Free Memorandum - District Court of Arizona - Arizona

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40 North Central Avenue Phoenix, Arizona 85004-4429 Facsimile (602) 262-5747 Telephone (602) 262-5311 Stephen M. Bressler (State Bar No. 009032) [email protected] Ann-Martha Andrews (State Bar No. 012616) [email protected] Scott M. Bennett (State Bar No. 022350) [email protected] Attorneys for Defendants UnumProvident Corporation and Provident Life and Accident Insurance Company

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA ) ) ) Plaintiff, ) ) vs. ) UNUMProvident Corporation and Provident ) ) Life and Accident Insurance Company, ) ) Defendants. ) ) No. CIV-02-2281-PHX-SMM MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF RENEWED MOTION FOR JUDGMENT AS A MATTER OF LAW OR, IN THE ALTERNATIVE, MOTION FOR A NEW TRIAL AND/OR REMITTITUR

8 Brett D. Leavey, 9 10 11 12 13 14 15

Defendants submit this memorandum in support of their motions under Fed. R.

16 Civ. P. 50(b), 50(c)(1), and 59(a), pursuant to the Court's order of October 21, 2005. 17 18 19 1. 20 MEMORANDUM OF POINTS AND AUTHORITIES Rule 50(b) Motion For Judgment As A Matter Of Law. This Court expressed the view that Leavey's case for punitive damages under

21 Arizona law was "thin" (Trial Transcript 14391), but ultimately appeared to conclude that 22 considerations of judicial economy warranted submitting the issue to the jury and then 23 addressing defendants' motion for JMOL after full briefing. (Tr. 1970-71) Nothing has 24 changed since the Court last expressed skepticism about whether punitive damages are 25 supportable. The time has now come to overturn the punitive component of the verdict. 2 26 Copies of all cited pages of the transcript are attached as Exhibit A. Defendants also renew, but do not here re-brief, their contention that the evidence was 27 insufficient to support the jury's finding of bad faith. We instead rest on the arguments 28 already presented to the Court. (See Tr. 1420-22, 1945-47)
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This Court is required to grant JMOL if it concludes that "a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue." McSherry v. City of Long Beach, 423 F.3d 1015, 1019 (9th Cir. 2005). Application of this standard requires consideration of both the state-law standard of liability and the applicable standard of proof. Anderson v. Liberty Lobby, 477 U.S. 242, 252-53 (1986). As we explain below, the Court's intuition that the evidence was insufficient to support a finding of punitive liability was correct. Leavey came nowhere close to adducing clear and convincing evidence that, in sending him a letter admonishing that his benefits would be terminated in six months, and offering to pay for treatment that was consistent with his own initial doctors' recommendations, defendants acted with the "evil mind" required to justify punitive damages. A. Punitive damages are available only in exceptional cases of quasicriminal conduct.

The Arizona Supreme Court has made clear that "the extraordinary civil remedy of punitive damages" should be "restricted to only the most egregious of wrongs." Linthicum v. Nationwide Life Ins. Co., 723 P.2d 675, 680 (Ariz. 1986). Thus, to be eligible for punitive damages, a plaintiff must prove "something more than the conduct required to establish the [underlying] tort." In an insurance bad-faith case, that means that the insured must also prove that the insurer engaged in "aggravated and outrageous conduct" and that it did so with an "evil mind" (id. at 680-81)--a mental state that "involves some element of outrage similar to that usually found in crime." Gurule v. Illinois Mut. Life & Cas. Co., 734 P.2d 85, 86 (Ariz. 1987) (quotation marks omitted). Thus, "[i]t is only when the wrongdoer should be consciously aware of the evil of his actions, of the spitefulness of his motives or that his conduct is so outrageous, oppressive or intolerable in that it creates a substantial risk of tremendous harm to others that the evil mind required for the imposition of punitive damages may be found." Linthicum, 723 P.2d at 679. What is more, it is not enough for the insured to make that showing by a
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preponderance of the evidence. Rather, punitive damages are awardable "only upon clear and convincing evidence of the defendant's evil mind." Id. at 681. "[C]lear and convincing evidence is evidence that makes the existence of issue propounded `highly probable.' " State v. King, 763 P.2d 239, 244 (Ariz. 1988). Consistent with these strict standards, Arizona courts have often reversed punitive awards imposed against insurers, even while affirming findings of bad faith. A good example is Linthicum itself. There, the defendant health insurer had denied coverage for Mr. Linthicum's cancer, asserting that it was a pre-existing condition even though his doctors had not previously diagnosed it. The Arizona Supreme Court held that punitive damages were not appropriate, despite a litany of wrongful acts by the insurer: "sending a denial of claim letter only to [the insured's employer] and not to [the insured]; not disclosing the medical basis for the denial; investigating all dependent claims filed in the first year of coverage for potential denial;" denying the claim without first seeking information from the insured's healthcare providers; "strictly construing its policy against the insured; conducting only fake reviews of the claim denial after a newspaper inquiry;" and "refusing to provide [the insured] with a copy of the policy." 723 P.2d at 681-82. Moreover, the Linthicum Court concluded that the insurer knew that denial of the claim could cause paralysis resulting from treatment delays because of unpaid medical bills. Id. at 682. Despite all of this evidence, the Court held that the insurer's "tough claims policy" was not so outrageous as to justify punitive damages. Id. Similarly, in Gurule, 734 P.2d 85, the Arizona Supreme Court affirmed a bad faith award, but reversed an award of punitive damages because the insurer "did not ignore `overwhelming' medical evidence when it denied Gurule's claim." Id. at 92. And in Filasky v. Preferred Risk Mutual Insurance Co., 734 P.2d 76 (Ariz. 1987), the Court concluded that bad-faith delays in claim settlement did not warrant punitive damages even though the delays "resulted from [the insurer] taking a groundless position." Id. at 82-84. Even though each of these insurers acted unreasonably and in bad faith, the Court
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concluded that their conduct did not meet the much higher standard for punitive damages: quasi-criminal behavior reflecting an "evil mind." B. Leavey failed to produce clear and convincing evidence of the "evil mind" necessary for an award of punitive damages.

Leavey's theory of punitive liability was that defendants either (1) intended to injure him or (2) acted to serve their own interests, having reason to know but consciously disregarding a risk of significant injury to him. (Tr. 2050-51 (closing arguments)) But even viewing it in the light most favorable to Leavey, the evidence does not demonstrate either state of mind, let alone clearly and convincingly. 1. The evidence relating to the handling of Leavey's claim falls far short of establishing that defendants acted with an "evil mind."

The key evidence was the December 4, 2001 letter from Jennifer Conrad to Leavey. This letter informed Leavey that he no longer qualified for benefits and that defendants were paying six months of benefits in advance. It provided treatment recommendations, based on the conclusions of the IME physicians, that would allow him to return to work in six months. The letter also told Leavey that defendants would pay for him to obtain the recommended treatment. The letter does not show an intent to injure Leavey or a disregard of a substantial risk of injury to him. It expresses concern about Leavey's need for appropriate care. Her concern was valid. Leavey had not participated in the abstinence-based treatment plan established by Chandler Valley Hope and the Arizona Dental Board. Leavey dropped out of this treatment. Then, on his own (and against his doctors' wishes), he enrolled in a methadone clinic. When challenged by his psychiatrist, he changed doctors (to Dr. John Curtin and also Dr. Eugene Almer). He did not immediately disclose his methadone use to these doctors. Provident Life asked psychologist Dr. Kimberly Obitz and psychiatrist Dr. Cynthia Stonnington to examine Leavey. They concluded that Leavey was getting only supportive therapy that was reinforcing the status quo. They did not feel that this kind of
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treatment was appropriate for the condition causing the disability. They recommended: (1) a strong relapse-prevention program (i.e., a return to what Chandler Valley and the Dental Board had previously prescribed); and (2) cognitive behavioral therapy. They felt that Leavey needed this treatment to get better, not just to return to dentistry. Conrad recognized that Leavey would not likely pursue this treatment if left to his own devices. So she tried to encourage him by advancing six months of benefits and offering to pay for the treatment. If he recovered, he might be able to return to work. And that would benefit both Leavey and defendants: Leavey would return to dentistry, and defendants would no longer have to pay monthly benefits. During trial, Leavey argued that Provident Life could not dictate treatment. That is true. But even if Conrad's letter is interpreted as an inappropriate attempt to dictate treatment, the desire to get Leavey back to work (when based on a reasonable belief that he could return to work with proper treatment) is hardly evidence of an "evil mind." Viewed in a light most favorable to Leavey, the letter may have been an inappropriate means, but the goal of returning Leavey to work was not "evil." Furthermore, Leavey's expert witness, Mary Fuller, conceded that it is appropriate for an insurance company to offer to help an insured return to work. (Tr. 589) And being offered treatment--paid for by the defendants--simply is not an "injury." In Arizona, conduct must contribute to the plaintiff's injury to serve as the basis for punitive damages. Saucedo v. Salvation Army, 24 P.3d 1274, 1278 (Ariz. Ct. App. 2001). See also subsection 1.B.3, infra. Leavey will likely respond that defendants' alleged overreaching in Conrad's letter was transformed into quasi-criminal conduct because of Leavey's allegedly fragile psychological state. But there is no evidence that defendants knew of his allegedly fragile state when Conrad sent the letter. As of December 4, 2001, defendants knew that Leavey was sober and had not used methadone since June 2001. The medical records showed that his depression was in remission and was being controlled through medication. And Leavey himself reported that he had not suffered from anxiety since he left dentistry. Indeed, he had recently completed a two-year MBA program, graduating
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the previous summer with a 3.9 grade-point average. Although Leavey's counsel implied that Leavey was suicidal as of December 2001, the claim file does not support this assessment. A May 21, 1998 note from Samaritan Behavioral Center states that Leavey denied any suicidal ideation or plans. (Ex. B, Claim File, at PLACL00199) On November 5, 1998, a Valley Hope counselor interviewed Leavey and noted that "he has no intent, plan, or ideation to harm himself or anyone else at this time." (Id. at PLACL00243-40) One week later, Dr. Mary Desch noted in her records that Leavey "had passive thoughts of death but no suicidal ideation." (Id. at PLACL00305-303) And on August 16, 1999, the psychiatrist who examined Leavey for another insurance company, Dr. Garrett O'Connor, noted that Leavey "denied suicidal ideation." (Id. at PLACL00566-58) Leavey did profess suicidal feelings to defendants' field examiner in March 2001, but even then he said only that he had been suicidal two years earlier while practicing dentistry, not currently. (Id. at PLACL00885) Because defendants had no reason to think that Leavey was suicidal at the time Conrad sent the December 4 letter, his alleged suicidal state has no bearing on whether defendants' conduct evinced an "evil mind." 2. Leavey's side show about defendants' supposed institutional practices cannot support a finding that defendants acted with an "evil mind" in handling his claim.

Because the evidence relating to defendants' handling of his claim does not support a finding of the requisite "evil mind," Leavey attempted to buttress his case with high-level, executive documents showing that defendants tracked claims metrics. He argued that defendants set goals and put pressure on the claims staff to meet those goals. Putting aside that Leavey takes those documents out of context, there is a disconnect between that evidence and the claim handling in this case. The claims personnel who actually handled Leavey's claim were Jennifer Conrad (the customer care specialist) and Jeff Johnson (the consultant). Neither Conrad nor Johnson was included in the distribution of these memos. Neither of them was aware of the metrics or the

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discussions concerning the metrics. (Tr. 713-16, 761-62) And they both testified that they were never pressured, and felt no pressure, to close claims. (Tr. 713, 761) This was consistent with Mary Fuller's testimony. Fuller stated that, although she did see those documents during her time working for the defendants, she never intentionally pressured the people who worked for her to close legitimate claims. (Tr. 504) Leavey also introduced, through Fuller, a range of other allegations about improper claim-handling practices at the defendant companies. But he did not--and could not--show that those supposed practices impacted his claim in any way. In similar circumstances, the Supreme Court has made clear that the Due Process Clause prohibits awards of punitive damages based on untethered allegations of corporate malfeasance. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 418 (2003). As the Court put it, "[a] defendant should be punished for the conduct that harmed the plaintiff, not for being an unsavory individual or business." Id. at 423; see also Saucedo, 24 P.3d at 1279 ("the conduct giving rise to punitive damages" must cause the injury). In short, because there was no evidence that any of the allegedly improper practices affected Conrad's or Johnson's handling of Leavey's claim, Fuller's discussion of those practices (which no doubt had the intended effect of unfairly prejudicing the jury against defendants) cannot support the finding of punitive liability. 3. Defendants' alleged attempts to conceal their actions at trial did not cause Leavey any harm.

Leavey also sought punitive damages on the ground that Provident Life's employees (Jennifer Conrad, Jeff Johnson, and Greg Breter) allegedly lied in their depositions about whether they closed his claim in December 2001. (Tr. 2030-39) The evidence does not clearly and convincingly establish that any of the witnesses lied. All three witnesses unwaveringly testified, consistent with the claim file documentation, that Leavey's claim was always being actively managed. (Tr. 655, 730, 736, 739, 740, 166667) At trial, they acknowledged that in their depositions they had been mistaken as to the status of Leavey's claim on the PACE system.
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3

Conrad, who would have actually done the PACE coding, simply did not recall doing it. (Tr. at 743) Johnson and Breter testified that they had checked PACE before their depositions and, based upon the absence of a date in the "latest reopen date" field, had concluded that the claim had never been closed. (Tr. at 675, 1653) They later discovered that they were wrong: that field does not automatically populate, and it is only manually populated when a monthly payment is skipped, which did not happen in Leavey's case. (Tr. at 1652-55; Ex. C, Pace Mini-Manual 001713) But the Court need not delve into this factual question because, even if Leavey were correct that the witnesses lied in an attempt to cast their handling of his claim in a more favorable light, that kind of litigation misconduct could not be the basis for punitive damages because it did not harm Leavey. Under Arizona law, conduct that did not injure the plaintiff may not be invoked to support the imposition of punitive damages. See Saucedo, 24 P.3d at 1278-79. In Saucedo, a Salvation Army truck driver struck and killed a pedestrian, who died instantly. The employee sped away from the scene, but was eventually caught by police. The pedestrian's family filed a lawsuit against the Salvation Army, and obtained a punitive award based on the employee's flight from the scene. The Court of Appeals vacated the award because the employee's attempt to avoid liability after the accident did not contribute to the pedestrian's injury. The court held that punitive damages are appropriate only "when the conduct giving rise to punitive damages contributes to, or is a cause of, the injury." Id. at 1279. In other words, "[t]he requisite intent and outrageous and egregious conduct [(the "evil mind")] must occur in tandem with the conduct giving rise to the injury in order to recover punitive damages." Id. at 1278. Here, even if defendants' witnesses lied in their depositions in an attempt to avoid liability, that post hac conduct did not occur "in tandem with the conduct giving rise to

Leavey tried to establish, through Mary Fuller, that the PACE system should have showed a reopen date, but Fuller admittedly never worked with PACE (Tr. 477), and her testimony is contradicted by Ex. C.
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[Leavey's] injury." Any harm to Leavey was the result of the December 4, 2001 letter. The depositions were taken nearly two years later--well after Leavey learned, in June 2002, that he would continue receiving monthly benefit checks. These allegedly false statements did not give rise to the harm alleged by Leavey and therefore cannot be the basis for an award of punitive damages. C. Conclusion.

This Court should grant defendants JMOL, under Fed. R. Civ. P. 50(b), on the issues of bad faith and punitive damages. The Court should also order a conditional new trial under Fed. R. Civ. P. 50(c)(1), which allows the Court to order a new trial that will take place only if an appellate court vacates or reverses this Court's grant of JMOL.

2.

Rule 59(a) Motion For A New Trial And/Or Remittitur. An unconditional new trial or a remittitur is warranted for multiple reasons. First,

even if the Court concludes that there was sufficient evidence to support the jury's findings of liability for bad faith and punitive damages, those findings surely are against the great weight of the evidence. Second, the $4 million award for emotional distress bears no relation to Leavey's actual injury--anxiety about his finances--and is five times Leavey's own, already-exorbitant, estimation of his distress. Third, the $15 million punitive award is unconstitutionally excessive in light of the truly modest degree of reprehensibility of defendants' conduct, the excessively generous compensatory award, and the disproportionality of the punitive award to the legislatively established penalty for similar conduct. Fourth, when the excessiveness of the damages is considered together with the inflammatory nature of Leavey's "bad company" evidence, the conclusion is manifest that the verdicts were the product of passion and prejudice. Finally, even if the Court does not conclude that the jury was animated by passion and prejudice, it remains within the Court's discretion to award a new trial in the interests of justice.

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A.

The Jury's Findings Of Liability For Bad Faith And Punitive Damages Are Against The Great Weight Of The Evidence.

Under Rule 59, "the district judge ha[s] the right, and indeed the duty, to weigh the evidence as he saw it, and to set aside the verdict of the jury, even though supported by substantial evidence, where, in his conscientious opinion, the verdict is contrary to the clear weight of the evidence." Murphy v. City of Long Beach, 914 F.2d 183, 187 (9th Cir. 1990). "[T]he court is entitled to interpret the evidence and judge the credibility of witnesses for itself" (Simco v. Ellis, 303 F.3d 929, 932 (8th Cir. 2002) (quotation marks omitted)) and, "need not view [the evidence] in the light most favorable to the verdict winner" (Song v. Ives Labs., Inc., 957 F.2d 1041, 1047 (2d Cir. 1992)). For the reasons explained above (and in our prior arguments on bad faith), the jury's findings of liability for bad faith and punitive damages are against the great weight of the evidence. Accordingly, at minimum, the Court should order a new trial on both. B. The $4 Million Award For Leavey's Emotional Distress Shocks The Conscience And Is So Grossly Excessive As To Violate Due Process.

Under Arizona law, a jury's award of damages must be set aside if it is so unreasonable that it shocks the conscience of the court. Sheppard v. Crow-Barker Paul No. 1 Ltd. P'ship, 968 P.2d 612, 622 (Ariz. Ct. App. 1998). The award here certainly satisfies that standard. An award of $4 million might be appropriate as compensation for an excruciating death or lifelong debilitation with chronic pain, but is manifestly shocking as compensation for a few months of worrying about future finances (an experience that most Americans have at some time in their lives). That conclusion should be all the more evident from the fact that the jury awarded five times the already inflated and arbitrary amount suggested by Leavey's counsel. (See Tr. 2049 (suggesting that jury use the present value of the future policy benefits, i.e., $809, 028, as the measure of Leavey's emotional harm)) Indeed, the $4 million award is so arbitrary and so far from having support in the record as to constitute a deprivation of due process. See Paul DeCamp, Beyond State Farm: Due Process Constraints on Noneconomic Compensatory
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Damages, 27 HARV. J. L. & PUB. POL'Y 231, 294-96 (2003); Robert E. Riggs, Constitutionalizing Punitive Damages: The Limits of Due Process, 52 OHIO ST. L.J. 859, 907-08 (1991) (arguing that non-economic and punitive damages "cannot be analytically distinguished"). 1. The Only Compensable Emotional Suffering In This Case Was Leavey's Temporary Concern About His Finances.

The only emotional reaction attributable to defendants' handling of Leavey's claim was his concern about his finances (Tr. 1122-23) and, perhaps, the inconvenience of changing apartments (Tr. 1124). But Leavey could not have been too concerned about his financial needs: Rather than attempting to get his benefits reinstated before he missed any payments (by promptly responding to defendants' request for further information upon receipt of the December 4, 2001, letter), he elected to file a lawsuit--a choice that pushed any potential recovery far into the future. (Tr. 1223) In any event, Leavey's concern about his future finances ended on June 10, 2002, when he received the letter from Jeff Johnson indicating that Provident would keep paying benefits as it always had. Leavey testified that the letter was "good news" because he knew that he would continue to receive benefits, though he expressed some residual concern about the future. (Tr. 1128-29) There is no evidentiary basis for concluding, however, that such residual concerns were significant enough to warrant any amount of damages for emotional distress, much less $4 million. Indeed, the undisputed evidence is that Leavey was informed by one of his attorneys, on June 30, 2002, that "[i]t would appear that [Provident] will begin sending you the monthly disability payments without any strings attached" (Tr. 1240-41) and that Leavey did indeed continue to receive monthly benefit payments as they came due (Tr. 1240-41). Moreover, the jury's award of future benefits effectively eliminates any future concerns that Leavey could have. Thus, the vast majority of Leavey's alleged damages occurred during the 218 days between December 4, 2001 (the date of the letter from Conrad), and June 10, 2002 (the date of the letter telling Leavey that he would continue to receive monthly benefits). That
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means that the jury valued Leavey's concern about his future finances at approximately $18,000 per day (more than all but the wealthiest of Americans earn in a month). 2. The Evidence Does Not Show That Defendants' Letter Caused Leavey To Suffer Any Other Emotional Damage.

There is no evidence in this case that Leavey was forced to seek counseling or medical treatment because of defendants' handling of his claim (over and above the counseling and treatment he already was seeking for his underlying medical problems). After Leavey received the December 4, 2001, letter from Conrad, he saw Dr. Almer on December 18. (Tr. 1234) Even though Leavey generally discussed with Dr. Almer whatever was bothering him at the time (Tr. 1226-1227), Dr. Almer's records from that visit state that Leavey was less depressed than he had been and say nothing about Leavey's belief that defendants had discontinued benefits (Tr. 1234). When confronted with this evidence, Leavey backpedaled and claimed that he had not yet received the letter when he saw Dr. Almer. (Tr. 1234-35) Although Dr. Curtin testified that Leavey was "devastated and confused" when he saw Leavey on December 20, 2001 (two days after his visit with Dr. Almer), this was not extraordinary suffering that warrants hundreds of thousands (much less millions) of dollars in compensation. It was simply the normal disappointment and uncertainty that would be expected from anyone in Leavey's position. Indeed, on a report that he filled out during that visit, Dr. Curtin said that Leavey was "[s]till stable patient. Sees Dr. Almer once a month." (Tr. 572-73) Dr. Curtin did not prescribe additional medication, suggest additional treatment sessions, or take any steps at all to treat these everyday emotional reactions. Instead, he recommended that Leavey consult a lawyer. (Tr. 54647) And Dr. Curtin's billing records show that he subsequently saw Leavey only two times between mid-December 2001 and June 2002 (Tr. 545)--hardly what one would expect for a patient suffering from the kind of severe emotional distress warranting a six or seven-figure award. Since then, Leavey has apparently seen Drs. Almer and Curtin monthly, no more frequently than before he received Conrad's letter. (Tr. 1223, 1225)
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3.

Leavey Is Not Entitled To Compensation For Either His SelfInflicted Hand Injury Or His Baseline Stress Level.

At trial, Leavey testified that he intentionally injured his hand in a weight machine so that he could obtain narcotics (Tr. 1125)--although, at his July 2003 deposition, he denied having relapsed after December 2001 (Tr. 1119, 1216). Leavey's counsel implied that defendants were responsible for Leavey's decision to break his own hand. But Leavey never made that allegation. Instead, Leavey testified simply that he got the idea when he was packing in preparation for changing apartments. (Tr. 1125) Moreover, Dr. Curtin testified that "[r]elapse is almost--considered by some experts as part of the--of the disease of addiction. . . . [T]he majority of people who are chemically dependent do have some history of relapse." (Tr. 535) Dr. Curtin also testified that Leavey had a number of relapses both before he received the December 4 letter and well after defendants assured him in June of 2002 that he would continue to receive benefits. (Tr. 563, 1214-15) In sum, counsel's suggestion that Conrad's letter was the proximate cause of Leavey's decision to injure his own hand is baseless. Similarly, Leavey cannot salvage his outsized emotional-distress award by pointing to Dr. Curtin's testimony that, as a general matter, Leavey "is very depressed and very anxious" (Tr. 543). No evidence showed that Leavey's depression or anxiety worsened after he received the December 4 letter. In fact, Dr. Curtin testified that Leavey's depression was stable throughout his treatment. (Tr. 560) Accordingly, whatever depression or stress Leavey suffered between December and June was not caused by defendants and hence does not support the emotional-distress award. 4. The $4 Million Award In This Case Is Out Of All Proportion With Awards In Other Arizona Bad Faith Cases.

In determining whether an emotional distress award is excessive, courts frequently compare it to awards in cases involving similar evidence of distress. See, e.g., Schimizzi v. Illinois Farmers Ins. Co., 928 F. Supp. 760, 777-81 (N.D. Ind. 1996). Here, that exercise confirms that the $4 million award is grossly excessive.
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4

As far as we are aware, the highest emotional-distress award ever permitted in a reported Arizona bad-faith case was $100,000. Filasky, 734 P.2d at 82-83. The largest emotional-distress award ever upheld by the Ninth Circuit in a reported bad-faith case was $200,000. Pershing Park Villas Homeowners Ass'n v. United Pac. Ins. Co., 219 F.3d 895 (9th Cir. 2000). And the largest such award ever approved by any appellate court in a reported decision is only $600,000. Campbell v. State Farm Mut. Auto. Ins. Co., 65 P.3d 1134, 1166 (Utah 2001), rev'd on other grounds, 538 U.S. 408 (2003).4 This case is very similar to (but nonetheless involves less severe harm than) Filasky, in which the Arizona Supreme Court upheld an award of $100,000 to an insured who was unable to make house payments and suffered "frustration, inconvenience, and humiliation" because of the defendant's bad faith. 734 P.2d at 83. Here, Leavey concluded that he needed to change apartments (without ever trying to persuade defendants to reverse their decision), but that is manifestly less demoralizing than confronting the risk of having one's home mortgage foreclosed upon. And Leavey's emotional distress also is materially less severe than that suffered by the plaintiffs in Pershing Park, who went bankrupt due to the defendant's bad-faith conduct and suffered "[a] variety of emotional symptoms, including major depression" (219 F.3d at 904) , or the anxiety experienced by the insured in Campbell, who suffered "severe emotional distress"--including the fear of financial ruin, loss of his home, and loss of his retirement savings--and proved that he was "particularly vulnerable to the stress created by State Farm's actions" (65 P.3d at 1166). See also Schimizzi, 928 F. Supp. at 776-77 (concluding in a case involving the bad-faith denial of medical benefits under an automobile policy that $100,000 award for emotional distress was "monstrously excessive," and ordering remittitur to $25,000, for a plaintiff who suffered "mental and emotional upheaval, . . . anxiety, extreme frustration, stress, and anger").

In Campbell, the jury awarded the insured $1.4 million and his wife $1.2 million. The trial court ordered a remittitur of the awards to $600,000 and $400,000 respectively. 65 P.3d at 1143 nn.4-5.
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C.

The $15 Million Punitive Award Is Unsustainably Excessive. 1. The Punitive Award Is Grossly Excessive And Therefore Violates Defendants' Due-Process Rights.

Even if this Court concludes that some amount of punitive damages is permissible in this case, it still must conduct a de novo review of the amount of the award. In conducting that review, this Court must consider: (1) the degree of reprehensibility of defendants' conduct, (2) the ratio between punitive and compensatory damages, and (3) the legislatively established penalties for similar conduct. Campbell, 538 U.S. at 418. Application of these criteria compels the conclusion that the $14 million punitive award is unconstitutionally excessive. First, defendants' conduct is on the far low end of the spectrum of punishable conduct (assuming that it is on the spectrum at all). Second, even if dramatically reduced, the compensatory damages would remain substantial and would in themselves have a significant deterrent effect. Third, the $14 million exaction is orders of magnitude higher than the legislatively established penalties for bad-faith claim handling. In light of these considerations, any award exceeding the amount of compensatory damages would be unconstitutionally excessive--even if the Court orders a remittitur of the emotional distress damages to within the range of $25,000 to $100,000. Indeed, because the emotional distress award duplicates the punitive award, if this Court upholds all or a substantial portion of the emotional distress award, even a 1:1 ratio of punitive to compensatory damages would be unconstitutionally excessive. a. Reprehensibility

When analyzing the degree of reprehensibility of defendants' conduct, the Court should consider the following five factors: whether "the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident." Campbell, 538 U.S. at 419. These factors confirm that defendants' handling of Leavey's
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claim does not entail "the high degree of culpability that warrants a substantial punitive damages award." BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 580 (1996). Whether "the harm . . . was physical as opposed to economic[.]" Although Leavey contends that he experienced stress and other physical symptoms, these were only the normal emotional reactions collateral to an underlying contract dispute. In Campbell, also an insurance case, even though the plaintiffs had experienced emotional distress, the Supreme Court held that "[t]he harm arose from a transaction in the economic realm, not from some physical assault or trauma" and, for purposes of the reprehensibility analysis, "there were no physical injuries." 538 U.S. at 426. The same holds true here. Whether "the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others[.]" For similar reasons, it cannot be said that defendants' conduct displayed an indifference or reckless disregard for the health and safety of others. In any event, far from recklessly disregarding Leavey's health, defendants' goal was for him to recover and return to work. Indeed, Leavey's theory of this case was that defendants were too aggressive in advocating for treatment that they thought was in Leavey's best interest (as well as theirs). Whether "the target of the conduct had financial vulnerability[.]" Arguably, Leavey was financially vulnerable. But the important inquiry for purposes of this factor is whether defendants intentionally targeted his claim for closure because of that vulnerability. See BMW, 517 U.S. at 576. The mere happenstance that a plaintiff is financially vulnerable is insufficient for treating the conduct that injured that person as more reprehensible. Hence, the cases that have treated financial vulnerability as a material aggravating factor tend to be ones in which the defendant knowingly and deliberately took advantage of the plaintiff's vulnerability. See, e.g., Neibel v. Trans World Assurance Co., 108 F.3d 1123, 1126, 1132 (9th Cir. 1997) (finding scheme to prey on "Joe Lunch Buckets" sufficiently reprehensible to justify a $500,000 punitive award); Life Ins. Co. of Ga. v. Johnson, 701 So. 2d 524, 526-29 (Ala. 1997) (holding $3 million punitive award constitutional where defendant engaged in a pattern of selling worthless
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Medicare supplement policies to "elderly, uneducated, single black women"). In any event, the mere fact that Leavey could be considered to be financially vulnerable in no way distinguishes him from the plaintiffs in Campbell--a case in which the Supreme Court indicated that a punishment equal to compensatory damages was likely the constitutional maximum. See 538 U.S. at 429. Whether "the conduct involved repeated actions or was an isolated incident[.]" Although Leavey relied heavily on evidence of alleged institutional misconduct, he did not identify even a single prior claim involving conduct that resembled his allegations here.5 Specifically, he did not identify another instance in which defendants allegedly tried to dictate an insured's treatment by telling the insured that benefits would stop at some future date. Thus, none of the institutional evidence establishes that defendants have repeatedly engaged in the misconduct alleged by Leavey. Whether "the harm was the result of intentional malice, trickery, or deceit, or mere accident." Although defendants' handling of Leavey's claim was not an "accident," neither did it involve malice toward Leavey or an attempt to trick or deceive him. Indeed, Leavey's theory of the case is that the December 4, 2001, letter explicitly denied his claim. If the defendants broadcasted their intent in the letter, then Leavey cannot accuse them of acting covertly or trying to deceive him. And, as noted above, defendants' goal was to obtain the mutually beneficial outcome of returning Leavey to work, not to harm him. In sum, at most, only one of the five reprehensibility factors (financial vulnerability) is present here. As the Supreme Court noted in Campbell, "[t]he existence of any one of these factors weighing in favor of a plaintiff may not be sufficient to sustain a punitive damages award; and the absence of all of them renders any award suspect." 538 U.S. at 419. Hence, under Campbell, the reprehensibility guidepost points
5

Leavey did attempt to introduce evidence relating to other insureds' claims, but the Court correctly excluded that evidence because of the danger of unfair prejudice and the lack of similarity to Leavey's claim. (See Order dated June 3, 2005, at 3)
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unmistakably in the direction of a holding that the $14 million punitive award is unconstitutionally excessive. Moreover, it is undisputed that defendants acted promptly to remedy any harm to Leavey. The Ninth Circuit has held that "[r]eprehensibility should be discounted if defendants act promptly and comprehensively to ameliorate any harm they cause in order to encourage such socially beneficial behavior." In re Exxon Valdez, 270 F.3d 1215, 1242-43 (9th Cir. 2001). Here, even if defendants had improperly closed Leavey's claim in December of 2001, they soon remedied any harm by assuring Leavey, in June 2002, that he would continue to receive benefits every month. And defendants have continued to pay Leavey's monthly benefits since then. Finally, two recent Ninth Circuit cases illustrate the relative lack of reprehensibility here. The court considered a punitive-damages award against defendants who made "true threats of violence" against physicians who performed abortions in Planned Parenthood of Columbia/Willamette Inc. v. American Coalition of Life Activists, 422 F.3d 949. 959 (9th Cir. 2005). The jury awarded a total of $526,336.14 in compensatory damages to five plaintiffs and exacted a total of $108.5 million in punitive damages from multiple defendants. The Ninth Circuit found that the defendants' conduct was "particularly reprehensible." Nevertheless, observing that "[m]ost of the compensatory awards are substantial," it enforced a 9:1 ratio limit, resulting in a total punitive award of $4,737,025.26. Id. at 963. In Bains LLC v. Arco Products Co., 405 F.3d 764 (9th Cir. 2005), the defendant's employees engaged in repeated and severe racial discrimination against the plaintiff corporation (whose owners and employees were Sikhs). The jury awarded the plaintiff $50,000 in compensatory damages and $5 million in punitive damages. Although the Ninth Circuit found three of the five reprehensibility factors to be present and concluded that the conduct was "highly reprehensible," it ordered that the punitive damages be reduced to no more than $450,000 (a 9:1 ratio). Id. at 777. The reprehensibility of the conduct at issue in Planned Parenthood and Bains
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dwarfs that of the defendants here. But in both of those cases, the Ninth Circuit held that due process limited the plaintiffs to a much smaller punitive award than Leavey received. It would do violence to the bedrock principle of justice that the punishment should fit the crime if $4.7 million is the most that can be allowed to punish death threats (by multiple defendants against five plaintiffs) and $450,000 is the most that can be allowed for severe and repeated racial harassment, but over-aggressive attempts to motivate an insured to seek medical care can justify $15 million (or anything near that amount). b. Ratio.

In a string of cases beginning with BMW, the Supreme Court has suggested that the permissible ratio between compensatory and punitive damages is a function of two variables: The larger the compensatory damages, the smaller the ratio must be; and the more reprehensible the defendants' conduct, the higher the ratio can be. More specifically, in Campbell, the Court held that, "in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process." 538 U.S. at 425. The Court also pointed to the 700-year history of legislative imposition of double (1:1), treble (2:1), and quadruple (3:1) damages as the hallmark of reasonable punishment, and reiterated its previous observation that in most cases an award of four times the amount of compensatory damages "might be close to the line of constitutional impropriety." Id. Finally, the Court observed that, "when compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee." Id. at 410. Although deeming it inapplicable to the case before it, the Ninth Circuit emphasized the latter limitation in Bains, explaining that "State Farm emphasizes and supplements the BMW limitation by holding that when compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee." 405 F.3d at 776 (quotation marks and alterations omitted). Here, Leavey received $809,028 in future benefits. Thus, even if this Court orders
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a remittitur of the emotional-distress damages to a five-figure amount, as the evidence requires, the compensatory damages would remain quite "substantial," and a ratio of 1:1 would therefore "reach the outermost limit of the due process guarantee"--especially in view of the absence of evidence of significant reprehensibility. On the other hand, if the Court allows the $4 million emotional distress award (or a significant portion of it) to stand, then even a 1:1 ratio would be too high. As the Supreme Court has recognized, high awards of non-economic damages already largely serve the purposes of punitive damages. In Campbell, the jury awarded the two plaintiffs $2.6 million for the emotional distress that they experienced over an 18-month period, a figure that the trial court reduced to $1 million. The Supreme Court warned that, when a jury awards emotional-distress damages, courts must beware of duplicate recovery under the guise of punitive damages: The compensatory damages for the injury suffered here, moreover, likely were based on a component which was duplicated in the punitive award. Much of the distress was caused by the outrage and humiliation the Campbells suffered at the actions of their insurer; and it is a major role of punitive damages to condemn such conduct. Compensatory damages, however, already contain this punitive element. 538 U.S. at 426. Accordingly, if the Court allows Leavey to retain the $4 million emotional distress award (or anything close to it), even a 1:1 ratio would be excessive as it would constitute double punishment. c. Legislatively established penalties for comparable conduct.

Comparable civil penalties "provide[] . . . another measure that restrains the permissible amount [of punitive damages]." Bains, 405 F.3d at 777. The relevant benchmarks in the present case are the penalty provisions of the Arizona insurance laws: $1,000 for unintentional violations and $5,000 for intentional violations. A.R.S. §§ 20220, 20-456. Even assuming for the sake of argument that, in handling Leavey's claim, defendants committed an intentional violation of Arizona law, the maximum penalty for that violation would be $5,000. The punitive award is 3,000 times that amount--still
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another indication of its gross excessiveness. 2. Defendants have been punished multiple times for the same alleged conduct in violation of the Due Process Clause.

Leavey's counsel stated in his closing argument that this jury was the first to hear all of the evidence of institutional conduct that he had presented--implying that the defendants had attempted to conceal evidence in the past and that it was up to this jury to punish defendants for their entire course of conduct. (Tr. 2005) But Leavey's counsel, and other plaintiffs' lawyers, have made the very same argument to the jury in other cases against the UnumProvident companies. In a recent case in this very court, for example, a co-counsel of Mr. Leavey's counsel told the jury: "[T]he issues involved go way beyond [this plaintiff], way beyond her disability case . . .you've seen some of the depositions or heard them. You've seen a lot of the exhibits, have other exhibit stickers from other cases. . . . And you've seen and you've heard things no other jury has ever heard." Ceimo v. Gen. Am. Life Ins. Co., CIV 00-1386-PHX-FJM (Ex. D, Ceimo Tr. 1834-35). The jury in that case awarded punitive damages against defendants based on the same bad-company evidence and arguments of counsel. (Ex. E, Ceimo Verdict Form) This practice implicates serious due process concerns. It is precisely for that reason that the Supreme Court held that it is inappropriate for a jury to punish a defendant for conduct directed at non-parties. See Campbell, 538 U.S. at 423 ("Due process does not permit courts, in the calculation of punitive damages, to adjudicate the merits of other parties' hypothetical claims against a defendant under the guise of the reprehensibility analysis . . . . Punishment on these bases creates the possibility of multiple punitive damages awards for the same conduct; for in the usual case nonparties are not bound by the judgment some other plaintiff obtains."). Because there can be no question that Leavey's counsel invited the jury to punish defendants for corporate practices for which they already have been punished in prior cases, this Court should grant a new trial in which the jury will be expressly instructed to punish defendants only for the specific conduct directed at Leavey.
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D.

The Damage Awards Were The Product Of Passion And Prejudice.

When a verdict is excessive, the usual remedy is a remittitur. But a remittitur is not an adequate remedy when the excessive verdicts resulted from passion and prejudice, for then it is presumed that the underlying liability findings were equally tainted. See Minneapolis, St. P. & S.S.M. Ry. Co. v. Moquin, 283 U.S. 520, 521 (1931) ("no verdict can be permitted to stand which is found to be in any degree the result of appeals to passion and prejudice" because "such appeals may be quite as effective to beget a wholly wrong verdict as to produce an excessive one"). Here, the enormity of both the emotional-distress award and the punitive award, and the fact that the jury awarded five times the emotional-distress damages suggested by Leavey's counsel, suggest that the jury was animated by passion and prejudice. But there is, in fact, much more than that. To begin with, even if admissible, there is no question that the "bad company" evidence had the capacity to distract the jury from its proper tasks of determining whether defendants acted in bad faith and, if so, setting an appropriate amount of damages. Indeed, the very fact that Leavey's counsel elected to lead off with Mary Fuller, and did not call Leavey to the stand until mid-trial, confirms that their strategy was to focus the jury on the institutional evidence and downplay the particulars of Leavey's claim. Beyond that, Leavey's counsel made a number of inappropriate comments during closing argument that likely tainted the jury's findings on both liability and damages. Specifically, he: · · personally attacked defendants' counsel for presenting a defense (Tr. 2044); noted that some of the exhibits had "confidential" stamps and stated that the jury was the first to hear all of the evidence (Tr. 2005), thus implying that defendants had concealed evidence in prior cases; commented on the fact that many of the exhibits had been used in prior lawsuits against defendants (Tr. 2005), thus suggesting that defendants have been sued often; stated that defendant's litigation strategy was grounds for bad faith (Tr. 2043); and compared defendants to a "snake" (Tr. 2010).
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In short, the conclusion that the jury was animated by passion and prejudice is inescapable. Accordingly, the Court should order a new trial on all issues. E. The Court Should Grant A New Trial In The Interests Of Justice.

"It is clear that the district judge ha[s] the right, and indeed the duty, . . . to set aside the verdict of the jury, . . . to prevent, in the sound discretion of the trial judge, a miscarriage of justice." Murphy, 914 F.2d at 187 (quotation marks omitted); see also 11 CHARLES E. WRIGHT, ET AL., FEDERAL PRACTICE AND PROCEDURE: CIVIL § 2803 (2d ed. 1995) ("It is the judge's right, and indeed his duty, to order a new trial if he deems it in the interest of justice to do so."). That remedy is appropriate here. Even if the Court concludes that the verdict was not infected by passion and prejudice, the exorbitantly excessive damages awards, the "thin[ness]" of the evidence supporting the punitive liability finding, the inflammatory nature of the "bad company" evidence, and the provocative statements during closing arguments, warrant the Court's exercise of its discretion to set aside the verdict and order a new trial in the interests of justice. RESPECFULLY SUBMITTED this 10th day of November, 2005. LEWIS AND ROCA LLP

By s/Stephen M. Bressler Stephen M. Bressler Ann-Martha Andrews Scott M. Bennett Attorneys for Defendants UnumProvident Corporation and Provident Life and Accident Insurance Company

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CERTIFICATE OF SERVICE I hereby certify that on November 10, 2005, 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: Steven Dawson Anita Rosenthal Dawson & Rosenthal 6586 Highway 179 Suite B-2 Sedona, Arizona 86351 Attorneys for Plaintiff Gregg H. Temple Gregg H. Temple, P.C. 4835 East Cactus Road Suite 225 Scottsdale, Arizona 85254-4196 Attorneys for Plaintiff Thomas L. Hudson Danielle D. Janitch Osborn Maledon, P.A. 2929 North Central Avenue Suite 2100 Phoenix, Arizona 85012-2794 Attorneys for Plaintiff

s/Jody Crain

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