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WHY THE FUTURE OF PUNITIVE DAMAGES MAY ONLY GROW BRIGHTER: |
By ANTHONY J. SEBOKanthony.sebok@brooklaw.edu ---- Tuesday, Jan. 07, 2003 |
It is always risky to make prediction about legal trends, but I will hazard one, in today's column, about punitive damages. I predict that - notwithstanding the continuing popularity of the Republican party at both the federal and state levels, and its predilection for tort reform - punitive damages will continue to spike upwards.
As Lawyers Weekly reported last week, 2002 was another recordbreaking year for punitive damage awards. The reason for this, I believe, is that jurors are eager to punish corporations caught red-handed. Jury members tend to view punitive damages as penalties that should have been imposed earlier by the government, but that the jury, at least, has a chance to impose now.
And aren't the jurors right? Except for the example of New York's Eliot Spitzer, what evidence is there that state or federal agencies are truly outraged by the recent spate of corporate malfeasance?
Courts may be uncomfortable with large punitive damages awards. Indeed, last month, in the face of such an award, the Supreme Court of Ohio decided, in Dardinger v. Anthem Blue Cross & Blue Shield, that punitive damages no longer should go, in their entirety, to the successful plaintiff. But jurors remain very comfortable with such awards.
Moreover, while the issue remains the subject of debate, the jurors have history on their side. In the real world of tort law, the issue of whether jurors can use punitive damages to send a message was decided a long time ago.
It is fairly typical for a plaintiffs' lawyer to tell juries that they should use punitive damages to "send a message" to the defendant's corporate headquarters. It is also fairly typical for juries to base punitive damages not on the extent of the plaintiff's injury, but on the wealth of the defendant. While courts may balk - as the Ohio Supreme Court recently did in Dardinger - it is unlikely that they can hope to stem the growing tide of such awards.
The Story Behind the Dardinger Case
The story behind the Dardinger case is both horrible and oddly familiar. In 1996, Esther Dardinger was diagnosed with metastastic brain tumors. In April 1997, under the supervision of the director of neuro-oncology at Ohio State University, she began to receive a treatment known as "intra-arterial chemotherapy" ("IAC"). Twelve IAC treatments were planned.
Esther's insurance company, Anthem Blue Cross & Blue Shield (which I will refer to as "Anthem") - which was owned by a second defendant, Anthem Insurance Companies - paid for the first three treatments. The IAC seemed to work; Esther's tumors appeared to shrink; and the Dardingers had reason to hope.
But then, just before the fourth IAC treatment, Anthem told the Dardingers that it had made a mistake: The Anthem employee who had approved the treatments should never have done so. Anthem's reasons changed over time, but essentially it argued that the IAC, as applied in Esther's case, was an experimental treatment that its policy didn't cover. If Ohio State University wanted to pursue the experiment, it should pay for it.
The facts--at least as found by the jury, and reported by the trial judge--present Anthem as a bureaucracy run amok. The Dardingers patiently pursued every avenue of appeal open to them according to their insurance contract. The doctors at Ohio State University pleaded with Anthem, as did their local insurance agent. But beginning in May 1997, Anthem responded with a series of delays and evasions.
As a result, Esther did not have her scheduled June 1997 IAC treatment, because she was afraid to saddle her family with its $100,000 cost. Eventually, fed up with Anthem's delays, Esther attempted to renew her IAC treatment without insurance in October 1997. But by then, it was too late--she had deteriorated to the point where the treatment was useless. In November 1997, Esther Dardinger died.
The Suit Bob Dardinger Brought, the Jury Award, and the Decisions on Appeal
Bob Dardinger subsequently sued Anthem and its parent company. He made claims for breach of contract, bad faith, and an intentional infliction of emotional distress. (The trial judge dismissed the last claim, based on the very high legal standard it requires.)
At trial, the jury awarded the Dardingers $1,350 on the breach of contract claim, $2.5 million on the bad faith claim - and a huge $49 million in punitive damages. The award made both Anthem and its parent company liable.
Unsurprisingly, Anthem appealed. The Ohio intermediate appellate court ordered a new trial on the issue of damages. It found that although Anthem ought to have been held liable, its parent was not responsible for Anthem's injuries to Esther.
Why the Dardinger Remittitur Is So Interesting and Significant
It is the reasoning behind the remittitur that makes this case so interesting - for several reasons.
First, there were several argument Anthem made that the court did not accept. Under the U.S. Supreme Court's decision in BMW v. Gore, the Due Process Clause allows courts to invalidate punitive damages awards when the compensatory/punitives ratio is too low. In this case, the ratio was $2.5 million to $49 million, or roughly 1 to 20. However, the Ohio Supreme Court was not shocked by the ratio.
Anthem also argued that Esther Dardinger's suit was "simply" a contract claim (like Dr. Gore's in the BMW case), and thus only compensatory, and not punitive damages were appropriate. Again, the Ohio Supreme Court disagreed: It held that clearly what was really at stake was the health and dignity of a terminally ill woman.
For these reasons, the Ohio Supreme Court held that the punitive damages award was consistent with the U.S. Constitution. It also held, however, that the award was inconsistent with Ohio law. And that's where it gets interesting.
Reducing a $49 Million Award to $30 Million Based on A Metaphor
The court noted that the jury seemed to have based its punitive damage calculation on the annual net profits of Anthem's parent--$172 million. The Dardingers' lawyers had presented to the jury evidence of these profits, and had made that evidence a focal point during his closing argument. The effect of the award was to take away 28% of those profits - and the Ohio Supreme Court thought that was too much. It thus reduced the award to $30 million, or about 17 ½ % of the profits.
How did the court come up with that number? Not very scientifically, I am afraid. The court seemed to draw more on metaphor than legal analysis in doing so.
The court explained that the purpose of punitive damages should be to force Anthem to pay attention to its sick bureaucracy. It asked: "Can an appropriate punitive damages award cure Anthem any more than doctors can cure cancer?" It then compared punitive damages to chemotherapy: Too little, and the evil of corporate wrongdoing is left untouched; too much, and the whole economy suffers from overkill.
Sending Two-Thirds of the Plaintiff's Award to Charity
After reducing the $49 award to $30 million, the Ohio Supreme Court was still not finished. It also told Bob Dardinger that he had to donate 2/3 of that $30 million (but not the interest that had accrued up until then) to a charity the court itself would create at Ohio State, which would be named after Esther Dardinger.
How did the court justify its decision? It noted that "there is a philosophical void between the reasons we award punitive damages and how the damages are distributed."
Granted, law professors have often noted this void: Punitive damages are meant to deter past, and prevent future, wrongdoing. Yet leaving the awards solely in the hands of the plaintiffs (who in theory has already been compensated by his or her compensatory damages; remember, Dardinger already received $2.5 million of those) may not serve that objective in the ideal way.
And granted, state legislatures, too, have sometimes been tempted to close the gap by leaving awards intact, to preserve their functions of deterrence or punishment, but shifting them to some institution other than the plaintiff. Indeed, over the past twenty years, eight states have enacted laws forcing plaintiffs to give up a portion of their punitive damages.
In two cases, courts have struck down such laws, but these cases seem aberrational. In general, one can say that if the people of a state want to take part of a punitive damage award and give it back to the taxpayers or to charity, they may do so.
But so far, shifting punitive damages awards away from the plaintiff has been the sole province of professors and legislatures. As far as I can tell, no court has ever done what the Ohio Supreme Court did in Dardinger. That is, no court has ever--on its own initiative--taken a punitive damage award away from a victorious plaintiff.
So why did they do it?
Why the Ohio Supreme Court May Have Ruled As It Did
Such cases also existed in the past. But over the past ten years, law professors, politicians and lawyers have increasingly encouraged juries to render such verdicts, and suggested that such verdicts are at the very heart of why punitive damages exists. That is, all these factions have defended punitive damages precisely because they can empower juries to impose high-multiple awards against corporate behemoths.
Dardinger captures this new paradigm of punitive damages extremely well. A careful reading of the case reveals that the Ohio Supreme Court did not hold that Anthem should have actually approved the IAC treatment for Esther Dardinger. It wasn't the substance of Anthem's decision, the court suggested, that was the problem.
Rather, it was how that decision was made, and communicated, and how Esther Dardinger was treated by Anthem. The court was shocked by the "pervasive corporate attitude" that placed profits over people. In other words, the $30 million punitive award was only loosely related to Esther Dardinger's injury.
What the court seems to want to have done with the award is to jolt Anthem and other insurers into making a wholesale reevaluation of the way it handles its customers.
The award, then, is best seen as a penalty imposed by the Ohio courts on Anthem for its entire corporate culture - regardless of whether that culture actually caused harm to Esther Dardinger or anyone else. The punishment was not for a needless death, but rather for a heartless attitude.
The award was, on this view, as much about preventing future harms as it was redressing Esther's past injury. That is, perhaps, why the court was drawn to the language of medicine when reporting how it came to the conclusion that $30 million was the right "dosage" of financial toxin to "cure" the medical insurance industry in Ohio. Esther Dardinger's cancer might not have been curable; the "cancer" of Anthem's attitude, however, certainly was, the court suggested.
From this point of view, the court's decision makes perfect sense. Indeed, one might wonder, why not take it further: On this logic, why should Esther's estate or her husband get any of the punitive award? They already received $2.5 million in compensatory damages. And Esther's death -which, tragically, probably would have happened regardless of Anthem's behavior - merely triggered the Ohio Supreme Court's intervention into the problem of the sick corporate culture of Anthem (and companies like it).
Of course, in order to incentivize grieving victims like Bob Dardinger to stick with a lawsuit long enough for the courts to grab hold of it, the plaintiff in these suits should get a share of the ultimate punitive damage. That is probably why the court gave Bob $10 million in addition to the $2.5 million in compensatory damages. It is probably also be why it made clear that the $20 million Ohio State fund should be named after Esther Dardinger.
The Larger Significance of the Dardinger Ohio Supreme Court Decision
The Dardinger case is yet another piece of evidence that even judges at the highest levels have adopted this point of view. Where this transformation of tort law will ultimately lead is still unclear. However, these changes are dramatic and may produce further unexpected effects. They may also surprise those who believe that punitive damages, with tort reform coming down the line, are an endangered species that will no longer flourish in the U.S..