United States: West Virginia Supreme Court Of Appeals' Refusal To Review Punitive Award For Excessiveness Under Due Process Clause Warrants Summary Reversal, Says Chamber Of Commerce In Mayer Brown-Authored Amicus Brief

As readers of this blog and litigants and their attorneys in punitive damages cases well know, the U.S. Supreme Court gets the final say on matters of constitutional interpretation, including the due-process requirements for punitive damages awards. Except if you happen to live in West Virginia.

It turns out that the West Virginia Supreme Court of Appeals has made it something of a habit in recent years to ignore, sidestep, or outright reject controlling principles of federal law by, as the U.S. Supreme Court itself pointed out in 2012, "misreading and disregarding" Supreme Court precedents. This trend has been particularly noticeable in punitive damages cases, in which members of the West Virginia court have openly expressed their hostility toward the Supreme Court's due-process holdings in State Farm v. Campbell, BMW v. Gore, and Philip Morris USA v. Williams.

To take just one notable example, a member of the West Virginia court justified the court's refusal to follow Supreme Court precedent with the charge, in a published opinion, that "the majority of the nine justices [in Campbell] did not focus on 'the degree of reprehensibility of the defendant's conduct,' but instead chose to substitute the jury's judgment with their own."

In response, the former chief justice of West Virginia was equally frank: "I fear that the majority of this court rejected [legal principles advanced by the defendant] because it does not like Campbell. I fervently hope that the next time a punitive damages award is reviewed by this Court, the majority will abide by the United States Supreme Court's decision in Campbell, even if it does not like or agree with Campbell's holdings. The rule of law demands that ordinary citizens follow laws with which they do not agree. Likewise, we as judges are bound by controlling legal precedent. Campbell is the law of the land, and it must be applied everywhere in the United States, including in West Virginia."

Yet the West Virginia court as a whole has not taken that rebuke to heart. Instead, it has continued resolutely to ignore Supreme Court precedents that it does not like. The most recent illustration of this pattern is Quicken Loans Inc. v. Brown—a November 2014 decision that is the subject of a pending cert. petition by the defendant.

The decision arose out of a suit against a mortgage lender, Quicken Loans, that had initiated foreclosure proceedings after the plaintiff, Brown, defaulted on a $145,000 home loan. Brown alleged that Quicken had defrauded her and violated West Virginia consumer-protection laws by lending her more money than her house was worth. After a bench trial, a verdict in Brown's favor, a partially successful appeal by Quicken to the West Virginia Supreme Court of Appeals, a revised judgment by the trial court, and a second appeal, the West Virginia Supreme Court of Appeals ultimately upheld compensatory damages of $17,500, attorneys' fees of nearly $600,000, and punitive damages of $2.17 million against Quicken.

In upholding the punitive damages, the West Virginia court, perhaps uncharacteristically, did not misapply or disparage Campbell, BMW, and the rest of the controlling Supreme Court precedents. Instead, it circumvented the constitutionally required excessiveness inquiry entirely, by finding that Quicken had not mentioned the unconstitutional-excessiveness issue in its first appeal to the court, and therefore had failed to preserve the issue for the second appeal. This despite the fact that two of the five justices on the court—including, bizarrely, the author of the majority opinion—wrote that they had each independently reviewed the record and determined that the issue had been fully and repeatedly raised in both appeals. As one of those justices wrote in dissent, the court "chose[] to brazenly ignore the United States Supreme Court's jurisprudence" by "stubborn[ly] refus[ing] to review the punitive damage award in this case against the edicts of" BMW and State Farm. In the dissent's words, the majority thus engaged in a "contumacious refusal to heed the United States Supreme Court's holdings and ... insiste[d] on a result-oriented analysis to uphold plainly-excessive punitive damage awards."

Quicken's pending cert. petition raises two questions. It first asks whether a state court may evade its obligation to apply Supreme Court precedent by finding waiver of federal constitutional claims that were expressly and repeatedly raised. And second, the petition asks whether, under State Farm and BMW, attorneys' fees should or should not count as part of the plaintiff's compensatory award when calculating the ratio of punitive to compensatory damages.

The second question—on the calculation of ratios—is certainly significant. It addresses a basic issue about how reviewing courts should apply the BMW guideposts. And the issue matters: In the Quicken case itself, if the attorneys' fees are considered part of the compensatory award, then the ratio of punitive to compensatory damages is 3.5:1—higher than State Farm would appear to permit, given the size of the resulting compensatory award, but perhaps not wholly beyond the pale. If, however, the fee award is not counted as compensatory damages, then the ratio is an astounding 124:1, far exceeding what State Farm allows. The latter approach to calculating ratios is the view reasonably taken by many courts and legal scholars, both because attorneys' fees are not a measure of the actual harm to a plaintiff—as the $600,000 fee award on the $17,500 restitutionary award in Quicken shows in spades—and because fee awards promote deterrence and retribution in their own right, making substantial punitive damages duplicative and therefore unconstitutionally excessive.

But as my colleague Andy Pincus and I explain in an amicus brief that we filed in support of Quicken's cert. petition on behalf of the Chamber of Commerce of the United States of America, what's most important and most worrisome about the case is not the substantive issue of the proper calculation of ratios. Rather, what matters most is the first question—whether a state court may insulate its rulings against Supreme Court review by using sham findings of waiver or other procedural default to deprive the Supreme Court of jurisdiction to hear federal constitutional claims. That issue, which at first blush might be overlooked as a dry and relatively commonplace matter of state-law procedure, has far-reaching implications not just for the Supreme Court's jurisprudence, but for the supremacy of federal law across the board.

Federal claims and defenses routinely arise in state-court proceedings, and the state courts have, since the founding, been deemed competent to decide those matters. What is more, the Supreme Court generally respects state-court determinations that a federal claim was not properly presented, treating a state court's waiver ruling as an independent and adequate state-law ground for the decision that deprives the Supreme Court of jurisdiction to review questions of federal law in the case. That is as it should be to preserve our federal system.

But there is an old and ugly tradition in the state courts of exploiting this exception to the Supreme Court's jurisdiction by manufacturing sham state-law grounds to evade Supreme Court review of federal questions. The tactic was particularly popular for attempting to skirt the Supreme Court's equal-protection rulings in race-discrimination cases after Brown v. Board of Education and the passage of the Civil Rights Act of 1964 and the Voting Rights Act of 1965. But the Supreme Court has recognized the impropriety of the tactic for well over a century and has repeatedly refused to tolerate such subterfuge. In this same spirit, we argued in the amicus brief that the Court should grant review and summarily reverse the decision of the West Virginia court. In our view, the Supreme Court should send the case back to West Virginia for consideration of the substantive federal question, with a stern reminder that when the Supreme Court interprets federal law, it means what it says, and the state courts are bound to apply its decisions in good faith.

What is at stake in Quicken is not just the proper application of BMW and State Farm but the integrity of federal law itself. Supreme Court review is a critical mechanism to ensure the uniform, consistent, and accurate application of federal constitutional and statutory requirements. If state courts are able to thwart Supreme Court jurisdiction and insulate their decisions against review by disingenuously declaring federal claims to be waived, there will no longer be any effective mechanism to ensure that federal law as interpreted by the Supreme Court remains supreme. That result is one that our legal system cannot tolerate.

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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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