© 2013 The Texas Lawbook.
By Mark Curriden
Senior Writer for The Texas Lawbook
(August 9) – Pete Marketos scored the biggest victory of his legal career in February when a jury awarded his client $136 million in damages – the biggest damages verdict in the state so far this year.
Now, the young Dallas trial lawyer faces an even more monumental task: he must convince the Texas appellate courts to let his client keep the money the jury awarded.
Legal experts are closely watching the case, which pits a South Texas car dealership against Mercedes-Benz USA, because they say it is almost certainly headed for the Texas Supreme Court, which is likely to use the huge verdict to decide how much is too much under the state constitution when it comes to punitive damages in civil disputes in Texas.
The litigation also has become a showcase demonstrating how power and decision-making in civil disputes has dramatically shifted during the past decade from trial courts and juries to appellate court judges.
In addition, the case has attracted a significant number of lawyers representing Texas businesses, but not for the reasons you might suspect.
“A lot of people with different motivations are watching this case for different reasons,” says former Texas Supreme Court Justice Craig Enoch, now a partner at Enoch Kever in Austin. “It is a case with juicy facts and allegations, great lawyers, and has the potential to set precedent.
“I would not be surprised at all if the Supreme Court uses the Mercedes case to better define the constitutional limits of punitive damages,” Enoch says.
Eight and nine-digit jury verdicts are viewed by many appellate judges as the product of runaway juries who are overly sympathetic to injured victims in wrongful death or product liability tragedies. Texas appeals courts almost always reverse or at least significantly reduce multimillion-dollar punitive damage awards.
More than $115 million of the $136 million verdict in the Mercedes-Benz case is in the form of punitive damages, which is a ratio of 6.5 to 1, which is three times the punitive damage limits allowed in other types of civil disputes in Texas.
Mercedes-Benz has filed a notice of appeal with the Thirteenth Court of Appeals in Corpus Christi.
“Jury verdicts with this many zeroes is a lot like driving a red Ferrari – it is going to attract a lot of attention,” says Dallas appellate law specialist Chad Ruback. “This case has a long way to go before it is decided.”
In decades gone by, lawyers focused nearly all of their energy and resources into presenting their evidence and arguments to the trial judge and jury. The state appellate courts reviewed the verdicts for glaring errors or bias, but generally gave great deference to the decisions reached by the dozen men and women in the jury box and the trial judge who supervised them.
But the long and arduous road to justice – or at least finality – in civil disputes has seen decision-making shift from the trial courts to the intermediary courts of appeals and the Texas Supreme Court, according to legal experts.
A 2012 study issued by Haynes and Boone found that Texas appellate judges have shown very little hesitancy to toss verdicts by flyspecking jury instructions from judges for possible errors and second guessing jury decisions about whether the evidence presented in cases was sufficient to justify the award – the very two issues that Mercedes-Benz lawyers are likely to raise in its appeal, according to Ruback and Enoch.
The Texas courts of appeal reversed more than half of the plaintiffs verdicts issued by juries, according to the study. Haynes and Boone found that the appellate court with the highest reversal rate in the state is the Thirteenth Court.
Enoch, Ruback and other legal experts agree that the Mercedes-Benz case has significant factual differences from previous punitive damage award verdicts that were reversed by the appellate courts.
Unlike most big damage award cases, the plaintiffs in this case are a business, Carduco, Inc., a successful car dealership in Harlingen, and its owner, Renate Cardenas, who is now 82 years old.
“My client is a hard working, conservative businessman who was lied to and defrauded by a business partner,” says Marketos, a partner at Reese Gordon Marketos, a Dallas commercial litigation boutique.
Marketos points out that his client is not the typical plaintiff. Cardenas came to the U.S. from Mexico as an orphan at age 11. After serving in the U.S. Army during the Korean War, he went to college on the GI Bill. Cardenas then owned and operated a Texaco Station for many years, buying clunkers for $100, fixing them and reselling them for $200. He opened his first car dealership in 1971.
“Does that sound like someone who is trying to abuse the court system to get rich unfairly?” he asks. “What happened to my client can happen to any business in Texas.”
During a two-week trial conducted in Cameron County in February, Marketos argued that his client purchased Cardenas Autoplex from his son in 2008 for $7 million with the understanding from Mercedes-Benz USA that he would be able to move the dealership from Harlingen to the more affluent McAllen.
Cardenas claims Mercedes-Benz actually pressured he and his son to relocate their operation to McAllen. Mercedes-Benz officials intentionally hid from Cardenas that they were secretly negotiating to open a dealership in McAllen with a competitor instead, according to Marketos.
Marketos alleged criminal fraud, which opened the door to punitive damages under Texas law.
“We learned during discovery that 12 Mercedes representatives involved in this matter had no files to provide us – no records, no emails, nothing,” Marketos says. “The Mercedes general counsel admitted under oath that they had not preserved any of the key documents.”
State District Judge Federico Hinojosa delivered a severe blow to Mercedes-Benz’ defense when he issued a finding that the automaker had destroyed or lost internal corporate emails and memos that would have helped Cardenas better prove his case.
“Mercedes-Benz doesn’t know what it means to tell the truth,” Marketos told jurors during closing arguments. “They have a different definition for lying, and that’s how they do business and that’s how they make money.”
Marketos told jurors that Mercedes-Benz USA generated $75 million in profits in 2012 and that a $10 million punitive damage verdict would be nothing more than “a rounding error” to Mercedes-Benz.
“Send a message,” Marketos implored in his final plea to the jury.
Mercedes-Benz officials and lawyers declined multiple requests for comments. In court documents, the company claims its officials never misled Cardenas and never made any written promises allowing him to relocate to McAllen.
“You can’t hold them accountable because they didn’t do anything wrong,” Eduardo Rodriguez, a partner at Atlas Hall Rodriguez representing Mercedes-Benz, told the jurors during closing arguments.
Eleven witnesses testified during two weeks of trial. On Feb. 15, the jury deliberated 58 minutes before finding Mercedes-Benz and its officials had defrauded Cardenas and awarded him $21 million in actual damages.
More importantly, the 12 jurors found “beyond a reasonable doubt” that Mercedes-Benz’s deceptive practices caused Cardenas to purchase the car dealership. That deception is a criminal felony under Texas law. The jury levied $115 million in damages as punishment.
“For many years, I have heard about runaway juries and frivolous lawsuits and I went to jury duty determined that was not going to be me,” says Rebecca Guerra, a single mother of two and an insurance specialist at an oncology medical practice who served as the presiding juror in the case.
“The evidence against Mercedes was overwhelming. The judge’s charge was clear,” says Guerra. “There were people on the jury who wanted the verdict to be much higher.”
The case now moves to the Thirteenth Court of Appeals. Mercedes-Benz has hired two high-profile Baker Botts appellate law experts – former Texas Supreme Court Chief Justice Tom Phillips and Austin partner Joe Knight – to lead its efforts to have the verdict overturned. Strasburger & Price partners Merritt Spencer and Alex Huddleston, along with Rodriguez, represented Mercedes-Benz at trial.
Marketos has added Austin appellate law expert Don Cruse to the plaintiffs’ legal team.
“Both sides are beefing up for a vigorous and hard fought appeal,” says Enoch. “This shows how important this appeal is going to be.”
Enoch and other legal experts say that the parties are making sure that they have properly presented their issues in preparation for the eventual presentation to the Texas Supreme Court.
The state’s highest court has handled three major punitive damage cases during the past decade, according to Ruback.
In 2004, the Texas Supreme Court reviewed Bunton v. Bentley, a defamation case in which state District Judge Bascom Bentley III of Palestine, Texas sued local radio talk show host Joe Ed Bunton for accusing him of corruption while on the air. The jury awarded actual damages of $1,150,000 and punitive damages of $1,000,000. The Tyler Court of Appeals then suggested reducing actual damages to $300,000, but did not disturb the $1,000,000, which is a ratio of 3.33:1. The Texas Supreme Court reversed, stating that there is no magic mathematical formula for punitive damages but said that it should be “reevaluated in light of the actual harm suffered by the plaintiff.”
Two years later, in 2006, the justices tackled Tony Gullo Motors I v. Nury Chapa. Chapa claimed that she bought a Toyota Highlander Limited from Gullo Motors for $30,207.38, but that the auto dealer delivered a basic model. The jury awarded actual damages of $28,852 and punitive damages of $250,000, which is a ratio of approximately 8.7:1. The Beaumont Court of Appeals cut punitive damages in half, to $125,000. The state Supreme Court found that even that 4.3 to 1 ratio was unacceptably high.
The most recent punitive damage case reviewed by the state Supreme Court came in 2010 in Bennett v. Reynolds. Randy Reynolds sued Thomas Bennett and the Bonham Corporation, of which Bennett served as president, for conversion, alleging that they sold thirteen head of Reynolds’s cattle that strayed onto corporate land. The state’s highest court reversed a jury verdict that awarded actual damages of $5,327.11 and punitive damages of $1,000,000. That is a 188:1 ration as to the other defendant, which the justices said was constitutionally excessive.
“In the 2006 Gullo Motors case and the 2010 Bennett case, the Texas Supreme Court made clear that it would likely strike down an award of punitive damages if that award was much greater than four times actual damages,” Ruback says. “Moreover, the Texas Supreme Court indicated that even a 4:1 ratio would likely be excessive unless the case involved death, grievous personal injury, financial ruin, or actions that endanger a large segment of the public.”
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