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The Supreme Court's Decision to Overturn a $79.5 Punitive Damages Verdict Against Philip Morris: |
By ANTHONY J. SEBOK |
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| Tuesday, Feb. 27, 2007 |
Last week, the United States Supreme Court decided Philip Morris USA v. Williams, the major punitive damages case of this Term. The plaintiff was a smoker, Jesse Williams, who had died of lung cancer. A jury had given Williams's estate a $79.5 million punitive damages verdict against tobacco company Philip Morris. The Court, however, overturned the verdict.
As I will explain below, although Philip Morris can be pleased with its win, there are aspects of the decision which should trouble it -- as well as the rest of corporate America.
The Two Key Questions the Philip Morris Case Raised
The Philip Morris case, which I discussed in earlier columns (such as this prior column and another previous column), was important to different parties for different reasons.
Philip Morris's appeal raised two questions. First, can a jury award punitive damages that are more than ten times the compensatory damages awarded, in a case involving significant personal injury or death?
In an earlier Supreme Court precedent, State Farm Mut. Insurance Co. v. Campbell, Justice Kennedy had suggested that a greater than "single digit" ratio of punitive damages to compensatory damages would probably violate due process, especially where compensatory damages were large. (That is, a 9:1 ratio could pass muster, but a 10:1 ratio probably would not.) However, State Farm had involved a financial tort that led to emotional distress. How would the Court treat a wrongful death case like Jesse Williams's?
The answer to this question was of great interest to any company that might be a defendant in a products liability case, such as car manufacturers and pharmaceutical companies.
Second, were the jury instructions that had been used at the Philip Morris trial seriously flawed?
Jesse Williams had alleged that Philip Morris had engaged in fraud by deceiving smokers in his home state of Oregon, as well as throughout the United States, about the dangers of smoking. Once the jury had accepted the plaintiffs' allegations, Philip Morris had to perform some kind of damage control at the damages phase of the trial. The company asked the judge to instruct the jury that it could use evidence of the harms caused to other smokers (that is, through the fraud) to determine the degree of reprehensibility of the company's conduct, but that the jury could not use the punitive damages requested by the plaintiff to punish Philip Morris for what it did to anyone other than Jesse Williams.
The judge, however, refused this instruction, and the jury returned a $821,000 compensatory damages award and a $79.5 million punitive damages award.
The Court's Approach: Take the (Less Important) Second Question First
When I previewed the case last fall, my sense was that the tobacco industry, and the defense bar in general, were much more interested in the first question than the second.
The reason for this is simple: Corporations and their insurers like the idea of a "hard cap" on punitive damages, and the single-digit ratio proposed by Kennedy seemed to do the trick. But in which cases did the single-digit ratio apply?
After State Farm came out, a few people commented on the fact that Kennedy had conceded that the degree of punishment permissible under the Due Process Clause would vary based on a number of factors first enumerated in BMW of North America, Inc. v. Gore -- including whether the harm caused by the tortious conduct was economic or physical. The question that was on everyone's mind was whether the Court would treat personal injury cases the same as financial injury cases.
I also suggested that the right way for the Court to approach Philip Morris was by asking the second question first, since I am very skeptical that a hard cap can be justified under the Due Process Clause.
I am happy to report that the Court did just that. Taking on the second question first, it decided that the jury instruction were flawed because they permitted the jury to use punitive damages to punish Philip Morris for injuring Oregon smokers other than Jesse Williams, and it noted that since the verdict was invalid, the Court need not take up the "hard cap" question at all (at least at this point).
Of course, the "hard cap" question will doubtless come up in another personal injury case before the Court down the line. But this case will go back down to the trial court for a new trial, resulting in a different verdict - unless settlement negotiations, along the way, result in an agreement that preempts that process.
Are Roberts's Fingerprints on the Outcome?
The first thing to notice about the Philip Morris decision is that, although Chief Justice Roberts did not assign himself the task of writing the opinion, one might speculate that his fingerprints are all over the outcome.
As I noted in another column, about the Roberts Court's approach to torts at the Supreme Court, the current Court is extremely minimalist. It is no secret that, from a practical point of view, a clear statement that the hard cap introduced in State Farm applied to punitive damages in personal injury cases would have given corporate America a powerful weapon in settlement negotiations with plaintiffs. But the Roberts Court did not give corporate America a simple and broad victory. Instead, it postponed this important issue for another day and another case, since it was not necessary to decide it in this case.
Breyer's Reasoning in His Opinion for the Court
Justice Breyer's opinion in Philip Morris is important, simple and direct. Breyer noted (as had the Oregon Supreme Court before him) that the U.S. Supreme Court had not said in State Farm that a jury could not punish a defendant for similar acts that harmed parties who are not actually part of the lawsuit. However, Breyer said that while the Court had not yet spoken, it was time for it to speak now, to make a clear statement that this is exactly the sort of reasoning that juries should not be allowed to use when determining punitive damages.
Breyer's reasons are simple. To allow a jury to punish the defendant for conduct that affected anyone other than the plaintiff "would add a near standardless dimension to the punitive damages equation." The plaintiff, Jesse Williams, in Philip Morris represented only himself and no one else (this was not a class action). As Breyer notes, how would a jury know how many others were harmed by the "similar" conduct, and how seriously?
Breyer might have added, too, that in a case of fraud--which is the wrong for which Philip Morris was being punished--reliance is an essential element. Part of the plaintiff's case in Philip Morris -- which I think was quite compelling and which the jury clearly accepted -- involved testimony from Williams's widow that he simply did not believe the tobacco companies would sell cigarettes if they were truly dangerous.
The jury thus could judge for itself if Jesse Williams was injured by fraud because they could evaluate his own decision-making. How could they do that for millions of smokers whose testimony they never heard?
Why Stevens's Dissent Is Especially Significant
Still, corporate America did not take comfort from Breyer's simple and obvious argument. Why? The reason can be summed up in one name: Justice John Paul Stevens. He wrote a dissent, which is significant for two reasons. First, because Stevens was the author of BMW and he concurred with Justice Kennedy in State Farm. Second, because Stevens's dissent notes that, unless the Court says more, the holding in Philip Morris might be a Pyrrhic victory.
Why did Stevens dissent? A number of explanations are possible. In BMW he created the three-part test for evaluating the constitutionality of jury-based punitive damages awards, and the first part of this was the "reprehensibility" of the conduct. And, significantly, in BMW, Stevens noted that juries could take into account wrongful conduct that affected parties other than the plaintiff. As he noted, previous criminal conduct cannot be punished by sentencing court, but a recidivist can be given a harsher sentence because his repeat offenses evidence a lack of "respect" for the law.
Philip Morris had argued to the trial judge that it understood and accepted that BMW and State Farm allowed the jury to take into account the effect of its conduct on the smokers of Oregon. However, it wanted the jury instructions to make clear that while this sort of evidence could be used to evaluate the reprehensibility of its conduct in determining its punishment for what it did to Jesse Williams, it could not be used to determine the punishment for what it did to everyone else who smoked in Oregon. Breyer agreed with Philip Morris. In dissent, Stevens said "[t]his nuance eludes me."
In the future, when issues of punitive damages return to the Court, a lot will depend on whether the "nuance" identified by Breyer is real or illusory. The Court sent Philip Morris back to the Oregon Supreme Court for further proceedings consistent with its decision. As noted above, a new trial for damages seems overwhelmingly likely, if settlement is not reached. The question at that next trial will be whether it will make a practical difference to the jurors whether they are asked to assess punitive damages against Philip Morris based on the reprehensibility of the firm's defrauding an unknown number of Oregon smokers, and being asked to punish Philip Morris for defrauding an unknown number of Oregon smokers.
It is easy to see, then, why corporate America is nervous about the victory it achieved in Philip Morris. Granted, it is theoretically possible to imagine that a jury that returned $80 million in order to punish would return less than that in order to measure the reprehensibility of the same corporate act. Still, I doubt that many defense lawyers for the automobile and pharmaceutical industries want to be the guinea pigs to find out whether this possibility might also be a practical reality.
In sum, then, Philip Morris was certainly less of a victory than many had hoped it would be. And worse yet, the big prize that corporate America sought--extension of the "hard cap" to punitive damages in personal injury cases--was put off for another day.
Yet we may already have a good sense of how Justice Stevens feels about the "hard cap" issue. If one reads Stevens' dissent literally, he voted to uphold the Oregon Supreme Court's decision not to apply the single-digit ratio to the punitive damages awarded to Jesse Williams. This would indicate that at least one of the five Justices voting in the majority in State Farm would not have extended the hard cap to a case involving wrongful death.
But to say this, is mere speculation, and the question truly has been left for another case. Still, there is far less to cheer about in the defendant's "victory" in Philip Morris than one might have first suspected.