the issue presented here. In Qwest Communications International, Inc. v. ATT Corp., 114 S.W.3d 15 (Tex.App.-Austin 2003, pet. filed), the Austin court of appeals considered ATT's argument that the district court improperly limited exemplary damages. The district court based the calculation of exemplary damages only on Qwest's actions associated with jury findings of malice. The court of appeals noted that statutory construction is a question of law, the resolution of which must begin by looking to the statute's words. Id. at 37. The court further noted that, where a statute is unambiguous, courts discern the legislature's intent from the "plain and common meaning of the words and terms used." Id. The court then noted that the cap limits an award of exemplary damages to two times the amount of economic damages, and held "[t]he two-times-economic-damages award should be applied only to the damages for the actions where the jury found malice." Id. Because the jury found no malice in connection with one of Qwest's cuts of ATT's fiber-optics lines despite finding economic damages, the court held that the district court was correct in excluding such damages in calculating allowable exemplary damages. The court reasoned:
The Court notes that in one decision by the San Antonio court of appeals, the court considered only the compensatory damages on the claim on which the jury awarded punitive damages without directly discussing the proper application of the cap. See Baribeau v. Gustafson, 107 S.W.3d 52 (Tex.App.-San Antonio 2003, pet. denied). The jury awarded $126,788.93 for damages for negligence and medical battery and $500 for damages for fraud. The jury also determined there was clear and convincing evidence of fraud and awarded $250,000 in exemplary damages. In applying the cap and determining whether the ratio of economic damages to punitive damages ($200,000 under the cap) was excessive, the court considered only the $500 awarded for fraud.
ATT's contention that all the damages are "economic damages" and should be included in the calculation contravenes the statutory purpose of exemplary damages, which is to punish. If ATT had brought a separate suit for each cut, resulting in the same jury findings as here, ATT would not have been entitled to exemplary damages as to the second cut, because the jury did not find malice as to that act. To make such an award now would be counterintuitive; the jury found no malice as to Qwest's actions regarding the second cut. The supreme court has opined that: "[o]ur duty in civil cases . . . like the duty of criminal courts, is to ensure that defendants who deserve to be punished in fact receive an appropriate level of punishment, while at the same time preventing punishment that is excessive or otherwise erroneous." Here, to award ATT exemplary damages for what is essentially a negligent act would impose an inappropriate level of punishment.Id. (citations omitted).
This Court must predict how the Texas Supreme Court would decide this issue. In making an " Erie guess" in a diversity case, this Court will "seek guidance by looking to the precedents established by intermediate state appellate courts only when the state supreme court has not spoken on an issue." Webb v. City of Dallas, 314 F.3d 787, 795 (5th Cir. 2002) (internal quotations and citations omitted). Although an intermediate appellate court decision is "not controlling where the highest state court has not spoken on the subject," federal courts ordinarily defer to the holdings of lower appellate courts in the absence of guidance from the highest court. Holden v. Connex-Metalda Mgmt. Consulting GmbH, 302 F.3d 358, 364-65 (5th Cir. 2002). However, if "convinced by other persuasive data that the highest court of the state would decide otherwise," this Court will not defer to the decisions of the intermediate state appellate courts. Herrmann Holdings Ltd. v. Lucent Techs. Inc., 302 F.3d 552, 558 (5th Cir. 2002) (internal quotations and citations omitted); see also Terrebonne Parish Sch. Bd. v. Columbia Gulf Transmission Co., 290 F.3d 303, 317 (5th Cir. 2002) ("Indeed, `a decision by an intermediate appellate state court is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise.'") (quoting First Nat'l Bank of Durant v. Trans Terra Corp., 142 F.3d 802, 809 (5th Cir. 1998)).
The Court finds no clear guidance in making its Erie guess. This is essentially a statutory construction issue. The Texas Supreme Court has consistently taken a plain-language approach to statutory construction. The Court recently described its approach to statutory construction:
Our primary objective when construing a statute is to ascertain and give effect to the Legislature's intent. In discerning that intent, we begin with the "`plain and common meaning of the statute's words.'" We must read the statute as a whole and not just isolated portions. If the statutory language is unambiguous, we must interpret it according to its terms, giving meaning to the language consistent with other provisions in the statute. We also consider the objective the law seeks to obtain and the consequences of a particular construction.Tex. Dept. of Transp. v. City of Sunset Valley, 146 S.W.3d 637, 642 (Tex. 2004).
Under a plain-language approach, it would appear that any compensatory damages award in the case may be used to determine exemplary damages. Though the statute states that it applies "to any action" it does not specify whether "action" refers to a singular cause of action or to the entire lawsuit. The Court agrees with Lowe's that, intuitively, it would seem that only the damages awarded for a cause of action on which the jury found malice should be used to determine exemplary damages. Further, the court agrees that factoring economic damages from the workers' compensation claim into the exemplary damages calculation is counterintuitive, and though it technically does not award punitive damages on a claim on which the jury did not (but arguably only uses the workers' compensation damages to determine the limit on the jury's award of punitive damages on the slander claim), it in effect does exactly that. But if the Legislature's intent was to limit the economic damages to be considered in applying the cap to those causes of action on which the jury found malice, it failed to make that clear in the statute.
Nevertheless, Lowe's position does not directly contravene the statutory language. Despite the broad language of section 41.008, Texas courts have construed this language to mean only economic and noneconomic damages that will support a punitive damages award. Otherwise, these courts reason, a party would be able to recover exemplary damages on a claim for which it otherwise could not recover them (such as wrongful death or breach of contract). While those cases are distinguishable because punitive damages are recoverable on a workers' compensation retaliation claim, they indicate the courts' willingness to impose some limits on the general terms "economic" and "noneconomic" damages used in section 41.008.
In addition, the Austin court of appeals' position in Qwest is consistent with the statutory purpose to establish a reasonable relationship between the punitive damages award and the harm caused. The exemplary damages cap is the Legislature's expression of the relationship between actual and exemplary damages that is appropriate to vindicate the State's legitimate interests in punishment and deterrence. Apache Corp. v. Moore, 960 S.W.2d 746, 750 (Tex.App.-Amarillo 1997, writ denied). That relationship should necessarily focus on the actual harm caused by the conduct for which the jury found that punitive damages should be awarded. Thus, the Court concludes that the Austin court of appeals' application of the cap is consistent with the legislative purpose.
Though the Texas Supreme Court's decision in De La Lastra is limited to the wrongful-death claim situation, its reasoning can be applied to this situation. The Court finds that the reasoning in De La Lastra offers insight into how the Texas Supreme Court would likely decide the issue. The Austin court of appeals' holding in Qwest employs essentially the same reasoning to conclude that the exemplary damages cap cannot factor in actual damages on claims for which the jury did not find malice. In addition, this result is consistent with the legislative purpose and does not directly contravene the statutory language. Accordingly, this Court is not convinced that the Texas Supreme Court would decide the issue differently and will defer to the Austin court of appeals' holding in Qwest. This Court's Erie guess is thus that the Texas Supreme Court would hold that only those actual damages on claims for which the jury awards punitive damages should be considered in applying the exemplary damages cap under section 41.008. Accordingly, the Court will cap Smith's exemplary damages award at $400,000 as urged by Lowe's.
Prejudgment Interest
Defendant asserts that the 5.5% prejudgment interest rate sought by Plaintiff is inapplicable. Defendant argues that the prejudgment interest rate in this case must be determined by the applicable federal postjudgment interest rate (which is governed by 28 U.S.C. § 1961 and is currently 3.33%) because Texas law provides that "[t]he prejudgment interest rate is equal to the postjudgment interest rate applicable at the time of judgment." See TEX. FIN. CODE § 304.103. Plaintiff responds that section 304.103 means the state postjudgment interest rate, not the federal rate. The Court concludes that the Fifth Circuit has decided this issue in favor of Plaintiff.
This Court has diversity jurisdiction over this case, and state law governs an award of prejudgment interest. Bituminous Cas. Corp. v. Vacuum Tanks, Inc., 75 F.3d 1048, 1057 (5th Cir. 1996). Texas law provides that the prejudgment interest rate is equal to the postjudgment interest rate applicable at the time of judgment. TEX. FIN. CODE § 304.103. The state postjudgment interest rate is determined by section 304.003(c) of the Finance Code, which provides that the postjudgment interest rate is (1) the prime rate as published by the Federal Reserve Bank of New York on the date of computation; (2) five percent a year if the prime rate as published by the Federal Reserve Bank of New York described by Subdivision (1) is less than five percent; or (3) 15 percent a year if the prime rate as published by the Federal Reserve Bank of New York described by Subdivision (1) is more than 15 percent. The consumer credit commissioner determines the postjudgment interest rate, see TEX. FIN. CODE § 304.003, and has determined the applicable rate for April 2005 to be 5.5%.
Defendant's argument that the prejudgment interest rate should be the same as the federal postjudgment interest rate, which is determined by 28 U.S.C. § 1961, has been rejected by Fifth Circuit. In Harris v. Mickel, 15 F.3d 428 (5th Cir. 1994), the Fifth Circuit rejected a literal application of the Texas prejudgment interest statute, because it would result in an interest rate less than the mandatory minimum rate that would be applicable if the case were in Texas state court. Id. at 430 ("[T]he Texas Legislature surely did not intend for a plaintiff's `prejudgment interest rate [to] be the same as the rate of post-judgment interest' even when that rate in a given case is less than the designated ten percent merely because the case was brought in federal court.") (quoting Fed. Sav. Loan Ins. Corp. v. Tex. Real Estate Counselors, Inc., 955 F.2d 261, 270 (5th Cir. 1992)); see also Mitchell Energy Corp. v. Samson Resources Co., 80 F.3d 976, 986 (5th Cir. 1996). Accordingly, the Court will award prejudgment interest at the rate of 5.5%. The Court will issue a separate judgment in accordance with Rule 58.