Honeywell v. Sterling Furniture Co. , 310 Or. 206 ( 1990 )

GILLETTE, J.

The questions in this case concern how much a jury should be told concerning to whom the distribution of an award of punitive damages will be made¹ and whether a plaintiffs attorney’s share of a jury’s award of punitive damages may be used to offset a court’s award of attorney fees that a plaintiff may receive under the Oregon Unlawful Trade Practices Act (UTPA). We hold that a jury should be told nothing concerning the distribution of an award of punitive damages, and that no part of such an award may be used to offset attorney fees otherwise awardable under the Oregon UTPA.

FACTS

In July, 1979, plaintiffs purchased a new dining room set from defendant on a “layaway” plan. Because of family illnesses and employment problems, plaintiffs made their monthly payments only sporadically, and did not finish paying for the dining room set until August, 1987. Throughout this entire eight-year period, both parties expected that plaintiffs would eventually finish paying for the furniture and take it home.

Upon completion of payment, however, defendant delivered the wrong furniture. Instead of the furniture ordered by plaintiffs, defendant substituted a used or shopworn table and much cheaper and lower quality chairs. Testimony by former employees of defendant revealed that most of plaintiffs’ furniture had been missing for a number of years and this fact was well known to defendant and its employees. The decision to substitute other furniture was made by defendant’s owner.

Plaintiffs initiated this action against defendant alleging both conversion and unlawful trade practices and seeking compensatory damages, punitive damages in the amount of $250,000, and attorney fees.² The trial court instructed the jury pursuant to the uniform civil jury instruction on punitive damages, UCJI No. 35.01A, but added the following paragraph:

“[i]f punitive damages are awarded by you, Oregon law requires that they be distributed as follows: First, the attorney for the prevailing party shall be paid the amount agreed upon between the attorney and the prevailing party; secondly, one-half of the remainder shall be paid to the prevailing party; third, the other half of the remainder shall be paid to the Criminal Injury [sic] Compensation Account to be used for the purposes set forth in the law.”

Defendant timely excepted to this instruction:

“When you look at the remainder of the instructions to the jury on punitive damages, the use of where the money’s going to go is never mentioned. It’s not one of the factors the jury’s to consider. I believe what that statute does is it tells the Court administratively how it’s supposed to structure the judgment against the defendant, how he’s supposed to pay, who it’s going to go to. That’s going to be an administrative position, the Court is going to have to look at the statute, decide how much to pay [counsel], and then split up and form the judgment according to that. The jury’s not going to be required to make the — the jury’s not going to be asked, ‘Okay, we want you to decide how much [counsel] ought to be paid,’ and then take half of this and apply it to there, take half of this and apply it over there. It doesn’t seem to me the policy behind the statute has anything to do with the jury’s consideration of whether to award it or not.

U* * * * *

“I’m asking the Court to look at how are punitive damages to be decided by this jury? They’re to be decided by looking at the defendant’s conduct, and as a punitive measure against the defendant. There’s nothing mentioned about for anybody. And I think we’ll open a Pandora’s box on closing argument with an instruction that specifically says, ‘Well, once you get done, let me tell you what the judge is going to do with what you’ve done’. I’m going to give some money to [counsel] and I’m going to turn around and give half to these plaintiffs.’ I don’t see how that helps the jury at all reach a determination as to whether or not punitive damages ought to be awarded in this case.”

A jury awarded plaintiff $1795 in compensatory damages and $20,000 in punitive damages. The award did not purport to distinguish between plaintiffs two theories of recovery; so far as appears from the verdict, both compensatory and punitive damages were awarded under both theories.

On appeal, the Court of Appeals reversed, holding that “[t]o instruct the jury how its award will be distributed injects into its deliberation factors that are not proper considerations in deciding whether to award punitive damages and, if they are awarded, the amount.” Honeywell v. Sterling Furniture Co., 99 Or App 94, 97, 781 P2d 379 (1989). However, the Court of Appeals did not then instruct the trial court as to how to proceed on retrial. It was not made clear whether the trial court should tell the jury that it is not to consider who receives the punitive damage award or simply should not mention the subject to the jury at all. Equally unclear was the question of what issues are to be retried. Does the award of compensatory damages, which was not challenged on appeal, remain intact? Finally, the Court of Appeals declined to consider defendant’s second assignment of error relating to an alleged double award of attorney fees. We allowed review to address these issues, in addition to reviewing the propriety of the trial court’s instruction.

PUNITIVE DAMAGES

“Punitive damages are allowed in Oregon to punish a willful, wanton or malicious wrongdoer and to deter that wrongdoer and others similarly situated from like conduct in the future. Martin v. Cambas, 134 Or 257, 293 P 601 (1930); accord Noe v. Kaiser Foundation Hospitals, 248 Or 420, 435 P2d 306 (1967).” State ex rel Young v. Crookham, 290 Or 61, 65, 618 P2d 1268 (1980). Punitive damages “are not a sub stitute for compensatory awards nor an offset against litigation expense.” Id.; see also Andor v. United Air Lines, 303 Or 505, 511-13, 516-17, 739 P2d 18 (1987). There is nothing that we have found in the language or the legislative history of ORS 18.540 indicating the legislature intended to change the purposes behind punitive damage awards when it enacted a new mandate for distribution of the proceeds of such awards.

We agree with the Court of Appeals that instructing a jury that a portion of any punitive damage award will be used to pay the plaintiffs attorney or to contribute to a worthy cause, such as help for victims of crime, does nothing to further or even to inform the jury as to the proper goals of punitive damage awards. Instead, the instruction distracts the jury from the appropriate line of analysis that this Court has said a jury should follow in cases involving potential awards of punitive damages:

“[t]he finder of fact must determine what punitive damages, if any, to award based on the proper premise of deterring future similar misconduct by the defendant or others. To this end, a number of factors may be relevant, including the seriousness of the hazard to the public, the attitude and conduct of the wrongdoer upon learning of the hazard, the number and position of employees involved in causing or covering up the misconduct, the duration of the misconduct and/ or its cover-up, the financial condition of the wrongdoer, and prior and potential punishment from similarly situated plaintiffs or other sources.”

State ex rel Young v. Crookham, supra, 290 Or at 72. The trial court erred in instructing the jury as to how the law required any award of punitive damages to be distributed.³

The fact that it was error to give the instruction does not complete our inquiry, however. There still remains the question whether the error was reversible error. We hold that it was. We agree with the Court of Appeals that the potential effect of the instruction was to “[permit] a jury to consider as a part of its deliberations on punitive damages that a plaintiff should receive a certain amount of money and, in order to ensure that he does, to add additional amounts to pay for attorney fees and contributions to the Criminal Injuries Compensation Account.” Honeywell v. Sterling Furniture Co., supra, 99 Or App at 98. We also think there is another, perhaps even more serious problem with the instruction: It encouraged the jury to award punitive damages for a purpose, viz., enhancement of the Criminal Injuries Compensation Account, that is not a reason for awarding punitive damages under Oregon law. So construed, the instruction was erroneous.

It is true, as the plaintiffs argue in their petition for review, that the assumption made by the Court of Appeals as to the effect of the instruction is somewhat speculative — there could be other, more benign uses the jury might make of the information provided in the instruction, although we think the result posited by the Court of Appeals is a likely result. Our separate reading of the instruction is not so speculative, however. Offering a jury an additional, inappropriate basis for awarding punitive damages harmed the defendant. The trial judge was specifically warned that giving the instruction would be error. The Court of Appeals was correct in so holding. See State ex rel Redden v. Discount Fabrics, 289 Or 375, 388-89, 615 P2d 1034 (1980).

THE ATTORNEY FEE AWARD

Because its ruling eliminated a purported double award of attorney fees to plaintiff, the Court of Appeals declined to consider defendant’s second assignment of error. We, however, elect to consider this issue because it may recur upon remand.

Plaintiff sought and was awarded attorney fees in the trial court pursuant to ORS 646.638(3), the attorney fees provision of the Oregon UTPA.⁴ Defendant contends that “once an award of punitive damages is rendered, and that award is sufficiently large to cover plaintiffs contractual obligation to pay their attorney, the mandatory distribution satisfies the attorney fees portion of plaintiffs damages, and further fees cannot be awarded at the cost bill stage.” We reject that interpretation of the relationship between ORS 18.540 and 646.638(3).

Punitive damages are intended to punish and deter wrong-doers. The attorney fees distribution provision of ORS 18.540 is merely a legislative recognition that attorneys often are contractually entitled to a share of a punitive damage award, should there be such an award. ORS 18.540 clarifies that the attorney gets his share before the money is split between the state and plaintiff. In other words, the state must bear its share of the cost of compensating the attorney who obtained the judgment, if a contractual obligation exists to compensate the attorney.

On the other hand, attorney fees awarded in an unlawful trade practices case pursuant to ORS 646.638(3) serve an entirely different function: Their availability assures that wronged consumers can obtain counsel to prosecute claims that otherwise might be impractical to pursue because such claims would require an expenditure of attorney time the value of which greatly exceeded the value of the goods or services in question. The availability of punitive damages in a particular case may be problematical. The availability of basic compensation to counsel, however, cannot be problematical if consumers are going to be able to bring UTPA actions against dishonest and unscrupulous merchants.

The different aims of the two statutes show that defendant’s “double recovery” argument is chimerical. Allowing the attorney to be compensated under each statute furthers the statutory purpose of that statute; allowing recovery under only one partially thwarts the object of the other. We note particularly that, even within the UTPA itself, there is no requirement of any offset of fee earned under ORS 646.638(1) (punitive damages) against those earned under 646.638(3) (reasonable attorney fees for compensatory or punitive damages).

Because we are remanding this case for a partial retrial, we must vacate the award of attorney fees as it relates to the award of punitive damages. (Plaintiffs are entitled to a discretionary award of their attorney fees for the judgment for compensatory damages under the UTPA.) After the retrial, plaintiffs may once again request costs and attorney fees in connection with any award of punitive damages and the trial court may consider an appropriate award at that time.

SCOPE OF RETRIAL

The sole remaining issue is the scope of retrial. As noted, the Court of Appeals did not address this point. As also noted, the jury’s finding of liability and its ensuing award of compensatory damages in this case was not challenged on appeal. Because the error that occurred in this case affects only the availability and amount of punitive damages, it is appropriate to remand the case for retrial only on those issues. See Wolf v. Nordstrom, 291 Or 828, 835-36, 637 P2d 1280 (1981).

CONCLUSION

The decision of the Court of Appeals is affirmed. The judgment of the circuit court awarding compensatory damages is affirmed. The award of punitive damages is reversed and the case is remanded to the circuit court for a new trial on the issue of punitive damages. The award of attorney fees and costs is vacated and remanded for further proceedings consistent with this opinion.

1 Distribution of an award of punitive damages is required by Or Laws 1987, Ch 774, section 3, now codified as ORS 18.540 (effective September 27, 1987), which provides:

“The punitive damage portion of an award shall be distributed as follows:

“(1) The attorney for the prevailing party shall be paid the amount agreed upon between the attorney and the prevailing party.

“(2) One-half of the remainder shall be paid to the prevailing party.

“(3) One-half of the remainder shall be paid to the Criminal Injuries Compensation Account to be used for the purposes set forth in ORS chapter 147. However, if the prevailing party is a public entity, the amount otherwise payable to the Criminal Injuries Compensation Account shall be paid to the general fund of the public entity.”

2 Punitive damages may be awarded under the Oregon Unlawful Trade Practices Act. ORS 646.638. Plaintiffs also sought punitive damages under their conversion claim.

3 Our holding suggests that the Oregon State Bar’s Civil Jury Instruction Committee take a fresh look at UCJI No. 35.01A and related instructions.

4 ORS 646.638(3) provides:

“In any action brought by a person under this section, the court may award, in addition to the relief provided in this section, reasonable attorney fees at trial and on appeal and costs. If the defendant prevails, the court may award reasonable attorney fees at trial and on appeal and costs if it finds the action to be frivolous.”