THE FOLLOWING ARTICLE WAS WRITTEN BY MITCHELL K. MORRIS AND WAS PUBLISHED IN LAW360 ON JANUARY 18, 2022. CLICK HERE TO VIEW THE ARTICLE ON LAW360’S EXPERT ANALYSIS SECTION.
The ongoing pandemic seems to have done little to slow the continued proliferation of novel theories of tort liability in 2021. Headline-grabbing developments include:
- A federal jury’s verdict finding pharmacies liable for creating a public nuisance by filling opioid prescriptions, in In re: National Prescription Opiate Litigation in the U.S. District Court for the Northern District of Ohio;[1]
- A decision by the California Court of Appeal in Loomis v. Amazon.com LLC that further expanded e-commerce retailer liability for products sold via online platforms;[2] and
- The U.S. Supreme Court’s decision in BP PLC v. Mayor and City Council of Baltimore remanding for further proceedings one of countless climate change suits pending across the country.[3]
These and similar cases mean that businesses are increasingly likely to face tort liability for conduct that was not clearly tortious at the time it occurred. The prospect of potentially massive punitive damages awards in such cases is especially alarming.
But can a defendant fairly be punished in cases involving novel theories of liability? As Supreme Court Justice Neil Gorsuch observed in his 2019 dissent in Air & Liquid Systems Corp. v. DeVries, novel theories present a “fair notice problem” in that defendants “are at risk of being held responsible retrospectively for” violating “a duty they could not have anticipated … [and] cannot discharge now.”[4]
In an April 2019 guest article for Law360, I described how the due process-based “concept of ‘fair notice’ … has animated the Supreme Court’s jurisprudence imposing due process limitations on punitive damages awards.”[5] In particular, the court has made clear that “[e]lementary notions of fairness enshrined in our constitutional jurisprudence dictate that a person receive fair notice … of the conduct that will subject him to punishment,” as well as “of the severity of the penalty that a State may impose.”[6]
Thus, when the high court’s Air & Liquid Systems opinion[7] set forth a new test subjecting maritime manufacturers to potential liability for failing to warn about other companies’ asbestos-containing products, I argued that “courts should disallow punitive damages in cases governed by DeVries involving conduct that predates the court’s decision, because at the time of such conduct there was no fair notice of potential punishment for nonconforming behavior.”[8]
I also argued that, for pre-DeVries conduct, a “defendant cannot be deemed to have ‘abrogate[d] any established legal duty toward’ a plaintiff, ‘and therefore,’ cannot be founded to have ‘exhibit[ed] willful and wanton misconduct'” as is required for punitive damages.[9]
Over the past year, two federal district courts — one in Delaware and one in Colorado — have confirmed that due process does not allow for imposing quasi-criminal penalties, like punitive damages, on a party that did not receive notice that its conduct would subject it to liability.[10] These decisions — and the concept of fair notice in general — provide a potentially dispositive defense for businesses facing potential liability for punitive damages based on novel theories of liability.
The Decisions
The U.S. District Court for the District of Delaware’s 2021 decision in Franklin v. Navient Inc., and the U.S. District Court for the District of Colorado’s 2021 ruling in Mehaffey v. Navient Solutions LLC, both involve the application of the Supreme Court’s 2020 opinion in Barr v. American Association of Political Consultants Inc., which invalidated the government-debt exception to liability for robocalls under the Telephone Consumer Protection Act.
Both the Franklin and Mehaffey courts were required to decide whether the defendant student loan servicer could be held liable for robocalls regarding government-backed student loans made when the government-debt exception was in effect — and, if so, whether it could also be liable for statutory and treble damages.
Both courts determined that the Barr v. AAPC decision’s invalidation of the government-debt exception applied retroactively, such that the defendant could be held liable for compensatory damages arising from calls made when the exception was in effect. But they reached the opposite conclusion with respect to statutory and treble damages.
First, the courts found that statutory and treble damages under the TCPA are, as the Mehaffey court put it, “the functional equivalent of punitive damages,” which themselves have long been deemed “‘quasi-criminal’ in nature.”[11] Therefore, like punitive damages, statutory and treble damages under the TCPA must comply with the same notice rules applicable in criminal cases,[12] namely that “due process demands a party have notice that its conduct will subject it to liability.”[13]
To determine whether the defendant had notice that it could be punished for robocalls that were permitted at the time they were made, the courts looked to the Supreme Court’s 1964 decision in Bouie v. City of Columbia prohibiting retroactive application of what the Mehaffey court described as “an unforeseeable judicial enlargement of a criminal statute.”[14]
Both courts concluded that because laws passed by Congress are entitled to a presumption of validity, the defendant, in the words of the Mehaffey court, “could not have foreseen, and was not required to foresee, that the [government-debt] exception would be found unconstitutional.”[15]
Thus, as the Franklin court concluded, because “[Barr] was unforeseeable and expanded the reach of the [TCPA]’s punitive damages,” the defendant could “not be punished for making calls to collect government debt after 2015” when the government-debt exception was added to the statute.[16]
Implications
Although Franklin and Mehaffey involve punitive damages under a federal statute, their analysis applies equally to punitive awards under the common law.
As the Supreme Court said in 1994 in its Honda Motor Co. v. Oberg decision, whether based on a statute or the common law, “[a] decision to punish a tortfeasor by means of an exaction of exemplary damages is an exercise of state power that must comply with the Due Process Clause of the Fourteenth Amendment.”[17] Therefore, punitive damages should be disallowed when based on an unforeseeable judicial enlargement of liability under the common law.[18]
Franklin and Mehaffey also provide a basis for the application to punitive damages of other notice rules for criminal cases. Bouie is just one in a long line of Supreme Court decisions defining the notice required to fairly impose punishment.
In addition to Bouie’s prohibition against retroactive judicial enlargement of liability, a punishment may not comply with due process if, as the Supreme Court said in its 2012 decision in Federal Communications Commission v. Fox Television Stations Inc., “the [law] under which it is obtained fails to provide a person of ordinary intelligence fair notice of what is prohibited, or is so standardless that it authorizes or encourages seriously discriminatory enforcement.”
As I explained in an October 2019 Law360 guest article, the requirement of fair notice also may be violated when a defendant is punished for conduct undertaken in good faith belief that it was legally permitted,[19] because, as the Supreme Court stated in 1967’s U.S. v. Laub, “[o]rdinarily, citizens may not be punished for actions undertaken in good faith reliance upon authoritative assurance that punishment will not attach.”[20]
Each of the foregoing principles may provide a defense to punitive damages based on a novel theory of liability — especially for conduct that is heavily regulated and regulatorily compliant.
Conclusion
Even when courts announce or approve new or expanded theories of tort liability, the U.S. Constitution and its requirement of fair notice may prohibit the imposition of punitive damages in such cases. The unavailability of punitive damages, in turn, may dissuade claimants from pursuing such theories as aggressively as they otherwise would have — and, in any event, reduces the defendant’s potential exposure.
[1] In re Nat’l Prescription Opiate Litigation, No. 1:17-md-02804, ECF No. 4176 (Nov. 23, 2021).
[2] Loomis v. Amazon.com LLC, 63 Cal. App. 5th 466, 277 Cal. Rptr. 3d 769 (2021).
[3] BP P.L.C. v. Mayor and City Council of Baltimore, 141 S. Ct. 1532, 1536 (2021).
[4] Air & Liquid Sys. Corp. v. DeVries, 139 S. Ct. 986, 999-1000 (2019) (Gorsuch, J., dissenting).
[5] Mitchell K. Morris, Justices’ Asbestos Decision Poses Fair Notice Problem, Law360 (April 25, 2019) (hereinafter Morris, Fair Notice Problem).
[6] 517 U.S. 559, 574 (1996).
[7] DeVries, 139 S. Ct. at 988.
[8] Morris, Fair Notice Problem
[9] Id. (quoting Flores v. Carnival Cruise Lines, 47 F.3d 1120, 1127 (11th Cir. 1995). Although it does not appear any court has squarely addressed either of these arguments, in disallowing a punitive damages claim in conjunction with DeVries, one court rhetorically questioned: “Where a duty is not clearly established, what would be the purpose of an award of punitive damages for the failure to comply with that ambiguous duty?” Dennis v. Air & Liquid Sys. Corp ., No. CV 19-9343-GW-KSX, 2021 WL 3555720, at *29 n.64 (C.D. Cal. March 24, 2021).
[10] Mehaffey v. Navient Sols. LLC, No. 19-CV-00197-REB-NRN, — F. Supp. 3d —, 2021 WL 2473925, at *1 (D. Colo. June 17, 2021); see also Franklin v. Navient Inc ., 534 F. Supp. 3d 341 (D. Del. 2021).
[11] Mehaffey, 2021 WL 2473925, at *5; see also Franklin, 534 F. Supp. 3d at 348.
[12] Franklin, 534 F. Supp. 3d at 348.
[13] Mehaffey, 2021 WL 2473925, at *5.
[14] Id. at *4-*6 (quoting Bouie v. City of Columbia, 378 U.S. 347, 353 (1964)); see also Franklin, 534 F. Supp. 3d at 346-48.
[15] Mehaffey, 2021 WL 2473925, at *6 (D. Colo. June 17, 2021); see also Franklin, 534 F. Supp. 3d at 348-49.
[16] Franklin, 534 F. Supp. 3d at 349; see also Mehaffey, 2021 WL 2473925, at *6-7.
[17] Honda Motor Co. v. Oberg , 512 U.S. 415, 434-35 (1994).
[18] Bouie, 378 U.S. at 353.
[19] U.S. v. Pa. Indus. Chem. Corp ., 411 U.S. 655, 673 (1973).
[20] U.S. v. Laub , 385 U.S. 475, 487 (1967).