On February 20, 2007, Philip Morris won temporary reprieve
when the Supreme Court vacated a jury award of $79.5
million in punitive damages to the widow of a deceased
smoker, Jesse Williams. The Court held that the award,
which was based at least in part on the jury’s desire to
punish Philip Morris for harm its products inflicted on other
smokers, not just on Williams, violated the Due Process
Clause of the Fourteenth Amendment. Philip Morris USA
v. Williams, 549 U.S. ___ (2007) (No. 05-1256, February
20, 2007) (slip op. at 1). The ruling sends the case back to
the Oregon Supreme Court for reconsideration. Notably,
however, the Court did not decide the issue most pressing
for business: whether the nearly 100-to-1 ratio of punitive to
compensatory damages was "grossly excessive."
Williams's widow filed suit in Oregon for negligence and
deceit against Philip Morris, alleging that Williams smoked
in significant part because Philip Morris led him to believe
that it was safe. The jury found Philip Morris and Williams
(who had smoked for 42 years) equally negligent for his
death, but also that Philip Morris engaged in deceit in
the form of systemic, widespread fraud. The jury awarded
$821,000 in compensatory damages for the negligence
and fraud claims, plus $79.5 million in punitive damages
for the fraud claim alone. The trial court found the punitive
damages award "excessive" and reduced it to $32 million.
The Court of Appeals reinstated the $79.5 million punitive
damages award, and the Oregon Supreme Court affirmed.
The Court vacated the award and announced a new rule of
punitive damages: a jury may not use a punitive damages
award to punish a defendant directly for harm caused to
strangers to the litigation. Id. at 5. To permit punishment
for injuries to nonparty victims would deny the defendant
an opportunity to defend against those alleged harms and
would add a "near standardless dimension to the punitive
damages equation," magnifying the risks of arbitrariness,
uncertainty, and lack of notice which are the hallmark Due
Process concerns in punitive damages cases. Id. at 5-6.
The Oregon Supreme Court's authorization of the punitive
damages award was premised, at least in part, on punishing
Philip Morris for harms visited on nonparties. See id. at 9.
Accordingly, the Supreme Court held that the award violated
the Due Process Clause of the Constitution.
On the other hand, the Court confirmed that a plaintiff
may introduce evidence of harm to nonparties in order to
demonstrate that the defendant's conduct was particularly
reprehensible. Reprehensibility is the first "guidepost"
courts consider in reviewing whether a punitive damages
award is grossly excessive, and indeed is the most important
indicium of the reasonableness of such an award. State
Farm Mutual Auto. Ins. Co. v. Campbell, 538 U.S. 408, 419
(2003). Thus, it was proper for the jury to consider harms
to other people based on Philip Morris's campaign to hide
the adverse health effects of smoking—though only when
determining what the reasonable relationship is between the
punitive award and harm to the plaintiff.
The Court noted the inherent practical problem resulting
from application of two rules: "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?"
The Majority answered that courts must implement adequate
procedural limitations in addition to limiting amounts
forbidden as "grossly excessive." Philip Morris, 549 U.S.
__ (slip op. at 5). Thus, in cases in which evidence of harm
to nonparties is introduced, some protection (i.e., an
appropriate jury instruction, such as the instruction Philip
Morris requested) is required to ensure that juries are simply
determining reprehensibility and not also punishing for
harm caused to strangers. Id. at 8, 9.
The ruling was not as sweeping as Philip Morris hoped,
however, as the Court did not determine if the award
was "grossly excessive" under the three "guideposts"
for assessing the reasonableness of punitive damages.
In particular, the second "guidepost" looks at the ratio
between the harm to the plaintiff and the punitive damages
award. Here, punitive damages were nearly 100 times more
than the compensatory damages awarded in the case, and
many in business were looking for the Court to entrench as a bright-line rule that "few awards exceeding a single-digit
ratio between punitive and compensatory damages  will
satisfy due process." Campbell, 538 U.S. at 425. With the
Court's ruling focused on procedural safeguards, rather than
substantive caps on jury verdicts, the practical import of the
case may be limited.
The opinion is at: http://www.supremecourtus.gov/opinions/06pdf/05-1256.pdf
Jennifer Kelly, Senior Associate, Litigation Group
Candace Morey, Associate, Litigation Group
©2007 Fenwick & West LLP. All Rights Reserved.
This update is intended by Fenwick & West LLP to
summarize recent developments in the law. It is not
intended, and should not be regarded, as legal advice.
Readers who have particular questions about these
issues should seek advice of counsel.