pageok
pageok
pageok
Pro-Business Lawyering and Punitive Damages:

Jeff Rosen's New York Times Magazine article on the Supreme Court and business reports, among other things, on Ted Olson's work with getting the Court to review punitive damages awards. ("According to his peers in the elite Supreme Court bar, he more than anyone else is responsible for transforming the approach to one of the most important legal concerns of the American business community: punitive damages awarded to the victims of corporate negligence.") I'm a great admirer of Olson's generally. Olson did argue the first such recent case, Bankers Life & Cas. Co. v. Crenshaw (1988), though the Court there held that all the constitutional claims other than the equal protection had been waived below. And Olson has worked a great deal to promote the anti-punitive-damages claim in public debate.

Nonetheless, at the Supreme Court most of the punitive damages work has come from other lawyers — and, more than any other lawyer, from my Mayer Brown colleague Andrew Frey (I consult for Mayer on a part-part-part-time basis). Andrew argued four such cases: Browning-Ferris Industries v. Kelco Disposal (1989), Honda Motor Co., Ltd. v. Oberg (1994), BMW v. Gore (1996), and Philip Morris USA v. Williams (2007). The last three of these he won.

There were, of course, other cases argued by other lawyers -- besides Olson in Bankers Life, Bruce Beckman argued to limit punitive damages in Pacific Mutual Life Ins. v. Haslip (1991), Sidley's Carter Phillips argued TXO Production v. Alliance Resources (1993), Howrey Simon's William Bradford Reynolds argued Cooper Industries v. Leatherman Tool Group (2001), and Skadden's Sheila Birnbaum argued State Farm v. Campbell (2003). But Frey, I think, is the one who stands out in the sheer number of cases he has argued -- nearly half of all the Court's recent constitutional punitive damages cases -- as well as is the number of his victories. I've got to say that it's pretty cool to work with people like that (though it would surely be cool to work with Ted Olson, too!).

I also thought I'd note that, excellent as Solicitor General Rex Lee was, my colleague Stephen Shapiro -- in league with Paul Bator, one of Mayer's earliest academic affiliates -- was doing business law Supreme Court cases from 1983, the year he left his Deputy Solicitor General.

Disclosure (beyond the above): I worked a very little bit on the briefing in the Philip Morris case.

PersonFromPorlock:
Why not just have the government seize all punitive damage awards? The 'punishment' works the same and you get rid of the reason for exploitative lawsuits.
3.20.2008 8:40pm
Cornellian (mail):
I think some states do have confiscatory tax rates for punitive damage awards - something in the range of 90%.

I'm not sure even a 100% rate would necessarily get rid of frivolous lawsuits claiming punitive damages though. The threat of such an award is an equally strong tool for extracting a settlement regardless of who might end up getting the award.
3.20.2008 8:54pm
Jamessadfasdfasfd:
Person: I see the appeal in your reasoning. But the underlying constitutional problem is not the numerous exploitative lawsuits. Rather, the problem is the magnitude of the punishment. If the punishment itself is unconstitutional, the court cannot cure the defect by awarding the money to the U.S. fisc.
3.20.2008 8:55pm
BRM:
If punitive damages are intended to deter socially unacceptable conduct, then the awards should be excessively high in order to make it almost impossible to put an ex ante cost on such behavior. That way, corporations (and other actors) won't be able to perform a cost benefit analysis as easily, and thus will be more likely to simply avoid such conduct altogether rather than figuring out when such behavior is "efficient."
3.20.2008 9:10pm
hattio1:
BRM has it exactly right. As soon as you put a cap on punitives, it becomes possible for the companies to engage in number-crunching to the detriment of their customers.
3.20.2008 9:21pm
Cornellian (mail):
So we should have a penalty for speeding ranging from a $100 fine to life in prison, to be determined on a case by case basis, in order to deter people from doing a cost benefit analysis before deciding whether to exceed the speed limit?
3.20.2008 9:25pm
Connecticut Lawyer (mail):
BRM,

What a great idea! We should expand that principle to the criminal law, too, which, after all, is the primary tool society has for deterring harmful conduct. How about the death penalty for price fixing? Or forfeiture of all assets for each count of selling adulterated food products? Why not tarring and feathering for flogging penny stocks? If that's not enough of a deterrent, why not cut off their hands? Any surely spelling out the penalty in advance would be a mistake - that just lets the miscreatns calculate whether the gain is worth the pain. Keep them guessing, that's the ticket, "Gee, I could go to jail for three years or maybe they'll put my eyes out - who knows, it just depends on how mad the jury is?" I think you're on to something!
3.20.2008 9:33pm
BRM:
We regulate speeding to reduce the risk of major accidents. Excessive penalties (like punitive damages) shouldn't be imposed for acts that increase the risk of injury, but only for acts that actually result in major injury. If one speeds and causes multiple vehicular deaths as a result, one will certainly be open to liability much higher than $100. The penalty for speedng is both the fine and the risk of being subject to much more severe liability if the increased risk actually translates into the harm that speed limits were intended to reduce.
3.20.2008 9:34pm
BRM:
Apparently it is straw man season...

I'll heed the advice of xckd and avoid spending my evening arguing on the internet.
3.20.2008 9:47pm
eric (mail):
While I am usually to the right on legal issues, punitive damagers limitations bother me a great deal, especially caps on punitive damages.

Punitive damage caps are generally a windfall to insurance companies. They have charged premiums to insure against jury verdicts for years, and then the rules are changed to their favor by capping punitives. This would be analogous to my paying homeowners insurance and then the government capping the amount that I can claim my bathroom is worth to $5000.

Not only that, punitive caps punish the most badly injured the most, since they are the ones who would have the actual damages to establish a basis for punitives. Everyone seems to agree that these numbers are related.

I have also read that punitive caps do not lower the average (or perhaps it was median) jury award because the jury is more likely to just award the cap. The cap become a de facto judicial suggestions of punitives.

And all this because trial lawyers give so much money to democrats.
3.20.2008 10:02pm
PersonFromPorlock:
What I said. Don't cap 'em, let 'em go as high as the jury sees fit. But let the government seize the money to keep awards from being 'profitable' (as opposed to simply offsetting the plaintiff's loss) and most of the rationale for frivolous lawsuits disappears.
3.20.2008 10:20pm
Geoff Parmer (mail):
The reason that attorneys are willing to represent penniless clients against huge corporations often turns on the prospect of recovering punitive damages, particularly when actual damages are minimal. Eugene deceptively couches his praise of these bold litigators in the context of dealing with "punitive damages awarded to the victims of corporate negligence" when we all know that negligence alone will not, in virtually every state, support an award of punitive damages. So sure, let's mandate that punitive damages awards go to state coffers. Then, not only will victims of deliberate corporate misconduct be denied access to the courts, but also, in the event they do recover punitive damamges, the money can be wasted on such projects as tax incentives to corporations. Bravo.
3.20.2008 10:36pm
MDJD2B (mail):

What I said. Don't cap 'em, let 'em go as high as the jury sees fit. But let the government seize the money to keep awards from being 'profitable' (as opposed to simply offsetting the plaintiff's loss) and most of the rationale for frivolous lawsuits disappears.

Except for plaintiff being able to use the thresat of a jury awarding punitive damages to negotiate a higher setlement than is warranted by compensatory damages.
3.20.2008 11:07pm
Dave G:
Punitive damage caps are generally a windfall to insurance companies. They have charged premiums to insure against jury verdicts for years, and then the rules are changed to their favor by capping punitives. This would be analogous to my paying homeowners insurance and then the government capping the amount that I can claim my bathroom is worth to $5000.

Were you paying enough in that case to make it worthwhile, the thing to do at that point would be to immediately call up your insurance company and renegotiate your premiums, under threat of changing companies. Presumably the sort of industries that need insurance against large punitive damage awards do just that. Hard as it is for most folk to believe, there are very few industries more ruthlessly competitive than insurance, and windfalls like you are describing swiftly get competed away.
3.21.2008 12:05am
alias:
I had the same thought when I read the article. Andy Frey and Evan Tager were at the head of the movement to constitutionalize punitive damages, I thought. IIRC, those 2 were on several amicus briefs in the cases that they didn't argue.
3.21.2008 1:08am
Allan (mail):
Is the Supreme Court is engaging in judicial activism by limiting punitive damages?
3.21.2008 11:15am
NYTwin81:
Allan: I think so. If memory serves, these decisions have been based on the substantive due process doctrine. That's why Justices Thomas and Scalia were in dissent on the most recent case that capped punitive damages in a certain context. I think punitive damages can sometimes be excessive, but I also think that the Constitution is clearly silent on the issue. Let's try to avoid Lochner/Roe v. Wade territory, shall we?
3.21.2008 11:28am
David M. Nieporent (www):
I think punitive damages can sometimes be excessive, but I also think that the Constitution is clearly silent on the issue.
Well, it does say, "nor excessive fines imposed," but for some reason the courts have decided that punitive damages aren't fines, even though they walk like fines and quack like fines.

So instead they invent a due process argument.
3.21.2008 12:04pm
guest:
IMO the more interesting argument is the preemption of product liability claims. The article seems to suggest that the idea is radical but I dont really think so. It never made sense to me how a drug could go through the extensive FDA process to gain approval but later be determined unsafe by a jury or judges with no scientific background. If we are going to restrict the flow of drugs to the market with stringent regulations (which I think is a good idea) once a drug is approved the drug company should not have to worry about defective product claims. If problems are later discovered the medical community can stop prescribing the drugs to prevent future injuries.
3.21.2008 2:21pm
eric (mail):

Were you paying enough in that case to make it worthwhile, the thing to do at that point would be to immediately call up your insurance company and renegotiate your premiums, under threat of changing companies. Presumably the sort of industries that need insurance against large punitive damage awards do just that. Hard as it is for most folk to believe, there are very few industries more ruthlessly competitive than insurance, and windfalls like you are describing swiftly get competed away.


I have no doubt that the insurance premiums would go down in the future, if punitives really make up a significant portion of the insurance risk (I am not sure that this is true).

But do you think the insurance company is going to refund you the premiums you have already paid? I don't think so.

I agree that insurance in generally a competitive industry, but that makes such profits increases by legislation even more attractive. When you cannot compete your way to profits, why not just politic for some?
3.21.2008 2:47pm
J. F. Thomas (mail):
It never made sense to me how a drug could go through the extensive FDA process to gain approval but later be determined unsafe by a jury or judges with no scientific background.

You are presuming that the FDA process ensures safety. It does not. It only requires a limited showing of safety and effectiveness. And there have been many instances where drugs and devices have been shown to be harmful after FDA approval.

If FDA approval carried with it a guarantee against liability, the drug companies could be even more reckless in marketing drugs than they are now.
3.21.2008 4:11pm
J. F. Thomas (mail):
I have no doubt that the insurance premiums would go down in the future, if punitives really make up a significant portion of the insurance risk (I am not sure that this is true).

I don't know why people continue to believe such nonsense. Insurance rates (except for payouts caused by large natural disasters) are most affected by the investment portfolios of the Insurance companies, not by their claims. Look at the stock and bond markets if you want to track insurance rates, not how much a company had to pay out in claims any one year.
3.21.2008 4:25pm
David M. Nieporent (www):
Insurance rates (except for payouts caused by large natural disasters) are most affected by the investment portfolios of the Insurance companies, not by their claims.
I know you're a left-wing hack, but even you can't believe this trial lawyer propaganda, which makes absolutely no economic sense.
3.22.2008 12:07am
Allan (mail):
I know it is socialist propaganda... But, if there was national health care, perhaps the result would be lower premiums and there would be fewer malpractice claims. Similarly, there would be fewer negligence actions.

There are many people out there who are injured by causes not of their own doing. We may not know what the causes are, but they glom on to companies with the money.

Perhaps we should just pay their medical bills (and everyone else's) and have the government (the ones paying the bills) go after those who caused the damage.
3.22.2008 1:59am
markm (mail):
I think punitive damages should be awarded only if the plaintiffs are willing to sue under the rules of criminal law - that is, they must prove their case beyond a reasonable doubt, including mens rea. Secondly, when punitive damages are awarded for a policy that presumably harmed others than just the plaintiffs, they should be kept in trust until all the others have been compensated.
3.22.2008 9:17am