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.