Reneau Almon, who served as an Associate Justice of the Alabama
Supreme Court for 24 years, died earlier this month. Justice Almon
began his service on the Alabama appellate court in 1969 and was
first elected to the Alabama Supreme Court in 1974. He retired from
that court in 1999.
In the late 1980s and early 1990s, Alabama had a reputation as a
“tort hell.”
As Michael DeBow, a professor at Cumberland Law School, has
explained: “The Alabama Supreme Court of 1994 was identified in the
minds of many with a litigation climate that was hostile to
defendants — particularly corporate defendants.” Whoppingly
disproportionate punitive damage awards helped contribute to that
reputation. In one case, confronted with the buyer of a car who
claimed that he was defrauded because he wasn’t told that it had
been partially repainted, which lowered the car’s resale value by
$4,000, the Alabama Supreme Court cut a jury’s punitive damage
award of $4 million to $2 million — still, an award-to-injury
ratio of 500-1. After the U.S. Supreme Court got hold of the case,
and there was modest change in the Alabama Supreme Court’s
personnel, the punitive damage award was reduced to $50,000.
The road out of “tort hell” began with the 1994 elections, when
Chief Justice Sonny Hornsby was unseated. But Justice Almon also
contributed to the transformation.
One place that high punitive damages were being awarded was in
cases of consumer fraud. In order to prove fraud, one must prove
reliance on false or misleading information received or not
conveyed. But, what kind of reliance is enough? Can a consumer
simply rely on what he or she is told, or must the consumer read
the documents he or she receives? The difference may not sound like
much, but it means a great deal.
In 1991, over a dissent by Justice Almon, the Alabama Supreme
Court allowed a consumer to rely on what she said she was told. The
buyer claimed she was told that, if she were hospitalized, the
insurance policy she was buying would pay 80 percent of her
hospital and doctor bills, with no deductible; but the policy
plainly stated that it was not a major medical policy. After
receiving a copy of the policy, she put it into a desk drawer
without reading it. As a result, after the buyer had surgery, the
policy didn’t cover what she said she thought it would. The court
held that a jury could have found that she justifiably relied on
what she was told, the policy’s terms notwithstanding.
In his dissent, Justice Almon pointed out the difference between
a “reasonable reliance” standard and a “justifiable reliance”
standard. Almon explained that the “traditional” reasonable
reliance standard was “flexible” and could take differences in
relative “sophistication and bargaining power” into account. Under
that standard, the consumer acted unreasonably. Almon wrote, “I do
not think it is reasonable for a college-educated person to simply
drop an insurance policy into a drawer without even a cursory look
at it and later claim she has been defrauded.” He added that the
buyer could have understood she was not buying major medical
coverage “if she had simply glanced at” the policy. In contrast,
the justifiable reliance standard the court applied “gives to
parties claiming fraud undue leeway to ignore written contract
terms.”
Justice Almon lost that battle. But, in 1997, the Alabama
Supreme Court changed the standard back to reasonable reliance.
Justice Gorman Houston wrote that, since the decision to apply
justifiable reliance to consumer and commercial transactions, there
had been “tension” on the court. As he put it, the justifiable
reliance standard “basically eliminated a person’s duty to attempt
to understand the contents of a document or documents received in
connection with a particular transaction (consumer or
commercial).”
Pointing to Justice Almon’s dissent, Houston concluded that the
court would no longer apply the justifiable reliance standard to
consumer fraud cases, but would instead apply reasonable reliance
to all newly filed cases.
Justices Almon, Janie Shores, and Harold See all filed
concurring opinions making important points. Almon pointed to his
earlier opinion and noted that the justifiable reliance rule, which
allowed for “continuous disputation,” made commerce almost
impossible. Justice Shores acknowledged that she had joined in
making the change, but was willing to reconsider. She wrote that
the court made a “mistake in departing from a standard in fraud
cases that had served well.”
Justice See, who joined the court in 1996, pointed to what
happened when a buyer’s right to rely on a representation was not
tied to a duty to act reasonably. As he explained, changing the
rule “discouraged buyers from reading their contracts” and reduced
their risk in not doing so. Second, the number of potential
plaintiffs in fraud lawsuits grew from those who might have
reasonably relied to include those who might have justifiably
relied. Third, because justifiable reliance rests on the
plaintiff’s testimony alone, cases which would have been thrown out
of court because the plaintiff did not act reasonably went to a
jury, which could award punitive damages.
Changing the reliance standard and getting punitive damages
under control helped change the business climate in Alabama. In
recent years, companies like Honda, Hyundai, and ThyssenKrupp have
opened plants in the state, and it’s unlikely they would have done
so if it were still seen as a “tort hell.” Justice Almon’s
vindication is in having helped to bring about that change in the
state’s business climate.
