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Gallatin Fuels, Inc. v. Westchester Fire Insurance Co.

March 29, 2006

GALLATIN FUELS, INC., PLAINTIFF,
v.
WESTCHESTER FIRE INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Ambrose, Chief District Judge

OPINION and ORDER OF COURT

The factual and procedural details of this case are well known to the parties, and I need not repeat them in detail here. In short, Plaintiff, Gallatin Fuels, Inc. ("Plaintiff" or "Gallatin"), filed this suit seeking payment under an insurance policy issued by Defendant Westchester Fire Insurance Company ("Defendant" or "Westchester") to Mon View Mining Corporation ("Mon View") for mining equipment that was destroyed or rendered unrecoverable on April 8, 2002, when the mine in which it was being used returned to its natural water level after the power to the mine was shut off after Mon View failed to pay outstanding utility bills. Gallatin was named as a loss payee under the policy. Gallatin also alleged that Westchester's actions constituted bad faith in violation of Pennsylvania law.

A jury trial began in this case on February 6, 2006, and concluded on February 21, 2006. At the conclusion of the trial, the jury returned a verdict in favor of Gallatin on both counts. The jury awarded Gallatin a net total of $1.325 million on its claim for payment under the insurance policy and awarded Gallatin $20 million in punitive damages on the bad faith claim.*fn1 On March 2, 2006, I granted Defendant's Motion to delay entry of judgment in light of Defendant's expressed intent to challenge the constitutionality of the jury's punitive damages award.

Pending is Defendant's Pre-Judgment Motion for Review of the Jury's Punitive Damages Award, Including a Due Process Hearing, and Specification of the Jury's Factual Findings on Which the Court's Legal Finding on Fortuitous Loss Is Based. (Docket No. 217). As set forth more fully below, the Motion is granted in part and denied in part.

I. ANALYSIS

A. PUNITIVE DAMAGES

1. Request For Hearing And Additional Briefing

In its Motion, Defendant requests a due process hearing and review of the jury's punitive damages award under governing constitutional standards, prior to the entry of judgment. Defendant also seeks permission to file additional briefs on this issue after it receives a copy of the trial transcript (which Defendant advises will not be completed for at least thirty days). As an initial matter, although I agree that review of the punitive damages award is warranted, I disagree that Defendant is entitled to a due process hearing and/or the opportunity for additional briefing on this issue.

Although it is appropriate for the trial court to conduct a meaningful and adequate post-verdict review of a jury's punitive damages award to ensure that it comports with due process, Defendant has not cited, nor has independent research revealed, any authority suggesting that the court is required to conduct a due process hearing in connection with its punitive damages review.*fn2 In this case, I find that a hearing is unnecessary and would serve only to further delay resolution of this matter.

Defendant's request for additional briefing on the punitive damages issue is likewise denied. On March 2, 2006, I granted Defendant's Motion to Delay Entry of Judgment. (Docket No. 213). In my Order granting that Motion, I specifically stated that Defendant would have until March 9, 2006 "to file any motions and briefs prior to the entry of judgment." Id. (emphasis added). In addition to my written Order, I orally conveyed this information to Defendant during a telephone conference on that same date. See Docket No. 212. Moreover, on March 22, 2006, I leniently granted Defendant leave to file a Reply Brief belatedly addressing, inter alia, the appropriate constitutional analysis of the punitive damages award.*fn3 The trial in this case ended and the jury returned its verdict on February 21, 2006 -- over four weeks ago. Defendant's request to delay the entry of judgment for at least another thirty days to file even more briefs is untenable, directly contravenes my March 2, 2006 Order, and is denied.

Defendant's Motion is granted, however, to the extent it requests that I review the constitutionality of Plaintiff's punitive damages award.*fn4 For the reasons set forth below, I find that the $20 million punitive damages award was unconstitutionally excessive and that an award of $4.5 million would be more appropriate based on the evidence in this case.

2. Applicable Legal Standards

In contrast to compensatory damages, which "are intended to redress the concrete loss that the plaintiff has suffered by reason of the defendant's wrongful conduct," punitive damages are intended "to punish the defendant and to deter further wrongdoing." Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 432 (2001). It is well-established that there are procedural and substantive constitutional limitations on punitive damages awards. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003). In particular, due process demands that a defendant "receive fair notice not only of the conduct that will subject him to punishment, but also of the severity of the penalty that a State may impose." Id. at 417 (quoting BMW of N. Am. v. Gore, 517 U.S. 559, 574 (1996)); Willow Inn, Inc. v. Pub. Serv. Mut. Ins. Co., 399 F.3d 224, 230 (3d Cir. 2005). "To the extent an award is grossly excessive, it furthers no legitimate purpose and constitutes an arbitrary deprivation of property." State Farm, 538 U.S. at 417.

To address these concerns, the United States Supreme Court has "instructed courts reviewing punitive damages awards to consider three guideposts: (1) the degree of reprehensibility of the defendant's misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the ...


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