BILL ANALYSIS C.S.S.B. 25 By: Sibley Economic Development 2-14-95 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 As proposed, 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 Section 15.21, Business and Commerce Code (Texas Free Enterprise and Antitrust Act of 1983). Sec. 41.003. STANDARDS FOR RECOVERY OF EXEMPLARY DAMAGES. (a) Authorizes exemplary damages to be awarded only if the claimant proves by clear and convincing evidence that the harm resulted from fraud or malice, except as provided in Subsection (c). Deletes a provision including gross negligence on the list of authorized damages for which a claimant may receive exemplary damages. (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. (b) Provides that Subsection (a) does not apply if the criminal act was committed by an 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 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. 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 this section does not apply to circumstances in which there was an intentional or knowing felony offense as defined in Sections 19.02, 19.03, 20.04, 22.02, 22.011, 22.021, 22.04, 32.21, 32.43, 32.45, 32.46, and 32.47 of the Penal Code. (d) Provides that this section does not apply to circumstances in which there was an intentional or knowing third degree felony offense or greater as defined in Chapter 31, Penal Code (theft). (e) Provides that "intentionally" and "knowingly" have the same meanings assigned in Section 6.03(a) and (b) of the Penal Code. (f) 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.