Thirty years ago, expressly to protect defendants facing unfair, make-or-break, gross negligence and punitive damages trials, both the Texas Supreme Court (starting in 1994) and the Texas Legislature (starting in 1995) required trial courts to bifurcate the trial of those two issues upon any defendant’s motion to bifurcate. Above all, Texas created this bifurcation right to prevent juries from hearing otherwise highly prejudicial evidence when deciding the most important issues in most trials – liability and actual damages.
What no one would have expected back in the 1990’s, however, was that Texas defendants and the defense bar would respond with a collective yawn to being both judicially and statutorily given this important defense that had been previously fervently sought. For the last 25 years, however, defendants have rarely, if ever, invoked their absolute right to bifurcation. This paper will explore that surprising development, including a brief, first-hand sketch of the otherwise unappreciated history of bifurcation in Texas.
Importantly, this paper will pointedly argue that bifurcation is the most underused and underappreciated key to defending high-dollar lawsuits that raise the issue of gross negligence.
Even more importantly, this paper will argue that for defendants facing tough gross negligence trials, especially where plaintiffs refuse to settle for objectively reasonable amounts, bifurcation can potentially be a surprisingly effective way for defendants to obtain some otherwise unexpected wins, by:
- Crafting a dedicated trial strategy to win the punitive phase of a trial – specifically the jury awarding zero ($0.00) in punitive damages.
- Perfecting jurisprudentially important potential appellate points regarding gross negligence and punitive damages issues.
- Substantially increasing the prospects for securing Texas Supreme Court review regarding violations of the defendant’s constitutional rights to a fair trial, as well as regarding novel issues of statutory interpretation regarding bifurcation, and reversible error in the admission of highly prejudicial evidence.
- Further incentivizing plaintiff’s counsel to more reasonably and timely settle significant actual damages awards before protracted appeals over constitutional grievances and other issues of jurisprudential importance.
On the other hand, the defendant’s failure to bifurcate in this context arguably allows the jury to hear highly prejudicial evidence in deciding liability and actual damages – for example, most obviously, evidence of net worth.
Even worse, failing to bifurcate in this context can also prevent a defendant from being able to adequately and fairly defend itself at trial on the issues of liability and damages.
Neither the Texas Supreme Court nor the Texas Legislature intended that bifurcation of gross negligence be a rarely used historical novelty. Instead, this paper argues that in gross negligence cases, bifurcation should be the normal, practical tool in the defendant’s tool belt. By using it as intended, defendants may be able to eliminate or at least minimize undue prejudice at trial and to help ensure that defendants can fairly defend themselves in the toughest trials.
To be sure, the author believes that bifurcation should be the expected default for all trials in which plaintiffs seek to declare defendants grossly negligent and seek to punish them with awards that, by definition, exceed any actual harm suffered.
I. A First-hand History of Bifurcation of Gross Negligence in Texas: Originatating in the 1980’s as a Deliberate and Critically Important Defense Strategy to Limit
Defendants’ Exposure to Massive Awards.
The author of this paper has practiced law in Texas for over 40 years, during which he has closely observed and actively participated in the development of Texas law concerning gross negligence and punitive damages, especially in the Texas Supreme Court, but also as the defendant’s appellate lawyer in many trials. As the law lawyer on regional gross negligence and punitive damages teams for Pittsburgh Corning and Alcoa, and later for two national trucking companies, the author has paid particular attention to how the Texas Legislature, the Texas courts, and the bar first came to adopt bifurcation in gross negligence cases, and then how a misinformation campaign orchestrated by TTLA successfully resulted in the defense bar’s misunderstanding and abandonment of bifurcation.
Having seen the transformation of Texas from what was once, in the 1980’s, one of the most proplaintiff jurisdictions in the country to being one of the most conservative jurisdictions for the last several decades, the author hopes to provide his admittedly partial, first-hand account of the history of gross negligence bifurcation in Texas.
A. The Beginning of Gross Negligence Bifurcation Procedure in Texas.
Since 1981, beginning at one of Texas’ very large law firms, the author has primarily focused his practice on disputes involving large businesses, frequently including allegations of gross negligence, fraud, bad faith, malice, and other high-dollar commercial misconduct. Addressing claims for punitive damages has probably been the largest part of his docket for over 40 years.
Early in his career, the author worked as a law lawyer as part of a team of national and regional defense firms defending asbestos manufacturing defendants from gross negligence and punitive damage claims. Asbestos was probably the largest and longest-lasting tort docket in U.S. history. Because of the size and frequency of large liability and punitive damages awards in asbestos cases, the major asbestos defendants and their insurers reached a global agreement in 1985 to cooperate to minimize their otherwise devastating financial exposure.
This 1985 agreement was called the Wellington Agreement. Among its many accomplishments, the Wellington Agreement provided insurance coverage defense and indemnity from the asbestos manufacturers’ extensive towers of insurance. The Wellington Agreement also minimized the cross-claims among the various asbestos defendants. All in all, this agreement concretely opened the door to an unprecedented level of cooperation and strategizing among the primary asbestos codefendants, not only with each other, but most importantly with their insurers.
As a result, the insurers and the asbestos defendants formed regional and national trial teams to develop and experiment with strategies to limit their losses from the ongoing (and seemingly never-ending) asbestos litigation. The essence of the agreement was that the insurers would defend and indemnify the manufacturing defendants from all liability and damages except for gross negligence and punitive damages. The asbestos defendants thus engaged and paid for their own regional gross negligence and punitives defense counsel. The author actively participated in those regional and national gross negligence strategy teams. He was primarily tasked with developing appellate and other legal ruling issues at trial, such as jury charges, evidence objections, and procedural issues. Previously in his career, the author had tried over a half dozen commercial and serious personal injury defense cases to jury verdicts and had handled appeals in both the federal Fifth Circuit and state intermediate appellate courts.
The Wellington effort to create gross negligence liability-limiting strategies involved not only major national defense law firms but also academic experts in intentional torts and punitive damages. As part of this concerted national defense effort, bifurcation was developed and pursued as one of the key strategies. These strategy groups eventually suggested bifurcating trials in various different ways, including what is often called “reverse bifurcation.” In reverse bifurcation trials, damages are tried first, not only because the liability issues were complicated but also because liability was very frequently found by juries at trial.
Bifurcation in asbestos cases became one of the few major success stories in what otherwise was a relatively disastrous, business-killing area of litigation. That is, when handled by very capable defense lawyers, the asbestos defendants (1) convinced many trial courts to exercise their discretion to bifurcate damages trials between actual and punitive phases and (2) had major success with juries in the punitive phase of those bifurcated trials.
As a result of major successes, asbestos litigation became the impetus for the adoption of bifurcation schemes across the country. Cf. Angelo v. Armstrong World Indus., Inc., 11 F.3d 957,
964 (10th Cir. 1993) (“Courts have often used bifurcation to deal with massive product liability litigation, especially asbestos cases…. In fact, courts have commonly used reverse bifurcation in asbestos cases.”).
Completely separate from the asbestos litigation, the author also personally participated in another half dozen non-asbestos trials where bifurcation was ordered, and the second phase of the trial successfully resulted in awards of zero punitive damages. In all those trials, the bifurcation was necessary to make those results possible – but even then it was not the most important factor. Instead, the author and each of the various trial teams, in completely different types of litigation, developed case-specific trial strategies for the respective gross negligence and punitive phases of these trials.
For over forty years, the author’s related experience has included all aspects of lawsuits addressing (1) allegations of Gross negligence, (2) claims for Punitive damages, and (3) requests for Bifurcation (“GPB”), including:
- The substantive law governing GPB issues.
- The most common pretrial discovery disputes regarding GPB issues.
- The trial of GPB issues.
- Settlement during and immediately after trials implicating GPB issues.
- Appeals of substantive and procedural issues with GPB issues.
B. The Texas Courts First Rejected and then later Required Bifurcation to Protect Defendants from Prejudicial Evidence of Net Worth.
Locally, Texas state appellate courts began to consider bifurcating trials in the mid-1980s, a procedure that was attributed to the State of Wyoming. See Lunsford v. Morris, 746 S.W.2d 471,
473 (Tex. 1988) (citing Campen v. Stone, 635 P.2d 1121, 1132 (Wyo. 1981)). As opposed to “reverse bifurcation,” the goal was merely to separate the jury’s consideration of actual damages from punitive damages – and especially to limit the use of a defendant’s net worth at trial as much as possible.
Lunsford became the key Texas Supreme Court case, even though only the discovery of net worth was technically at issue in the case. In Lunsford, the Court permitted the discovery of net worth, reasoning that “At least forty-three states now allow evidence of net worth to be discovered and admitted for the limited purpose of assessing punitive damages.” Id. at 472 (emphasis added).
The majority in Lunsford acknowledged Wyoming’s restrictive approach to the discovery of net worth – as well as Wyoming’s use of bifurcation to protect defendants from evidence of net worth at trial. But the majority in Lunsford emphatically rejected Wyoming’s protective approach to both discovery and bifurcation: “Our rules of civil procedure and evidence do not require similar practices ….” Id.
In dissent, however, Justice Raul Gonzalez declared that evidence of net worth “has no relevance to the issues of liability or compensatory damages.” Lunsford, 746 S.W.2d at 474 (Gonzalez, J., dissenting). He thought it was highly prejudicial to allow the jury to hear evidence of net worth at the same time it was deciding liability and damages: “the procedure employed to offer evidence of net worth must allow the defendant’s conduct to be judged as much as possible in a prejudicefree atmosphere.” Id. (emphasis added).
Justice Gonzalez’ dissent pointedly urged the Texas Supreme Court to adopt bifurcation as a solution to this prejudice: “The utilization of a bifurcated trial procedure would prevent net worth evidence from prejudicially impacting liability and compensatory damage findings when punitive damages are claimed.” Id.
After Lunsford, some Texas courts began permitting bifurcated trials as a matter of its sound discretion. See, e.g., Miller v. O’Neill, 775 S.W.2d 56, 59 (Tex. App. – Houston [1st Dist.] 1989, orig. proceeding) (allowing bifurcation under a so-called “Wyoming Plan”).
The situation changed dramatically, however, in 1994, when the Texas Supreme Court adopted mandatory bifurcation in its landmark Moriel case. See Transportation Ins. Co. v. Moriel, 879 S.W.2d 10, 30 (Tex. 1994). Just as the Lunsford dissent had prefigured, the Court’s stated reasoning for making bifurcation a matter of right was to avoid prejudicial evidence of net worth:
[E]vidence of a defendant’s net worth, which is generally relevant only to the amount of punitive damages, by highlighting the relative wealth of a defendant, has a very real potential for prejudicing the jury’s determination of other disputed issues in a tort case. We therefore conclude that a trial court, if presented with a timely motion, should bifurcate the determination of the amount of punitive damages from the remaining issues.Id. (emphasis in original).
C. The Texas Legislature Codified Bifurcation; But it Had Little Practical Effect.
The Texas Supreme Court requiring bifurcation on request became the necessary forerunner to the similar step next taken by the Texas Legislature.
It was following the success of the national asbestos defense bar with bifurcation that leading members of the Texas defense bar lobbied the Texas Legislature to enact a bifurcation scheme. As a result, just one year after Moriel, the Texas Legislature statutorily codified bifurcation as mandatory when requested by the defendant. See TEX. CIV. PRAC. & REM. CODE § 41.009.
Not to be outdone, however, the lead lobbyists for TTLA, the legendary Texas plaintiffs’ bar advocacy group, proceeded with their own post-legislative campaign that aimed at the Texas defense bar, insurers, and their insured defendants. Specifically, at a wide variety of ABOTA and other bar group meetings, as well as on the CLE circuit, the plaintiffs’ bar affirmatively took credit for the Legislature passing Section 41.009, and claimed that bifurcation primarily helped plaintiffs at trial. The plaintiffs’ bar touted bifurcation as giving them, and gross negligence liability-finding juries, “a second shot” at hitting defendants for damages, only this time it was for punitive damages.
This erroneous claim by the Texas plaintiffs’ bar is still featured in articles written for the national plaintiffs’ bar. See, e.g., Britany M. Engelman, “Don’t Let Phase Two Faze You – Punitive Damages,” ADVOCATE (Oct. 2019) (“[B]ifurcation can also be advantageous for the plaintiff insofar as if the jury gets upset enough, it has not one, but two chances to show that through its verdict – once in the compensatory award phase and again in the punitive damages award phase.”).[1]
The Texas plaintiffs’ misinformation campaign was highly successful. As a result, the Texas defense bar developed a deep and abiding distrust of bifurcation. Even without ever having tried a bifurcated trial, and basically unaware of the history of Section 41.009 and the successful use of bifurcation in asbestos litigation, the great majority of the defense bar developed a deep-seeded and stance that is aggressive hostile to bifurcating gross negligence and punitive damages.
As a result of all the above, for the last 30 years, bifurcation in Texas has been requested by defendants very infrequently. Accordingly, its very real benefits for defendants have not been widely tried, investigated, or developed. A review of the Texas caselaw suggests that there are very few major trials where bifurcation was at issue. This rampant disuse makes it difficult to disprove the claim that bifurcation harms defendants by giving juries “a second shot” at the defendant. Fortunately, however, bifurcation has been pursed in over a half dozen cases in which this author was involved which stand in sharper rebuttal to that claim – in at least six cases a different smart strategy regarding gross negligence and punitive damages resulted in an award of zero punitive damages.
Nevertheless, from an appellate perspective, the rampant disuse of bifurcation has resulted in a dearth of caselaw developing the details of the law surrounding bifurcated gross negligence and punitive damages. Surely, as in all areas of high-dollar jurisprudence, there would be a wide variety of potential reversible error issues that would undoubtedly be raised in connection with actively implementing the Texas Legislature’s bifurcation procedure. In other words, the practical effect of defense lawyers widely deciding not to bifurcate their gross negligence cases (especially their biggest cases) is that Texas law on gross negligence and punitive damages has been left dramatically underdeveloped. What few developments have occurred strongly confirm that conclusion – bifurcation can be of immense benefit to defendants.
II. The Expressly Stated Benefits of Bifurcation: Exclusion of Various Types of Unduly Prejudicial Evidence.
The most obvious and demonstrable benefits of bifurcation is the exclusion of various types of prejudicial evidence during the jury’s consideration of the first phase liability issues. The exclusion of net worth evidence in connection with the trial of all liability issues is certainly an obvious anchor benefit. In addition to the exclusion of net worth evidence, this paper will also highlight many additional types of other highly prejudicial evidence that can be excluded, potentially, from the liability phase of a bifurcated trial.
Importantly, however, this list of benefits is hardly exhaustive. Adept defense counsel will be able to find additional fact evidence that should similarly be excluded during phase one of a two-phase punitive trial. As all trial lawyers know and appreciate, each case is unique and will potentially trigger a wide variety of different instances of evidentiary offers that may be unduly prejudicial to a fair defense at trial.
For example, the Texas Legislature has already codified the mandatory exclusion of any evidence that is relevant only to the amount of punitive damages: “Evidence that is relevant only to the amount of exemplary damages that may be awarded is not admissible during the first phase of a bifurcated trial.” TEX. CIV. PRAC. & REM. CODE § 41.011(b) (emphasis added).
Conversely, there are many other types of evidence that have some limited relevance to the liability phase of a bifurcated trial, but are arguably primarily relevant to the punitive phase. Although exclusion of this evidence is not guaranteed, the potential need to exclude this evidence from the first phase liability portion of a trial provides a significant potential benefit to seeking bifurcation.
Moreover, if the trial court erroneously admits, instead of excluding, this controversial evidence, that error creates an appellate issue that would be yet another reason to bifurcate the trial. In short, allowing the jury to hear prejudicial evidence over timely objections during the liability phase of a trial can create significant potential reversible error on appeal.
A. Bifurcation in Connection with Exclusion of Net Worth Evidence.
The first and most straightforward benefit of seeking bifurcation is that the defendant avoids the jury hearing evidence of its net worth at the same time it is determining liability and actual damages.
The Texas Supreme Court has expressly recognized that this is a key purpose of Section 41.009: “The Legislature has deemed [a defendant’s wealth] so potentially prejudicial that it must be separated from the jury’s deliberations regarding liability and actual damages.” Reliance Steel & Aluminum Co. v. Sevcik, 267 S.W.3d 867, 873 (Tex. 2008).
B. Bifurcation in Connection with Potential Exclusion of Bad Faith Evidence in Insurance Disputes.
The second most commonly recognized benefit of bifurcation arises completely outside the context of gross negligence cases. Specifically, in breach of contract insurance disputes, the Texas Supreme Court has long recognized that bifurcation may be required in order to prevent juries from hearing evidence of an insurance company’s alleged bad faith while simultaneously determining whether the insurer breached the insurance agreement. See In re Allstate Texas Lloyds, 202 S.W.3d 895, 900 (Tex. App. – Corpus Christi 2006, orig. proceeding) (bifurcating evidence relevant to insurer’s bad faith from breaching the insurance contract).
This particular benefit arises out of one potential type of insurance litigation, where insureds sue their insurance companies for both (i) a failure to pay on the insurance policy (the contract claim) and (ii) bad faith in handling the claim (the tort claim).
In this situation, a victory by the insurance company in the contract claim would presumably nullify the tort claim. The theory is that the insurance company does not act in bad faith in denying or delaying a claim because the court ultimately determined that there was no coverage under the policy.
However, trying the contract and tort claims together can be considered prejudicial to the insurance company. Thus a bifurcation (or a complete severance) is arguably necessary to prevent the jury from hearing the prejudicial evidence of the insurance company’s alleged bad faith:
A severance may nevertheless be necessary in some bad faith cases. A trial court will undoubtedly confront instances in which evidence admissible only on the bad faith claim would prejudice the insurer to such an extent that a fair trial on the contract claim would become
unlikely.
Liberty Nat. Fire Ins. Co. v. Akin, 927 S.W.2d 627, 630 (Tex. 1996).
As the Texarkana Court explained, “bifurcating the issues into two trials allows for the necessary protections for each party within the trial court’s discretion.” In re Allstate Ins. Co., 2005 WL 1114640, at *2 (Tex. App. – Texarkana May 12, 2005, orig. proceeding).
Even more specifically, juries arguably should not hear evidence of the insurance company’s settlement offers when they are ruling on the contract case. Yet those same settlement offers are critical to defeating the bad faith claim: “[O]rdinarily, offers of settlement of a coverage dispute are inadmissible on the contract claim, but may nevertheless be admissible on the tort claim to rebut evidence of bad faith.” Akin, 927 S.W.2d at 629.
Following Akin, Texas courts have repeatedly acknowledged this general benefit of bifurcation. See In re State Farm Mut. Auto. Ins. Co., 629 S.W.3d 866, 876 (Tex. 2021) (orig. proceeding) (“[B]ifurcation of trial is proper because evidence of the insurer’s settlement offer may be admissible in one phase of the trial but inadmissible in the other.”); In re Travelers Lloyds of Texas Ins. Co., 273 S.W.3d 368, 374 (Tex. App. – San Antonio 2008, orig. proceeding) (“Bifurcation has been embraced by the Texas Supreme Court to address evidence of a defendant’s net worth, which has the potential to prejudice the jury’s determination of disputed issues in a tort case…. We see no reason why bifurcation cannot be similarly employed to address evidence of a settlement offer, which has the potential to prejudice the jury’s determination of disputed issues in a breach of contract case.”) (citing Moriel).
The above two situations certainly establish the Texas Supreme Court’s approval of bifurcation as a necessary means of excluding prejudicial, punitive damages-relevant evidence from being considered by a jury at the same time it is determining liability and actual damages. This same rationale make bifurcation critically important to a fair trial when other types of potentially prejudicial evidence would otherwise be offered in a non-bifurcated trial.
C. Bifurcation in Connection with Potential Exclusion of Prior Bad Acts
Evidence.
Bifurcation similarly would justify the exclusion of evidence of prior bad acts. The default rule is that evidence of prior bad acts is generally inadmissible: “Evidence of a crime, wrong, or other act is not admissible to prove a person’s character in order to show that on a particular occasion the person acted in accordance with the character.” TEX. R. EVID. 404(b)(1).
Rule 404, however, permits juries to hear such evidence when determining liability and actual damages in non-bifurcated cases as it expressly contemplates and allows admission for exception situations, including when the prior bad act is used to prove “motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack of accident.” TEX. R. EVID. 404(b)(1).
Specifically under this framework, a claim for gross negligence may open the door to the admission of prior bad acts in non-bifurcated trials. That occurred in Castro v. Sebesta, which addressed the defendant’s prior use of illegal drugs in a car-accident case:
The limitation on the evidence imposed by the court did not allow the plaintiff to show defendant’s actual level of culpability. That defendant regularly smoked marihuana while driving a car was relevant to the determination of punitive damages. To determine if an award for punitive damages was appropriate, plaintiff should have been able to show the jury just how indifferent the defendant was to the danger of driving a car while smoking marihuana.
Castro v. Sebesta, 808 S.W.2d 189, 194 (Tex. App. – Houston [1st Dist.] 1991, no writ) (emphasis added).
In Castro, the defendant had conceded liability for actual liability and gross negligence. The defendant’s goal was instead to limit the trial to just damages. At trial, the tactic succeeded. On appeal, however, the Houston Court of Appeals ruled that the evidence of prior marijuana use was still relevant to the jury’s consideration of gross negligence: “Plaintiff argues that the evidence was not offered to prove whether defendant committed a negligent act (defendant stipulated that); the evidence was offered to prove the quality of defendant’s act. We agree.” Id.
Moreover, the Castro Court also held that any evidence that is relevant to gross negligence is inherently relevant to punitive damages: “The court’s ruling excluding evidence of gross negligence, by necessity excluded all the evidence that was relevant to the issue of punitive damages – evidence of gross negligence is the same evidence that supports a finding of punitive damages.” Id. at 192 (emphasis added).
Subsequently, other courts have agreed with the reasoning in Castro. See Felix v. Gonzalez, 87 S.W.3d 574, 579 (Tex. App. – San Antonio 2002, pet. denied) (“When gross negligence and punitive damages are at issue, the defendant’s state of mind is relevant to prove the level of culpability.”) (citing Castro); Kavanaugh v. Perkins, 838 S.W.2d 616, 619 (Tex. App. – Dallas 1992, no writ) (“A defendant’s routine use of drugs is relevant to the context of his actions in question and thus is relevant to the issue of punitive damages.”) (citing Castro); compare Muhs v. Whataburger, Inc., No. 13-09-00434-CV, 2010 WL 4657955, at *6 (Tex. App. – Corpus Christi Nov. 18, 2010, pet. denied) (declining to decide whether a prior arrest “should have been admitted as an exception to rule 404 because it constitutes evidence of … state of mind at the time of the accident.”) (citing Castro).
It is worth noting that, in Castro, the defendant admitted liability and was only contesting actual and punitive damages. So Castro does not directly establish how evidence of bad acts would work in an ordinary, bifurcated, gross negligence trial.[2]
Nevertheless, under Castro’s reasoning, prior bad acts could arguably be relevant to gross negligence. Thus, a future defendant might decide to bifurcate the trial and argue that the evidence of prior bad acts is primarily relevant to the amount of punitive damages that should be awarded – and thus should be excluded from the liability and actual damages phase of the trial.
Aside from Castro, in one opinion decided before the Rules of Evidence, the San Antonio Court of Appeals held that evidence of prior bad acts (a prior fistfight) was admissible in an assault and battery case because of the claim of punitive damages – immediately before the Court discussed the propriety of the amount of the punitive damages award. See Carr v. Galvan, 650 S.W.2d 864,
869 (Tex. App. – San Antonio 1983, writ ref’d n.r.e.).
Other Texas courts have similarly pointed to evidence of prior bad acts to support a finding of gross negligence. See, e.g., Rayner v. Dillon, 501 S.W.3d 143, 150-53 (Tex. App. – Texarkana 2016, pet. dismissed) (in a trucking accident, the court pointed to “nine DOT violations for driving excessive hours,” along with other evidence of repeated log violations to justify a finding of gross negligence) (citing TEX. CIV. PRAC. & REM. CODE 41.001(11)).
Future defendants should consider bifurcating in order to exclude evidence of prior bad acts from the liability phase of a bifurcated trial under Castro and these other cases. Of course, this argument might be challenged on the ground that the jury determines gross negligence liability for punitive damages during the first phase of a bifurcated trial – and only the amount of punitive damages in the second phase. See TEX. CIV. PRAC. & REM. CODE § 41.009(c) & (d). Still, as will be discussed below, even potential liability evidence that goes to the amount of punitive damages could be unduly prejudicial in the phase one trial.
D. Bifurcation in Connection with Potential Exclusion of Other Verdicts Evidence.
Considering bifurcation where plaintiff will attempt to introduce evidence of other prior verdicts over a prejudice objection is another type of evidence of prior bad acts that is worth its own brief, separate discussion.
In short, the Texas Supreme Court has confirmed that Rule 404 governs the admissibility of evidence of “other lawsuits, verdicts, and judgments.” Serv. Corp. Int’l v. Guerra, 348 S.W.3d 221, 233 & 235 (Tex. 2011). As a result, the above analysis regarding bifurcating in connection with prior bad acts should apply with equal force when a plaintiff attempts to introduce evidence of prior verdicts against the defendant.
As the Supreme Court summarized, this means that evidence of prior verdicts is “not admissible to prove character in order to show ‘action in conformity therewith.’” Id. at 235 (quoting Rule 404). “But it is admissible to show a party’s intent, if material, provided the prior acts are ‘so connected with the transaction at issue that they may all be parts of a system, scheme or plan.’” Id. (quoting Oakwood Mobile Homes, Inc. v. Cabler, 73 S.W.3d 363, 375 (Tex. App. – El Paso 2002, pet. denied)).
By focusing on the defendant’s intent and the level of connection to a common scheme, the Supreme Court’s opinion in Guerra arguably implies that evidence of other verdicts is more likely to be admissible only to decide the amount of punitive damages in the punitive phase of a bifurcated trial. Thus, potentially, that evidence could be excluded from the liability and actual damages phase of the trial.
Admittedly, Guerra did not provide clear and direct guidance as to how bifurcation affects the admissibility of evidence of other verdicts, presumably because the underlying trial was not bifurcated.
E. Bifurcation in Connection with Potential Exclusion of Photographs or Other Evidence to Prove the Defendant’s Culpability.
The Castro court also addressed the trial court’s decision to exclude several accident photographs. See Castro, 808 S.W.2d at 193. The court of appeals reversed, holding that those photographs legitimately demonstrated the defendant’s level of culpability:
In reviewing awards of punitive damages, the supreme court tells us to consider the nature of the wrong, the character of the conduct involved, the degree of culpability of the wrongdoer, the situation and sensibilities of the parties, and the extent to which the conduct offends a public sense of justice and propriety. Alamo Nat’l Bank v. Kraus, 616 S.W.2d 908, 910 (Tex. 1981)….
The photographs could have helped the jury to better understand the nature of defendant’s fault, the character of defendant’s conduct, the defendant’s degree of culpability, the situation and sensibilities of the parties, and the extent to which the defendant’s conduct offended the public sense of justice and propriety…. Without the photographs, the jury had no means to assess the full extent of the impact of defendant’s conduct.
Id. at 193 (emphasis added) (cited with approval in Diamond Offshore Servs. Ltd. v. Williams, 542 S.W.3d 539, 552 n.50 (Tex. 2018)).
While business disputes will rarely involve dramatic photographs of an accident scene, this holding nevertheless shows the wide range of evidence of culpability that becomes relevant because of a claim of gross negligence and punitive damages in a non-bifurcated trial.
In fact, the Texas Legislature subsequently codified the same culpability factors that were identified in Castro – expressly designating this evidence as being relevant to the punitive phase of a bifurcated trial:
In determining the amount of exemplary damages, the trier of fact shall consider evidence, if any, relating to:
- the nature of the wrong;
- the character of the conduct involved;
- the degree of culpability of the wrongdoer;
- the situation and sensibilities of the parties concerned;
- the extent to which such conduct offends a public sense of justice and propriety; and
- the net worth of the defendant.
TEX. CIV. PRAC. & REM. CODE § 41.011(a).
Importantly, Section 41.011(a) does not indicate that these culpability factors are “only” relevant to the punitive phase of a bifurcated trial. Nevertheless, Section 41.011(a) highlights the possibility of excluding culpability evidence from the liability phase of a bifurcated trial. So there will predictably be fights, at trial and on appeal, over whether this evidence should be excluded from the liability phase of a bifurcated trial.
F. Bifurcation in Connection with Potential Exclusion of Character Evidence.
Rule 404(a) strongly prohibits the admission of general character evidence: “Evidence of a person’s character or character trait is not admissible to prove that on a particular occasion the person acted in accordance with the character or trait.” TEX. R. EVID. 404(a).
Nevertheless, it is arguable that the rule works almost like the rule regarding prior bad actions in Rule 404(b). That is, Texas courts might strictly enforce the inadmissibility of character evidence as to liability issues but be slightly more permissive about character evidence when punishing a party for gross negligence.
There are some indications that this may be the case. One federal court indicated that character evidence is directly relevant to a claim of gross negligence:
Here, the evidence of prio[r] bad acts is being used not to prove bad character but to show knowledge on the part of Rivers’ employer, so 404(b) does not apply. (It could even be argued that, in this case, the evidence is being used to show an element of the claim – that the defendant acted with gross negligence – so that, as in a defamation case, character is directly at issue and no Rule 404 analysis is necessary).
Maritrans Operating Partners v. M/V Diana T., No. CIV.A. 97-1916, 1999 WL 155712, at *1 (E.D. La. Mar. 8, 1999) (emphasis added).
Another federal court expressly noted that bifurcating a trial should limit the admission of character evidence to the second phase of the trial:
Plaintiff has made no secret of his suspicions concerning
Defendants’ motives and has alleged repeatedly that Defendants seized his belongings for no legitimate reason, as evidenced by their mistreatment of him in previous investigations…. But at most, this evidence concerns the issue of malice as an element of Plaintiff’s claim for punitive damages, which the Court has bifurcated from the present trial.
Martin v. City of Barstow, No. EDCV1302193ABSPX, 2015 WL 12743591, at *3 (C.D. Cal. Nov. 5, 2015).
Other federal district courts have implied that character evidence is appropriate to address punitive damages. See, e.g., In re Wright Med. Tech. Inc., No. 1:13-CV-297-WSD, 2015 WL 6690046, at *3 (N.D. Ga. Oct. 30, 2015) (“Although good works, charity, community involvement, and other good deed evidence is not evidence that is generally admissible at trial, (see Fed. R. Evid., 404(a), 401, 402), it is conceivable, if not likely, that Defendants’ mission statement and the manner in which it guided them in the manufacture of hip implant devices is probative of Defendants’ intent for the purpose of the jury’s consideration of a punitive damages award.”); Blazek v. Santiago, No. 3:11-CV-26-RAW, 2015 WL 2176819, at *1 (S.D. Iowa Mar. 10, 2015) (excluding evidence of good character but explaining, “Defendants’ liability for excessive force is assessed without regard to their motives, which would come into play only on the issue of punitive damages.”).
The importance of limiting instructions to juries, telling them what issue the evidence goes to and what issues the evidence does not go to, become incredibly important, and potentially fraught, in connection with admitting evidence that arguably goes to both, to different degrees, gross negligence and to punitive damages. This is especially important if the defense claims that no award of punitive damages is appropriate in any particulars case.
G. Bifurcation in Connection with Potential Exclusion of Subsequent Remedial Measures Evidence.
Another benefit of bifurcation is the potential exclusion of subsequent remedial measures. Again, it is helpful to consider the non-exclusion of such evidence in a trial that is not bifurcated.
The Rules of Evidence treat evidence of subsequent remedial measures similarly to how they treat evidence of prior bad acts. First, evidence of subsequent remedial measures is generally not admissible to prove (i) negligence, (ii) culpable conduct, (iii) a defect in a product or its design, or
(iv) a need for a warning or instruction. TEX. R. EVID. 407(a). But Rule 407 allows this evidence for other purposes, “such as impeachment or – if disputed – proving ownership, control, or the feasibility of precautionary measures.” Id. (emphasis added).
As with evidence of prior bad acts and character evidence, this creates the possibility of a similar approach to evidence of subsequent remedial measures – strictly excluding this evidence to prove liability but possibly admitting this evidence for gross negligence, or just for punitive damages.
In particular, in a product liability case, determining the appropriateness or amount of punitive damages could easily turn on “the feasibility of precautionary measures.” Cf. Wal-Mart Stores, Inc. v. Alexander, 868 S.W.2d 322, 334 (Tex. 1993) (Doggett, J., dissenting) (“[I]n assessing whether a product manufacturer was grossly negligent, the factfinder must consider evidence of the extent of the defendant’s safety tests, the cost and availability of safety measures it chose not to implement, and the magnitude of the potential harm to consumers created by the defect.”).
In fact, one of the main justifications for the punitive-damage award in the infamous Pinto fuel tank case was the availability of a safer alternative design: “In one such decision, involving the design of the Pinto automobile, the court found evidence of the availability and low cost of safer alternative designs highly indicative of a conscious disregard for consumer safety.” Id. at 335 n.4.
Thus, in light of Rule 407, by bifurcating the trial, a defendant could potentially exclude evidence of subsequent remedial measures from the liability phase of a trial – and potentially limit that evidence to punitive damages phase.
III. An Overriding but Hidden Benefit of Bifurcation: Pursuing Additional Appellate Error.
Over the years, in the eyes of many Texas Supreme Court experts, the Court has telegraphed a strong aversion to punitive damages: “punitive damages are proper only in the most exceptional cases.” Moriel, 879 S.W.2d at 18. According to the Supreme Court, “[t]he typical remedy in a civil case is an award of money damages sufficient to compensate the injured plaintiff.” Id. at 16. Thus, an award of punitive damages creates an improper “private windfall.” Id. at 17.
The Texas Legislature also disfavors punitive damages. See TEX. CIV. PRAC. & REM. CODE § 41.003(b) & (c) (raising the standard of proof for the elements of punitive damages to “clear and convincing evidence”); TEX. CIV. PRAC. & REM. CODE § 41.003(d) (permitting punitive damages “only if the jury was unanimous in regard to finding liability for and the amount of exemplary damages”).
The Texas Supreme Court has acknowledged that the Legislature’s actions regarding gross negligence and punitive damages requires the Court to re-examine its jurisprudence. See U-Haul Int’l, Inc. v. Waldrip, 380 S.W.3d 118, 140 (Tex. 2012) (“The court of appeals upheld the grossnegligence finding against UHT based solely on the reckless-hiring-of-an-unfit-employee theory…. But, in light of our 1994 decision in Moriel and revisions to Chapter 41 promulgated by the Legislature in 2003, the standard for gross negligence based on this theory has changed.”).
Seeking punitive damages also triggers a host of practical protections for defendants, because an award of punitive damages is equivalent to criminal punishment: “like criminal punishment, punitive damages require appropriate substantive and procedural safeguards to minimize the risk of unjust punishment.” See Moriel, 879 S.W.2d at 16-17.
Because of the Texas Supreme Court’s jurisprudence regarding gross negligence and punitive damages – and because of all of the practical protections the Court and the Legislature have provided – a defendant appealing from a punitive damages award in a bifurcated trial has a much higher likelihood of convincing the Texas Supreme Court that the issues regarding gross negligence and punitive damages are issues of such importance to Texas jurisprudence that the Court should take the case. In short, employing bifurcation and the other tools aimed at minimizing punitive damages helps to potentially “punch a ticket” to the Supreme Court, if appellate counsel can identify a legitimate appellate issue of real importance to Texas jurisprudence.
Below is a quick survey of the types of error that may be substantially easier to preserve for appellate review by invoking your statutory bifurcation rights, rather than waiving them.
A. Bifurcation to Preserve Important Evidentiary Error for Appeal.
By statute, the admission of evidence that is only relevant to the punitive phase of a bifurcated trial is error. See TEX. CIV. PRAC. & REM. CODE § 41.011(b) (“Evidence that is relevant only to the amount of exemplary damages that may be awarded is not admissible during the first phase of a bifurcated trial.”).
Even when bifurcation was new and experimental, the Texas Supreme Court recognized that the admission of this type of evidence during the liability phase of the trial would create reversible error in a bifurcated case: “Under this plan, the admission of net worth evidence would constitute reversible error only during the first stage of a bifurcated trial.” Lunsford, 746 S.W.2d at 474 (Gonzalez, J., dissenting).
Importantly, even when Section 41.011(b) does not literally apply – because the evidence is marginally relevant to liability – that statute still helps defendants argue that any unduly prejudicial evidence admitted in the liability phase of a trial constitutes significant reversible error.
In short, allowing this evidence is contrary to the necessity of a fair defense at trial that underpins Section 41.011(b) and the Legislature’s entire bifurcation scheme. The Texas Supreme Court has long recognized that, “The Legislature determines public policy through the statutes it passes.” Fairfield Ins. Co. v. Stephens Martin Paving LP, 246 S.W.3d 653, 655 (Tex. 2008). The enactment of the bifurcation scheme thus puts Texas’ stamp of approval on the benefits of bifurcation, and Texas trial courts should not attempt to circumvent the Legislature’s bifurcation scheme and Section 41.011(b) in particular by pointing to the marginal relevance of prejudicial evidence in the liability phase of a trial.
Of course, as the majority in Lunsford suggested, the trial court might attempt to limit the prejudice of marginally relevant evidence by crafting limiting instructions. See Lunsford, 746 S.W.2d at 477
(“The trial court can more efficiently accomplish these objectives by placing limits on the scope and nature of discovery, issuing protective orders, and giving such jury instructions as may be appropriate.”). Jury instructions may be effective. See, e.g., Daugherty v. S. Pac. Transp. Co., 772 S.W.2d 81, 83 (Tex. 1989) (“Appellate courts must presume that the jury has acted in accordance with the trial court’s instructions.”).
Nevertheless, once the Legislature “has addressed a matter,” Texas courts “are constrained to defer to that expression of policy.” Royston, Rayzor, Vickery, & Williams, LLP v. Lopez, 467 S.W.3d 494, 504 (Tex. 2015). Therefore, appeals from wrongly admitted evidence in a bifurcated trial should carry special weight.
B. Bifurcation to Preserve Important Non-Evidentiary Error for Appeal.
Bifurcation can also help isolate and emphasize appellate points regarding an unlimited variety of jurisprudentially important, non-evidentiary legal matters.
1. Successor Liability.
One area of the law where bifurcation might be particularly helpful is successor liability following a corporate merger.
Before tort reform, the traditional rule in Texas was that, after a merger, the acquiring company could be liable for punitive damages of the acquired company. See Western Res. Life Ins. Co. v.
Gerhardt, 553 S.W.2d 783, 787 (Tex. Civ. App. – Austin 1977, writ ref’d n.r.e.); see also Aguirre v. Armstrong World Indus., Inc., 901 F.2d 1256, 1258 (5th Cir. 1990) (citing Gerhardt).
The current status of this traditional rule is complex and outside the scope of this article.
Nevertheless, there are weighty jurisprudential reasons why this traditional rule should not apply to punitive damages, especially after the Due Process protections recognized by the United States Supreme Court in BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996) and its progeny.
Among the Due Process defenses to punitive damages, it would be inappropriate to punish a party for actions committed by a predecessor company, which can be considered, in fact, to be a different
“person” than the defendant that is on trial. See BMW v. Gore, 517 U.S. at 575 (“Perhaps the most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant’s conduct.”) (emphasis added); cf. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 421-23 (2003) (holding that a party may not be punished for conduct that harms “other persons”).
Thus, for example, after Exxon acquired Mobile, it might be completely legal for courts to impose liability on Exxon for Mobile’s prior conduct that was merely negligent. But it would be an entirely different thing to punish Exxon for Mobile’s prior grossly negligent conduct.
Importantly, the Texas Supreme Court anticipated this defense long before BMW v. Gore: “[T]he grossly negligent act must be the very act of the corporation itself ….” Fort Worth Elevators Co. v. Russell, 123 Tex. 128, 144, 70 S.W.2d 397, 406 (1934).
2. Due Process Notice & Other Constitutional Procedural Protections.
Similarly, the Due Process Clause provides procedural protections to defendants facing claims of gross negligence and punitive damages – including ensuring that the defendant receive constitutionally sufficient notice: “Elementary notions of fairness enshrined in our constitutional jurisprudence dictate that a person receive fair notice not only of the conduct that will subject him to punishment, but also of the severity of the penalty that a State may impose.” BMW v. Gore, 517 U.S. at 574.
In Campbell, the Supreme Court explained at length the special concern that the Due Process Clause places on notice and other procedural protections when gross negligence and punitive damages are at issue:
Although these awards serve the same purposes as criminal penalties, defendants subjected to punitive damages in civil cases have not been accorded the protections applicable in a criminal proceeding. This increases our concerns over the imprecise manner in which punitive damages systems are administered. We have admonished that “[p]unitive damages pose an acute danger of arbitrary deprivation of property. Jury instructions typically leave the jury with wide discretion in choosing amounts, and the presentation of evidence of a defendant’s net worth creates the potential that juries will use their verdicts to express biases against big businesses, particularly those without strong local presences.”
Campbell, 538 U.S. at 417 (quoting Honda Motor Co. v. Oberg, 512 U.S. 415, 432 (1994)).
In the Honda case, the Supreme Court struck down Oregon’s constitutional amendment that prohibited judicial review of the size of a punitive damages award. See Honda v. Oberg, 512 U.S. at 430 (“Oregon’s abrogation of a well-established common-law protection against arbitrary deprivations of property raises a presumption that its procedures violate the Due Process Clause.”).
In contrast to this vigilant protection of notice rights and other procedural protections in the context of gross negligence and punitive damages, Texas requires only minimal notice pleading for an award of actual damages. See TEX. R. CIV. P. 47(a).
IV. Demonstrable Benefit of Bifurcation: Leveraging Texas Supreme Court’s Major Concerns Regarding Punitive Damages to Create a Window to Settle.
Because of the appellate issues, a bifurcated trial also increases the possibility of a favorable settlement. This is particularly true if the plaintiff inadvertently helps the defendant create jurisprudentially important issues for appeal by aggressively seeking to introduce prejudicial evidence in the liability phase of a bifurcated trial.
As discussed above, the Texas Legislature and the Supreme Court have conveyed something of a deep skepticism towards awards of punitive damages – and Texas courts thus can be expected to be very protective of bifurcation and other tools designed to protect defendants in cases involving punitive damages.
In non-bifurcated gross negligence cases, the common wisdom about the timing of settlement efforts is that it is not smart to attempt settlement after the plaintiff wins big and defendant dramatically loses the liability and actual damages phase of a trial. Settling at this point is often prohibitively expensive, for the obvious reason that a victorious plaintiff may take the opportunity to charge an extravagant settlement premium for having won a gross negligence verdict and an award of punitive damages.
In a bifurcated gross negligence trial, however, the benefits of settling can be sought at any point after it becomes clear that the bifurcation of the case has focused the trial on controversial evidence or tactics that can be the basis for a potentially meritorious and protracted appeal.
For example, the trial judge could have admitted prejudicial evidence in a bifurcated trial about culpability in the liability phase of the trial in violation of TEX. CIV. PRAC. & REM. CODE §§ 41.011(a) or (b). Or the trial court could have admitted completely impermissible reprehensibility evidence in the punitive phase of the trial, in violation of defendants’ due process rights. See Campbell, 538 U.S. at 420-22 (prohibiting evidence of out-of-state conduct that was lawful where it occurred to prove reprehensibility); id. at 422-23 (prohibiting evidence of a defendant’s “dissimilar acts” to prove reprehensibility because a defendant should not be punished for “being an unsavory individual or business”).
Importantly, the error does not need to be evidentiary to be jurisprudentially important on appeal. It could relate to jury instructions or a whole host of other procedural issues. See, e.g., id. at 422
(“A jury must be instructed, furthermore, that it may not use evidence of out-of-state conduct to punish a defendant for action that was lawful in the jurisdiction where it occurred.”).
By itself, the punitive phase of the trial can create significant reversible error on appeal, and assertive appellate counsel for the defense can pointedly force the issue. For example, defense counsel may creatively attempt to mitigate punitive damages by providing evidence that a punitive damages award will limit the company’s safety initiatives or its historical charitable work – or would result in layoffs. Of course, a plaintiff could always object to the admission of that evidence as irrelevant. Cf. Guerra, 348 S.W.3d at 237-38 (holding that similar evidence of how a plaintiff would charitably spend a punitive windfall was irrelevant and “not admissible”). But its exclusion would nevertheless create a jurisprudentially important issue for appeal.
Because the hostility of Texas to punitive damages is so well documented and so well known, the reaction of a Texas-based plaintiff’s trial lawyer may be surprisingly cautious and open to settlement – even immediately after a victory in the liability phase of a trial.
The thoughtful plaintiff’s trial lawyer may want to preserve his trial victory from a high probability of appellate reversal on the gross negligence and punitive damage issues. Additionally, any plaintiff’s lawyer and his client will be interested in avoiding the protracted delays inherent in a solid, jurisprudentially important appeal.
In fact, the headlines confirm that both plaintiffs and defendants are often willing to settle bifurcated cases to avoid appeals, even immediately after defendants lose the liability phase of a trial. In January 2025, CNN settled a high-profile defamation case after the jury returned a $5 million damages award and right before the jury began deliberating about punitive damages. See Jacob Gershman & Isabella Simonetti, “CNN Settles Defamation Suit Filed by Security Consultant, THE WALL STREET JOURNAL, p.B9 (Jan. 18-19, 2025). The plaintiff’s attorney was quoted as saying that the plaintiff settled “to avoid protracted appeals ….” Id.
Given that both sides always have reasons to settle, a bifurcated trial creates an additional opportunity to do so that may otherwise be lost if the case is not bifurcated.
V. Conclusion.
Just because the bifurcation of gross negligence and punitive damages has mostly gone unused and unappreciated over the last 40 years, based largely on a misleading history of its parentage, it does not follow that the dramatic positive effects of bifurcation need to remain unpursued and unrealized. The defense bar should instead re-consider and then aggressively employ bifurcation. Its many advantages – zero punitive damage awards, the raising of jurisprudentially important appellate issues, and the attendant significant incentives for settlement pre-appeal and even pretrial, should instead be actively pursued. Both sides of the bar, the administration of justice, and most importantly the best interests of the respective litigants, can all greatly benefit by the active pursuit of bifurcation’s many benefits.
[1] The article was accessed online at https://www.advocatemagazine.com/article/2019-october/don-t-letphase-two-faze-you.
[2] One federal court asserted that most or all federal courts (at least in Section 1983 cases) exclude prior bad acts even when considering punitive damages. Montoya v. Shelden, 898 F. Supp. 2d 1279, 1299 (D.N.M. 2012) (citing cases).
