BILL ANALYSIS
C.S.S.B. 25
By: Sibley (Junell)
March 30, 1995
Committee Report (Substituted)
BACKGROUND
Punitive damages, also known as exemplary damages, serve to punish
defendants for certain types of behavior. Punitive damages can be
awarded where the defendant's wrongdoing has been intentional and
deliberate; where it indicates such a deliberate disregard of the
interests of others that the conduct may be called willful or
wanton; or where the conduct is "reckless," which means proceeding
with knowledge that the harm is substantially certain to occur.
Ordinary negligence does not warrant the imposition of punitive
damages.
Courts developed the theory of punitive damages to deter and punish
wrongdoing that might otherwise go unpunished and undeterred
because the wrongdoing did no compensable harm. The two central
purposes served by punitive damages are punishment and deterrence.
Courts sometimes stress the first--punishment, the retributive
purpose, and at other times the second--the preventative purpose of
the law. However, questions have been raised as to whether the
amount of current awards exceed these central purposes.
PURPOSE
C.S.S.B. 25 limits the amount of and circumstances under which a
court may award exemplary damages.
RULEMAKING AUTHORITY
It is the committee's opinion that this bill does not grant any
additional rulemaking authority to a state officer, institution, or
agency.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Chapter 41, Civil Practice and Remedies Code, as
follows:
CHAPTER 41. EXEMPLARY DAMAGES
Sec. 41.001. DEFINITIONS. Adds "clear and convincing" and
"economic damages" to the list of definitions. Deletes "gross
negligence." Redefines "exemplary damages" and "malice."
Sec. 41.002. APPLICABILITY. (a) Applies this chapter to any
action in which the claimant seeks exemplary damages.
(b) Provides that this chapter establishes the maximum
exemplary damages that may be awarded in certain actions,
including actions awarded under another state law. Provides
that this chapter does not apply if another law establishes
a lower maximum amount. Makes conforming changes.
(c) Makes conforming changes.
(d) Provides that notwithstanding any provision to the
contrary, this chapter does not apply to the following:
Section 15.21, Business and Commerce Code (Texas Free
Enterprise and Antitrust Act of 1983), to an action brought
under the Deceptive Trade Practices-Consumer Protection Act
(Subchapter E, Chapter 17, Business & Commerce Code) except
as specifically provided in Sec. 17.50 of that Act; or an
action brought under Chapter 21, Insurance Code.
Sec. 41.003. STANDARDS FOR RECOVERY OF EXEMPLARY DAMAGES.
(a) Except as provided by Subsection (c), exemplary damages
may be awarded only if the claimant proves by clear and
convincing evidence that the harm resulted from: fraud;
malice; or a willful act or omission or gross neglect in
wrongful death actions brought by or on behalf of a surviving
spouse or heirs of the deceased, under a statute enacted
pursuant to Section 26, Article XVI of the Texas Constitution.
Defines "gross neglect" for purposes of Section 26, Article
XVI, Texas Constitution.
(b) Requires the claimant to prove by clear and convincing
evidence the elements of exemplary damages as provided by
this section. Provides that the burden of proof for
exemplary damages lies with the claimant and may not be
shifted to the defendant or satisfied by evidence of
ordinary negligence, bad faith or deceptive trade practices.
(c) Authorizes exemplary damages to be awarded if a claimant
relies on a statute authorizing damages in specified
circumstances or in conjunction with a specified culpable
mental state only if the claimant proves by clear and
convincing evidence that the damages result from these
circumstances or culpable mental state.
Sec. 41.004. FACTORS PRECLUDING RECOVERY. (a) Makes
conforming changes.
(b) Authorizes a claimant to recover exemplary damages if
the claimant establishes by clear and convincing evidence
that the harm resulted from malice as defined in Section
41.001(7)(A). Prohibits exemplary damages from being
awarded to a claimant who elects to have the claimant's
recovery multiplied under another statute.
Sec. 41.005. HARM RESULTING FROM CRIMINAL ACT. (a) Prohibits
a court from awarding exemplary damages against a defendant
because of a criminal act in an action arising from harm
resulting from the criminal act of another.
(b) Provides that Subsection (a) does not apply if the
criminal act was committed by an agent or employee of the
defendant, the defendant is a party to the criminal act, the
criminal act occurred at a location where the defendant was
maintaining a common nuisance and had not made reasonable
attempts to abate the nuisance, or the criminal act resulted
from the defendant's intentional or knowing violation of a
statutory duty and the act occurred after the statutory
deadline for compliance with that duty.
(c) Provides that the principal or employer may be liable
for punitive damages in an action arising out of a criminal
act committed by an agent or employee only if the employer
or principal authorized the doing and the manner of the act,
the employee or agent was unfit and the employer or
principal acted with malice, the employee or agent was
employed in a managerial capacity and was acting in the
scope of employment, or the principal or employer or a
manager of the principal or employer ratified or approved
the act.
Sec. 41.006. Redesignates existing Section 41.005.
Sec. 41.007. Redesignates existing Section 41.006.
Sec. 41.008. LIMITATION ON AMOUNT OF RECOVERY. (a) Requires
the trier of fact to determine the amount of economic damages
separately from the amount of other damages if a claimant
seeks recovery of exemplary damages.
(b) Prohibits exemplary damages from exceeding an amount
equal to the greater of two, rather than four, times the
amount of economic, rather than actual, damages plus an
amount equal to any noneconomic damages found by the jury
not to exceed $750,000; or $200,000.
(c) Provides that Subsection (b) does not apply to a cause
of action against a defendant from whom a plaintiff seeks
recovery of exemplary damages based on conduct described as
a felony in the following areas of the Penal Code if the
conduct was committed knowingly or intentionally: Sections
19.02; 19.03; 20.04; 22.02; 22.011; 22.021; 22.04; 32.21;
32.43; 32.45; 32.46; 32.47; and Chapter 31 the punishment
level for which is a felony of the third degree or higher.
(d) Provides that "intentionally" and "knowingly" in this
section, have the same meanings assigned in Section 6.03(a)
and (b) of the Penal Code.
(e) Prohibits the provisions of Subsections (a) and (b) from
being made known to a jury by any means.
Sec. 41.009. BIFURCATED TRIAL. (a) Requires the court to
provide for a bifurcated trial on a motion by the defendant.
Requires a motion under this subsection to be made prior to
voir dire examination of the jury or at a time specified by a
pretrial court order.
(b) Requires the court to provide for a bifurcated trial on
the motion of any defendant in an action with more than one
defendant.
(c) Requires the trier of fact to determine the liability
for compensatory and exemplary damages and the amount of
compensatory damages in the first phase of a bifurcated
trial.
(d) Requires the trier of fact, if liability for exemplary
damages is found during the first phase of the bifurcated
trial, to determine the amount of exemplary damages to be
awarded in the second phase of the trial.
Sec. 41.010. CONSIDERATIONS IN MAKING AWARD. (a) Requires
the trier of fact to consider the definition and purposes of
exemplary damages under Section 41.001 before making an award.
(b) Provides that the determination of whether to award and
the amount of exemplary damages to be awarded is within the
discretion of the trier of fact.
Sec. 41.011. EVIDENCE RELATING TO AMOUNT OF EXEMPLARY
DAMAGES. (a) Requires the trier of fact, when determining the
amount of exemplary damages, to consider evidence relating to
the nature of the wrong; the character of the conduct
involved; the degree of culpability of the wrongdoer; the
situation and sensibilities of the parties; the extent such
conduct offends a public sense of justice and propriety; and
the net worth of the defendant.
(b) Provides that evidence that is relevant only to the
amount of exemplary damages that may be awarded is not
admissible during the first phase of a bifurcated trial.
Sec. 41.012. JURY INSTRUCTIONS. Requires the court to
instruct the jury with regard to Sections 41.001, 41.003,
41.010, and 41.011.
Sec. 41.013. JUDICIAL REVIEW OF AWARD. (a) Requires an
appellate court reviewing findings by a trier of fact
concerning exemplary damage liability or the amount of
exemplary damages awarded to state, in a written opinion, the
court's reason for upholding or disturbing the finding or
award. Requires the opinion to address the evidence or lack
of evidence, as it relates to the liability for or amount of
exemplary damages, with specificity and in reference to the
requirements of this chapter, except as provided for in
Subsection (b).
(b) Provides that this section does not apply to the supreme
court with respect to its consideration of an application
for writ of error.
Deletes existing Sections 41.008 and 41.009 to make conforming
changes.
SECTION 2. Effective date: September 1, 1995.
Makes application of this Act prospective.
SECTION 3. Emergency clause.
COMPARISON OF ORIGINAL TO SUBSTITUTE
SECTION 1. In Sec. 41.002(d), the substitute exempts Section
15.21, Business and Commerce Code (Texas Free Enterprise and
Antitrust Act of 1983), action brought under the DTPA except as
provided in Section 17.50 of that Act, or an action brought under
Chapter 21, Insurance Code whereas the original only exempted
Section 15.21, Business and Commerce Code (Texas Free Enterprise
and Antitrust Act of 1983).
In Sec. 41.003(a)(3), the substitute defines "gross neglect" for
purposes of Section 26, Article XVI, Texas Constitution whereas the
original deleted "gross neglect."
In Sec. 41.005(a) the substitute adds "of another" to the end of
the sentence. In Sec. 41.005(b)(1) the substitute states that the
exemption provided by Subsection (a) does not apply if the criminal
act was committed by an agent or employee of the defendant, whereas
the original only listed employee of the defendant. In Section
41.005(c) the substitute provides that the principal or employer
may be liable for punitive damages in an action arising out of a
criminal act committed by an agent or employee only if the employer
or principal authorized the doing and the manner of the act, the
employee or agent was unfit and the employer or principal acted
with malice, the employee or agent was employed in a managerial
capacity and was acting in the scope of employment, or the
principal or employer or a manager of the principal or employer
ratified or approved the act. Section 41.005(c) of the original
provides that the employer may be liable for punitive damages in an
action arising out of a criminal act committed by an employee only
if the principal authorized the doing and the manner of the act,
the agent was unfit and the principal acted with malice, the agent
was employed in a managerial capacity and was acting in the scope
of employment, or the employer or the manager of the employer
ratified or approved the act.
In Sec. 41.008(c) of the original, this section does not apply to
circumstances in which there was an intentional or knowing felony
offense as defined in the listed sections of the Penal Code. Sec.
41.008(c) of the substitute, provides that Subsection (b) does not
apply to a cause of action against a defendant from whom a
plaintiff seeks recovery of exemplary damages based on conduct
described as a felony in the listed sections of the Penal Code if
the conduct was committed knowingly or intentionally. Also, in
Sec. 41.008(d), the original provides that this section does not
apply to circumstances in which there was an intentional or knowing
third degree felony defense as defined in Chapter 31 of the Penal
Code, whereas the substitute includes Chapter 31, Penal Code the
punishment level for which is a felony of the third degree or
higher in this listing under Sect. 41.008(c).
SECTION 2. Section 2 of the original provided that this act
applied to a cause of action that accrues on or after the effective
date, whereas Section 2 of the substitute clarifies that the act
applies to a cause of action that accrues on or after the effective
date. Cases filed before the effective date are governed by the
law in effect immediately before the effective date.
SUMMARY OF COMMITTEE ACTION
Pursuant to public notice posted on March 8, 1995, SB 25 was
considered by the Committee on State Affairs in a public hearing on
March 13, 1995. The Chair laid out SB 25 and recognized Rep.
Junell to explain the bill. The following persons testified in
favor of the bill: Karen M. Neeley representing the Independent
Bankers Association of Texas; and John H. Marks, Jr. representing
the Texas Association of Defense Counsel; The following persons
testified against the bill: Susan S. Pitman representing the
Chemical Connection; T. Gail Armstrong representing herself; Hannah
Riddering representing the National Organization of Women; Diane
Papageorgiou representing herself; Tim Curtis representing Texas
Citizen Action; Lin Ehrlich representing herself; Christine
Heinrich representing herself; Betty Jean Craig representing
herself; Judith G. Shaw representing herself; Rick Levy
representing Texas AFL/CIO; Reggie James representing Consumers
Union; Tom Smith representing Public Citizen; Elizabeth M.T. O'Nan
representing the Chemical Injury Information Network; and Daisy
Iglesias representing herself. The following persons provided
neutral testimony on the bill: Mike Gallagher representing the
Texas Trial Lawyers Association; Bill Whitehurst representing the
Texas Trial Lawyers Association; and Bill Lewis representing
Mothers Against Drunk Driving. The Chair recognized Rep. Duncan to
close. The Chair left SB 25 pending. SB 25 was considered by the
Committee on State Affairs in a public hearing on March 20, 1995.
The Chair laid out SB 25. The following persons testified for the
bill: Michael T. Gallagher representing the Texas Trial Lawyers
Association; George W. Berry representing the Texas Trial Lawyers
Association; Robert Howden representing NFIB/Texas; Claudia Wilson
Frost representing Texans for Lawsuit Reform; Nub Donaldson
representing the Texas Civil Justice League; and Shannon Ratliff
representing the Texas Civil Justice League. The following person
testified against the bill: Tom "Smitty" Smith representing Public
Citizen, Inc. The following person provided neutral testimony on
the bill: Bill Whitehurst representing the Texas Trial Lawyers
Association. The Chair left SB 25 pending. SB 25 was considered
by the Committee on State Affairs in a public hearing on March 27,
1995. The Chair laid out SB 25. The committee considered a
complete substitute for the bill. Five amendments were offered to
the substitute. Three of those amendments were adopted without
objection. One of those amendments was tabled by a record vote of
12 ayes, 2 nayes, 1 pnv, 0 absent. One of those amendments was
tabled by a record vote of 13 ayes, 1 nay, 1 pnv, 0 absent. The
substitute as amended was adopted without objection. The Chair
directed the staff to incorporate the amendments into the
substitute. The bill was reported favorably as substituted with
the recommendation that it do pass and be printed, by a record vote
of 14 ayes, 1 nay, 0 pnv, 0 absent.