Wednesday, February 21, 2007

Punitive Damages Not Recoverable for Injury to Nonparties: Supreme Court

This posting was written by William Zale, editor of CCH Advertising Law Guide.

The U.S. Supreme Court has vacated a state court jury's $79.5 million punitive damages award against tobacco company Philip Morris in a wrongful death action. The Due Process Clause of the U.S. Constitution prohibited an award of punitive damages based in part on harm to nonparties, the Court held.

The action was brought by the widow of a man who died of lung cancer, caused by cigarette smoking. She claimed that Philip Morris committed fraud by using its advertising power in a 40-year publicity campaign to undercut published concerns about the dangers of smoking. A jury found Philip Morris liable for its deceit in knowingly and falsely leading the decedent to believe that smoking was safe, awarding $821,000 in compensatory damages and $79.5 million in punitive damages.

The Oregon Supreme Court upheld the punitive damage award, stating that it comported with due process, in view of the extreme and outrageous conduct by Philip Morris (CCH Advertising Law Guide ¶62,127). Philip Morris then requested Supreme Court review, asking (among other things) whether due process permits a jury to punish a defendant for the effects of its conduct on nonparties.

On review, the U. S. Supreme Court acknowledged that evidence of actual harm to nonparties was admissible to show that the conduct harming the plaintiff also posed a risk of substantial harm to the general public, and thus was particularly reprehensible. However, contrary to the view of the Oregon Supreme Court, there was no authority supporting the use of punitive damages for the purpose of punishing a defendant for harm to nonparties, the Court said.

The trial court refused the company's proposed instruction that the jury could not seek to punish Philip Morris for injury to other persons not before the court. The plaintiff's attorney told the jury that cigarettes were going to kill one in every ten smokers and that Philip Morris' market share would account for one of every three killed.

The Due Process clause required that states provide assurance that juries do not impose punishment for harm caused to strangers, the Court held. How could it be known whether a jury, in taking account of harm to others under the rubric of reprehensibility, also sought to punish the defendant for having caused injury to others? The answer, according to the Court, was that state courts could not authorize procedures that would create an unreasonable and unnecessary risk that any such confusion would occur.

In particular, where the risk of that misunderstanding was a significant one (because of the evidence or arguments made to the jury), the trial court, upon request, was required to protect against that risk. Although the states had some flexibility in determining what kind of procedures they would implement, federal constitutional law obligated them to provide some form of protection in appropriate cases, the Court determined.

The Court left undecided whether the $79.5 million award was “grossly excessive” under the Constitution. The Court remanded the case to the Oregon Supreme Court to determine whether a new trial was required or whether the amount of the award should be changed.

The decision, Philip Morris USA v. Williams, No. 05-1256, February 20, 2007, will be reported in the CCH Advertising Law Guide.

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