New Supreme Court Punitive Damages Case:

As SCOTUSblog reports, the Supreme Court has agreed to hear a very interesting and important new case on constitutional limits to punitive damages:

The Court said it would rule on two issues raised in Philip Morris USA v. Williams (05-1256). The first: if a court finds that a company's misconduct was outrageous, does that override the constitutional limit that holds punitive damages closely to the actual harm done -- the so-called "ratio" issue. [EV Note: This refers to the rule that punitive damages may not be more than some relatively small, likely single-digit, multiple of the actual harm.] The second is whether the Constitution forbids juries to provide damages to punish a company for the effects of its conduct on others, not directly before the court....

The case involves two rulings by the Oregon Supreme Court -- one decided after the Supreme Court had ordered the state tribunal to reconsider its earlier ruling in the wake of constitutional standards laid down by the Justices in their 2003 decision in State Farm v. Campbell. In both of its decisions, the Oregon court upheld a $79.5 million punitive damages award to a woman whose husband had died of lung cancer. The punitive award far exceeded the $521,485.40 ordered in compensatory damages. The widow's lawsuit was a wide-ranging attack on 50 years of Philip Morris' conduct in marketing cigarettes, and the Oregon court ruled that the punitive damages could be based in part upon injuries it found had been done to many Oregon smokers, not involved in the case.

The company's appeal said that each of the issues raised in the case arises regularly in punitive damages cases, and those questions have resulted in widely varying lower court rulings....

I should note that the firm with which I'm now affiliated (on a part-part-part-time basis), Mayer Brown Rowe & Maw, represents the tobacco company here. One of the reasons I joined Mayer is that they get involved in important, interesting, high-level cases like this one; congratulations to them on getting a certiorari grant.

I should also note that, when I blog about cases that I know Mayer is involved in (whether or not I am personally involved), I'll disclose the involvement (much as other bloggers, especially the SCOTUSblog bloggers, have done).

cfw (mail):
Seems like a good case for Roberts et al. to use as a vehicle for requiring single digit proportionality based on the proven injuries to the persons before the court.

Finding the right legal peg might be troubling. I suppose it amounts to a denial of due process to have a de facto class action with no means of having the $79 million shared by the de facto class (of Oregon smokers hurt by PM fraud, or their successors). Also, PM is denied the right to res judicata, collateral estoppel, and to confront witnesses against it.

The single digit proportionality requirement is hard to find in my US Const, but is probably defensible by Roberts, et al. based on stare decisis ideas.

I have a hard time seeing PM denied all relief by the USSCT, though PM is an odious client (or at least it engaged in odious conduct).

Too bad for the anti-trial-lawyer crowd that PM was not a bank, brokerage, oil company, automaker, etc.

Presumably Ted Olson will help with PM's merits briefs.

An outcome here favoring PM could help ExxonMobil in the Exxon Valdez mess, assuming that case still has live punitive damages issues. No doubt we will see some interesting amicus briefs.
5.30.2006 3:30pm
I suppose the chances of the Supreme Court abolishing this perverse and unjust doctrine are nil. . . The idea that if a rich person and a poor person suffer the same injury, the poor person's punitive damages must be lower, as a matter of law (because the economic value of a rich person is higher, and hence the "actual" damages are higher) is morally indefensible.
5.30.2006 3:42pm
logicnazi (mail) (www):
Arguably basing these large punitive damages on the harm done to *other* people is a violation of equal protection. Presumably these others members of the group have a right to similar treatment/recompense if they bring a similar action. Yet in the hypothetical situation where all of these individuals now bring suit against the tobacco companies how are they to recover the damages already paid out on their behalf to earlier plantiffs?

If this plantiff really was awarded this large award on the basis of the harm done to other individuals (and it is upheld) could later plantiffs who find themselves unable to collect from the tobacco companies (say they go bancrupt) sue this plantiff for their 'share' of the damages?

Situations like this seem very troubling for the law to handle. Certainly the tobacoo companies did wrong by covering up information on the harm of smoking but it seems many of these verdicts are motivated as much by a general feeling that tobacoo companies are evil just for selling tobacoo as actual harm. Moreover, it seems nearly impossible to create a situation where plantiffs are fairly and equitably compensated. It seems to me this is a situation which should be best dealt with by a legislative fix, i.e., the companies agree to pay a certain sum into a fund to be dispersed to victims and in return the legislature prevents suits from proceding against them.
5.30.2006 3:45pm
Tim_K (mail):
I sincerely hope that the reason that the Court has agreed to hear the case is to reexamine whether the Due Process Clause of the 14th Amendment has any relevance to the amount of punitive damages that can be awarded in a state court proceeding. Justice Scalia's dissenting opinion in BMW of North America, Inc. v. Gore (1996) should become a majority opinion.
5.30.2006 3:50pm
Richard Bellamy (mail):
Irrespective of how this case is decided, I can think of no better example of "legislating from the bench" than requiring a single digit punitive damages award.

Arbitrary cut-offs are the jobs of legislatures, not courts. It is enjoyable watching nominal Conservatives defend Phillip Morris's without position without saying "Substantive Due Process" while saying everything else to get to that same position.
5.30.2006 3:57pm
Observer (mail):
SLS1L - What would be refreshing would be for the Court to discard once and for all the thoroughly repulsive doctrine of punitive damages. Why are civil juries deciding how much to punish defendants? Punitive damages serve the same purposes as criminal fines - why don't those defendants have the rights that other defendants facing substantial fines have (e.g., proof beyond a reasonable doubt)?

I'm glad, though, to see that you believe that justice requires uniformity and even-handedness. I'm sure you'll agree that allowing juries to decide such mixed questions of law and fact as "what is reasonable behavior" undermines the principles of uniformity and even-handedness. Obviously one jury can find one set of facts to be reasonable and other might not. To make matters worse, neither jury would consider the social impact of a finding of reasonableness in any given case (e.g., whether the utility of public playgrounds outweighs the risk of harm to children). Keeping these decisions in the hands of judges would restore unformity and bring balance to public policy making. I trust you will turn your admirable idealism and energy towards restoring the role of judges as guardians of the law.
5.30.2006 3:59pm
Houston Lawyer:
You could also argue that compensating somebody for a self inflicted injury is against public policy, and that smokers should therefore never be entitled to compensation for their smoking related expenses. My constitution also doesn't contain a punitive damages clause, although I believe a due process argument is at least colorable. What we need here is congressional action.
5.30.2006 4:03pm
Richard Bellamy (mail):

My constitution also doesn't contain a punitive damages clause, although I believe a due process argument is at least colorable. What we need here is congressional action.

Exactly. Congress has all sorts of punitive damage limits in various statutes. The problem is state laws, and whether "federalism" lets Congress say how much damages can be for violations of state laws. Between the Supreme Court and Congress, Congress appears to be the better body to make the decision, but between Congress and State Legislatures I think we're going to see a lot of faint-hearted federalist turncoats, like in the Medical Marijuana, Assisted Suicide, and Federal Abortion Ban areas where the "Conservative" feds are acting to pre-empt "Liberal" state actions.
5.30.2006 4:36pm
Houston Lawyer:
Unlike Medical Marijuana, Assisted Suicide and Abortion, differing state standards with regard to tort liability directly affect interstate commerce. In the BMW case, a car manufacturer was punished in one state for actions that took place in other states. So we end up with the courts of one state affecting business practices outside of their borders.

The minority party always seems to favor federalism. That way they can have their way somewhere.
5.30.2006 4:49pm
Observer (mail):
The due process arguments against punitive damages, at least in the current setting, are quite strong. How does it comport with due process for one defendant to be punished multiple times for the same offense - which is what happens when any manufacturer is hit with punitive damages by the purchaser of one product based on the defendants' conduct in selling that product to many people over many years? That's a bit different, I think, than the old common law form of punitive damages: e.g., batterer is sued for punitive damages for intentionally hitting plaintiff, not for intentionally hitting other persons who are not before the court.
5.30.2006 4:57pm
Richard Bellamy:

In the BMW case, a car manufacturer was punished in one state for actions that took place in other states. So we end up with the courts of one state affecting business practices outside of their borders.

Yes, BMW stated that a state court could only look to violations within the state, and I have no problem with that. It's the later cases that sa that even those in-state punitive damages must be some proportion of actual damages. The whole POINT of punitive damages is to deter conduct even when the actual damages are small.
5.30.2006 5:12pm
Paul McKaskle (mail):
A point often overlooked is that "corporations" as corporations do not engage in outrageous activities. It is a person (or a group of people) in a corporation who do outrageous things. They do so in the name of the corporation to be sure but sometimes at a time when the activity was not regarded as outrageous and often years if not decades before the "outrageous" activity has manifested itself by causing injury. The individuals who do the "outrageous" acts are rarely sued, and in any event, at least some of them have very shallow pockets, and in some instances they may be long gone from the corporation when the suit is filed. As an example, when Ford Motor Company was sued because of "defective" fuel tank placement on Pintos, Lee Iacocca, the person who had authorized the particular placement (which was cheaper than some other alternatives, and Ford was trying to build a car which would compete with the growing incursion in the marketplace by inexpensive Japanese imports) had long before departed Ford and was President of rival Chrysler. The Ford shareholders were left holding the bag on punitive damages and presumably Chrysler was benefitted by a weakened Ford rival.

IF the purpose of punitives is to deter outrageous conduct, then they should be assessed against the individuals who actually engaged in the conduct, not against shareholders who had no say in the decisions leading to the conduct. Of course that would reduce the amount of collectible punitive damages awards, both because the individuals would have much less money (though I imagine Lee Iaccoca could have paid a substantial amount had he been sued for the Pinto's defects) and because a jury is much less likely to find conduct outrageous when it is an individual who is being sued (unless the conduct is, in fact, outrageous) as opposed to a faceless large corporation where the conduct may have been merely imprudent or negligent, but far short of outrageous.

I don't mean to suggest that corporations should not be held liable for compensatory damages caused by their agents. That is something which very much should be a corporate responsibility under ordinary "respondeat superior" rules. But punitive damages are not for compensation, but to penalize someone who has done bad things which caused injury--and though employees of a corporation may do sufficiently bad things to warrant such a punishment, the corporation itself (and its shareholders) haven't engaged in such activities. Further, if the individual who does the bad things doesn't experience any adverse consequences, then the punitive damages haven't really served any purpose (except as a lottery for plaintiffs and a pay-day for their attorneys).

The Philip Morris case is probably the worst situation in which to point out the incongruity of assessing punitive damages against corporations. Certainly any current shareholder of Philip Morris knows that there is a risk of huge judgments against it, compensatory and punitive, because of the nature of the products and the length of time their bad effects have been known. But there are a lot of situations where the shareholder is unaware of potentially bad conduct. I suspect that a majority of Exxon shares are held by pension plans (public and private), mutual funds (especially index funds) and in 401k plans. Whatever punitive damages are ultimately paid because of the Valdez disaster comes out of their pockets, not the pockets of persons who decided to hire a captain who had been an alcoholic (though if he appeared to be a recovered alcoholic, that couldn't be held against him in making a hiring decision under the ADA) or to operate a single hulled tanker.

I realize this doesn't address the problem of the constitutional limits on punitive damages, but it is still a factor which needs to be kept in mind in my opinion. Further, until forty or fifty years ago punitive damage judgments (except in defamation cases where actual damages are extremely hard to measure) were extremely rare and the amounts awarded were generally very small. Thus, whether there were constitutional limits was not something which needed exploration.

One final, somewhat related, thought. What happens to cigarette smoking if punitive damage awards drives all of the cigarette companies into bankruptcy. All smokers simply stop smoking? (Also, what happens to the not inconsiderable taxes most states collect on cigarettes?)
5.30.2006 5:39pm
Bruce Hayden (mail) (www):
I am troubled by this sort of case for some of the reasons above. What happens if someone else files and wins an identical case. Are the courts going to say, "well, we have already assessed PM $79 million for that, so tough", or are they going to assess the same damages again, and again, and again - resulting, ultimately, in something akin to what the complaint in the BMW case was.

Besides, I still don't understand the justification for paying one plaintiff out of the presumably tens of thousands involved the punitive damages. Why him? Why make him a very rich man (less, of course, the contingency based legal fees)? Is it really that good from a public policy point of view to have a race to the courthouse like this?
5.30.2006 6:25pm
Ken Arromdee (mail):
Besides, I still don't understand the justification for paying one plaintiff out of the presumably tens of thousands involved the punitive damages. Why him?

If the plaintiff doesn't receive the punitive damages, he has little incentive to make the case for punitive damages in the first place.
5.30.2006 6:35pm
Christopher Cooke:

IF the purpose of punitives is to deter outrageous conduct, then they should be assessed against the individuals who actually engaged in the conduct, not against shareholders who had no say in the decisions leading to the conduct

Two quick points in response:
1. under your argument, corporations should never be indicted or punished for any of management's actions. This is not a great way to ensure that shareholders hold management accountable for the messes that management creates.

2. presumably, the shareholders benefit from the actions of management (if motivated by profit), so requiring shareholders to pay for management's misdeeds may have a "rough" measure of justice. Thus, in the Ford Pinto example, Ford presumably sold more Pintos due to a price that was lowered by the placement of the fuel tank in a location that was cheaper to manafucture (albeit more dangerous for Pinto drivers), and earned higher profits per car and overall, as a result. So requiring Ford's shareholders to pay for that decision is not necessarily inequitable. The bigger problem with shareholders having to pay for such misconduct is that we are likely talking about different groups of shareholders: the shareholders who owned Ford's stock during the manufacture and sell of the allegedly defective Pinto are not the same group as those who held the stock at the time of the punitive damages award.

As far as management escaping from liability, in your example, Ford's board could have authorized Ford to sue Iacocca for indemnity, for harm he caused to the corporation and its shareholders that resulted in these lawsuits. Don't hold your breathe waiting for that type of lawsuit to happen, however (a board truly trying to hold management financially accountable is a rare thing, indeed).

The biggest problems with punitive damages is the arbitrary nature of the awards, and the fact that the plaintiff gets a windfall. If I were the Emperor-God of the US, I would limit punitive damages to a 3-to-1 ratio of the compensatory damages and only authorize Judges to impose them, not juries. But, my criticisms do not make them unconstitutional, so I am curious to see what the Supremes do.

Also, what happens to the not inconsiderable taxes most states collect on cigarettes?

Yes, by all means, we must preserve that tax revenue, so let's pray the Supremes come down in favor of PM. I don't think, in all seriousness, this is relevant to the legal issues at hand.
5.30.2006 6:37pm
te (mail):
Yes, this case will provide an excellent vehicle for Roberts et al. to further screw people who have been injured or who have had family members killed by Phillip Morris over the years.

The idea that people should be able to recover more than 9 times their actual damages from a defendant - regardless of how evil the defendant is - is apalling.
5.30.2006 9:51pm
Bored Lawyer:
"Also, what happens to the not inconsiderable taxes most states collect on cigarettes? "

This may be irrelevant to the current suit, but it was surely highly relevant to the prior litigations brought by state AG's against the tobacco companies resulting in huge settlements. The theory was that tobacco sales caused more people to be sick with tobacco-related illnesses thus increasing the Medicare and other health-related costs.

On that theory, should not the abundant state revenues from tobacco taxes have been offset against any damages?
5.30.2006 10:48pm
Paul McKaskle (mail):
Christopher Cooke: I agree that a corporation must pay whatever compensatory damages are caused by the wrongful acts of its management (and lesser employees as well) and this will penalize "innocent" shareholders. Punitives are a form of punishment and I think on that basis, are distinguishable. In reality shareholders have little incentive and no ability to "supervise" management and hold them accountable for careless behavior. The only practical course for a shareholder is to sell if he or she detects managerial malfeasance, and of course, as you noted, it may be years after the fact that the malfeasance becomes known.

As to recouping corporate losses by an indemnity action against the individuals responsible. the corporation will have to convince a jury that the individuals had acted in a manner that deserved punitive damages. The individuals are not bound by the result of the prior action, and it is a lot harder to convince a jury that a particular person (especially if the activity had involved a chain of command) did something so terrible as to merit an award of punitive damages. It is much easier for a jury to assess punitive damages against a soul-less corporation. Further, in many if not most cases the individual would likely be close to judgment proof making an indemnity action fruitless even if it is otherwise a promising suit.

Finally, I quite agree that loss of tax revenue from cigarette sales has any constitutional relevance, but it has practical relevance if tobacco corporations are all driven into bankruptcy because of repeated high punitive damage awards. The now overturned punitive damage verdict in the Florida case would have done just that. Further, no one would buy the factories at a bankruptcy sale (to continue the business) because this would simply invite further punishing punitive damage awards. So, smokers would have to go cold turkey or go to another country for a cigarette. Personally, this wouldn't bother me at all because I don't smoke, but I imagine some smokers might object to this outcome, even though they know the risks involved with smoking. But, even this probably doesn't rise to being a constitutional deprivation.
5.31.2006 12:31am
Bruce Hayden (mail) (www):
I asked: Besides, I still don't understand the justification for paying one plaintiff out of the presumably tens of thousands involved the punitive damages. Why him?
If the plaintiff doesn't receive the punitive damages, he has little incentive to make the case for punitive damages in the first place.
I think this a fairly weak argument. For one thing, you have presupposed that huge punitive damages are good, in and by themselves. And, secondly, you don't address the equity issue at all - that this one person is benefitting from the hurt done to all these other people, and that his bounty is a result of extremely fortuitous timing and attorneys. You still don't adequately answer the question of why should he be entitled to it, and not them.

I am not advocating abolishing punitive damages, though I think there are good arguments for that. Rather, I am suggesting that this sort of punitive damages, based on harm done to a whole class of people, but awarded to one, is on occasions like this grossly unjust enrichment of that one.
5.31.2006 12:17pm
Bruce Hayden (mail) (www):
I have to assume that either this plaintiff was able to opt out of the major class action suits, or is otherwise exempt from them. After all, it sure seems like that was the entire point of those suits, and the tobacco companies settling them, as they did. If plaintiffs can keep coming around, recycling the class action evidence for further punitive damage awards, then why should companies ever settle such suits.

I am, of course, receptive to more information on this subject.
5.31.2006 12:20pm
Christopher Cooke (mail):
There is no "class action" bar to any suit by an individual smoker (or by that person's estate), because the states' AGs' lawsuits were based on healthcare costs that the states incurred because of smoking, while the other suits have not been class actions at all. Indeed, it is difficult to have a nationwide class of smokers certified in this type of lawsuit because individual issues of causation are likely to predominate over class issues. I don't think any class actions have been brought successfully (through certification stage), on behalf of individual smokers, for their individual damages.

As for what the Supreme Court should do, I think it should get out of the business of legislating punitive damages ratios, because I just don't see that any legitimate constitutional issue is presented and Congress or the individual states are more than competent to act in this arena. Any purported "conservatives" who believe in the due process violation are just being hypocritical, or they represent big businesses that dislike, for understandable business reasons, punitive damages awards, and therefore are rushing to embrace the new Lochner style substantive due process that is starting to percolate in a few Supreme Court decisions.

Regarding the issue, as presented, about the propriety of taking into account the defendant's impact on others, why is it irrational, under the due process clause, for a jury to consider this conduct, in trying to decide whether the defendant has engaged in outrageous, despicable, or fraudulent behavior that it needs to punish? It is not. While I can see the policy arguments against allowing an Oregon jury to seek to "regulate" a multinational corporation's behavior occuring in other states through the assessment of punitive damages, I don't see this as posing a due process issue of any moment, unless you believe that the Court should properly establish a nationwide punitive damages law that all states must follow.

Regarding the "outrageous" or willful nature of the defendant's conduct, the California Court of Appeal upheld a very large punitive damages award against OJ Simpson, because his conduct was so outrageous. Is that decision wrong? Should the Goldman family have been limited to 5 times the compensatory damages, or 9 times? I don't see how you can say that a jury in Oregon can't be so outraged by PM's conduct, and must be limited to assessing a ratio-confined award, and yet the jury in California didn't have to be so confined in awarding punitive damages against OJ Simpson.
5.31.2006 10:21pm
The Electronic Anarchist (www):
The purpose of punitive damages is to deter calculated violations of the tort law, and this purpose is totally at odds with the Supreme Court's "single digit" standard.

To understand what I mean by "calculated violations," take this simple example: A corporation manufactures 1 million widgets that its managers know contain safety defects that will very likely kill one or two of its customers. Nevertheless, management decides to proceed with the defective design because they estimate that it would be cheaper to settle two wrongful death suits than to fix the problem.

A strident and unpredictable regime of punitive damages serves to introduce an element of uncertainty into the equation and deter this type of behavior. Those two deaths might cost the corporation much more than they bargained for! The Supreme Court, unfortunately, has now brought certainty and security to Corporate America, and made the lives of America's consumers much more hazardous.
5.31.2006 10:28pm
Christopher Cooke (mail):
there has not been any nationwide class action on behalf of smokers against the tobacco companies. Judge Weinstein's decision to certify one was overruled by the Second Circuit last year. So, there is no need to "opt out" of anything for this plaintiff.
5.31.2006 10:35pm
Paul McKaskle (mail):
On the punitive damage award against OJ Simpson, I think it was only one or two times the amount of the compensatory damage. One might quibble that the compensatory damage award was, itself, far beyond what a wrongful death award would ordinarily be (if the defendant weren't OJ and if the death was clearly accidental) thus amounted to a disguised punitive damage award, but that is a different issue. As an aside, in CA, punitive damage awards have to take into account the defendants wealth, and the trial judge allowed expert evidence that OJ would be able to earn in each future year roughly the same amount of money he had been earning in years just proceeding the trial. Thus, as far as the trial record was concerned, OJ would be earning a huge income in the future which, of course, would warrant large punitive damages. Funny, Hertz didn't offer to renew his contract after the trial if he was such a hot property. (Also, the huge award had a perverse effect on OJ, even if he could earn a huge salary. He had no incentive to do so since he couldn't retain it, and further, he had a $400,000 a year ERISA protected pension thus doesn't need to work, so the Goldman family has realized almost nothing from their judgment. Some justice!

As to the Electronic Anarchists point, under his definition virtually every product sold would be the basis of a punitive damage award. If an automobile company builds a million cars which weigh only 3000 pounds (e.g., a Ford Focus or Honda Civic) it is a virtual certainty that several people will be killed because a few of the cars will be in an accident with a much heavier vehicle. The only way to prevent this is to build a car similar to (but larger than) the H1 Hummer, with an armored fuel tank and all sorts of other safety features and at a cost upwards of $250,000. Perhaps the Sierra Club would like this since almost no one would be able or willing to afford a car and the environment would be saved, but I suspect 99% of the population would object strenuously. ANY product has some sort of cost-benefit calculation built into it, since a 100% guarantee that there will be no dangerous defects whatsoever is an impossible goal. (See Learned Hand's opinion in the Carroll Towing case.) I don't mean to suggest that at some point a carelessly made or designed product which creates a substantial risk shouldn't be subject to a lawsuit for negligence, but only that a "perfection" standard is grossly unrealistic--indeed impossible.
6.1.2006 1:32am
Robert Schwartz (mail):
I believe that the promiscuous use of punitive damages has harmed private enterprise and been a major part of the excessive judicialization of American life. I share in the discomfort of some commentors above about the Supreme Court's ability to control this phenomenon in state courts. I think Congress has ample power under the commerce clause to put this beast back in its kennel.

However, there is one area where SCOTUS could act. It seems to me that an excellent argument could be made that punitive damages are criminal penalties, and that the rules of criminal procedure should be applied when they are requested. Proof should be required beyond a reasonable doubt. Stricter rules of evidence, including the privilege against self-incrimination should also apply.

Of course these arguments must be raised by the defendant at the first instance. But now that you have entered private practice, Eugene, talk to the trial lawyers, point them in the right direction.
6.1.2006 3:17am