Third Party Damages in Punitive Damage Awards

Philip Morris USA v. Williams

After his death Williams’ widow sued Philip Morris, makers of Williams’ favored brand of cigarettes, for negligence and deceit. A jury found that Williams smoked in significant part because he thought it was safe to do so, and awarded $821,000 n compensatory damages and $79.5 million in punitive damages for deceit. Philip Morris objects first because its jury instruction that the jury could not punish Philip-Morris for anyone not before the court was not accepted arguing that this lead to a significant likelihood that award represented punishment for Philip Morris having harmed others. Philip Morris also objects to the roughly 1:100 ratio of compensatory to punitive damage awards.

Punitive damages may be imposed to punish and deter but may violate the requirement that defendants be provided “fair notice … of the severity of the penalty that a State may impose” if the awards are arbitrary or capricious (BMW of North America, Inc. v. Gore) or run afoul of the dormant commerce clause by allowing one state to effectively impose its policy choice as to certain products merchantability in “neighboring States.” Whether an award is excessive is determined by (1) reprehensibility of defendant’s conduct; (2) whether the award bears a reasonable relationship to the actual and potential harm caused to the plaintiff; and (3) the difference between award and sanction in comparable cases.

Due Process prohibits punishment before a defendant may present all available defenses, which is impossible without notice of the scope of aggrieved parties. Punishment for nonparty victims also deprives the evaluation of any realistic standard. Finally, though the potential harm to the plaintiff is a proper consideration, it must be limited to the actual party before the court. This is not to say that harm, actual or potential, to nonparties cannot be considered under the heading of reprehensibility; but only that “a jury may not go further than this and use a punitive damages verdict to punish a defendant directly on account of harms it is alleged to have visited on nonparties. States must take steps to ensure that this line is being observed by jurors.

Philip Morris’ instructions stated that “[the jury is] not to punish the defendant for the impact of its alleged misconduct on other persons, who may bring lawsuits of their own,” but “may consider the extent of harm suffered by others in determining what [the] reasonable relationship is” between Philip Morris’ punishable misconduct and harm caused to Jesse Williams. Philip Morris’ position was that harm to nonparties could only be considered in determining the “reasonable relationship between the misconduct” and the harm to the party before the court. Oregon held that Philip Morris could be punished for harm to nonparties, and that the only limit was that a jury could not base its award on “dissimilar” acts of a defendant. The Court, here, decides that they were both wrong, and holds that harm to nonparties may be considered and may serve as part of the calculation for punitive damages under the reprehensibility factor (against Philip Morris) but may not serve as the direct basis for award (against the Oregon Court), and that courts cannot authorize procedures that create an unreasonable and unnecessary risk of any such confusion occurring.

Justice Stevens, dissenting: No evidence was offered to establish the appropriate measure of compensatory damages to nonparties, and no one argued that punitive damages would serve such a purpose. He argues that assessing third party harm to evaluate reprehensibility is indistinguishable from doing so to “directly” calculate punitive damages.

Justice Thomas, dissenting, does not believe in substantive Due Process limits on punitive damage awards.

Justices Ginsburg, Scalia, and Thomas, dissenting, argue that punitive damages are meant not to punish harm to third parties but to punish reprehensibility and that the Oregon Court followed this rule because it was punitive damages, not compensatory damages, that were at issue. The right question is the harm that Philip Morris was prepared to inflict on the public. Since the only objection preserved was the denial of Philip Morris’ jury instructions, Justice Ginsburg would hold only that Philip Morris instructions were ambiguous and the Oregon Court rightfully excluded them, and not “reach outside of the bounds of the case as postured.”