Punitive Damage Primer and Update

1
Punitive Damage Primer and Update

• Ellen Relkin
• Weitz Luxenberg, P.C.
• New York, NY and Cherry Hill NJ

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BMW OF NORTH AMERICA, INC. v. GORE517 U.S. 559
(1996)

• automobile purchaser brought action against
  foreign automobile manufacturer, distributor and
  dealer based on distributor's failure to disclose
  that automobile had been repainted after being
  damaged prior to delivery.
• jury verdict awarded buyer compensatory damages
  of 4,000 and punitive damages of 4,000,000.
• the Alabama Supreme Court conditionally affirmed
  punitive damage award after reducing award to
  2,000,000

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BMW v Gore holding

• Justice Stevens, held
• (1) lawful conduct by distributor outside state
  of Alabama could not be considered by Alabama
  court in making award of punitive damages
• (2) award of 2,000,000 punitive damages was
  grossly excessive in light of low level of
  reprehensibility of conduct and 500 to 1 ratio
  between award and actual harm to purchaser.

4
Gore Constitutionality Analysis

• The relevant constitutional line is inherently
  imprecise, but, in deciding whether that line has
  been crossed, the Court focused on
• (1) the degree of the defendant's
  reprehensibility or culpability
• (2) the relationship between the penalty and the
  harm to the victim caused by the defendant's
  actions
• (3) the sanctions imposed in other cases for
  comparable misconduct.

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Gore Out of State, Out of Case?

• Principles of state sovereignty and comity
  forbid a State to enact policies for the entire
  Nation, or to impose its own policy choice on
  neighboring States.
• Accordingly, the economic penalties that a
  State inflicts on those who transgress its laws,
  whether the penalties are legislatively
  authorized fines or judicially imposed punitive
  damages, must be supported by the State's
  interest in protecting its own consumers and
  economy, rather than those of other States or the
  entire Nation. Gore's award must therefore be
  analyzed in the light of conduct that occurred
  solely within Alabama, with consideration being
  given only to the interests of Alabama consumers.
  

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But, as to Reprehensibility

• While a state court in making an award of
  punitive damages may not consider lawful conduct
  by defendant outside of state, evidence of
  defendant's out-of-state actions is relevant to
  the determination of degree of reprehensibility
  of defendant's conduct, which is factor in
  analyzing whether award is grossly excessive and
  in violation of due process clause BMW v Gore

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More Gore

• None of the aggravating factors associated with
  the first (and perhaps most important) indicium
  of a punitive damages award's excessiveness-the
  degree of reprehensibility of the defendant's
  conduct is present.
• The harm BMW inflicted on Gore was purely
  economic the presale repainting had no effect on
  the car's performance, safety features, or
  appearance
• BMW's conduct evinced no indifference to or
  reckless disregard for the health and safety of
  others

8
COOPER INDUSTRIES v.LEATHERMAN TOOL GROUP,
INC.532 U.S. 424 (2001)

• Manufacturer of multifunction hand tool sued
  competitor for false advertising.
• The jury awarded 50,000 in compensatory damages
  and 4.5 million in punitive damages.
• The US District Court of Oregon, rejected
  competitor's claim that punitive damage award was
  unconstitutionally excessive.
• The Ninth Circuit affirmed punitive damage award,
  concluding that district court's refusal to
  reduce award was not abuse of discretion.
• The Supreme Court, Justice Stevens, held that
  Court of Appeals should apply de novo standard
  when reviewing district court's determination of
  constitutionality of punitive damage award.
  Verdict vacated and remanded.

9
Leatherman Holding

•   Courts of Appeals should apply a de novo
  standard when reviewing district court
  determinations of the constitutionality of
  punitive damages awards. The Ninth Circuit erred
  in applying the less demanding abuse-of-discretion
  standard in this case.

10
STATE FARM v. CAMPBELL 538 U.S. 408 (2003)

• Insureds brought action against automobile
  liability insurer to recover for bad-faith
  failure to settle within the policy limits,
  fraud, and intentional infliction of emotional
  distress. Following remand from the Court of
  Appeals of Utah, trial court entered judgment on
  jury verdict in favor of insureds, but remitted
  punitive and compensatory damages.
• The Supreme Court of Utah, reinstated jury's
  punitive damage award. The United States Supreme
  Court, held that award of 145 million in
  punitive damages on 1 million compensatory
  judgment violated due process.

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State Farm Facts

• Although investigators found that Curtis Campbell
  caused an accident in which one person was
  killed and another permanently disabled, his
  insurer, State Farm ), contested liability,
  declined to settle the ensuing claims for the
  50,000 policy limit, and took the case to trial,
  assuring Campbell and his wife that they had no
  liability for the accident, that State Farm would
  represent their interests, and that they did not
  need separate counsel.
• A jury returned a judgment for over three times
  the policy limit, and State Farm refused to
  appeal. The Utah Supreme Court denied Campbell's
  own appeal, and State Farm paid the entire
  judgment. The Campbells then sued State Farm for
  bad faith, fraud, and intentional infliction of
  emotional distress and one million in
  compensatory but 145 million in punitive damages
  were awarded.

12
State Farm The Ratio

• With regard to the second Gore guidepost, the
  Court has been reluctant to identify concrete
  constitutional limits on the ratio between harm,
  or potential harm, to the plaintiff and the
  punitive damages award but, in practice, few
  awards exceeding a single-digit ratio between
  punitive and compensatory damages will satisfy
  due process.
• Single-digit multipliers are more likely to
  comport with due process, while still achieving
  the State's deterrence and retribution goals,
  than are awards with 145-to-1 ratios, as in this
  case

13
Out of Utah Conduct

• The case was used as a platform to expose, and
  punish, the perceived deficiencies of State
  Farm's operations throughout the country.
  However, a State cannot punish a defendant for
  conduct that may have been lawful where it
  occurred
• Nor does the State have a legitimate concern in
  imposing punitive damages to punish a defendant
  for unlawful acts committed outside of its
  jurisdiction.
• Lawful out-of-state conduct may be probative when
  it demonstrates the deliberateness and
  culpability of the defendant's action in the
  State where it is tortious, but that conduct must
  have a nexus to the specific harm suffered by the
  plaintiff.
• Due process does not permit courts to adjudicate
  the merits of other parties' hypothetical claims
  under the guise of the reprehensibility analysis.
  Punishment on these bases creates the possibility
  of multiple punitive damages awards for the same
  conduct

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PHILIP MORRIS v. WILLIAMS549 U.S. 346 (2007)

• Procedural History (rollercoaster ride)
• Cigarette smoker's widow brought state lawsuit
  against cigarette manufacturer for negligence and
  deceit and seeking compensatory and punitive
  damages for smoking-related lung cancer death of
  her usband. After jury found in widow's favor,
  the Oregon Circuit Court, reduced punitive
  damages award from 79.5 million to 32 million,
  and award of non-economic damages from 800,000
  to 500,000.
• The Court of Appeals of Oregon reinstated jury's
  verdict and affirmed on cross-appeal, adhered to
  its ruling on reconsideration, but the United
  States Supreme Court granted certiorari, vacated
  Court of Appeals decision, and remanded for
  reconsideration in light of intervening opinion,
  On remand, the Court of Appeals reversed and
  remanded and affirmed on cross-appeal, and after
  allowing review the Supreme Court of Oregon,
  affirmed

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Williams Holding

• (1) punitive damages award based in part on
  jury's desire to punish defendant for harming
  nonparties amounted to a taking of property from
  defendant without due process, and
• (2) because Oregon Supreme Court's application of
  the correct legal standard might lead to new
  trial or change in level of punitive damages
  award, United States Supreme Court would not
  consider question of whether the existing award
  was constitutionally grossly excessive.

16
EXXON SHIPPING COMPANY v. BAKER et al.128 S.Ct.
2605 (2008)

• After third remand for reconsideration of
  punitive damages in a suit arising from the 1989
  grounding of an oil supertanker in Alaska, the
  United States District Court entered a 4.5
  billion award of punitive damages against oil
  company, and parties filed cross-appeals. The
  Ninth Circuit, vacated and remanded for reduction
  of the punitive damages award to 2.5 billion.

17
Exxon Valdez Holding

• (1) for an equally divided court, defendant could
  be liable in punitive damages for reckless acts
  of its managerial employees
• (2) Clean Water Act's (CWA) penalties for water
  pollution did not preempt maritime common law on
  punitive damages and
• (3) maximum award of punitive damages allowed
  under maritime law was equal to jury's award of
  507.5 million in compensatory damages.

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Exxon Valdez, maritime limitation

• The more promising alternative is to peg
  punitive awards to compensatory damages using a
  ratio or maximum multiple. This is the model in
  many States and in analogous federal statutes
  allowing multiple damages. The question is what
  ratio is most appropriate. An acceptable standard
  can be found in the studies showing the median
  ratio of punitive to compensatory awards. Those
  studies reflect the judgments of juries and
  judges in thousands of cases as to what punitive
  awards were appropriate in circumstances
  reflecting the most down to the least blameworthy
  conduct, from malice and avarice to recklessness
  to gross negligence. The data in question put the
  median ratio for the entire gamut at less than
  11, meaning that the compensatory award exceeds
  the punitive award in most cases. In a well
  functioning system, awards at or below the median
  would roughly express jurors' sense of reasonable
  penalties in cases like this one that have no
  earmarks of exceptional blameworthiness.
  Accordingly, the Court finds that a 11 ratio is
  a fair upper limit in such maritime cases .

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Important Exxon Discussion

• Although legal codes from ancient times through
  the Middle Ages called for multiple damages for
  certain especially harmful acts, modern Anglo-
  punitive damages have their roots in 18th-century
  English law and became widely accepted in
  American courts by the mid-19th century.
• The prevailing American rule limits punitive
  damages to cases of enormity, in which a
  defendant's conduct is outrageous, owing to gross
  negligence, willful, wanton, and reckless
  indifference for others' rights, or even more
  deplorable behavior. The consensus today is that
  punitive damages are aimed at retribution and
  deterring harmful conduct.

20
Exxon Valdez

• American punitive damages have come under
  criticism in recent decades, but the most recent
  studies tend to undercut much of it. Although
  some studies show the dollar amounts of awards
  growing over time, even in real terms, most
  accounts show that the median ratio of punitive
  to compensatory awards remains less than 11. Nor
  do the data show a marked increase in the
  percentage of cases with punitive awards.

21
In Re Simon, 2nd Circuitg 2005

• Jack B. Weinstein, Judge, which certified a
  nationwide non-opt-out class of smokers seeking
  only punitive damages under state law for
  defendants' alleged fraudulent denial and
  concealment of the health risks posed by
  cigarettes.
• 2nd Circuit decided the district court did not
  properly certify this class under Rule
  23(b)(1)(B).

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In RE Simon holding

• the order certifying this punitive damages class
  must be vacated because there is no evidence by
  which the district court could ascertain the
  limits of either the fund or the aggregate value
  of punitive claims against it, such that the
  postulated fund could be deemed inadequate to pay
  all legitimate claims, and thus plaintiffs have
  failed to satisfy one of the presumptively
  necessary conditions for limited fund treatment
  under Ortiz v. Fibreboard Corp., 527 U.S. 815,
  119 S.Ct. 2295, 144 L.Ed.2d 715 (1999)

23
Limited Punishment Theory

• The district court, in certifying the
  punitive damages class under Rule 23(b)(1)(B),
  cited recent scholarship and court decisions that
  have concluded that the theory of limited
  punishment supports a punitive damages class actio
  n.    211 F.R.D. at 184. Under this theory,
  the district court stated, the limited fund
  involved would be the constitutional cap on
  punitive damages, set forth in BMW v. Gore 517
  U.S. 559, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996)
  and related cases.  Id

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Is there a Problem? No

• Vioxx Example Notorious product and conduct
• The Court takes this opportunity to note that
  the jury's findings on liability are reasonable
  in this case. All three of the Plaintiff's claims
  revolve around the safety risks of Vioxx, what
  Merck knew about any such risks, when Merck knew
  this information, and what Merck should have done
  about it. Considering all of the evidence in the
  light most favorable to the Plaintiff, the Court
  concludes that the jury's findings for the
  Plaintiff on his negligent failure-to-warn and
  deceit-by-concealment claims were reasonable.
• In re Vioxx Products Liability Litigation448
  F.Supp.2d 737 (E.D.La.,2006)

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Vioxx Punitive Verdicts- Every compensatory
verdict also had a punitive verdict

• Ernst, wrongful death Texas State Ct. 26 million
  comp 229 mill punitive Reduced to 26.1 mill by
  trial court reversed on appeal pending further
  appeal
• McDarby v. Merck, NJ Atlantic Cty heart attack
  4.5 mill compensatory 9 mill punitive comp
  affd punitive revd under Buckman on further
  appeal
• Garza Death, Texas State Ct 7 million
  compensatory25 punitive reduced to 7.75 mill
  revd on appeal
• Barnett, Fedl MDL 50 million comp 1 mill
  punitive Remititur to 600,000 k compensatory and
  I mill punitive remained
• Humeston 20 million compensatory 27 million
  punitive settled post-trial
• ULTIMATELY LITIGATION SETTLED GLOBALLY