Working the Unworkable Rule Established in Philip Morris: Acknowledging the Difference Between Actual and Potential Injury to Nonparties

Brigham Young University Law Review, 2007 by Agle, Daniel Sulser

To determine the reasonableness of the award for punitive damages, the West Virginia Supreme Court of Appeals considered three factors: "(1) the potential harm that TXO's actions could have caused; (2) the maliciousness of TXO's actions; and (3) the penalty necessary to discourage TXO from undertaking such endeavors in the future."83 The state court held that all three factors supported the award:

The type of fraudulent action intentionally undertaken by TXO in this case could potentially cause millions of dollars in damages to other victims. As for the reprehensibility of TXO's conduct, we can say no more than we have already said, and we believe the jury's verdict says more than we could say in an opinion twice this length. Just as important, an award of this magnitude is necessary to discourage TXO from continuing its pattern and practice of fraud, trickery and deceit.84

The Supreme Court granted certiorari85 to review "whether that punitive damages award violate[d] the Due Process Clause of the Fourteenth Amendment, either because its amount [was] excessive or because it [was] the product of an unfair procedure."86

b. Holding. Unfortunately, the Court did not reach a majority decision on all of the constitutional issues before it. However, one important issue did receive majority support-and therefore constitutes a majority rule-namely the relevance of potential injury to nonparties to an award of punitive damages.

Justice Stevens' plurality opinion recognized that "[t]aking account of the potential harm that might result from the defendant's conduct in calculating punitive damages was consistent with the views we expressed in Haslip."87 Stevens clarified the significance of this potential injury aspect of the analysis by confirming the standards accepted in Haslip: "whether there is a reasonable relationship between the punitive damages award and the harm likely to result from the defendant's conduct as well as the harm that actually has occurred."88 Further, the plurality asserted that "[i]t is appropriate to consider the magnitude of the potential harm that the defendant's conduct would have caused to its intended victim if the wrongful plan had succeeded, as well as the possible harm to other victims that might have resulted if similar future behavior were not deterred."89 This characterization clearly established that courts may consider potential injury when determining the amount of punitive damages to award. Additionally, the use of the term "intended victim" left the door open for courts to consider the potential injury to nonparties since defendant misconduct is frequently aimed at multiple victims.

Although only three Justices supported these assertions,90 Justice Scalia, in his concurring opinion joined by Justice Thomas, agreed that potential injury could be considered when awarding punitive damages.91 Justice Scalia noted that "today we decide that a 10-to-1 ratio between punitive damages and the potential harm of petitioner's conduct passes muster-calculating that potential harm, very generously, to be more than 50 times the $19,000 in actual damages that respondents suffered."92 This statement clearly shows that five Justices agreed that potential injury is an appropriate consideration in determining the amount of punitive damages to award. Further, because Justice Scalia characterized the potential injury as the "potential harm of petitioner's conduct," it is reasonable to conclude that juries may consider potential injury to nonparties.