Splitting the Baby?

One may argue that the Justices of our highest court adopted King Solomon’s approach in their most recent decision addressing the morass of issues surrounding punitive damage assessments. The plaintiffs’ bar and corporate America have closely watched this case, each of the respective groups hoping for differing outcomes, because this case squarely presented the high court with ample opportunity to unravel the tangled web of procedural and substantive issues surrounding punitive damages. The highly anticipated decision in Philip Morris USA v. Williams, 127 S. Ct. 1057 (2007) seemingly “split the baby.”

Justice Stephen G. Breyer delivered the Court’s 5–4 majority opinion. As is evidenced by the dissenting opinions, most notably Justice Ruth Bader Ginsberg’s dissent, the practical implications of the majority’s holding appears only to add to the bewilderment presented to counsel, jurors and trial judges across the nation when presented with the myriad issues surrounding punitive damages. The Supreme Court held that constitutionally acceptable boundaries prohibit a jury from exacting punishment upon a defendant for injuries allegedly caused by the defendant to nonparties. Simultaneously, however, Justice Stephen G. Breyer’s majority opinion provides that a jury may consider a defendant’s acts to nonparties when evaluating the reprehensibility of a defendant’s misconduct. The Supreme Court, albeit disappointing, completely side-stepped the issue of whether the lower court’s $79.5 million punitive award was beyond the pale of constitutionally permissible damages, and failed to engage in or attempt to set any numerical limits on excessive punitive damages.

Lower Court Proceedings

At trial, an Oregon jury awarded Mayola Williams, the widow of Jesse Williams, $821,000 in compensatory damages. Jesse Williams died of lung cancer after smoking Marlboro cigarettes for 45 years. Despite the fact that Mayola Williams was the only plaintiff litigating claims against Philip Morris USA, she successfully convinced the jury that Philip Morris’ conduct directed at her husband and at an unspecified number of unidentified potential Oregon plaintiffs justified a punitive award 97 times the amount of compensatory damages. The $79.5 million punitive judgment is indicative that the jurors were convinced by plaintiff’s argument that Philip Morris should be punished for all smoking-related injuries that it may have caused to the unnamed, unidentified, nonparty Oregon plaintiffs. The argument was successful, despite the fact that Williams did not introduce any evidence tending to prove that Philip Morris’ conduct had caused injury to any specific person (other than Jesse Williams).

Philip Morris remained relentless in its efforts to obtain relief from the staggering punitive judgment via multiple requests for judicial intervention. In one instance, the United States Supreme Court provided Philip Morris some relief—but that relief was momentary. The Court vacated the multi-million dollar award and remanded the case for reconsideration in light of the Court’s then-recent holding in State Farm Mut. Automobile Ins. Co. v. Campbell. Upon reconsideration, however, the Oregon Court of Appeals determined that the $79.5 million punitive judgment should be reinstated and the Oregon Supreme Court subsequently affirmed.

The Oregon high court’s agreement that the punitive assessment warranted reinstatement was not without the express acknowledgment that it, in fact, had carefully considered the United State Supreme Court’s counsel that a single-digit ratio of punitive damages to compensatory damages is an appropriate demarcation of a constitutionally acceptable punitive judgment.  Philip Morris appealed, arguing inter alia, that the $79.5 million punitive judgment, if upheld, would equate to an arbitrary deprivation of its property, thereby resulting in a violation of its 14th Amendment due process rights. Philip Morris argued that the trial court erred in refusing to instruct the jury that it could not punish Philip Morris for alleged harms that it may have caused to nonparties. Additionally, Philip Morris argued that the stunning multi-million judgment was so extreme that it violated the permissible constitutional boundaries set forth in State Farm.

A Swell of Muddy Waters?

On Oct. 31, 2006, Philip Morris’ counsel urged the Justices to overturn the $79.5 million judgment for two exclusive reasons:

  • It is constitutionally impermissible for a jury in a non-class setting to factor into its calculation of punitive damages harms that may have been caused to nonparties by a defendant’s alleged misconduct; and
  • The Oregon Supreme Court’s reinstatement of the $79.5 million award was in direct contravention of the United States Supreme Court’s earlier counsel 15 that punitive damage awards meeting the single-digit multiplier benchmark are more likely constitutionally permissible.

In delivering the majority’s opinion, Justice Breyer appeared to clarify the fairly recent landmark decision in State Farm.16 He unambiguously stated, “We did not previously hold explicitly that a jury may not punish for the harm caused others. But we do so hold now.”17 At first blush, it appears that the defense bar and corporate America now have their much-desired impenetrable piece of arsenal against excessive punitive awards. But do they?

A careful examination of the Court’s opinion reveals that the majority did not eradicate a jury’s consideration of a defendant’s alleged misconduct and potential resultant harms to nonparties in the punitive assessment calculation. Even though the majority expressly admonishes a jury’s direct punishment of a defendant for alleged harms to nonparties, it, in an incongruent manner, affirmatively endorses a jury’s consideration of alleged harms to nonparties under the guise of the assessment rubric of reprehensibility set forth in BMW of North America, Inc. v.

Gore. In fact, the Court sanctioned the introduction of such evidence, but in one fell swoop imposed limitations upon the purpose for which a jury may actually use the evidence. The Court’s endorsement of such evidence is really impracticable:

Evidence of actual harm to nonparties can help to show that the conduct that harmed the plaintiff also posed a substantial risk of harm to the general public, and so was particularly reprehensible…. Yet for the reasons given above, a jury 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.

The Court’s forbiddance of directly punishing a defendant for harm to nonparties, juxtaposed with its endorsement of evidence demonstrating harm to nonparties, poses an untenable quagmire for trial judges, litigants and jurors. The majority failed to provide any meaningful mechanism to ensure compliance with the unwieldy holding. Seemingly shirking away from the palpable incongruity, the majority simply delegated to the states the job of ensuring compliance to the outwardly inconsistent principles. In so doing, the Court advised:

…it is constitutionally important for a court to provide assurance that the jury will ask the right question, not the wrong one . . . – it is particularly important that States avoid procedure that unnecessarily deprives juries of proper legal guidance. We therefore conclude that the Due Process Clause requires States to provide assurance that juries are not asking the wrong question, i.e., seeking, not simply to determine reprehensibility, but also to punish for harm caused strangers.

Although the defense bar and corporate America may initially view the “head line” decision (i.e., a jury may not punish for harm allegedly caused to nonparties) as a step in the right direction, they should do so with an abundance of caution because the opinion is full of land mines for the unwary defendant. The practical ramification of the Court’s opinion is that it just muddies the already troubled waters of punitive damages. On one hand, a jury is instructed to consider the defendant’s alleged misconduct and resultant harm to nonparties in determining the reprehensibility of a defendant’s conduct, but on the other hand is effectively told, “don’t think about the reprehensible nature” of the misconduct in calculating the amount of punitive damages to award. The internally inconsistent holding provides yet another pathway to more appeals.

The Court’s Silence Speaks Volumes

To the disappointment of the entire legal community, litigants and lawyers alike, the Court refused to consider the penultimate question of whether the $79.5 million award, with a ratio of 97:1, is constitutionally grossly excessive. The majority rationalized that it did not need to resolve that issue because “the application of this standard [i.e., no direct punishment for alleged harm to nonparties] may lead to the need for a new trial, or a change in the level of the punitive damages….” Thus, the Court again refrained from providing the much-desired guidance squarely addressing the issue of numerical limits on excessive punitive damages. Since the Court’s advisory in State Farm, that single-digit punitive-to-compensatory ratios are more likely to be constitutionally acceptable than are larger, more disparate ratios, crafty litigators on each side of counsel table have been able to present equally compelling arguments using the imprecise language advancing paradoxical objectives. That is the case because the majority opinion provided “wiggle” room for plaintiffs seeking to affirm punitive awards with ratios exceeding the single-digit benchmark. In delivering State Farm’s majority opinion, Justice Kennedy expressly acknowledged that there are “no rigid benchmarks that a punitive damages award may not surpass, ratios greater than those we have previously upheld may comport with due process where a particularly egregious act has resulted in only a small amount of economic damages.” Further, Justice Anthony Kennedy deemed it necessary to affirmatively recognize that the injuries in State Farm were economic in nature, and conceded that in cases in which the injuries are physical, a single-digit benchmark ratio might not “hold up."

In light of this Court’s refusal to address numerical limitations when confronted with the sizeable 97:1 punitive-to-compensatory ratio in Phillip Morris, coupled with the uncanny alliances by the Justices in the 5–4 decision, the Court’s silence on the issue may be very telling for future litigants. The composition of the high court has changed since the majority issued its 6–3 opinion in State Farm. Two of the justices, then-Chief Justice Rehnquist and Justice Sandra Day O’Connor, who participated in the majority opinion, are no longer members of the Court; and Justice Stevens, another participant in the majority’s opinion in State Farm, actually filed his own dissenting opinion in Philip Morris. Moreover, Justice Stevens’ dissenting opinion concluded with his judgment that the Oregon Supreme Court’s decision should have been affirmed. Query then, whether the outcome in Philip Morris would have been desirable to defendants and to corporate America had the Justices actually agreed to evaluate the constitutionality of the 97:1 punitive-to-compensatory ratio. I submit that it would not. Had the Court opted to scrutinize the constitutionality of the $79.5 million award, all factors point to a plaintiff-friendly outcome. Changes in the Court’s composition post-State Farm, due consideration to Justice Kennedy’s numerable caveats to the State Farm single-digit benchmark, and Justice Stevens’ unequivocal conclusion that the Philip Morris award should be upheld, signal an alignment of a new majority—Justices Kennedy, Stevens, Thomas, Ginsburg and Scalia—one that unquestionably will not bode well for defendants and for corporate America on the issue of numerical limitations on punitive damages.