Question/Answer Memo for January 17-22, 2013

From time to time, as I accumulate e-mail questions from students and questions after class, I'll put together a Q&A memo that shares with the class the answers that I provided to the student after class or by e-mail. Here's some questions that I got after the first three classes this year, and my responses.

1. In Jacque v. Steenberg Homes, the opinion said that the Jacques refused to bargain with Steenberg over a price to allow them to deliver the home and said "it was not a question of money." Does that explain why the jury didn't award them compensatory damages?

Because we weren't in the jury room, there's no way to know FOR SURE exactly why the jury didn't award compensatory damages. It could've been that the jury believed that there was no physical damage to the Jacques' farm and thus that no compensatory damages were warranted.

But the right to say "no" to someone wanting to use my property has a market value, even if I'm not willing to take money for it. For example, suppose that I need a car to run an errand, and I'm too cheap to rent one. So I ask Esbeck if I can borrow his car, and he says "No." Then I ask him if I can rent his car for two hours. Again, he says "No." I say, "Name your price." He says, "No." I say, "I'll pay you $5,000." A fourth time, he says "No." So I wait until Esbeck is in his Religious Liberties class, open his car with a slim jim, hot-wire it, drive it on my errand, and return it to the same spot in the garage, without any other incident or physical damage to the car (assume I even put gas in it). Clearly, I have trespassed upon Esbeck's car. The court could award him nominal damages, and should also at least consider punitive damages for my antisocial conduct. But by using Esbeck's car for two hours — even if he didn't know I did it, and even if he wouldn't have agreed at any price — I have also imposed economic harm on him. He lost the economic benefit of having possession of the car for that period (the ability to use it himself or to allow another person to use it). That economic benefit would be measured by the fair rental value of the car, which Esbeck could plead and prove fairly easily by presenting evidence of what car rental companies would charge for a 1-day rental of a comparable car. That's the objectively determined economic value of his right to say "no," and he would be entitled to that amount as compensatory damages. The fact that he says he would not have agreed to rent to me at any price doesn't mean he waives the right to compensatory damages if I simply take the car for 2 hours without his permission.

The only difference between this example and Jacque is that it would be much tougher to determine the fair market value of a right to cross the Jacques' farm one time. As we mentioned in class, there's not an existing market in which such rights are regularly bought and sold (by contrast to car rentals, for which thousands of cars are rented every day). But the underlying analogy still holds up. The Jacques' right to say "no" had some economic value (even if it isn't clear exactly how much), and they should have been able to recover that amount in compensatory damages. The jury just didn't understand that, and because the jury awarded more in punitive damages, and because the court on appeal was focused on punitive damages, perhaps it is understandable that the parties didn't really address the jury's error.

2. I understand why the court might think it would be appropriate to change the rule so as to say "In the future, despite Barnard v. Cohen, courts should award punitive damages in cases like this." But shouldn't the court only apply that change prospectively? Otherwise, it seems like Steenberg isn't getting the benefit of the law as it existed at the time they acted.

No, the court did the right thing here. First, there was no evidence offered that Steenburg Homes actually relied on Barnard v. Cohen as a justification for delivering the home across the Jacques' land. It might be one thing if they'd called their lawyer and their lawyer had said "Go ahead, you couldn't face liability for punitive damages." [Actually, no decent lawyer would've given them that advice.] Second, they were trespassing, and they knew they were trespassing. The "rule" was really "thou shalt not trespass" and it was clear, and the court wasn't changing it. Steenberg can't argue that it thought its conduct was legal. It knew what it was doing was wrong.

There was no evidence that Steenberg's people even knew about the Barnard case at the time they delivered the home. Barnard had nothing to do with trespassing, and it was not factually analogous. Barnard only got raised by Steenberg's lawyers, after the fact, as a means to try to keep the issue of punitive damages from going to the jury. And the court was correct to reject it.

3. Could Steenberg have argued that the punitive damages were grossly out of line with the actual damages and thus a denial of due process?

The Supreme Court has held that to satisfy due process, punitive damages must be reasonable, as determined by the degree of reprehensibility of the conduct that caused the plaintiff's injury, the ratio of punitive damages to compensatory damages, and any comparable criminal or civil penalties applicable to the conduct. See BMW of North America v. Gore, 517 U.S. 559 (1996). However, the Court in Gore also said that these three factors can be over-ridden if it is "necessary to deter future conduct," which was clearly the court's rationale for the punitive damage award in Jacque. Further, most of the recent Supreme Court challenges to excessive punitive damages involved enormous punitive damages awards ($79.5 million in Philip Morris USA v. Williams). By contrast, the amount of punitives in Jacque was only $100,000, which is pretty close to the median punitive damage award in cases involving punitive damages. As a result, it is hard to see a $100,000 award as a denial of due process, even if it was 100,000 times the amount of the nominal damage award. [Plus, as noted in question 1 above, the jury also SHOULD have awarded compensatory damages too, so if the jury had done so correctly, the punitive damages award wouldn't have been 100,000 times more than the actual damages award.]

4. In arguing the casino example, it seems like Uston is suing for damages for what looks like a sort of business tort (i.e., you had a duty to let me play and you wrongly excluded me). State v. Shack was essentially a criminal case. Shouldn't the case have been limited to that context (criminal prosecutions)? As a landowner, how am I supposed to figure out who I could or could not exclude under State v. Shack if I'm at risk for being sued for damages if I'm wrong?

I wish I could give you a good answer. I agree with your argument: I think it is true that State v. Shack is being overextended if it is extended beyond the criminal law context. In the context of criminal prosecutions, the court is either deciding to uphold the prosecution (punish the trespasser) or to reverse the conviction (to hold there was no trespass, as in Shack). [Plus, there's always the possibility that in an appropriate case, like where a doctor entered someone's land to provide emergency treatment that saved a life, the prosecutor might simply refuse to prosecute as a matter of prosecutorial discretion.] In the criminal context, there's no possibility of the excluder (like Tedesco) being hit for damages. By contrast, if State v. Shack principle is applied to a case like Uston, where the excluder is being sued for damages, the uncertainty is much more troubling, as you point out.

For this reason, some have suggested that State v. Shack should just be understood as an exceptional case, and that its precedential value should thus be very limited. I would agree with that, completely. But in the common law process, nothing prevents one party to a dispute from advocating that a prior decision provides analogical support for its position (e.g., Uston arguing that the principle of State v. Shack justifies a conclusion that the casino can't exclude him from playing blackjack). Good lawyering by the other side should prevent such prior decisions from being overextended, but good lawyering doesn't always happen (or doesn't always work). As a result, part of the common law process is that courts can (and sometimes do) overextend precedent beyond prudent bounds. That's part of the "error" cost that is implicit in having a common law system of decisionmaking.

Obviously, in some situations, an excluder knows (or should know) that their exclusion violates federal or state civil rights/public accommodations law. Obviously, if I own and operate a hotel and I decide not to rent rooms to African-Americans, that's a no-brainer violation of the Civil Rights Act, which prohibits race discrimination in places of public accommodation. Socking me with damages in that circumstance isn't particularly troubling; the restriction on my exclusion right is pretty clearly delineated in the statute.

5. Could the owner of a restaurant exclude families with kids, or would that be prohibited by the civil rights laws? I wasn't clear on this from the reading or class discussion.

Title II of the Civil Rights Act of 1964, 42 U.S.C. § 2000a, prevents discrimination or segregation in places of public accommodation (including restaurants) based upon race, color, religion, or national origin. It does not include "familial status" (a parent having their children with them) as a protected class status. Thus, the federal civil rights laws don't place a constraint on a restaurant owner's right to refuse to seat families with children. By contrast, the Fair Housing Act does prevent discrimination in the sale or leasing of housing based on familial status. [This presumably reflects Congress's judgment that discrimination against people with children in housing has been a social problem (with exclusionary effects), but not in getting served in certain restaurants.]

By itself, that doesn't mean the owner's refusal to seat people with kids would be legal. A particular state could decide, either under state statutes or state common law, that the owner did not have the right to exclude. In some states, civil rights protections under state law are typically broader than under federal law. Analogous state public accommodations statutes in many states DO provide protected class status for family status. In those states, the owner couldn't exclude families with children. Likewise, some cities have their own civil rights laws that could limit a business owner's right to refuse service. Absent such a state or local limitation on the right to exclude, however, the business owner could choose to refuse service.

6. In United States Steel, in addressing the promissory estoppel argument, could the court have simply said, "We think the mills are still profitable because of the tax benefits that the company gets from the depreciation charges that it is taking?"

I don't think that would have been appropriate. The potential problem with the company's behavior in U.S. Steel is that they are trying to have it both ways. When the wanted the workers to take pay cuts and work longer hours, they said "We won't close if the plants are profitable," and then they made public statements about "profitability" that suggested they were defining profitability based on whether the plants were producing revenue in excess of variable costs. Then, when the company wanted to close the plants, suddenly they are saying that the plants are unprofitable based on a calculation that includes fixed costs/depreciation.

That kind of "doublespeak" is the classic stuff of estoppel. You and I have an oral agreement for you to buy my house. You then get an offer from Myers to buy your house. You come to me and say "We need to sign a contract, so that I know I have your house before I sell mine." I respond, "Don't worry about it. We have a deal. Go ahead and sell your house." Then, after you sell your house, and I've changed my mind, I suddenly say, "I know what I told you, but we have no legal contract." In that circumstance, based upon my statements and your reasonable and detrimental reliance on them, the law estops me from using my legal position (i.e., we have no contract satisfying the statute of frauds), and thus equitably holds me to the promise anyway.

A court could, in appropriate circumstances, use estoppel to prevent the company from "talking out of both sides of its mouth" in terms of dealing with its employees. But it couldn't appropriately substitute its business judgment for that of the corporation and say, "This is the way you have to calculate profitability" — at least, not unless there is some properly enacted statute compelling all corporations to calculate profitability in that same way. Without such a statute, there would be no reason to believe that courts are better suited to make those kinds of business judgments than the corporation's directors and/or shareholders. The company could decide for itself what it meant for the company to be sufficiently "profitable" to keep the plants open.

In reality, the court was unwilling to use promissory estoppel to protect the workers in this case, probably for the same reason it was unwilling to validate their "community property" argument — the court was justifiably worried about the consequences that a decision in the workers' favor might have had on the ability of public corporations to raise capital in the marketplace.

7. But verdicts can easily impact the corporation in the marketplace. If a corporation gets hit with a multi-million dollar verdict, its stock price might drop, and there might be consequences for the company. So why should that prevent the court from doing the right thing?

The difference is that in U.S. Steel, the court is concerned that ruling against U.S. Steel might affect the ability of other troubled companies to raise capital — and not just U.S. Steel or other steel companies, but perhaps companies in other troubled industries. When BP gets hit with big liability for spilling oil in the Gulf, BP's stock may take a hit, but that might be viewed as an appropriate response to the specific harms they caused by their alleged lack of care in their drilling practices. And perhaps the shares of other oil companies might take a smaller hit based on fears that oil companies with similar practices might be at increased risk of having a similar problem. But that liability shouldn't have any impact on the stock price of Coca-Cola or Coke's ability to raise funds in the marketplace.

By contrast, if a court could say that ownership of a public corporation is subject to reallocation based upon longstanding company/employee/community relationships, a court could presumably say that of any corporation in any industry. People considering investing in those other industries might be less willing to invest, or might demand a bigger return, to protect themselves against the risk of dilution. The court in U.S. Steel was clearly uncomfortable with the potential empirical consequences of ruling in the workers' favor, and properly so. The harm could have gone well beyond just punishing U.S. Steel for the pain/harm their actions allegedly imposed on the workers and the Youngstown community.