NASHVILLE — A 2011 Tennessee law that caps punitive monetary damages in civil lawsuits is unconstitutional, a 6th U.S. Circuit Court of Appeals panel ruled in a recent split decision.
In the 2-1 ruling involving a West Tennessee case, the judges cited the Tennessee Constitution, which was adopted in 1796 and borrows liberally from North Carolina's, as well as state case law reaching well back into the 19th Century to show awards of punitive damages are historically a "finding of fact" that are in the hands of jurors.
The 25-page appellate decision in the case, released Dec. 21, stems from a 2013 lawsuit filed by Tamarin Lindenberg on behalf of herself and two minor children against Jackson National Life Insurance Co.
She charged the insurer had breached its contract to pay out a life insurance policy after the death of her ex-husband.
The ruling strikes at a provision in the 2011 Tennessee Civil Justice Act, which sharply curtailed monetary damages, including punitive damages. Republican Gov. Bill Haslam brought the bill as part of his efforts to improve Tennessee's business climate, saying it offered companies predictability "and a way to quantify risk as they decide where to locate."
Asked whether the state would appeal, Samantha Fisher, spokeswoman for Tennessee Attorney General Herbert Slatery who intervened in the case on behalf of the state, wrote in an email that "we are reviewing the decision by the 6th Circuit Court."
The ruling was first reported last week by Courthouse News.
Back in December 2014, a U.S. District Court jury in Memphis found in Tamarin Lindenberg's favor following a trial. Jurors awarded her $350,000 in actual damages, another $87,500 in bad faith damages and as a punishment for Jackson National's actions, another $3 million in punitive damages.
Under Tennessee law, punitive damages can be awarded in breach of contract cases if the defendant acted intentionally, fraudulently or recklessly.
Jackson National's staff, according to the court record, told Lindenberg that she had "obviously waived her beneficiary status" for the life insurance policy and also insisted she get waivers of her and her late ex-husband's two minor children's rights to any portion of the benefits in order to proceed.
Among other provisions, the Tennessee law caps punitive damages at two times the amount of compensatory damages, or $500,000, whichever is greater.
U.S. District Judge Jon McCalla, who presided over the Lindenberg v. Jackson National trial in Memphis, deferred to the state and reduced Lindenberg's punitive damages award from $3 million to $700,000 in September 2016.
It was then appealed to the 6th U.S. Circuit in Cincinnati.
In his ruling, U.S. Circuit Court Judge Eric Clay, a Bill Clinton appointee, wrote that "on cross-appeal, [Lindenberg] argues that the statutory punitive damages cap, T.C.A. § 29-39-104 violates two provisions of the Tennessee Constitution: the individual right to a jury trial and the doctrine of separation of powers."
Clay also wrote that "upon our assessment of Tennessee law, we find that the punitive damages bar set forth in § 29-39-104 violates the individual right to a trial by jury set forth in the Tennessee Constitution."
He was joined by Court of Appeals Judge Jane Branstetter Branch of Nashville, a Barack Obama appointee.
In his ruling, Clay cited the Declaration of Rights provision in the Tennessee Constitution, saying it provides that "the right of trial by jury shall remain inviolate."
He also looked at North Carolina's constitution, its impact on Tennessee's constitution, a 1797 North Carolina court case and Tennessee courts' historical treatment of punitive damages.
"Our review of historical evidence from Tennessee and North Carolina demonstrates that punitive damages awards were part of the right to trial by jury at the time the Tennessee Constitution was adopted," Clay wrote.
Both Tennessee and Jackson National had rejected arguments that caps on punitive damages caps infringe on a jury's right to make "findings of fact." They also cited a 2013 Indiana Supreme Court ruling that upheld that state's limit on punitive damages.
But Clay said there is a lack of uniformity among states on whether imposing punitive damages is the sole realm of juries. He looked at what the Tennessee Supreme Court itself has said in the past.
One case cited was an 1839 decision involving an "inoffensive young man of religious habits and a non-combatant, a stranger in a strange land, degraded by the infliction of the most ignominious punishment from the hands of a wealthy, influential and respectable citizen."
The Tennessee Supreme Court said at the time "the peace of society ought in cases of this kind always to be looked to, and damages given to such an extent as will deter persons from the commission of such offences."
Clay also looked at a 1940 Tennessee Supreme Court decision that repeated an earlier ruling stating "[punitive] damages cannot be claimed as a matter of right; but it is always a question for the jury, within its discretion, no matter what the facts are."
The case was remanded back to McCalla.
U.S. Circuit Judge Joan Larsen, a Donald Trump appointee, took issue with several aspects with Clay's decision, arguing issues over the statute's constitutionality should be sent to the Tennessee Supreme Court, which can accept questions about state law from federal judges.
"Here, while the majority's speculation about the meaning of a state statute results in the invalidation of state law on an equally speculative construction of the state constitution, there is no question the Tennessee Supreme Court 'stand[s] willing to address' these novel issues," she wrote in a 21-page dissenting opinion.
Jerry Summers, a prominent Chattanooga attorney, praised the ruling, saying it "fortunately set aside another effort by the Tennessee General Assembly to close the courthouse" to Tennesseans seeking legal redress.
Summers said it has to be an "extreme case" for punitive damages to come into play.
State Rep. John Ray Clemmons, D-Nashville, an attorney, called the decision a "much-needed and significant slap on the wrist" of both Haslam and the GOP-run General Assembly for "improperly capping punitive damages in violation of Tennesseans' constitutional right to a trial by jury."
Contact Andy Sher at email@example.com or 615-255-0550. Follow him on Twitter @AndySher1.