Assessing Punitive Damages on Basis of Harm to Nonparties is a Taking of Property Without Due Process

In Philip Morris v. Williams (2007) 549 U.S.__, 127 S.Ct. 1057, 166 L.Ed.2d 940, plaintiff widow, as the personal representative of her husband’s estate, sued defendant tobacco company, alleging that smoking had caused her husband’s death. Finding that defendant had engaged in deceit, the jury awarded plaintiff compensatory damages of $821,000 and punitive damages of $79.5 million. The trial court ruled that the punitive damages award was constitutionally excessive and reduced it to $32 million, but the Oregon Court of Appeals reinstated the original award. In affirming, the Supreme Court of Oregon made two holdings that are the subject of the present certiorari review: (1) it was unnecessary to instruct the jury that defendant could not be punished for harm suffered by persons not before the court, and (2) in view of defendant’s reprehensible conduct, the $79.5 million award was not grossly excessive. Held, vacated and remanded for further proceedings; in view of the ruling on holding (1), holding (2) need not be addressed.

(a) Punishing a defendant for harm caused to nonparties presents several problems that raise constitutional issues. (1) The Due Process Clause prohibits a state from punishing an individual without first providing that individual with an opportunity to present every available defense, such as, in a case like this, the defense that the nonparty victim was not entitled to damages because he or she knew that smoking was dangerous or did not rely on defendant's statements to the contrary (see Lindsey v. Normet (1972) 405 U.S. 56, 92 S.Ct. 862, 31 L.Ed.2d 36, 7 Summary (10th), Constitutional Law, §647). (2) To permit punishment for injuring nonparty victims would add a near standardless dimension to the punitive damages equation, because the jury would be left to speculate on such questions as the number of nonparty victims, the seriousness of their injuries, and the exact circumstances of their injuries. (3) Fundamental due process concerns, i.e., risks of arbitrariness, uncertainty, and lack of notice, will be magnified. (127 S.Ct. 1063, 166 L.Ed.2d 948.) Such an award would amount to a taking of property from the defendant without due process. (127 S.Ct. 1060, 166 L.Ed.2d 946.)

(b) There is no authority supporting the use of punitive damages awards to punish a defendant for harming nonparties. Although State Farm Mut. Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585, 6 Summary (10th), Torts, §1568, said that it may be appropriate to consider the reasonableness of a punitive damages award in light of the potential harm that the defendant's conduct could have caused, the same decision made it clear that the potential harm at issue was potential harm to the plaintiff. (127 S.Ct. 1063, 166 L.Ed.2d 949.)

(c) Plaintiff argued that she was free to show harm to other victims, because it is relevant to reprehensibility, a different part of the punitive damages constitutional equation. Defendant does not contest this proposition. “Nor do we,” because evidence of actual harm to nonparties can help to show that the conduct that harmed the plaintiff also posed a substantial risk of harm to the general public, and so was particularly reprehensible. However, a jury may not go further by using a punitive damages verdict to punish a defendant directly on account of harms that it is alleged to have visited on nonparties. “Given the risks of unfairness that we have mentioned, it is constitutionally important for a court to provide assurance that the jury will ask the right question, not the wrong one. And given the risks of arbitrariness, the concern for adequate notice, and the risk that punitive damages awards can, in practice, impose one State's (or one jury's) policies (e.g., banning cigarettes) upon other States . . . , it is particularly important that States avoid procedure that unnecessarily deprives juries of proper legal guidance. We therefore conclude that the Due Process Clause requires States to provide assurance that juries are not asking the wrong question, i.e., seeking, not simply to determine reprehensibility, but also to punish for harm caused strangers.” (127 S.Ct. 1064, 166 L.Ed.2d 950.)

(d) The Oregon Supreme Court made three statements indicating a failure to clarify that it was using nonparty harm only with respect to reprehensibility. (127 S.Ct. 1064, 166 L.Ed.2d 950.) (1) State Farm, supra, held only that a jury could not base its punitive damages award on dissimilar acts of a defendant. This statement is correct. “We did not previously hold explicitly that a jury may not punish for the harm caused others. But we do so hold now.” (127 S.Ct. 1065, 166 L.Ed.2d 951.) (2) If a jury cannot punish defendant for the harm that it caused to nonparties, it is difficult to see why the jury can consider this harm at all. This statement is incorrect, because it fails to recognize the distinction between using nonparty harm directly to punish a defendant and using it to show increased reprehensibility. (3) It is unclear how a jury could consider harm to others, yet withhold that consideration from the punishment calculus. This statement raises a practical problem, i.e., how to determine whether a jury, in taking account of harm caused to others under the rubric of reprehensibility, is not also seeking to punish the defendant for having caused injury to others. “Our answer is that state courts cannot authorize procedures that create an unreasonable and unnecessary risk of any such confusion occurring. In particular, we believe that where the risk of that misunderstanding is a significant one-because, for instance, of the sort of evidence that was introduced at trial or the kinds of argument the plaintiff made to the jury-a court, upon request, must protect against that risk. Although the States have some flexibility to determine what kind of procedures they will implement, federal constitutional law obligates them to provide some form of protection in appropriate cases.” (127 S.Ct. 1065, 166 L.Ed.2d 951.)

A dissenting justice failed to see the distinction between taking third-party harm into account in order to assess reprehensibility (permitted) from doing so in order to punish the defendant directly (forbidden). “This nuance eludes me. When a jury increases a punitive damages award because injuries to third parties enhanced the reprehensibility of the defendant's conduct, the jury is by definition punishing the defendant directly for third-party harm.” (127 S.Ct. 1067, 166 L.Ed.2d 953.) Another dissenting justice, with whom two justices concurred, argued that the Oregon courts correctly applied the distinction. (127 S.Ct. 1068, 166 L.Ed.2d 954.)

Witkin References

On nature and purpose of punitive damages, see 6 Summary (10th), Torts, §1559 et seq.

On constitutionality of punitive damages, see 6 Summary (10th), Torts, §1566 et seq.

On relationship of punitive to compensatory damages, see 6 Summary (10th), Torts, §1612

On due process generally, see 7 Summary (10th), Constitutional Law, §615 et seq.