Close-up on a dollar sign.

By R. Chauvin Kean and Sean T. McLaughlin

On June 29, 2016, the Louisiana Court of Appeal, Third Circuit, affirmed a jury’s verdict of $125,000 in compensatory damages and $23,000,000 in punitive damages in a maritime products liability case, resulting in a damages ratio of 184:1! In Warren v. Shelter Mutual Ins. Co., 15-354, 15-838, & 15-1113 (La. App. 3 Cir. 06/29/16); — So. 3d —, the Third Circuit affirmed both the jury’s determination that punitive damages were warranted and the amount of punitive damages. This case is noteworthy for many reasons, but this article focuses on only two: (1) the Third Circuit’s decision that punitive damages are available to non-seafarers under the general maritime law; and (2) the Third Circuit’s finding that the amount of punitive damages did not violate the Due Process Clause of the Fourteenth Amendment, despite the 184:1 ratio.

On May 7, 2005, Derek Hebert was a passenger in a small boat operated by Daniel Vanvoras. They were in a former channel of the Calcasieu River traveling between Mr. Vanvoras’ home and the Lake Charles Country Club. While en route, the boat suffered a complete functional loss of its steering system. Mr. Hebert was ejected and struck by the boat’s propeller nineteen times. He was killed almost instantly. Following the accident, an investigation was performed into the boat’s steering system. It revealed that the loss of a relatively small amount of hydraulic fluid would result in a complete loss of steering. Mr. Hebert’s relatives filed wrongful death claims and a survival action against the several parties, including the manufacturer and designer of the boat’s steering system, Teleflex. The claim against Teleflex was simple: Teleflex failed to warn boat owners or their passengers about the potential catastrophic consequences of losing a very small amount of hydraulic fluid.

At trial, the evidence established that in 1989 Teleflex performed testing of its steering system. Their tests showed that the loss of mere teaspoons of hydraulic fluid resulted in a complete loss of steering. Prior to the complete loss, the steering on the boat was reported to “feel different.” Teleflex’s designer, Eric Fetchko, testified that Teleflex “assumed that the different feel in the steering response would alert users that they had a problem.” The evidence also established that Teleflex “received thousands of complaints regarding fluid loss.” At trial, Teleflex contended that those thousands of complaints “must be kept in context because Teleflex has sold millions of the [steering] systems.” Even though Teleflex knew that a minimal amount of fluid loss could end in the death of vessel operators and passengers, it believed “the frequency was not high enough to justify” a more specific warning because Teleflex “did not want to cause ‘mass hysteria.’”

The case was tried to a jury twice. The first time, a jury ruled in favor of Teleflex. This ruling was overturned due to inaccurate information being provided to the jury. At the second trial, the jury ruled in favor of the plaintiffs, awarding $125,000 in compensatory damages and $23,000,000 in punitive damages against Teleflex.

Because the accident occurred upon the navigable waterways of the United States, admiralty jurisdiction and general maritime law applied to this case. The U.S. Supreme Court has recently affirmed that punitive damages are allowed under the general maritime laws unless Congress has statutorily prohibited a plaintiff from seeking such damages. See, Atlantic Sounding Co., Inc. v. Townsend, 557 U.S. 404, 414-15 (2009); see also, McBride v. Estis Well Service, LLC, 768 F. 3d 382, 389-91 (5th Cir. 2014) (en banc). [Editor’s note: click here for more discussion on McBride and maritime punitive damages]. The Jones Act and the Death on the High Seas Act (“DOSHA”) are such statutes, and expressly limit a seafarer’s recovery to pecuniary damages; whereas the Longshore and Harbor Workers’ Compensation Act (“LHWCA”), for example, does not have the same limitations. Mr. Hebert, as a passenger on a recreational vessel, was not subject to an overlapping federal statute such as the Jones Act, the LHWCA, or the DOHSA. Due to this fact, punitive damages are available under the general maritime law. Although rare, where the plaintiff can prove the defendant’s intentional or wantonly reckless conduct amounted to a conscious disregard for the rights of others, he may be awarded punitive damages. See Poe v. PPG Indus., 00-1141, p. 6 (La. App. 3 Cir. 03/28/01); 782 So. 2d 1168, 1173.

Because he was not a member of the boat’s crew or deemed a worker covered under a federal statutory scheme, Mr. Hebert was classified as a non-seafarer and thus was entitled to all remedies under general maritime law – including punitive damages for the claims asserted against Teleflex for its failure to warn boat operators and passengers of the steering system’s hidden dangers.

On appeal, the Louisiana Third Circuit conducted a thorough analysis of U.S. constitutional law and the jurisprudential understanding of punitive damage award ratios compared to compensatory damages. Outlining the various concepts and guidelines announced by the U.S. Supreme Court, the court began with the notion that all punitive damage awards invoke some type of analysis under the Due Process Clause of the Fourth Amendment. The rationale is that where an award is grossly excessive, it furthers no legitimate state purpose and constitutes an arbitrary deprivation of property. See Pac. Mut. Life Ins. Co. v. Haslip, 499 U.S. 1 (1991).

To that end, the Third Circuit examined the excessiveness of the $23,000,000 punitive damages award under BMW of North America, Inc. v. Gore, 517 U.S. 559, 575-85 (1996). In BMW, the U.S. Supreme Court set out the standard for analyzing the gross excessiveness of a punitive damage award, which includes: “(1) the degree of reprehensibility of the misconduct; (2) the ratio, or disparity between the punitive award and the harm, or potential harm, suffered by the plaintiff; and (3) the difference between this remedy and the civil penalties authorized or imposed in comparable cases.” The Supreme Court has consistently held that there is no-bright-line rule or rationale for determining what is an appropriate punitive damage award.

Applying the relevant guideposts from BMW, the Third Circuit first examined the reprehensibility of Teleflex’s alleged misconduct. Noting that Teleflex had actual and substantive knowledge of the defect in the steering system several years prior to the accident, the court found it reprehensible that Teleflex chose not to provide supplemental warnings to owners, operators, or their passengers of such defects or dangers simply to avoid causing “mass hysteria.” In fact, the court went on to note that unlike most cases where there was “hard-to-detect” wrongdoing by the liable party, here, Teleflex’s concealment of its own knowledge that its product could be defective or fail and cause occupants of the vessels to die was held to be egregious behavior. For these reasons, the court found the reprehensibility guidepost fully realized in this case, as opposed to Teleflex’s misconduct being merely reckless, as is most common in similar cases. Finding that Teleflex’s behavior was egregious rather than reckless allowed the Third Circuit to ignore the usually-accepted damage ratios and actual-damage findings of prior case law, and laid the foundation for the court’s novel approach in affirming the punitive damages awarded by the trial court.

With that finding already being made, the court reviewed the second guidepost – the ratio of punitive damages to compensatory damages – to determine if a 184:1 ratio was grossly excessive under the circumstances. This analysis was done without any consideration as to the potential harm factor to the plaintiff. Given the egregiousness of Teleflex’s conduct, the Third Circuit focused on the potential harm that could have occurred rather than the harm that actually occurred. The court noted that since Mr. Hebert died almost instantly, he experienced very brief, but extreme, pain and suffering. Had he not died – or died after months of treatment – the compensatory damages award would have been much, much higher – possibly over $10,000,000. Using the potential harm ($10,000,000) as the benchmark, the punitive:compensatory damage ratio was only 3:1. As the court noted, there is no mathematical formula for determining the reasonableness of a punitive damages award. Citing various opinions, the court highlights that the U.S. Supreme Court has consistently held that “low awards of compensatory damages may properly support a higher ratio than high compensatory awards, if, for example, a particularly egregious act has resulted in only a small amount of economic damages.” BMW, 571 U.S at 582-83.

The final guidepost calls for a comparison of the civil penalties and remedy imposed in the present matter to comparable cases. As stated before, there are no statutory or codal authorities that impose monetary civil or criminal penalties for the deprivation of life of Mr. Hebert. Because of this, the guidepost did not offer any assistance to determine the gross excessiveness of the award. This finding further assisted the court is affirming that the punitive damages award was reasonable under the circumstances and did not violate the Due Process Clause of the Fourteenth Amendment.

With the high value of the punitive damages awarded in this case, and the relatively novel approach by the Court in reaching its opinion, we would expect this case to end up at the Louisiana Supreme Court soon, if not the U.S. Supreme Court thereafter. While this case was maritime in nature, the analysis in the Third Circuit’s review of an alleged grossly excessive punitive damage award has the potential to transcend legal subject matter, making this case one to watch. Stay tuned.