United States: West Virginia Supreme Court Of Appeals Upholds $32 Million Punitive Damages Award Against Nursing Home

We recently posted about the decision by the West Virginia Supreme Court of Appeals in Manor Care Inc. v. Douglas, — S.E.2d —-, 2014 WL 2835831 (W. Va. June 18, 2014), to cut a multimillion-dollar punitive award by more than half in a case against a Charleston nursing home.  In our prior post, which is available here, we commented on the court's decision to reduce the punitive  damages proportionately (from $80 million to about $32 million) after it reduced the compensatory damages from $11.5 million to $4.6 million.

The West Virginia court's decision to afford a proportionate reduction of the punitive damages after vacating part of the compensatory damages raises is noteworthy, but it may be even more striking that the court refused to reduce the $32 million punishment any further.  In an opinion that shows little inclination to follow the U.S. Supreme Court's guidance that high awards of compensatory damages require lower ratios, the West Virginia Supreme held that the 7:1 ratio between punitive and compensatory damages was not excessive.  The decision suggests that large companies hit with very large verdicts in West Virginia state court may have difficulty obtaining any reduction of the punitive damages as long as the ratio is lower than 10:1 and the court deems the conduct to be highly reprehensible.

Manor Care arose out of the death of Dorothy Douglas from severe dehydration following a nineteen-day stay at the Heartland Nursing Home in Charleston.  Ms. Douglas's estate filed suit against various corporate entities related to Heartland, alleging negligence, violations under the state's Nursing Home Act, and breach of fiduciary duty.  According to the West Virginia Supreme Court's opinion, evidence presented at trial demonstrated that Heartland Nursing Home had received numerous complaints from residents and their families as well as Heartland employees about the facility's staffing levels. Surveys by the West Virginia Department of Health and Human Services also documented understaffing.

After a ten-day trial, the jury awarded $11.5 million in compensatory damages and $80 million in punitive damages, for a total award of $91.5 million.  The defendants challenged the award, contending both that punitive damages were not appropriate and that, even if they were, the jury's award was excessive.  With respect to the excessiveness arguments, the defendants argued that the circuit court improperly considered the existence of insurance, that the damages were disproportionate to the amount of compensatory damages, and that the punitive damages were disproportionate to civil penalties for comparable conduct.

Before addressing the defendants' challenges to punitive damages, the court vacated two portions of the compensatory award.   The court concluded that the $1.5 million awarded under the Nursing Home Act was invalid because the plaintiff had failed to comply with mandatory pre-suit notice requirements.  The court also vacated the $5 million compensatory award for breach of fiduciary duty, holding that the circuit court erred in recognizing that cause of action in this context.

Turning to the defendants' arguments regarding punitive damages, the court first applied the original 7:1 ratio between punitive and compensatory damages and reduced the punitive damages award to $32 million.  The court then analyzed the propriety of the reduced $32 million award.  The court held that the evidence was sufficient to support an award of punitive damages based on evidence of prior complaints and state surveys concerning reports of understaffing in the nursing home.  With respect to the amount of punitive damages, the court held that the defendants' conduct was sufficiently reprehensible to support the award and that the ratio of punitive to compensatory damages was not excessive.

In discussing the 7:1 ratio, the court noted that "the federal government has indicated that a single-digit ratio is more likely to comport with due process" and that "West Virginia has recognized that a ratio of roughly 5:1 is constitutional."  It opined that "the 5:1 ratio . . . as well as the ratio statements by the United States Supreme Court, do not represent strict standards," but instead "merely provide a guide." The court also pointed out that "higher ratios, even double or triple digit ratios, are not per se unconstitutional."

The court paid little heed to the U.S. Supreme Court's suggestion that lower ratios may represent the constitutional maximum when the compensatory damages are substantial.  In fact, it expressly noted that, although the U.S. Supreme Court suggested in State Farm that a 1:1 ratio might be appropriate given the size of the compensatory damages, the Utah court upheld a 9:1 ratio on remand.  The court ultimately concluded that "under the unique circumstances herein, the punitive damages award of approximately $32 million, which amounts to about a 7:1 ratio when compared to the amount of compensatory damages . . . is justified and does not violate due process."

In dissent, Justice Allen H. Loughry II criticized the court for "its shockingly results-oriented analysis."  Justice Loughry called the jury's 7:1 ratio "plainly unconstitutional," arguing that the majority "refus[ed] to acknowledge the substantial nature of the compensatory award" and Supreme Court jurisprudence indicating that 1:1 ratio is the maximum allowed in cases involving large compensatory awards.  Justice Loughry also admonished the court for "failing to recognize its duty to revisit" its decisions on the maximum allowable punitive damages ratios in light of State Farm.

Justice Brent D. Benjamin, who concurred in part and dissented in part, wrote that he deemed the verdict form insufficient to justify any award of punitive damages, an issue that received little mention in the court's opinion.  Justice Benjamin wrote that the verdict form simply "ask[ed] the jury whether, based upon 'the circumstances of the case,' it found by a preponderance of the evidence that punitive damages were warranted against the petitioners.  As to a specific finding of conduct sufficient to justify the awarding of punitive damages, the verdict form is silent."

Given that only three of the five members of the West Virginia Supreme Court of Appeals voted to uphold the 7:1 ratio in this case, it is not clear whether the court will continue to allow ratios in the high single digits in future cases involving high compensatory awards.  In an appropriate case, Justice Loughry may have more success persuading his colleagues to give greater force to the U.S. Supreme Court's guidance in State Farm.

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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