In December 2018, the U.S. Court of Appeals for the Sixth Circuit held that Tennessee's cap on punitive damages was unconstitutional. This cap came into effect when Tennessee Governor Bill Haslam signed the Tennessee Civil Justice Act (the "Act") which, among other things, capped the amount of punitive damages a plaintiff can recover in civil lawsuits to two times the amount of any compensatory damages awarded, or $500,000, whichever is greater. Tenn. Code Ann. § 29-39-104.
The Sixth Circuit's Decision
The Sixth Circuit's holding resulted from the case of Lindenberg v. Jackson National Life Insurance Company, Case Nos. 17-6034/6075 (6th Cir. Dec. 21, 2018), where Taramin Lindenberg filed suit after the insurer failed to pay her, the primary beneficiary, $350,000 from her ex-husband's life insurance policy following his death. Her claims against the insurer included breach of contract, statutory and common law bad faith, and punitive damages.
The district court permitted Lindenberg to proceed to trial only on her claims for statutory bad faith, common law breach of contract, and common law punitive damages based on breach of contract. Following trial, a jury awarded her $87,500 for the insurer's bad faith refusal to pay; $350,000 for breach of contract; and $3 million in punitive damages on the grounds that the insurer's refusal to pay her was intentional, reckless, malicious, or fraudulent.
Following trial, the insurer argued that the punitive damages award should be reduced based upon Tennessee's cap. In response, Lindenberg argued the punitive damages cap violated the Tennessee Constitution and moved to certify the issue to the Tennessee Supreme Court. The district court agreed to provide an opinion on the issue and, thereafter, denied Lindenberg's constitutional challenge to the punitive damages cap, reducing the insurer's liability for punitive damages from $3 million to $700,000 (or twice the $350,000 award for breach of contract) in line with the statutory cap.
On appeal, the Sixth Circuit held that Tennessee's punitive damages cap violated the individual right to a trial by jury set forth in the Tennessee Constitution. While the Tennessee Constitution does not guarantee the right to a jury trial in every case, the Sixth Circuit held that its adoption guarantees "the right to trial by jury as it existed at common law under the laws and constitution of North Carolina," the language of which was heavily borrowed by the drafters of the Tennessee Constitution.
The Sixth Circuit further held that case law "demonstrate[s] that North Carolina juries were awarding punitive damages at the time the Tennessee Constitution was drafted and that the practice continued uninterrupted in Tennessee thereafter. Accordingly, 'the right to trial by jury as it existed at common law' in 1796 would have included the right to have the jury award punitive damages in appropriate cases," and "the proper measure of punitive damages is historically a 'finding of fact' within the exclusive province of the jury." As a result, the Sixth Circuit held that the Act is unenforceable to the extent that it purports to cap punitive damage awards which "constitutes an unconstitutional invasion of the right to trial by jury under the Tennessee Constitution."
Effects on Tennessee Federal and State Cases
The Sixth Circuit's decision, of course, affects those lawsuits filed in federal district courts throughout the Sixth Circuit which require the application of Tennessee law. These lawsuits would include those in the employment arena, considering that punitive damages are available under Title VII, which prohibits employment discrimination base on race, color, religion, sex and national origin. In addition, while punitive damages are generally not recoverable in breach of contract cases, Tennessee does permit a plaintiff to recover punitive damages for breach of contract when he or she shows "fraud, malice, gross negligence, or oppression." Therefore, should such facts be proven in an employment contract dispute, an employer no longer has the comfort of knowing that any punitive damages a plaintiff may seek and be ultimately awarded will be capped in a federal court lawsuit.
The Sixth Circuit's decision in Lindenberg is not binding on Tennessee state courts; however, its holding may still have far reaching effects in Tennessee state court cases, as plaintiffs will certainly have more ammunition, as well as persuasive authority, to argue that Tennessee's cap on punitive damages in civil cases is unconstitutional.
The insurer and the State of Tennessee, who intervened in the case, have 90 days from the date of the Lindenberg decision to petition the U.S. Supreme Court for review of the Sixth Circuit's decision. Such a review is based on judicial discretion and a petition to the Supreme Court will be granted only for compelling reasons.
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