Availability of Punitive Damages: Depecage

A potential client comes to you with what looks like a good punitive damages case. Punitive damages, however, are not available under your state's law. Do not reject the case until you have evaluated whether you may be able to recover punitives under your state's choice-of-law principles and have considered the legal theory of depecage - the process of analyzing issues separately for choice of law.

An example may be helpful. Several years ago I was involved as co-counsel in a case venued in federal court in New Orleans, Louisiana. The plaintiff had been rendered quadriplegic in an accident involving a Yamaha all-terrain vehicle (ATV).' The accident occurred in Mississippi. The plaintiff lived in Louisiana. Louisiana law at that time provided prejudgment interest but did not allow punitive damages. Mississippi law, in contrast, did not provide prejudgment interest but did allow punitive damages. The plaintiff's attorney made a claim for punitive damages under the theory that Mississippi law should apply.

Yamaha did not move for summary judgment on the punitives claim. It filed a motion in limine to preclude plaintiff's counsel from introducing evidence on its punitives claim, evidently believing counsel would have to choose between the benefits of Mississippi and Louisiana law. That was not the case.

Plaintiff's counsel opposed the motion in limine, arguing that Louisiana law governed compensaton damagcs and the law of California-Yamaha Motor Corporation's U.S. residence and home of all its pertinent business operations-applied to punitive damages under choice-of-law principles and under the theory of depecage. The case settled for a confidential amount before trial.

Punitive damages, as a matter of substantive law, present a conflict-of-laws question. Many states use an interest analysis in resolving the question. In personal injury and products liability litigation, lawyers do not commonly recognize - except in aviation cases - that this analysis can apply separately to compensatory and punitive damages in a case.2 Aviation lawyers apply conflict-of-laws principles routinely to seek best application of the law for their clients; thus, they may be more familiar with depecage.

Many courts have endorsed the depecage issue-by-issue analysis.3 Once a court determines that conflict-of-laws principles should be reviewed separately for compensatory and punitive damages, it will usually apply an interest analysis. The first step is to determine whether a true or false conflict exists. This is decided by examining the interest of each state in having its law govern a particular issue. A false conflict exists when only one state has an interest in an issue. If a true conflict exists, the law of the state with the most significant relationship to a particular issue is applied.

Many states have adopted the general principles of the Restatement (Second) of Conflict of Laws S171, and comments b and d (1967) state -

Applying the Restatement, counsel should encourage the court to look at punitive damages separately to determine which state has the most significant interest in applying its law to the resolution of a particular issue. In products liability cases, the conduct that gives rise to punitive damages claims often occurs in another state, usually in the defendant's domicile. If that state's law allows punitive damages, the factors applied in resolving conflict-of-law issues should be applied. In many cases, a persuasive argument for punitive damages can be made.4

In support of this interpretation of the Restatement is the reporter's note on comment d, which cites James v. Powell.5 The plaintiff sued for a fraudulent conveyance of real estate in Puerto Rico to avoid execution on a New York judgment that the plaintiff held.

The New York Court of Appeals remanded the case to determine whether the conveyance was valid under Puerto Rican law but held that New York law would determine whether punitive damages could be recovered. The court premised its application of the local law of one state to the issue of compensatory damages and the application of the local law of another state to the issue of punitive damages upon the distinction between the two types of damages. "An award of compensatory damages depends upon the existence of wrongdoing...An award of punitive damages, on the other hand, depends upon the object or purpose of the wrongdoing."6

Powell held that the purpose of conveying the real estate in Puerto Rico was to frustrate the New York judgment. Therefore, New York had the strongest interest in determining whether punitive damages were recoverable.

Other courts have used the Powell analysis of applying the laws of different states to compensatory and punitive damages. In Ashland Oil, Inc. v. Miller Oil Purchasing, Co. the Fifth Circuit considered the PoweII analvsis.7 However, the court decided that the facts were not analogous enough because in Powell the state that had the most significant interest in the punitives issue was the same state that had the most significant interest in the compensatory issue.

In Tyminski v. United States,8 the Third Circuit said that the general rule applicable to the measure of damages for New York had been set by the New York Court of Appeals in Powell. The Tyminski court quoted Powell as follows:
Section 145 of the Restatement (Second) of Conflict of Laws provides guidelines for applying the interest analysis in tort cases. These factors include:
To establish that the punitive damages law of another state should apply to a defendant manufacturer's conduct, the plaintiff will have to establish that the other state has a greater interest in having its law apply. The first factor, the place of injury, has no significant relationship to the issue of punitive damages because accidents and injuries occur by chance. Restatement (Second) of Conflict of Laws, S145, comment e, states:

Another factor to be considered is the place where the relationship, if any, between the parties is centered. In most products cases, there is no relationship between the parties as it relates to the punitive damages issue. Thus, the place of the relationship between the parties has no bearing on the applicable law.

Yet another factor is the domicile or place of business of the parties involved. It is with these facts and the fourth factor discussed below that plaintiff must show the state's greater interest in having its punitive damages claim law apply. This factor should be examined in light of the conflicting policy reasons to allow or disallow punitive damages. It can reasonably be argued that a corporate defendant elected to have its conduct governed by the law of the state where it is incorporated and does business. The defendant, of course, win argue that the plaintiff's domicile is significant.

The other important factor to be considered is the place where the conduct causing the injury occurred. A plaintiff's products liability claim is usually about a defendant's alleged negligence in the design, testing, marketing, or sale of a product. When the defendant's design, testing, and business activities occur principally in the defendant's state of domicile, the argument for applying the punitive damages law of that state is strengthened.

Although depecage has not often been used in products liability litigation, it is certainly a viable theory under which punitive damages can be sought when they would usually not be available. Depecage can strengthen a plaintiff's strategic position as well as provide additional grounds for recovery. Its application should be considered in all cases where punitive damages are otherwise not available.

Notes

1. Rantz v. Yamaha Motor Co., Ltd., No. 84- 2626 (E.D. La.).
   
2. See Potlatch No.1 Fed. Credit Union v. Kennedy, 459 P.2d 32, 37 (Wash 1969).
   
3. See,eg., Beard v. J.I. Case Co., 823 F.2d 1095, 1104 (7th Cir. 1987); In re Air Crash Disaster; 821 F.2d 1147, 1169 (5th Cir. 1987) vacated 490 U.S. 1032, reinstated on remand, 883 F.2d 17 (5th Cir. 1989); Ewing v. St. Louis-Clayton Orthopedic Group, Inc., 790 F.2d 682, 686 (8th Cir. 1986); International Adrn'rs, Inc. v. Life Ins. Co., 753 F.2d 1373, 1376-78 (7th Cir. 1985); Hutner v. Greene, 734 F.2d 896, 901 (2d Cir. 1984); In re Air Crash Disaster; 644 F.2d 594,611(7th Cir.), cert. denied sub nom. .Lin v. American Airlines, Inc., 454 U.S. 878(1981); Corporacion Venezolana de Fomento v. Vintero Sales Corp., 629 F.2d 786,794 (2d Cir. 1980), cert. denied, 449 U.S. 1080 (1981). See generally Reese, Depecage: A Common Phenomenon in Choice of Law, 73 COLUM. L. REV. 58 (1973).
   
4. See eg., In Re Air Crash Disaster, 644 F.2d 594, 611 (7th Cir. 1981).
   
5. 225 N.E. 2d 741 (NY. 1967).
   
6. Id. at 746 (emphasis omitted).
   
7. 678 F.2d 1293, 1305 (5th Cir. 1982).
   
8. 481 F.2d 257 (3d Cir. 1973).
   
9. Id. at 266.