LITTLE ROCK — Attorneys for a group of Arkansas farmers who last year were awarded $42 million in punitive damages argued before the state Supreme Court on Thursday that a state law making a punitive award of that size illegal is unconstitutional.
It is the first time the court has heard a challenge to the 2003 Civil Justice Reform Act’s punitive damage limit, a spokesman for the court said.
That law, Act 649 of 2003, limited punitive damage awards to $250,000 or three times the amount of compensatory damages, with a maximum award of $1 million.
The award in this case was made in April 2010 by a Lonoke County Circuit Court jury, which found that Bayer Crop Science, a German conglomerate, was liable for economic losses suffered by the farmers after traces of Bayer’s experimental variety of rice were found in the U.S. commercial rice supply.
The company had been testing varieties of its genetically modified Liberty Link Rice variety at Louisiana State University. After the U.S. Department of Agriculture announced in August 2006 that traces of that rice variety had been found in the commercial rice supply, the European Union adopted “emergency measures” to keep genetically modified rice out, and the price of unmilled rice plummeted temporarily.
The jury also ordered Bayer to pay farmers $6 million in compensatory damages for market losses they incurred.
The contamination resulted in thousands of lawsuits in several states and at the federal level. In July, the company agreed to pay up to $750 million to farmers across the U.S. in federal multi-district litigation.
In Lonoke County, Circuit Judge Phillip Whiteaker ruled from the bench that the state’s limit on punitive damages is unconstitutional.
In filings with the Supreme Court, Bayer argued that the $42 million - seven times higher than the damage amount awarded - was excessive, improper, and should “shock the conscience” of the court, aside from the legal limit the state law has placed on punitive awards.
Bruce McKee, an attorney for the farmers, told the justices that the statute violates Article 5, Section 32 of the Arkansas Constitution, which states that aside from laws governing awards to compensate workers in the case of injuries or death, “no law shall be enacted limiting the amount to be recovered for injuries resulting in death or for injuries to persons or property.”
Donald Scott, representing Bayer, argued in response that punitive damages are not meant to recover losses suffered by persons or property, as mentioned in the state constitution, but are imposed as punishment.
Determining penalties is the job of the Legislature, he argued.
In its filings, Bayer also argued that awarding compensatory damages was inappropriate in this case, because Bayer was accused of being negligent, not malicious. It said that not awarding purely economic damages in cases of negligence, known as the “economic loss doctrine,” is established tort law in many states.
But the justices spent much of the one-hour oral arguments asking whether by setting a limit on punitive damages, Act 649 takes away a power that rightly belongs to the courts, not the Legislature.
Attorneys for the farmers argued that the law violates separation of powers by taking away courts’ power of “remittitur” - when the court reduces or proposes to reduce the damages awarded in a jury verdict.
McKee said the Legislature had crossed a line, and that the separation of powers doctrine is “strictly construed” in Arkansas, noting that the Arkansas Supreme Court has “guarded very jealously the powers of the judiciary.”
“You have certain guidelines, cases that set out various things we look at to determine whether or not [an award] shocks the conscience of the court. How does that not take that power away?” Justice Donald Corbin asked Scott, referring to the $1 million punitive damage limit.
Justice Paul Danielson said the law had more to do with what lawmakers were comfortable with than with appropriate separation of powers.
“Isn’t the Legislature essentially saying anything over $1 million shocks the conscience of the Legislature, and to that extent, they’re taking that area over?” he said.
Justice Courtney Henry asked whether the law created a “blending” of power between the legislative and judicial branches.
Scott said the court has always been subject to some external limitations in this process.
“Remittitur is a power of the court ... that does not mean the court applies no external rules to a damage award besides its own judgment,” he said in response to questions.
But McKee argued that the cap is also unconstitutional in that it infringes on the right to a trial by jury. A jury should be allowed to set punitive-damage levels without interference from any body but the court, he said.
Allowing the Legislature to interfere, he argued, is a “slippery slope” that could in theory allow the Legislature to abolish punitive damages altogether.
Bayer also argued in its filings that the farmers should not have been allowed punitive damages at all.
“For a claim of punitive damages to be submitted to the jury, there must, at a minimum, be substantial evidence that the defendant knew or ought to have known that his conduct would naturally and probably result in injury, and that the defendant continued his conduct in reckless disregard of that risk,” Bayer wrote in its brief to the court.
But Bayer did take measures to prevent the rice variety from escaping test fields, the company argued, and as such should not have been treated as if it behaved indifferently.
At the Supreme Court, the case is 10-1246, Bayer Crop-Science LP, et al. v. Randy Schafer, et al.
Business, Pages 27 on 10/28/2011