Availability of
Punitive Damages: Depecage
Applying Conflict-of-Laws
Principles
by John C. Cabaniss
A potential client comes to you with what looks like a good punitive damages case.
Punitive damages, however, are not available under your state's law. Do not reject
the case until you have evaluated whether you may be able to recover punitives
under your state's choice-of-law principles and have considered the legal theory
of depecage - the process of analyzing issues separately for choice of law.
An example may be helpful. Several years ago I was involved as co-counsel in a
case venued in federal court in New Orleans, Louisiana. The plaintiff had been
rendered quadriplegic in an accident involving a Yamaha all-terrain vehicle (ATV).'
The accident occurred in Mississippi. The plaintiff lived in Louisiana. Louisiana
law at that time provided prejudgment interest but did not allow punitive damages.
Mississippi law, in contrast, did not provide prejudgment interest but did allow
punitive damages. The plaintiff's attorney made a claim for punitive damages under
the theory that Mississippi law should apply.
Yamaha did not move for summary judgment on the punitives claim. It filed a motion
in limine to preclude plaintiff's counsel from introducing evidence on its punitives
claim, evidently believing counsel would have to choose between the benefits of
Mississippi and Louisiana law. That was not the case.
Plaintiff's counsel opposed the motion in limine, arguing that Louisiana law governed
compensaton damagcs and the law of California-Yamaha Motor Corporation's U.S.
residence and home of all its pertinent business operations-applied to punitive
damages under choice-of-law principles and under the theory of depecage. The case
settled for a confidential amount before trial.
Punitive damages, as a matter of substantive law, present a conflict-of-laws question.
Many states use an interest analysis in resolving the question. In personal injury
and products liability litigation, lawyers do not commonly recognize - except
in aviation cases - that this analysis can apply separately to compensatory and
punitive damages in a case.2 Aviation lawyers apply conflict-of-laws principles
routinely to seek best application of the law for their clients; thus, they may
be more familiar with depecage.
Many courts have endorsed the depecage issue-by-issue analysis.3 Once a court
determines that conflict-of-laws principles should be reviewed separately for
compensatory and punitive damages, it will usually apply an interest analysis.
The first step is to determine whether a true or false conflict exists. This is
decided by examining the interest of each state in having its law govern a particular
issue. A false conflict exists when only one state has an interest in an issue.
If a true conflict exists, the law of the state with the most significant relationship
to a particular issue is applied.
Many states have adopted the general principles of the Restatement (Second) of
Conflict of Laws S171, and comments b and d (1967) state -
The law selected
by application of rule of sec. 145 determines the measure of damages...
b. The determination of the state of the applicable law should be made in the
light of the choice-of-law principles stated in sec. 6. In general, this should
be the state which has the dominant interest in the determination of the particular
issue. The state of conduct and injury will not, by reasons of these contacts
alone be the state that is primarily concerned with the measure of damages in
a tort action. The local laws of this state will, however; be applied unless
some other state has a greater interest in this issue.
d. Exemplary damages. The law selected by application of the rule of sec. 145
[discussed below] determines the right to exemplary damages.
Applying the Restatement, counsel should encourage the court to look at punitive
damages separately to determine which state has the most significant interest
in applying its law to the resolution of a particular issue. In products liability
cases, the conduct that gives rise to punitive damages claims often occurs in
another state, usually in the defendant's domicile. If that state's law allows
punitive damages, the factors applied in resolving conflict-of-law issues should
be applied. In many cases, a persuasive argument for punitive damages can be made.4
In support of this interpretation of the Restatement is the reporter's note on
comment d, which cites James v. Powell.5 The plaintiff sued for a fraudulent conveyance
of real estate in Puerto Rico to avoid execution on a New York judgment that the
plaintiff held.
The New York Court of Appeals remanded the case to determine whether the conveyance
was valid under Puerto Rican law but held that New York law would determine whether
punitive damages could be recovered. The court premised its application of the
local law of one state to the issue of compensatory damages and the application
of the local law of another state to the issue of punitive damages upon the distinction
between the two types of damages. "An award of compensatory damages depends upon
the existence of wrongdoing...An award of punitive damages, on the other hand,
depends upon the object or purpose of the wrongdoing."6
Powell held that the purpose of conveying the real estate in Puerto Rico was to
frustrate the New York judgment. Therefore, New York had the strongest interest
in determining whether punitive damages were recoverable.
Other courts have used the Powell analysis of applying the laws of different states
to compensatory and punitive damages. In Ashland Oil, Inc. v. Miller Oil Purchasing,
Co. the Fifth Circuit considered the PoweII analvsis.7 However, the court decided
that the facts were not analogous enough because in Powell the state that had
the most significant interest in the punitives issue was the same state that had
the most significant interest in the compensatory issue.
In Tyminski v. United States,8 the Third Circuit said that the general rule applicable
to the measure of damages for New York had been set by the New York Court of Appeals
in Powell. The Tyminski court quoted Powell as follows:
Although it is clear
that the measurement of compensatory damages is determined by the same law under
which the cause of action arises, this is not necessarily true with regard to
exemplary damages. . . . An award of punitive damages, on the other hand, depends
upon the object or purpose of the wrongdoing and on this issue we should look
to the "law of the jurisdiction with the strongest interest in the resolution
of the particular issue presented."9
Section 145 of the Restatement (Second) of Conflict of Laws provides guidelines
for applying the interest analysis in tort cases. These factors include:
(a) the place where
the injury occurred,
(b) the place where the contact causing the injury occurred,
(c) the domicile, residence, nationality, place of incorporation and place of
business of the parties and
(d) the place where the relationship, if any, between the parties is centered.
These contracts to be evaluated according to the importance with respect to
the particular case (emphasis added).
To establish that the punitive damages law of another state should apply to a
defendant manufacturer's conduct, the plaintiff will have to establish that the
other state has a greater interest in having its law apply. The first factor,
the place of injury, has no significant relationship to the issue of punitive
damages because accidents and injuries occur by chance. Restatement (Second) of
Conflict of Laws, S145, comment e, states:
Situations do arise,
however, where the place of injury will not play an important role in the selection
of the state of the applicable law. This will be so, for example, when the place
of injury can be said to be fortuitous or when for other reasons it bears little
relation to the occurrence and the parties with respect to the particular issue.
Another factor to be considered is the place where the relationship, if any, between
the parties is centered. In most products cases, there is no relationship between
the parties as it relates to the punitive damages issue. Thus, the place of the
relationship between the parties has no bearing on the applicable law.
Yet another factor is the domicile or place of business of the parties involved.
It is with these facts and the fourth factor discussed below that plaintiff must
show the state's greater interest in having its punitive damages claim law apply.
This factor should be examined in light of the conflicting policy reasons to allow
or disallow punitive damages. It can reasonably be argued that a corporate defendant
elected to have its conduct governed by the law of the state where it is incorporated
and does business. The defendant, of course, win argue that the plaintiff's domicile
is significant.
The other important factor to be considered is the place where the conduct causing
the injury occurred. A plaintiff's products liability claim is usually about a
defendant's alleged negligence in the design, testing, marketing, or sale of a
product. When the defendant's design, testing, and business activities occur principally
in the defendant's state of domicile, the argument for applying the punitive damages
law of that state is strengthened.
Although depecage has not often been used in products liability litigation, it
is certainly a viable theory under which punitive damages can be sought when they
would usually not be available. Depecage can strengthen a plaintiff's strategic
position as well as provide additional grounds for recovery. Its application should
be considered in all cases where punitive damages are otherwise not available.
Notes
1 Rantz v. Yamaha
Motor Co., Ltd., No. 84- 2626 (E.D. La.).
2 See Potlatch No.1 Fed. Credit Union v. Kennedy, 459 P.2d 32, 37 (Wash 1969).
3 See,eg., Beard v. J.I. Case Co., 823 F.2d 1095, 1104 (7th Cir. 1987); In re
Air Crash Disaster; 821 F.2d 1147, 1169 (5th Cir. 1987) vacated 490 U.S. 1032,
reinstated on remand, 883 F.2d 17 (5th Cir. 1989); Ewing v. St. Louis-Clayton
Orthopedic Group, Inc., 790 F.2d 682, 686 (8th Cir. 1986); International Adrn'rs,
Inc. v. Life Ins. Co., 753 F.2d 1373, 1376-78 (7th Cir. 1985); Hutner v. Greene,
734 F.2d 896, 901 (2d Cir. 1984); In re Air Crash Disaster; 644 F.2d 594,611(7th
Cir.), cert. denied sub nom. .Lin v. American Airlines, Inc., 454 U.S. 878(1981);
Corporacion Venezolana de Fomento v. Vintero Sales Corp., 629 F.2d 786,794 (2d
Cir. 1980), cert. denied, 449 U.S. 1080 (1981). See generally Reese, Depecage:
A Common Phenomenon in Choice of Law, 73 COLUM. L. REV. 58 (1973).
4 See eg., In Re Air Crash Disaster, 644 F.2d 594, 611 (7th Cir. 1981).
5 225 N.E. 2d 741 (NY. 1967).
6 Id. at 746 (emphasis omitted).
7 678 F.2d 1293, 1305 (5th Cir. 1982).
8 481 F.2d 257 (3d Cir. 1973).
9 Id. at 266.
[TRIAL DECEMBER 1991]