RECENT CIVIL DECISIONS

By David Marsh and Tom Powell

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The Alabama Supreme Court rendered a number of important decisions since our last publication. The more significant of those decisions invoked the limits of punitive damage awards and clarified the duties owed by health care providers. Two decisions considered legal malpractice claims against lawyers and one decision involving Big Oil set aside a large punitive damages award that the jury had awarded to the People of Alabama.

"NO RELIANCE" FOUND

ON STATE'S PART IN FRAUD CASE

Hunt Petroleum Company v. State of Alabama, Ms. 1011762 (April 30, 2004). Hunt and Exxon, which had formed a joint venture to extract oil and gas from Mobile Bay, entered into a lease agreement with the State of Alabama under which Hunt and Exxon were to pay certain royalties to the State of Alabama based upon the amounts of oil and gas they extracted. Hunt interpreted the agreement to mean that its royalty payments were based upon the value of the gas after Hunt deducted its costs of transporting the gas to an onshore treatment plant, scrubbing the gas and then transporting the gas to a pipeline for final sale, to reach a net value for the gas. Although the State agreed that Hunt could net out its transportation costs from the treatment plant to the pipeline, Hunt deducted the other costs as well, thus reducing the value of the gas it reported to the State and upon which Hunt paid royalties.

When the State determined that Hunt had sent more than 100 monthly reports that calculated the royalties owed based upon Hunt's application of its own net value scheme, the State sued Hunt for breach of contract and for fraud. The jury awarded compensatory damages of $3.4 million and $20 million in punitive damages, which the trial court refused to reduce. Hunt appealed and the Supreme Court affirmed the compensatory award but reversed the punitive damages award.

Justice See's opinion, in which Justices Brown, Harwood, Woodall and Stuart concurred, determined that there was insufficient evidence to show that the State had relied upon Hunt's representations (that were made in the form of the monthly reports that Hunt submitted) to support the fraud claim. The majority's opinion said: "Reliance requires that the misrepresentation actually induced the injured party to change its course of action." The majority concluded that, even if the State could have assumed that Hunt's reports were correct, the State failed to present any evidence that it would have changed its course of conduct had it known the truth. "Without reliance," the majority reiterated, "there can be no fraud."

Justice Houston concurred specially, renewing his concerns that he set out in Dickinson v. Land Developers, Ms. 1021276 (Nov. 7, 2003), about the "difference between breach-of-contract and fraud claims." His separate opinion in Hunt Oil said: "The difference between a case involving clear and convincing evidence of fraud and this case is demonstrated by examining cases relied on by the State involving direct evidence of the intentional fraud where the fraudulent activity cannot be reconciled to a mistaken interpretation of a contract provision."

Justice Johnstone dissented, observing that: "The acceptance by the State of the underpayments from Hunt, the action by the State in making budget projections, and the inaction by the State in allowing Hunt to use and to sell the gas and in not sooner requiring Hunt to pay the underpayments, constitute a change of position legally sufficient to fulfill the reliance element of this fraud action."

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SEVERAL DECISIONS ILLUSTRATE

METES AND BOUNDS OF ALABAMA'S

PUNITIVE DAMAGES STATUTES

You may recall that the Alabama Legislature enacted a "new and improved" punitive damages "cap" statute in 1999, which repealed and replaced Ala. Code § 6-11-21. The old "cap" of $250,000 was found to be unconstitutional in Henderson v. Alabama Power Co., 627 So. 2d 878 (Ala. 1999). After Henderson was decided, the Legislature enacted a "new" Section 6-11-21, which provides a cap in most cases of three times the compensatory damages award or $1.5 million, whichever is greater. (If the defendant is a "small business" with a net worth of $2 million or less, the dollar cap is $50,000.) Several recent decisions that have addressed and applied the "new" cap are discussed here:

Shiv-Ram, Inc. v. McCaleb, Ms. 1012112 (Dec. 30, 2003). McCaleb cut her leg on a sharp point of a bed frame at Shiv-Ram's hotel and she developed severe medical problems that required her to make 99 visits to 14 different doctors. The jury awarded $176,572 in compensatory damages, which Shiv-Ram chose not to challenge. Shiv-Ram did appeal the jury's award of $500,000 in punitive damages, which were based upon the jury's finding of wanton conduct due to Shiv-Ram's failure to remedy known defects in a number of its bed frames. Justice Harwood's opinion, in which Justices Lyons, Johnstone, Woodall and retired Judge William Gordon (sitting specially) joined, rejected Shiv-Ram's argument that Henderson should be overruled and the $250,000 cap in the "old" Section 6-11-21 should be reinstated and applied. The majority reiterated the rule of statutory construction that, when a statute is amended or revised, the "old" statute impliedly is repealed to the extent it conflicts with the "new" statute. Also, the majority said, the legislature presumably knew what it was doing when it passed a "new" Section 6-11-21 that did not impose any cap upon actions filed during the 61 days between the enactment and its effective date. The court pointed out that, even if it were to overrule Henderson, the "old" Section 6-11-21 would not be revived. Justices Houston, See, Brown and Stuart dissented.

Alfa Life Ins. Co. v. Jackson, Ms. 1001854 & 1002002 (May 7, 2004). Mr. and Mrs. Jackson purchased life insurance policies that, they were told by Alfa's agent, would be "paid up in 15 years," but were not. The Jacksons sued on several claims, including fraud, and the jury awarded $500,000 in compensatory damages and $5 million in punitive damages. The trial court remitted the punitive damages to $1.5 million in order to meet the three-to-one ratio prescribed by Section 6-11-21, and Alfa appealed. Justice Johnstone's opinion, in which Justices Houston, Lyons, Harwood and Woodall concurred, refused Alfa's invitation to overrule Henderson, pointing out in this case that even if it did, the "pattern and practice" evidence in this case would have implicated an exception to the cap in the "old" Section 6-11-21. But aside from the court's refusal to overrule Henderson, the Jacksons had little reason to celebrate. The majority found that the trial court properly had denied Alfa's motion for judgment as a matter of law; however, the majority further found that the Jacksons' actual loss was only $2,340 and that their mental anguish was worth no more than $97,660. Based upon these reduced compensatory damages of $100,000, the punitive damages were remitted to $300,000, in order to satisfy the three-to-one ratio of Section 6-11-21. As a final balm, the majority Court did note that Alfa's conduct was "highly reprehensible." Justices See, Brown and Stuart concurred in the reduction of the damages but dissented as to whether the trial court should have granted Alfa's JML motion in the first place.

State Farm Mut. Auto. Ins. Co. v. Nix, Ms. 1021594 (Mar. 12, 2004). Nix telephoned State Farm's agent, Freeman, to get insurance coverage on a new vehicle. Freeman's assistant told Nix that he had coverage and Nix leased the vehicle. After Nix damaged the vehicle in an accident, Freeman informed him that the vehicle was not covered. Nix sued State Farm and Freeman for fraud and negligent failure to procure insurance. The jury awarded Nix compensatory damages of $15,325.54 and punitive damages of $200,000. The trial court reduced the punitive damages to $76,627. On appeal, Justice Woodall's opinion for a unanimous Court found that there was no evidence to support a finding, consistent with Ala. Code § 6-11-27(a), that would allow an award of punitive damages against State Farm on account of the conduct of Freeman. The opinion points out that Section 6-11-27(a) limits the punitive-damages liability of a principal for the conduct of its agent to certain, described circumstances. Finding that none of those circumstances existed in this case, the Court allowed the compensatory damages award to stand, but reversed the award of punitive damages.

Williford v. Emerton, Ms. 1020616 (Mar. 26, 2004). Mr. and Mrs. Emerton entered into a contract with Williford for the financed lease-purchase of a mobile home owned by Williford and a separate lot lease for a space at Williford's trailer park. A few months later, the Emertons encountered financial difficulty and were able to make only a partial payment of what they owed and Williford notified the Emerton's that they had 10 days to surrender possession of the trailer. When the Emertons attempted to retrieve their personal possessions from the trailer, Williford gave them 10 minutes to gather their things and leave. The Emertons sued Williford and the jury found in favor of the Emertons on their claims of conversion and breach of contract, awarding $25,000 in compensatory damages and $350,000 in punitive damages. The trial court, in a one-paragraph post-judgment order, denied Williford's motion for remittitur. Justice See's opinion for a unanimous Court affirmed the denial of Williford's motion for a new trial, but remanded the case to the trial court and ordered the trial court to conduct a full Hammond hearing. The Court reiterated that the decisions in Hammond v. City of Gadsden and Green Oil v. Hornsby require a trial court to provide a written statement of its reasons for denying review of a punitive damages award.

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DUTIES OWED BY HEALTH CARE

PROVIDERS SPELLED OUT IN DETAIL;

EXPERTS' QUALIFICATIONS DEFINED

Three decisions dealing with medical malpractice actions likely will have a lasting impact. Two dealt with duties owed and a third dealt with experts' qualifications.

Taylor v. Smith, Ms. 1011673 (Mar. 12, 2004). Mrs. Taylor was injured in a car wreck when a car driven by Ennis, a patient of a drug treatment center, crossed the center line. The evidence showed that Ennis, who was a "daily" user of marijuana and benzodiazepines and lived 90 miles from the treatment center, was receiving methadone on a daily basis at the treatment center and had received 85 grams of methadone less than an hour and a half before the collision. Mr. and Mrs. Taylor sued Dr. Smith, the physician who operated the treatment center, and the trial court granted summary judgment on the basis that Dr. Smith owed no duty to non-patient third parties. Justice Woodall's opinion, in which Justices Lyons, Johnstone and Harwood concurred and Justices Houston, See and Stuart concurred in the result, reversed the summary judgment, noting that Dr. Smith did not contend that the possibility that Ennis would be involved in a collision after leaving the center was unforeseeable. Rather, Dr. Smith argued that the Medical Liability Act precluded any liability to anyone with whom the doctor did not have a doctor-patient relationship. The Court rejected the "syllogism" that a health care provider is absolutely immune from liability to anyone but his patient and found that "it does not follow that, because a nonpatient may not sue under the Act, such a suit is barred by the Act." The Court concluded that this type of action "does not trigger the provisions of the Act [or] the special protections afforded health-care providers under the Act." Furthermore, the Court said: "Applicable here is the well-established rule that 'every person owes every other person a duty imposed by law to be careful not to hurt him.'" After finding that a number of other jurisdictions have imposed duties specifically on physicians for the benefit of non-patient members of the driving public, the Court determined that Alabama would impose similar duties upon the directors of methadone clinics. Justice Houston's special concurrence noted that "[t]his case is beyond the scope of the Alabama Medical Liability Act" and that he "would hold that a physician would not be liable to a third-party nonpatient unless the physician's negligence in the treatment, supervision, or warning of his patient proximately caused the injuries to the third-party nonpatient."

Chapman v. Smith, Ms. 1011863 (May 7, 2004). The defendant anesthesiologist, Dr. Chapman, administered a cervical epidural injection to relieve pain from which his patient, Smith, suffered. The procedure injured Smith and he sued. At trial, Smith patient proffered the expert testimony of Dr. Grover – who was board certified in anesthesiology. Dr. Chapman argued that Dr. Grover's testimony should not be allowed, because Dr. Grover "was not board-certified in anesthesiology in the year preceding" the patient's injury. The trial court initially agreed with Dr. Chapman, disallowed Dr. Grover's testimony and granted a JML for Dr. Chapman. The trial court later set aside that order and set the case for a new trial; Dr. Chapman appealed. The Supreme Court's 8-0, per curiam opinion affirmed the trial court's ruling, finding that Ala. Code § 6-5-548 does not require that a proffered expert be board-certified during the year preceding the alleged breach, only that the expert practiced in the same specialty during the year preceding the breach.

Walls v. Alpharma USPD, Inc., Ms. 1010645 (Mar. 5, 2004). In this Justice Johnstone's opinion for an 8-0 Court answered a certified question from a federal trial court that posed the issue of whether a pharmacist owes a duty under Alabama law to warn of foreseeable injuries from the use of a prescribed medication. In this case, the patient, Walls, used a prescribed medication while pregnant that allegedly caused multiple medical conditions in her later-born daughter. The Court held that the "learned intermediary doctrine" forecloses the existence of any duty upon a pharmacist who fills a prescription, "valid and regular on its face," to warn the physician's patient, the pharmacist's customer, or any other ultimate consumer of the risks or potential side effects of the prescribed medication, "except insofar as the prescription orders, or an applicable statute or regulation expressly requires, that an instruction or warning be included on the label of the dispensed medication or be otherwise delivered."

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LEGAL MALPRACTICE

Dennis v. Northcutt, Ms. 1021266 (Feb. 13, 2004). Dennis retained attorney Northcutt to represent him in a legal-malpractice action against another law firm for failing to properly represent him in an employment-discrimination action. On September 9, 1999, Northcutt moved to withdraw and the trial court granted Northcutt's motion on February 17, 2000. Dennis proceeded pro se before the trial court dismissed the first legal-malpractice case on December 7, 2000. Dennis filed the second legal-malpractice case, against Northcutt, on February 14, 2002. The trial court entered summary judgment in Northcutt's favor on the basis that Dennis's action necessarily implicated allegedly negligent acts of Northcutt that occurred before September 9, 1999, and it therefore was filed past the two-year statute of limitations. Justice See's opinion, in which Justices Brown, Harwood and Stuart concurred and Justice Lyons concurred in the result, reversed the summary judgment, finding that Northcutt's argument "fails to recognize the exception in [Ala. Code] § 6-5-574(a)" that allows a legal-malpractice action to be commenced within six months from the date the cause of action was discovered. The Court held that, because Dennis did not become aware that he had a possible claim against Northcutt until November 2001, when Dennis received a response to a complaint he had filed with the State Bar, his suit against Northcutt was timely filed within the six-months' time allowed by the "discovery" exception in the statute.

Valentine v. Watters, Ms. 1020986 (April 16, 2004). Valentine claimed that she went to see Watters, an attorney, about a possible breast implant claim and that she hired Watters on the basis that he represented to her that he was very familiar with such claims because he had represented others with similar claims. Watters later assured Valentine, she said, that he had filed the necessary paperwork for her to participate in a class-action suit. Thereafter, Watters admitted to Valentine that he had not filed the necessary paperwork. Valentine went to see another lawyer who actually had represented a number of breast-implant claimants and he filed papers in the class-action for Valentine, but as a "late registrant." Valentine sued Watters for legal malpractice, alleging that she would receive far fewer benefits as a result of her being a "late registrant." Valentine found an attorney who was willing to opine as an expert witness against Watters, but the expert later declined to testify. The trial court entered summary judgment on the basis that Valentine could not proffer the expert testimony required by the Legal Services Liability Act. Justice See's opinion for an 8-0 Court reversed the summary judgment, finding that although the Act controlled Valentine's claims against Watters, Section 6-5-580 (like its counterpart in the Medical Liability Act) does not expressly provide that the plaintiff must present expert testimony in support of a legal-malpractice claim. Specifically, the Court found, Section 6-5-580 requires expert testimony where the contention is that the attorney deviated from the standard of care. Adopting the "common knowledge" exception to the expert-testimony requirement that other jurisdictions have applied, the Court ruled that "[w]hether Valentine could have prevailed in the [class action] litigation is a question which is within the understanding of a jury; therefore, Valentine need not present expert testimony on this issue." In particular, the Court found: "Failure to timely file an action is a matter within the common knowledge of the average layperson."

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TIDBITS

Knox v. Western World Insurance Co., Ms. 1030582 (May 14, 2004). In this 5-0 decision, the Court held that a tort claimant may not bring a declaratory judgment action against a tortfeasor's liability insurer before a final judgment determining the tortfeasor's liability has been entered.

Ex parte Byrom, Ms. 1021113 (April 2, 2004). In this worker's compensation case, seven members of the Court determined that injuries sustained as a result of an on-the-job lightning strike while the employee was talking to a customer on the telephone are compensable.

Byrd v. Dillard's, Inc., Ms. 1021439 (April 2, 2004). This 8-0 per curiam decision answered a federal court's question concerning the statute of limitations that applies to the Alabama Age Discrimination in Employment Act, Ala. Code § 25-1-20 et seq. The Court held that (1) a claim under the Act filed in a State court within 180 days of the occurrence is timely filed and that (2) if the plaintiff files a claim with the EEOC within 180 days of the occurrence and the EEOC notifies the plaintiff that the EEOC has dismissed the case, the plaintiff must file his or her claim in the State court within 90 days after such notice to be timely filed.

American General Life & Accident Insurance Co. v. Underwood, Ms. 1020337 (Feb. 13, 2004). This 8-0 decision held that the 20-year statute or repose barred the black plaintiffs' claims that the premiums they were charged were based upon their race.

Douglas v. King, Ms. 1021360 (March 26, 2004). This decision held that the decedent's kin who pay the funeral expenses can be the "largest creditor of the estate" for purposes of determining who may be appointed as the personal representative under Ala. Code § 43-2-42.