(CN) – A Tennessee statute capping punitive damages is unconstitutional, a divided Sixth Circuit panel ruled Friday, as state case law from the 1800s shows an award of punitive damages is historically a “finding of fact” that falls in the hands of jurors.
A federal jury in Memphis found in December 2014 that Jackson National Life Insurance Company had breached its contract to pay out a life insurance policy to Tamarin Lindenberg for the death of her ex-husband.
After a six-day trial, the jury awarded Lindenberg $350,000 in actual damages, $87,500 in bad faith damages and as a punishment for Jackson National’s fraud, $3 million in punitive damages.
Under Tennessee law, punitive damages can be awarded in breach of contract cases if the defendant acted intentionally, fraudulently or recklessly.
Jackson National’s staff lied to Lindenberg that she had “obviously waived her beneficiary status” for the life insurance policy, and further stymied her claim by insisting she get waivers of her and the decedent’s two minor children’s rights to any cut of the benefits, according to the case record.
After Tennessee intervened to defend a 2014 statute capping punitive damages at two times the amount of compensatory damages, or $500,000, whichever is greater, U.S. District Judge Jon McCalla deferred to the state.
He reduced Lindenberg’s punitive damages award to $700,000 in September 2016.
Jackson National appealed the jury verdict to the Sixth Circuit, while Lindenberg filed a cross-appeal challenging Tennessee’s statutory cap on punitive damages.
On Friday, a three-judge panel of the Cincinnati-based appellate court affirmed the breach of contract and bad faith verdict against Jackson National.
In a 2-1 ruling, the majority also sided with Lindenberg on her constitutional claim.
“On cross-appeal, plaintiff argues that the statutory punitive damages cap, T.C.A. § 29-39-104 … violates two provisions of the Tennessee Constitution: the individual right to a jury trial and the doctrine of separation of powers,” wrote U.S. Circuit Judge Eric Clay, a Bill Clinton appointee.
The 25-page majority opinion continues, “Upon our assessment of Tennessee law, we find that the punitive damages bar set forth in § 29-39-104 violates the individual right to a trial by jury set forth in the Tennessee Constitution.”
Judge Clay gave a history lesson for the Tennessee Legislature in striking down the punitive –damages cap, going back to the adoption of the Tennessee Constitution in 1796.
He found that North Carolina courts’ historical treatment of punitive damages is controlling because the land that forms Tennessee was originally part of North Carolina, and the Volunteer State’s constitution is heavily influenced by North Carolina’s.
“Our review of historical evidence from Tennessee and North Carolina demonstrates that punitive damages awards were part of the right to trial by jury at the time the Tennessee Constitution was adopted,” Clay wrote.
Tennessee and Jackson National argued that punitive-damages caps do not invade a jury’s right to make “findings of fact” in a case, citing a 2013 Indiana Supreme Court ruling that upheld the Hoosier State’s limit on punitive damages.
But Clay said there is a lack of uniformity among states on whether imposing punitive damages is the sole realm of juries, and turned to the Tennessee Supreme Court for guidance.
He said that Tennessee Supreme Court case law from the 1800s states “punitory damages cannot be claimed as a matter of right; but it is always a question for the jury, within its discretion, no matter what the facts are.”
U.S. Circuit Judge Jane Branstetter Stranch, a Barack Obama appointee, joined Clay in the majority.
But U.S. Circuit Judge Joan Larsen faulted the majority for not handing the question of the statute’s constitutionality over to the Tennessee Supreme Court, which is allowed to accept questions about state law from federal judges.
“Here, while the majority’s speculation about the meaning of a state statute results in the invalidation of state law on an equally speculative construction of the state constitution, there is no question the Tennessee Supreme Court ‘stand[s] willing to address’ these novel issues,” the Donald Trump appointee wrote in a 21-page dissenting opinion.
Tennessee Assistant Attorney General Joe Ahillen said he’s mulling an appeal. “At this point, we’re just considering all available options. But otherwise, we don’t have any comment on the ruling,” he said in a statement.
The other parties’ attorneys did not respond to requests for comment.