Bankrupting lawsuits bad for Montana businesses

The Montana Supreme Court is reviewing a case that may decide whether Montana businesses will face unlimited and potentially bankrupting awards in civil lawsuits.

Presently, Montana law places a reasonable cap on the amount of damages a plaintiff can receive to punish a defendant in a civil lawsuit. Trial lawyers want the punitive damages cap thrown out.

This would be bad for Montana’s economy. The Montana Supreme Court in Masters Group International Inc. v. Comerica Bank should uphold the cap and not make it harder for Montana to keep and recruit good paying jobs.

Punitive damages are not normal civil damages. They do not compensate for harm; that purpose is accomplished by compensatory damages (economic, such as lost wages or lost profits, and non-economic, such as pain and suffering).

Punitive damages are awarded in addition to compensatory damages. They are a “windfall” to the plaintiff. Punitive damages are available in Montana to punish for “actual fraud or actual malice” that is proven by “clear and convincing evidence.”

In 2003, Montana capped punitive damages awards at $10 million or 3 percent of a defendant’s net worth, whichever is less. Supporters of the law far outnumbered opponents and included retailers, truckers, medical professionals, hospitals, bankers, contractors, farmers, ranchers, and small businesses.

A primary concern that led the Montana Chamber of Commerce and many other Montana-based groups to push for the cap was the impact of punitive damages and the threat of punitive damages to force artificially higher settlements from Montana businesses.

Settlements that are inflated by the threat of an uncapped punitive damages award are bad for all Montanans because they lead to higher costs for goods and services. The bill’s sponsor, then Sen. Walter McNutt, R-Sidney, testified of his experience being threatened with punitive damages in a lawsuit as a way to drive up his settlement costs.

The executive director of the Montana Auto Dealers Association said: “The availability of unlimited punitive damages affects 95 percent to 98 percent of cases settled out of court prior to trial. It is obvious and indisputable that punitive damage claims increase the magnitude of the ultimate settlement and affects the entire settlement process, increasing the probability of litigation.”

Montana’s punitive damages cap also promotes the state’s interest in fostering a legal environment that is fair and attractive to business investment and the creation of good-paying jobs. Montana is not isolated in the economy; it must compete with nearby states and other countries to attract jobs. If the state’s legal climate is not competitive, job-creators and service providers will go elsewhere. Most other states limit punitive damages, and a few do not permit them at all. Other countries prohibit or strictly limit punitive damages.

Additionally, Montana’s cap on punitive damages helps to preserve assets for sick claimants who may otherwise see their compensatory recoveries threatened if defendants’ resources are depleted by earlier-filing plaintiffs that obtain artificially high settlements or large punitive awards at trial. This has happened, for example, in the asbestos litigation. The cap does not limit how much an individual may obtain to be made whole for a loss.

Furthermore, there is absolutely no evidence that goods or services are any less safe in Montana or any other state that has made a policy decision to set reasonable upper limits on damages awarded to punish a civil defendant.

Montana Attorney General Tim Fox has urged the Montana Supreme Court to uphold the cap. In a brief his office filed with the court, they said “[t]he Legislature’s cap on punitive damages is a quintessential policy determination which no more offends the right to trial by jury than sentencing by judges in criminal cases. The jury’s function is to apply the law to the facts. It is the Legislature’s job, not a jury’s, to make law and policy.”

The Motor Carriers of Montana and Montana Hospital Association filed a friend-of-the-court brief that also explained that the cap does not violate the jury trial right in the Montana Constitution “because the jury’s fact-finding function is preserved.”

The brief said: “The jury continues to resolve disputed facts with respect to liability and assessment of legally available remedies. Once the jury has decided these issues, the constitutional mandate is met. [The cap] does nothing more than establish, as a matter of law, the outer limits of a remedy. The jury right does not allow a jury to award extra-legal remedies.”

Both briefs cited prior Montana Supreme Court cases that made it clear that a plaintiff has no constitutional right to punitive damages.

Nationally, federal and state courts have consistently upheld the constitutionality of punitive damages caps, including the Supreme Courts of Alaska, Ohio, Kansas, North Carolina, and Virginia, and a Texas appellate court. A recent Missouri Supreme Court decision went the other way, but that court adopted an activist approach that has been severely criticized as “extreme” and does not enjoy mainstream legal support. It would hurt the credibility of the Montana Supreme Court to adopt the Missouri approach and be seen as a “fringe” court.

The cap was a good idea when it was enacted over a decade ago. It is still a good idea today. It should be upheld by the Montana Supreme Court.

Webb Brown is the CEO of the Montana Chamber of Commerce.