The Upcoming Supreme Court Argument Involving Punitive Damages Awards and Big Tobacco: Can These Awards Be Based on Injury to Persons Other than the Plaintiff?
Part Two in a Two-Part Series

In my last column, I described the background to the Supreme Court argument scheduled for October 31 in Philip Morris v. Mayola Williams. At stake in the case is whether the U.S. Constitution permits punitive damages awards to be used to punish conduct that may have injured large number of persons - but persons who are not plaintiffs in the case before the court.

The Relevant Facts and Issues in the Philip Morris Case

In the case before the Court, an Oregon jury awarded a whopping $79.5 million in punitive damages, but a more modest $821,000 in compensatory damages, to the widow of Jesse Williams, who died of cancer after smoking for over 45 years.

The issue that has reached the Supreme Court is twofold: First, did the jury instructions requested by Philip Morris and refused by the trial judge permit the jury to award punitive damages on an unconstitutional basis?

Second, was the punitive damages award unconstitutional because it exceeded the "single digit ratio" standard established by the Supreme Court in the 2003 case of State Farm Mut. Auto. Ins. Co. v. Campbell?

I discussed the second question to some extent in my earlier column; I will discuss the first question at greater length here, then touch on the second question again briefly.

The First Issue: Did the Judge Rightly Refuse Philip Morris' Jury Instruction?

The dispute over the first question might seem too subtle to merit much attention in the Supreme Court - as I will explain.

Philip Morris wanted the trial court to instruct the jury that the size of the punitive damages award "should bear a reasonable relationship to the harm caused to Jesse Williams" by Philip Morris. It also wanted the court to instruct the jury that although they could consider the harm suffered by others (that is, other persons who were not plaintiffs in the case) "in determining what that reasonable relationship is," they were not to "punish the defendant for the impact of its alleged misconduct on other persons" (emphasis added).

Instead, the trial judge simply told the jury to take into account Philip Morris' knowledge of the "the likelihood that serious harm would arise in [Oregon]."

What, if anything, turns on these two different approaches to jury instructions?

On one level, maybe nothing: By the end of the Williams trial, the jury might have been so incensed at Philip Morris that they might have awarded almost $80 million in punitive damages even under the tobacco company's preferred instructions. When a jury is furious, it may want to wreak punishment, not carefully parse the language of the instructions. So these instructions may not have determined the outcome of this particular trail.

But the general question raised here may matter very much for future trials: Can punitive damages be used to punish a defendant for conduct that harms anyone other than the plaintiff (or plaintiffs, if there is more than one)?

An Invitation to the Court to Consider and Clarify State Farm's Guidance

One reason this question is on appeal is because the Supreme Court left behind a series of incomplete statements about exactly this issue in State Farm, its last major punitive damages decision.

State Farm involved an insurance company that had been sued for bad-faith failure to settle, within policy limits, a personal injury case. The plaintiff, the insurance company's customer, had suffered a devastating loss in a prior court case, and he wanted to prove that State Farm's failure to settle his case was part of a national practice of cheating its customers. To this end, the plaintiff alleged that State Farm had engaged in all sorts of bad practices that injured its customers, most of which had nothing to do with the duty to settle an insured's lawsuit - and most (if not all) of which had affected people who were not plaintiffs in the case before the court.

Justice Kennedy, writing for a six-judge majority, declared the plaintiff's tactics out of bounds - but for a number of shifting reasons. First he said that a jury could not "punish a defendant for conduct that may have been lawful where it occurred." But many of the things the plaintiff claimed State Farm did would not have been legal anywhere - meaning that Justice Kennedy had to go on to consider whether those other acts could have properly played a part in the case .

He said that they could not, because "[a] defendant's dissimilar acts, independent from the acts upon which liability was premised, may not serve as the basis for punitive damages." (Emphasis supplied). Under this principle, if State Farm had lied to other people about fire insurance, but the plaintiff before the court was only suing about how his auto insurance had been handled, then the jury would have to ignore the former in determining the punishment for the latter.

But what if the defendant had done exactly the same thing to many people who lived in the same state, or in different states? That is not what was alleged in State Farm, but it is what had been alleged in Philip Morris.

Kennedy did make a statement in State Farm, however, that may be thought to be relevant: He said, "due process does not permit courts, in the calculation of punitive damages, to adjudicate the merits of other parties' hypothetical claims."

What Does It Mean for a Court to Avoid Adjudicating "Other Parties' Hypothetical Claims"?

Taken literally, any claim other than the claim brought by the plaintiff is a "hypothetical" claim. Only through the procedural alchemy of a class action, can the claim of one plaintiff in the courtroom ever stand for the claims of similar parties outside the courtroom.

(Indeed, class actions are hard to get certified by the courts for exactly this reason--they allow plaintiffs to gain a tremendous advantage over defendants, by posing the risk that a jury's verdict about one case could create liability for the defendant in thousands more cases.)

But State Farm did not involve a class action, and neither did Philip Morris. To make things even more confusing, in a 1996 case, BMW of North America Inc. v. Gore, the Supreme Court seemed to endorse the suggestion that a car company could indeed be punished with a $56,000 punitive damages for working the identical $4000 fraud on 14 different citizens of Alabama, even though only one of the 14--Dr. Gore--was a plaintiff in the case, and even though Dr. Gore, as the sole plaintiff, would keep the entire award. (This case, too, was obviously not a class action - even though it might plausibly have been brought as one, assuming that the fraud in each case was, indeed, identical.)

Philip Morris, then, will force the Supreme Court to reconcile what it said in State Farm with what it said in Gore. After all, didn't the Court in Gore bless a situation in which a lower court did indeed, adjudicate "other parties' hypothetical claims"?

The Right Answer: Punitive Damages Should Be Limited to Conduct vis-à-vis the Plaintiff Before the Court

The right answer, I believe, is that juries should be instructed that a punitive damages award is supposed to be a punishment inflicted by the plaintiff upon the defendant for what the defendant did to the plaintiff.

As the Supreme Court has said in both Gore and State Farm, the "disrespect" that the defendant has shown to the law by being a recidivist can affect the reprehensibility of the defendant's actions vis-à-vis the plaintiff, but that is not the same thing as granting the plaintiff the power to inflict punishment on behalf of others who may have valid tort claims against the defendant.

Importantly, evidence that the defendant may have attempted to inflict the same wrong against others is not the same thing as proof that any of the defendant's targets would have a valid tort suit. Litigation against the tobacco industry is a perfect example of this point. One reason that many individual suits against the tobacco industry fail is that juries believe that even if the tobacco industry lied to smokers, many smokers are at fault for continuing to smoke once those lies became the subject of intense media scrutiny. You may not agree with this conclusion, but the point is that a jury that took this point of view would be well within its power to hold that a smoker who sued the Philip Morris should lose his claim in tort. And therefore, a guess at whether a hypothetical case would, in fact, succeed is always a hazardous one to make - and it is hazardous, too, to say that hypothetical cases are identical to a given plaintiff's case, since other plaintiffs' conduct may have been different.

Does that mean that Philip Morris did not do anything wrong in cases where plaintiffs were, indeed, partially at fault? No.

In a case where Philip Morris lied to a smoker and a jury found no liability because of comparative fault, Philip Morris ought to be punished by the state, not by the smoker. The right to punish with punitive damages can only be exercised by those who have valid claims in tort. The right to punish with criminal or civil penalties belongs to the state. And it makes for sense for the money to go to the state - to distribute to all those wronged, or use for its own related programs - than to the single smoker who happened to sue.

I predict, therefore, that the Supreme Court will reconcile its dicta - that is, the statements it made, which I discussed above, that were not central to its holdings -- in State Farm and Gore, and come down in favor of the former. That is, it should, and will, hold that punishment in private law must be based on a proven claim, not a hypothetical claim, and it may even say that it is a constitutional requirement that juries be so informed.

Excluding Other Parties May Seem Right - But Is It Constitutionally Required?

Of course, one might object that everything I have argued above seems like a good idea, but it is not obvious that any of it rises to the level of a constitutional requirement.

After all, the only reason that Philip Morris is before the United Supreme Court (after having lost before the Oregon Supreme Court) is because it believes that the jury instruction it requested is required by the Due Process Clause of the Fourteenth Amendment. And this is a separate question from whether that instruction represents good policy, or common sense.

In brief, the Supreme Court has held, in its Due Process precedents, that punishment--whether civil or criminal--cannot be inflicted by the state without any constraint at all. And it has viewed even punishment pursued by private citizens through the tort system as a form of "state action" - action that, because it is done by the government, must, under our Constitution, pass a minimum standard of due process.

Let's suppose Philip Morris and its allied would be able to persuade most observers that the Constitution imposes minimal requirements on the way that juries determine punitive damages - such as the requirement that awards do not encompass injuries to persons not before the court as plaintiffs. It is still hard to see how they could persuade anyone of their answer to the second question raised by Philip Morris, which is that a punitive damages award must maintain a ration with compensatory damages of no more than "single digits."

Did State Farm Set the Single-Digit Ratio for All Cases, or Just Some?

State Farm said a single-digit ratio between punitive and compensatory limits was the highest tolerable - so a 9:1 ratio is okay, but not a 10:1 or 20:1 or 100:1 ratio.

But the plaintiffs in the Philip Morris case say that rule does not apply to their case, because the act done by Philip Morris caused a terrible personal injury, as opposed to the "mere" financial ruin threatened by the defendant's actions in State Farm. The plaintiffs will argue, indeed, that the activities Philip Morris--which more than one trial court have compared to manslaughter--are so reprehensible that they fall into the narrow exception of cases described in State Farm as the "rare case" that justifies double or triple digit ratios. (In their own case, they must defend a ratio of almost 100:1 - recall that the compensatory damages $821,000, and the punitive damages, $79.5 million.)

Justice Scalia is Correct on Principle - But State Farm Cannot Persuasively Be Distinguished

None of these plaintiffs'-side arguments, however should hold up to the Court's scrutiny, although they should pull a few heartstrings. The fact is, as was argued in an excellent amicus brief filed by the Alliance of Automobile Manufacturers, that virtually any products liability suit involving conscious design choices can be turned into a case just like Philip Morris. Moreover, the political reality is that the Supreme Court imposed a "hard cap" on punitive damages in State Farm because it did not think it could articulate a principle for state courts that would not be abused, and in desperation, the Court's Justices decided to adopt their own form of tort reform.

I agree with Justice Scalia that one cannot find justification for this sort of detailed "judicial legislation" in the Due Process clause. It is hard to imagine the historical or theoretical basis for a ratio "less than ten." After all, if one truly believed that the point of punitive damages was to punish wrongdoers for all the social harm they caused--which is the theory behind the Philip Morris jury award--then ratios in some cases might be in the single digits and some might be in the triple digits.

But if the Court rejects the theory behind the jury award in Philip Morris, then it is not clear to me why it should not be enough to simply say so, and then let the state courts police their own trials. Ironically, the Supreme Court could avoid the embarrassment of trying to defend its judicial activism in Question Two of Phillip Morris if it offered a more robust explanation of why it was reversing the jury instructions in Question One.

I doubt that this will be the path the Court will take, however. I predict that it will get Question One right, but not really explain why. Then it will simply reassert the wisdom of the hard, single-digit ratio cap in its answer to Question Two, and hope conservatives will tolerate a little substantive due process when it suits their economic interests.