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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Anderson v. State (10/16/2003) sp-5745
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
SUSAN D. ANDERSON, )
) Supreme Court Nos. S-
10416/10425
Appellant/Cross-Appellee, )
) Superior Court No.
v. ) 3AN-98-10450 CI
)
STATE OF ALASKA ex rel. ) O P I N I O N
CENTRAL BERING SEA )
FISHERMEN'S ASSOCIATION )
and CARL MERCULIEF, )
)
Appellee/Cross-Appellant. ) [No. 5745 - October
16, 2003 ]
)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Peter A. Michalski, Judge.
Appearances: David Karl Gross, Timothy J.
Petumenos, Birch, Horton, Bittner & Cherot,
Anchorage, for Appellant/Cross-Appellee.
Gary M. Guarino, Assistant Attorney General,
Anchorage, Bruce M. Botelho, Attorney
General, Juneau, for Appellee/Cross-
Appellant.
Before: Matthews, Eastaugh, Bryner, and
Carpeneti, Justices. [Fabe, Chief Justice,
not participating.]
PER CURIAM
MATTHEWS, Justice, with whom EASTAUGH, Justice, joins,
concurring and dissenting.
BRYNER, Justice, with whom CARPENETI, Justice, joins,
concurring and dissenting.
I. FACTS AND PROCEEDINGS
A jury awarded Susan Anderson compensatory and punitive
damages against Central Bering Sea Fishermen's Association and
its president, Carl Merculief, based on claims of wrongful
discharge and defamation. In an earlier appeal we held that part
of the compensatory award was excessive, but we upheld punitive
damages awards of $400,000 against the association and $200,000
against Merculief.1 The present appeal concerns the state's
claim to half of the punitive damages under AS 09.17.020(j).2
After the court entered judgment in her favor, Anderson
filed a motion asking the court to declare AS 09.17.020(j)
unconstitutional. She argued that the statute violated the due
process, takings, and equal protection clauses of the United
States and the Alaska Constitutions. The state intervened, made
a motion asserting its statutory right to fifty percent of
punitive damages, and opposed Anderson's motion. The superior
court denied Anderson's motion and granted the state's, finding
AS 09.17.020(j) to be constitutional.
In upholding the statute, the superior court issued an
opinion holding that Anderson had no constitutionally protected
"property interest" in the whole award of punitive damages and
that the allocation of punitive damages to the state thus did not
constitute a taking or violate Anderson's rights to due process.
The court also rejected Anderson's equal protection claim,
finding that the statute affected only economic interests and
bore a fair and substantial relationship to legitimate government
objectives.
The court ordered Anderson to submit an amended final
judgment that granted the state fifty percent of punitive
damages. At this point a dispute arose as to the interpretation
of AS 09.60.080. That section provides that contingent
attorney's fees shall be "calculated" before the state's portion
of punitive damages has been deducted from the total award of
damages.3 The state contended that this section only governs the
calculation of the plaintiff's attorney's fee and that it was
entitled to fifty percent of the punitive damages award before
fees are deducted. The superior court rejected this argument.
The state filed a motion for reconsideration,
contending that at least it should be allowed to share in
attorney's fees that had been awarded to Anderson under Civil
Rule 68. The superior court summarily denied the state's motion
for reconsideration, effectively ruling that the state was not
entitled to any of the fees awarded to Anderson.
II. STANDARD OF REVIEW
The constitutionality of AS 09.17.020(j) and the proper
interpretation of AS 09.60.080 are issues of law.4 We review
these issues de novo,5 adopting the rule of law that is most
persuasive in light of precedent, policy, and reason.6
III. ISSUES AND DECISION
There are three issues presented in this case:
1. Is AS 09.17.020(j), which allocates half of
punitive damage awards to the state, constitutional as applied in
this case?
2. Under AS 09.60.080 should a portion of contingent
attorney's fees incurred by a plaintiff in obtaining a punitive
damage award be deducted pro rata from the state's portion of the
award?
3. Where the plaintiff has received enhanced
attorney's fees under Alaska Civil Rule 68, should these fees be
taken into account in calculating the amount of fees to be
deducted pro rata from the state's portion of the punitive damage
award?
The trial court gave affirmative answers to the first
two issues and a negative answer to the third. This court is
evenly divided on the first and third issues. As to the first
issue, Justices Matthews and Eastaugh favor affirmance and
Justices Bryner and Carpeneti favor reversal. As to the third
issue, Justices Bryner and Carpeneti favor affirmance and
Justices Matthews and Eastaugh favor reversal. As to the second
issue, the court is unanimous and agrees with the trial court's
resolution.
Our case law establishes that a decision by an evenly
divided court results in an affirmance.7 An affirmance by an
evenly divided court is not binding precedent.8 The opinion of
the justices agreeing with the decision of the superior court is
referred to as the dispositional opinion.9 Since at least two
members of the court agree with the superior court's decision as
to each of the three issues, the superior court's decision will
be affirmed.
Part I of Justice Matthews's separate opinion, joined
in by Justice Eastaugh, is the dispositional opinion as to the
first issue; Part II is the opinion of the court as to the second
issue; Part III is a dissenting opinion as to the third issue.
Part I of Justice Bryner's opinion, joined in by Justice
Carpeneti, is a dissenting opinion as to the first issue; Part II
is the dispositional opinion as to the third issue.
The judgment of the superior court is AFFIRMED.
MATTHEWS, Justice, with whom EASTAUGH, Justice, joins, concurring
and dissenting.
I.
Constitutional Issues
Subsequent to the superior court's decision, this court
ruled on the constitutionality of AS 09.17.020(j). In Evans ex
rel Kutch v. State, in an evenly divided opinion, we affirmed a
superior court decision that declared the 1997 tort reform
legislation to be facially constitutional.10 Subsection .020(j)
was challenged in Evans as violating substantive due process, the
takings clause, and the right to trial by jury.11 The
dispositional opinion written by Chief Justice Fabe and joined by
Justice Eastaugh concluded that these challenges lacked merit.12
Justice Bryner, in a dissenting opinion joined by Justice
Carpeneti, concluded that subsection .020(j) violated substantive
due process and amounted to an unconstitutional taking under the
Alaska Constitution.13
In the present case Anderson argues that the statute as
applied to her violates substantive due process and the takings
and equal protection clauses of the Alaska14 and United States15
Constitutions. I conclude that her arguments lack merit. As to
the takings and substantive due process challenges, I agree with
the dispositive opinion in Evans and with additional reasons
presented by the state and discussed in this opinion. With
respect to equal protection I conclude that the statute does not
unconstitutionally discriminate.
A. Takings
The Fifth Amendment of the United States Constitution
provides that private property shall not be taken for public use
without just compensation. Similarly, article I, section 18 of
the Alaska Constitution provides that "private property shall not
be taken or damaged for public use without just compensation."
Noting that the takings clause has been liberally construed in
favor of the property owner in Alaska,16 Anderson argues that
allocating fifty percent of her punitive damages award to the
state constitutes an unconstitutional taking of her property.
The state responds that Anderson has no vested property right in
a full punitive damages award.
The state is correct. We have recognized that
unlitigated claims are property interests that "cannot be taken
away from the plaintiff by government action without due process
of law."17 However, as the state points out, unlitigated claims
only become property when they accrue, and a claim cannot accrue
before the events that give rise to it occur. Here, Anderson's
claim accrued in 1998, after August 7, 1997, the effective date
of AS 09.17.020(j).18
Before a claim accrues, the law defining it may be
changed without violating the constitution. As the United States
Supreme Court has noted:
Our cases have clearly established that
"[a] person has no property, no vested
interest, in any rule of the common law."
The "Constitution does not forbid the
creation of new rights, or the abolition of
old ones recognized by the common law, to
attain a permissible legislative object,"
despite the fact that "otherwise settled
expectations" may be upset thereby.[19]
The conclusion that an unaccrued claim is not property
follows from the recognition that property itself is a concept
that arises from and is dependent upon state law at the time of
its creation.
Property interests, of course, are not
created by the Constitution. Rather they are
created and their dimensions are defined by
existing rules or understandings that stem
from an independent source such as state law
- rules or understandings that secure certain
benefits and that support claims of
entitlement to those benefits. [20]
In Ruckelshaus v. Monsanto Co. the United States
Supreme Court noted similarly that it was a "basic axiom that
`[p]roperty interests . . . are not created by the Constitution.
Rather, they are created and their dimensions are defined by
existing rules or understandings that stem from an independent
source such as state law.' "21 The Ruckelshaus Court recognized
that "property" extends beyond land and tangible goods to
intangible interests such as liens created under state law or
valid contracts or trade secrets.22 Critical to whether these
intangible rights are constitutionally protected from a
government taking is the nature of the "reasonable investment-
backed expectations" of the party seeking protection.23
We have also recognized the importance of reasonable
expectations in constitutional takings claims. Thus in State,
Department of Natural Resources v. Arctic Slope Regional Corp. we
held that data generated by an oil company drilling on private
land were not constitutionally protected from use by the state
Department of Natural Resources.24 Critical to this issue was an
examination of the nature of the oil company's "reasonable
investment-backed expectations."25 And in Beluga Mining Co. v.
State, Department of Natural Resources we held that Beluga had no
"reasonable investment-backed expectations" because it
"developed its claims despite the pending . . . litigation . . .
and despite [a statute] which made Beluga's rights subject to
existing claims."26
Anderson's reasonable expectations are controlled by
the law in effect when her claim accrued. Since subsection
.020(j) was effective as of the accrual of her claim, she could
have no reasonable expectation to a punitive damages award that
she would not have to share with the state, as provided in the
statute.
In conclusion, because whether a claim is "property" is
defined by the laws in existence when the claim arose, it follows
that Anderson's claim for punitive damages can be protected
property only insofar as permitted by AS 09.17.020(j).
Similarly, since reasonable expectations are critical both in
determining whether a claim is property and whether government
interference with it is a taking, no more than fifty percent of
the award is Anderson's property and the allocation of the other
fifty percent to the state is not an unconstitutional taking. I
therefore conclude that AS 09.17.020(j) as applied to Anderson
does not violate the takings clauses of the Alaska Constitution
or the federal constitution.
This conclusion is consistent with the decisions of
most other state supreme courts that have been presented with
takings challenges to statutes allocating some part of punitive
damages awards to governmental entities.27 Only Colorado, in Kirk
v. Denver Publishing Co.,28 has reached a contrary result. The
dispositional opinion in Evans noted that Kirk is distinguishable
from the present case on narrow statutory grounds.29 I also
believe that Kirk is implicitly based on a rationale inconsistent
with that which is expressed in this opinion and thus disagree
with it.30
B. Substantive Due Process
Anderson argues that subsection .020(j) violates her
substantive due process rights because it is not rationally
related to the achievement of a legitimate purpose. Substantive
due process serves as a guarantee that legislation must be at
least minimally rational:
The constitutional guarantee of substantive
due process assures that a legislative body's
decision is not arbitrary but instead based
on some rational policy. If any conceivable
legitimate public policy for the enactment is
either apparent or offered by those defending
the enactment, the party challenging it must
disprove the factual basis for the
justification.[31]
The 1997 tort reform legislation had several expressed
purposes, including to:
(1) encourage the efficiency of the civil
justice system by discouraging frivolous
litigation and by decreasing the amount,
cost, and complexity of litigation without
diminishing the protection of innocent
Alaskans' rights to reasonable, but not
excessive, compensation for tortious injuries
caused by others;
(2) provide for reasonable, but not
excessive, punitive damage awards against
tortfeasors sufficient to deter conduct and
practices that harm innocent Alaskans while
not hampering a positive business environment
by allowing excessive penalties;
(3) encourage individual savings and economic
growth by fostering an environment likely to
control the increase of liability insurance
rates to individuals and businesses resulting
in a savings to the state, municipalities,
and private businesses that are self-insured;
. . . .
(5) alleviate the high cost of malpractice
insurance premiums that discourage
physicians, architects, engineers, attorneys,
and other professionals from rendering needed
services to the public;
. . . .
(10) reduce the amount of litigation
proceeding to trial by modifying the
allocation of attorney fees and court costs
based on the offer of judgment and the final
court award, thereby providing a financial
incentive to both parties to settle the
dispute[.][32]
Anderson contends that although the dual purposes of
reducing litigation expenses and insurance rates are legitimate,
AS 09.17.020(j) does not advance them. But she does little to
develop her argument. She simply states a general belief that
sharing punitive damages awards with the state has no impact
because it does not reduce awards. She also refers to studies
estimating that punitive damages make up only three to six
percent of all civil awards.
But these assertions are too narrow. As the state
points out, allocating half of all punitive damage awards to the
state will reduce the incentive for plaintiffs to pursue punitive
damages claims. The statute will also encourage plaintiffs to
settle their cases since the state only shares in punitive
damages when an award is made.33 These incentives could reduce
both the overall number of punitive damage claims as well as the
number of punitive damage claims that actually go to trial. This
effect could reasonably be expected to have a moderating
influence on liability insurance premiums. Further, the
incentive to settle punitive damage claims could reduce the
length and complexity of litigation, thereby reducing the overall
cost of litigation. The state's expectation that AS 09.17.020(j)
will help to fulfill these purposes is at least minimally
rational.
Another justification for subsection .020(j) also
passes minimum rationality review. The subsection is meant, in
part, to increase state revenues, similar to the impact of law
requiring criminal and civil fines to be paid to the state.
The primary purpose of tort law is to provide just
compensation to the tort victim.34 Compensatory damage awards are
designed to achieve this purpose. Punitive damages have
different objectives. They are intended "to punish the wrongdoer
and to deter the wrongdoer and others like him from repeating the
offensive act."35 As such, they are like fines imposed in
criminal and civil cases. Fines, of course, are paid into the
state general fund. A number of judges and commentators have
suggested over the years that punitive damages should be paid to
a public entity because they have the same purposes as criminal
fines, these purposes are inherently public in nature, and the
individual plaintiff has by definition already been made whole by
compensatory damages.36
This theme was expressed and recognized in the
proceedings leading to the adoption of subsection .020(j). Thus,
one officer of an industry group urging adoption of the tort
reform provisions stated: "If the intent of punitive damages is
to punish rather than award, it would follow that a portion of
punitive damages could be allocated to the state."37 A
representative of the state chamber of commerce, which also
advocated passage of the tort reform package, stated: "[T]he
fine, or penalty that had been established as punishment, should
be awarded to society, not the claimant because the wrongful
actions were actually a crime against society."38 A state
representative made the same point:
[P]unitive damages are really awarded when
harm has been done, not just to the
individual as it would be compensatory harm,
but to the community at large. By putting
the punitive damage amounts into the
community's coffers, the community in a sense
is being made whole. What this does is bring
punitives back in to a form of compensatories
for the community in total.[39]
Increasing state revenues by allocating a portion of
punitive damages awards to the state based on the analogy between
such awards and civil and criminal fines is a legitimate public
policy choice.
In conclusion, subsection .020(j) is meant to reduce
incentives to bring punitive damage claims, increase incentives
to settle those claims that are brought prior to trial, and
require those claims that are successfully tried to make a
contribution to the state general fund. Considering these
purposes, individually and in combination, they meet minimum
rationality standards.
C. Equal Protection
The constitutional right to equal
protection is a command to state and local
governments to treat those who are similarly
situated alike. The common question in equal
protection cases is whether two groups of
people who are treated differently are
similarly situated and thus entitled to equal
treatment. Equal protection jurisprudence
concerns itself largely with the reasons for
treating one group differently from another.
In reviewing equal protection claims we view
the enactment in question as creating, by its
differential treatment, separate groups.40
Provisions of an act challenged on equal protection
grounds that separate different groups are referred to as a
"classification."41 Classifications such as those involved here
which relate merely to economic interests are reviewed under
Alaska's equal rights clause "by asking whether a legitimate
reason for disparate treatment exists, and, given a legitimate
reason, whether the enactment creating the classification bears a
fair and substantial relationship to that reason."42
In the present case Anderson claims that subsection
.020(j) creates two pairs of separate categories. The first
pairing divides those litigants with punitive damages claims who
litigate their cases to judgment from those litigants with
punitive damages claims who settle their cases. The second
pairing separates plaintiffs having civil tort claims, all of
whom are subject to subsection .020(j), from plaintiffs having
claims arising in admiralty, whose claims are excluded from
coverage by section 1 of the tort reform legislation.43
The first pairing - concerning the disparate treatment
of those who take their case to judgment as distinguished from
those who settle - is based on a legitimate reason: encouraging
settlements. Settlements decrease the length, complexity, and
expense of litigation. This subsection is fairly designed to
encourage settlements, for it offers a considerable financial
incentive by allowing the punitive damage claimant to keep the
whole amount of punitive damages reached through settlement.44
Concerning the second pairing, separating civil from
admiralty claimants, an obvious immediate objective was to avoid
impairing the $5 billion punitive damages verdict in the federal
Exxon Valdez litigation. But the state also offers a more
general reason: admiralty claims are governed by federal
statutes and federal common law. The role that state legislation
can play in influencing substantive admiralty law is limited. As
the superior court recognized, this in itself justifies the
exclusion of admiralty claims:
State courts exercising concurrent
maritime jurisdiction are generally bound to
apply substantive federal maritime law.
Thus, whether in state court or in federal
court, maritime law determines the rights of
the parties. "[A] state court `may adopt
such remedies, and attach to them such
incidents as it sees fit' so long as they do
not attempt to make changes in the
`substantive maritime law.' " That proviso
is violated when the state remedy "works
material prejudice to the characteristic
features of the general maritime law or
interferes with the proper harmony and
uniformity of that law in its international
and interstate relations."
The Act's statement of legislative
intent which treats admiralty claims
differently than all other tort claims is a
statement of substantive state law. When the
law allows plaintiffs 100% of the punitive
damages verdict it results in plaintiffs in
admiralty being treated differently than
other Alaska plaintiffs. However, the
Legislature's "classification" bears a fair
and substantial relationship to attaining a
legitimate government objective. The
rationale for the prevailing rule that
regardless of the forum federal substantive
law applies to a general admiralty cause of
action is the perceived need for uniformity
in maritime tort law, regardless of the place
of injury or forum of trial. (Citations
omitted.)
In State, Department of Public Safety v. Brown,45 we
held that the exclusive remedy defense contained in the Alaska
Workers' Compensation Act could not deprive a seaman who had
collected state workers' compensation of a Jones Act admiralty
remedy against his employer. We observed that this result was in
accordance with a number of similar holdings in the federal
circuits46 and with the United States Supreme Court's decision in
an analogous situation in Pope & Talbot, Inc. v. Hawn,47 where
the court refused to apply a state
contributory negligence defense which would
have barred recovery for a general maritime
cause of action. The court stated that
"[w]hile states may sometimes supplement
federal maritime policies, a state may not
deprive a person of any substantial admiralty
rights as defined in controlling acts of
Congress or by interpretative decisions of
this Court." To hold otherwise would
undermine the uniformity of maritime law
"which the [Federal] Constitution has placed
under national purview to control in `its
substantial as well as procedural
features.' "[48]
This is not the occasion to rule on whether application
of subsection .020(j) in an admiralty case would necessarily be
preempted. That question is not presented. The current
analytical framework for deciding admiralty preemption questions
is set out in the Ninth Circuit's recent decision in In re Exxon
Valdez.49 The framework is complex, and what the result would be
if it were applied to subsection .020(j) may be uncertain. It is
enough now to conclude that the primacy of federal law and the
need for uniformity in admiralty are legitimate justifications
for excluding admiralty claims from the coverage of subsection
.020(j).
II.
Pro-Rata Attorney's Fees Should Be Deducted from the State's
Fifty Percent.
Anderson's attorney's fee contract provided that her
attorneys would be paid a contingent fee of forty percent of
punitive damages. The state argued before the superior court and
argues on appeal that its half of the $600,000 punitive award
should not be subject to a corresponding reduction to pay a
portion of Anderson's attorney's contingent fee. The superior
court disagreed and deducted from the state's $300,000 share the
sum of $120,000, thus applying the forty percent contingent fee
percentage. I conclude that the superior court was correct.
Two statutory sections are relevant to this issue. The
first is AS 09.17.020(j), which mandates that "fifty percent of
the award [of punitive damages] be deposited into the general
fund of the state." The other is AS 09.60.080, which provides:
If an attorney contracts for or collects
a contingency fee in connection with an
action for personal injury, death, or
property damage and the damages awarded by
the Court or jury include an award of
punitive damages, the contingent fee due the
attorney shall be calculated before that
portion of punitive damages due to the state
under AS 09.17.020(j) has been deducted from
the total award of damages.
The state argues that AS 09.60.080 speaks only to the
calculation of attorney's fees, not to their deduction from that
portion of the punitive damage award payable to the state. It
contends therefore that section .080 has no bearing on the
question of deduction of fees and that since the word "award" is
not modified in subsection .020(j) the legislature meant there to
be no deduction for fees from the state's portion.
Although the state's argument is correct that section
.080 only directly addresses calculation, I believe that section
.080 implies that half of the calculated fee should be deducted
from the portion of damages due the state. Section .080 clearly
is concerned with when the calculation of fees takes place, yet
timing of the calculation is unimportant unless a deduction is
meant to occur. Otherwise calculation of fees would be just as
appropriate after the state's portion was deducted, so long as it
was clear that the fees should be based on the entirety of the
award. Further, if section .080 means that no deduction for fees
can be taken from the state's share, its purpose would be to
ensure full compensation of plaintiffs' attorneys while imposing
a double burden on their clients.50 This seems like an unlikely
objective.
The state also argues that legislative history supports
its view. But legislative history presented by the state
persuasively supports an intent to deduct fees from the state's
portion of punitive damages. An early version of the bill that
became the Tort Reform Act of 1997 provided that "the contingent
fee due the attorney shall be calculated after that portion of
punitive damages due the state under [AS 09.17.020(j)] has been
deducted from the total award of damages."51 Under this language,
it seems that no deduction for contingent attorney's fees would
be permitted from the state's portion of a punitive damages
award, and the contingent fee percentage would be applied only to
the portion of punitive damages left to the plaintiff after the
state's portion had been deducted. But the word "after" was
changed to "before" in floor amendments in the Senate.52 Although
no specific discussion of this amendment has been presented to
us, the only reasonable explanation for the change is that it was
meant to require the state to pay its share of a plaintiff's
attorney's contingent fee. This is also how the attorney's fee
provision of the Tort Reform Act was explained by the Attorney
General to the Governor at the time the Tort Reform Act was
debated and passed:
An allocation to the state of fifty percent
of the punitive damage award also does not
appear to violate state or federal
constitutional provisions. The allocation
would be made after fees are paid to
plaintiff's counsel. This avoids substantive
due process problems that might arise if the
plaintiff were exposed to liability for
contingency fees after allocation to the
state general fund.[53] (Emphasis added.)
The state argues that actions taken by the legislature
in rejecting a comprehensive amendment to the bill that became
the Tort Reform Act indicate an intent to reject the pro-rata
reduction of fees from the state's portion of punitive damages.
The amendment, referred to in the Senate as Amendment No. 11, had
numerous provisions.54 Among them were provisions changing the
state's straight fifty percent share to a graduating schedule
under which the state would receive nothing from the first
million dollars of any punitive damages award to a recovery of
forty percent of any award in excess of $10 million.55 Although
the exact language of the amendment has not been presented, the
notation concerning its effect on attorney's fees is "[a]ll
amounts to the state after payment of all costs and fees incurred
in connection with securing the award."56 The legislature
rejected the Amendment No. 11 package,57 doing so in the Senate
before the amendment changing "before" to "after" in what became
subsection .020(j).58 Because Amendment No. 11 covered many
subjects, no inference of a legislative intention to prevent pro-
rata reduction of attorney's fees from the state's portion of
punitive damages can reasonably be drawn from its rejection.
A package similar to Amendment No. 11 was offered in
the House of Representatives.59 It was rejected by the House, and
Majority Leader Brian Porter wrote a memo concerning the reasons
for its rejection, stating that it "was determined to be
unacceptable in the main, because its punitive damages section
. . . removed the disincentive to settle found in returning a
full 50 percent of these fines to the state."60 The state argues
that Representative Porter's language referencing "a full fifty
percent of these fines" is a reference to an intent not to permit
a deduction for attorney's fees. Although this is possible, it
seems more likely that the reference is to the fact that under
the amendment the state would only receive a graduated percentage
of punitive damages awards, up to forty percent for awards
greater than $10 million, rather than fifty percent of any
punitive damages award no matter what its size.
The state also argues that allowing a pro-rata
reduction for a contingent fee permits the possibility of severe
diminishment or elimination of the state's recovery rights
because a plaintiff might agree "to pay a higher percentage (up
to 100 percent) of the punitive damages award as a contingency
fee." This highlights a possible area of abuse. Ordinarily,
however, the interest of the client should be enough to keep
contingent fees reasonable. But if in a particular case a
contingent fee contract provides for an unreasonably or
disproportionately high percentage for punitive damages, the
inherent power of the court to regulate contingent fee contracts
can be invoked to correct the problem.61 In the present case no
contention is made that the fee is objectionable on these
grounds.
For the above reasons the superior court did not err in
deducting forty percent in fees from the state's portion of the
punitive damages award.
III.
The State Should Be Given Credit for the Enhanced Fee Awarded to
Anderson under Civil Rule 68.
Civil Rule 68 provides for enhanced fees when an offer
of judgment is made prior to trial and the judgment finally
rendered is less favorable to the offeree than the offer. Rule
68 was applied in Anderson's case and she received a fee award
against the association and Merculief for the substantial sum of
$228,882.75. The state argued before the superior court that it
should receive some benefit from this award, assuming that its
portion of the punitive damage award was subject to a reduction
for attorney's fees. The superior court rejected this
contention.
The state's argument is that it "will be paying a
substantial portion of Anderson's attorney's fees that are then
being reimbursed, at least in part, by the award of enhanced fees
. . . ." The state thus seeks a pro-rata reduction in the fees
that it must pay to Anderson's attorney under the contingent fee
contract.
I believe that the state is correct in this argument.
The contingent fee that is to be deducted from the state's
portion of the punitive damages award should be the actual
percentage paid by the plaintiff as attorney's fees. When the
plaintiff receives a substantial award of attorney's fees from
the defendant, the actual percentage of fees that she must pay
becomes lower than the percentage stated in the contingent fee
contract. It seems correct that the state should have to pay no
more than the effective rate for fees paid by the plaintiff, as
distinct from the contractually stated fee.
I therefore would remand this aspect of the case to the
superior court to determine the effective rate of the contingent
fee that Anderson must pay and to apply that rate to the state's
portion of the punitive damages award.62
BRYNER, Justice, with whom CARPENETI, Justice, joins, concurring
and dissenting.
I join in Part II of Justice Matthews's opinion, which
holds that AS 09.60.080 required the state's fifty-percent share
of punitive damages under AS 09.17.020(j) to be determined after
deducting the contingent fee due Anderson's attorney from the
total amount of her punitive damages award. I write separately
here to address the remaining issues: whether AS 09.17.020(j) is
constitutional and whether the state was entitled to a share of
Anderson's prevailing-party fee award.
I. Constitutional Issues
The takings-clause and due-process issues raised in
this appeal mirror the issues addressed in our evenly divided
opinion in Evans v. State.63 I adhere to my dissenting opinion in
Evans64 and see no need to repeat my views here. My comments
below address new points advanced in today's dispositional
opinion.
A. Takings
The dispositional opinion reasons that AS 09.17.020(j)
avoids takings- clause problems because it merely redefines a
plaintiff's cause of action for punitive damages before it
accrues: "[A]s the state points out, unlitigated claims only
become property when they accrue, and a claim cannot accrue
before the events that give rise to it occur."65 Because
Anderson's punitive damages claim accrued after subsection
.020(j) was enacted, the opinion concludes, AS 09.17.020(j) took
no vested property interest from Anderson.
But as my dissent in Evans points out, AS 09.17.020(j)
neither redefines nor regulates the permissible scope of
unlitigated punitive damages claims; instead, subsection .020(j)
attempts to alter the plaintiff's property rights only after the
plaintiff's claim accrues and is fully litigated, after the claim
proves successful, and after the plaintiff "receives an award."66
In fact, the statute unequivocally disclaims any intent to assign
the state an interest in unaccrued and unlitigated claims,
expressly stating that it "does not grant the state the right to
file or join a civil action to recover punitive damages."67
Subsection .020(j)'s attempt to divest plaintiffs of
property after they litigate their claims and receive their
awards effectively takes the fruits of their labor,68 which
readily distinguishes this statute from a provision that would
give the state a share of unaccrued and unlitigated claims.
B. Substantive Due Process
My dissent in Evans discussed two supposed
justifications for AS 09.17.020(j) and concluded that the
statute's forfeiture provision violates substantive due process
because it serves no rational purpose.69 The dispositional
opinion offers two refined justifications for the statute, but in
my view neither withstands rational basis scrutiny.
The first proposed justification posits that subsection
.020(j) might offer "incentives" to reduce punitive damages
claims and promote settlements.70 Yet as the Evans dissent points
out, the only way that subsection (j) discourages punitive
damages claims is by punishing any claimant who files a
meritorious claim, successfully pursues it to completion, and
receives a factually accurate and lawfully authorized judgment.71
Because any tendency that the statute might have to discourage
abuse of the law emerges purely as a side effect of its direct
command to punish all punitive damages claimants who successfully
exercise their constitutional right to due process, its
"incentives" are perverse and irrational.72 Incentives of this
kind fail to meet even the minimal test of substantive due
process.73
As a second justification, the dispositional opinion
proposes that subsection .020(j) increases state revenues.74 But
surely the state's unquenchable thirst for money does not by
itself justify snatching a private litigant's purse. Just as
cost savings alone do not sustain otherwise arbitrary state
action,75 so revenue earning is not, in itself, a legitimate
legislative purpose.76 Although the dispositional opinion
suggests that the state does have a valid interest - apart from
pure revenue generation - in taking a share of privately won
punitive damages judgments,77 I think that the dissent in Evans
adequately addresses this notion and correctly rejects it as
unfounded.78
II. State's Right to Share in Anderson's Fee Award
As its final point, the state briefly argues, without
citing any authority, that the trial court should have awarded it
a portion of Anderson's prevailing-party attorney's fee award.
The state reasons that "if the allocation statutes are to be
interpreted to require the payment of attorney's fees by the
State, then they should also be interpreted to permit the State
to recover a portion of the attorney's fees award, particularly
where there is an enhanced award . . . [under Civil Rule 68] of
actual fees as in this case."
But our interpretation of AS 09.60.080 does not
"require the payment of attorney's fees by the State." As we
recognize in Part II of Justice Matthews's opinion, AS 09.60.080
sets out a specific formula for calculating the state's share of
a plaintiff's punitive damages award in contingent-fee cases.
The statute's plain language fixes that share at fifty percent of
the plaintiff's net punitive damages award after applying the
terms of the contingent-fee agreement. By specifying this
exclusive method of calculation, AS 09.60.080 simply defines the
state's share of a plaintiff's punitive damages in contingent-fee
cases. The statute imputes no payment of fees to the state and
allows no other adjustment.
This straightforward interpretation of AS 09.60.080
also squares with the plain language of AS 09.17.020(j), the
provision that establishes the state's right to share in private
awards of punitive damages. Subsection .020(j) specifically
allocates to the state a share from the plaintiff's "award of
punitive damages," thus implicitly denying the state access to
any other part of the judgment - whether directly or by offset.
At the same time, subsection .020(j) explicitly denies the state
any right to participate as a party in the punitive damages
action.79 Because the state consequently shares none of the
ordinary risks and benefits of a party, subsection .020(j)
undercuts the theory that AS 09.60.080 envisions a state
contribution of fees that would entitle the state to an offset.80
And in actuality, of course, the state pays no real or
constructive fees; only the plaintiff pays. Under AS
09.17.020(j)'s provisions creating the state's interest in
punitive damages and AS 09.60.080's provisions defining that
interest, the state acquires its property interest only after the
plaintiff's contingent fee is calculated and paid. Because the
state has no property interest in a plaintiff's award of punitive
damages until the plaintiff's contingent fees are calculated and
deducted as required in AS 09.60.080, the state can lose nothing
before its share of the punitive damages award is fixed under
that statute.81 Accordingly, there is no realistic basis for
treating the state's share of damages under section .080 as if it
were the remnant of some larger, preexisting property right that
has been cut down by a forced contribution to the plaintiff's
payment of contingent fees. Simply put, the state cannot lose
property before it acquires property; and here, section .080
defines the state's complete property right.
Because AS 09.60.080's definition of the state's share
of punitive damages in contingent-fee cases implies no state
payment of plaintiff's fees, the superior court correctly denied
the state's claim for an offset from Anderson's fee award under
Civil Rule 68.
_______________________________
1Central Bering Sea Fishermen's Ass'n v. Anderson, 54 P.3d 271
(Alaska 2002).
2AS 09.17.020(j) provides:
If a person receives an award of
punitive damages, the court shall require
that 50 percent of the award be deposited
into the general fund of the state. This
subsection does not grant the state the right
to file or join a civil action to recover
punitive damages.
3AS 09.60.080 provides:
If an attorney contracts for or collects
a contingency fee in connection with an
action for personal injury, death, or
property damage and the damages awarded by a
court or jury include an award of punitive
damages, the contingent fee due the attorney
shall be calculated before that portion of
punitive damages due the state under AS
09.17.020(j) has been deducted from the total
award of damages.
4Anderson argues that the question of awarding attorney's fees -
and the impact of that award on the state's allocation of
punitive damages - is an "[issue] related to the award of
attorney's fees," subject to the abuse of discretion standard.
As the state points out, however, "[t]he superior court's rulings
[with respect to AS 09.60.080] did not involve a determination of
the `prevailing party' or the proper amount of attorney's fees
under Alaska Civil Rule 82." Instead, the court was asked to
determine the meaning of AS 09.60.080. Thus, we use a de novo,
and not an abuse of discretion, standard.
5State v. Alaska Civil Liberties Union, 978 P.2d 597, 603 (Alaska
1999); Sauve v. Winfree, 907 P.2d 7, 9 (Alaska 1995).
6Jaso v. McCarthy, 923 P.2d 795, 801 (Alaska 1996); K&L Distrib.,
Inc. v. Kelly Elec., Inc., 908 P.2d 429, 431 (Alaska 1995).
7Reeves v. Alyeska Pipeline Serv. Co., 56 P.3d 660 n.1 (Alaska
2002).
8Id.
9John's Heating Serv. v. Lamb, 46 P.3d 1024, 1041 (Alaska 2002).
1056 P.3d 1046 (Alaska 2002).
11Id. at 1057.
12Id. at 1057-59.
13Id. at 1075-79 (Bryner, J., dissenting).
14Alaska Const. art. I, 1, 7, 18.
15U. S. Const. amend. V, XIV, 1.
16Patrick v. Lynden Transport, Inc., 765 P.2d 1375, 1378 (Ala
ska 1988).See Norcon, Inc. v. Kotowski, 971 P.2d 158,
175 n.21 (A
17Patrick v. Lynden Transport, Inc., 765 P.2d 1375, 1378 (Alaska
1988).
18See Norcon, Inc. v. Kotowski, 971 P.2d 158, 175 n.21 (Alaska
1999) (AS 09.17.020 does not apply to any cases before August 7,
1997, because of express legislative intent, but applies to all
cases after that date).
19Duke Power Co. v. Carolina Envtl. Study Group, Inc., 438 U.S.
59, 88 n.32 (1978) (citations omitted).
20Board of Regents of State Colls. v. Roth, 408 U.S. 564, 577
(1972).
21467 U.S. 986, 1001 (1984).
22Id. at 1003-04.
23Id. at 1006-07.
24834 P.2d 134 (Alaska 1991).
25Id. at 139.
26973 P.2d 570, 576 (Alaska 1999).
27See Gordon v. State, 608 So. 2d 800, 801-02 (Fla. 1992); Mack
Trucks, Inc. v. Conkle, et al., 436 S.E.2d 635, 639 (Ga. 1993);
Shepherd Components, Inc. v. Brice Petrides-Donohue & Assoc.,
Inc., 473 N.W.2d 612, 619 (Iowa 1991); Fust v. Attorney General,
947 S.W.2d 424, 431 (Mo. 1997); DeMendoza v. Huffman, 51 P.3d
1232, 1234 (Or. 2002).
28818 P.2d 262, 267-70 (Colo. 1991).
29Evans ex rel. Kutch v. State, 56 P.3d 1046, 1058, n.74 (Alaska
2002).
30I am not alone in this belief. The Oregon Supreme Court
recently stated in DeMendoza:
Like the Supreme Court of Missouri, we
do not agree with "the implicit conclusion in
Kirk that a plaintiff has a greater property
interest in a judgment upon a tort claim than
the interest recognized by law when the claim
accrued." Fust v. Attorney General, 947
S.W.2d 424, 431 (Mo. 1997). See also Gordon
v. State, 585 So. 2d 1033, 1036 (Fla. App.
1991) ("where an existing statute provides
that funds recovered under it are subject to
a prior claim, a party cannot thereafter
obtain a vested right to that claim").
51 P.3d at 1247 n.17.
31Gonzales v. Safeway Stores, Inc., 882 P.2d 389, 397-98 (Alaska
1994) (quoting Keyes v. Humana Hosp. Alaska, Inc., 750 P.2d 343,
351-52 (Alaska 1988)) (internal citations omitted).
32Ch. 26, 1, SLA 1997.
33Anderson acknowledges that the incentive to settle inherent in
the statute is likely to be effective: "This potential for
settlement is likely to happen a lot, considering that both a
plaintiff and defendant would benefit significantly by cutting
the state out of the case."
34State Farm Mut. Auto. Ins. Co. v. Weiford, 831 P.2d 1264, 1266
(Alaska 1992).
35Id. (quoting Providence Washington Ins. Co. of Alaska v. City of
Valdez, 684 P.2d 861, 863 (Alaska 1984)).
36As far back as 1877, one judge commented:
It is difficult on principle to understand
why, when the sufferer by a tort has been
fully compensated for his suffering, he
should recover anything more. And it is
equally difficult to understand why, if the
tortfeasor is to be punished by exemplary
damages, they should go to the compensated
sufferer, and not to the public in whose
behalf he is punished.
Bass v. Chicago & N.W. Ry. Co., 42 Wis. 654 (Wis. 1877) (Ryan,
C.J., concurring); see also Spokane Truck & Dray Co. v. Hoefer,
25 P. 1072, 1074 (Wash. 1891) (condemning punitive damages for
"appropriat[ing] money which is supposed to be paid for the
benefit of the state").
Similar positions have also been expressed more
recently. For example, in a 1983 dissent then-Justice Rehnquist
commented "[e]ven assuming that a punitive `fine' should be
imposed after a civil trial, the penalty should go to the state,
not to the plaintiff - who by hypothesis is fully compensated."
Smith v. Wade, 461 U.S. 30, 59 (1983) (Rehnquist, J.,
dissenting).
Professor Calvin R. Massey has likewise written:
Since the purpose of punitive damages is
to punish the defendant for his acts, and not
to redress some injury done to the plaintiff,
it is anomalous to permit private recovery of
the punishment. The theoretical
justification for the punishment suggests
that punitive damages ought to be paid to the
state and not a private party.
Calvin R. Massey, The Excessive Fines Clause and Punitive
Damages: Some Lessons from History, 40 Vand. L. Rev. 1233, 1270
(1987).
A Harvard Law Review note in 1992 suggested a solution
for obtaining the
optimal level of liability on the defendant
consistent with the goals of deterrence or
retribution while providing the plaintiff
with no more than full compensation. . . .
The difference between the defendant's total
liability and the plaintiff's award would go
to a general fund used to reduce taxes.
Note, An Economic Analysis of the Plaintiff's Windfall from
Punitive Damage Litigation, 105 Harv. L. Rev. 1900, 1911 (June
1992).
37House Judiciary Standing Comm., 20th Leg., Feb. 24, 1997, No.
115 (Alaska) (statement of John Wheately, Vice-President of
Policy Support Indus. Alliance).
38House Judiciary Standing Comm., 20th Leg., Feb. 24, 1997, No.
1967 (Alaska) (statement of Pamela Labolle, President of Alaska
State Chamber of Commerce).
39House Judiciary Standing Comm., 20th Leg., Feb. 27, 1997, No.
1260 (Alaska) (statement of Rep. Ethan Berkowitz).
40Gonzales v. Safeway Stores, Inc., 882 P.2d 389, 396 (Alaska
1994).
41Id. at 396.
42Id. The test under the federal equal protection clause is
similar, but less demanding. See Isakson v. Rickey, 550 P.2d
359, 362 (Alaska 1976) (establishing that rational basis review
under the Alaska Constitution is more rigorous than that under
the federal constitution). Thus economic classifications that
are constitutional under Alaska's provision are necessarily
constitutional under the equal protection clause of the
Fourteenth Amendment.
43Ch. 26, 1(11), SLA 1997 provides in relevant part: "it is
the specific intent of the legislature that this Act not apply to
or any way have an effect on In Re Exxon Valdez, A89-0095 Civ.
(D. Alaska) or any other federal admiralty action now or in the
future."
44See supra note 33.
45794 P.2d 108, 110-11 (Alaska 1990).
46Id.
47346 U.S. 406 (1953).
48Brown, 794 P.2d at 111 (citations omitted).
49270 F.3d 1215, 1250-53 (9th Cir. 2001).
50To use this case as an example, the $600,000 punitive damages
award would be allocated as follows under the state's position:
the state would receive $300,000, Anderson's attorneys would
receive $240,000, and Anderson would receive $60,000. Under the
superior court's construction of the statute, the state receives
$180,000, Anderson's attorneys receive $240,000, and Anderson
receives $180,000.
51Sponsor Substitute for House Bill (S.S.H.B.) 58, 34, 20th Leg.
1st Sess. (Feb. 17, 1997).
521997 Senate Journal 1297-1303.
531997 Op. Att'y Gen. No. 27, 1997 WL 1089558, *6 (Alaska A.G.)
(April 23, 1997) (citations omitted).
541997 Senate Journal 1249-50. See also House Bill (H.B.) 58
Proposed Resolution Package, April 13, 1997.
551997 Senate Journal 1249-50. See also H.B. 58 Proposed
Resolution Package, April 13, 1997, pg. 2.
561997 Senate Journal 1249-50. See also H.B. 58 Proposed
Resolution Package, April 13, 1997, pg. 3.
571997 Senate Journal 1249-50.
58S.S.H.B. 58, 34, 20th Leg. 1st Sess. (Feb. 17, 1997).
59H.B. 58 Proposed Resolution Package, April 13, 1997.
60Memorandum from Rep. Brian Porter, House Majority Leader, to
Senator Tim Kelly, Senate Rules Chairman (April 16, 1997).
61See, e.g., International Bhd. of Elec. Workers Local Union 1547
v. Lindgren, 985 P.2d 451, 457 (Alaska 1999) ("contingent fees
must pass the test of reasonableness"); see also Alaska R. Prof.
Cond. 1.5.
62Calculation of the effective fee can be complicated by the fact
that it is common under contingent fee contracts to apply the
percentage of recovery stated in the contract to awards of fees.
Thus in this case if the forty percent rate is applied to the
$228,882 Rule 68 award, the net benefit received by Anderson will
be six-tenths of the stated amount or $137,329. This can be
factored into the calculation of her effective contingent fee in
the following manner assuming a $100,000 compensatory award in
addition to the $600,000 punitive damages award that she
received. From the total judgment ($700,000), calculate the
total fees that she would have to pay, except for the award of
attorney's fees (here $280,000). Subtract the net benefit of the
award of attorney's fees from total fees ($280,000 less $137,329)
to get actual fees of $142,671. Her effective contingent fee
percentage is then calculated by dividing actual fees ($142,671)
by the total award ($700,000), resulting in an effective fee
percentage that, applying our assumptions, is just over twenty
percent.
63Evans ex rel. Kutch v. State, 56 P.3d 1046 (Alaska 2002).
64Id. at 1075-79 (Bryner, Justice, dissenting).
65Slip Op. at 7.
66AS 09.17.020(j) (emphasis added); see Evans, 56 P.3d at 1077
(Bryner, Justice, dissenting):
By specifying the source of forfeiture as
"the award" and by defining an award to be
both something that "a person receives" and
something that can be "deposited into the
general fund," [subsection .020(j)'s]
language unequivocally contemplates a
transfer of funds to the state that will
occur only when the defendant becomes obliged
to make actual payment to the plaintiff - an
event that necessarily follows entry of
judgment in the plaintiff's favor.
67AS 09.17.020(j).
68Cf. DeLisio v. Alaska Superior Court, 740 P.2d 437, 440 (Alaska
1987) (citing Coffeyville Vitrified Brick & Tile v. Perry, 76 P.
848, 850 (Kan. 1904)) (recognizing that labor is property under
the takings clause). And in any event, the dispositional
opinion's unlitigated-claim rationale fails to explain how a jury
award to the plaintiff can morph into a judgment for the state
without becoming an unconstitutional taking of the defendant's
property when the state is not a party to the proceedings that
produce the award and the defendant has no opportunity to defend
against the state's claim to the property. See Evans, 56 P.3d at
1077-78. After all, we have previously recognized that even when
a statute commands civil forfeiture of property whose owner
engages in criminal conduct, due process requires notice to the
owner and an opportunity to defend against the state's claim to
the property. See, e.g., Waiste v. State, 10 P.3d 1141, 1145
(Alaska 2000).
69Evans, 56 P.3d at 1075-76.
70Slip Op. at 12-13.
71See Evans, 56 P.3d at 1076:
Because the state receives its fifty-
percent share of punitive damages under AS
09.17.020(j) only if the jury's award of
punitive damages withstands scrutiny by the
trial judge and is upheld on appeal, the
actual source of forfeiture under the statute
will always consist of punitive damages that
have been conclusively established to be
factually and legally justified. While
purporting to target frivolous and excessive
claims, then, the forfeiture statute
paradoxically does just the opposite: it
attacks only meritorious judgments,
supposedly deterring abusers of the punitive
damages system solely by punishing legitimate
users. As a deterrent to frivolous claims,
then, this regime is worse than irrational;
it is perverse.
72Id.
73Moreover, the dispositional opinion's promise of early
settlements seems wholly speculative and unrealistic. As vividly
illustrated by today's case - where the defendants rejected a
reasonable pretrial settlement offer in favor of pressing a
defense that the jury found meritless - there is no rational
basis to predict, on the whole, that AS 09.17.020(j) will
encourage more flexibility by plaintiffs than intransigence on
the part of defendants.
74Slip Op. at 13.
75See, e.g., Herrick's Aero_Auto_Aqua Repair Serv. v. State, Dep't
of Transp. & Pub. Facilities, 754 P.2d 1111, 1114 (Alaska 1988)
(finding under equal protection analysis that cost savings,
without more, cannot justify selective enforcement of state
regulations).
76Of course raising revenues through taxation is undeniably a
legitimate power that our constitution gives to state government.
See Alaska Const., art. IX, 1. And in certain respects, AS
09.17.020(j) arguably has the effect of a tax on punitive
damages. Nevertheless, the statute does not create a tax and so
is not governed by the constitutional constraints that define the
state's power of taxation. See Alaska Const., art. IX, 2-4.
Since the fact that the state might have power to achieve a
result through lawful means cannot justify its efforts to achieve
a similar result through unlawful action, the state's ability
here to raise comparable revenues through a properly enacted tax
on punitive damages affords no shelter to AS 09.17.020(j).
77Slip Op. at 13-16.
78See Evans, 56 P.3d at 1078-79.
79See AS 09.17.020(j) ("This subsection [establishing the fifty-
percent punitive damages forfeiture] does not grant the state the
right to file or join a civil action to recover punitive
damages.").
80Even if the language of these statutes were ambiguous, we would
be obliged to construe them narrowly, in favor of Anderson since
we have long held that statutes in derogation of the common law
should be construed narrowly so as to effect the least possible
change in the common law. University of Alaska v. Shanti, 835
P.2d 1225, 1228 n.5 (Alaska 1992) (citing Hugo v. City of
Fairbanks, 658 P.2d 155, 161 (Alaska App. 1983) and Monteville v.
Terrebonne Par. Con. Gov't, 567 So.2d 1097, 1100 (La.1990)).
Before the legislature enacted AS 09.17.020(j), Alaska common law
allowed plaintiffs to recover punitive damages without
contributing any share of their awards to the state. See, e.g.,
Veco, Inc. v. Rosebrock, 970 P.2d 906, 922 (Alaska 1999) (quoting
Bridges v. Alaska Hous. Auth., 375 P.2d 696, 702 (Alaska 1962)).
Because AS 09.17.020(j) unquestionably abridges the common law,
it must be interpreted narrowly.
81For example, if these statutes gave the state an unspecified
share of all punitive damages awards, the state would have no
better ground to claim fifty percent of a plaintiff's gross
punitive damages award than it would to claim fifty percent of
the net award - nothing in the law otherwise grants the state a
better claim to one share than the other, and, since it is not a
party to the action, the state would have done nothing to earn
either. See AS 09.17.020(j).