Punitive damages ruling: narrow, confusing victory for business

February 20, 2007, 11:01 PM UTC

Whenever the U.S. Supreme Court sets aside a punitive damages award on constitutional grounds, I suppose it must be seen as a victory for business. Still, while the Court’s 5-4 ruling today in Philip Morris v. Williams definitely qualifies–the Court set aside a $79.5 million punitive damage award that an Oregon state jury had tried to award the widow of one individual smoker–it’s a narrow ruling and, frankly, a confusing one.

First, and importantly, here’s what the ruling is not. It’s not a strengthening or even broad reaffirmation of the principle, articulated by the Court in 2003 (in State Farm v. Campbell), that punitive damages awards should generally be no more than nine times the amount awarded in compensatory damages. In this case, plaintiff Mayola Williams, was suing for the death of her husband, Jesse, who started smoking in 1950 and died of lung cancer in 1997. The jury awarded $821,000 in compensatory damages (of which $21,000 were economic and $800,000 noneconomic). So the punitive award here was almost 100 times the compensatory award. Nevertheless, none of the five majority justices reached the question of whether the award was excessive for that reason alone, and all four of the dissenters seemed comfortable ruling that it wasn’t, because of the egregiousness of the company’s wrongdoing–deceitfulness about the health hazards of smoking–presented at trial.

Instead, the majority, in an opinion by Justice Stephen Breyer, struck down the punitive damages award on the grounds that the Oregon courts may have improperly allowed the jury to base its award on its desire to punish Philip Morris for harming “persons who are not before the court”–i.e., thousands of other Oregonian smokers–and not just the plaintiff’s husband, Jesse Williams. Such an award for alleged harm to nonparties would unconstitutionally take Philip Morris’s property without due process, Breyer wrote.

What makes the ruling confusing, though, is that the majority conceded–as did even Philip Morris!–that it was perfectly proper for the Oregon jury to take into account harm the company caused to people who were not before the court in the course of gauging the “reprehensibility” of Philip Morris’s conduct, which is a proper factor to consider when setting a punitive damages award. So on the one hand a jury violates a defendant’s due process rights if it inflicts punishment for harm caused to nonparties, but on the other it can properly take into account “that conduct that risks harm to many is likely more reprehensible than conduct that risks harm to only a few.”

Get the difference? Neither do I. And neither did the dissenters. “This nuance eludes me,” wrote Justice John Paul Stevens, while Justice Ruth Bader Ginsburg, writing for the three other dissenters, said the distinction “slips from my grasp.”

The ruling sends the case back to the Oregon Supreme Court to determine what to do next, though Breyer’s implication was that it should order a new trial on punitive damages, at which a new jury would be read a puzzling instruction embodying today’s elusive holding.

One thing the ruling clearly does, however, is provide further proof that politically conservative justices are not necessarily pro-business justices. Today’s weird split had Justices John Roberts, Samuel Alito, Anthony Kennedy, and David Souter joining Breyer in the majority, while Justices Clarence Thomas, Antonin Scalia, Stevens, and Ginsburg were all in dissent.

In fact, what might be the ruling’s best news for the business community is that both of the newest justices–Chief Justice Roberts and Justice Alito–voted in the majority, for striking down the award. Since Justice Sandra Day O’Connor had been a strong advocate in favor of reining in punitive awards, there had been considerable interest in how the new Justices would come down on that question.

I had put calls into a few experts, but so far only one has been able to read the ruling and get back to me. Michael Lyle, the co-head of Weil Gotshal & Manges’s product liability and mass torts practice group, appears to see the ruling as a more unambiguous victory for business defendants than I had. (Weil Gotshal also worked on an amicus brief for the Washington Legal Foundation, a conservative, pro-business group.) “This is an important confirmation of the Supreme Court’s jurisprudence as it seeks to limit punitive damages,” says Lyle. He sees the “reprehensibility” half of the ruling–the part that does let juries look at harm to nonparties–as relevant mainly to determining whether “this is the kind of conduct we want to punish. Does it pose grave risk? But in terms of the dollar amount of the award,” he says, “you’re limited to looking at particulars before the court: this case; this conduct; this plaintiff; this defendant.”