Punitive damages reduced in tobacco lawsuit by U.S. Circuit Court of

Daily Record and the Kansas City Daily News-Press, Jan 11, 2005 by Donna Walter

Punitive damages awarded in a tobacco case were reduced Friday by a federal appeals court from $15 million to $5 million.

This puts the total amount Brown & Williamson Tobacco Co. must pay widower Henry W. Boerner at $9,025,000.

The decision to reduce punitive damages came from a three-judge panel of the 8th U.S. Circuit Court of Appeals, but the judges disagreed on why the damages should be reduced.

The majority, in an opinion written by Circuit Judge Roger L. Wollman, said the U.S. Supreme Court's 1996 decision in BMW of North America Inc. v. Gore calls for a lesser ratio of compensatory damages to punitive damages than what had been awarded by the U.S. District Court, Eastern District of Arkansas.

The three factors established in Gore for reviewing punitive damages are: the reprehensibility of the defendant's conduct, the disparity between the injury and the award of punitive damages, and the difference between the amount of punitive damages awarded and the amount in civil penalties that had been authorized in similar cases.

It is the second factor that is the basis of the majority's decision. Quoting Gore, Wollman wrote, Though the Supreme Court has been 'reluctant to identify concrete constitutional limits on the ratio between harm . . . to the plaintiff and the punitive damages award,' . . . it has identified a circumstance in which caution is required: 'When compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee.'

The 8th Circuit majority cited three of its previous decisions to explain its decision to use a low ratio.

In Williams v. ConAgra Poultry Co., a jury had awarded $1,001,397.40 in compensatory damages and $6,063,750 in punitive damages. The trial court remitted the compensatory damages to $600,000 but kept the punitive damages at $6 million. Last year, the 8th Circuit reduced the punitive damages to $600,000.

In Stogsdill v. Healthmark Partners L.L.C., the 8th Circuit decided last year to lower a $5 million punitive damage award to $2 million when the jury had awarded $500,000 in compensatory damages

Finally, in Morse v. Southern Union Co., the jury had awarded the plaintiff $450,000 in compensatory damages and $6.25 million in punitive damages. The trial court reduced the compensatory damages to $70,000 and the punitive damages to $400,000; in 1999, the 8th Circuit affirmed the trial court's decision.

A higher ratio isn't justified, according to the majority, because two Gore factors that call for a higher ratio - an injury that is hard to detect and a particularly egregious act [that] has resulted in only a small amount of economic damages - are absent in this case.

As such, the majority decided a ratio of about 1-to-1 would be appropriate and reduced the punitive damages to $5 million.

Although Judge Kermit Bye concurred with the result of the majority, he faulted its reasoning.

Bye relied on a 2004 decision not discussed by the majority, Eden Electrical Ltd. v. Amana Co., in which the 8th Circuit upheld an award of punitive damages that was about 4.5 times higher than the compensatory damage award.

A jury awarded Eden $2.1 million in compensatory damages and $17.875 million in punitive damages; the trial court reduced the amount of punitive damages to $10 million, which the 8th Circuit affirmed.

Although the ratio used in Eden may crowd constitutional limits, he wrote, it does not exceed the single-digit ratio the Supreme Court has intimated as setting the constitutional limit . . . and we justified the 4.5:1 ratio in Eden because the case involved an 'extraordinarily reprehensible scheme to defraud.'

The harm suffered in Boerner's case is worse than that suffered by Eden, held Bye, because Boerner suffered the loss of his wife, while Eden suffered mere economic harm.

In addition, Bye faulted the majority for failing to discuss a third factor for justifying the use of a higher ratio of punitive to compensatory damages: where the monetary value of noneconomic harm is difficult to determine. The presence of this factor puts the original $15 million award within the constitutional limits of due process, held Bye.

Bye relied on two cases out of the 10th Circuit appellate court and a case out of the U.S. District Court in Kansas.

The 10th Circuit approved of a 12-1 ratio in Bielicki v. Terminix Int'l Co. in 2000 in which three plaintiffs who were awarded compensatory damages in the amounts of $60,700, $77,800 and $31,600 were allowed to receive punitive damages of $728,400, $933,600 and $379,200, respectively.

The punitive-to-compensatory damage ratio approved by the 10th Circuit in its 2000 decision of Deters v. Equifax Credit Info. Servs. Inc. was 59-to-1; in that case a jury had awarded the plaintiff $5,000 in compensatory damages and $1,000,000 in punitive damages, which the trial court later reduced to $295,000 based on a federal damages cap.

Burton v. R.J. Reynolds Tobacco Co., a 2002 decision by the District Court in Kansas, approved a 75-1 punitive-to-compensatory damage ratio.