March 2008

On February 20, 2007, Philip Morris won a (perhaps temporary) victory when the U.S. Supreme Court reversed a $79.5 million punitive damage verdict award involving the death of a single Oregon smoker.

The case is the first since the 2003 ruling in re: State Farm vs. Campbell. The State Farm case specified that punitive damage awards that exceed compensatory damages by more than a 9-1 ratio were improper. However, the State Farm case also said that the reprehensibility of defendant’s conduct could also be considered. Some interpreted that the factors described in State Farm could be applied independently. Consequently, some state and federal courts varied widely in their interpretations of the State Farm decision when corporate conduct was egregious, by allowing punitive damages of far more than a single-digit ratio.

In Philip Morris USA vs. Mayola Williams, No. 05-1256, Jesse Williams died of lung cancer in 1997 at the age of 62, after smoking for 42 years. His widow sued the company, claiming that her husband continued to smoke in part because of public assurances from Philip Morris that cigarettes do not cause cancer. The jury awarded $821,485 of compensatory damages, and $79.5 million of punitive damages (a 97 times multiple). Although the Court lowered the punitive damages to $32 million and compensatory damages to $521,485 (because of Oregon’s statutory damage limitations), the resulting 61 times multiple remained considerably higher than the State Farm guidelines.

The Oregon Supreme Court upheld the verdict by applying the guideposts of (i) State Farm, and (ii) an earlier punitive damage ruling in re: BMW of North America vs. Gore, (517 U.S. 559 (1996)). In BMW, the U.S. Supreme Court provided a multiple part test that required courts to weigh:

1. The reprehensibility of the defendant’s conduct,
2. The relationship between the harm suffered by the victim and the amount of punitive damages, and
3. The relationship between the size of the punitive damage award and civil or criminal penalties that could be imposed for the defendant’s conduct.

In its appeal, Philip Morris argued that the analysis allowed by Oregon’s Supreme Court would improperly allow limitless punitive damages so long as a high degree of reprehensibility is found. The U.S. Supreme Court agreed with this position and decided that the Oregon award violated the Due Process Clause of the Fourteenth Amendment.

The U.S. Supreme Court was concerned that the jury heard argument that punitive damages could be based on other injured parties that were not part of the current trial. Philip Morris raised this issue at trial by asking for a jury instruction that:

“The size of any punishment should bear a reasonable relationship to the harm caused to Jesse Williams by the defendant’s punishable misconduct. Although you may consider the extent of harm suffered by others in determining what that reasonable relationship is, 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 and award punitive damages for those harms, as such other juries see fit.”

The trial court rejected this instruction and instead instructed the jury that “…punitive damages are awarded against a defendant to punish misconduct and to deter misconduct …

[Punitive damages] are not intended to compensate the plaintiff or anyone else for damages caused by the defendant’s conduct.”

In spite of this instruction, plaintiff’s counsel was allowed to argue that:

“… think about how many other Jesse Williams in the last 40 years in the State of Oregon there have been. … In Oregon, how many people do we see outside, driving home … smoking cigarettes? … [Cigarettes] are going to kill ten [percent of them].”

The Supreme Court’s 5 to 4 ruling did not address the expected issue of whether the almost 100 multiple of punitive damages was “grossly excessive” under the prior punitive damage precedents. Since this issue was so obvious in this case, one might speculate that there are not currently five votes on the Supreme Court who support a strict single-digit punitive damage multiple.

The current ruling sends the case back to the Oregon Supreme Court for reconsideration. Interestingly, this is the second time the Williams case has gone to the U.S. Supreme Court. In 2003, the U.S. Supreme Court told the Oregon courts to reconsider the award in light of the State Farm ruling. The Oregon Supreme Court then upheld the award a second time.

Fulcrum Inquiry performs forensic accountings and damages analysis. We have addressed punitive damages in a wide variety of situations for both plaintiffs and defendants.