Will the U.S. Supreme Court finally impose some much-needed adult supervision against runaway punitive damages awards? 

During oral arguments attended by the Center for Individual Freedom this week in Philip Morris v. Williams, the Court suggested that the answer may be "yes." 

At issue in Philip Morris is a massive $80 million punitive damage award affirmed by the Oregon Supreme Court, despite the fact that the plaintiff's actual compensatory damages were less than $1 million.  Worse, that lopsided 80:1 punitive damage ratio was based on alleged harm to third parties not even involved in the case. 

Stated simply, the issue is whether the Supreme Court will continue to tolerate lower courts that blatantly disregard precedent by imposing grossly excessive punitive damages, often for speculative harms suffered by people not even before the court. 

The relevant rule established by the Supreme Court in recent years is that punitive damages must bear a reasonable relationship, generally no more than a 9:1 ratio, to the actual damages suffered by the particular plaintiff in the case.  The Court has also ruled that juries cannot punish defendants on behalf of people who aren't actually parties to the litigation.  To do otherwise violates due process rights guaranteed by the Constitution, according to the Court in BMW v. Gore (1996) and State Farm v. Campbell (2003). 

Since those rulings, however, many state and lower courts have failed to adhere to these principles. 

Here, for instance, the Oregon Supreme Court's Philip Morris decision baldly ruled that juries can "override" the Supreme Court's ratio limit.  Further, it cavalierly held that "the jury could consider whether Williams and his misfortune were merely exemplars of the harm that Philip Morris was prepared to inflict on the smoking public at large." 

In other words, according to the renegade Oregon Supreme Court, state juries can punish corporate defendants on behalf of persons not even before the court, and award punitive damages vastly exceeding a 9:1 ratio to the particular plaintiff's actual harm. 

Supreme Court precedent be damned, according to the Oregon Supreme Court. 

Citizens across the country should be concerned for a number of important reasons. 

First, punishing for speculative harm to non-parties denies defendants their fundamental right to confront, cross-examine and rebut claims against them.  This is, after all, the very essence of due process under the Constitution.  A defendant such as Philip Morris must have the opportunity to challenge the existence, cause and magnitude of the supposed injuries to these non-parties, who aren't even identified at trial.  To allow otherwise effectively turns a single-plaintiff case into a de facto class action lawsuit, but without the procedural safeguards afforded by class action rules.  If non-parties believe that they have been harmed by the defendant, they are free to file their own lawsuits.  Otherwise, defendants should not be punished on their behalf. 

Second, punishing defendants for harm to non-parties invites multiple and overlapping punishments.  In other words, companies are subject not only to double-jeopardy, but multiple-jeopardy.  Plaintiff after plaintiff will possess an open invitation to sue the same defendant time after time, punishing that defendant repeatedly for the exact same conduct and the exact same harm to the exact same people over and over.  By the end of this cycle, the cumulative damage tally would far exceed the maximum amount that could permissibly be imposed in any one case.  Such an outcome distorts our judicial system by crippling businesses and creating insurmountable pressure for defendants to settle, even when the likelihood of losing the case is low. 

Third, the Oregon Supreme Court's ruling would spread the problem of indefensible punitive damage awards nationwide.  Overzealous trial attorneys could follow Oregon's lead and invite juries across the country to punish defendants for unproven, unadjudicated harms to speculative non-parties.  Further, the sheer size of unconstrained punitive damages would not only cripple businesses across the country, but overload our already-overburdened judicial system as well.  Imagine for a moment that trial lawyers' bonanza. 

Fourth, exposing companies to multiple, massive punitive damage awards create overdeterrence, causing companies to take precautions that are socially wasteful.  The threat of enormous punitive damage awards has a detrimental effect upon the research, development and sale of new products.  For instance, Glaxo sells its flu vaccines everywhere except the United States.  In many jurisdictions, moreover, physicians flee the state rather than practice in an area permitting "jackpot justice" tort awards.  Failure to constrain a jury's discretion gravely risks the possibility that they will use their verdicts to express biases against big businesses, particularly those without strong local presences.  When uninformed juries are allowed to arbitrarily set punitive damages, they can destroy companies and harm employees and the public at large. 

Fifth, many companies simply cannot afford to fight and appeal outrageous punitive damage awards, let alone pay those awards, and fall into bankruptcy.  This not only prevents recovery by the actual plaintiff allegedly injured by the defendant, but also puts that company's rank-and-file employees out of work.  Even small punitive damages awards can ruin a company's hard-won reputation, something that executives take very seriously. 

Thus, excessive punitive damages create not only a due process problem, but a broad economic and social problem. 

The Supreme Court must therefore use this opportunity to issue concrete guidelines for otherwise unconstrained juries.  The task of assigning dollar amounts is a task that jurors naturally perform on a random basis.  By finally mandating that punitive damages bear a specific relationship to actual damages suffered, and by prohibiting punishment on behalf of hypothetical third parties, the Supreme Court can ensure that punitive damage awards are rational and justified. 

It is critical that the Supreme Court affirm these basic due process rights once and for all.