Split Fourth Circuit Panel Holds That District Court Did Not Err by Admitting Evidence of Parent Companies’ Net Worth in Liability Phase of Nuisance Trial

In McKiver v. Murphy-Brown, LLC,  No. 19-1019 (4th Cir. Nov. 19, 2020) – a closely-watched case against an industrial hog farm for common-law nuisance – a split panel affirms liability, though it remands the punitive damage award for redetermination. In addition to deciding Daubert challenges to the experts and other issues (not otherwise addressed here), the panel addresses whether evidence of the net worth of defendant’s parent companies ought to have been presented to the jury on liability.

Plaintiffs sued Kinlaw Farms (later Murphy-Brown), which operates “an industrial hog feeding factory” in south-eastern North Carolina. Murphy-Brown is “a wholly-owned subsidiary of Smithfield Foods, Inc. (‘Smithfield’), which is in turn owned by WH Group Limited (‘WH Group’), a publicly traded company based in Hong Kong. Plaintiffs, who lived adjacent to the operations, alleged that the factory maintained unsanitary conditions at its hog-confinement buildings, waste lagoons, and sprayfields.

The jury awarded a verdict to plaintiffs of $75,000 in compensatory damages and $5 million in punitive damages (reduced to $2.5 million under North Carolina state-law caps). Among the evidence the jury heard was “the values of Appellants’ parent companies and their executive compensation.”

The case arrived at the Fourth Circuit with heavy publicity and a host of amicus briefs (the caption lists 36 amici, including trade lobbies, environmental groups, and civil-justice organizations). In a 144-page opinion, the panel majority upholds liability for compensatory and punitive damages, while remanding the amount of the punitive damage award for reconsideration.

The panel majority finds no reversible error in admitting the parents’ net-worth evidence. It finds probative of liability under the broad standards of Fed. R. Evid. 401, because it could establish the feasibility of mitigating measures. Plaintiffs “put forward testimony indicating that if [Murphy-Brown] wanted to cover its lagoons, Smithfield or WH Group would cover the costs . . . . The ability of Smithfield and WH Group to pay is therefore relevant evidence of whether Appellant would face undue hardship in abating the nuisance.” Indeed, in a consent decree between the state attorney general and Smithfield, the company had “committed . . . to providing financial assistance to convert lagoon-and-sprayfield systems operated by its contract growers. Smithfield’s ability to pay to do so thus is fundamental in deciding whether such conversions were feasible.”

Second, it finds that the evidence was not “substantially outweighed” by unfair prejudice under Fed. R. Evid. 403. “The district court carefully considered whether mention of [Murphy-Brown]’s parent companies’ finances was unduly prejudicial and whether this prejudice outweighed the probative value of that information. Further, the court made clear that the parent companies’ information could not itself be used to argue in favor of punishing [Murphy-Brown] . . . . The court also recognized that keeping information about parent companies’ ability to pay from the jury would permit a defendant to unfairly claim both that it is too poor to afford existing remedial measures, but also that it has been proactive (through its parent company) in developing new alternatives. And because [Murphy-Brown] wanted to claim Smithfield’s conduct as a shield, the district court reasonably concluded that evidence of Smithfield’s ability to cover remediation costs also could come in as a sword.”

Moreover, “The task before the jury was to compare the community’s benefit with Appellees’ harm, and the fact that much of the profit from the injurious conduct left the area while [Murphy-Brown] and its local grower Kinlaw Farms were left unable to afford to abate the harm speaks to whether and how much the community benefitted from the operation . . . . [H]aving invoked its parent companies’ identities in its defense, Appellant cannot complain that the court allowed the jury to have information about those entities for the purposes of comparing benefits and harms as delineated by North Carolina law.”

Nevertheless, the panel holds that the net-worth evidence infected the amount of punitive damages. “[I]nflammatory financial evidence can be especially destructive in the context of punitive damages because of the leeway given to juries in selecting the appropriate amount necessary to punish and deter.” And here, “a jury exposed to the high-dollar values of [Murphy-Brown]’s parent companies and the parents’ executive compensation could understandably — but inappropriately — apply that information when it came time to decide how much money would be required for Appellant to “feel” the effect of the damages award.” (Additionally, evidence about WH Group exposed the jury to evidence of the defendant’s foreign ownership – Chinese – which the dissent notes might also have inflamed the jury.)

Concurring, Judge Wilkinson found compensatory and punitive damages appropriate in some amount. The opinion is unusually personal and heartfelt in tone. “[T]he record here reveals outrageous conditions at Kinlaw Farms—conditions that, when their effects inevitably spread to neighboring households, violated homeowners’ rights to the healthful enjoyment of their property . . . . What was missing from Kinlaw Farms—and from Murphy-Brown—was the recognition that treating animals better will benefit humans. What was neglected is that animal welfare and human welfare, far from advancing at cross-purposes, are actually integrally connected.” Further, “[i]t is well-established—almost to the point of judicial notice—that environmental harms are visited disproportionately upon the dispossessed—[such as] here on minority populations and poor communities.”

Dissenting in part, Judge Agee holds that the net-worth evidence was prejudicial error, warranting a retrial. “In this case, brought against Murphy-Brown alone, Plaintiffs did not seek to hold WH Group, Smithfield Foods, Inc., or any other corporate parent liable for Murphy-Brown’s allegedly tortious conduct . . . . But the trial record demonstrates that the district court improperly allowed Plaintiffs to introduce evidence about and argue for Murphy-Brown’s liability based on the conduct and characteristics of its non-party corporate parents,” in violation of due process and principles of corporate law. “The district court’s disregard for these bedrock principles was error and affected the entire trial because it led to the admission of irrelevant and highly prejudicial evidence about Murphy-Brown’s corporate parent as a means to hold Murphy-Brown liable. * * * *

“At bottom, Murphy-Brown’s arguments at trial and the testimony of its executives focused on the decisions that Murphy-Brown made about why it chose to implement some new technologies and not implement others. Its arguments did not change whose conduct was relevant to the jury’s consideration of Murphy-Brown’s decisions. Nor did its arguments open the door to information about its corporate parents’ profits as evidence of what more it could have afforded. Thus, contrary to the district court and the majority opinion’s view, neither the ‘integrated’ nature of Smithfield Foods, Inc.’s corporate structure nor the specific arguments Murphy-Brown made to defend its decisions made information about the non-party corporate parents relevant. As such, that evidence was inadmissible.”

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