TXO Production Corp. v. Alliance Resources Corp.
Annotate this CaseJanuary 1992 Term
_____________
No. 20281
_____________
TXO PRODUCTION CORP., A DELAWARE CORPORATION
LICENSED TO DO BUSINESS IN WEST VIRGINIA,
Appellant
v.
ALLIANCE RESOURCES CORP., A TEXAS CORPORATION
LICENSED TO DO BUSINESS IN WEST VIRGINIA; TUG FORK
LAND COMPANY, A WEST VIRGINIA CORPORATION; GEORGE KING,
AN INDIVIDUAL; AND GROVER C. GOODE, AN INDIVIDUAL,
Appellees
____________________________________________________
Appeal from the Circuit Court of McDowell County
Honorable Booker T. Stephens, Judge
Civil Action No. 85-C-550
AFFIRMED
____________________________________________________
Submitted: March 10, 1992
Filed: May 14, 1992
Timothy R. Miller, Esquire
Charles R. McElwee, Esquire
Robinson & McElwee
Charleston, West Virginia
Attorneys for the Appellant
G. David Brumfield, Esquire
Wade T. Watson, Esquire
David L. White, Esquire
Sanders, Watson & White
Bluefield, West Virginia
Attorney for the Appellee
JUSTICE NEELY delivered the Opinion of the Court.
McHugh, C. J., and Miller, J., concur and reserve the right to file concurring opinions.
SYLLABUS BY THE COURT
1. "The common law of England, so far as it is not
repugnant to the principles of the constitution of this state,
shall continue in force within the same, except in those respects
wherein it was altered by the general assembly of Virginia before
the twentieth day of June, eighteen hundred and sixty-three, or has
been, or shall be, altered by the Legislature of this state."
W. Va. Code, 2-1-1 [1923].
2. Slander of title is actionable under West Virginia
common law.
3. The elements of slander of title are:
1. publication of
2. a false statement
3. derogatory to plaintiff's title
4. with malice
5. causing special damages
6. as a result of diminished value in the eyes of
third parties.
4. A tenant in possession under a lease is estopped to
deny the title of his landlord.
5. "In determining whether the verdict of a jury is
supported by the evidence, every reasonable and legitimate
inference, fairly arising from the evidence in favor of the party
for whom the verdict was returned, must be considered, and those
facts, which the jury might properly find under the evidence, must
be assumed as true." Syllabus Point 3 of Walker v. Monongahela
Power Company, 147 W. Va. 825, 131 S.E.2d 736 (1963).
6. Attorneys' fees incurred in removing spurious clouds
from a title qualify as special damages in an action for slander of
title.
7. Admission of extrinsic acts evidence under Rule
404(b) of the West Virginia Rules of Evidence [1985] may be
critical to the establishment of the truth as to a disputed issue,
especially when that issue involves the actor's state of mind and
the only means of ascertaining that mental state is by drawing
inferences from conduct.
8. Protection against unfair prejudice from evidence
admitted under Rule 404(b) of the West Virginia Rules of Evidence
[1985] is provided by: (1) the requirement of Rule 404(b) that the
evidence be offered for a proper purpose; (2) the relevancy
requirement of Rule 402 - as enforced through Rule 104(b); (3) the
assessment the trial court must make under Rule 403 to determine
whether the probative value of the similar acts evidence is
substantially outweighed by its potential for unfair prejudice;
and, (4) Rule 105, which provides that the trial court shall, upon
request, instruct the jury that the similar acts evidence is to be
considered only for the proper purpose for which it was admitted.
9. "'Rulings on the admissibility of evidence are
largely within a trial court's sound discretion and should not be
disturbed unless there has been an abuse of discretion.' State v.
Louk, 171 W. Va. 639, 301 S.E.2d 596, 599 (1983)." Syllabus Point
2, State v. Peyatt, 173 W. Va. 317, 315 S.E.2d 574 (1983).
10. "Rules 402 and 403 of the West Virginia Rules of
Evidence [1985] direct the trial judge to admit relevant evidence,
but to exclude evidence whose probative value is substantially
outweighed by the danger of unfair prejudice to the defendant."
Syllabus Point 4, Gable v. The Kroger Co., ___ W. Va. ___, 410 S.E.2d 701 (1991).
11. "The language of Rule 804(b)(5) of the West Virginia
Rules of Evidence and its counterpart in Rule 803(24) requires that
five general factors must be met in order for hearsay evidence to
be admissible under the rules. First and most important is the
trustworthiness of the statement, which must be equivalent to the
trustworthiness underlying the specific exceptions to the hearsay
rule. Second, the statement must be offered to prove a material
fact. Third, the statement must be shown to be more probative on
the issue for which it is offered than any other evidence the
proponent can reasonably procure. Fourth, admissions of the
statement must comport with the general purpose of the rules of
evidence and the interest of justice. Fifth, adequate notice of
the statement must be afforded the other party to provide that
party a fair opportunity to meet the evidence." Syllabus Point 5,
State v. Smith, 178 W. Va. 104, 358 S.E.2d 188 (1987).
12. Petitions for review of punitive damages awarded
before 5 December 1991 should address each and every factor set
forth in syllabus points 3 and 4 of Garnes v. Fleming Landfill, ___
W. Va. ___, 413 S.E.2d 897 (1991) with particularity, summarizing
the evidence presented to the jury on the subject or to the trial
court at the post-judgment review stage.
13. "When the trial court instructs the jury on punitive
damages, the court should, at a minimum, carefully explain the
factors to be considered in awarding punitive damages. These
factors are as follows:
(1) Punitive damages should bear a
reasonable relationship to the harm that is
likely to occur from the defendant's conduct
as well as to the harm that actually has
occurred. If the defendant's actions caused
or would likely cause in a similar situation
only slight harm, the damages should be
relatively small. If the harm is grievous,
the damages should be greater.
(2) The jury may consider (although the
court need not specifically instruct on each
element if doing so would be unfairly
prejudicial to the defendant), the
reprehensibility of the defendant's conduct.
The jury should take into account how long the
defendant continued in his actions, whether he
was aware his actions were causing or were
likely to cause harm, whether he attempted to
conceal or cover up his actions or the harm
caused by them, whether/how often the
defendant engaged in similar conduct in the
past, and whether the defendant made
reasonable efforts to make amends by offering
a fair and prompt settlement for the actual
harm caused once his liability became clear to
him.
(3) If the defendant profited from his
wrongful conduct, the punitive damages should
remove the profit and should be in excess of
the profit, so that the award discourages
future bad acts by the defendant.
(4) As a matter of fundamental fairness,
punitive damages should bear a reasonable
relationship to compensatory damages.
(5) The financial position of the defendant
is relevant."
Syllabus Point 3, Garnes v. Fleming Landfill, ___ W. Va. ___, 413 S.E.2d 897 (1991).
14. "When the trial court reviews an award of punitive
damages, the court should, at a minimum, consider the factors given
to the jury as well as the following additional factors:
(1) The costs of the litigation;
(2) Any criminal sanctions imposed on the
defendant for his conduct;
(3) Any other civil actions against the
same defendant, based on the same conduct; and
(4) The appropriateness of punitive damages
to encourage fair and reasonable settlements
when a clear wrong has been committed. A
factor that may justify punitive damages is
the cost of litigation to the plaintiff.
Because not all relevant information is available to the
jury, it is likely that in some cases the jury will make an award
that is reasonable on the facts as the jury know them, but that
will require downward adjustment by the trial court through
remittitur because of factors that would be prejudicial to the
defendant if admitted at trial, such as criminal sanctions imposed
or similar lawsuits pending elsewhere against the defendant.
However, at the option of the defendant, or in the sound discretion
of the trial court, any of the above factors may also be presented
to the jury." Syllabus Point 4, Garnes v. Fleming Landfill, ___
W. Va. ___, 413 S.E.2d 897 (1991).
15. The outer limit of the ratio of punitive damages to
compensatory damages in cases in which the defendant has acted with
extreme negligence or wanton disregard but with no actual intention
to cause harm and in which compensatory damages are neither
negligible nor very large is roughly 5 to 1. However, when the
defendant has acted with actual evil intention, much higher ratios
are not per se unconstitutional.
Neely, J.:
In this case, TXO Production Corporation, a subsidiary of
USX, knowingly and intentionally brought a frivolous declaratory
judgment action against the appellees to clear a purported cloud on
title. TXO's real intent, however, was to reduce the royalty
payments under a 1,002.74 acre oil and gas lease. Appellees
counterclaimed alleging that TXO's actions were a slander of
appellees' title. TXO now appeals the verdict against it for
$19,000 in compensatory damages and $10,000,000 in punitive damages
assigning three primary errors: (1) no cause of action for slander
of title exists in West Virginia, and even if it does, the
appellees did not prove the essential elements of slander of title
at trial; (2) the circuit court erred in admitting testimony of
lawyers involved in suits against TXO in other states to show plan,
knowledge and intent in contravention of the West Virginia Rules of
Evidence; and (3) the award of punitive damages in this case is a
violation of due process as enunciated in Haslip v. Pacific Mutual
Life Ins. Co., ___ U. S. ___ (1991) and Garnes v. Fleming Landfill,
___ W. Va. ___, 413 S.E.2d 897 (1991). We find no reversible error
in the lower court's conduct of the trial and, because appellant
and its agents and servants failed to conduct themselves as
gentlemen, we decline to enter a remittitur. Thus, we affirm.
I.
This case centers in the oil and gas development rights
to 1,002.74 acres in McDowell County known as the "Blevins Tract."
Tug Fork Land Company manages the Blevins Tract. In 1984, Tug Fork
leased the oil and gas development rights to George King, doing
business as Georgia Fuels. Mr. King in turn assigned his lease to
Alliance Resources Corporation, reserving an overriding royalty
interest to Georgia Fuels.
In late 1984, TXO became interested in the oil and gas in
the Blevins Tract and approached Brian Robinson, the president and
chairman of the board of Alliance Resources, about purchasing
Alliance's rights in the Blevins Tract. Mr. Robinson declined to
sell Alliance's interest outright but did propose a joint venture
in which TXO would pay 75 percent of the drilling costs and
Alliance Resources would pay 25 percent. Under this arrangement,
Tug Fork would receive a 12.5 percent royalty, Georgia Fuels would
receive a 6.25 percent royalty, and Alliance Resources would
receive a 1 percent royalty, for a total royalty burden of 19.75
percent. TXO and Alliance would then share an 80.25 percent
working interest. TXO rejected this proposal.
Only a few months later, in February, 1985, however, TXO
approached Mr. Robinson with a much better offer. TXO offered to
pay all of the drilling costs, pay 22 percent in royalties, and pay
Alliance $20 per acre for its interest in the Blevins Tract. Mr.
Robinson accepted what he considered to be such a "phenomenal
offer."See footnote 1
TXO then retained the Ripley law firm of Skeen and Skeen
to examine the title to the Blevins Tract. According to the title
report prepared by the Skeens, there was a problem with a 1958 deed
from Tug Fork to Leo J. Signaigo, Jr.See footnote 2 TXO's agent, Duncan Wood,
then contacted Mr. Signaigo who told him that the 1958 deed did not
include the transfer from Tug Fork to Mr. Signaigo of rights to the
oil and gas. Nevertheless, shortly thereafter Mr. Wood approached
Mr. Signaigo with a pre-printed affidavit for Mr. Signaigo to sign.
The affidavit falsely stated that Mr. Signaigo could not say
whether the oil and gas rights were included in the 1958 deed. The
complete contents of the tendered affidavit are as follows:
My name is Leo J. Signaigo, Jr. and I am
involved in the coal business. On September
2nd, 1958, I purchased the coal and other
minerals under certain tracts of real estate
from Tug Fork Land Company. A copy of this
deed is attached hereto and incorporated
herein for all purposes. However, there was
no specific agreement on the part of myself or
Tug Fork Land Company as to whether or not the
oil and gas would be reserved by Tug Fork Land
Company in the attached deed, other than in
the Pocahontas No. 3 and No. 4 coal seams.
Therefore, I did not know whether or not the
oil and gas was included in the conveyance to
me and as a consequence, after I purchased
this mineral property, I was assessed for
1,002.74 acres, mineral or timber, Hensley
Creek. In the event Tug Fork Land Company
would claim that we had a specific agreement
that the oil and gas was not to be conveyed
under any of the properties, I could not agree
with such conclusions as there was not such a
specific agreement. Further affiant saith
not. (Emphasis added.)
Because the affidavit was false, Mr. Signaigo refused to sign it.
The pertinent parts of the 1958 Signaigo deed state:
1. That for and in consideration of the sum
of One ($1.00) Dollar, cash in hand paid, and
other good and valuable considerations not
herein set forth, the receipt and sufficiency
of all of which is hereby acknowledged, the
said party of the first part does hereby
bargain, sell, grant and convey unto the said
party of the second part, with covenants of
special warranty of title, all the coal and
other minerals and mineral substances in, on
and underlying the following tracts or parcels
of land, situate in Browns Creek District,
McDowell County, West Virginia, together with
the mining rights and privileges hereinafter
set forth, but subject to the exceptions,
reservations, stipulations and agreements
hereinafter set forth, to-wit:
[A description of the Blevins tract is
included here.]
* * *
6. It is understood and agreed that there
is excepted and reserved to the party of the
first part, its successors, assigns and
lessees, the right to mine and remove all of
said No. 3 and No. 4 Pocahontas seams of coal,
together with the right to bore for and remove
all the oil and gas underlying said tracts,
such rights, however, to be used in common
with the party of the second part and so as to
interfere as little as possible with the
mining operations of the party of the second
part.
Although the deed does not demonstrate the most artful drafting, it
does clearly reserve all of the oil and gas under the Blevins Tract
to Tug Fork Land Company.See footnote 3 To make it perfectly clear why this
Court so unequivocally finds that the deed was unambiguous, we
include the entire deed as Appendix A.
Having decided that there was either a real or a
contrived problem with title to the oil and gas, and still without
having brought the potential problem to the attention of any of the
appellees, TXO paid $6,000 to Virginia Crews (see note 2, supra) in
exchange for a quitclaim deed that was recorded 11 July 1985. TXO
told none of the appellees about any possible defect in title until
after it had recorded its quitclaim deed.
After recording its quitclaim deed, TXO held a meeting on 14 or 15 August 1985 (the date is inconsistent in the record), attended by several of its employees, the title lawyer Mr. Larry Skeen, and Mr. Brian Robinson. The parties disagree about what occurred at this meeting. Mr. Robinson testified that during this
meeting, Mr. Skeen very aggressively explained to him why the lease
by Alliance Resources was not valid under West Virginia law. Mr.
Robinson also testified that TXO asked for concessions and that TXO
threatened to file suit if the appellees did not make concessions
on the royalties. On the other hand, Mr. Skeen testified that,
although "[he did not] remember what all we went over," he did not
tell Mr. Robinson that Alliance didn't have title. Mr. Wood, a TXO
landman, testified that TXO did not ask for any concessions on
royalties at this meeting.
In the case before us no one disputes that before
beginning to drill, any reasonable businessman would want to clear
up any clouds on the title to the oil and gas rights, no matter how
small. Therefore, we understand that before investing hundreds of
thousands of dollars in an exploratory well on the Blevins Tract,
TXO would have wanted to fork out $6,000 for an insurance policy
against litigation in the form of a quitclaim deed. However,
instead of clearing the title directly by making the grantee of the
quitclaim Tug Fork or approaching the appellees to discuss the
title problem, TXO attempted to use the purported cloud as leverage
for increasing its interest in the oil and gas rights.
Shortly after the 14 or 15 August meeting, on 23 August
1985, TXO filed its action for a declaratory judgment to quiet
title. The appellees counterclaimed alleging slander of title.
The circuit court then bifurcated the issues for trial. In the
declaratory judgment action, the circuit court found the terms of
the 1958 deed from Tug Fork to Mr. Signaigo to be clear and
unambiguous and held that title to the oil and gas was vested in
Tug Fork as leased to Alliance Resources through George King. On
the counterclaim, a jury awarded appellees $19,000 in compensatory
damages and $10,000,000 in punitive damages.
II.
A.
TXO argues that there is no action for slander of title
in West Virginia. Although there is no West Virginia case on
record directly recognizing an action for slander of title, the
West Virginia Constitution, Article VIII, Section 13, provides:
Except as otherwise provided in this
article, such parts of the common law, and of
the laws of this State as are in force on the
effective date of this article and are not
repugnant thereto, shall be and continue the
law of this State until altered or repealed by
the legislature.
Also, W. Va. Code, 2-1-1 [1923] provides:
The common law of England, so far as it is
not repugnant to the principles of the
constitution of this state, shall continue in
force within the same, except in those
respects wherein it was altered by the general
assembly of Virginia before the twentieth day
of June, eighteen hundred and sixty-three, or
has been, or shall be, altered by the
Legislature of this state.
Interpreting these provisions, we stated in Syllabus
Point 2 of Morningstar v. Black & Decker Mfg. Co., 162 W. Va. 857,
253 S.E.2d 666 (1979):
Article VIII, Section 13 of the West
Virginia Constitution and W. Va. Code, 2-1-1,
were not intended to operate as a bar to this
Court's evolution of common law principles,
including its historic power to alter or amend
the common law.
Although we recognized the ability of this Court to alter and amend
the common law in Morningstar, we certainly did not imply that the
common law was in any way abrogated as it stood. Quite to the
contrary, the West Virginia Constitution commands that we recognize
the English common law as of 1863.See footnote 4 Recognizing this fact, we now
look to the common law.
Slander of title long has been recognized as a common law
cause of action. Indeed, the slander of title cause of action was
especially important 400 years ago when many transfers of land were
oral transfers (i.e., feoffment with livery of seisin), and when,
the Domesday Book notwithstanding, land records were much less
complete than they are today. In the 32nd and 33rd years of
Elizabeth I (c. 1591), the Queen's Bench found for the plaintiff on
a claim of slander of title in Gerrard against Dickenson, 78 Eng.
Rep. 452. Although 400 years old, Gerrard has some similarities to
the case before us. The defendant claimed that she had a lease on
the land of the plaintiff, which she did not have. The defendant
offered several objections, but the court found for the plaintiff.
Later, in the 5th year of James I (c. 1608) the King's
Bench also found for a plaintiff on a slander of title claim in
Earl of Northumberland against Byrt, 79 Eng. Rep. 143. In Byrt,
the defendant falsely said that the previous owner of the land in
question had made a lease of it before his death. The defendant
also claimed that the lease had then been conveyed to him. The
court found this actionable as slander of title and held for the
plaintiff. Examining these cases, it is clear that an action for
slander of title has been a part of English common law for at least
400 years.
The one possible defense for TXO that these cases raise,
however, is that "if a man claim estates [as his own], although
they be false he shall not be punished." See Pennyman against
Rabanks, 78 Eng. Rep. 668 (c. 1596). TXO maintained strenuously at
oral argument that only allegations that title is held by a third
party are actionable and that a person cannot slander title by
asserting title in himself. Originally, falsely claiming title for
oneself was not actionable as slander of title. However, at least
by the end of the 16th century, the English courts had begun to do
away with the distinction between claiming title in oneself and
alleging the superior title of another. As discussed supra,
unrecorded conveyances were much more important 400 years ago and
the courts, therefore, sought to protect those who asserted
unrecorded conveyances to themselves. In Pennyman, for example,
the court stated:
This was agreed by all the Court, that no
action lay against one for saying, that he
himself had title or estate in lands, &c.
although it were false. But here the words in
the declaration, as they are spoken, being in
the third person, be not intendable of
himself, but of some other, and import a
slander to the plaintiff's title; and then his
justification afterwards shall not take away
that action which before was given to the
plaintiff for the slandering of his title.--Wherefore rule was given that judgment should
be entered for the plaintiff, unless other
matter was shewn upon the third day of the
next term.See footnote 5
A distinction between claiming title in oneself and
claiming title in another arises for a logical reason. Although we
want to discourage people from slandering the title of others, we
do not want to discourage people from making legitimate (though
possibly weak) claims of their own. Therefore, we also distinguish
between cases in which the claimant legitimately raises questions
of title in himself and cases in which the claimant raises his own
claim without any reasonable grounds. Although the courts of the
16th and 17th centuries had not yet clearly enunciated this
distinction, they did follow it. The courts circumvented the
general rule whenever the defendant had not acted in good faith.
Consider Gerrard, supra, in which the defendant falsely claimed a
lease on land as her own. Notwithstanding the defendants'
objection that she could not slander title by claiming it in
herself, the court found for the plaintiff because the defendant
relied on a deed that she knew had been forged. When, therefore,
a defendant knows that his claim is false, he cannot rely on the
defense of claiming title in himself.
Because of the West Virginia Constitution's incorporation
of the common law of England, we find that an action for slander of
title could always be brought in West Virginia.See footnote 6 We also find that
claiming title in oneself without any reasonable basis can give
rise to a claim for slander of title.
B.
The Restatement (Second) of the Law of Torts (1977)
provides the guidelines that modern courts generally follow in
identifying the elements of slander of title. Restatement (Second)
of the Law of Torts § 623A (1977) provides:
One who publishes a false statement harmful
to the interests of another is subject to
liability for pecuniary loss resulting to the
other if
(a) he intends for publication of the
statement to result in harm to interests of
the other having a pecuniary value, or either
recognizes or should recognize that it is
likely to do so, and
(b) he knows that the statement is false or
acts in reckless disregard of its truth or
falsity.
Restatement (Second) of the Law of Torts § 624 (1977) provides:
The rules on liability for the publication
of an injurious falsehood stated in § 623A
apply to the publication of a false statement
disparaging another's property rights in land,
chattels or intangible things, that the
publisher should recognize as likely to result
in pecuniary harm to the other through the
conduct of third persons in respect to the
other's interests in the property.
From the Restatement, we can deduce the elements of
slander of title:
1. publication of
2. a false statement
3. derogatory to plaintiff's title
4. with malice
5. causing special damages
6. as a result of diminished value in the eyes
of third parties.
See also W. P. Keeton, Prosser and Keeton on Torts (5th ed. 1984 at
§ 128); Williams v. Burns, 540 F. Supp. 1243 (D.Colo. 1982).
Although perhaps more neatly set out, these are the same elements
required at least as far back as Gerrard in 1591.
C.
The jury found that by recording a quitclaim deed which
it knew to be frivolous, TXO satisfied the requirements for slander
of title. TXO argues that recording a quitclaim deed cannot be
construed as the publication of a frivolous statement with the
intent to prevent others from dealing with the claimant as required
for an action for slander of title. We disagree. Recording a
quitclaim deed that one knows to be frivolous is no different from
saying to a potential purchaser - "I don't think you should buy
that land. You know there is a cloud on the title because of Mr.
Signaigo's old deed." Therefore, we agree with the Supreme Court
of Montana which stated in a slander of title action in Jumping
Rainbow Ranch v. Conklin, 538 P.2d 1027, ____ (Mont. 1975):
[T]he action of [the defendant] in filing
his quitclaim deed was such as to warrant the
necessary showing of malice to entitle
plaintiff to punitive damages.
As a general rule, courts have found that wrongfully recording an
unfounded claim to the property of another is actionable as slander
of title. See, e.g., Annotation, "Recording of Instrument
Purporting to Affect Title as Slander of Title," 39 A.L.R.2d 840,
and cases cited therein. This is so provided that the other
elements for slander of title, namely malice and special damages,
are present.
Even if (unlikely as this may be) the circuit court had
found that there was a legitimate cloud on the title because of the
deed to Mr. Signaigo, TXO (as an expert in all aspects of land law)
undoubtedly knew that a tenant in possession under a lease is
estopped from denying the title of his landlord. See Trial
transcript at 614 (testimony of TXO's agent, Duncan Wood,
confirming, in a general way, that he was aware at the time that
such a rule existed.) As we said in Voss v. King, 33 W. Va. 236,
239, 10 S.E. 402, ___ (1889):
[A] tenant in possession under a lease is
not permitted to dispute the title of his
landlord. This as a general principle of law
is well settled both in England and in this
country.
Although it has been a number of years since we have addressed the
issue, the well-settled general rule is still that:
[D]uring the existence of the relation of
landlord and tenant, the tenant is estopped to
deny his landlord's title. 49 Am. Jur.2d
Landlord and Tenant § 109 (1970).
If, however, an honest mistake had arisen and TXO had mistakenly
taken the quitclaim deed from Virginia Crews in its name instead of
Tug Fork's name (but had not filed a suit against the appellees to
challenge the title of TXO's own landlord while still in possession
and claiming under the lease), the counterclaim for slander of
title would never have arisen. Certainly, a jury would not have
found malice in TXO's actions.
At trial, and again on appeal, TXO argued that there was
no malice in its actions, and that the filing of the false
quitclaim deed was the result of a good faith mistake. However,
after the testimony about TXO's efforts to reduce royalty payments
and much testimony about previous similar bad acts by TXO (see,
Section III, infra), the jury found the requisite malice. The
testimony regarding the August meeting is conflicting, and when we
examine conflicting testimony, we look to Syllabus Point 3 of
Walker v. Monongahela Power Company, 147 W. Va. 825, 131 S.E.2d 736
(1963), where we stated:
In determining whether the verdict of a jury
is supported by the evidence, every reasonable
and legitimate inference, fairly arising from
the evidence in favor of the party for whom
the verdict was returned, must be considered,
and those facts, which the jury might properly
find under the evidence, must be assumed as
true.
Furthermore, TXO's employee, Duncan Wood, testified that TXO never
made a request to Alliance for simple reimbursement of the expenses
in acquiring the quitclaim deed. See Trial transcript at 618.
This leads to the logical inference that TXO's real intent was to
negotiate substantially lower royalties with appellees, thus
reducing the market value of the appellees' interest in the lease
in the eyes of any prospective third party purchasers. Therefore,
we take Mr. Robinson's version of these events as accurate.
Not only do the details of the August meeting as related
by Mr. Robinson suggest malice on the part of TXO, but the facts of
Mr. Woods' dealings with Mr. Signaigo also show unsavory and
malicious practices by TXO. When examined in the light most
favorable to the appellees, the evidence clearly shows that TXO
intentionally and maliciously recorded a quitclaim deed that it
knew to be without any basis in fact because Mr. Signaigo
explicitly told TXO that he had not bought the oil and gas on the
Blevins Tract in 1958. Furthermore, the record shows that this was
not an isolated incident on TXO's part -- a mere excess of zeal by
poorly supervised, low level employees -- but rather part of a
pattern and practice by TXO to defraud and coerce those in
positions of unequal bargaining power vis à vis TXO's superior
legal firepower.
TXO argues that the $19,000 in attorneys' fees incurred
by the appellees in defending against TXO's suit to remove the
cloud from appellees' title are not special damages. Ordinarily,
attorneys' fees are not considered damages. However, slander of
title is a special case. The appellees spent $19,000 responding to
TXO's declaratory judgment action that the appellees would not have
spent if TXO had not filed the false quitclaim deed and then sued
the appellees in an attempt to steal their land. We follow the
clear majority rule in holding that attorneys' fees incurred in
removing spurious clouds from a title qualify as special damages in
an action for slander of title. See, e.g., Rayl v. Shull
Enterprises, Inc., 700 P.2d 567 (Idaho 1984); Summa Corp. v.
Greenspun, 655 P.2d 513 (Nev. 1982); Paulson v. Kustom Enterprises,
Inc., 157 Mont. 188, 483 P.2d 700 (1971); Dowse v. Doris Trust Co.,
116 Utah 106, 208 P.2d 956 (1949); Chesbro v. Powers, 78 Mich. 472,
44 N.W. 290 (1889); Den-Gar Enterprises v. Romero, 94 New Mexico
425, 611 P.2d 1119 (Ct. App. 1980), cert. denied, 94 New Mexico
628, 614 P.2d 545 (1980). See also Restatement (Second) of the Law
of Torts, § 633 (1977).See footnote 7
III.
A.
TXO's second group of assignments of error involve the
introduction, as part of appellees' case in chief, of certain
testimony about prior bad acts perpetrated by TXO. One of TXO's
defenses at trial was good faith or the lack of malice. The
appellees introduced testimony by four lawyers, under Rule 404(b)
of the West Virginia Rules of Evidence [1985], to help establish a
lack of good faith by TXO. TXO claims that the introduction of
this evidence was a violation of Rules 404(b), 402, 403 and 802 of
the West Virginia Rules of Evidence [1985].
The testimony at issue are the videotaped depositions of
R. H. Madden, III, a Ruston, Louisiana lawyer; Clarence Bufford
Harrison, Jr., a Richardson, Texas lawyer; James P. Pruitt, a
lawyer from Dallas and, Allan DeVore, a lawyer from Oklahoma City.
The circuit court thoroughly examined each of these depositions
before trial and excluded some parts of the testimony to which TXO
had objected.
Mr. Madden testified about litigation that he initiated
against TXO for his client Carrie Calloway. Ms. Calloway is an
elderly, functionally illiterate woman who lives in Louisiana. Her
son contacted Mr. Madden because he believed that TXO was taking
gas from his mother's land without paying her for it. Near the end
of February, 1988, Mr. Madden contacted John Wright in TXO's
Shreveport office and informed him that he was representing Ms.
Calloway. Mr. Madden testified that on 4 March 1988, David
McDonald and Kevin Treadway, representatives of TXO, came to Ms.
Calloway's house to discuss her interest in the gas TXO had been
producing. Ms. Calloway told the TXO representatives that they
should contact Mr. Madden. However, the TXO representatives told
Ms.Calloway that neither she nor they needed to talk to Mr. Madden,
and that all she needed to do was sign some papers or else her
neighbors could not continue to receive their royalty payments.
Not wanting to prevent her neighbors from receiving money that was
rightfully theirs, Ms. Calloway signed the tendered document. Ms.
Calloway could not read this document and the TXO representatives
did not leave her a copy of it. Ms. Calloway told Mr. Madden that
the gentlemen were at her house about 1:00 p.m. on 4 March 1988.
At 2:21 p.m. that same day, a lease (which was the tendered
document) was filed in the local clerk of court's office.
Subsequently, TXO settled the case favorably to Ms. Calloway.
Mr. Harrison testified about some wells in Texas in which
he owned an interest. He testified that TXO had been producing
from his wells for almost a year without paying him any royalties.
He stated:
They had given us a list of excuses a mile
long of why they hadn't paid. One of them was
we don't know if the title's good to the
tract. Well, our tract was where the well was
located and that title was cured before the
well was drilled.
Well, they gave us excuse after excuse after
excuse. When we got the bill we figured they
owed us 150 or $200,000. And our part of the
frack job was about $50,000, so we figured
since they owed us more than we owed them we
weren't going to pay them.
Never forget one day my partner, I was in
his office, and he was registered agent for
the company and a lawyer from TXO called and
said we are going to sue you for that $50,000.
And he said, well, good. And the comment from
the lawyer on the other end of the phone was,
you don't seem too upset. And he said, well,
you're going to look awful silly suing us for
50,000 when you owe us 200,000. The lawyer
then got a little bit upset about that and
decided to go ahead and pay.
Trial transcript at 265 (Emphasis added.)
Mr. Harrison also testified that, in another case, TXO
under-reported the gas it had produced from a well, and therefore
failed to pay the royalties it should have paid.
Mr. Pruitt, an oil and gas lawyer, testified about
litigation he had instituted (personally and on behalf of clients)
against TXO in 1984. After investigating the situation, Mr. Pruitt
discovered that TXO had been paying minimal shut-in royalties to
him and others, when in fact, TXO had been producing out of his
well and other wells.See footnote 8 Shortly after the lawsuit was filed, Mr.
Pruitt testified, TXO settled the case.
Mr. DeVore testified about some ongoing litigation in
Oklahoma. He had examined depositions, discovery requests,
interrogatories and other documents in the office of the county
clerk where the litigation was taking place. He explained that
there was a tract of land on which TXO wanted to drill. Under
Oklahoma law, there was a procedure through which any owner of land
within a tract could gain drilling rights. TXO initiated this
procedure, although it did not own any of the land. In essence,
TXO sent a letter to a group of landowners saying TXO was going to
drill a well and individual landowners could either get in on it or
not. However, TXO had no right to drill without the landowners'
permission, and no right to send this letter. Through this
questionable tactic, TXO was able to acquire an interest from one
of the existing owners, and by acquiring this interest through
fraud and misrepresentation, go on to drill the well it had
threatened to drill.
Mr. DeVore also testified about a pending case, Freede v.
Texas Oil and Gas Corp. and TXO Production Corp. From the court
documents available to him (or to any other member of the public),
Mr. DeVore testified that he thought "that TXO had violated the
rights of Dr. Freede and hundreds or thousands of other people
across the nation, as a result of this willful, wanton action."
Trial transcript at 315. He also explained the details of the
then-pending lawsuit by Dr. Freede. After the trial of appellees'
case here in West Virginia, however, an Oklahoma jury found for TXO
in the case brought by Dr. Freede.
B.
TXO argues that all of the testimony discussed in
subsection A above should have been excluded under Rule 404(b) of
the West Virginia Rules of Evidence [1985]. Rule 404(b) of the
West Virginia Rules of Evidence [1985] provides:
Evidence of other crimes, wrongs, or acts is
not admissible to prove the character of a
person in order to show that he acted in
conformity therewith. It may, however, be
admissible for other purposes, such as proof
of motive, opportunity, intent, preparation,
plan, knowledge, identity, or absence of
mistake or accident.
In Huddleston v. U. S., 485 U.S. 681 (1988), the U. S.
Supreme Court discussed the admission of "other acts" evidence
under Rule 404(b) of the Fed. R. Evid. The Court held that "other
acts" evidence need not be proved by a preponderance of the
evidence before it can be submitted to the jury. The Court stated:
"[S]uch evidence should be admitted if there
is sufficient evidence to support a finding by
the jury that the defendant committed the
similar act."
Id. at 685.
The Court also stated:
"Extrinsic acts evidence may be critical to
the establishment of the truth as to a
disputed issue, especially when that issue
involves the actor's state of mind and the
only means of ascertaining that mental state
is by drawing inferences from conduct." Id.
(Emphasis added.)
The Court held that the first inquiry a trial court must
make is whether the proffered evidence is probative of a material
issue other than character. The Court also found that protection
against unfair prejudice emanates from four sources:
[F]irst, from the requirement of Rule 404(b)
that the evidence be offered for a proper
purpose; second, from the relevancy
requirement of Rule 402 - as enforced through
Rule 104(b); third, from the assessment the
trial court must make under Rule 403 to
determine whether the probative value of the
similar acts evidence is substantially
outweighed by its potential for unfair
prejudice . . . and fourth, from Fed. R. of
Evid. 105, which provides that the trial court
shall, upon request, instruct the jury that
the similar acts evidence is to be considered
only for the proper purpose for which it was
admitted . . . .
Id. at 691-92.
We find the U. S. Supreme Court's reasoning in Huddleston
persuasive and we here use its analysis to examine the admission of
the other acts evidence in the case before us. Examining the first
requirement, the testimony was offered in this case to prove
malice, which is a necessary element in an action for slander of
title. TXO strenuously maintained at trial that no matter how the
facts appeared in this case, it had simply made a good faith
mistake. The appellees offered their evidence of other evil acts
to disprove TXO's good faith defense and to show that this case was
but part of a pattern and practice of deception and chiseling by
TXO.
For the second requirement, we look to Rules 401 and 402
of the West Virginia Rules of Evidence [1985]. Rule 401 of the
West Virginia Rules of Evidence [1985] provides:
"Relevant evidence" means evidence having
any tendency to make the existence of any fact
that is of consequence to the determination of
the action more probable or less probable than
it would be without the evidence.
Rule 402 of the West Virginia Rules of Evidence [1985] provides:
All relevant evidence is admissible, except
as otherwise provided by the Constitution of
the United States, the Constitution of the
State of West Virginia, these rules, or other
rules adopted by the Supreme Court of Appeals.
Evidence which is not relevant is not
admissible.
The proffered evidence was clearly relevant to the issue of malice.
Furthermore, as we stated in Syllabus Point 2 of State v. Peyatt,
173 W. Va. 317, 315 S.E.2d 574 (1983):
"'Rulings on the admissibility of evidence
are largely within a trial court's sound
discretion and should not be disturbed unless
there has been an abuse of discretion.' State
v. Louk, [171 W. Va. 623], 301 S.E.2d 596, 599
(1983)."
For the third requirement, we look to Rule 403 of the
West Virginia Rule of Evidence [1985] which states:
Although relevant, evidence may be excluded
if its probative value is substantially
outweighed by the danger of unfair prejudice,
confusion of the issues, or misleading the
jury, or by considerations of undue delay,
waste of time, or needless presentation of
cumulative evidence.
And we recently stated in Gable v. The Kroger Co., ___ W. Va. ___,
___, 410 S.E.2d 701, 705 (1991):
Rules 402 and 403 of the West Virginia Rules
of Evidence [1985] direct the trial judge to
admit relevant evidence, but to exclude any
evidence the probative value of which is
substantially outweighed by the danger of
unfair prejudice to the defendant. Such
decisions are left to the sound discretion of
the trial judge . . . .
In this case, we find that the trial judge was correct in holding
that any unfair prejudice to TXO did not substantially outweigh the
probative value of the testimony.
Fourth, TXO did not request a limiting instruction
regarding the other acts testimony. Therefore, we find this other
acts evidence was appropriately admitted under Rule 404(b) of the
West Virginia Rules of Evidence [1985].
TXO makes particular note of the testimony by Mr. DeVore
about the Freede case from Oklahoma because that case was
subsequently won by TXO.See footnote 9 The fact that a jury found for TXO in
Freede does not mean that any of the particular facts to which Mr.
DeVore testified is untrue. More importantly, TXO had an
opportunity to cross-examine Mr. DeVore, and also had an
opportunity to put on testimony of its own to contradict Mr.
DeVore. Furthermore, we find that, given the weight of the other
testimony, any error in admitting Mr. DeVore's testimony about the
Freede case was harmless.
C.
More problematic than TXO's vociferous objections to
admission of all of this testimony under Rule 404, is that
particular parts of this testimony were based on hearsay. West
Virginia Rule of Evidence 801(c) provides:
(c) Hearsay.--"Hearsay" is a statement,
other than one made by the declarant while
testifying at the trial or hearing, offered in
evidence to prove the truth of the matter
asserted.
West Virginia Rule of Evidence 802 provides:
Hearsay is not admissible except as provided
by these rules.
Apparently, at the deposition, appellees' attorney
offered this testimony believing it to be protected by the hearsay
exception codified in Rule 803(6) of the West Virginia Rules of
Evidence [1985]. Rule 803(6) of the West Virginia Rules of
Evidence provides:
A memorandum, report, record, or data
compilation, in any form, of acts, events,
conditions, opinions, or diagnoses, made at or
near the time by, or from information
transmitted by, a person with knowledge, if
kept in the course of a regularly conducted
business activity, and if it was the regular
practice of that business activity to make the
memorandum, report, record, or data
compilation, all as shown by the testimony of
the custodian or other qualified witness,
unless the source of information or the method
or circumstances of preparation indicate lack
of trustworthiness. The term "business" as
used in this paragraph includes business,
institution, association, profession,
occupation, and calling of every kind, whether
or not conducted for profit.
Most jurisdictions have held that this exception is
applicable only when the hearsay declarant is under a business duty
to provide the information. See, e.g., United States v.
Bortnovsky, 879 F.2d 30 (2nd Cir. 1989); Ramrattan v. Burger King
Corp., 656 F.Supp. (D. Md. 1987); White Indus., Inc. v. Cessna
Aircraft Co., 611 F. Supp. 1049 (W.D. Mo. 1985); and City of
Cleveland v. Cleveland Elec. Illuminating Co., 538 F. Supp. 1257
(N.D. Ohio 1980). In the case before us, the out-of-court
declarants were not under a business duty to provide the
information. However, we need not decide the admissibility of the
testimony under the business records exception because the
testimony is admissible under Rule 803(24) of the West Virginia
Rules of Evidence [1985].
The purpose of excluding hearsay testimony at trial is to
prevent unreliable information from reaching the jury. Because not
all statements that are hearsay as defined by Rule 801(c) of the
West Virginia Rules of Evidence [1985] are unreliable, we have
incorporated a number of specific traditional common law hearsay
exceptions (such as the business records exception) into Rules 803
and 804 of the West Virginia Rules of Evidence [1985]. Rules
803(24) and 804(b)(5) also provide "catch-all" exceptions to cover
other reliable hearsay statements.
Rule 803(24) of the West Virginia Rules of Evidence
[1985] provides:
A statement not specifically covered by any
of the foregoing exceptions but having
equivalent circumstantial guarantees of
trustworthiness, if the court determines that
(A) the statement is offered as evidence of a
material fact; (B) the statement is more
probative on the point for which it is offered
than any other evidence which the proponent
can procure through reasonable efforts; and
(C) the general purposes of these rules and
the interests of justice will best be served
by admission of the statement into evidence.
However, a statement may not be admitted under
this exception unless the proponent of it
makes known to the adverse party sufficiently
in advance of the trial or hearing to provide
the adverse party with a fair opportunity to
prepare to meet it, his intention to offer the
statement and the particulars of it, including
the name and address of the declarant.
Interpreting Rule 804 (b)(5) of the West Virginia Rules
of Evidence [1985], the counterpart to Rule 803(24) of the West
Virginia Rules of Evidence [1985], in Syllabus Point 5 of State v.
Smith, 178 W. Va. 104, 358 S.E.2d 188 (1987), we stated:
The language of Rule 804(b)(5) of the West
Virginia Rules of Evidence and its counterpart
in Rule 803(24) requires that five general
factors must be met in order for hearsay
evidence to be admissible under the rules.
First and most important is the
trustworthiness of the statement, which must
be equivalent to the trustworthiness
underlying the specific exceptions to the
hearsay rule. Second, the statement must be
offered to prove a material fact. Third, the
statement must be shown to be more probative
on the issue for which it is offered than any
other evidence the proponent can reasonably
procure. Fourth, admissions of the statement
must comport with the general purpose of the
rules of evidence and the interest of justice.
Fifth, adequate notice of the statement must
be afforded the other party to provide that
party a fair opportunity to meet the evidence.
As we stated in Smith, our major concern with any
evidence admitted under this exception is its reliability. We find
the hearsay statements within the testimony of the four lawyers
both credible and reliable. The hearsay statements were made about
specific people, places, and events -- all of which TXO controlled
the evidence to controvert, if the witnesses' statements were not
true. For instance, Mr. Madden testified about a specific day and
time on which specific TXO employees went to visit Ms. Calloway and
how TXO committed specific acts. TXO could have called its own
employees, and Ms. Calloway for that matter, to disprove the
statements, but it chose not to do so.
Second, as we explained above, this evidence is clearly
probative of the material issue of whether TXO acted with malice.
Third, because of the concise manner in which the
evidence was presented, because of the ease with which any untrue
testimony could have been impeached, and because of the difficulty
of appellees' obtaining any other evidence on this material issue,
we find that these statements were more probative than any other
evidence that the appellees could have reasonably procured.
Fourth, the admission of these statements comports with
the general purpose of the West Virginia Rules of Evidence [1985]
and the interests of justice.
Fifth, TXO clearly had more than adequate notice that
these statements were going to be offered at trial. The hearsay
statements were not offered live, but in previously prepared
videotaped depositions. TXO was represented by its lawyer at each
of these videotaped sessions. If there were any evidence available
to rebut the statements made by these four witnesses, TXO had more
than an ample and fair opportunity to provide that evidence. Thus,
to the extent that appellees attempted to show the jury where TXO's
victims' bodies were buried, each body allegedly buried was
meticulously marked by time of death and tombstone location well in
advance of trial.
Therefore, we find that the trial court did not abuse its
discretion in admitting the "other acts" evidence under Rule 404(b)
of the West Virginia Rules of Evidence [1985], and that the hearsay
statements within this testimony were admissible under Rule 803(24)
of the West Virginia Rules of Evidence [1985].
IV.
TXO finally asks that we set aside the punitive damages
award. The first issue that we must consider in this regard is the
applicability of Garnes v. Fleming Landfill, ___ W. Va. ___, 413 S.E.2d 897 (1991) to those cases still on appeal that were decided
before we handed down our decision in Garnes. TXO would have us
remand this case for a new trial on the punitive damages issue
because all of the technical requirements set forth in syllabus
points 3 and 4 of Garnes were not met. To adopt such an approach
to Garnes would unnecessarily send far too many cases back for
retrial. We will, however, be especially diligent in our review of
any punitive damages awards entered before Garnes was decided. We
adopt this flexible approach to Garnes because we have already held
that petitions for review of punitive damages awarded before 5
December 1991 must:
"Address each and every factor set forth in
syllabus points 3 and 4 of [Garnes] with
particularity, summarizing the evidence
presented to the jury on the subject or to the
trial court at the post-judgment review
stage."
Syllabus point 5, Garnes v. Fleming Landfill, ___W. Va.___, 413 S.E.2d 897 (1991).
In Syllabus Point 3 of Garnes, we stated:
When the trial court instructs the jury on
punitive damages, the court should, at a
minimum, carefully explain the factors to be
considered in awarding punitive damages.
These factors are as follows:
(1) Punitive damages should bear a
reasonable relationship to the harm that is
likely to occur from the defendant's conduct
as well as to the harm that actually has
occurred. If the defendant's actions caused
or would likely cause in a similar situation
only slight harm, the damages should be
relatively small. If the harm is grievous,
the damages should be greater.
(2) The jury may consider (although the
court need not specifically instruct on each
element if doing so would be unfairly
prejudicial to the defendant), the
reprehensibility of the defendant's conduct.
The jury should take into account how long the
defendant continued in his actions, whether he
was aware his actions were causing or were
likely to cause harm, whether he attempted to
conceal or cover up his actions or the harm
caused by them, whether/how often the
defendant engaged in similar conduct in the
past, and whether the defendant made
reasonable efforts to make amends by offering
a fair and prompt settlement for the actual
harm caused once his liability became clear to
him.
(3) If the defendant profited from his
wrongful conduct, the punitive damages should
remove the profit and should be in excess of
the profit, so that the award discourages
future bad acts by the defendant.
(4) As a matter of fundamental fairness,
punitive damages should bear a reasonable
relationship to compensatory damages.
(5) The financial position of the defendant
is relevant.
In Syllabus Point 4 of Garnes, we stated:
When the trial court reviews an award of
punitive damages, the court should, at a
minimum, consider the factors given to the
jury as well as the following additional
factors:
(1) The costs of the litigation;
(2) Any criminal sanctions imposed on the
defendant for his conduct;
(3) Any other civil actions against the
same defendant, based on the same conduct; and
(4) The appropriateness of punitive damages
to encourage fair and reasonable settlements
when a clear wrong has been committed. A
factor that may justify punitive damages is
the cost of litigation to the plaintiff.
Because not all relevant information is
available to the jury, it is likely that in
some cases the jury will make an award that is
reasonable on the facts as the jury know them,
but that will require downward adjustment by
the trial court through remittitur because of
factors that would be prejudicial to the
defendant if admitted at trial, such as
criminal sanctions imposed or similar lawsuit
pending elsewhere against the defendant.
However, at the option of the defendant, or in
the sound discretion of the trial court, any
of the above factors may also be presented to
the jury.
We set out these guidelines to provide both procedural
and substantive due process to defendants against whom punitive
damages are awarded in accordance with the U. S. Supreme Court's
directive in Haslip, supra. Just as we recognized in Garnes that
there can be no mathematical bright line relationship between
punitive damages and compensatory damages, we cannot simply examine
these nine criteria seriatim, awarding a certain number of points
to each. The Garnes factors are interactive and must be considered
as a whole when reviewing punitive damages awards.
Originally, punitive damages were awarded only to deter
malicious and mean-spirited conduct. However, the punitive damages
definition of malice has grown to include not only mean-spirited
conduct, but also extremely negligent conduct that is likely to
cause serious harm.See footnote 10 Generally, then, we can distinguish between
the "really mean" punitive damages defendant, and the "really
stupid" punitive damages defendant. We want to discourage both
forms of unpleasant conduct, but not necessarily with the same
level of punitive damages.
Although there is no mechanical mathematical formula to
use in all punitive damages cases, we think it appropriate here to
offer some broad, general guidelines concerning whether punitive
damages bear a reasonable relationship to actual damages.
We have examined all of the punitive damages opinions
issued since Haslip was decided in an attempt to find some pattern
in what courts find reasonable. Generally, the cases fall into
three categories: (1) really stupid defendants; (2) really mean
defendants; and, (3) really stupid defendants who could have caused
a great deal of harm by their actions but who actually caused
minimal harm.See footnote 11
By really stupid defendants, we signify those defendants
who have not harmed victims intentionally, but have harmed them as
a result of extreme carelessness -- in most cases caused by a foul-up in the middle of some corporate bureaucracy that has pushed some
victim into a red-tape limbo. Consider, for example, Principal
Financial Group v. Thomas, 585 So. 2d 816 (Ala. 1991), cert. denied
___ U.S. ___ (1991), in which an insurance company spent tens of
thousands of dollars at trial and on appeal to defend its failure
to pay $1,000 to a mother who had lost her child. The insurance
company claimed that the child was not really a dependent of the
mother. Outraged at the insurance company's conduct, the jury
awarded not only $1,000 in compensatory damages, but also $750,000
in punitive damages. The Supreme Court of Alabama (whose review
procedure was endorsed by the U.S. Supreme Court in Haslip, supra)
upheld the verdict.
As we discussed in Garnes, one of the reasons we allow
punitive damages in these "stupid" cases is to give individual
plaintiffs a sword with which to fight well-armored, bureaucratic
defendants. In a world with only smaller, closely held businesses,
we would not need punitive damages for this type of case. Once
Joe, the owner of Joe's Automobile Company, realizes that there is
a foul up in his business that is causing problems for his
customers, he has plenty of incentive to correct it. However,
compensatory damages do not always provide sufficient incentive for
the middle managers who make these types of decisions for a major
automobile company with hundreds of thousands of employees and
agents. As we noted in discussing claims against insurance
companies in Hayseeds, Inc. v. State Farm Fire & Cas., 177 W. Va.
323, 352 S.E.2d 73 (1986):
Unfortunately, in the business of claims
settlement we do not have simply two parties--the company that wishes to pay the lowest
legitimate amount of money and the
policyholder who wants maximum benefits under
the policy. Between these two profit-maximizing, rational players, there is an
entire corporate bureaucracy composed of
agents, administrators, corporate counsel, and
local litigating lawyers. This bureaucracy is
neither inherently good nor inherently evil,
and it performs a necessary function in the
insurance industry. Nonetheless, the claims
settlement bureaucracy is subject to the same
dynamics as every other bureaucracy known to
man: its natural tendency is to maximize
upward mobility for middle management members
of the bureaucracy and to augment the work
that the bureaucracy is responsible for doing.
In government, this phenomenon is often
referred to as "turf protection." The extent
to which pernicious dynamics prevail in any
particular company's claims bureaucracy
differs from company to company and from
office to office within the same company.
However, a policyholder who runs into an
intransigent or unreasonable claims settlement
bureaucracy is destined to be sorely put upon.
The threat of litigation is good news to the middle
management employees who make many of the day-to-day decisions for
large corporations. (Litigation causes work which increases middle
management job security.) The possibility of punitive damages,
however, increases the possibility of a higher payout. The higher
the potential payout, then, the further up the corporate hierarchy
the decision is passed. A reasonable level of punitive damages
therefore increases the likelihood that settlement decisions will
be made by upper management employees who own stock in the company
or who at least feel a higher level of fiduciary duty to the
stockholders.
By really mean defendants, we signify those defendants
who intentionally commit acts they know to be harmful. For
example, in Eichenseer v. Reserve Life Ins. Co., 934 F.2d 1377 (5th
Cir. 1991), which we discussed in Garnes, the defendant insurance
company failed to pay Ms. Eichenseer's obviously legitimate claim.
Ms. Eichenseer was subjected to numerous "misinterpretations" of
her claim as well as the "loss" of her medical records.
Furthermore, the insurance company made no effort to pay Ms.
Eichenseer's claim until after she filed her lawsuit. The Fifth
Circuit then upheld punitive damages 500 times the compensatory
damages.
We cannot say that our examination of post-Haslip cases
has led us to a crystal clear bright line rule. Not surprisingly,
some courts have been less willing than this Court in Garnes to
take seriously the U. S. Supreme Court's guidance. We do find a
pattern, however, of what we believe are reasonable verdicts under
the Haslip and Garnes standards.
In cases in which the defendant falls into the really
stupid category, and compensatory damages are neither negligible
nor very large (see our discussion of those terms in Hayseeds,
supra) we hold that the outer limit of punitive damages is roughly
five to one.
This is not necessarily the case, however, when
compensatory damages are minimal. In cases such as Hospital
Authority of Gwinnett County v. Jones, 409 S.E.2d 501 (Ga. 1991),
in which the potential for harm from the defendant's conduct was
tremendous, but the actual compensatory damages were negligible,
punitive damages in a ratio much greater than five to one were
entirely appropriate.See footnote 12
When the defendant is not just stupid, but really mean,
punitive damages limits must be greater in order to deter future
evil acts by the defendant. For instance, the United States
Supreme Court upheld a punitive damages award with a ratio of more
than 117 to 1 in Browning-Ferris Industries v. Kelco Disposal,
Inc., 492 U.S. 257 (1989). In the really mean cases, the cynosure
in determining the reasonableness of the jury's verdict under
Haslip and Garnes is the amount of punitive damages required to
cause the defendant to mend its evil ways and to discourage others
similarly situated from engaging in like reprehensible conduct.
Accordingly, we find that in cases where the defendant
has intentionally committed mean-spirited and harmful acts
(especially when the provable compensatory damages are small, but
the potential of harm is great), even punitive damages 500 times
greater than compensatory damages are not per se unconstitutional
under Haslip and Garnes. The appropriateness of such awards
depends on what it reasonably takes to attract the defendant's
attention because, as we said in Garnes, an award that might be
unreasonable if awarded against Jeff's Neighborhood Hot Dog Stand
could be quite reasonable if awarded for the same conduct against
McDonald's. See Garnes at ___, 413 S.E.2d at 910.
In applying the Garnes "reasonable relationship" test to
the case before us, we look to: (1) the potential harm that TXO's
actions could have caused; (2) the maliciousness of TXO's actions;
and (3) the penalty necessary to discourage TXO from undertaking
such endeavors in the future. The type of fraudulent action
intentionally undertaken by TXO in this case could potentially
cause millions of dollars in damages to other victims. As for the
reprehensibility of TXO's conduct, we can say no more than we have
already said, and we believe the jury's verdict says more than we
could say in an opinion twice this length. Just as important, an
award of this magnitude is necessary to discourage TXO from
continuing its pattern and practice of fraud, trickery and deceit.
TXO also argues that the jury were allowed to consider
irrelevant financial information under the fifth criterion from
Syllabus Point 3 of Garnes. By interrogatory, appellees attempted
to find out about the finances of TXO Production Corp.See footnote 13 Because
the appellees were unable to obtain information about the worth of
TXO Production Corp. from TXO, the appellees provided their own
expert to testify about the worth of the TXO Division of USX.
Using public financial statements for USX, the expert testified
that the net worth of the TXO Division of USX was between $2.2
billion and $2.5 billion. TXO argues that because the TXO division
is "comprised of at least 15 corporate entities in addition to TXO
Production Corp." (Appellant Brief at 37), the introduction of this
testimony was unfairly prejudicial.
First, TXO was not forthcoming during discovery with
information about the worth of TXO Production Corporation, nor did
TXO offer such evidence at trial. Furthermore, even lingering on
this point obscures the more important issue. The worth of the TXO
Division of USX, and the worth of USX for that matter, is relevant.
If we did not allow trial judges in their sound discretion to admit
evidence of the worth of parent corporations, corporations could
escape liability simply by incorporating separate departments as a
number of undercapitalized subsidiaries. It is the management of
USX that must ultimately make the decision that its employees will
not engage in malicious and nefarious business activities, and,
therefore, it is the pocketbook of USX that the jury verdict must
reach.See footnote 14 Consequently, we find that the punitive damages awarded
in this case were not so unreasonable as to demonstrate such
passion and prejudice that a new trial is warranted.
V.
The jury in this case correctly found willful and deliberate
injury. Accordingly, the judgment of the Circuit Court of McDowell
County is affirmed.
Affirmed.
Footnote: 1The pertinent parts of the 2 April 1985 agreement state:
The interest in said leases assigned
Assignee hereunder shall be subject to such
interest's proportionate part of the royalty
interest as provided for in said leases and to
the terms, conditions and provisions set forth
therein. Such interest shall also be subject
to such interest's proportionate part of all
overriding royalties, production payments and
any other payments and agreements of record.
This Assignment is further made expressly
subject to the following:
(1) Assignor reserves unto itself, its
successors and assigns, an overriding
royalty interest equal to the
difference between existing lease
burdens and twenty-two percent (22%) of
all of the oil, gas and other liquid or
gaseous hydrocarbons produced and saved
from or attributable to said leases
during the terms thereof; provided,
however, that the overriding royalty
interest herein reserved shall be
proportionately reduced if any of said
leases do not cover a full mineral
interest and/or this Assignment does
not convey full leasehold rights in any
of said leases. The overriding royalty
interest reserved hereby shall bear its
proportionate part of all production,
severance or other similar taxes.
(2) Assignor hereby warrants title to the extent that in the event of conducting title examination of the assigned acreage, Assignee's examining attorney determines that title has failed to all or any part of the assigned acreage, Assignor will reimburse to Assignee the consideration paid to it for any such lands to which title is determined to
have failed.
Footnote: 2Mr. Signaigo later conveyed his interest in the coal rights
to Pocahontas Empire (now doing business as Hawley Coal Mining
Corporation), which in turn conveyed its interest to Virginia Crews
Coal Company.
Footnote: 3According to Theodore M. Streit, Director, Oil and Gas
Division of Environmental Protection, West Virginia Department of
Commerce, Labor and Environmental Resources, a deed for the oil and
gas underlying the Pocahontas 3 and 4 seams of coal would have been
ridiculous in 1958. Gas wells are drilled much deeper than coal
seams, and while modern gas recovery technology does, on occasion,
lead producers to recover the methane imbedded in specific seams of
coal, that would never have been done in 1958. Thus, any reading
of the reservation clause which would imply that the grantor
reserved only the oil and gas within the Pocahontas 3 and 4 seams
of coal would have been ridiculous and contrary to all custom and
usage at the time the deed was executed.
Footnote: 4The common law in effect in West Virginia is traditional
English common law, as amended by the Virginia legislature prior to
1863 and as amended by the West Virginia legislature.
Footnote: 5First stating the rule and then neatly side-stepping it, the
Court of Common Pleas demonstrates that judicial double talk was
not pioneered in the 20th century.
Footnote: 6The Fourth Circuit Court of Appeals has also determined that
slander of title is a recognized cause of action in Virginia. See
Lomah Elect. Targetry v. ATA Tr. Aids Aust. Pty., 828 F.2d 1021
(4th Cir. 1987).
Footnote: 7Section 633 states:
(1) The pecuniary loss for which a publisher of injurious falsehood is subject to liability
is restricted to
(a) the pecuniary loss that results
directly and immediately from the effect of
the conduct of third persons, including
impairment of vendibility or value caused by
disparagement, and
(b) the expense of measures reasonably
necessary to counteract the publication,
including litigation to remove the doubt cast
upon vendibility or value by disparagement.
(2) This pecuniary loss may be established by
(a) proof of the conduct of specific
persons, or
(b) proof that the loss has resulted from
the conduct of a number of persons whom it is
impossible to identify. (Emphasis added.)
Footnote: 8In many oil and gas contracts, the producer (in this case,
TXO) agrees to pay a minimum royalty to the landowner even when the
well is not producing. These are called shut-in royalties.
Footnote: 9Well, even a blind hog finds an acorn now and again.
Footnote: 10Even if Ford Motor Company had not intentionally left gas
tanks in the wrong position on its Pinto automobile, we would still
want to allow high levels of punitive damages against Ford in order
to encourage Ford to make reasonable efforts to insure that
bureaucratic bungling and red tape would not lead to the deaths of
consumers. See, Grimshaw v. Ford Motor Co., 119 Cal. App.3d, 174 Cal. Rptr. 348 (1981).
Footnote: 11See our tables of cases in Appendix B. Although it is
sometimes difficult to distinguish between the mean cases and the
stupid cases just by reading the appellate opinion, we have given
it our best efforts. For example, if we tried to place the Thomas
case, discussed infra, into a category, we could have called it a
mean case or we could have said that it was only the worst case of
bureaucratic bungling in history.
Footnote: 12Concomitantly, if the compensatory damages are very high then
punitive damages even in the ratio of 5:1 might be excessive. See,
e.g., Mason v. Texaco, Inc., 948 F.2d 1546 (10th Cir. 1991)
(compensatory damages of $9.025 million; punitive damages remitted
to $12.5 million from $25 million).
Footnote: 13Appellees 4th Set of Interrogatories Nos. 5, 6 and 7, along
with TXO's answers are as follows:
5. State the name and address of the
stockholders of TXO Production Corp.
ANSWER: Texas Oil & Gas Corp. - owns 100%
of outstanding stock.
1700 Pacific Avenue
First City Center
Dallas, Texas 75201
6. Since 1980 to present has TXO Production
Corp. filed a separate corporate tax return?
ANSWER: No.
7. Since 1980 have the profits and/or losses
of TXO Production Corp. been subsumed in or as
a part of income tax returns of another
corporation?
ANSWER: Not sure of term "subsumed".
Dictionary definition would not appear to
apply. If by term it is meant made part of or
incorporated into parent company, the answer
is yes.
If so,
(A) State the name and address of any
corporation in which the profits and/or
losses of TXO Production Corp. were
subsumed, and the year or years in
which each such corporate entity has
subsumed the profits and/or losses of
TXO Production Corp.
ANSWER: 1980-86 - Texas Oil & Gas
Corp.
1986-Present - USX Corporation
600 Grant Street
Pittsburgh, PA
15230
(B) Defendant requests plaintiff produce
copies of each of the above tax returns
since 1980 in which the profits and/or
losses of TXO Production Corp. have
been incorporated and attach the same
with your answers hereto.
ANSWER: Objection. The returns are too large and burdensome to copy and include. Moreover, they also combine the income and losses of a number of other companies (subsidiaries), but are
not broken down on the returns by
subsidiary and TXO's profit or loss
could therefore not be determined by a
review of such returns. Nothing short
of a full audit at extreme expense
could answer interrogatory which TXO is
not prepared to do at its own cost.
Footnote: 14When pressed at oral argument, TXO's counsel admitted that
USX has the power to: 1) elect the Board of Directors, 2) appoint
all officers through the Board, and 3) generally control the
operations of TXO Production Corp. Indeed, it is undisputed that
at the end of the chain of related companies, TXO has but one
stockholder, to-wit USX.
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.