law-exemplary-damages | punitive damages award | due process limits

Assessment of exemplary damages

Texas law provides that an award for exemplary damages is justified only upon proving fraud, malice, or gross
negligence by clear and convincing evidence. Tex. Civ. Prac. & Rem. Code Ann. § 41.003. "Because fraud is
often difficult to prove, courts justify awarding exemplary damages upon a showing of malice." In re Amberjack
Interests, 326 B.R. at 392 (citing Roth v. Mims, 298 B.R. 272, 297 (N.D. Tex. 2003)). The clear and convincing
standard has been described as falling between the "preponderance of the evidence" standard used in civil
proceedings and the "beyond a reasonable doubt" standard used in criminal proceedings. In re Amberjack
Interests, 326 B.R. at 392 (citing State v. Addington, 588 S.W.2d 569, 570 (Tex. 1979)).

Under Texas law, exemplary damages are capped at the greater of: "(1)(A) two times the amount of economic
damages; plus (B) an amount equal to any noneconomic damages found by the jury, not to exceed
$750,000.00; or (2) $200,000.00." Tex. Civ. Prac. & Rem. Code Ann. § 41.008. "The amount awarded must be
reasonably proportional to actual damages, though no set ratio exists for measuring reasonableness." In re
Amberjack Interests, 326 B.R. at 393 (citing Alamo Nat'I Bank v. Kraus, 616 S.W.2d 908, 910 (Tex. 1981)). The
Court weighs the following six factors in determining the reasonableness of an award:

(1) the nature of the wrong;

(2) the character of the conduct involved;

(3) the degree of culpability of the wrongdoer;

(4) the situation and sensibilities of the parties concerned;

(5) the extent to which such conduct offends a public sense of justice and propriety; and

(6) the net worth of the defendant.

Tex. Civ. Prac. & Rem. Code Ann. § 41.011(a); In re Amberjack Interests, 326 B.R. at 393 (citing Alamo Nat 7
Bank, 616 S.W.2d at 910). Exemplary damages awarded by the Court are "presumptively reasonable" if the
award is within the statutory limits. In re Amberjack Interests, 326 B.R. at 393 (citing Peco Constr. Co. v.
Guajardo, 919 S.W.2d 736, 742 (Tex. App.—San Antonio 1996, writ denied)).

Under Section 41.008 of the Texas Civil Practice and Remedies Code, this Court may assess a maximum of
$368,296.00 in exemplary damages against the Defendants. Tex. Civ. Prac. & Rem. Code Ann. § 41.008. This
figure represents a doubling of the actual damages (i.e. $184,148.00 multiplied by 2 equals $368,296.00).
Thus, this Court's award of exemplary damages is within the statutory limits and is therefore reasonable under
Texas law.

Moreover, this award satisfies the test of constitutionality as it does not violate the Defendants' substantive due
process rights. See BMW of N. Am., Inc., 517 U.S. 559, 574-75 (1996); see also Owens-Corning Fiberglas
Corp. v. Malone, 972 S.W.2d 35, 45 (Tex. 1998); Citizens Nat'l Bank v. Allen Rae Investments, Inc., 142 S.W.3d
459, 485 (Tex. App.—Fort Worth 2004, no writ). In BMW, the United States Supreme Court identified three
"guideposts" for determining whether or not exemplary damage awards are" grossly excessive:" (1) the degree
of reprehensibility of the defendant's conduct, (2) the comparison between actual and exemplary damages; and
(3) the relation between the amount awarded and the amount authorized under similar circumstances. BMW,
517 U.S. at 575; see also Citizens, 142 S.W.3d at 485-86.  

Exemplary Damages and the Statutory Cap
Exemplary damages may be awarded only if the claimant proves by clear and convincing evidence that the
harm with respect to which the claimant seeks recovery of exemplary damages results from fraud, malice, or
gross negligence. Tex. Civ. Prac. & Rem. Code Ann. § 41.003(a) (Vernon Supp. 2009). In addition, exemplary
damages awarded against a defendant may not exceed an amount equal to the greater of (1) two times the
amount of economic damages; plus an amount equal to any non-economic damages found by the jury, not to
exceed $750,000; or (2) $200,000. Id. § 41.008(b) (Vernon Supp. 2009). This section requiring a cap on
exemplary damages does not apply if the plaintiff seeks recovery of exemplary damages based on certain
enumerated acts committed intentionally or knowingly, including forgery, misapplication of fiduciary property,
and certain types of fraudulent conduct. Id. § 41.008(c)(8), (10), (11) (Vernon Supp. 2009). Here, the jury
awarded $310,105 for exemplary damages. The judgment shows actual damages at $97,239.15. Therefore, if
the exemplary damages cap applies in this case, the exemplary damages should be capped at $200,000. See
id. § 41.008(b).
  The judgment awards exemplary damages for breach of fiduciary duty and fraud. The jury was asked to
assess exemplary damages based upon its answer to Question 1 concerning a breach of fiduciary duty or its
answer to Question 2 concerning fraud. The breach of fiduciary duty exception to the damages cap refers to
section 32.45 of the Texas Penal Code that provides that a person commits an offense if he intentionally or
knowingly misapplies property he holds as a fiduciary in a manner that involves substantial risk of loss to the
owner of the property. See id. § 41.008(c)(11); Tex. Penal Code Ann. § 32.45 (Vernon Supp. 2009). Because
the jury instructions and judgment refer to breach of fiduciary duty this was properly one basis for exceeding
the exemplary damages cap.
The exceptions for the cap that refer to fraudulent conduct refer to sections 32.46 and 32.47 of the Texas
Penal Code. Section 32.46 is called "Securing Execution of Document by Deception," and states, "A person
commits an offense, if with intent to defraud or harm any person, he, by deception: . . . causes another to sign
or execute any document affecting property or service or the pecuniary interest of any person." Tex. Penal
Code Ann. § 32.46 (Vernon Supp. 2009). Section 32.47 is called "Fraudulent Destruction, Removal, or
Concealment of Writing," and it states, "A person commits an offense if, with intent to defraud or harm another,
he destroys, removes, conceals, alters, substitutes, or otherwise impairs the veracity, legibility, or availability of
a writing, other than a governmental record." Id. § 32.47.
Marin v. IESI TX Corporation (Tex.App.- Houston [1st Dist.] Feb. 11, 2010)(Opinion on rehearing by Alcala)
(forgery, misapplication of fiduciary property, fraud, and conversion of checks, exemplary damages)
We conclude that the trial court did not err in the admission of the evidence, that the evidence is legally and factually sufficient,
and that the trial court properly awarded exemplary damages. We affirm.
AFFIRM TC JUDGMENT: Opinion by Justice Elsa Alcala     
Before Justices Keyes, Alcala and Hanks  
01-08-00539-CV  Janell S. Marin v. IESI TX Corporation   
Appeal from 412th Judicial District Court of Brazoria County
Trial Court Judge: Hon. W. Edwin Denman




Exemplary damages available for fraud but not contract claims
In its second issue, O&B argues there is no basis to award exemplary damages without a finding of liability and
damages on a tort. See Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 304 (Tex. 2006) (exemplary
damages available for fraud but not contract claims).  Because we have determined that no legally sufficient
evidence supports appellees' fraud claims, we sustain this issue as well.  We also sustain O&B's fourth issue
because without a fraud finding, there is no underlying tort to support a civil conspiracy finding.
O and B Farms, Inc.v. Black (Tex.App.- Houston [14th Dist.] Oct. 29, 2009)(Yates)  
(fraud and civil conspiracy claims award of attorney's fees reversed insufficient testimony on reasonableness,
exemplary damages reversed, calculating, proving amount of damages)
AFFIRMED AS MODIFIED: Opinion by Justice Brock Yates     
Before Chief Justice Hedges, Justices Brock Yates and Frost   
14-08-00595-CV  O and B Farms, Inc., and B and O Farms, LLC v. Eldon Jay Black, Kevin Lee Donahoo,
Thomas David Horrell, Jr., Charles Richard Weeks, Ronald Russell Swisshelm, and Casey Ross Gray    
Appeal from 220th District Court of Hamilton County
Trial Court Judge: Hon. James E. Morgan

EXEMPLARY DAMAGES CASELAW

A defendant's net worth is relevant in a suit involving exemplary damages.  Lunsford v. Morris, 746 S.W.2d 471,
473 (Tex. 1988) (orig. proceeding), overruled on other grounds, Walker, 827 S.W.2d at 842; Miller v. O'Neill,
775 S.W.2d 56, 58 (Tex. App.-Houston [1st Dist.] 1989, orig. proceeding).  Therefore, in cases where punitive
or exemplary damages may be awarded, parties may discover and offer evidence of a defendant's net worth.  
Lunsford, 746 S.W.2d at 473.  Generally, in cases concerning the production of financial records, the burden
rests upon the party seeking to prevent production.  In re Brewer Leasing, Inc., 255 S.W.3d 708, 712 (Tex. App.
-Houston [1st Dist.] 2008, orig. proceeding [mand. denied]); In re Patel, 218 S.W.3d 911, 916 (Tex. App.-
Corpus Christi 2007, orig. proceeding).
In Re Jacobs, MD (Tex.App.- Houston [14th Dist.] Oct. 20, 2009)(Brown)
(proper scope of net worth discovery when exemplary damages are sought for gross negligence)
GRANTED IN PART AND DENIED IN PART: Opinion by Justice Brown      
Before Justices Brown, Boyce and Sullivan  
14-09-00123-CV  In Re Mark A. Jacobs, M.D., and Debra C. Gunn, M.D., and Obstetrical and Gynecologist
Associates, P.A.    Appeal from Probate Court No 2 of Harris County
Trial Court Judge: Michael James Wood
Concurring and Dissenting Opinion by Justice Sullivan in In Re Jacobs, MD       
The relators argue the McCoys are not entitled to discovery on net worth until they have established a prima
facie case of gross negligence.  However, the Texas Supreme Court has expressly rejected this contention.  
See Lunsford, 746 S.W.2d at 473 (rejecting requirement of prima facie showing because “[o]ur rules of civil
procedure and evidence do not require similar practices before net worth may be discovered").[2]  Therefore,
under Texas law, a party seeking discovery of net-worth information need not satisfy any evidentiary
prerequisite, such as making a prima facie showing of entitlement to punitive damages, before discovery of net
worth is permitted.  In re House of Yahweh, 266 S.W.3d 668, 673 (Tex. App.-Eastland 2008, orig. proceeding);
In re Garth, 214 S.W.3d 190, 192 (Tex. App.-Beaumont 2007, orig. proceeding [mand. dism'd); In re W. Star
Trucks US, Inc., 112 S.W.3d 756, 763 (Tex. App.-Eastland 2003, orig. proceeding); Al Parker Buick Co. v.
Touchy, 788 S.W.2d 129, 131 (Tex. App.-Houston [1st Dist.] 1990, orig. proceeding).
Exemplary damages are special damages that must be supported by express allegations
of willfulness, malice, or gross negligence that go beyond the allegations necessary to
recover compensatory damages.  Al Parker Buick Co., 788 S.W.2d at 130.

EXEMPLARY DAMAGES CASE LAW FROM HOUSTON COURTS OF
APPEALS

Exemplary damages are "levied against a defendant to punish the defendant for
outrageous, malicious, or otherwise morally culpable conduct." Tex. Civ. Prac. & Rem. Code
Ann. § 41.001(5) (Vernon 2008); Transportation Ins. Co v. Moriel, 879 S.W.2d 10, 16 (Tex. 1994). Unless
otherwise provided by statute, exemplary damages may be awarded only if the claimant proves by clear and
convincing evidence that the harm with respect to which the claimant seeks recovery of exemplary damages
results from (1) fraud; (2) malice; or (3) gross negligence. Tex. Civ. Prac. & Rem. Code Ann. § 41.003(a)
(Vernon 2008); see also In re Barnes, 369 B.R. 298 (Bankr. W.D. Tex. 2007).
Andress v. Meah Investments No. 2, Ltd. (Tex.App.- Houston [1st  Dist] Sep. 10, 2009)(Keyes)
(fraud, imposition of exemplary damages)
AFFIRM TC JUDGMENT IN PART, REVERSE TC JUDGMENT IN PART, AND REMAND CASE TO TC FOR
FURTHER PROCEEDINGS: Opinion by Justice Keyes   
Before Justices Jennings, Keyes and Higley  
01-07-00792-CV Morris Andress v. Meah Investments No. 2, Ltd.   
Appeal from 239th District Court of Brazoria County
Trial Court Judge: Hon. Patrick Edward Sebesta
Whenever the standard of proof at trial is elevated, the standard of appellate review must likewise be elevated.
S.W. Bell Tel. Co. v. Garza, 164 S.W.3d 607, 627 (Tex. 2004) (citing In re J.F.C., 96 S.W.3d 256, 266 (Tex.
2002)). In reviewing the evidence for legal sufficiency to support a finding that must be proved by clear and
convincing evidence, we must look at all the evidence in the light most favorable to the finding to determine
whether a reasonable trier of fact could have formed a firm belief or conviction that its finding was true.
Diamond Shamrock Ref. Co v. Hall, 168 S.W.3d 164, 170 (Tex. 2005); Garza, 164 S.W.3d at 627. To give
appropriate deference to the fact-finder's conclusions and the role of a court conducting a legal sufficiency
review, we must assume that the fact-finder resolved any disputed facts in favor of its finding if a reasonable
fact-finder could have done so. Hall, 168 S.W.3d at 170.

Exemplary Damages Thrown Out
Exxon Mobil Corp. (Tex.App.- Houston [14th Dist.] Apr. 3, 2008)(Seymore)
(judgment for exemplary damages reversed, malice finding, sufficiency of evidence)
REVERSED AND RENDERED: Opinion by Justice Seymore
14-04-01133-CV Exxon Mobil Corporation v. Louise Altimore
Appeal from 405TH District Court of Galveston County
Trial Court Judge: WAYNE J. MALLIA  

The Landing Council of Co-Owners v. Durham (Tex.App.- Houston [14th Dist.] Nov. 20, 2007)(Seymore)  
(DTPA, jury, exemplary damages award deleted)
AFFIRMED AS MODIFIED: Opinion by Justice Seymore
Before Justices Frost, Seymore and Guzman
14-06-00417-CV The Landing Council of Co-Owners v. James B. Durham and Mary Lou Durham
Appeal from Co Civil Ct at Law No 2 of Harris County (Judge Gary Michael Block)

Weinberger v. Longer (Tex.App.- Houston [14th Dist.] Mar. 8, 2007)(Justice Seymore)
(construction contract, fraud, exemplary damages, sanctions)
AFFIRMED: Opinion by Justice Seymore
Before Justices Hudson, Fowler and Seymore
14-05-01285-CV Sid Weinberger v. Larry G. Longer
Appeal from County Court at Law No 1 of Galveston County
Trial Court Judge: MARY NELL CRAPITTO  


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