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Punitive damages

I ran into Rich Haber right after he won his client a $46.6 million jury award last week.  Rich is a good guy and a great lawyer (like he wins the biggest award in Ohio history, and you need me to tell you that), but he readily acknowledged he's got some ways to go before collecting.  He's right, especially with regard to the punitive damages -- $43.1 million out of that $46.6 million.  How much he collects could depend on what happens when the Widow Williams and Phillip Morris square off in the Supreme Court for the third time next year.

The subject of punitive damages, of course, remains the poster child of the tort reform movement, with advocates of reform even coming up with phrases like "the in terrorem aspect of punitive damages," as though the whole concept had been devised by Osama bin Laden.  While the claims of "runaway verdicts" doesn't have much in the way of empirical evidence to back it up -- studies of verdicts have shown that punitive damage awards have actually decreased, both in percent of cases in which they were awarded and amount of award, over the past decade or so -- this hasn't slowed down the efforts to regulate them.  Earlier this year, the Ohio Supreme Court upheld the new statutes capping punitives at no more than twice compensatory damages in personal injury cases.

But the US Supreme Court has gotten into the act, too.  Back in 1996, an Alabama jury had rendered a verdict against BMW for $4,004,000.  Seems a doctor had bought a car which had suffered some hail damage; BMW had repainted the car, but didn't tell the doctor about it.  The $4,000 represented the jury's assessment of compensatory damages; the $4 million was what they tacked on for punitives.  In BMW v. Gore, the Court tossed out the latter award, finding that the 14th Amendment's substantive due process clause "prohibits a State from imposing a grossly excessive punishment on a tortfeasor," and that a 500-1 ratio (the state supreme court had halved the punitive award) made the grade, given the minor damage suffered.  The Court established three "guideposts" for the consideration of punitive damage awards:

(1) the degree of reprehensibility of the defendant's misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.

The Court next confronted the issue seven years later in State Farm v. Campbell.  Campbell was the defendant in an auto accident which had resulted in the death of one plaintiff and the disability of a second.  He was insured by State Farm, and despite fairly clear evidence that he was at fault, they refused to settle for the $50,000 policy limits.  Oops.  The jury awarded $189,000, which State Farm refused to appeal, their lawyers helpfully telling Campbell, "'You may want to put for sale signs on your property to get things moving."  Although the company paid the full verdict after the appeal was over, Campbell assigned his bad faith claim against State Farm to the plaintiffs, and a jury hit up State Farm for $2.6 million in compensatory damages and $145 million in punitives.  The trial court reduced those to $1 million and $25 million, respectively, but the state supreme court reinstated the full punitive damage award. 

Applying the Gore factors, the Court held that "this is not a close case," and reversed again, finding most objectionable that the state courts had allowed evidence of State Farm's conduct over the past twenty years, across the nation, to factor into the verdict; the Court held that "the conduct that harmed [the plaintiffs] is the only conduct relevant to the reprehensibility analysis."  Most ominous, though, was this language:

We decline again to impose a bright-line ratio which a punitive damages award cannot exceed. Our jurisprudence and the principles it has now established demonstrate, however, that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.

And that's exactly where the Court wound up two weeks ago in Exxon v. Baker.  The case involved the Exxon Valdez spill back in 1989; subsequent litigation saw an award of $500 million in compensatory damages, and $5 billion -- subsequently reduced to $2.5 billion on appeal -- in punitives.  The Court decided that, in maritime cases, a 1:1 ratio was appropriate, and reduced the punitive award to $500 million as well.  As noted, that applies only in maritime cases, but there's some language in the opinion indicating a willingness to extend that beyond admiralty law: 

"When compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee."

So what's all this have to do with the Widow Williams?  Back in 1996, her husband died of lung cancer.  She sued Phillip Morris for fruad, claiming that their ads made cigarettes seem less dangerous, and three years later an Oregon jury awarded her $820,000 in compensatory damages and $80 million in punitives.  The trial court reduced the latter award by more than half, but the Oregon supreme court reinstated the full figure, saying that the tobacco company's conduct had been especially reprehensible.  The Supreme Court vacated the award back in 2005 and told the Oregon courts to reconsider the award in light of Gore. 

They did, and came up with the same number.  Off everybody went to the Court again, and last year, the Court vacated the award once more, this time holding that it was impermissible to consider the harm to non-parties in deciding what punitive damages should be.  (I blogged about the result here, and wrote a particularly snarky post about the whole subject here.) 

So what happens?  The Oregon Supreme Court affirms the award again, this time on the grounds that Phillip Morris waived their right to object the award by filing proposed jury instructions that didn't correctly state Oregon law.  So earlier this year, the US Supreme Court again granted certiorari in the case.

Phillip Morris had presented two issues:  whether the state procedural bar could be applied at this point, and whether an award of punitive damages 97 times greater than the compensatory damages complied with due process.  The Supreme Court granted cert only as to the first issue, but as anybody knows, the Court can pretty much do whatever it wants.  (Cert was granted in Mapp v. Ohio on the question of whether someone could privately possess obscenity; once the case got there, the Court decided to use it as a vehicle for extending the 4th Amendment's exclusionary rule to the states.)  Given the frequency with which this issue has been before the Court over the past ten years or so, I wouldn't be surprised if the Court uses it as a vehicle to settle the ratio question once and for all.  And we won't even get into the possibility that the gang down in Columbus might decide that there's an due process aspect under the Ohio constitution to punitive damages.

So Rich, with a 14:1 ratio, might not want to spend all that money just yet.  Then again, I don't see food stamps in his future, either.  Worrying that my award might get cut all the way down to $8.2 million is the kind of trouble that I'd think most of us would welcome.

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