Real Damages for Imaginary Plaintiffs

Today, in a decision involving an astonishing $79.5 million punitive damage award to the widow of an Oregon man who died of lung cancer after smoking Marlboros for 42 years, the U.S. Supreme Court ruled that a jury in a civil case may not punish a defendant for harm to people who are not parties to the case. To do so, the five-justice majority said, violates the defendant's right to due process because he cannot defend against hypothetical damage claims by people who are not involved in the lawsuit. Furthermore, the Court said, "to permit punishment for injuring a nonparty victim would add a near standardless dimension to the punitive damages equation." Although this makes sense to me, the Court's proposed solution—that juries may consider harm to nonparties in judging the "reprehensibility" of a defendant's conduct but not to "punish a defendant directly" for that harm—seems untenable.

The plaintiff, Mayola Williams, claimed her husband, Jesse, was tricked into smoking by Philip Morris' false assurances of safety. Given all the publicity and official warnings about the health hazards of smoking during the period when Williams was smoking (from the mid-1950s until 1997), this seems like a load of crap to me, but it was a load of crap the jury swallowed. Having determined that Williams smoked at least partly because he was taking medical advice from Philip Morris, the jury awarded $821,000 in compensatory damages and nearly 100 times that amount in punitive damages. Since the Supreme Court has indicated that punitive-to-compensatory ratios exceeding the single digits are constitutionally suspect, it seemed likely that it would consider the $79.5 million award in this case "grossly excessive." But it did not get that far, instead concluding that the Oregon Supreme Court should have more closely scrutinized the role that harm to people other than the plaintiff played in the jury's decision.

During the trial, Mayola Williams' lawyer urged the jury to think about all the people in Oregon who had died or would die from smoking-related illnesses and suggested that Philip Morris was responsible for one-third of those deaths. Philip Morris asked the judge to instruct the jurors that they were "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." Instead he told them that "punitive damages are awarded against a defendant to punish misconduct and to deter misconduct," and "are not intended to compensate the plaintiff or anyone else for damages caused by the defendant's conduct."

Now the U.S. Supreme Court has sent the case back to the Oregon Supreme Court, which upheld the punitive damage award, instructing it to consider whether there were adequate safeguards to prevent the jury from considering injury to nonparties for the wrong reason:

How can we know whether a jury, in taking account of harm caused others under the rubric of reprehensibility, also seeks to punish the defendant for having caused injury to others? Our answer is that state courts cannot authorize procedures that create an unreasonable and unnecessary risk of any such confusion occurring. In particular, we believe that where the risk of that misunderstanding is a significant one—because, for instance, of the sort of evidence that was introduced at trial or the kinds of argument the plaintiff made to the jury—a court, upon request, must protect against that risk. Although the States have some flexibility to determine what kind of procedures they will implement, federal constitutional law obligates them to provide some form of protection in appropriate cases....Given the risks of unfairness that we have mentioned, it is constitutionally important for a court to provide assurance that the jury will ask the right question, not the wrong one.

The subtle distinction urged by the Court is apt to be lost on many, if not most, jurors. As a result, to quote the Court's decision, "the fundamental due process concerns to which our punitive damages cases refer—risks of arbitrariness, uncertainty and lack of notice—will be magnified." I tend to think those "fundamental due process concerns," which inevitably arise when a jury is asked to impose what amounts to a criminal punishment based on civil standards of proof with little or no statutory guidance, are the real problem.

I was surprised to see that New York Times legal columnist Adam Liptak (writing before this decision came down) seems to agree there is something inherently screwy about punitive "damages." But perhaps I shouldn't have been, given the way this issue has produced unexpected alliances on the Supreme Court. In addition to John Roberts, Samuel Alito, and Anthony Kennedy, the majority in the Philip Morris case included David Souter and Stephen Breyer (who wrote the decision). The dissenters, along with Ruth Bader Ginsburg and John Paul Stevens (who had joined earlier decisions limiting punitive damages), included Clarence Thomas and Antonin Scalia, both of whom have questioned the propriety and feasibility of deciding when punitive damages violate the Due Process Clause.

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  • Law and Economics||

    I recommend David Friedman's explanation of punitive damages in Law's Order: What Economics has to do with the Law and Why it Matters.

    Or take a look at his essay on the subject here: http://www.daviddfriedman.com/Academic/Punitive/Punitive.html.

    We have now seen why the efficient level of damages is not, in general, equal to the harm done by the tort, once litigation costs are taken into account. If the supply of offenses is highly inelastic, it requires a large increase in damages and resulting litigation costs to deter one more offense. It is not worth paying that price to deter an offense that is only slightly inefficient--a thousand dollar accident that could be prevented only at a cost of nine hundred and ninety dollars. It is worth paying it to deter a very inefficient offense--a thousand dollar accident that would cost only a hundred dollars to prevent. The efficient damage payment is substantially less than the harm done, so as to deter only very inefficient offenses.

    If the supply of offenses is elastic, on the other hand, increasing the level of damages actually decreases litigation cost, since the decrease in the number of offenses outweighs the increase in litigation cost per offense. In this case, it is worth accepting the cost of deterring offenses even when doing so produces a small net cost (a thousand dollar accident that costs eleven hundred dollars to prevent) in order to avoid the cost of litigating them. We do so by setting the level of damages above the amount of harm done. Offenses that it is very costly to prevent (a thousand dollar accident that would cost ten thousand dollars worth of precautions to prevent) still occur--and should.

  • Xanthippas||

    I think the subtle distinction will be completely lost on almost every juror. Honestly, I'm not sure why the Supreme Court took this case if they only issue they were going to address was the juror's consideration of harm to other persons. Parsing the three guideposts to say you can consider in one element, but not in another, doesn't really help. To be fair, the Supreme Court was constrained by their prior holdings from seriously limiting the ratio of punitive damages to compensatory damages even if they wanted to, but to not even address the issue at all? To me this business about harm to other persons is an out. It's also only half a victory for Philip Morris, as it's likely that there's going to be a new trial in which a jury could avoid considering the harm to other persons besides the plaintiff and STILL award a large amount of punitive damages.

  • ||

    I think I see the court's point: the jurors were encouraged by the plaintiff's attorney (and by the judge, who didn't rein him in) to punish Philip Morris for deaths that were not before the court. If the jury did do this, in fact, the punitive damage is not excessive, assuming there might be tens of thousands of deaths. However, the plaintiff's attorneys were not suing on the behalf of those presumed dead people nor will they share in the judgement.

    This was not a class-action suit and the jury probably should have been advised to focus on the matter at hand.

  • ||

    violates the defendant's right to due process because he cannot defend against hypothetical damage claims by people who are not involved in the lawsuit.

    They should have just shut up at this point, because everything else is obfuscation and humbug.

  • ||

    I'd like to hear what the dissenters had to say, especially as the dissenting four were Ginsburgh, Stevens, Scalia and Thomas - a rather unusual combination, if they made a common dissent.

  • No Name Given||

    The Court's opinion is available here - http://www.supremecourtus.gov/opinions/06pdf/05-1256.pdf

  • ||

    "the dissenting four were Ginsburgh, Stevens, Scalia and Thomas - a rather unusual combination,"

    The Solictor General said that newspapers typically divide the court between liberals and conservatives, but that he found it better to categorize justices as idealists or pragmatists. The four justices here are the most idealistic on the court, which may explain why they're dissenting from a case which dodged a constitutional issue which has dogged the court for years--namely when are punitive damages an "excessive fine?"

  • ||

    One 'tort reform' that tickles my fancy is to allow punitive damages (maybe limited to a single-digit multiple), but pay the damages to the government -- into a special fund, for those who don't understand fungibility -- and further, make them exempt from contingency fees. So everyone gets a taste, but the attorneys get their cut only on actual damages (double & treble where mandated); no one wins the litigation lottery; and the jury still gets to 'send a message' if it wants to.

  • ||

    It's really not surprising at all that Ginsburg, Scalia, and Thomas would dissent here. The punitive damages line of cases (BMW v. Gore, State Farm, and now this) are rooted in substantive DP. Simply stated, neither Scalia nor Thomas believe in substantive DP, which they see as purely procedural ("due process" ought to be procedural rather than substantive). I think many people would be surprised to learn that Ginsburg also isn't a huge fan of substantive DP -- she would probably move the Roe line to "Equal Protection" if she had the chance.

    Justice Stevens is the only real wild card here. As I recall, he wrote the majoriy opinion BMW v. Gore, so I'm curious how he distinguishes this case.

  • ||

    Ooops, forgot to close my html tag. Only "process" ought to be bold.

  • ||

    One 'tort reform' that tickles my fancy is to allow punitive damages (maybe limited to a single-digit multiple), but pay the damages to the government -- into a special fund, for those who don't understand fungibility -- and further, make them exempt from contingency fees.

    I agree, and Oregon already does this (don't know if other states do). It has been challenged in Oregon courts on various grounds (Takings Clause and Excessive Fines Clause, to name two) and been repeatedly upheld.

  • ||

    I should add, however, that Oregon only allocates a little over half of the punitives to the state criminal victims' fund. The plaintiffs/attorneys still get to keep half of their windfall.

  • ||

    Maybe I am ignorant of the point of "punitive damages", but I thought that the reason they exist and are awarded is so that they can punish the company and deter them and other companies from doing this type of bad thing in the future.

    No when people advocate things like limiting them to a multiplier of compensatory damages, I have to scratch my head. Where does this arbitrary limit come from?? A jury should be allowed to award whatever they see fit in order to punish a company when they act in bad faith regardless of the actual $ amount of harm caused to the plaintiff. And if the company and is sufficiently large and has deep enough pockets, a factor of 5X compensatory or might not even be a big enough hit to deter them (or others) from acting that way in the future.

    I'll grant that the the question of whether or not the jury decided to punish Philip Morris for deaths that were not before the court might be a valid one, but I don't see how that should never be taken into account when deciding how to punish a company for acting in bad faith. Nor is it obvious to me that the jury did in fact use that as part of the rationale for awarding such a large amount as punitive damages. I imagine that could easily have been remedied by a judge telling the jury to not consider how others may have been affected.

    Lastly, I am really uncomfortable with a judge changing jury awards to what they deem to be an "appropriate" amount. I thought appeals court can only rule on whether or not procedures where followed and the trial was fair. Either overturn the verdict or uphold it, not change the damages awarded to some arbitrarily defined "proper" amount. How does one define unconstitutionally excessive amount ?

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