Business Law and the Regulation of Business 11th Edition by Richard Mann, Barry Roberts

Exercise 26

FACTS This lawsuit arises out of the death of Jesse Williams, a heavy cigarette smoker. Williams' widow represents his estate in this state lawsuit for negligence and deceit against Philip Morris, the manufacturer of Marlboro, the brand that Williams smoked. A jury found that Williams' death was caused by smoking; that Williams smoked in significant part because he thought it was safe to do so; and that Philip Morris knowingly and falsely led him to believe that this was so. The jury found that both Philip Morris and Williams were negligent and that Philip Morris had engaged in deceit. In respect to deceit, it awarded compensatory damages of about $821,000 along with $79.5 million in punitive damages.
The trial judge subsequently found the $79.5 million punitive damages award ''excessive'' and reduced it to $32 million. Both sides appealed. The Oregon Court of Appeals rejected Philip Morris' arguments and restored the $79.5 million jury award. Subsequently, the Oregon Supreme Court rejected Philip Morris' arguments that the trial court should have instructed the jury that it could not punish Philip Morris for injury to persons not before the court and that the roughly 100:1 ratio of the $79.5 million punitive damages award to the compensatory damages amount was ''grossly excessive.''
The U.S. Supreme Court granted Philip Morris certiorari on its claims that (1) Oregon had unconstitutionally permitted it to be punished for harming nonparty victims; and (2) Oregon had in effect disregarded ''the constitutional requirement that punitive damages be reasonably related to the plaintiff's harm.''
DECISION The Oregon Supreme Court's judgment is vacated, and the case is remanded.
OPINION Breyer J. This Court has long made clear that ''punitive damages may properly be imposed to further a State's legitimate interests in punishing unlawful conduct and deterring its repetition.'' [Citations.] At the same time, we have emphasized the need to avoid an arbitrary determination of an award's amount. Unless a State insists upon proper standards that will cabin the jury's discretionary authority, its punitive damages system may deprive a defendant of ''fair notice … of the severity of the penalty that a State may impose,'' [citation]; it may threaten ''arbitrary punishments,'' i.e., punishments that reflect not an ''application of law'' but ''a decisionmaker's caprice,'' [citation]; and, where the amounts are sufficiently large, it may impose one State's (or one jury's) ''policy choice,'' say as to the conditions under which (or even whether) certain products can be sold, upon ''neighboring States'' with different public policies, [citation]
For these and similar reasons, this Court has found that the Constitution imposes certain limits, in respect both to procedures for awarding punitive damages and to amounts forbidden as ''grossly excessive.'' [Citation] (requiring judicial review of the size of punitive awards); [citation] (review must be de novo); [citation] (excessiveness decision depends upon the reprehensibility of the defendant's conduct, whether the award bears a reasonable relationship to the actual and potential harm caused by the defendant to the plaintiff, and the difference between the award and sanctions ''authorized or imposed in comparable cases''); [citation] (excessiveness more likely where ratio exceeds single digits). Because we shall not decide whether the award here at issue is ''grossly excessive,'' we need now only consider the Constitution's procedural limitations.
In our view, 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 or those whom they directly represent, i.e., injury that it inflicts upon those who are, essentially, strangers to the litigation.
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*** [W]e can find no authority supporting the use of punitive damages awards for the purpose of punishing a defendant for harming others. We have said that it may be appropriate to consider the reasonableness of a punitive damages award in light of the potential harm the defendant's conduct could have caused. But we have made clear that the potential harm at issue was harm potentially caused the plaintiff. [Citation] (''We have been reluctant to identify concrete constitutional limits on the ratio between harm, or potential harm, to the plaintiff and the punitive damages award'') ***
*** 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-although counsel may argue in a particular case that conduct resulting in no harm to others nonetheless posed a grave risk to the public, or the converse. 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.
*** 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.
The instruction that Philip Morris said the trial court should have given distinguishes between using harm to others as part of the ''reasonable relationship'' equation (which it would allow) and using it directly as a basis for punishment. The instruction asked the trial court to tell the jury that ''you may consider the extent of harm suffered by others in determining what [the] reasonable relationship is'' between Philip Morris' punishable misconduct and harm caused to Jesse Williams, ''[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.…'' [Citation.] And as the Oregon Supreme Court explicitly recognized, Philip Morris argued that the Constitution ''prohibits the state, acting through a civil jury, from using punitive damages to punish a defendant for harm to nonparties.'' [Citation.]
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As the preceding discussion makes clear, we believe that the Oregon Supreme Court applied the wrong constitutional standard when considering Philip Morris' appeal. We remand this case so that the Oregon Supreme Court can apply the standard we have set forth. Because the application of this standard may lead to the need for a new trial, or a change in the level of the punitive damages award, we shall not consider whether the award is constitutionally ''grossly excessive.''
INTERPRETATION In most states, a jury may award punitive damages if a defendant's tortious conduct is intentional and outrageous, but the amount of damages must not be grossly excessive and may not punish the defendant for harm caused to parties other than the plaintiff.
ETHICAL QUESTION Is it ethical to impose punishment in a civil case without the protections provided to defendants in a criminal proceeding? Explain.
CRITICAL THINKING QUESTION Can juries be adequately instructed to make the distinction required by the U.S. Supreme Court? Explain.