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.