Reconceptualizing split-recovery statutes: Philip Morris USA v. Williams.

• Author: Rietema, Paul B.

Many believe that punitive damage awards have spiraled out of control. In 2002, a California jury awarded $28 billion in punitive damages to a 64-year-old woman with lung cancer. (1) In 2000, a Florida jury awarded $145 billion in punitive damages to a class of Florida smokers. (2) These are not isolated decisions; they represent a pattern of extraordinarily high punitive damage awards handed down by juries. (3) States have responded to these excessive awards in three ways. Some have barred punitive damages altogether, (4) others have adopted a cap on such awards, (5) and still others have implemented split-recovery statutes. (6) Of these three responses, the split-recovery system is functionally and constitutionally unique. (7) Often coupled with more searching judicial review of multiple punitive damage awards, (8) this framework shifts a portion of the punitive damage award to society.

Last Term, in Philip Morris USA v. Williams, (9) the Supreme Court held that the Due Process Clause of the Fourteenth Amendment prohibits state juries from punishing a defendant for harm caused to in-state nonparties (potential plaintiffs not before the court), even as the Court reaffirmed a punitive damage framework requiring those same juries to take these harms into account when determining the conduct's reprehensibility. (10) By firmly closing the door to recovery for harms to nonparties--a door left ajar in State Farm Mutual Automobile Insurance Company v. Campell (11)--the Court finally articulated a comprehensive and coherent approach to third-party harms in punitive damage cases. In doing so, however, the Court called into question the primary justification for the split-recovery, multiple punitive-damage review system that states began implementing in the 1980s in response to inflated awards.

In 1997, Mayola Williams filed suit against Philip Morris in Oregon state court. (12) She alleged negligence and deceit against Philip Morris in the death of her husband, Jesse Williams, a heavy cigarette smoker who died of lung cancer at the age of sixty-seven. (13) At trial the plaintiff's attorney asked the jury to consider how many other similarly harmed persons there had been in the State of Oregon over the past forty years. (14) Finding that Mr. Williams's death had indeed been caused by smoking; that he smoked because he believed it was safe to do so; and that Philip Morris "knowingly and falsely" encouraged this belief, the jury returned a compensatory damage award of $821,000 and a punitive damage award of $79.5 million in favor of the plaintiff (a ratio of roughly ninety-seven to one). (15)

After exhausting its state appellate remedies, (16) Philip Morris, claiming that the punitive damage award in favor of Mrs. Williams was constitutionally excessive and procedurally unsound, petitioned the Supreme Court for review. (17) The Court remanded the case for reconsideration in light of State Farm, (18) a then-recent and significant development in the Supreme Court's punitive damages doctrine. (19) The Oregon Supreme Court reviewed and affirmed the punitive damages award, despite the Court's language in State Farm. (20) Specifically, the court found that State Farm, although prohibiting punishment for dissimilar harms, as well as harms to out-of-state parties, did not prohibit a jury from punishing a defendant for similar harms to in-state parties not before the court, and that the extreme reprehensibility and near criminality of Philip Morris's actions justified the high ratio of punitive to compensatory damages. (21) On petition by Philip Morris, the United States Supreme Court granted certiorari.

The Supreme Court vacated and remanded. Writing for the Court, Justice Breyer (22) began by reaffirming both the state's legitimate interest in using punitive damages to punish and deter unlawful conduct and the need to balance these interests against the potentially unfair or arbitrary nature of a discretionary punitive damages award. (23) To balance these competing concerns, the Due Process Clause mandates both procedural requirements and excessiveness review. (24) Deferring the question of excessiveness review, the Court focused instead on the Constitution's procedural requirements, finding that the Due Process Clause "forbids a State to use a punitive damages award to punish a defendant for injury that it inflicts upon nonparties--strangers to the litigation." (25) Not only would such an award eliminate the defendant's ability to "present every available defense," but it would also introduce a "standardless dimension to the punitive damages equation," leaving the jury to speculate about both the number of nonparties and the degree of harm to those parties. (26)

Cognizant of the conflict between this position and the Court's established reprehensibility calculus, which requires a jury to consider evidence of harm to nonparties, the Court suggested that it would not require perfection. (27) The Due Process Clause, the Court held, simply requires that state courts "provide assurance that the jury will ask the right question[s]"--questions that track the thin line between reprehensibility and punishment--and "avoid procedure that unnecessarily deprives juries of proper legal guidance." (28) Simply put, courts cannot sanction procedures that "create an unreasonable and unnecessary risk of ... confusion" between reprehensibility analysis and punishment. (29) Because the Constitution simply requires "some form of protection in appropriate cases," states "have some flexibility to determine what kind of procedures they will implement." (30)

Justice Stevens dissented, adopting, in large part, the reasoning of the Supreme Court of Oregon. (31) He argued that States do have an interest in using punitive damages to punish wrongdoers "for harming persons who are not before the court," so long as the award remains non-compensatory...