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Punitive Damages After Letz And Barnett
Gary C. Robb
Missouri Lawyers Weekly
12/14/1998

In 1995, Kansas City Plaintiffs' attorney Gary C. Robb won jury verdicts of $70 million and $350 million in the Letz and Barnett Life Flight helicopter cases.

On appeal, a total of $53 million in punitive damages $26.5 million in each case was upheld by the Missouri Court of Appeals, Western District, en banc. Subsequently, the Missouri Supreme Court denied transfer in Barnett and re-transferred Letz, and the U.S. Supreme Court denied certiorari. Last month, the families received a total cash payout of $82 million, a record settlement for two wrongful death cases.

With the conclusion of the Turbomeca cases, Missouri Lawyers Weekly asked Robb to share his thoughts on the lessons of Letz and Barnett for recovering at trial and upholding on appeal punitive damages in products liability cases.

I am pleased to share my thoughts on punitive damages in products liability cases with Lawyers Weekly. However, this discussion on punitive damages reminds me of the old Steve Martin line on how to make a million dollars. Martin advised, "First, start with a million dollars." Much the same thinking applies in this context.

It is simply not possible to create out of whole cloth a punitive damages case unless there is truly a factual basis for such a case to begin with. Given a thoroughly compelling and factually extensive record, a significant punitive damages award can be upheld on appeal. However, such cases are truly rare.

Therefore, assuming a products liability case which presents with such overwhelming facts of reckless disregard in the first place, the lessons learned from the handling of the Letz and Barnett cases may be summarized as follows.

Legal Standards

Lesson One: Throughout discovery, be constantly aware of the specific legal standards for imposition of punitive damages in products liability cases.

In handling a potential punitive damages case, counsel must stay focused on the legal elements underlying a punitives submission. In the context of products liability actions, the legal standard for submitting punitive damages depends on whether the underlying theory is in strict liability or in negligence.

Under a strict liability theory, punitive damages are properly submitted where (1) defendant "introduced the offending product into commerce with actual knowledge of the product's defect," and (2) defendant showed complete indifference to or conscious disregard for safety. Letz v. Turbomeca Engine Corporation, 975 S.W.2d 155, 164-65 (Mo.App. W.D. 1997).

Under a negligence theory, punitive damages are properly submitted where (1) defendant "knew or had information from which defendant, in the exercise of ordinary care, should have known that such conduct created a high degree of probability of injury," and (2) a showing of complete indifference or conscious disregard for safety. Barnett, supra, at 659.

The negligence standard does not require specific intent to injure but only that defendant's actions were "conscious" and that from his knowledge of the circumstances his conduct will naturally or probably result in injury. Barnett, supra, at 659.

The admissible evidence heard by the jury and the reasonable inferences derivable therefrom must support at minimum the factual findings that: (1) The defendant product manufacturer placed the product into the stream of commerce with actual knowledge of its defective condition; (2) Defendant "knew or had reason to know" of the high probability of injuries due to product failures; and (3) Defendant's actions in numerous respects showed a complete indifference to and conscious disregard for safety.

Throughout discovery, constant emphasis was placed on Turbomeca's "conscious" and "knowledge based" decision-making. In fact, the terms were integrated throughout the numerous videotaped depositions presented at trial.

For example, Turbomeca plainly admitted that it gave no warning whatsoever as to the known dangers of its defective helicopter engine. Despite the knowledge that there were several "persons injured in crashes due to engine failures," it "was a conscious business decision made at Turbomeca not to disclose that information."

Such admissions were critical to the punitives case and, as importantly, they came from the highest executives within the company. This came about because in such cases you do your "discovery" from the lower ranking engineers and executives; you gain your "admissions" from the top officers and the chief engineer.

Indeed, according to their Chief Engineer, Turbomeca disclaimed any responsibility for how the helicopter and the pilot and passengers inside safely get to the ground when the engine stopped in flight due to a manufacturing defect. The decision was to simply wait and replace the defective part at routine overhaul and this was a "conscious decision" made by the company:

MR. ROBB: And that was a conscious decision made by the company, wasn't it?

MR. CALEMARD: Yes.

MR. ROBB: With knowledge of the facts that engineering had, true?

MR. CALEMARD: Yes.

MR. ROBB: And with knowledge of the facts that the technical support department had, true?

MR. CALEMARD: True.

MR. ROBB: Conscious decision?

MR. CALEMARD: Yes.

By using the precise language of the punitive elements, the testimony is rendered more incriminating and supportive of the punitives claim.

Clear Product Defect

Lesson Two: The product defect must be clear and not seriously disputed.

In these cases, the actual product defect was not seriously in dispute. The defective product in question was a helicopter engine which contained an improperly manufactured and poorly designed nozzle guide vane, called a TU 76. Indeed, much of the basis for the punitive conduct which followed stemmed from the defendant's internal acknowledgment that the TU 76 parts were, indeed, dangerous and defective.

The Barnett Court expressly referenced such testimony in the context of establishing that Turbomeca had "actual knowledge" of the defect and Judge Harold Lowenstein quoted the following passage:

MR. ROBB: Well, do you know, as President of the corporation, whether it's true or not that the TU 76 nozzle guide vane is a defective component?

ANSWER: Would you state the question again, please?

MR. ROBB: Do you know as President of Turbomeca Engine Corporation whether the TU 76 nozzle guide vane is a defective component?

ANSWER: Yes.

MR. ROBB: And did you know that it was defective before May 27, 1993?

ANSWER: I-I can't say.

Barnett, supra, at 664.

In addition to the existence of clear product defect, it helps when the defendants readily acknowledge that their actions violate known industry standards, which these defendants did:

MR. ROBB: Mr. Nichols, as the President of Turbomeca Engine Corporation, how would you evaluate an aircraft engine company that would stand by and permit its customers to continue to use a dangerous engine which they know to be defective?

ANSWER: I would evaluate that situation as as being not in accordance with normal industry standards.

TSA knew the standards: it concluded as early as June 1986 that it should redesign TU 76 because it is part of the safety responsibility of a company like Turbomeca to eliminate a bad design from a product "at the earliest practical time." Such testimony should be the point of departure for the opinion testimony of Plaintiffs' experts:

MR. ROBB: Is it appropriate industry practice to install a part in an engine which a company knows is dangerous and defective and breaks apart in the air?

DR. EPSTEIN: Absolutely not.

MR. ROBB: Why not?

DR. EPSTEIN: We're talking about peoples' lives here. You are talking about a part which not only do you know does not last as long as it is supposed to but when it does fail, it doesn't fail in a benign way. It is a malignant failure that results in the engine shut down and usually through a crash...It is extremely serious and it's been demonstrated that it can cause crashes, cause in-flight shut downs, and they know what the safe life is and this would be a very urgent matter to fix.

Corporate 'Recklessness'

Lesson Three: Prove corporate "recklessness" by showing that the product manufacturer had actual knowledge of the dangerous consequences of its actions.

Plaintiffs must establish that the product manufacturer "knew or had reason to know" by exercising ordinary care that continued use of the product created a "high degree of probability" of injury. Letz, supra, at 164-65.

One of the known consequences to Turbomeca of an in-flight helicopter engine shut-down with subsequent loss of power due to the TU 76 part failure had been injuries. When the TU 76 part fails, the company's experience before May 27, 1993 (the date of the crash of Life Flight 2) was that crashes occurred and people were injured.

To support a substantial punitives award, the evidence adduced at trial must clearly support a finding that the manufacturer itself, at least internally, regarded the product defect to be a major, wide-spread, and serious safety problem. The number of TU 76 cracks found during routine overhaul and the number of in-flight failures alone in the Letz and Barnett cases established the inevitability of a crash.

This type of evidence supports a jury finding that although the manufacturer may not have known precisely when and where such a product failure would occur, on the basis of their extensive engineering knowledge and field experience, they knew or had reason to know that incidents with serious injuries would inevitably continue to occur. Prior similar product failures are essential to proving this element of the punitives case.

As the Supreme Court of Missouri stated in Burnett v. Griffith, 769 S.W.2d 780, 787 (Mo. 1989), punitive damages are justified and may be awarded "because of the defendants evil motive or reckless indifference to the rights of others....Plaintiff must prove that the defendant's evil hand was guided by an evil mind ." Id. at 787 (emphasis added). The evidence of a defendant's evil state of mind must be captured on videotaped testimony shown to the jury in which the company's executives repeatedly affirm that it was a "conscious business decision" to subject innocent people to risk of serious injury and death from continued use of the dangerous product.

In the Turbomeca cases, despite the internal documentation and knowledge of the TU 76 defect, the defendants continued "sending out hundreds of those defective engines into the stream of commerce." Though recognizing a serious problem with TU 76, they continued to manufacture engines with that part without making any changes and "literally hundreds and hundreds" of the TU 76-equipped engines with the defective design and weak metal were manufactured and sold after June 9, 1986. This evidence was squarely probative to their "reckless disregard for safety."

Economic And Profit Motive

Lesson Four: Establish a substantial economic and profit motive for the defendant's reckless conduct.

Rather than recall or retrofit TU 76, TSA's company-wide policy was to wait until the engine came back to a repair facility for routine overhaul at which time the TU 76 part would be systematically replaced at the customer's cost. TSA chose to wait and make this modification at overhaul because the customer had to bring the engine in for overhaul anyway and the customer would then pay for the parts and labor involved in replacing TU 76. However, if Turbomeca were to recall the engines before overhaul this would be at its own expense, not the customer's.

According to the company's President, the reason for this policy was clear:

Q. Now the reason that Turbomeca, S.A. took the position that we're going to wait until overhaul and take the chance of failure in the interim of some of these parts is one of cost, isn't it?

A. I agree with that statement.

Testimony of this nature was essential to upholding the punitives finding. As set forth by Judge Robert Ulrich in the Letz opinion: "The Letzes' premise was that the failure to immediately recall and replace the known defective TU 76 within helicopter engines manufactured by [Turbomeca] and operating throughout the world was the consequence of a deliberate decision and was motivated by the desire to save the company $48 million." Letz, supra, at 172.

During discovery, the Turbomeca President testified that the cost of replacing one of the dangerous engine parts was $17,000 and that there were approximately 2,850 in existence around the world of which approximately one-third were in the U.S.

According to Judge Ulrich in Letz: "Mr. Dennis Nichols, the President of Turbomeca Engine Corporation, acknowledged that the companies saved up to $48 million by not immediately recalling all helicopter engines equipped with the known defective part." Letz, supra, at 165.

Such testimony addressing the cost savings not only was critical in establishing the economic motive of the defendant but also to set forth the total punitive amount as requested of the jury, and, ultimately, endorsed on appeal. Letz, supra, at 180; Barnett, supra , at 669.

'Safe Design' Customers

Lesson Five: Identify customers or markets for which the manufacturer supplied the same product but with a safe design.

Product manufacturers will often perform a "selective recall." Turbomeca did warn the French military that there were problems with this engine type in December 1985. In early 1991, they retrofitted all French military helicopter engines with the safe design.

The effects were startling in that there has never been a report of a TU 76 causing in-flight failure or crash in any French military helicopter. The evidence supported an inference that the defendant gave notice of the TU 76 problem to the French military in 1986 because it clearly had preferentially informed a certain customer and left all of its other customers in the dark.

That Turbomeca would selectively recall and retrofit all defective engines in use by the French military and no one else proved its insouciance for the safety of any other world-wide user of its engine product.

Fraudulent Representations

Lesson Six: Uncover any false or fraudulent representations made to customers or regulatory authorities.

In both cases, there was considerable evidence that Turbomeca had misrepresented material facts to regulatory authorities as well as misrepresented the product's safety history to world-wide users. Letz, supra, at 174. This evidence was admissible as to the defendant's motive to save the cost of a recall. Id.

Where it exists, such evidence in a products liability case goes to the heart of the manufacturer's egregious actions: Not only are they willing to subject innocent people to risk of serious injury or death, but in the process they are also willing to lie about it whenever convenient to promote their own economic benefit.

By squarely holding such evidence of misrepresentation admissible on the issue of punitive damages, the Letz and Barnett courts confirm the proper use of such evidence in these cases. Withholding critical safety information from customers was expressly referenced by Judge Lowenstein in the Barnett opinion as an example of such devious conduct:

MR. ROBB: Did Turbomeca ever notify its customers about a potential problem with the TU 76 design, sir?

ANSWER: I am still confused by the question.

MR. ROBB: Well, did you or did you not send out any information or alert your customers that these things were cracking and had the potential to kill and seriously injure people?

ANSWER: No.

Barnett, supra, at 665.

As the Court stated in Barnett: "Turbomeca's post-accident under-reporting of prior failures of the modified TU-76, however, pales in comparison to the lack of forthrightness to its customers." Barnett, supra, at 666.

Continued Production

Lesson Seven: Show that the product manufacturer has continued to produce and market the same dangerous and defective design even following the injury-producing event at bar.

Unfortunately, some product manufacturers show little remorse when it is established that their defective product is out in the marketplace injuring and killing innocent people. In such circumstances, careful and persistent inquiry into the decision-making processes which underlie continued marketing of such products is very likely to yield strong proof of reprehensible misconduct. It did in the Letz and Barnett cases.

Turbomeca France has had it within its power to order a retrofit of all existing TU 76 parts since 1991. To this day, TU 76 remains in engines powering helicopters around the world and at least one-third of all these TU 76 equipped engines are in use in the U.S. Turbomeca is still exposing innocent passengers, crew, and pilots around the world to the known, predictable, and ever-increasing failure rate of TU 76.

Defendants continue to represent to the FAA and to world-wide operators that TU 76 is a safe and airworthy part and they have no current or future plans for recalling TU 76. At the current rate of overhaul, TU 76 will remain in helicopter engines in the U.S. and around the world until after the year 2000 .

In so many instances, the safety and well being of the users of its products are totally and inexplicably ignored by the manufacturer. The real "crisis" from the company's standpoint is the concomitant loss of sales and customer "complaints" which arise from the injury-producing product failures. Such was precisely the evidence in these cases.

Also important are a defendant's efforts to point to other parties for the product failure and evidence of such "diversionary tactics" was considered in these cases. Barnett, supra, at 667.

Conclusion

Given the extensive evidence of corporate recklessness, the Missouri Court of Appeals, Western District, en banc, determined that an appropriate total punitive amount for both cases was $53 million, divided equally between the cases. Barnett, supra, at 668-69. It can be presumed that this sum represents the $48 million in costs savings to Turbomeca plus an additional $5 million penalty.

The trial record in these cases presents a "high bar" for the affirmance of substantial punitive damages awards in subsequent products liability cases. Nevertheless, the true lesson of the Letz and Barnett decisions is that where the evidence so clearly and convincingly supports a finding of reprehensible corporate misconduct which endangers the lives of Missouri citizens, the appellate courts of the State of Missouri will fairly and justly affirm a substantial punitive damages award.




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