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Tuesday, February 20, 2007

Philip Morris: Up in Smoke?

I'm off to teach my seminar on punitive damages in a few minutes but I wanted to invite y'all to weigh in on today's SCT decision in Philip Morris v. Williams, which is available here. The Court decided by a 5-4 majority to vacate the Oregon SCT's decision and remand the case. Specifically, the Court held that the Due Process Clause does not permit a jury to base a punitive damages award even in part upon its desire to punish the defendant for harming persons who are strangers to the litigation at hand.

I hope to have a few more developed reactions later on but here is just one. The majority (Breyer, Roberts, Kennedy, Souter, and Alito) obscure the relevant precedent. The majority writes that in the past the Court has stated "that it may be appropriate to consider the reasonableness of a punitive damages award in light of the potential harm the defendant’s conduct could have caused. But we have made clear that the potential harm at issue was harm potentially caused the plaintiff." In fact the truth of what the Court has said is much more murky in terms of what X the punitive damages amount must relate to.

In some places, the Court has stated that the amount of “compensatory damages” should be the anchor that determines the award of punitive damages. State Farm at 425 (“Our jurisprudence and the principles it has now established demonstrate . . . that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages to a significant degree, will satisfy due process.”). In other places, the Court states that the relevant focus is on the disparity between the punitive damages award and the “harm, or potential harm, to the plaintiff.” (This is what the Court in Philip Morris today acknowledged.) Clearly, this second formulation is broader than a restriction to only “compensatory damages” because compensatory damages typically award only actual harms, not potential harms. Here's the kicker, I think.

In some places, the Court appears to have recognized that potential harm caused by the defendant’s conduct is an appropriate factor to weigh. This is important because it might include potential harm to other people aside from the plaintiff in the instant case. In its TXO decision, the court's plurality wrote “[i]t is appropriate to consider the magnitude of the potential harm that the defendant's conduct would have caused to its intended victim if the wrongful plan had succeeded, as well as the possible harm to other victims that might have resulted if similar future behavior were not deterred.” TXO, 509 U.S. 443, 460. Quite clearly, potential harm logically includes both potential harm to the particular plaintiff and potential harm to similarly situated victims. The Court also today alluded to its BMW decision, but it downplayed the fact that the Court blessed a determination that it was ok to punish BMW for its actions that affected other similarly situated victims in Alabama. BMW at n. 11 (the "award should have been based on Alabama conduct[;] respect for the error free portion of the jury verdict would seem to produce an award of $56,000 ($4,000 multiplied by 14, the number of repainted vehicles sold in Alabama)".

Here's what's important. The Court today invokes TXO and BMW as support or silence for its position that harm to non-parties may not be considered other than to determine reprehensibility. This is only possible by ignoring the language quoted above from TXO. Even Tom Colby, whose article in Minn LR expressed the view that the total harm approach to punitive damages is historically/constitutionally misguided, acknowledged that there were places where the Court suggested otherwise.

Until today, the Supreme Court failed to expressly overrule this part of TXO—and various lower courts have indicated or held expressly that the punitive damages award should take into account the harm or potential harm from the conduct “as a whole.” Those cases today are no longer good law, it appears. The Court today says that it now "explicitly" holds that a jury "may not punish for the harm caused others," even if it did not hold that in prior cases. Actually, though, the Court is apparently moving away from a position a plurality opinion did hold earlier. Whether that should control is another thing, but today's decision was not written on a blank slate, appearances in the majority's opinion notwithstanding.

But as Breyer would say: Now tell me why I'm wrong...

Here's a teaser for my next post on this case: today's decision should push the Court to reconsider its decision in Williams v. NY, where it effectively blessed indeterminate sentencing...

Posted by Administrators on February 20, 2007 at 04:40 PM in Constitutional thoughts, Corporate, Criminal Law, Dan Markel | Permalink


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I wonder if the underlying problem here is that the Oregon Supreme Court reasoned that punishment of conduct toward non-parties justified an award of punitive damages in excess of a ten fold multiplier.

Posted by: adublitigator | Feb 21, 2007 1:54:15 PM

Corporate defendants have long advocated that punitive damages should be subject to a civil "double jeopardy" limitation; that is, conduct may only be punished via punitive damages once (a view once endorsed in oral argument before the Supreme Court by L. Tribe). Seems to me that view assumes an award to one punishes for injuries sustained by others, and is undercut by the Philip Morris decision. Corporate support for this decision may be shortsighted.

Posted by: Frederick Baker | Feb 21, 2007 12:23:17 PM

It seems to me that the real story here is not "Supreme Court Throws Out $79 million Punitive Award." The real story is: "Supreme Court Refuses to Hold $79 Million Punitive Award Excessive." The end result of this decision is to send the case back so that a new jury can be given an indecipherable two-paragraph instruction in addition to the other instructions it received. Adding that instruction would likely have had no real effect on the first jury's decisionmaking, and it probably will not effect on the next jury's. Why would the Court issue such a meaningless decision? My guess is that Breyer and company could not muster a majority to find the award excessive under the State Farm test, so they found a way to punt the case. The decision thus may be an indication that Alito and Roberts will not follow the Kennedy-O'Connor path on punitive awards. I wouldn't be surprised to see the Court either explicitly or tacitly backing off State Farm in the next few years. The case may actually mark the beginning of the end of the constitutionalization of punitive damages.

Posted by: Paul Kirgis | Feb 21, 2007 9:48:49 AM

Based on a skim, every member of the Court - to varying degrees - has it wrong - but especially Breyer and his majority. Punitive damages serve, of course, to punish. Breyer seems to say: yes, they punish, but only insofar as defendant's conduct was "reprehensible" (what that means isn't entirely clear to me, except that it cannot, Breyer intimates, have anything to do with the harm actually caused to nonlitigants with respect to the instant litgation), so as to "deter".

But it's actually the case that a defendant - particularly those assessed punitive damages - have inflicted harm not just on the plaintiff, but on others as well; those others are presumptively nonlitigants. Punitive damages represent, therefore, an estimated measure of the actual harm wrought by defendant, since it's safe to assume that at least some of defendant's conduct will (1) go undetected, or (2), assuming it's detected, won't, for reason of litigation's transaction costs or whatever else, be the subject of a lawsuit. Without punitive damages that have teeth, so to speak, they won't do their stated job of deterrence, since the only way for the true costs of defendant's conduct to be addressed involves.....examining the true costs of defendant's conduct, which requires consideration of the harm done to nonlitigants.

The Court seems paradoxically to make it out such that crime does end up paying; the nonlitigants will end up paying the cost, and sadly one fears that some of those people - there's no right to an attorney for civil cases in the case of less affluent folk - their harm won't ever count for anything, given the Court's new math. Entirely too much attention is here paid to the civil defendant's legal rights and not at all to those who won't have any voice to redress harm done them by a known tortfeasor.

Posted by: cosim | Feb 21, 2007 12:17:11 AM

The extent to which punitive damages involves deterrence seems necessarily to include persons other than the plaintiff (i.e., future persons). But the future persons are not "damaged"; rather, their damages are "avoided" by awarding the present plaintiff punitive damages. Yet I don't see how Due Process can distinguish invidiously between compensating for present damages and avoiding future damages.

Posted by: Anthony D'Amato | Feb 20, 2007 10:06:48 PM

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