Wednesday, April 01, 2009

Punitive Damages Award Left Standing in Tobacco Advertising Fraud Case

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

The U.S. Supreme Court has left undisturbed a $79.5 million punitive damages award in an Oregon wrongful death suit against Philip Morris for deceit.

After granting review of the case in June 2008 and hearing oral argument in December, the Court on March 31 issued a one-sentence decision that review had been “improvidently granted.”

The suit was brought by a smoker’s widow, who 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.

Prior Decision Vacating Punitive Damages Award

In a 2007 decision in the case (CCH Advertising Law Guide ¶62,420), the Court vacated the punitive damages award on the ground that the Due Process Clause of the U.S. Constitution prohibited an award of punitive damages based in part on harm to nonparties. 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 Court remanded the case to the Oregon Supreme Court to determine whether a new trial was required or whether the amount of the punitive damages award should be changed.

Reinstatement by Oregon Supreme Court

The Oregon Supreme Court, in January 2008, reinstated the punitive damages award in full (CCH Advertising Law Guide ¶62,859). The court held that Philip Morris had failed to preserve for review any claim that the jury instructions actually given were erroneous.

Before the constitutional standard could be addressed, state law standards for instructing the jury on punitive damages had to be considered, the court determined. Philip Morris' proposed instruction was incorrect because it would have told the jury that (1) Oregon statutory factors for justifying a punitive damages award were discretionary (instead of mandatory) and (2) one factor to be considered was the motivation to make illicit profits (rather than the profitability of the misconduct). Thus, even if Philip Morris' instruction articulated the correct due process standard, it misstated Oregon law, and the trial court did not err by refusing to give it, the court concluded.

The Oregon Supreme Court’s 2008 decision is left standing by the U.S. Supreme Court’s March 31 decision.

The amount of Philip Morris’s liability reportedly has grown to over $150 million, by application of the interest on the damages award.

Further details on the decision in Philip Morris USA, Inc. v. Williams, No. 05-1256, March 31, 2009, will be reported in CCH Advertising Law Guide.

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