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A recent United States Supreme Court ruling involving Philip Morris may have blown a chance to erode arbitrary state court punitive damages awards and created inevitable confusion for trial judges and juries.

The history of the Supreme Court's treatment of excessive punitive damages awards is rich--with this case being the third time, in the past 10-plus years, that the high court has taken up the issue.

Apparently, the message did not get completely through. The court found it necessary again, in 2003, to lend guidance to state courts about federal constitutional limits regarding punitive damages. In that decision, among other things, it suggested that State Farm should not have an enormous punitive damages award inflicted upon it by a Utah jury because of alleged outrageous conduct in other states. Once again, the court stressed that "due process" under the Constitution likely limited punitive damages to two, three or four times compensatory damages--not 145 times.

Fast forward to Philip Morris. Jesse Williams, formerly of Oregon, smoked himself to death. His weed of choice was Marlboro, a Philip Morris offering. Jesse's wife sued that company, claiming that Jesse thought it was safe to smoke Marlboros, and Philip Morris had deceitfully led her husband to believe so. An Oregon jury found for Jesse's wife, in a big way, awarding her $821,000 in compensatory damages and $79.5 million in punitive damages.

The tobacco company fought back. It asked the Oregon trial court to instruct the jury that, while it could consider possible harm to individuals other than Jesse Williams in deciding how "reprehensible" Philip Morris was, the jury could not consider the harm to "strangers" in deciding the amount of punitive damages. Huh?

In any event, the Oregon trial judge turned down their argument. Philip Morris got waxed by the Oregon jury, the Oregon appellate courts let the verdict stand, and the company took its case all the way to the U.S. Supreme Court.

In its 5-4 decision, the Supreme Court agreed with Philip Morris' argument and sent the case back to Oregon to be retried. Then, what's the problem? How can state courts police the rule that a jury can consider impact upon strangers in deciding how "bad" a defendant acted, but then have to ignore that evidence in deciding the amount?

There is simply no way to do this--except if trial courts heed the Supreme Court's not-so-veiled suggestion that they "must protect" against defendants being punished for conduct relating to "strangers." The only possibility is to exclude altogether any evidence or argument relating to nonlitigants.

My opinion: The Supreme Court should have settled the issue once and for all by ruling directly that the Constitution does not allow a jury, in awarding punitive damages to a particular plaintiff, to consider harm to unidentified individuals not even before the court.

While the case of how to treat excessive punitive damages is certainly not closed, the hope is that the Oregon court will ultimately take a stand and exclude "stranger" evidence. For the foreseeable future, however, companies and their risk managers should assume that--if and until the Supreme Court acts again--the landscape of punitive damages may not have changed.

PHILIP KIRCHER is co-chairman of the commercial litigation department at the law firm of Cozen O'Connor.

April 1, 2007

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