30 octobre, 2006 22:01

Supreme Court Revisits Punitive Damages

Marcia Coyle

The National Law Journal

10-30-2006

The U.S. Supreme Court is no stranger to challenges to punitive damages awards, but it has never faced a challenge quite like the one it will decide this term.

In Philip Morris v. Williams, No. 05-1256, the justices, for the first time, will apply their "guideposts" for judging allegedly excessive punitive awards to a case involving the death of a plaintiff -- a longtime smoker who died of lung cancer -- rather than the usual property or contract dispute. And the tobacco company defendant's conduct in not telling the public about the health risks of smoking was described by a state supreme court as so egregious that the court twice allowed a punitive damages award nearly 100 times the amount of actual damages.

The case asks the high court to review the punitive damages award for excessiveness. It also asks the justices to set forth clearly how judges and juries that are considering punitive damages are to weigh harm caused by the defendant's conduct to other smokers who were not parties to the suit.

How the court answers the nonparty question will be critical to the ability of American businesses to compete at home and abroad, say business community leaders.

The answer to that question will also be essential to the ability of states and consumers to deter conduct that harms and even kills citizens, say consumer groups and others.

And just as the numerous amicus briefs draw classic battle lines over the historic role and current value of punitive damages in litigation, the case also presents the justices with classic advocates for each side.

Representing tobacco giant Philip Morris USA Inc. is Andrew L. Frey of Chicago's Mayer, Brown, Rowe & Maw, who, with others in his firm, has been a leading architect of constitutional attacks on punitive damages awards for more than a decade. Arguing for widowed Mayola Williams is Robert S. Peck of the Center for Constitutional Litigation in Washington, a veteran civil rights attorney whose law firm specializes in access-to-courts issues.

If the two sides agree on anything, it is that this challenge has the potential to be the most important punitive damages case in the high court to date and the outcome is unpredictable.

Based on prior rulings, the justices appear to be divided, 4-3, on the basic issue of whether there are constitutional limits on the size of punitive damages. The views of the court's newest justices -- Chief Justice John G. Roberts Jr. and Justice Samuel A. Alito Jr. -- are unknown, and those views may not only determine this case's outcome but may shape the court's jurisprudence in this area for years to come.

DEMON TOBACCO

In 1999, an Oregon jury found Philip Morris liable for fraud and negligence in the lung cancer death of retired Portland schools janitor Jesse Williams, who began smoking Marlboros during the Korean War. The jury awarded the widow $821,000 in compensatory damages, which a statutory wrongful death cap reduced to $500,000.

On punitive damages, the jury was instructed, among other things, to consider "the likelihood that serious harm would arise in this state," the "defendant's awareness of that likelihood," and the "profitability of defendant's misconduct in this state." The jury then awarded $79.5 million in punitive damages, which the trial judge subsequently reduced to $32 million.

Both parties appealed. The Oregon Court of Appeals upheld the fraud finding and reinstated the $79.5 million punitive damages award. The Oregon Supreme Court denied review. Philip Morris petitioned for review in the U.S. Supreme Court, which granted certiorari, vacated the judgment and remanded the case for consideration in light of its then-recent ruling in State Farm Mutual Auto Insurance Co. v. Campbell, 538 U.S. 408 (2003).

On remand, the Oregon Court of Appeals reached the same result and the state Supreme Court affirmed. The state high court found that the punitive award did not violate due process because the company had "engaged in a massive, continuous, near-half-century scheme to defraud the plaintiff [Jesse Williams] and many others, even when Philip Morris always had reason to suspect -- and for two or more decades absolutely knew -- that the scheme was damaging the health of a very large group of Oregonians -- the smoking public -- and was killing a number of that group."

The state court said that those "extreme and outrageous circumstances," similar to the crime of manslaughter, justified the punitive award's departure from the single-digit ratio of punitive to compensatory damages -- generally 4 to 1 -- that the U.S. Supreme Court said in State Farm was the constitutional line.

Back in the U.S. Supreme Court, Philip Morris asks the justices two questions: whether the Oregon courts deprived the company of due process by allowing the jury to punish it for harms to nonparties, and whether the punitive award is unconstitutionally excessive.

Two key high court precedents are at the heart of the tobacco challenge. BMW of North America v. Gore, 517 U.S. 559 (1996), established a framework for reviewing punitive damages awards. The court said those awards should be measured against three guideposts: the reprehensibility of the defendant's conduct, the proportionality of the punitive damages award to the harm to the plaintiff, and a comparison of the punitive award to other civil or criminal penalties.

Seven years later in State Farm, the court emphasized that the single most important indicator of the reasonableness of a punitive award is the degree of reprehensibility of the defendant's conduct. The court laid out five factors to consider in measuring reprehensibility, and also held -- somewhat unclearly -- that the guidepost permits only limited consideration of out-of-state conduct by a defendant and no consideration of dissimilar conduct.

In the tobacco challenge, Mayer Brown's Frey argues that the Oregon Supreme Court -- contrary to State Farm -- expressly held that punitive damages can be awarded to punish a defendant for harm to nonparties. State Farm recognizes that the Oregon approach creates a substantial risk of multiple punitive damages awards for the same conduct, he writes in his brief, declining to comment on the case publicly at the request of Philip Morris.

"The judgment in this case will bind only the plaintiff," contends Frey. "Therefore, other Oregonians remain free to sue Philip Morris for smoking-related injuries, and to seek punitive damages for their injuries, even though the punitive award in this case may already punish for those harms. Insofar as any of those plaintiffs succeed, Philip Morris will be punished repeatedly for causing exactly the same injuries to exactly the same people."

Frey and some of the amicus briefs supporting his side argue that there is no historical precedent for permitting "collective punishment" in an individual lawsuit.

Such punishment also denies defendants due process, said Gene Schaerr of Chicago's Winston & Strawn, who authored an amicus brief supporting Philip Morris on behalf of the National Association of Manufacturers, the Business Roundtable and individual companies. "It deprives defendants of the ability to do what they would do in lawsuits where they were sued by those third parties-to say we didn't really do what you are alleging and the harm was caused by something entirely different, or to be able to do that by putting on the evidence," Schaerr explained.

REVISIONIST HISTORY

But Williams' high court counsel, Peck, and her supporters counter that the traditional, historical purpose behind punitive damages has always been a societal interest. The Oregon Supreme Court, he said, specifically addressed the state's interest in protecting its economy and citizens from fraudulent, profitable misconduct.

"Oregon opted for something they call a total deterrence effect," said Peck. "If you believe what State Farm and everything before it said about how states have the right in this inquiry to consider the state's interest, then I think this case is a challenge to that."

Some states, he said, have decided against allowing punitive damages and others have capped the awards at a specific amount or a multiple of compensatory damages.

"But others, like Oregon, decided this is an important part of their law enforcement scheme and specifically require juries to be instructed on the conduct's profitability and the deterrent effect," he said.

If Philip Morris had its way, added Peck, that could no longer be a proper state consideration. "They are asking that all punitive damages be viewed in terms of the individual injury, and where a company engages in egregious conduct, the state will be unable to deter that conduct."

A 'NEW LINE'?

Arthur Bryant of Trial Lawyers for Public Justice, who filed an amicus brief supporting Williams, agreed, adding, "I know that some corporate defendants are hoping the court will use this as an example to draw a new line about harm to other victims. But I will be surprised if the court reaches out to do that in a case where the defendant hasn't been held accountable for the harm it is plainly inflicting on those other victims and where courts have held those defendants have abused the legal process and hidden the truth to avoid accountability."

Frey argues that harm to others, just as in other civil and criminal cases, may be relevant to show the reprehensibility of the specific conduct at issue and may support a higher penalty but within a confined range.

Here, he contends, the Oregon Supreme Court "jettisoned" the second guidepost -- the proportionality of the punitive and compensatory awards -- by finding that reprehensibility and comparable criminal sanctions override the concern that may arise from a double-digit ratio.

"Thus, the court effectively held that, where the evidence permits a finding of extreme reprehensibility, the defendant forfeits the right to proportionate punishment," he argues.

Under "long-established practice" and the court's precedents, he contends, when compensatory damages are substantial --as here -- the constitutional maximum punishment is between zero and four times the compensatory damages.

For Philip Morris and the business community, proportionality with respect to compensatory damages is the "be-all and end-all," countered Peck, adding that they are asking the justices to treat review of punitive awards as a "simple arithmetic exercise," which the court has always refused to do.

The U.S. Supreme Court has said reprehensibility of the conduct is the primary consideration, noted Peck, adding that Philip Morris' conduct falls within nearly all five factors for reprehensibility announced in State Farm and that justifies exceeding a single-digit ratio for the punitive award.

The Supreme Court has never dealt with egregious conduct causing death and serious injury nationwide "of anywhere near this magnitude with a defendant that's essentially avoided accountability in any punitive damages case," Bryant said.

"So the most important aspect of this case is: It will really force the court to decide how and whether the constitutional limits it has articulated in primarily property damage and much smaller cases apply in a case like this," he added. "That is the real heart of this controversy."