United States: To Bifurcate Or Not To Bifurcate, That Is The Question

As we noted in a prior post, many state legislatures and supreme courts have mandated that the amount of punitive damages be tried separately from other issues in the case if the defendant so requests.  The principal impetus for mandating this procedure was concern that evidence of the defendant's financial condition, though assumed to be relevant to the amount of punitive damages, is undeniably irrelevant to and presents a grave risk of prejudicing the resolution of the other issues in the case—i.e., liability for the underlying tort, comparative fault, compensatory damages, and liability for punitive damages.

We will address in a future post why the assumption that an organization's financial condition is relevant to the setting of punitive damages is false.  But the purpose of this post is to take sides in the debate over whether this safeguard—colloquially known as bifurcation—is worth invoking.

Over the course of many years counseling clients about defense strategy in punitive damages cases, we have often encountered resistance to bifurcation from experienced trial litigators.  Some of them favor a unitary trial on the ground that it enables defense-minded jurors, when in the minority, to engineer a compromise verdict that is more favorable to the defendant than would result in a bifurcated trial.  We are not in a position to offer an opinion on this hypothesis.

More broadly, trial lawyers often express the view that bifurcation advantages plaintiffs by providing two chances for the jury to express indignation through a high award of damages—once in the compensatory award and once in the punitive award that comes later.  Moreover, as they see it, the second phase is the equivalent of playing poker with a stacked deck.  The jurors are already mad at the defendant and then they get to hear testimony about how rich the defendant is and a fire and brimstone speech from the plaintiff's lawyer urging them to send a message that will be loud enough to resonate in the board room of such a wealthy company.

Regrettably, this is how many bifurcated trials go down.  But it doesn't have to be that way. 

First, the concern about giving the jury two chances to express indignation should be substantially mitigated, if not altogether eliminated, if the jury understands that, should it find punitive liability, there will be a second phase in which it will have the opportunity to impose a suitable punishment.  In our view, part and parcel of the obligation to grant bifurcation upon request is the obligation to explain the procedure to the jury so that it is aware that the liability phase is not the time to impose punishment.

Second, we agree that a punitive-amount phase that is limited to introduction of evidence of the defendant's financial condition followed by closing arguments is generally a disaster for a large corporate defendant and is often a reflection of a failure to prepare adequately to defend on amount of punitive damages.  If that is how phase two is going to be, then bifurcation is probably a bad idea.  But defendants can do better.

For one thing, corporate defendants can put on their own evidence to counter the notion that a large net worth necessitates a large punishment.  This evidence might include testimony that profits are plowed back into R&D, that net worth is composed largely of assets that are necessary to operate the business, etc.  If the defendant is a hospital or a nursing home, for instance, counsel might ask the jury how many MRI machines or critical care beds or night nursing positions it believes should be eliminated and converted into dollars in the pockets of plaintiffs and their counsel.  Evidence might also be presented about the impact that a large punitive award would have on innocent shareholders—e.g., pension funds—and employees.

Beyond trying to defang the financial evidence, in the second phase of a bifurcated trial defendants can introduce a variety of other kinds of evidence that might be too dangerous to use in a unitary trial.  Here are just a few examples:

Subsequent remedial conduct:  Often defendants will change practices, make design changes, or add new safeguards in the wake of the accident or incident that gave rise to the suit.  Evidence of subsequent remedial conduct is, of course, generally inadmissible at the liability phase of a trial because it is likely to be taken by the jury as an admission of liability, and as a matter of policy it is considered undesirable to discourage actors from taking remedial measures because of fear of increased risk of liability for past conduct.  But in the second phase of a bifurcated trial, liability already has been found.  In the hands of a skilled defense lawyer, this kind of evidence could help mitigate the size of the punishment the jury imposes.

Discipline:  Similarly, if the defendant disciplined the employees who committed the conduct in question, that is not relevant to any issue other than the amount of punitive damages, but could be deemed by the jury to be an admission of liability.  In the second phase of a bifurcated trial, however, evidence that the defendant took prompt action to discipline the culpable employees should support an argument that a large punitive award is unnecessary.

Changes in corporate culture, personnel, training, etc.  Often, especially when considerable time has passed between the punishable conduct and the time of trial, there will have been material changes in the company that will enable counsel to demonstrate that the defendant being punished is a materially different entity from the one that engaged in the misconduct.  New training programs or quality control measures may have been introduced that make recurrence of the type of misconduct at issue in the case unlikely.  The guilty actors may be deceased, retired, or no longer at the company for other reasons.  The ownership may have substantially changed, so that the people bearing the punishment are largely or entirely different from those at the time of the misdeeds.  A corporation, after all, is materially different from an individual, and punishment considerations should likewise be altered to fit this different reality.

Judicial enhancements to the judgment:  In some cases, plaintiffs may be entitled to an award of attorneys' fees and/or an award of prejudgment interest at a statutory rate that far exceeds the market rate.  Insofar as the amount of these awards has been ascertained or can be readily calculated—more likely with prejudgment interest than with attorneys' fees—evidence of that amount is relevant to the setting of punitive damages.  The argument would be that a large award of prejudgment interest or attorneys' fees already has the effect of punishing the defendant, so substantial additional punitive damages are unnecessary.

Civil and criminal penalties:  In some cases, the defendant will have paid a civil (or, rarely, a criminal) fine for the conduct in question—often as part of a negotiated settlement.  Needless to say, the defendant would not want to introduce evidence of that in a unitary trial.  But in the second phase of a bifurcated trial, such evidence, like evidence of an award of attorneys' fees or prejudgment interest, would support an argument that a substantial additional amount of punitive damages is unnecessary.  And even if this kind of evidence doesn't sway a jury, it would be helpful to have it in the record for purposes of post-verdict motions and appeal.

Other punishments for the same course of conduct:  Several courts have held that a defendant that wants to argue that it already has been punished enough for the course of conduct that injured the plaintiff must introduce prior punitive awards at trial.  (Whether such a requirement, which can be very unfair, comports with due process is beyond the scope of this discussion.)  Here again, it would be near suicidal to do that in a unitary trial.  Bifurcation allows the defendant to avoid that risk by introducing evidence of other punitive awards only after it has been found liable.  Of course, there remains a risk that the jury will use the punitive awards from prior cases as a measuring stick for its own punitive award, so defendants may elect not to introduce it even at the cost of forfeiting the argument that they have been punished enough.

These are just a few examples of the kinds of evidence that defendants could introduce in the second phase of a bifurcated trial.  We hope that they are sufficient to convince readers that bifurcation holds great potential if employed effectively.  The most important takeaway here is that a well-prepared lawyer must have a fully developed phase-two presentation ready well in advance of trial, including timely witness disclosures, even though the hope is that there will be no need for such a presentation.

Tags: Bifurcation

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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