On December 14 2015 a California state court jury awarded $9.8 million in compensatory damages and an eye-popping $70 million in punitive damages against Johnson & Johnson subsidiary Ethicon in a case alleging defects in a haemorrhoid stapler used to perform surgery on a haemorrhoid sufferer.
Ethicon is likely to have a compelling argument that the punitive award is excessive, given both the deterrent effect of the highly generous amount of compensatory damages awarded and the fact that the exaction could not be replicated in other cases involving the same alleged defect without the aggregate punishment being grossly excessive.
In addition, according to media reports, the plaintiffs introduced evidence that Johnson & Johnson's net worth was $6.8 billion and exhorted the jury to remove a percentage of that net worth as punishment. The punitive award represents just over 1% of $6.8 billion.
The notion that an organisational defendant's net worth is relevant in setting punitive damages is fundamentally misguided. But even if it were relevant, the Supreme Court's statement in State Farm Mutual Automobile Insurance Co v Campbell that the "wealth of a defendant cannot justify an otherwise unconstitutional punitive award" should leave no doubt that it is improper to base punitive damages on a percentage of a company's net worth.
Even before State Farm, the US Court of Appeals for the Tenth Circuit held in Continental Trend Resources, Inc v OXY USA Inc that, under BMW of North America, Inc v Gore, "a large punitive award against a large corporate defendant may not be upheld on the basis that it is only one percent of its net worth or a week's corporate profits". If a punitive award may not be upheld on that ground, it follows that it is impermissible to request that the jury calculate its punishment in that way.
Indeed, Ethicon should have a good argument that the very request to base punitive damages on a percentage of its net worth was improper and warrants a new trial. To put it briefly, a request for a specific amount of punitive damages – particularly an amount that would be excessive if actually imposed –deprives the defendant of a fair trial by skewing the jury's frame of reference in a way that is calculated to produce a high punitive award.
Unless the case settles, Ethicon will likely file post-verdict motions in the trial court.
For further information on this topic please contact Evan M Tager at Mayer Brown LLP by telephone (+1 202 263 3000) or email (email@example.com). The Mayer Brown International LLP website can be accessed at www.mayerbrown.com.
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