High Court Reviews High-Dollar Cigarette Judgment

The U.S. Supreme Court hears arguments in a case to determine how high punitive damages can go when a state court finds extreme corporate misconduct. In a suit against Phillip Morris, the company was ordered to pay $79.5 million for a smoker's death.

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From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

At the Supreme Court today, arguments in a case testing whether juries violate the Constitution when they award huge damages to punish companies for misconduct. The case today centers on an Oregon jury verdict that awarded nearly $80 million in punitive damages in the death of one smoker.

NPR's Nina Totenberg reports.

NINA TOTENBERG: Jesse Williams, a Portland public school janitor, smoked Marlboros for nearly 50 years. When his family pleaded with him to stop, he would point to public statements by Philip Morris that there was no proof smoking caused cancer.

On the steps of the Supreme Court today, his widow, Mayola, said she sued Philip Morris to carry out a promise to her husband.

Ms. MAYOLA WILLIAMS: He believed so much that they wouldn't sell a product that would harm him, so when he learned that he had cancer and didn't have very long to live, he decided to just go to the public and let them know what was going on and why he had cancer.

TOTENBERG: The jury in the Williams case awarded $800,000 for actual harm and 97 times that amount in punitive damages. The state Supreme Court upheld the award, declaring that Philip Morris had engaged in a massive 40 year scheme to spread false and misleading information about the real health risks of smoking, a scheme the court said was so venal it could have subjected the company to manslaughter charges.

In recent years, the U.S. Supreme Court has suggested that punitive damages should not exceed 9 times the amount of actual damages. And the business community has lined up behind Philip Morris in this case in an effort to limit punitive damages even further. Philip Morris argued that punitive damages should be no more than four times the actual damages.

But if the business community thought the Supreme Court might finally swallow up punitive damages in this case, there was little evidence today that the court was, in the words of one business lawyer, willing to eat the whole enchilada.

Instead, the justices focused on lesser issues. The trial judge, for instance, refused a proposal by Philip Morris that would have instructed the jurors that they could consider the harm suffered by others in awarding punitive damages but they could not punish Philip Morris for the impact of its misconduct on others. Several justices said that such an instruction might be confusing.

Justice Souter: As a juror, why am I supposed to be considering harm to others when you've just told me not to punish for it?

Representing Philip Morris, lawyer Andrew Frye responded that when conduct is calculated to harm large numbers of people, then the company can be found more blameworthy. But it cannot be punished for harm to others whose cases are not before the jury.

Justice Scalia: The most the jury can find, it seems to me, is that the conduct here bore a very serious risk of harming other people and therefore the activity is more heinous.

Justice Stevens: Supposing the defendant fired a machine gun into a crowd and killed one person and then another sued and said I want extra punitive damages because all these other people were subjected to the same risk? Wouldn't that be a proper consideration?

Yes, said Lawyer Frye for Philip Morris.

Question: Would it be a proper consideration if other people sued?

Answer: Then I think there's a problem.

Arguing the other side of the case, lawyer Robert Peck noted that this case is different from previous cases where the Court has imposed limits on punitive damages because this case involves physical not economic harm. Punitive damages outside the 9:1 ratio are justified in a case like this, he said, because this was a massive fraud directed not just at Jesse Williams but at all of Philip Morris's customers, a fraud driven by the highest officers of the company, who sought to deceive smokers and in so doing, knowingly endangered their health.

Peck got lots of skeptical questions from Chief Justice Roberts and Justices Alito, Breyer and Souter. But even Breyer, who's been a consistent advocate of limiting punitive damages, seemed to suggest that there are some cases that justify punitive damages outside the norm.

Justice Breyer: It seems to me right that the jury can conclude the more severely awful the conduct, the higher the punitive damage award. If it's really bad, you're going to maybe have 100 times the compensation for actual harm instead of only 10 times or 5 times. It goes to the evilness of the conduct not the actual injury to others.

At days end, it seemed the justices would likely send the case back to the lower courts for a second look, but as for any hard and fast limit on punitive damages, that looked doubtful.

Nina Totenberg, NPR News, Washington.

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Supreme Court Considers Punitive Damage Limits

Today, the U.S. Supreme Court hears arguments in a case that could be the culmination of a long-term effort by the business community to dramatically curtail punitive damages. At issue is conduct so venal that the Oregon courts called it outrageous and the movies satirized it in Thank You for Smoking.

The target of the punitive damages in this case is Philip Morris, the maker of more than half the cigarettes manufactured in the United States. The company is asking the Supreme Court to invalidate a $79.5 million punitive-damage award in a case stemming from the death of one Oregon smoker.

The case is the ultimate test of whether the Constitution imposes significant limits on punitive damages in each and every case of misconduct. Twice in the last decade, the Supreme Court has said that there are indeed limits. Most recently, the Court suggested that, at most, punitive damages should not exceed nine times the amount of damages awarded to the plaintiff for actual harm.

Today's case is quite different from previous cases because it involves what the Court has called reprehensible conduct, not just economic harm. The Court has identified reprehensible conduct as that which causes physical harm, involves reckless disregard for the health and safety of others, conduct that treachery and deceit and is part of pattern of wrongdoing resulting in large profits.

On any scale of reprehensibility, the conduct of the tobacco industry is right up there at the top. The question in this case from Oregon is: How much freedom does a state have to assess damages in an individual case involving reprehensible conduct?

This case was brought by the widow of Jesse Williams, a Portland public school janitor, who smoked Marlboros for almost 50 years. When his family tried to get him to stop, he repeatedly pointed to claims made by the tobacco industry that smoking did not cause lung cancer. When he was diagnosed with the disease in 1997, he told his family, "Those darn cigarette people finally did it. They were lying all the time." Carrying out a promise to her husband, Mayola Williams sued Philip Morris for fraud and negligence.

The trial featured internal documents that demonstrated the tobacco industry knew for nearly half of a century that cigarette smoking was harmful to health and that nicotine was addictive. As the Philip Morris research director put it in a 1980 memo, "the thing that we sell most is nicotine." "Without it," said a 1972 memo, "there would be no smoking."

Yet as late as 1994, William Campbell, the CEO of Philip Morris testified to the contrary before Congress, stating: "I believe nicotine is not addictive."

Evidence at the trial showed that privately, the industry knew Campbell's statement was not true. In fact, four decades earlier, the industry had conceived of a strategy to lull smokers into false confidence by offering them what one internal memo called a "psychological crutch" to continue smoking, namely that there was no proven health risk.

When that grew tenuous, the tobacco companies came up with light cigarettes, advertised as having less tar and nicotine. And as the trial testimony showed, Jesse Williams, like millions of other smokers, eventually switched to light cigarettes, believing that they were healthier.

The problem, says Johns Hopkins professor Jack Henningfield, is that light cigarettes were no healthier than full flavor cigarettes. Henningfield served for 16 years as head of the addiction laboratory at the National Institute for Drug Abuse. He has testified that light cigarettes were actually designed to fool the testing machine used at the Federal Trade Commission, which, for a time, endorsed the use of the term "lights" in marketing.

To scam the machine, known as the puffer, Henningfield says, Phillip Morris and other manufacturers designed the cigarettes with tiny holes at the tip.

"When you put the cigarette in the testing machine," he observes, "the machine gets lots of fresh air through those tiny holes, and it dilutes the tar and nicotine." But when a real person smokes the same cigarette, Henningfield says, the smoker's mouth and fingertips cover those holes so that a more concentrated dose of tar and nicotine is delivered.

It was information like this that led an Oregon jury to find Philip Morris guilty of fraud and negligence. Although the jury found Jesse Williams partly responsible for continuing his smoking habit, it also awarded his widow Mayola Williams $800,000 in compensatory damages. On the question of punitive damages, however, the jury ordered Philip Morris to fork over $79.5 million, 60 percent of it to go — according to state law — to the Crime Victim's Compensation Fund.

Philip Morris appealed to the U.S. Supreme Court, contending that the punitive-damage award in the Jesse Williams case was way out of whack with the Court's previous decisions. After all, the award was 97 times that of the compensatory damages, far more than the nine times outer limit the Supreme Court had previously suggested.

Philip Morris would not allow its lawyer to be interviewed for this story, so we turned to Ted Boutrous, who filed a brief siding with Philip Morris on behalf of other product manufacturers. Boutrous contends that the jury verdict was completely arbitrary, and that the Constitution does not allow arbitrary punishment. He elaborated that "$79.5 million really has no relationship to anything. It's really a number plucked out of thin air."

Countering that argument, Bob Peck, who represents Mrs. Williams, contends that the courts are not required "to engage in an elementary school math exercise."

Peck claims that "here the Oregon courts understood, given the gravity of the offense, and the fact that punitive damages are supposed to be proportionate to the enormity of the offense, that this was an appropriate award."

Boutrous replies that the lawyers for the Williams family, in their closing arguments, urged the jury to think about the other Jesse Williamses in the state and take their injuries into account in awarding punitive damages. That, he holds, is a denial of due process of law for Philip Morris.

"Here there was only evidence regarding one person," says Boutrous, "and so it would be unfair to punish Philip Morris for conduct regarding other people who haven't proven a case against Philip Morris."

Indeed, Boutrous contends that Phillip Morris could end up being punished repeatedly for the same conduct if there are future suits brought by other smokers in Oregon.

Not so, says Peck, noting that in the seven years since the verdict, there has been no other lawsuit against Philip Morris in the state. Furthermore, he adds, Oregon's law instructs judges to take into account any previous punitive-damage awards. More to the point, he argues, punitive damages are intended to act as a deterrent to protect the public and that is why the state statute instructs juries to take into account profitability from the misconduct and its effect on others.

"Punitive damages," Peck says, "are supposed to vindicate society's interest, not the interest of the individual bringing the lawsuit."

Boutrous replies that such a system violates all the traditions and tenets of the Constitution. He says, "It is like having a bounty hunter.... The state has deputized private plaintiff's lawyers and private plaintiffs to collect punishment and fines."

In upholding the verdict, the Oregon Supreme Court concluded that Philip Morris knew of the serious health effects of smoking, and yet, in order to keep smokers puffing cigarettes, the company engaged in a massive scheme to spread false and misleading information, all of it to suggest to the public that doubts remained on the issue. The company's conduct, the state court said, was so extraordinarily reprehensible that it could have constituted manslaughter in Oregon, a crime punishable by up to ten years in prison.

Philip Morris counters that manslaughter charges were never brought, and as Boutrous observes, under the Oregon manslaughter law, "the maximum fine would have been $50,000 and so to impose $79.5 million with a civil jury, pursuant to none of the procedural protections of the criminal trial is unfair and violates due process."

Boutrous is one of dozens of lawyers who have filed briefs in the Supreme Court on behalf of virtually the entire business community urging the Court to declare unconstitutional, once and for all, punitive-damage awards that are disproportionately large compared with the damages awarded for actual harm.

Philip Morris urges a standard that would permit no more than four times the damages for actual harm. Eleven states, however, and a large array of other organizations including consumer groups, the AARP and the American Cancer Society, disagree. They are telling the Court that putting such a limit on punitive damages in cases of extreme reprehensibility would give the green light to those who seek to profit from fraudulent conduct that recklessly disregards the health and safety of the public.

Now the Supreme Court will decide.

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