Ruling Brings Progress, But Doesn't Go Far Enough

The United States Supreme Court this week restored some sanity on the subject of excessive punitive damage awards across America.  Although the Court didn't go far enough, the decision does bring progress. 

At issue in the highly-anticipated decision entitled Philip Morris v. Williams was a disproportionately enormous $79.5 million punitive damage award.  There were two primary problems with that award. 

First, the amount exceeded its underlying $821,000 actual damages award by a 97:1 ratio, well beyond the 9:1 ratio that the Supreme Court has suggested as a maximum in recent years. 

Second, the punitive damage award was based on speculative, unlitigated, unproven harm to third parties in the general public who were not involved in the underlying action. 

Regarding the first issue, the Supreme Court had ruled in BMW v. Gore (1996) and State Farm v. Campbell (2003) that punitive damages must bear a "reasonable relationship" to actual damages suffered by a plaintiff in the case.  Although the Court didn't set a precise formula, it suggested that punitive damages exceeding actual damages by more than a single-digit ratio (9:1) violated a defendant's due process rights under the Constitution. 

Regarding the second issue, the Supreme Court had previously ruled that juries cannot punish defendants to the action on behalf of third parties who weren't even parties to the case. 

In the present case before the Court, widow Mayola Williams had received $821,000 in compensatory damages from an Oregon jury and nearly $80 million in punitive damages from Defendant Philip Morris following the death of her husband Jesse Williams in 1996.  The jury had determined that Mr. Williams's death stemmed from smoking Philip Morris's Marlboro cigarettes, but it awarded that enormous punitive sum based upon a jury instruction that allowed it to consider harm allegedly suffered by non-parties to the litigation. 

The good news in this week's decision is that the majority, consisting of Justices Roberts, Alito, Kennedy, Souter and Breyer, ruled that defendants can't be punished for speculative harms suffered by third parties who are not actual plaintiffs in the case.  According to Justice Breyer, who wrote the majority opinion, such damages "amount to a taking of 'property' from the defendant without due process," because the defendant has no opportunity to defend against such persons' charges. 

This is a welcome ruling for several important reasons.  First, it reduces the likelihood that defendants will be unfairly penalized for speculative harm to hypothetical third parties whom the defendant had no chance to cross-examine or rebut.  Second, it helps prevent overlapping and multiple damage awards, since subsequent plaintiffs could theoretically sue and obtain damages from the same defendant on behalf of the same speculative third party public victims.  Third, the ruling prevents juries in other states from doing what the Oregon jury did – punish a defendant for unproven, unadjudicated claims to supposed victims at large.  Fourth, it helps prevent "jackpot justice" awards in our already-overburdened judicial system. 

The bad news from this week's decision, however, is that it fails to set a more precise guiding formula to limit punitive damages.  In so doing, the Court refrained from prohibiting punitive damage awards exceeding a 9:1 ratio to actual damages suffered. 

As a result, businesses remain vulnerable to punitive damage awards that grossly exceed any actual harm suffered.  A firm ratio between actual damages and punitive damages would finally begin to restrain runaway punitive damage awards that cripple businesses across America. 

Fortunately, the Court is likely to revisit this issue in the future.  With new Justices Roberts and Alito joining the majority in this decision, perhaps the Court will finally provide certainty in a future decision.