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The nullification crisis of 2004?

Last week, the Oregon Court of Appeals sustained a $79.5 million punitive damages award levied against Philip Morris for the 1997 lung cancer death of an individual who had smoked 3-packs-a-day for over 40 years. The punitive damages awarded were 96 times the $821,485 in compensatory damages ($800,000 noneconomic) awarded in the case.

Having already affirmed the award in a previous ruling, the Court of Appeals had received the case on remand (i.e., for reconsideration) from the U.S. Supreme Court in light of its decision last spring in State Farm v. Campbell, 538 U.S. 408 (2003). In Campbell, the Supremes determined that an award of $145 million in punitive damages against State Farm was unconstitutional when compensatory damages were only $1 million: "[F]ew awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process." Id. at 425.

The Oregon court noted that the Supreme Court did not adopt a bright line rule rejecting punitive damage awards of 145-to-1 compensatory damages -- or, say, 96-to-1. The Court attempted to distinguish the tobacco case from Campbell, in essence, because (1) the tobacco companies' behavior was bad, bad, bad and involved "physical" harms, not "economic" harms as in Campbell; and (2) "at least 100" other Oregon smokers had been "defrauded" by Philip Morris's misleading statements about its product.

But the Oregon judges' reasoning is so tortured that it is impossible to interpret as anything but completely missing the Supreme Court's point in State Farm, or deliberately (if not overtly) flaunting the High Court's authority.

Assuming that the Oregon court had it right that Philip Morris's conduct was indeed "egregious," the court totally ignored the second half of the Supreme Court's analysis in Campbell: "[B]ecause there are no rigid benchmarks that a punitive damages award may not surpass, ratios greater than those we have previously upheld may comport with due process where 'a particularly egregious act has resulted in only a small amount of economic damages.'" 538 U.S. at 425. If $800,000 is now a "small amount" -- even for the "physical" damages of premature death from a 40-year smoking habit -- then our world of tort law is curious to say the least.

[Indeed, the "economic damages" in this case were small, only $21,485 (presumably because the plaintiff had few years of potential work productivity remaining in any event). The jury, though, already awarded an additional $800,000 in noneconomic damages on top of that sum -- a multiple of more than 37-to-1. The punitives award in essence repunishes the defendant again, for the same behavior, above and beyond the already sizable noneconomic reward multiplier. The punitive damages actually represent a 3700-to-1 multiple of the plaintiff's economic damages. -ed. 06/17]

Similarly, the fact that other "Oregon" smokers were affected is not enought to save the extreme verdict. The Court's opinion in Campbell did discuss the problematic implications of using out-of-state plaintiffs as part of the justification for a large punitive-to-compensatory ratio, since other states' laws may differ. But having discussed those problems, the Supreme Court definitively held that "[f]or a more fundamental reason, however, the Utah courts erred in relying upon this [external] and other evidence: The courts awarded punitive damages to punish and deter conduct that bore no relation to the Campbells' harm. A defendant's dissimilar acts, independent from the acts upon which liability was premised, may not serve as the basis for punitive damages. A defendant should be punished for the conduct that harmed the plaintiff, not for being an unsavory individual or business. Due process does not permit courts, in the calculation of punitive damages, to adjudicate the merits of other parties' hypothetical claims against a defendant under the guise of the reprehensibility analysis, but we have no doubt the Utah Supreme Court did that here. Punishment on these bases creates the possibility of multiple punitive damages awards for the same conduct; for in the usual case nonparties are not bound by the judgment some other plaintiff obtains." 538 U.S. at 422-23 (emphasis added).

In essence, the Oregon court affirmed the $79 million verdict precisely "for being an unsavory . . . business," on the basis of "the merits of other parties' hypothetical claims," and thus "create[d] the possibility of multiple punitive damages awards for the same conduct." The court did exactly what the U.S. Supreme Court forbade. The decision is judicial activism at its worst, attempts to overturn from the state bench the decision of the highest federal court, and thus directly undermines the rule of law itself. The decision should -- and I predict will -- be overturned.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.