Free Motion for Reconsideration - District Court of Arizona - Arizona

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Thomas L. Hudson, 014485 Danielle D. Janitch, 021838 OSBORN MALEDON, P.A. 2929 North Central Avenue, Suite 2100 Phoenix, Arizona 85012-2794 [email protected] [email protected] (602) 640-9000 Steven C. Dawson, 006674 Anita Rosenthal, 006199 DAWSON & ROSENTHAL, P.C. 6586 Highway 179, Suite B-2 Sedona, Arizona 86351 [email protected] (602) 494-3800 Gregg H. Temple, 009866 GREGG H. TEMPLE, P.C. 4835 East Cactus Road, Suite 225 Scottsdale, Arizona 85254 [email protected] (602) 808-0508 Attorneys for Plaintiff UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Brett D. Leavey, Plaintiff, vs. UNUM/Provident Corporation, a foreign corporation, and Provident Life and Accident Insurance Company, a foreign corporation, Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) No. CIV-02-2281 PHX SMM PLAINTIFF'S MOTION FOR RECONSIDERATION RE REMITTITUR OF PUNITIVE DAMAGES AWARD (Expedited Consideration Requested)

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Filed 06/09/2006

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I.

Introduction If Plaintiff must choose between accepting a $3 million punitive award or a

new trial on the amount of damages, Plaintiff will choose a new trial. Slashing the jury's $15 million punitive damages award ­ the amount the jury found necessary to punish and deter Defendants from "committing similar acts in the future" (Doc. No. 210 at 8) ­ runs contrary to controlling Ninth Circuit precedent, rests on a critical misunderstanding of the record, and turns what the Court believed to be an arbitrarily excessive award into an arbitrarily low award. As detailed further below, the Court erred by: · Overlooking that the Ninth Circuit has already held that at least four of the reprehensibility factors are present in a case like this, and that in assessing reprehensibility the Court must view the evidence in Plaintiff's favor. See Hangarter v. Provident Life & Accident Ins., 373 F.3d 998, 1014 (9th Cir. 2004). Overlooking that the Ninth Circuit has already held in a case similar to this that a ratio of 2.6:1 is "well within" constitutional parameters, id., and has further instructed courts within this Circuit that ratios of 4:1 or greater are appropriate in cases with "significant economic damages." Planned Parenthood v. Am. Coalition of Life Activists, 422 F.3d 949, 962 (9th Cir. 2005) (emphasis added), cert. denied 126 S.Ct. 1912 (2006). Overlooking that Ninth Circuit precedent requires the Court to reduce a constitutionally excessive punitive award to an amount not below the "constitutional maximum." Leatherman Tool Group, Inc. v. Cooper Indus., Inc., 285 F.3d 1146, 1151 & n.3 (9th Cir. 2002) (emphasis added). And, repeatedly referring to and relying upon Plaintiff's "slight injury" that did not "require treatment" when that injury predated and lead to the separate and distinct serious injury that occurred as part of the relapse Defendants caused. (See Tr. 1125:9-21.)

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Importantly, the jury's $15 million punitive award remains a single-digit ratio (7.5:1 given the remitted compensatory award). It thus falls below the constitutional maximum, and should therefore remain intact. To the extent any reduction is warranted, however, the punitive award should be reduced to no less than $8 million,
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i.e., at least a 4:1 ratio. Reducing the punitive award ­ an award designed to punish two Defendants ­ to an amount below a 4:1 ratio fails to appropriately respect the jury's award and cannot be squared with the Ninth Circuit's post-State Farm v. Campbell "framework." See Planned Parenthood, 422 F.3d at 962 (citing State Farm v. Campbell, 538 U.S. 408 (2003)).1

II.

Factual and Legal Errors Were Made in the Reprehensibility Analysis The Court misconstrued the record and committed legal errors that affected its

analysis of the reprehensibility of Defendants' conduct.

A.

The Court Erred in Finding That the First and Fifth Factors Did Not Weigh in Favor of Finding Defendants' Conduct Reprehensible

1.

The First Reprehensibility Factor ­ Harms of an Economic vs. Physical Nature

The Court construed the first reprehensibility factor, which assesses the nature of the harm, too narrowly. Pure economic harm falls on one end of the reprehensibility scale, while injuries that go beyond the economic realm involve greater reprehensibility. See BMW of N. Am. v. Gore, 517 U.S. 559, 560 (1996) (explaining in the context of this factor that "[t]he harm BMW inflicted on Gore was purely economic; the presale repainting had no effect on the car's performance, safety features, or appearance"); Zhang v. Am. Gem Seafoods, Inc., 339 F.3d 1020, 1043 (9th Cir. 2003) (explaining in connection with this factor that although "`purely economic' harms are less likely to warrant substantial punitive damages awards," other kinds of harms to the person, such as discrimination, weigh on this factor) (quoting BMW, 517 U.S. at 576). This case involved far more than pure economic harm. It is well settled that "misconduct which occurs in the insurance sector of the economic realm is likely to

Although Plaintiff disagrees with the Court's remittitur of the compensatory 27 damages award, Plaintiff is willing to accept that remittitur, and forego a new trial on compensatory damages. The Court's order, however, appears to require plaintiff to 28 accept or a reject the remittitur concerning both the compensatory and punitive damage awards. Case 2:02-cv-02281-SMM Document 275 2 Filed 06/09/2006 Page 3 of 18

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cause injury more closely akin to physical assault or trauma than to mere economic loss." Campbell v. State Farm, 98 P.3d 409, 415 (Utah 2004) ($9 million punitive award amounting to a 9:1 ratio appropriate), cert. denied, 543 U.S. 874 (2004). Consequently, when a denial of benefits occurs, a "policyholder can suffer injury not only to his economic well-being but to his emotional and physical health as well." 28 Eric Mills Holmes, Holmes' Appleman on Insurance 2d § 8.7 (2d ed. 1996) (emphasis added). Courts thus recognize that "[w]hen an insurer callously betrays the insured's expectation of peace of mind, . . . its conduct is substantially more reprehensible than, for example, the undisclosed repainting of an automobile which spawned the punitive damages award in Gore." State Farm, 98 P.3d at 415; cf. Taylor v. State Farm, 185 Ariz. 174, 176, 913 P.2d 1092, 1094 (1996) (noting the importance of "peace of mind" in the insurance context); Borland v. Safeco Ins. Co., 147 Ariz. 195, 200, 709 P.2d 552, 557 (App. 1985) ("a disability policy, by its very nature, is one that signals that a claimant may be particularly vulnerable"). More fundamentally, the Court apparently misunderstood the nature of Dr. Leavey's physical suffering by repeatedly referencing his "slight" hand injury. (E.g., May 26, 2006 Memorandum and Decision Order ("Order") at 20.) That "slight" injury is separate and distinct from the much more serious and significant injury that occurred as part of Dr. Leavey's relapse following his receipt of the December denial letter. As Dr. Leavey explained, the "slight" accidental injury, which occurred when he moved to a cheaper apartment after Defendants cut off his benefits, required no treatment. But, in his state of desperation, this accidental injury gave him the idea to crush his hand with a forty-five pound weight to obtain narcotics as part of a very serious relapse: A. Q. I had a slight injury to my left hand, but it was certainly nothing that would require treatment in any way. Did this lead to the relapse that you were questioned about in your deposition?
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A. Q. A. Q. A. Q. A. Q. A.

It led to an idea and opportunity, and that very much led to relapse. All right. Again, you purposely injured yourself? Yes, I did. All right. And you injured yourself badly. I put my hand in an exercise -- piece of exercise equipment and I dropped 45 pounds on my left hand. You broke your hand, didn't you? Yeah. You got more narcotic prescription. I did.

(Tr. 1125:7-21 (emphasis added).)2 Although these multiple hand injuries apparently caused the Court some confusion, Dr. Leavey's testimony makes clear that the relevant injury is the broken hand ­ an injury for which he sought treatment and obtained a narcotics prescription. A broken hand, of course, is not a "slight" injury.3 Furthermore, this more serious physical injury is but one component of the physical injury Dr. Leavey endured in the form of a relapse ­ an injury that involved physical pain, anguish, and other physical suffering. (E.g., Tr. 546:25-547:2 (treating physician describing Dr. Leavey's "depth of depression" after he received the denial letter); see also id. at 1129:25-1130:3, 1980:9-10.) Defendants' own witnesses even admitted that they understood that a relapse "can cause very serious health consequences," as it did in this case, and were warned that Dr. Leavey's risk of

The Court will also recall that Dr. Leavey broke down emotionally on the witness stand as he recounted this relapse. The incredible suffering he endured at this time, and which he conveyed during trial as he testified about the desperate situation that led him to self-inflict this injury as part of a relapse, is not adequately captured in the written transcript.
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The Court also mentioned the "slight" injury in connection with remitting the 28 compensatory award. To the extent the Court relied upon this misunderstanding in connection with that remittitur, the Court should correct that error also. Case 2:02-cv-02281-SMM Document 275 4 Filed 06/09/2006 Page 5 of 18

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relapse was "high." (Tr. 668:25-669:1; see also Ex. 1 at PLACL00979, 978, 976 (IME report noting a "number of health concerns" that may be caused by "anxiety and depression" and noting that if Dr. Leavey were forced to return to dentistry a relapse is "highly likely").)4 The Court also noted during trial that "there's some evidence in there of physical injury although I think it's ­ I think it's more with his depression and adequate care on his depression than it did elsewhere. But I think there's some evidence in there." (Tr. 1980:9-10.) Consequently, the Court should find the first reprehensibility factor present in this case.5

2.

The Fifth Factor: Whether the Harm Resulted From Intentional Malice, Trickery, or Deceit, or Instead From a Mere Accident

The fifth factor (whether "the harm resulted from intentional malice, trickery, or deceit, or mere accident," Campbell, 538 U.S. at 409 (citing BMW, 517 U.S. at 576-77)) originated in TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443 (1993). See BMW, 517 U.S. at 576 ("Similarly, `trickery and deceit,' are more reprehensible than negligence.") (quoting TXO, 509 U.S. at 462). In that case, TXO claimed that it had an interest in Alliance's oil and gas rights pursuant to a quitclaim deed. TXO, 509 U.S. at 449-50. Alliance counterclaimed for slander of title, and the evidence showed that TXO had acted in "bad faith when it advanced a claim on the basis of the worthless quitclaim deed in an effort to renegotiate its royalty
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The cited pages are included in the Separate Appendix to Response to Defendants' Memorandum of Points and Authorities in Support of Renewed Motion for Judgment as a Matter of Law.
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Courts have long recognized relapse as a form of serious physical injury to the person. See, e.g., Innovative Health Sys., Inc. v. City of White Plains, 117 F.3d 37, 25 43-44 (2d Cir. 1997) (noting that relapse may involve "serious risks of harm"); 26 Sullivan v. City of Pittsburgh, 811 F.2d 171, 179-180 (3d Cir. 1987) ("[P]laintiffs27 appellees are primarily recovering alcoholics who are in a critical state of their recovery. . . . For these alcoholics, a relapse threatens not only a potentially 28 irremediable reversion to chronic alcohol abuse but immediate physical harm or death."). Case 2:02-cv-02281-SMM Document 275 5 Filed 06/09/2006 Page 6 of 18

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arrangement." Id. at 450. The evidence further showed that "TXO had engaged in similar nefarious activities in its business dealings in other parts of the country." Id. at 450-51. Focusing on this economic "trickery and deceit," the Supreme Court held that the jury's $10 million punitive award (which amounted to a 10:1 ratio, BMW, 517 U.S. at 581), passed constitutional muster: The punitive damages award in this case is certainly large, but in light of the amount of money potentially at stake, the bad faith of petitioner, the fact that the scheme employed in this case was part of a larger pattern of fraud, trickery and deceit, and petitioner's wealth, we are not persuaded that the award was so `grossly excessive' as to be beyond the power of the State to allow. TXO, 509 U.S. at 462 (emphasis added). Consistent with this precedent, the Ninth Circuit then held in Hangarter that the Defendants' bad faith techniques ­ the same techniques deployed in this case ­ "caused [Hangarter] harm in a deceitful manner," thereby implicating the "trickery and deceit" reprehensibility factor. 373 F.3d at 1014. This case involves precisely the kind of "trickery and deceit" involved in Hangarter, thus requiring a finding of "trickery and deceit" in this case. As the Court found, Defendants' conduct was no "mere accident." (Order at 23.) To the contrary, Defendants intentionally closed Dr. Leavey's claim in an effort to deprive him of benefits, yet at trial denied they had done so. (Id. at 18-19.) Furthermore, the Court found this intentional denial occurred in conjunction with improper "claim­ termination goals." (Id. at 19.) Thus, whether or not Defendants "maliciously set out to harm Plaintiff," their conduct involves, at the very least, "trickery and deceit," and is far more reprehensible than accidental or negligent conduct.

B.

The Court Failed to Give Appropriate Weight to the Fourth Factor: Whether the Conduct Involved Repeated Misconduct (i.e., Recidivism) or Was Merely an Isolated Incident

The Court's drastic reduction of the punitive award also failed to give appropriate weight to the repeated nature of the conduct in this case. In BMW, the
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Supreme Court emphasized that "evidence that a defendant has repeatedly engaged in prohibited conduct while knowing or suspecting that it was unlawful would provide relevant support for an argument that strong medicine is required to cure the defendant's disrespect for the law." 517 U.S. at 576-77. Yet, in sharp contrast to BMW where the defendant "promptly instituted a nationwide policy," to correct its institutional practices, id. at 566, Defendants have shown no indication that they have or will change their practices. Indeed, they did nothing to defend the legitimacy of their practices at trial, yet have demonstrated their willingness to repeatedly engage in punishable bad faith practices (presumably due to the extreme profitability of such practices). That Defendants have "engaged in prohibited conduct while knowing or suspecting that it was unlawful" convincingly demonstrates "that strong medicine is required to cure the [Defendants'] disrespect for the law." BMW, 517 U.S. at 576-77.6 Additionally, although "[t]he wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award," Campbell, 538 U.S. at 427 (emphasis added), courts may consider the profitability of punishable conduct when evaluating a punitive award, see BMW, 517 U.S. at 591 (Breyer, J., concurring) (using the defendant's wealth in setting the level of punitive damages is not "unlawful or inappropriate"). As Judge Posner has emphasized, when the wrongdoer gains financially from the conduct, an award of punitive damages may help "limit[] the defendant's ability to profit from its fraud . . . ." Mathias v. Accor Economy Lodging, Inc., 347 F.3d 672, 677 (7th Cir. 2003). Here, the Court's decision to slash the punitive award by eighty percent, the equivalent of $1.5 million per Defendant, renders the award the financial equivalent of a slap on the wrist. (See Order at 25 (noting Defendants' wealth).)

Although Defendants suggested that they acted promptly by reinstating Dr. 27 Leavey's benefits, their contention fails to recognize that they did not claim to do so in an effort to remedy their harmful practices. Indeed, there is no evidence that they 28 did anything to eliminate their practices so as "to prevent such [harm] from occurring in the future." Bains LLC v. ARCO Prods. Co., 405 F.3d 764, 775 (9th Cir. 2005). Case 2:02-cv-02281-SMM Document 275 7 Filed 06/09/2006 Page 8 of 18

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C.

In Determining the Reprehensibility of Defendants' Conduct, the Court Must View the Evidence in the Light Most Favorable to Sustaining the Award

The Court's failure to find the first and fifth reprehensibility factors present in this case suggests that appropriate deference may not have been given to the jury's findings (and the Court's own findings, see § II.A.2, supra) in connection with the reprehensibility analysis. As the Ninth Circuit emphasized after the Supreme Court's remand in Cooper Industries v. Leatherman Tool Group, Inc., 532 U.S. 424 (2001), a court may not disregard the facts as determined by the fact finder when assessing a defendant's reprehensibility: "Although determining the degree of reprehensibility ultimately involves a legal conclusion, we must accept the underlying facts as found by the jury and the district court." Leatherman, 285 F.3d at 1150 (emphasis added); see also id. ("to the extent that the judgment-call on reprehensibility can be traced to a jury's assessment of witnesses, independent appellate review is essentially meaningless.") (quoting Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp., 272 F.3d 1335 (Fed. Cir. 2001)). After Campbell, the Ninth Circuit accordingly criticized an appellant for arguing that the court should substitute its view of the facts for the jury's, explaining again that in connection with the reprehensibility analysis, the court is "bound by the jury's finding[s]." Zhang, 339 F.3d at 1043 n.14. In Hangarter, the Ninth Circuit likewise emphasized that in determining reprehensibility, the court should view the evidence in the plaintiff's favor, 373 F.3d at 1014, and the Ninth Circuit has continued to apply that methodology, see, e.g., Planned Parenthood, 422 F.3d at 958 (explaining that in connection with the reprehensibility analysis the court would begin by "[a]ssuming the facts found by the jury and the district court in physicians' favor (as we must), and apply[] the reprehensibility factors to them de novo (as we also must)") (emphasis added). This Court is, therefore, obligated to follow Hangarter's methodology, and view the evidence in Dr. Leavey's favor in assessing Defendants' reprehensibility. Hangarter, 373 F.3d at 1014; cf. Los Angeles Police Protective
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League v. Gates, 995 F.2d 1469, 1475 (9th Cir. 1993) (finding in another context that "the district court erred in engaging in factfinding contrary to the implicit findings of the jury verdict"). Defendants' contention that unless the jury made specific, express findings in the verdict, the Court need not view the evidence in Dr. Leavey's favor for purposes of reprehensibility (Reply at 11), does not square with the very methodology the Ninth Circuit has repeatedly employed. Moreover, the jury in this case necessarily made a number of findings as part of its verdict, including that Defendants either intended to injure Dr. Leavey or consciously disregarded the substantial risk of harm to which they exposed him, (Doc. No. 210 (Jury Instructions) at 8). Cf. Westinghouse Elec. Corp. v. Gen. Circuit Breaker & Elec. Supply Inc., 106 F.3d 894, 901 (9th Cir. 1997) (describing many contexts in which courts draw "inferences from the verdicts to determine the issues that the presumptively rational jurors must have determined, and then used those implicit findings of fact as the basis for judgment as to certain issues"). The jury's implicit findings should be respected. Cf. TXO, 509 U.S. at 457 (if "fair procedures were followed, a [punitive damages] judgment that is a product of that process is entitled to a strong presumption of validity").7

III.

The Court Disregarded Ninth Circuit Precedent in Its Ratio Analysis In Hangarter, well after Campbell, the Ninth Circuit upheld a $5 million

punitive award that amounted to a 2.6:1 ratio. Although the nearly $2 million

On May 30, 2006, the Supreme Court granted review in Williams v. Philip 23 Morris, Inc., 127 P.3d 1165 (Or. 2006) (affirming $79.5 million punitive award of a 97:1 ratio). The petition for review raised three issues. Although the first two issues 24 are irrelevant to this case, the third issue asked "[w]hether, in reviewing a punitive 25 award for excessiveness, an appellate court is permitted to give the plaintiff the benefit of all conceivable inferences that might support a finding of high 26 reprehensibility even if the jury made no such specific factual findings." See Philip 27 Morris USA v. Williams, No. 05-1256, 2006 WL 849860 (U.S. Mar. 30, 2006). The Supreme Court expressly declined to review that issue. See 74 U.S.L.W. 3572 (also 28 available at supremecourtus.gov/orders/05ordersofthecourt.html ­ 5/30/06 Order List). Case 2:02-cv-02281-SMM Document 275 9Filed 06/09/2006 Page 10 of 18

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compensatory award was substantial, the Ninth Circuit held that the 2.6:1 ratio falls "well within the Supreme Court's suggested range for constitutional punitive damages awards." 373 F.3d at 1005, 1015. Just last year, the Ninth Circuit then set forth the "framework" for courts to use in this Circuit when evaluating punitive awards, and specifically explained that "where there are significant economic damages . . . but behavior is not particularly egregious, a ratio of up to 4 to 1 serves as a good proxy for the limits of constitutionality." Planned Parenthood, 422 F.3d at 962 (emphasis added). The Ninth Circuit further emphasized that as behavior becomes more "egregious . . . a single-digit ratio greater than 4 to 1 might be constitutional" even with "significant economic damages . . . ." Id. (emphasis added). If a ratio of 2.6:1 falls "well within" constitutional limits, and a ratio of 4:1 serves as a good proxy in cases that are not particularly egregious even with significant compensatory awards, it is difficult to see how a ratio below 4:1 comports with the Ninth Circuit's post-Campbell framework given the egregious nature of the conduct at issue here. This is particularly so given the Court's own findings that confirm the extreme reprehensibility of the conduct at issue here. For example, the Court found that Defendants, contrary to their testimony, intentionally closed Plaintiff's claim in an effort to meet claim-termination goals. (Order at 18-19.) The Court further found that Defendants' "conduct demonstrated an indifference or reckless disregard for the Plaintiff's health or safety." (Id. at 21.) Given this reprehensibility, which turns not merely on the number of factors but also their degree, Planned Parenthood teaches that the Court should have left the jury's singledigit ratio punitive award intact. Defendants' contention that the Court could disregard the Ninth Circuit's postCampbell framework and reduce the award to a ratio closer to 1:1 does not withstand scrutiny. For example, invoking a footnote from Hangarter, Defendants maintained that the Ninth Circuit rejected their 1:1 ratio argument on the basis of "important factual differences between Campbell and this case," particularly with respect to the
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size of the compensatory award. (See Reply at 14 (citing Hangarter, 373 F.3d at 1014 n.11).)8 But contrary to Defendants' suggestion, Hangarter did not reject the same 1:1 ratio argument Defendants repeated here on the basis of these factual differences. To the contrary, Hangarter emphasized that "State Farm's 1:1 compensatory to punitive damages ratio is not binding, no matter how factually similar the cases may be." 373 F.3d at 1014 (emphasis added). Moreover, most of the factual differences observed in Hangarter ­ including that "Defendants do not assert that their alleged conduct is legal in any U.S. jurisdiction," and that "a legally sufficient nexus existed between Defendant's allegedly widespread corporate policies and the termination of [the Plaintiff's] benefits," id. at 1014 n.11 ­ are likewise present in this case. And, to the extent the jury duplicated the punitive award in its compensatory award ­ a proposition for which there is no support ­ the appropriate course would be to reduce the $15 million punitive award by the $1.2 million (remitted) compensatory award. It would not justify slashing the already single-digit punitive award to a ratio closer to 1:1.

The full footnote reads "That said, there are important factual distinctions between State Farm and the case at bar. In State Farm the `compensatory damages for the injury suffered ... likely were based on a component [(emotional distress)] 20 which was duplicated in the punitive award.' State Farm, 123 S.Ct. at 1525. Indeed, 21 the plaintiff in State Farm `suffered only minor economic injuries'; her award was 22 primarily for emotional distress, the result of conduct which `it is a major role of punitive damages to condemn.' Id. In contrast, Hangarter's damages for emotional 23 distress were only one third of her pecuniary damages, suggesting that State Farm's concern over a duplicative award is not as strongly present here. Moreover, the 24 defendant's out-of-state conduct in State Farm, which was legal in the jurisdiction where it occurred, bore little relation to the plaintiff's harm. Id. at 1522-1523. Here, 25 Defendants do not assert that their alleged conduct is legal in any U.S. jurisdiction. 26 Additionally, unlike in State Farm, a legally sufficient nexus existed between 27 Defendant's allegedly widespread corporate policies and the termination of Hangarter's benefits. While the Court in State Farm noted that the conduct that 28 harmed the plaintiffs was `scant,' evidence presented in this case indicates that Defendants' challenged policies were company-wide. Id." Case 2:02-cv-02281-SMM Document 275 11 Filed 06/09/2006 Page 12 of 18
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Defendants further noted that in Planned Parenthood the Ninth Circuit (without explanation) cited Campbell as an example of a case where the particular "acts of bad faith and fraud warranted something closer to a 1 to 1 ratio," 422 F.3d at 962 (citing Campbell, 538 U.S. at 425). (See Reply at 14.) But Defendants' suggestion that the Court may disregard the Ninth Circuit's "framework" on this basis ignores not only Planned Parenthood's express articulation of the "framework," but all Ninth Circuit and Supreme Court precedent, none of which has found a punitive damages award of a single-digit ratio constitutionally excessive. Cf. Zhang, 339 F.3d at 1044 ("We are aware of no Supreme Court or Ninth Circuit case disapproving of a single-digit ratio between punitive and compensatory damages, and we decline to extend the law in this case.").9 Defendants' contention also ignores that in Campbell, the court found that State Farm's practices should not be considered in determining reprehensibility because they largely "bore no relation to third-party automobile insurance claims, the type of claim underlying the Campbells' complaint against the company." 538 U.S. at 415 (emphasis added). Here, the evidence not only concerned Defendants' handling of the exact same "type of claim" as Dr. Leavey's, it concerned Defendants' practices for a particular block of disability policies Defendants targeted for special treatment. Furthermore, the Court expressly found a nexus between these practices and what happened to Dr. Leavey. (Order at 22; see also id. at 6, 19 (explaining that "Plaintiff also offered a large amount of evidence about Defendants' claim handling practices

The Ninth Circuit post-Campbell precedent consists of the following five cases: (1) Zhang, which upheld a 7:1 ratio and noted that it is "far below the [500:1, 24 90:1, and 145:1] ratios at issue in BMW, Cooper Industries, and State Farm" 25 respectively, 339 F.3d at 1044; (2) Hangarter, which emphasized that a 2.6:1 ratio in a very similar case fell "well within" constitutional guidelines, 373 F.3d at 1015; 26 (3) Planned Parenthood, which remitted awards in excess of a 9:1 ratio to a 9:1 ratio, 27 422 F.3d at 963; (4) Bains LLC v. ARCO Products, Inc., which remitted a 100:1 ratio to between a 6:1 and 9:1 ratio, 405 F.3d 764, 778 (9th Cir. 2005); and (5) Southern 28 Union Co. v. Southwest Gas Corp., which found a 153:1 ratio excessive, 415 F.3d 1001, 1009 (9th Cir. 2005). Case 2:02-cv-02281-SMM Document 275 12 Filed 06/09/2006 Page 13 of 18

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and the history of the specific type of disability insurance covered by Defendants in this case," and that from "clear and convincing evidence" a "juror could conclude that Defendants' targeted Plaintiff's claim for closure . . . .") (emphasis added).) Consequently, the practices here bear a close "nexus to the specific harm suffered by the plaintiff." Campbell, 538 U.S. at 422. This difference not only sharply contrasts this case with Campbell, but places this case in Planned Parenthood's "greater than 4 to 1" category, i.e., a case involving significant economic damages and "egregious" conduct. 422 F.3d at 962. Defendants' suggestion that the Ninth Circuit's decision in Bains LLC v. ARCO Products Co., 405 F.3d 764 (9th Cir. 2005), supported a ratio closer to 1:1 is likewise flat wrong. (See Reply at 13-14.) Bains held that the "substantial" damages warranted a "punitive damages ceiling" of not less than six times the compensatory award and up to "nine times the compensatory award." 405 F.3d at 776 ("because the economic damages were substantial ­ $50,000. The controlling Supreme Court authority therefore implies a punitive damages ceiling in this case of, at most, $450,000 (nine times the compensatory damages).") (Emphasis added). The jury's punitive award here ­ with a 7.5:1 ratio ­ falls squarely in the middle of the range Bains held appropriate in a case involving an award it deemed "substantial."10

Although the Court correctly found the third BMW factor ­ comparable civil and criminal penalties ­ the least important, it erroneously rejected the loss of license 25 as a comparable penalty for the conduct at issue in this case. Contrary to Defendants' suggestion, State Farm did not reject loss of license as an appropriate comparable 26 penalty, but rather noted in the case before it that, unlike here, the evidence 27 supporting a loss of license was based on "dissimilar conduct" (i.e., the evidence of first party claims handling in a third-party bad faith case). Campbell, 538 U.S. at 415, 28 428; cf. Mathias, 347 F.3d at 678 ("We are sure that the defendant would prefer to pay the punitive damages assessed in this case than to lose its license."). Case 2:02-cv-02281-SMM Document 275 13 Filed 06/09/2006 Page 14 of 18
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IV.

If the Court Does Not Reinstate the Punitive Award, It May Only Reduce the Award to the Constitutional Maximum In light of the above, the Court should reinstate the jury's full punitive verdict.

Zhang, 339 F.3d at 1044 ("We are aware of no Supreme Court or Ninth Circuit case disapproving of a single-digit ratio between punitive and compensatory damages, and we decline to extend the law in this case."). Alternatively, if the Court concludes that the punitive award remains constitutionally excessive, the Court should respect the jury's determination of the appropriate level of punishment by reducing the award to the maximum amount due process considerations permit ­ the so-called "constitutional maximum." Leatherman, 285 F.3d at 1151 (emphasis added).11 As Leatherman explained, when a court determines that an award is constitutionally excessive it should "determine the constitutional maximum on the basis of the existing record," and reduce the award to that amount. Id. Indeed, Leatherman specifically noted that when a district court reduces a punitive award, it should "conduct the constitutional analysis with respect to the maximum permissible award `in the first instance.'" Id. at 1151 n.13 (emphasis added); cf. Bains, 405 F.3d at 776 (determining the "punitive damages ceiling"). In this case, the Court reduced the award to a level it considered "constitutionally sound and appropriate," which is not equivalent to the constitutional maximum. Consequently, if the Court does not reinstate the jury's punitive verdict, it should reduce the punitive award to the constitutional maximum. This amount should be no less than a 4:1 ratio, or $8 million. That amount would also comport more closely with the "relationship of [the] punitive damages award to [the] actual or potential harm to the plaintiff" that the jury found appropriate. (Doc. No. 210 (Jury

Defendants based their argument for a reduction of the punitive award 27 exclusively on constitutional excessiveness; they did not ask for a remittitur on the basis of excessiveness under state law. The Court nevertheless considered whether 28 the award was excessive as a matter of state law, but as the Court's analysis demonstrated, the jury's punitive award satisfies state-law standards. Case 2:02-cv-02281-SMM Document 275 14 Filed 06/09/2006 Page 15 of 18

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Instructions) at 8. Cf. Cooper Indus., 532 U.S. at 440 n.13 ("[w]e express no opinion on the question whether . . . de novo review would be inappropriate ­ if a State were to adopt a scheme that tied the award of punitive damages more tightly to the jury's finding of compensatory damages").12

V.

Conclusion The Ninth Circuit's observation that "no Supreme Court or Ninth Circuit"

precedent has ever "disapprov[ed] of a single-digit ratio between punitive and compensatory damages," Zhang, 339 F.3d at 1044, remains true today. Indeed, when there is reprehensible conduct, the post-Campbell Ninth Circuit precedent uniformly confirms that a reduction is appropriate only when the ratio exceeds 9:1. See, e.g., Planned Parenthood, 422 F.3d at 963 (reducing ratios as high as 5,333:1 to a 9:1 ratio and leaving all ratios less than 10:1 intact); Bains, 405 F.3d at 777-78 (reducing 100:1 ratio to between 6:1 and 9:1); Zhang, 339 F.3d at 1044 (affirming 7:1 ratio). Accordingly, the Court should reinstate the jury's punitive award. Alternatively, Plaintiff is prepared to accept a remittitur of the punitive award (and compensatory award), and forego a new trial, if the punitive damages award is reduced to an amount not less than $8 million (i.e., a 4:1 ratio). DATED this 9th day of June, 2006. Steven C. Dawson, 006674 Anita Rosenthal, 006199 DAWSON & ROSENTHAL, P.C. 6586 Highway 179, Suite B-2 Sedona, Arizona 86351

There can be no doubt that Defendants had ample notice that they could be punished in an amount of at least four times the harm they caused to an insured and 25 had notice that they could be punished in an amount far greater than $3 million. Consequently, their due process rights will not be violated by a significantly larger 26 punitive award. See BMW, 517 U.S. at 574 (explaining the underlying rationale for 27 the BMW factors as a method for determining whether a defendant's due process rights are implicated by a punitive award in terms of whether the defendant received 28 "fair notice not only of the conduct that will subject him to punishment, but also of the severity of the penalty that a State may impose") (emphasis added). Case 2:02-cv-02281-SMM Document 275 15 Filed 06/09/2006 Page 16 of 18
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Gregg H. Temple, 009866 GREGG H. TEMPLE, P.C. 4835 East Cactus Road, Suite 225 Scottsdale, Arizona 85254-4196 OSBORN MALEDON, P.A. By s/Thomas L. Hudson Thomas L. Hudson Danielle D. Janitch 2929 North Central Avenue, Suite 2100 Phoenix, Arizona 85012-2794 Attorneys for Plaintiff

Document 275 16 Filed 06/09/2006

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I hereby certify that on June 9th, 2006, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Stephen M. Bressler Ann-Martha Andrews Scott Michael Bennett Dawn M. Bergin Lewis and Roca, LLP 40 North Central Avenue Phoenix, Arizona 85004-4429 [email protected] [email protected] [email protected] [email protected] Attorneys for Defendants s/Brenda Wendt
1276368

Case 2:02-cv-02281-SMM

Document 275 17 Filed 06/09/2006

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