United States: Montana Supreme Court Upholds $5 Million Punitive Award That Is Five Times The Compensatory Damages

Montana is known fondly to many as Big Sky Country, but it also is quickly gaining a reputation for big punitive damages awards.  Not only are juries imposing breathtaking amounts of punitive damages with increasing regularity, but the courts of Montana generally have been upholding those awards (or reducing them to amounts that would still be considered excessive in most other jurisdictions). Most recently, the Montana Supreme Court upheld a $5 million punitive award that was five times the already generous amount of compensatory damages.

The plaintiff in McCulley v. U.S. Bank of Montana alleged that the defendant bank offered her a 30-year mortgage loan for acquisition of a condominium, but in fact issued her an 18-month bridge loan. When she could not make the required balloon payment, she had to sell the condo for $40,000 less than the loan balance.

Alleging that she became suicidal after losing her condo, the plaintiff sued and was awarded $1 million in compensatory damages (over three-quarters of which is for emotional distress) and $5 million in punitive damages.  Misapplying the three excessiveness guideposts identified by the U.S. Supreme Court in BMW v. Gore and State Farm v. Campbell, the Montana Supreme Court upheld the full amount of punitive damages.

With respect to the reprehensibility guidepost, the court held that all five aggravating factors identified in State Farm were present. Disregarding any consideration of foreseeability, the Montana Supreme Court found that the harm was physical, not merely economic, because the plaintiff allegedly became suicidal after she had to sell her condo. The court likewise held that the bank "exhibited indifference or reckless disregard for the health and safety of McCulley" because it knew that she might lose her home (and suffer ensuing emotional distress) as a result of its deceptive characterization of the loan.

Of course, State Farm itself involved precisely the same kind of emotional distress arising out of precisely the same fear that the plaintiffs might lose their home.  Yet the U.S. Supreme Court did not treat the case as involving either physical harm or a reckless disregard for health or safety, stating instead that "[t]he harm arose from a transaction in the economic realm, not from some physical assault or trauma; there were no physical injuries." Moreover, the Montana court's treatment of McCulley's emotional distress as an aggravating factor is difficult to square with the U.S. Supreme Court's observation in State Farm that large awards of damages for emotional distress already contain a punitive component, reducing the need for a large and disproportionate punitive award.

The Montana Supreme Court's treatment of the "repeated misconduct" factor also is hard to reconcile with Supreme Court precedent. The Montana court held that, even though the alleged bait-and-switch perpetrated against the plaintiff appeared to be an isolated incident, the "repeated misconduct" factor was present because the bank committed more than one deceptive act in the course of the plaintiff's transaction. Although the court cited decisions of the Colorado Supreme Court and the Third Circuit, those cases say only that when the defendant engaged in more than one wrongful act in its dealings with the plaintiff, this factor "may still be relevant in measuring the reprehensibility of the defendant's conduct, based on the particular facts and circumstances presented." More importantly, the court disregarded the many cases that have squarely held that this factor does not support a finding of high reprehensibility unless the defendant has engaged in similar misconduct toward other individuals—i.e., to use the U.S. Supreme Court's terminology, unless the defendant is a "recidivist."

Equally troubling is the court's analysis of the ratio guidepost. In prior cases, the Montana Supreme Court has focused entirely on the U.S. Supreme Court's statement in State Farm that double-digit ratios are rarely permissible and has disregarded the Court's further observation that "[w]hen compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee." It repeated the same conceptual errors in McCulley, stating that "the ratio of punitive damages to compensatory damages is 5:1, which fits comfortably within the single-digit instructive numerical guidelines" and "is lower than previous award ratios upheld by this Court." In short, the court has effectively created a safe harbor for punitive awards that are less than ten times the compensatory damages—no matter how high the compensatory damages may be or the extent to which the compensatory damages already serve the purposes of punitive damages.

Finally, the Montana Supreme Court held that the third guidepost—legislatively established penalties for comparable conduct—"favors upholding the punitive damages award" because the $5 million exaction is lower than the cap on punitive damages adopted by the Montana Legislature. The court appears not to have appreciated that the cap—which in Montana is quite high to begin with—sets a maximum punishment that applies to all cases, not just cases of so-called predatory lending. Contrary to the Montana Supreme Court's assertion, the cap does not serve as "an indication of" the legislature's views as to the appropriate punishment for this particular type of tort.

McCulley is contrary to the many cases from other jurisdictions that have refused to allow ratios in the mid-to-high single digits when the compensatory damages are substantial—especially in a case like McCulley involving an isolated incident of comparatively modest reprehensibility. The court may have another opportunity to address excessiveness issues in Kelly Logging, Inc. v. First Interstate Bank, a case in which a Missoula trial judge recently upheld a $16,760,000 punitive award that is close to 60 times the $286,000 compensatory award. One can only hope that the Montana Supreme Court will review the punitive damages in that case with a more searching eye.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2015. The Mayer Brown Practices. All rights reserved.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.