Wednesday, November 01, 2006

Justices Weigh Limits on Punitive Damages

The New York Times
Justices Weigh Limits on Punitive Damages

WASHINGTON, Oct. 31 — The Supreme Court is accustomed to drawing fine lines. But during arguments on Tuesday on the limits the Constitution places on punitive damages, the proposed line between the permissible and the unconstitutional was so fine that the justices appeared close to giving up.

The result was that a case widely anticipated to produce the most important business ruling of the Roberts court so far looked likely instead to end with a trip back to the Oregon Supreme Court for clarification.

That court upheld an award of $79.5 million in punitive damages against the cigarette maker Philip Morris in a lawsuit brought by the widow of a man who smoked two packs of Marlboros every day for 45 years. The man, Jesse Williams, died five months after a diagnosis of inoperable lung cancer in 1996.

The jury had awarded his widow, Mayola, compensatory damages of $821,000, meaning that the ratio of punitive to compensatory damages was 97 to 1. That was far greater than the “single digit” ratio the Supreme Court placed at the outer limit of constitutionality three years ago, the last time it decided a punitive damages case.

Philip Morris’s lawyer, Andrew L. Frey, argued that the Oregon courts had allowed the jury to punish the company for the harm to other Oregon smokers who had not filed suit. Mr. Frey said this had allowed a single plaintiff’s case to be turned into “a one-way class action in which Philip Morris was exposed to global punishment by the jury without any of the protections of a class action.”

There was general agreement during the argument, including by Mrs. Williams’s lawyer, Robert S. Peck, that awarding damages on the basis of injury to nonplaintiffs was impermissible under the Supreme Court’s recent precedents.

But there was no agreement on whether that actually happened. Mr. Peck argued that the Oregon courts had simply permitted the jury to consider harm to others, not to impose “global punishment” but as part of its assessment of the “reprehensibility” of the cigarette company’s behavior, a factor that the Supreme Court’s precedents permit juries in punitive damages cases to consider.

The basis for the lawsuit was the claim that Philip Morris’s strategy of denying the connection between smoking and cancer deceived Mr. Williams into believing that he could safely keep smoking.

“This was a massive market-directed fraud driven by their rational and deliberate decisions at the highest levels of the company to deceive customers and knowingly endanger their health,” Mr. Peck told the justices. The Oregon Supreme Court, in upholding the award, called Philip Morris’s conduct “extraordinarily reprehensible, by any measure of which we are aware.”

The United States Supreme Court has been deeply split on the punitive damages question, with three justices, Antonin Scalia, Clarence Thomas and Ruth Bader Ginsburg, rejecting the idea that the Constitution’s guarantee of due process places a limit on what states can permit juries to award.

With the departure of William H. Rehnquist, the former chief justice, and Justice Sandra Day O’Connor, both of whom supported due process limits on punitive damages, the known margin of support for the court’s precedents fell to 4 to 3, with the views of Chief Justice John G. Roberts Jr. and Justice Samuel A. Alito Jr. unknown.

The court’s decision last May to hear the Philip Morris appeal, Philip Morris USA v. Williams, No. 05-1256, suggested an effort to find a new center of gravity on an issue of considerable interest to the business community.

But the problem that emerged during Tuesday’s argument was the justices’ evident concern that they lacked a basis for deciding whether, on the one hand, the Oregon courts had improperly allowed jurors to take into account the harm to nonplaintiffs, or on the other hand, had properly allowed consideration of the reprehensibility of the conduct by Philip Morris, a unit of Altria. Finding the Oregon Supreme Court’s opinion insufficiently clear on this basic point, the justices would be unable to use the case as a vehicle for taking their consideration of punitive damages to the next level.

“What’s worrying me,” Justice Stephen G. Breyer said to Mr. Frey, “is that we’re going to be in a kind of bog of mixtures of constitutional law, unclear Oregon state law, not certain exactly what was meant by whom in the context of the trial, et cetera.”

And Justice David H. Souter, referring to the Oregon Supreme Court, asked Mr. Peck: “Isn’t perhaps the better course to send this back to them and say, ‘We don’t know what you mean?’ And let them tell us clearly.”

The confusion was evident at the beginning of the argument, when Mr. Frey said the Oregon trial court had improperly refused to use a jury instruction proposed by Philip Morris “which would have told the jury that it was not to punish for harm to nonparties.”

The proposed instruction said that “although you may consider the extent of harm suffered by others” in deciding whether the punishment bore a “reasonable relationship” to the injury to Mr. Williams, “you are not to punish the defendant for the impact of its alleged misconduct on other persons, who may bring lawsuits of their own.”

The failure to give this instruction was part of the denial of Philip Morris’s right to due process, Mr. Frey said.

But several justices said they found the instruction confusing and unlikely to have steered jurors away from an improper basis for awarding damages.

“You don’t think that would confuse the jury if they are first told that they may consider the extent of harm suffered by others, and then the next instruction seems to say they can’t?” Justice Ginsburg asked Mr. Frey.

“The concept may be abstract,” Mr. Frey replied, insisting that there was a “difference between considering and punishing” that a proper jury instruction would have made “quite clear to the jury.”

Tobacco Judgment Blocked

WASHINGTON, Oct. 31 (AP) — A federal appeals court blocked a landmark judgment against the tobacco industry on Tuesday, allowing the companies to continue selling “light” and “low tar” cigarettes until their appeals can be reviewed.

The decision by the United States Circuit Court of Appeals for the District of Columbia also allows the companies to continue for now the advertising campaigns that a federal judge in August ruled were misleading.

Without comment, the appeals court granted the tobacco companies’ request to put Judge Gladys Kessler’s order on hold. They have argued that her far-reaching ruling could cost them millions of dollars and lead to a loss of customers.

In mid-August, Judge Kessler ruled that the companies had violated racketeering laws and conspired for decades to mislead the public about the health hazards of smoking.

She ordered tobacco companies to stop labeling cigarettes as “low tar,” “light,” “ultra light” or “mild,” because such cigarettes have been found to be no safer than others because of how people smoke them.

Judge Kessler’s ruling was appealed by Philip Morris USA, Lorillard Inc., Brown & Williamson Tobacco Corporation and British American Tobacco.