Punitive damages shrink as court reins in lawyers

Daily Record and the Kansas City Daily News-Press, Jan 21, 2008 by Margaret Cronin Fisk

Some say they've changed their approach in trials

A U.S. court crackdown on punitive damages resulted in the second consecutive year of declines and reversals of earlier verdicts, a trend working in favor of companies like Ford Motor Co.

The Dearborn, Mich.-based automaker in the past five years has been hit with more than $392 million in punitive awards. Limits on such damages have given Ford victories in appeals of two decisions totaling more than $100 million and may help it in hundreds of other product-liability suits.

Punitive damages in the 50 biggest verdicts fell to $1.6 billion in 2007 from $1.8 billion in 2006 and $5 billion in 2005, according to data compiled by Bloomberg. A pivotal U.S. Supreme Court decision last year will aid in appeals and help reduce future awards, companies' lawyers say. The court said defendants can't be punished for harming anyone not included in a case, such as other customers.

"This may well bring sanity to the world of punitive damages," said Ford attorney Ted Boutrous, of Gibson, Dunn & Crutcher in Los Angeles. The ruling "gives defendants not only the ability to challenge punitives as excessive but an avenue to eliminate or prevent such a verdict in the first place."

The high court's decision, in a case involving Altria Group's Philip Morris USA, led to orders last year to reconsider awards of $55 million and $52 million against Ford for accidents that killed one person and paralyzed one. The verdicts represent an earnings- per-share impact of 5.7 cents, or 1 percent.

The ruling may also lead to the reduction of a separate $28 million verdict in 2002 against Altria and the reversal of a $49 million verdict in 2005 against the Chrysler unit of DaimlerChrysler.

Continuing decline

The decline probably will continue, said Ellis Horvitz, a lawyer for defendants and plaintiffs in appeals.

"We will not see the wildly excessive punitive damages sustained at the appellate level, and many will be cut down at the trial level," said Horvitz, of Horvitz & Levy in Encino, Calif.

The largest 50 verdicts in all types of U.S. lawsuits, including both punitive and actual damages, rose to $6.9 billion in 2007 from $6.3 billion in 2006.

Punitive damages are added to compensation for actual injuries, to punish a defendant for behavior that goes beyond negligence, such as willful or malicious conduct.

While they can be reversed or reduced after trials, their unpredictability and the bad publicity they bring harms defendants, said Boutrous. They are "very unsettling for a company that's trying to gauge its status and report to the market," he said.

In the past two decades, 22 states including Texas, Ohio and Virginia capped punitive damages, according to the American Tort Reform Association, which supports limits. U.S. Supreme Court decisions brought other restrictions.

In 2003, the court ruled punitive damages usually should be no more than nine times actual damages. A 1-to-1 ratio may be reasonable if the compensatory award is large, the justices said.

The court allowed exceptions for especially egregious conduct, and judges have upheld punitive awards above the 9-to-1 ratio. The Philip Morris case reduces the exceptions.

The ruling came in the company's appeal in a suit filed by the family of Jesse Williams, a retired school janitor who died at 67 of lung cancer in 1997. An Oregon jury awarded $821,485 in compensatory damages and $79.5 million in punitives over his death, a ratio of 97 to 1. The trial judge cut the punitive award to $32 million. An appeals court restored it to the full amount.

Jury instruction

Philip Morris appealed. It said the family's lawyer urged the jury to "think about how many other Jesse Williams in the last 40 years in the state of Oregon there have been," the Supreme Court said.

The trial judge refused the company's request to tell jurors not to award punitives for harm to people who weren't part of the case.

The tobacco company won at the Supreme Court in a 5-4 vote last February, with Chief Justice John Roberts and Justices Stephen Breyer, Anthony Kennedy, David Souter and Samuel Alito in the majority.

"A punitive damages award based in part on a jury's desire to punish a defendant for harming nonparties amounts to a taking of property from the defendant without due process," the court said in a ruling written by Breyer.

Plaintiffs can show the company harmed others to prove it deserves punishment, the court said. "A jury may not go further and use a punitive damages verdict to punish a defendant directly for harms to those nonparties," it added.

The justices sent the case back to Oregon, where an appeals court is considering the family's request to uphold the full jury award, said William Gaylord, the family's lawyer, of Gaylord Eyerman Bradley in Portland. The court may also reduce the award or order a new trial.

The Philip Morris decision threatens any punitive-damage award that didn't include a jury instruction against punishing people not included in the case, said attorney Scott Nealey. He won a $50 million punitive verdict against DaimlerChrysler in Los Angeles last year, indicating the Supreme Court decision has not cut off such damages entirely.