Recent Trends in the Alabama Supreme Court

Tort and Consumer Issues

In the early ‘90s, tort reform advocates viewed Alabama as a dangerous place to be a defendant, mostly based on a trend of increasingly large punitive damage awards in Alabama courtrooms.

Alabama juries began to award large amounts of money on account of conduct that seemed to critics to fall far short of the kinds of “reprehensible” behavior that had been required for punitive damages in the past. Also criticized was the fact that juries were not awarding punitive damages only in cases involving personal injury or death, but were also awarding them in contract-based cases – often involving insurance companies and other financial institutions – in which the plaintiffs were alleging fraud on the part of the defendants.

The expansion of tort-type doctrines into contract law was aided by one 1991 decision of the Hornsby-era supreme court in particular. Johnson v. State Farm Ins. Co.¹ lessened the showing a plaintiff must make to prove fraud. It adopted a standard of “justifiable reliance” to replace the traditional test of “reasonable reliance.” By removing some of the burden on the plaintiff to show that he had relied, reasonably, on the alleged misrepresentation of the defendant, the court encouraged filing of claims that might not have survived motions to dismiss in other states’ court systems. In many cases, plaintiffs sought punitive as well as compensatory damages.

In an attempt to assert more control over the changes in the state’s civil justice system, in 1987 the Alabama legislature passed a number of measures. Most of the new statutes were challenged in court, and the Hornsby court wound up striking down most of the package in a series of opinions in the early 1990s. In particular, in 1993 it struck down a $250,000 cap on punitive damages (in most cases) as violative of the state constitution’s guarantee of a right to a jury trial.²

Shortly after Chief Justice Hooper’s arrived to succeed Chief Justice Hornsby, the U.S. Supreme Court decided the Gore case. It reversed the Alabama Supreme Court’s decision, holding that the 500-to-1 ratio of punitive to compensatory damages was so “grossly excessive” that it violated the due process rights of BMW, as guaranteed by the Fourteenth Amendment to the U.S. Constitution.³ The case was remanded to the Alabama state court system, with instructions to consider three factors: “the degree of reprehensibility of the nondisclosure; the disparity between the harm or potential harm suffered by Dr. Gore and his punitive damages award; and the difference between this remedy and the civil penalties authorized or imposed in comparable cases.”

This second time around, the Alabama Supreme Court placed greater emphasis on the three Gore factors – which the court said were already present in the long list of factors it considered under its own precedents — and reduced the amount of punitive damages to $50,000.⁴

After Gore, the Alabama Supreme Court began a more robust – if not altogether transparent – review of punitive awards. In the words of one lawyer who reviewed the court’s first ten post-Gore decisions in 1998:

The only real lesson . . . is that it is better for a civil defendant to appeal an award of punitive damages than to accept it. The odds appear quite high that a large punitive award in a non-wrongful death case will be reduced significantly on appeal, though the reasons for this may not always be clear.⁵

During this same period, the court returned to the traditional requirement of “reasonable reliance” in fraud cases, thus bringing Alabama back into the mainstream nationally on this point.⁶ It also bears mention that the Alabama Supreme Court has maintained a consistent position on certification of class actions in state court.⁷ It has declined to recognize a “medical monitoring” remedy in toxic tort litigation, thus keeping litigation focused on actual – as opposed to possible future – injury.⁸

In 1999, the Alabama legislature adopted a new set of punitive damages caps⁹, which do not apply to cases involving death or intentional infliction of physical injury. In cases involving all other physical injuries, punitive damages cannot exceed three times the compensatory damages, or $1.5 million, whichever is greater. In cases involving “small businesses” (defined as a net worth of $2 million or less), punitive damages cannot exceed $50,000 or 10% of the business’ net worth, whichever is greater. In all other civil cases, punitive damages cannot exceed three times the compensatory damages, or $500,000, whichever is greater. To date, there has been no court challenge to this set of caps. 

In 2001 the Alabama Supreme Court followed the lead of the U.S. Supreme Court in Cooper Industries, Inc. v. Leatherman Tool Group, Inc.,¹⁰ and announced that it would conduct de novo review of such punitive damage awards.¹¹ A 2002 analysis of this practice looked at the first five cases the court heard de novo, noting that

...the court affirmed two awards of $600,000 and $150,000 and it reduced three others with [reductions] of $120,000 (approximately 40% remitted), $2,000,000 (50% remitted), and $450,000 (75% remitted). Again the court inconsistently used the 3:1 ratio as a benchmark, and allowed awards to exceed this ratio if reprehensibility was considered high.¹²

The author tentatively concluded that de novo review would enhance “overall predictability” of the process.¹³ That the state supreme court is currently undertaking a serious review of punitive awards finds some support in a task force’s report to the state Department of Insurance, which notes that:

On appeal during 2002, the Alabama Supreme Court reviewed eight cases in which jury awards of punitive damages had resulted in judgments totaling $6 million. The court reversed seven of those eight cases, upholding only one in the amount of $600,000.¹⁴

A cursory analysis of the court’s review of eleven cases involving punitive damages during 2004 showed similar results. In five of them, the court found that the defendants had deserved judgment as a matter of law, thus knocking out the punitive awards. Four cases were reversed and remanded for further proceedings. In only two cases were punitive damages affirmed – one case was decided without opinion; the other involved a $5 million jury award that had been reduced by the trial judge to $1.5 million, and was further reduced to $300,000 by the supreme court.

Alabama punitive damages practice has changed a great deal since the days of BMW v. Gore.¹⁵ It should be acknowledged, however, that in some counties, juries still return very large punitive damage awards. For example, in 2002 a jury returned a $122 million verdict against General Motors in a crashworthiness/personal injury case that included a $100 million punitive award. This was reduced by the trial judge to a mere $60 million (three times the compensatory damages of $20 million), and the supreme court granted GM’s motion for a new trial, albeit on grounds of irregularities in the selection of the jury.¹⁶ Justices See, Brown and Stuart dissented, arguing that the plaintiff had failed to prove a design defect as required by Alabama law. The ultimate disposition of this case will offer an indication of how the Alabama Supreme Court’s orientation toward punitive damages may have changed.

Another emerging issue in the Alabama courts is the treatment of “mental anguish” damages. A recent Alabama Supreme Court decision underscores the complexity of addressing such damages.¹⁷ Plaintiffs sued an insurance company for “fraud, breach of contract, and negligent or wanton failure to procure life insurance.” Plaintiffs claimed that the company’s agent had represented that the insurance policies they were buying would be “paid up” in 15 years. This was not the case, and the written policies themselves contradicted this claim. Plaintiff Magnolia Jackson testified that upon learning that the policies were not paid up, she felt “like a big bomb had just exploded” and that the situation made her “worry.” The plaintiffs’ out-of-pocket loss was $2,340. In addition to this, the jury gave them $497,660 in mental anguish damages, and $5 million in punitive damages. The trial judge reduced the punitive award to $1.5 million (three times the “compensatory” damages, including mental anguish). A five-member majority of the state supreme court ordered the mental anguish damages reduced to $97,660, and the punitive damages reduced to $300,000 (or, in the alternative, a new trial for the defendant). Three justices – See, Brown, and Stuart – dissented. They argued that the majority had departed from clear precedent as to the kind of evidence needed to sustain a claim of mental anguish. Because the evidence produced by the plaintiffs was sparse, the dissenters would reduce that amount to $10,000, and the punitive amount to $30,000. Whether the court’s position on mental anguish will remain consistent is unclear.

The Courts and the Alabama Constitution

Perhaps the most dramatic evidence of the court’s emphasis on separation of powers came in 2002, when the court dismissed a lawsuit challenging the way the state funds K-12 education. The suit had been in the Alabama court system since 1990. It was based on the 1901 state constitution’s provision that “The legislature shall establish, organize, and maintain a liberal system of public schools throughout the state for the benefit of the children thereof between the ages of seven and twenty-one years” (emphasis added). The plaintiffs’ basic theory was that the word “liberal” required the state to make per pupil expenditures more nearly equal across local school districts, necessitating some amount of redistribution of public funds from wealthier to poorer school districts.

The plaintiffs convinced the Montgomery County trial judge to whom the case was initially assigned to issue an “order” that declared that “equitable and adequate educational opportunities shall be provided to all schoolchildren regardless of the wealth of the communities in which the schoolchildren reside.”¹⁸ The order defined “adequate educational opportunities” with respect to nine categories, such as – “sufficient oral and written communication skills to function in Alabama, and at the national and international levels, in the coming years.” The order concluded: “the state officers charged by law with responsibility for the Alabama public school system, are hereby enjoined to establish, organize and maintain a system of public schools, that provides equitable and adequate educational opportunities to all school-age children . . . .”

Convinced that the trial judge’s order rested on an unprecedented reading of the state constitution and a disregard for the separation of powers,¹⁹ the legislature asked the supreme court for a ruling on whether they had to follow the trial judge’s order. The 1993 court said that the legislature was bound to follow it, “unless changed by a competent court having the power to overturn it. . . .”²⁰

The matter came before the supreme court again in 1997. Stripped of procedural complexity, the court’s decision basically held that the action was justiciable, and that the doctrine of separation of powers did not prohibit “judicial review” of the constitutionality of the public school system.²¹ The decision moved the state further down the road toward a judicially-prescribed restructuring of its K-12 finances. Justices Maddox, Houston, and Chief Justice Hooper all dissented (in relevant part).

By 2002, the case was once again in a procedural posture such that the supreme court could rule on it. On this occasion, by an 8-1 vote, the court dismissed the action.²² The majority opinion held: 

(1)that this Court’s review of the merits of the still pending cases commonly and collectively known in this State, and hereinafter referred to, as the “Equity Funding Case,” has reached its end, and (2) that, because the duty to fund Alabama’s public schools is a duty that—for over 125 years—the people of this State have rested squarely upon the shoulders of the Legislature, it is the Legislature, not the courts, from which any further redress should be sought.

Another way that the supreme court emphasizes the separation of powers is in its case law construing statutes. The Alabama case law on this point indicates a tendency toward a textualist approach, that is, reading statutory law as it is written by the legislature.²³ The court’s opinion in the Hooper-Hornsby absentee ballot case, noted earlier, was anomalous in this regard. In a recent decision, the court summarized the basic concepts:

The cardinal rule of statutory interpretation is to determine and give effect to the intent of the legislature as manifested in the language of the statute. . . . Absent a clearly expressed legislative intent to the contrary, the language of the statute is conclusive. Words must be given their natural, ordinary, commonly understood meaning, and where plain language is used, the court is bound to interpret that language to mean exactly what it says. . .Where the language of a statute is clear and “there remains no room for judicial construction[,] ... the clearly expressed intent of the legislature must be given effect.”. . .When construing a statute, this Court “has a duty to ascertain and effectuate legislative intent expressed in the statute, which may be gleaned from the language used, the reason and necessity for the act, and the purpose sought to be obtained.²⁴

Endnotes

1  587 So.2d 974 (Ala. 1991). 

2 Henderson v. Alabama Power Co., 627 So.2d 878 (Ala. 1993). 

3 BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996). 

4 BMW of North America, Inc. v. Gore, 701 So.2d 507 (Ala. 1997). 

5 E. Berton Spence, Punitive Damages in Alabama After BMW v. Gore: Are Outcomes Any More Predictable?, 59 ALA. LAWYER 314, 320 (1998). 

6 Foremost Ins. Co. v. Parham, 693 So.2d 409 (Ala. 1997). 

7 See, for example, Regions Bank v. Lee, 2004 WL 1859678 (Ala. 2004) (denying class certification). 

8 Hinton v. Monsanto Co., 813 So.2d 827 (Ala. 2001). 

9 Ala. Code § 6-11-21. 

10 532 U.S. 424 (2001). 

11 The new procedure was first announced in Acceptance Ins. Co. v. Brown, 832 So.2d 1 (Ala. 2001), and fleshed out in Horton Homes, Inc. v. Brooks, 832 So.2d 44 (Ala. 2001), cert. denied sub nom. Southern Manufactured Homes, Inc. v. Brooks, 535 U.S. 1054 (2002). 

12 David E. Hogg, Comment, Alabama Adopts De Novo Review for Punitive Damage Appeals: Another Landmark Decision or Much Ado About Nothing?, 54 ALA. L. REV. 223, 234 (2002). 

13 Id. at 240. 

14 Report of the Legal Environment Committee, Alabama Department of Insurance, Health Issues Task Force, Nov. 5, 2003 (copy on file with author). 

15 One practicing lawyer opined that the implications of the U.S. Supreme Court’s most recent decision concerning punitive damages, State Farm Ins. Co. v. Campbell, 538 U.S. 408 (2003), have not yet been incorporated into Alabama caselaw. 

16 General Motors Corp. v. Jernigan, 2003 WL 22929111 (Ala. 2003). 

17 Alfa Life Ins. Co. v. Jackson, 2004 WL 1009367 (Ala. 2004). 

18 Reprinted in Opinion of the Justices, 624 So.2d 107, 166 (Ala. 1993). 

19 For a further discussion of this point, see Susan Thompson Spence, Comment, The Usurpation of Legislative Power by the Alabama Judiciary: From Legislative Apportionment to School Reform, 50 ALA. L. REV. 929, (1999). It is interesting to note that the trial judge was unsuccessful in his 1994 run for a supreme court judgeship. 

20 624 So.2d at 110. 

21 Ex parte James, 713 So.2d 869 (Ala. 1997). 

22 Ex parte James, 836 So.2d 813 (Ala. 2002). 

23 For a short summary of the major cases, see J. Gorman Houston, Jr., Judicial Restraint and the Doctrine of Separation of Powers, 59 ALA. LAW. 166, 169-70 (1998) (suggesting, somewhat obliquely, that Roe was wrongly decided). 

24 Ex parte University of South Alabama, 761 So.2d 240, 243 (Ala. 1999) (citations omitted).

Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at [email protected].