New Way to Avoid
Limits On Punitive Damages
By Thomas F. Harrison
Suppose you represent the plaintiff in a products liability case and there's a
good potential for punitive damages, but punitive damages are prohibited or severely
restricted in your state. What can you do?
Why not tell the judge that you want your state's law to apply to the liability
issues in the case, but you want to apply another state's law on the issue of
punitive damages?
That may sound ridiculous, but in fact it's a sound application of a well-respected
principle known as depecage.
In many states, choice-of-law questions are resolved according to which state
has the greatest interest in the litigation. What isn't well known is that this
interest analysis doesn't apply to the case as a whole - it applies separately
to each significant issue in the case. Thus, a court could decide that one state
has the greatest interest in the liability part of the case, but another state
has the greatest interest in the imposition of punitive damages.
The principle that interest analysis applies separately to each issue in a case
is called depecage (Pronounced DEP e cazh). Although the theory is not very well
known, it has been accepted as valid in every published case that has discussed
it.
"About the only people who really seem to know about the theory are lawyers in
air crash cases," observes John C. Cabaniss of Milwaukee's Cunningham, Lyons&
Cabaniss, who has written about it for the newsletter Products Liability Law and
Strategy. "But it' s a great idea for more mundane products liability cases, and
in fact for any cases involving punitive damages and parties in more than one
state."
An ATV Suit
Mr. Cabaniss first
discovered the theory while researching an Illinois death case. "Illinois didn't
allow punitive damages, and I was looking around for some way to bring a punitive
claim. Finally I happened upon a Seventh Circuit opinion in an air crash case,
and there was a discussion of depecage."
Mr. Cabaniss later used the theory to advantage in a case in federal court in
New Orleans brought by a plaintiff who had been rendered a quadriplegic in an
accident involving a Yamaha ATV.
"The plaintiff lived in Louisiana, and the accident occurred in Mississippi. Louisiana
law allowed prejudgment interest at 12% per annum, but you couldn't get punitive
damages. Mississippi allowed you punitive damages but no prejudgment interest
"Yamaha assumed that we were going to have to elect one state's law or the other.
But using depecage, we claimed that Louisiana's law should apply to prejudgment
interest and Mississippi's should apply to punitive damages. We got a settlement
before trial."
Another interesting depecage case was James v. Powell, 225 N.E.2d 741 (N.Y. 1967).
James sued Powell for fraudulently conveying real estate in Puerto Rico to avoid
execution of a New York judgment New York's highest court held that Puerto Rico
law should be applied to determine whether the real estate was in fact fraudulently
conveyed. However, New York law should apply on the question of punitive damages.
This was because New York had a greater interest than Puerto Rico in seeing that
its judgments were not evaded.
According to the New York court, "[a]n award of compensatory damages depends upon
the existence of wrong-doing.... An award of punitive damages, on the other hand,
depends on 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."
Suppose you're suing an out-of-state company in a products liability case. Your
state's law will apply on compensatory damages, but as far as punitive damages
are concerned you would be better off if you could apply the law of the state
where the manufacturer is located.
How do you argue for the other state's law?
Section 145 of the Restatement (Second) of Conflict of Laws provides four factors
to be considered when applying the interest analysis in a tort case:
(a) the place where
the injury Occurred;
(b) the place where the conduct 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.
Since the injury probably
occurred in the plaintiff's state, not the defendant's, factor (a) would seem
to work against you. After all, the plaintiffs state would presumably have an
overriding interest in making an injured citizen whole, whereas the defendant's
state would have no interest in doing so.
However, remember that these factors can be applied separately to the issue of
punitive damages. If only punitive damages are considered, the plaintiffs state's
interest in compensating the victim drops out of the picture, and the only concern
left is the punishment of the defendant
Comment e to 145 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 for other reasons it bears little relation to the occurrence and
the parties with respect to the particular issue." [Emphasis added.]
Your argument should be that with respect to the particular issue of punitive
damages, the place where the injury occurred is merely fortuitous and has no special
bearing on whether the defendant committed punishable misconduct.
The Other Factors
That leaves factors
(b), (c) and (d).
~ Factor (d) is
irrelevant in a typical products suit since there is no relationship between
the parties that is pertinent to the punitive damages issue.
~ Factor (b) works to your advantage, since the conduct causing the injury is
presumably the defendant's design, testing and marketing of the product and
its placing the product in the stream of commerce. This conduct more than likely
occurred in the defendant's home state.
~ Factor (c) is the home states of the parties. Your argument here is that is
that the defendant deliberately elected to have its conduct governed by the
law of the state where it is incorporated and does business. Since the issue
is punitive damages - i.e., whether the defendant should be punished for wrongdoing
- it makes more sense to apply the law of the defendant's state, rather than
the law of a foreign state that has no relationship at all to the company other
than the fact that an accident chanced to happen there.
Armed with this analysis,
you should be able to make a strong case for borrowing another state's law on
punitives.
"I've never found a reported decision that rejects the underlying principle of
depecage," says Cabaniss. "Nevertheless, defense lawyers don't anticipate it,
and it throws them off."
Case Cites
The following cases
uphold the use of depecage: Hutner v.Greene, 734 F.2d 896 (2nd Cir. 1984); Corporacion
Venzolana de Fomento v. Vintero Sales Corp., 629 F2d 786 (2nd Cir. 1980); Tyminski
v. US., 481 F.2d 257 (3rd Cir. 1973); In re Air Crash Disaster, 883 F.2d 17(5th
Cir. 1989); Beard v. JL Case Co., 823 F.2d 1095 (7th Cir. 1987); International
Administrators, Inc. v. Life Insurance Co. of North America, 753 F.2d 1373 (7th
Cir. 1985);In re Air Crash Disaster, 644 F.2d 594 (7th Cir. 1981); Ewing v.
SL Louis-Clayton Orthopedic Group Inc., 790 F.2d 682 (8th Cir. 1986).
See also Reese, Depecage, 73 Colum. L Rev. 58 (1973).
[LAWYERS ALERT OCTOBER 28, 1991]