The Supreme Court/The Supreme Court.iso/pc/ascii/1992/92_479/92_479.zo

Text File | 1993-06-24 | 27.8 KB | 540 lines

NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports.  Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash-
ington, D.C. 20543, of any typographical or other formal errors, in order that
corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
--------
No. 92-479
--------
TXO PRODUCTION CORP., PETITIONER v.
ALLIANCE RESOURCES CORP., et al.
on writ of certiorari to the supreme court of
appeals of west virginia
[June 25, 1993]

  Justice Stevens announced the judgment of the Court
and delivered an opinion in which The Chief Justice and
Justice Blackmun join, and in which Justice Kennedy
joins as to Parts I and IV.
  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.
                            I
  On August 23, 1985, TXO Production Corp. (TXO)
commenced this litigation by filing a complaint in the
Circuit Court of McDowell County, West Virginia, for a
declaratory judgment removing a cloud on title to an
interest in oil and gas development rights.  Respondents,
including Alliance Resources Corp. (Alliance), filed a
counterclaim for slander of title that went to trial before
a jury in June 1990.  The jury verdict in respondents'
favor, which has been affirmed by the Supreme Court of
Appeals of West Virginia, makes it appropriate to accept
respondents' version of disputed issues of fact.
  In 1984, geologists employed by TXO concluded that the
recovery of oil and gas under the surface of a 1,002.74
acre tract of land known as the -Blevins Tract- would be
extremely profitable.  They strongly recommended that
TXO-a large company that was engaged in oil and gas
production in 25 States-obtain the rights to develop the
oil and gas resources on the Blevins Tract.
  Those rights were then controlled by Alliance.  Prod-
ded by its geologists, TXO approached Alliance with what
Alliance considered to be a -`phenomenal offer.'-  187
W. Va. 457, 462, 419 S. E. 2d 870, 875 (1992).  TXO
would pay Alliance $20 per acre in cash, pay 22 percent
of the oil and gas revenues in royalties, and pay all of the
development costs.  On April 2, 1985, Alliance accepted
TXO's offer, agreeing to assign its interest in the Tract to
TXO.  With respect to title to the property, Alliance
agreed to return the consideration paid to it if TXO's
attorney determined that -title had failed.-
  Shortly after the agreement was signed, TXO's attorneys
discovered a 1958 deed conveying certain mineral rights
in the Tract from respondent Tug Fork Land Company,
a predecessor in interest of Alliance, to a coal operator
named Leo J. Signaigo, Jr., who had later conveyed those
rights to the Hawley Coal Mines Company, which had, in
turn, reconveyed them to the Virginia Crews Coal Compa-
ny (Virginia Crews).  Interviews with Signaigo, and with
representatives of Hawley and Virginia Crews, established
that the parties all understood that only the right to mine
coal had been involved in those transactions; none of them
claimed any interest in oil or gas development rights.
Moreover, the text of the 1958 deed made it -perfectly
clear- that the grantor had reserved -all the oil and gas
underlying- the Blevins Tract.
  TXO first advised Alliance of the -distinct possibility or
probability- that its -leasehold title fails- in July 1985.
In the meantime, despite its knowledge that any claim
that the 1958 deed created a cloud on title to the oil and
gas development rights would have been -frivolous,- TXO
made two attempts to lend substance to such a claim.
First, after unsuccessfully trying to convince Virginia
Crews that it had an interest in the oil and gas, TXO
paid the company $6,000 for a quitclaim deed conveying
whatever interest it might have to TXO.  TXO recorded
the deed without advising Alliance.  Second, TXO unsuc-
cessfully attempted to induce Mr. Signaigo to execute a
false affidavit indicating that the 1958 deed might have
included oil and gas rights.
  On July 12, after having recording the quitclaim deed,
TXO wrote to Alliance asserting that there was a title
objection and implying that TXO might well have acquired
the oil and gas rights from Virginia Crews.  It then
arranged a meeting in August and attempted to renegoti-
ate the royalty arrangement.  When the negotiations were
unsuccessful, TXO commenced this litigation.  According
to the West Virginia Supreme Court of Appeals, TXO
-knowingly and intentionally brought a frivolous declarato-
ry judgment action- when its -real intent- was -to reduce
the royalty payments under a 1,002.74 acre oil and gas
lease,- and thereby -increas[e] its interest in the oil and
gas rights.-
  TXO's declaratory judgment action was decided on the
basis of the parties' written submissions.  The court
granted respondents' motion to prohibit TXO from intro-
ducing expert and extrinsic evidence concerning the
meaning of the 1958 deed to Signaigo because the deed
itself was unambiguous.  On the basis of the written
record, the court found that TXO had asserted a claim to
title to the oil and gas under the Blevins Tract by virtue
of the quitclaim deed from Virginia Crews, App. 15, but
that the deed was a -nullity.-
  The counterclaim for slander of title was subsequently
tried to a jury.  In addition to the evidence that TXO
knew that Alliance had good title to the oil and gas and
that TXO had acted in bad faith when it advanced a
claim on the basis of the worthless quitclaim deed in an
effort to renegotiate its royalty arrangement, Alliance
introduced evidence showing that TXO was a large
company in its own right and a wholly owned subsidiary
of an even larger company; that the anticipated gross
revenues from oil and gas development-and therefore the
amount of royalties that TXO sought to renegotiate-were
substantial; and that TXO had engaged in similar
nefarious activities in its business dealings in other parts
of the country.  Id., at 468-470, 419 S. E. 2d, at 881-883.
  The jury's verdict of $19,000 in actual damages was
based on Alliance's cost of defending the declaratory
judgment action.  It is fair to infer that the punitive
damages award of $10 million was based on other evi-
dence.
  In support of motions for judgment notwithstanding the
verdict and for remittitur, TXO argued that the punitive
damages award violated the Due Process Clause.  Counsel
contended that under the -general punitive damage
instruction given in this case, the jury was left to their
own devices without any yardstick as to what was a
reasonable punitive damage award.  And for that reason,
a vagueness, lack of guideline and the lack of any require-
ment of a reasonable relationship between the actual
injury and the punitive damage award, in essence, would
cause the Court or should cause the Court to set it aside
on Constitutional grounds.-  In response, counsel for
Alliance argued that the constitutional objection had been
waived, that the misconduct was particularly egregious,
and that the award was not excessive.  The trial court
denied the motions without opinion and TXO appealed.
  On appeal, TXO assigned three primary errors: (1) that
no cause of action for slander of title existed in West
Virginia or had been established by the evidence; (2) that
the West Virginia Rules of Evidence were violated by the
admission of testimony of lawyers involved in litigation
against TXO in other States to show TXO's wrongful
intent; and (3) that the award of punitive damages
violated the Due Process Clause as interpreted in our
opinion in Pacific Mutual Life Ins. Co. v. Haslip, 499
U. S. 1 (1991), and in the West Virginia Supreme Court
of Appeals' recent decision in Garnes v. Fleming Landfill,
Inc., 186 W. Va. 656, 413 S. E. 2d 897 (1991).  The State
Supreme Court of Appeals affirmed.
  The Court first disposed of the state-law issues.  It
introduced its discussion of the federal issue by describing
the kinds of defendants against whom punitive damages
had been awarded after our decision in Haslip.  Turn-
ing to the facts of this case, the Court stated that the
application of its -reasonable relationship- test required
it to consider these three factors:
-(1) the potential harm that TXO's actions could have
caused; (2) the maliciousness of TXO's actions; and (3)
the penalty necessary to discourage TXO from under-
taking such endeavors in the future.-  187 W. Va., at
476, 419 S. E. 2d, at 889.

It held that each of those factors supported the award in
this case, stating:
-The type of fraudulent action intentionally undertak-
en by TXO in this case could potentially cause mil-
lions of dollars in damages to other victims.  As for
the reprehensibility of TXO's conduct, we can say no
more than we have already said, and we believe the
jury's verdict says more than we could say in an
opinion twice this length.  Just as important, an
award of this magnitude is necessary to discourage
TXO from continuing its pattern and practice of fraud,
trickery and deceit.-  Ibid. (emphasis in original).
We granted certiorari, 506 U. S. ___ (1992), and now
affirm.
                           II
  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.
  TXO correctly points out that several of our opinions
have stated that the Due Process Clause of the Four-
teenth Amendment imposes substantive limits -beyond
which penalties may not go.-  Seaboard Air Line R. Co.
v. Seegers, 207 U. S. 73, 78 (1907).  See also St. Louis I.
M. & S. R. Co. v. Williams, 251 U. S. 63, 66-67 (1919);
Standard Oil Co. of Indiana v. Missouri, 224 U. S. 270,
286 (1912).  Moreover, in Southwestern Telegraph &
Telephone Co. v. Danaher, 238 U. S. 482 (1915), the Court
actually set aside a penalty imposed on a telephone
company on the ground that it was so -plainly arbitrary
and oppressive- as to violate the Due Process Clause.  Id.,
at 491.  In an earlier case the Court had stated that
it would not review state action fixing the penalties for
unlawful conduct unless -the fines imposed are so grossly
excessive as to amount to a deprivation of property
without due process of law.-  Waters-Pierce Oil Co. v.
Texas (No. 1), 212 U. S. 86, 111 (1909).
  While respondents -unabashedly- denigrate those cases
as -Lochner-era precedents,- they overlook the fact that
the Justices who had dissented in the Lochner case itself
joined those opinions.  More importantly, respondents
do not dispute the proposition that the Fourteenth Amend-
ment imposes a substantive limit on the amount of a
punitive damages award.  Brief for Respondents 17.  They
contend, however, that the standard of review should be
the same standard of rational basis scrutiny that is
appropriate for reviewing state economic legislation.
  TXO, on the other hand, argues that punitive damages
awards should be scrutinized more strictly than legislative
penalties because they are typically assessed without any
legislative guidance expressing the considered judgment
of the elected representatives of the community.  TXO
urges that we apply a form of heightened scrutiny, the
first step of which is to apply certain -objective- criteria
to determine whether a punitive award presumptively
violates those notions of -fundamental fairness- inherent
in the concept of due process of law.  Relying heavily on
the plurality opinion in Schad v. Arizona, 501 U. S. ___
(1991), petitioner argues that -`history and widely shared
practice [are] concrete indicators of what fundamental
fairness and rationality require,'- Brief for Petitioner
15-16 (quoting Schad, supra, at ___ (plurality opinion)
(slip op., at 13), and that therefore we should examine, as
-objective- criteria of fairness, (1) awards of punitive
damages upheld against other defendants in the same
jurisdiction, (2) awards upheld for similar conduct in other
jurisdictions, (3) legislative penalty decisions with respect
to similar conduct, and (4) the relationship of prior
punitive awards to the associated compensatory awards.
Brief for Petitioner 16.  Under petitioner's proposed
framework, when this inquiry demonstrates that an award
-exceeds the bounds of contemporary and historical
practice by orders of magnitude,- id., at 21 (emphasis in
original), that award must be struck down as arbitrary
and excessive unless there is a -compelling and particular-
ized justification- for an award of such size.
  The parties' desire to formulate a -test- for determining
whether a particular punitive award is -grossly excessive-
is understandable.  Nonetheless, we find neither formula-
tion satisfactory.  Under respondents' rational basis
standard, apparently any award that would serve the
legitimate state interest in deterring or punishing wrong-
ful conduct, no matter how large, would be acceptable.
On the other hand, we reject the premise underlying
TXO's invocation of heightened scrutiny.  The review of
a jury's award for arbitrariness and the review of legisla-
tion surely are significantly different.  Still, it is not
correct to assume that the safeguards in the legislative
process have no counterpart in the judicial process.  The
members of the jury were determined to be impartial
before they were allowed to sit, their assessment of
damages was the product of collective deliberation based
on evidence and the arguments of adversaries, their award
was reviewed and upheld by the trial judge who also
heard the testimony, and it was affirmed by a unanimous
decision of the State Supreme Court of Appeals.  Assum-
ing that fair procedures were followed, a judgment that
is a product of that process is entitled to a strong pre-
sumption of validity.  Indeed, there are persuasive reasons
for suggesting that the presumption should be irrebutta-
ble, see Haslip, 499 U. S., at 24-40 (Scalia, J., concurring
in judgment), or virtually so, id., at 40-42 (Kennedy, J.,
concurring in judgment).
  Nor are we persuaded that reliance on petitioner's
-objective- criteria is the proper course to follow.  We
have, of course, relied on history and -widely shared
practice- as a guide to determining whether a particular
state practice so departs from an accepted norm as to be
presumptively violative of due process, see Schad, supra,
at ___ (plurality opinion) (slip op., at 13-17), and whether
a term of imprisonment under certain circumstances is
cruel and unusual punishment, see Solem v. Helm, 463
U. S. 277, 290-292 (1983).  We question, however, the
utility of such a comparative approach as a test for
assessing whether a particular punitive award is presump-
tively unconstitutional.
  It is a relatively straightforward task to draw intrajuris-
dictional and interjurisdictional comparisons on such
matters as the definition of first-degree murder (Schad)
or the penalty imposed on nonviolent repeat offenders
(Solem).  The same cannot be said of the task of drawing
such comparisons with regard to punitive damages awards
by juries.  Such awards are the product of numerous, and
sometimes intangible, factors; a jury imposing a punitive
damages award must make a qualitative assessment based
on a host of facts and circumstances unique to the partic-
ular case before it.  Because no two cases are truly
identical, meaningful comparisons of such awards are
difficult to make.  Cf. Haslip, supra, at 41-42 (Kennedy,
J., concurring in judgment).  Such analysis might be
useful in considering whether a state practice of permit-
ting juries to rely on a particular factor, such as the
defendant's out-state status, would violate due process.
As an analytical approach to assessing a particular award,
however, we are skeptical.  Thus, while we do not rule
out the possibility that the fact that an award is signifi-
cantly larger than those in apparently similar circum-
stances might, in a given case, be one of many relevant
considerations, we are not prepared to enshrine petition-
er's comparative approach in a -test- for assessing the
constitutionality of punitive damages awards.
  In the end, then, in determining whether a particular
award is so -grossly excessive- as to violate the Due
Process Clause of the Fourteenth Amendment, Waters-
Pierce Oil Co., 212 U. S., at 111, we return to what we
said two Terms ago in Haslip: -We need not, and indeed
we cannot, draw a mathematical bright line between the
constitutionally acceptable and the constitutionally unac-
ceptable that would fit every case.  We can say, however,
that [a] general concer[n] of reasonableness . . . properly
enter[s] into the constitutional calculus.-  499 U. S., at 18.
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.

                           III
  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, supra, 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 permis-
sibility.  Id., at 23.  Following that decision, the West
Virginia Supreme Court of Appeals had also observed that
as -a matter of fundamental fairness, punitive damages
should bear a reasonable relationship to compensatory
damages.-  Garnes v. Fleming Landfill, Inc., 186 W. Va.,
at 668, 413 S. E. 2d, at 909.
  That relationship, however, was only one of several
factors that the State Court mentioned in its Garnes
opinion.  Earlier in its opinion it gave this example:
-For instance, a man wildly fires a gun into a crowd.
By sheer chance, no one is injured and the only
damage is to a $10 pair of glasses.  A jury reasonably
could find only $10 in compensatory damages, but
thousands of dollars in punitive damages to teach a
duty of care.  We would allow a jury to impose
substantial punitive damages in order to discourage
future bad acts.- Id., at 661, 413 S. E. 2d, at 902
(citing C. Morris, Punitive Damages in Tort Cases, 44
Harv. L. Rev. 1173, 1181 (1931)).
When the Court identified the several factors that should
be mentioned in instructions to the jury, the first one that
it mentioned reflected that example.  It said:
-Punitive damages should bear a reasonable relation-
ship to the harm that is likely to occur from the
defendant's conduct as well as to the harm that
actually has occurred.  If the defendant's actions
caused or would likely cause in a similar situation
only slight harm, the damages should be relatively
small.  If the harm is grievous, the damages should
be much greater.-  186 W. Va., at 668, 413 S. E. 2d,
at 909 (emphasis added).
  Taking account of the potential harm that might result
from the defendant's conduct in calculating punitive
damages was consistent with the views we expressed in
Haslip, supra.  In that case we endorsed the standards
that the Alabama Supreme Court had previously an-
nounced, one of which was -whether there is a reasonable
relationship between the punitive damages award and the
harm likely to result from the defendant's conduct as well
as the harm that actually has occurred,- id., at 21 (em-
phasis added).
  Thus, 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 conclud-
ed that TXO's pattern of behavior -could potentially cause
millions of dollars in damages to other victims.-  More-
over, respondents argue that the record evidence would
support a finding that Alliance's 22 percent share of the
projected revenues from the full development of the oil
and gas rights amounted to between $5 and $8.3 million,
depending on how many wells were developed.  Even
if these figures are exaggerated-as TXO persuasively
argues, see Reply Brief for Petitioner 9-12-the jury could
well have believed that TXO was seeking a multimillion
dollar reduction in its potential royalty obligation.  In fact,
in making their closing arguments to the jury, counsel for
respondents stressed, in addition to TXO's vast wealth,
the tremendous financial gains that TXO hoped to achieve
through its -elaborate scheme.-  Counsel for Alliance
argued:
-They wouldn't have gone to this elaborate
scheme-No, they wouldn't now, because they thought
this was a huge, gonna be a huge money-making
lease.  Gonna puts lots of wells on it.  That's why it
was worth the scheme.  And the punishment should
fit it, and fit the wealth.-  App. to Brief for Petitioner
23a.
Echoing the same theme, counsel for respondent Tug Fork
Land Company argued:
      -You have to go on what TXO thought when they
were going into this well.  They thought it was going
to be a better well than it was.  But, see, it got
caught up in this litigation and now, I submit to you,
they are saying that it is not as good a well as it
was.  And that's a fact that is in some contention
here.  But regardless of how good it was, when they
went in and did their operation back in May, June,
July and August of 1985, they had projected that this
would be a 20 year well and would produce a lot of
money.-  Tr. 748-749.
  While petitioner stresses the shocking disparity between
the punitive award and the compensatory award, that
shock dissipates when one considers the potential loss to
respondents, in terms of reduced or eliminated royalties
payments, had petitioner succeeded in its illicit scheme.
Thus, even if the actual value of the -potential harm- to
respondents is not between $5.0 million and $8.3 million,
but is closer to $4 million, or $2 million, or even $1
million, the disparity between the punitive award and the
potential harm does not, in our view, -jar one's constitu-
tional sensibilities.-  Haslip, 499 U. S., at 18.
  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 royal-
ties 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.

                           IV
  TXO also argues that the punitive damages award is
the result of a fundamentally unfair procedure because the
jury was not adequately instructed, because its award was
not adequately reviewed by the trial or the appellate
court, and because TXO had no advance notice that the
jury might be allowed to return such a large award or to
rely on potential harm as a basis for its calculation.  We
decline to address the first argument as it was not argued
or passed on below.  We find the remaining arguments
meritless.
  The instruction to the jury on punitive damages differed
from that found adequate in Haslip, see 499 U. S., at 6,
n. 1, in two significant respects.  It authorized the jury
to take account of -the wealth of the perpetrator- in
recognition of the fact that effective deterrence of wrongful
conduct -may require a larger fine upon one of large
means than it would upon one of ordinary means under
the same or similar circumstances.-  It also stated that
one of the purposes of punitive damages is -to provide
additional compensation for the conduct to which the
injured parties have been subjected.-  See n. 29, supra.
  We agree with TXO that the emphasis on the wealth
of the wrongdoer increased the risk that the award may
have been influenced by prejudice against large corpora-
tions, a risk that is of special concern when the defendant
is a nonresident.  We also do not understand the reference
in the instruction to -additional compensation.-  We note,
however, that in Haslip we referred to the -financial
position- of the defendant as one factor that could be
taken into account in assessing punitive damages, see
n. 28, supra.  We also note that TXO did not squarely
argue in the West Virginia Supreme Court of Appeals that
these aspects of the jury instruction violated the Due
Process Clause, see Brief for Appellant in No. 20281
(W. Va. Sup. Ct.), p. 44-48, possibly because many
States permit the jury to take account of the defendant's
wealth.  Because TXO's constitutional attack on the
jury instructions was not properly presented to the highest
court of the State, Bankers Life & Casualty Co. v. Crensh-
aw, 486 U. S. 71, 77-80 (1988), we do not pass on it.
  The only basis for criticizing the trial judge's review of
the punitive damages award is that he did not articulate
his reasons for upholding it.  He did, however, give
counsel an adequate hearing on TXO's postverdict motions,
and during one colloquy indicated his agreement with the
jury's appraisal of the egregious character of the conduct
of TXO's executives.  See n. 12, supra.  While it is always
helpful for trial judges to explain the basis for their
rulings as thoroughly as is consistent with the efficient
despatch of their duties, we certainly are not prepared to
characterize the trial judge's failure to articulate the basis
for his denial of the motions for judgment notwithstanding
the verdict and for remittitur as a constitutional violation.
  Petitioner's criticism of the West Virginia Supreme
Court of Appeals' opinion is based largely on the Court's
colorful reference to classes of -really mean- and -really
stupid- defendants.  That those terms played little, if any,
part in its actual evaluation of the propriety of the
damages award is evident from the reasoning in its
thorough opinion, succinctly summarized in passages we
have already quoted.  Moreover, two members of the court
who wrote separately to disassociate themselves from the
-really mean- and -really stupid- terminology shared the
views of the rest of the members of the court on the
merits.  See 187 W. Va., at 484, 419 S. E., at 895
(McHugh, C. J., concurring).  The opinion was unanimous
and gave careful attention to the relevant precedents,
including our decision in Haslip and their own prior
decision in Garnes.
  Finally, we find no merit in TXO's argument that the
procedure followed in this case -was unconstitutionally
vague- because petitioner had no notice of the possibility
that the award of punitive damages might be divorced
from an award of compensatory damages.  In Wells v.
Smith, 171 W. Va. 97, 105, 297 S. E. 2d 872, 880 (1982),
the West Virginia Supreme Court of Appeals held that a
defendant could be liable for punitive damages even if the
jury did not award the plaintiff any compensatory damag-
es.  In any event, the notice component of the Due
Process Clause is satisfied if prior law fairly indicated
that a punitive damages award might be imposed in
response to egregiously tortious conduct.  Haslip, 499
U. S., at 24, n. 12.  Prior law, in West Virginia and else-
where, unquestionably did so.
  The judgment of the West Virginia Supreme Court of
Appeals is affirmed.
                                      It is so ordered.