U.S. Supreme Court Further Limits the Scope of Punitive Damages Awards

By: Edward M. Koch and William L. Doerler

The United States Supreme Court has imposed further limits on punitive damage awards. In Phillip Morris USA v. Williams, 127 S.Ct. 1057 (2007), the Court held that the U.S. Constitution's Due Process Clause prohibits states from awarding punitive damages to punish a defendant for injuries that it purportedly inflicts upon non-party strangers to the litigation.

Prior Limitations on Punitive Damages

The Supreme Court has previously discussed the constitutional limitations on the imposition of punitive damages in Gore v. BMW, 517 U.S. 599 (1996) and State Farm Mut. Automobile Ins. Co. v. Campbell, 538 U.S. 408 (2003). These cases emphasize the need for states to avoid the arbitrary determination of an award's amount and impose limits on a jury's discretionary authority. As the Court noted in BMW, an arbitrary system deprives the defendant of "fair notice . . . of the severity of the penalty that a State may impose." The Court expressed concern that large awards may be an indication that the punishment reflects not an application of the law, but one state's, or one jury's, caprice or policy choice.

In BMW, the Court outlined a threeparty test to evaluate the constitutionality of punitive damages awards. The test looks to (1) the degree of reprehensibility of the defendant's misconduct, and (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages awarded, and (3) the difference between the punitive damages awarded and the civil penalties authorized by statute or in comparable cases.

Although the Court has not established a bright-line rule for determining when a punitive damages award is so excessive that it violates the Constitution, the Court stated in Campbell that "few awards exceeding a single-digit ratio between punitive damages and compensatory damages . . . will satisfy due process."

The Court has also addressed whether a jury can consider a company's business practices, as a whole, when it determines the level of punitive damages. In Campbell, the Court held that it was improper for the jury to consider the insurer's national operations, reasoning that "[a] defendant should be punished for the conduct that harmed the plaintiff, not for being an unsavory individual or business."

The Williams Case

Williams arose out of the death of a heavy cigarette smoker. The jury found that Phillip Morris knowingly and falsely lead the smoker to believe that cigarette smoking was safe. At trial, the judge declined Phillip Morris' request for a jury instruction which would have told the jury that, although it could consider the extent of harm to others when analyzing the reprehensibility of the company's conduct, it could not punish the company for the impact of its alleged misconduct on other persons who were not before the court. The jury awarded the smoker compensatory damages in the amount of $821,000 (including approximately $800,000 in non-economic damages), and a whopping $79.5 million in punitive damages. After trial, however, the judge determined that the award of $79.5 million dollars was excessive, and reduced the award to $32 million. Both sides appealed.

Consistent with the rationale set forth in Campbell, the Supreme Court held that the U.S. Constitution's Due Process Clause forbids a state from using a punitive damages award to punish a defendant for injuries that may have been inflicted on non-parties. The Court reasoned that permitting an award on that basis is unconstitutional because the defendant is not given an opportunity to present every available defense with respect to nonparties. For instance, in Williams, Phillip Morris had no opportunity to defend against purported injuries to nonparties by showing that the nonparties were not entitled to damages because they knew that smoking was dangerous or that they had not relied on Phillip Morris' statements to the contrary.

The Court further held that permitting a jury to award damages to punish the defendant for injuries to non-parties would create a limitless standard for awarding punitive damages. The jury would have to speculate with respect to how many victims there were, the severity of their injuries, and the circumstances of how their injuries occurred. As the Court noted, a standard that creates risks of uncertainty, arbitrariness, and lack of notice raises fundamental due process concerns.

Pursuant to Williams, evidence of actual harm to non-parties is admissible under the "degree of reprehensibility" prong of the Gore test to show that the conduct that harmed the plaintiff also posed a substantial risk of harm to the public. The jury may not, however, fashion a damages award, which punishes the defendant directly for the harm it allegedly caused to nonparties. A damages award designed to punish the defendant for injury to parties who are not before the court violates the Due Process Clause.

The Impact of Williams

The Supreme Court's decision in Williams clarifies the uses to which evidence of purported injuries to nonparties may be used. Williams also reaffirms that punitive damages awards are limited to punishment for the conduct causing harm to the specific plaintiff before the court.

Consistent with Campbell, the Williams decision should be helpful when litigating whether punitive damages awards are unconstitutionally excessive. By specifically limiting the punitive damages award to punishment for harm caused to the specific plaintiff, defendants should have a stronger argument that there are very few circumstances where punitive damages awards should exceed a single-digit ratio. Still, defendants exposed to punitive damages must bear in mind that the evidence of harm to others is admissible as to "reprehensibility." Although the jury will be instructed to base punitive damages on the harm caused to the plaintiffs at bar, hearing evidence of harm to others may lead the jury to the impose higher punitive damages awards than if the evidence were not admitted.

Going forward, courts will need to fashion appropriate jury instructions to limit the evidence associated with punitive damages. Although some statutes, such as Pennsylvania's medical negligence punitive damages statute, expressly limit punitive damage assessments to consideration of "harm to the patient," other statutes do not contain similar limitations. For instance, Pennsylvania law permits punitive damages for certain civil rights violations, but does not set forth a standard for awarding such damages. Thus, trial courts handling cases that do not contain express limitations will need to ensure that they give proper limiting instructions regarding punitive damages, which limit the punitive damages award to amounts, which punish the defendant for damages caused to the plaintiff.

Ed Koch is a member of our Appellate Practice Group and his practice consists primarily of consultation in state and federal courts. He can be contacted at 215-864-6319 or koche@whiteandwilliams.com.

Bill Doerler's practice includes medical malpractice, toxic torts, product liability, premises liability, insurance coverage, and appellate litigation. He can be contacted at 215-864-6383 or doerlerw@whiteandwilliams.com.