Punitive damages & due process: trying to keep up with the United States Supreme Court after Philip Morris USA v. Williams.

• Author: Schaeffer, Tyler C.

1. INTRODUCTION

   Throughout the past two decades, the United States Supreme Court has gradually formed several procedural and substantive protections under the Fourteenth Amendment's Due Process Clause (1) limiting the size of punitive damages a State can award against civil defendants. (2) The Court has made it clear that the catalyst for the recent constitutional doctrine stems from its concern towards punitive damages that "run wild." (3) What has not been as clear is what prior constitutional authority the Court has drawn from when creating these new rules. (4) Consequently, state courts, left with little guidance, have struggled with applying as well as predicting the evolving requirements of due process announced by the Court.

   The latest example of a state court's valiant effort to comply with these constitutional standards and ultimately have its decision vacated and remanded by the Supreme Court occurred in Philip Morris USA v. Williams. (5) In a schizophrenic opinion, the Court in Williams announced a new rule that unequivocally prohibits a state from using punitive damages to punish a defendant for harm caused to persons not parties to the litigation, while simultaneously concluding that evidence of harm to nonparties is admissible to show the reprehensibility of the defendant's misconduct. (6) Without elaborating on the utility of this distinction, the Court then charged trial courts with the ambiguous task of ensuring that juries do not improperly use evidence of this type. (7)

   The decision announced in Williams immediately sparked negative scholarly reaction. (8) Academics have criticized the Court's holding as an unworkable rule (9) that has further interfered with the States' prerogative in awarding punitive damages. (10) The purpose of this Note is to explain the significance Williams will have on a state's ability to impose punitive damages as well as to describe the practical challenges trial courts will face in adhering to the Court's new rule. To properly frame the issues for discussion, this Note will first recount the Court's brief and tumultuous history construing due process limitations with punitive damages. Then it will describe what effects Williams will have on lower court procedures and the States' legitimate interest in awarding punitive damages.

2. FACTS AND HOLDING

   Mayola Williams ("Williams"), the widow and personal representative of the estate of Jesse Williams, filed suit against Philip Morris in Oregon circuit court to recover compensatory and punitive damages for the death of her husband. (11) The decedent, Jesse Williams, who had smoked cigarettes produced and marketed by Philip Morris since the early 1950s, was diagnosed with smoking-related lung cancer resulting in his death in 1997. (12) The jury found for Williams on her claims of negligence and fraud and awarded economic damages of 21,485.80 dollars and noneconomic damages of 800,000 dollars on each claim and awarded 79.5 million dollars in punitive damages on the fraud claim--a ninety-seven to one ratio. (13) A statutory cap on noneconomic damages awarded in wrongful death claims reduced those damages to 500,000 dollars, (14) and the trial court reduced the punitive damages to 32 million dollars on the ground that the award was excessive under the United States Constitution. (15)

   Williams appealed the reduction of the punitive damages award and Philip Morris cross-appealed assigning error, inter alia, to the trial court's denial of its motion for directed verdict on the plaintiff's fraud claim. (16) With respect to Philip Morris' point on appeal, the appellate court held that fraud may be established by a showing that the defendant conveyed a material misrepresentation to a class of people of which the plaintiff was a member and intended the class to receive and on which it was to rely. (17) The court reviewed the egregious conduct of Philip Morris, which involved a forty-year publicity campaign to convince the public that there was a legitimate controversy over the link between cigarettes and lung cancer. (18) The deceptive campaign was implemented as a response to published scientific research that had disclosed empirical evidence connecting the defendant's product with cancer. (19) The appellate court ultimately affirmed the jury's determination that Philip Morris had acted fraudulently. (20) The court based its decision on the evidence that Philip Morris used media outlets to send its message that the health affects of smoking were unclear with the intent to create doubt and encourage its customers to continue to smoke despite the public information regarding the adverse health effects of smoking. (21) Jesse Williams, as a smoker, was the intended recipient of this fraudulent message and had relied on its veracity to his detriment. (22)

   The court then considered the issue of the trial court's reduction of punitive damages. (23) The appellate court reviewed the jury's 79.5 million dollar award under its rational juror standard to determine whether the award was impermissibly excessive. (24) The review required that the award comport with special statutory criteria for punitive damages in product liability actions (25) as well as federal due process standards. (26) The court ultimately restored the jury's verdict after concluding that the award was consistent with federal due process and within the range a rational juror would be entitled to award. (27)

   More significantly, the court rejected the defendant's assignment of error regarding the jury instructions on punitive damages. (28) At trial, the evidence of fraud consisted of Philip Morris's misrepresentations which were not directed specifically to Williams, but were rather part of a national campaign intended to reach all of the defendant's customers. (29) During closing arguments, Williams' attorney cited statistics referencing the number of deaths caused by smoking and suggested to the jury that "it's fair to think about how many other Jesse Williams[es] in the last 40 years in the State of Oregon there have been." (30) In response, Philip Morris offered a jury instruction which would have required that the jury's award bear a reasonable relationship to the harm caused to Williams and not to punish the defendant for alleged misconduct towards nonparties who could bring their own cases and receive their own punitive awards. (31) The court concluded that the proposed instruction was incorrect under state law since Oregon courts had held that "potential injury to past, present, and future consumers as the result of a routine business practice is an appropriate consideration in determining the amount of punitive damages." (32) The court also noted that the Oregon statute (33) would permit a jury to consider the defendant's prior punishments when calculating punitive damages which would limit any future punitive awards against the defendant arising out of the same misconduct. (34) The Oregon Supreme Court denied Philip Morris' petition for review of the appellate court's decision regarding the punitive damages. (35) However, the United States Supreme Court granted certiorari and vacated the judgment and remanded the case back to the Oregon Court of Appeals for further consideration in light of the Supreme Court's recent decision in State Farm Mutual Automobile Insurance Co. v. Campbell. (36) In State Farm, the Court held that punitive damages could not be awarded "to punish and deter conduct that bore no relation to the [plaintiff's] harm" and that "[a] defendant's dissimilar acts, independent from the acts upon which liability was premised, may not serve as the basis for punitive damages." (37)

   Reviewing its prior judgment in light of State Farm, the Oregon appellate court again upheld the punitive award and reaffirmed its decision to exclude Philip Morris' proposed jury instructions. (38) The Oregon Supreme Court reached the same conclusion and rejected Philip Morris' claim that State Farm prohibits a State "from using punitive damages to punish a defendant for harm to nonparties." (39) Rather the court concluded that State Farm only prohibits punishing the defendant for its dissimilar misconduct and that Philip Morris' deceitful publicity campaign which harmed other Oregonians was a permissible basis for punitive damages since it was not dissimilar, but rather the same misconduct that had harmed Williams. (40)

   On Philip Morris' petition, the United States Supreme Court again granted certiorari. (41) The Court began with petitioner's claim that "Oregon had unconstitutionally permitted it to be punished for harming nonparty victims." (42) The Court agreed and held that "the Constitution's Due Process Clause forbids a State to use a punitive damages award to punish a defendant for injury that it inflicts upon nonparties or those whom they directly represent," or, in other words, an "injury that it inflicts upon those who are, essentially, strangers to the litigation." (43) After determining that the Oregon Supreme Court used the wrong constitutional standard when reviewing the punitive award, the Court vacated the judgment and remanded the case. (44)

3. LEGAL BACKGROUND

   1. Background on Punitive Damages: The Recent Concern

      Punitive or "exemplary" damages are awarded in addition to actual damages in order to "punish [the defendant] for his outrageous conduct and to deter him and others like him from similar conduct in the future." (45) Punitive damages have long been a part of Anglo-American law and have historically always been a source of controversy. (46) The controversy arises out of the nature of punitive damages, which departs from the fundamental principle of compensatory damages to "restore the injured party as nearly as possible to the position he would have been in but for the wrong." (47) Punitive damages, which inherently exceed the plaintiff's actual harm, first arose in cases where the plaintiff suffered no physical or financial...