PUNITIVE DAMAGES AFTER PHILLIP MORRIS USA V. WILLIAMS T HE W ORLD I - PDF document

PUNITIVE DAMAGES AFTER PHILLIP MORRIS USA V. WILLIAMS T HE W ORLD I S F LAT : P UNITIVE D AMAGES A T H OME A ND A BROAD IADC ANNUAL MEETING, BERMUDA JULY 11, 2007 DABNEY CARR TROUTMAN SANDERS LLP P.O. BOX 1122 RICHMOND, VA 23218-1122 (804) 697-1238 (804 698-5119 (fax) dabney.carr@troutmansanders.com

While not a clear victory nor as far-reaching as defendants had hoped, the Supreme Court’s February 20,2007 ruling in Philip Morris v. Williams , 127 S.Ct. 1057 (2007), that a jury may not award punitive damages to punish a defendant for harm it has inflicted on nonparties, represents an important step forward in the defense of punitive damages claims. Despite the departure of Chief Justice Rehnquist and Justice O’Connor from a slim majority, the Supreme Court reaffirmed its holdings in BMW of North America, Inc. v. Gore , 517 U.S. 559 (1996) and State Farm Mut. Automobile Ins. Co. v. Campbell , 538 U.S. 408 (2003), that the Due Process Clause provides both procedural and substantive limits on a State’s power to award punitive damages. Moreover, at a minimum, Williams’ holding -- that a jury may not directly punish a defendant for harm or potential harm to nonparties -- places limits on the jury arguments a plaintiff may make and entitles a defendant to a limiting instruction whenever a court admits evidence of harm to non-parties. Finally, when read in conjunction with State Farm , the majority’s decision provides defendants with a basis to limit or exclude evidence and argument relating to such harm. Though Williams explicitly recognizes that harm to non-parties is relevant to the determination of the reprehensibility of a defendant’s conduct, on balance, the decision is a welcome one because it continues the Court’s trend towards limiting punitive damages and provides additional tools to restrict punitive damages awards. B ACKGROUND : BMW V . G ORE AND S TATE F ARM V . C AMPBELL In BMW and State Farm , the Supreme Court made clear that while States have a legitimate interest in punishing unlawful conduct through punitive damages, the Constitution imposes both procedural and substantive limits on punitive damage awards. BMW , 517 U.S. at 559, State Farm , 538 U.S. at 416. “The Due Process Clause prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor.” State Farm , 538 U.S. at 416. To determine

whether a punitive damages award is “grossly excessive”, the court must consider three guideposts: (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 and the civil penalties authorized in comparable cases. BMW , 517 U.S. at 575. Of the three guideposts, the most relevant is the reprehensibility of a defendant’s conduct. Id . “It should be presumed a plaintiff has been made whole for his injuries by compensatory damages, so punitive damages should only be awarded if the defendant’s culpability after having paid compensatory damages, is so reprehensible as to warrant the imposition of further sanctions to achieve punishment or deterrence.” State Farm , 538 U.S. at 419. For the second guidepost, the Court has declined to set a bright-line ratio which a punitive damage award cannot exceed, but it has stated that “few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process” and has noted that “an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety.” Id . at 425. Ratios greater than single digits “may comport with due process where ‘a particularly egregious act has resulted in only a small amount of economic damages.’” Id . (quoting Gore , 517 U.S. at 582). Conversely, “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.” Id . at 426. Finally, as to the third guidepost, the Court has cautioned that while the existence of a criminal penalty is relevant, criminal penalties have less utility in determining the dollar amount of an award. Id . at 428. “Great care must be taken to avoid use of the civil process to assess criminal 2

penalties that can be imposed only after the heightened protections of a criminal trial have been observed.” Id . T HE W ILLIAMS C ASE The plaintiff in Williams was Mayola Williams, the widow of a heavy cigarette smoker, Jesse Williams. Mayola Williams claimed that Jesse continued to smoke based on Philip Morris’ knowing and false representations that smoking was not harmful. The jury found in favor of Williams and awarded compensatory damages of approximately $821,000 and punitive damages of $79.5 million, a ratio of close to 100:1. Williams , 127 S.Ct. at 1060. The trial judge set the punitive damage award aside as excessive, but the Oregon Court of Appeals reversed and reinstated the award. After its decision in State Farm , the U.S. Supreme Court remanded the case, and the Oregon Court of Appeals reinstated the original award. Philip Morris then obtained review in the Oregon Supreme Court. There, Philip Morris argued that the trial court erred when it refused to instruct the jury that it could not punish the defendant for harm to anyone other than Williams. In his closing argument, Williams’ counsel asked the jury to “think about how many other Jesse Williams in the last 40 years in the State of Oregon there have been . . . Cigarettes . . . are going to kill ten [of every hundred]. [And] the market share of Marlboro’s [ i.e. , Philip Morris] is one-third [ i.e. , one of every three killed].” Id ., 127 S.Ct. at 1061. Based on that argument, Philip Morris asked the trial court to instruct the jury that: “[Y]ou may consider the extent of harm suffered by others in determining what [the] reasonable relationship is” between any punitive award and “the harm caused to Jesse Williams” by Philip Morris’ misconduct, “[but] you are not to punish the defendant for the impact of its alleged misconduct on other persons, who may bring lawsuits of their own in which other juries can resolve their claims . . .” 3

Id . The trial court refused the instruction, and the Oregon Supreme Court affirmed, rejecting Philip Morris’ claim that the Constitution prohibits a state jury “from using punitive damages to punish a defendant for harm to nonparties.” Id . 127 S.Ct. at 1062. T HE S UPREME C OURT ’ S D ECISION The Supreme Court reversed the Oregon Supreme Court and remanded the case. Justice Breyer, writing for a majority that included Chief Justice Roberts and Justices Kennedy, Souter and Alito, held that “the Constitution’s Due Process Clause forbids a State to use a punitive damages award to punish a defendant for injury that it inflicts upon nonparties.” First, a defendant has no opportunity to defend against the claims of parties who are not before the Court. Second, to permit punishment for a nonparty victim “would add a near standardless dimension to the punitive damages equation,” magnifying the risks of arbitrariness’, uncertainty and speculation. Id ., 127 S.Ct. at 1063. Finally, the Court could “find no authority supporting the use of punitive damages awards for the purpose of punishing a defendant for harming others.” Id . While a jury may consider the reasonableness of a punitive damage award in light of the potential harm from the defendant’s conduct, “the potential harm at issue is harm potentially caused the plaintiff .” Id . (emphasis in original). The Court agreed with Williams, however, that harm to others is relevant to the determination of reprehensibility. Id ., 127 S.Ct. at 1063-64. While a jury may consider harm to others in determining reprehensibility, though, it “may not go further than this and use a punitive damages verdict to punish a defendant directly on account of harms it is alleged to have visited on nonparties.” Id. , 127 S.Ct. at 1064. Thus, courts must “provide assurance that the jury will ask the right question, not the wrong one,” and must avoid procedures that deprive juries of “proper legal guidance.” Id . The Court acknowledged that it is difficult to know whether a jury, 4