Ninth Circuit upholds Oregon's split recovery law for punitive damages

The Ninth Circuit Court of Appeals yesterday upheld the constitutionality of Oregon's statute allocating a portion of punitive damage awards to the state.  The 'split recovery' statute, ORS 31.735, sends to the state's victim compensation fund 60 percent of any punitive damage judgment, while the plaintiff who is awarded the punitive damages receives 40 percent. 

In Engquist v. Oregon Department of Agriculture, plaintiff made various state and federal law claims against her former employer.  Under a state law claim for interference with contract, the jury awarded punitive damages.  The Ninth Circuit concluded that the law allocating 60 percent of those damages to the state did not violate the Fifth Amendment's Taking Clause or the Eighth Amendment's Excessive Fines Clause. 

In addition to her constitutional arguments, plaintiff made a creative 'judicial estoppel' argument, drawing on the fact that the state was both a defendant and the beneficiary of the split recovery.  The Justice Department, in defending the case, had naturally contended at trial that defendants did not act with willfulness or malice with regard to her employment.  Plaintiff claimed that, once the jury awarded punitive damages, the state was estopped from changing its position: the state could not accept the jury's conclusion that the agency was in the wrong and thereby claim 60 percent of the award.  The Ninth Circuit concluded that the operation of the split recovery statute was not the same as a flip-flop by the Department of Justice.