New Supreme Court Decision on Punitive Damages

March 1, 2007

On February 20, 2007, the United States Supreme Court in a 5-4 decision set forth a new rule that state courts must use when permitting a jury to consider evidence of the conduct of the defendant to nonparties to the litigation to determine whether punitive damages are warranted and the amount of punitive damages to award the plaintiff.  In Philip Morris USA v. Williams, 2007 U.S. LEXIS 1332 (U.S. 2007), the Court set forth this new rule, but gave no instruction or guidance to state courts on how to implement it.  And in so doing, the Court has created a quagmire for state courts.  State courts have to permit a jury to consider evidence of conduct of a defendant to nonparties, but at the same time ensure that the jury is not awarding the plaintiff damages for harm caused to other individuals that may have been harmed from the defendant’s conduct and that may bring their own lawsuits for their injuries.

Decedent, Jesse Williams was a heavy smoker.  His widow filed a lawsuit in Oregon state court against Philip Morris claiming his death was caused by his smoking.  The jury found that smoking caused Mr. Williams' death and that Philip Morris knowingly and falsely led Mr. Williams to believe that smoking was safe.  During the trial the plaintiff’s attorney told the jury to think about how many other Jesse Williams there were out there.  The jury awarded Mr. Williams' widow $821,000 in compensatory and $79.5 million in punitive damages.  Prior to the jury beginning deliberations, Philip Morris requested the judge instruct the jury that when considering punitive damages that it may consider the extent of harm suffered by others in determining what the reasonable relationship is between any punitive award and the harm caused to Mr. Williams, but it is 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.  The judge rejected this instruction and instead instructed the jury that punitive damages are awarded against a defendant to punish misconduct and deter misconduct and are not intended to compensate the plaintiff or anyone else for damages caused by the defendant’s conduct.

After going through the Oregon appellate courts, Philip Morris sought certiorari to the Supreme Court and asked the Supreme Court to consider 1) that Oregon had unconstitutionally permitted it to be punished for harming nonparty victims, and 2) that Oregon had in effect disregarded the constitutional requirement that punitive damages are reasonably related to the plaintiff’s harm.  The Supreme Court only considered the first of these two questions, but in dicta discussed its holding in State Farm Mut. Automobile Ins. Co. v. Campbell, 538 U.S. 408 (2003) that the Constitution forbids grossly excessive awards, which would likely occur when the ratio of punitive to compensatory damages is greater than single digits.  The ratio of punitive to compensatory damages in Williams was 100 to 1.

In establishing the new rule in Williams, the Court held that a “punitive damages award based in part on a jury’s desire to punish a defendant for harming nonparties amounts to a taking of property from the defendant without due process.” Williams, 2007 U.S. LEXIS 1332, Syllabus 1.  The Due Process Clause forbids a state from using punitive damages to punish a defendant for injury that it inflicts upon nonparties to the litigation, such as others that have been harmed by use of the product or conduct in question.  Id., at *13.  To do so would punish the defendant without first providing the defendant with “an opportunity to present every available defense.”  Id. , citing Lindsey v. Normet, 405 U.S. 56, 66 (1972) (internal quotation marks omitted).  Additionally, permitting punishment for injury to a nonparty victim “would add a near standardless dimension to the punitive damages equation”, which would leave the jury to speculate. Id. at *14.  This would magnify the fundamental due process concerns that awarding punitive damages would be arbitrary, uncertain and fail to give the defendant proper notice.  Id.       

Still, a jury is permitted to consider the harm caused by the defendant’s product or conduct to nonparty individuals to determine the reprehensibility of the defendant’s conduct.  Williams, 2007 U.S. LEXIS 1332, *16.  Harm to many may show more reprehensible conduct of the defendant.  Id.   Even so, the Court makes clear that when considering out-of-state conduct and harm to nonparties, the jury may go no further than using it to determine reprehensibility and may not use it to punish a defendant directly for the harm caused to the nonparties.  The Court stated that “[g]iven the risk of unfairness…it is constitutionally important for a Court to provide assurance that the jury will ask the right question, not the wrong one…” and “…the Due Process Clause requires States to provide assurance that juries are not asking the wrong questions, i.e., seeking, not simply to determine reprehensibility, but also to punish for harm caused strangers.”  Id. at *16-17.  To accomplished this, state courts must refuse to authorize procedures that create an unreasonable and unnecessary risk of any such confusion occurring.  Id. at *20.    The Oregon court failed to do this, and the Supreme Court vacated the judgment and remanded the case back to the Oregon state court.

But, as Justice Stevens writes in his dissent, the “nuance eludes me.” Williams, 2007 U.S. LEXIS 1332, *25.  Justice Stevens ’ confusion is easily understood.  Isn’t awarding a greater amount of punitive damages because of the defendant’s more reprehensible conduct to nonparties the equivalent of punishing a defendant for harm to nonparties?  Further, since the Court only sets forth the rule but does not provide any way to ensure that it is followed, how are state courts to ensure compliance with the rule?  There will be no consistency amongst state courts on how to accomplish this.  Thus, the quagmire created by the Court.  State courts must follow the rule, but have no way of knowing how to do so.

This decision provides defendants with further support to request very specific jury instructions on punitive damages that will hopefully negate any flamboyant and inflammatory arguments from plaintiffs counsel during trial, such as “think about how many other Jesse Williams there are out there.”  But at the same time, it provides further support that a defendant’s conduct towards nonparties is discoverable and admissible to determine the reprehensibility of the defendant.  Defendants often argue under State Farm that such conduct is not admissible and therefore, not discoverable.  With this decision, stronger arguments for discovery related to a defendant’s conduct to nonparties can be made.  But, since this evidence should only be used to determine the reprehensibility of a defendant’s conduct to award punitive damages, an argument can be made that discovery related to conduct to nonparties should only occur after first proving liability of the defendant to the plaintiff.  When a claim for punitive damages is made, the defendant could seek bifurcation and ask for separate discovery and trial on liability and damages.  This way, discovery of conduct to nonparties used to determine punitive damages should only be conducted after discovery and a trial on liability.  Although, proceeding in this fashion does not further judicial efficiency and economy, it along with a proper jury instruction on punitive damages is arguably one way that a court can refrain from authorizing a procedure that creates an unreasonable and unnecessary risk that the jury punishes a defendant for harm caused to nonparties in violation of the rule established in Williams.

For further information, please contact Steve Gracey at sgracey@fbtlaw.com.

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