Product Liability 2009 - Arnold & Porter LLP

6
Chapter 2
Strategies For Dealing
With the Risk of
Punitive Damages
Shook, Hardy & Bacon L.L.P.
I. Introduction
The concept of punitive damages is well-established in the United
States’ civil justice system. See Pacific Mut. Life Ins. Co. v. Haslip,
499 U.S. 1, 25 (1991); Exxon Shipping Co. v. Baker, 128 S.Ct. 2605,
2620 (2008) (stating that “the modern Anglo American doctrine of
punitive damages dates back at least to 1763” and explaining that
“damages beyond the compensatory was not, however, a wholly novel
idea even then, legal codes from ancient times through he Middle
Ages having called for multiple damages for certain especially
harmful acts.”); Schwartz, Victor E. et al., Selective Due Process, 82
Oregon L. Rev. 33 (2003). Until well into the Nineteenth Century,
punitive damages were available under certain circumstances as
additional potential recovery for non-economic damages otherwise
unavailable under the narrow concept of compensatory damages
prevalent at the time. See Cooper Industries, Inc. v. Leatherman Tool
Group, Inc., 121 S. Ct. 1648, 1686 n.11 (2001). In other words, the
original concept of punitive damages in the United States was to make
the plaintiff “whole”.
In contrast, the modern concept of punitive damages is aimed at
punishing a defendant and deterring future “bad” conduct. Id. at 1686;
see also Kemp v. AT&T Co., 393 F.3d 1354 (11th Cir. 2004) (punitive
damages “provide a meaningful deterrent against corporate
misconduct”); Unique Envelope Corp. v. GS Am., Inc., 331 F. Supp.
2d 643 (D. Ill. 2004) (“Punitive damages serve the dual purpose of
deterrence and retribution”). Indeed, today, “punitive damages, unlike
compensatory damages, are not designed to redress the loss of the
plaintiffs, but instead are aimed at deterrence and retribution.”
Gaskins v. BFI Waste Servs., LLC, 2005 WL 1667737 (E.D. Va. June
17, 2005).
The standards for imposing punitive damages have also changed
through the years. Traditionally, courts only imposed punitive
damages for “intentional” conduct. See Schwartz, et al., 82 Oregon L.
Rev. at 36-37. Since the 1960s, however, with the emergence of mass
tort litigation, courts have shown a willingness to award punitive
damages for conduct that is less than intentional, e.g., conduct
described as “wilful and wanton,” or “with a reckless disregard for the
safety of consumers.” See id.
Historically, punitive damages were awarded infrequently. See
Schwartz et al., 82 Oregon L. Rev. at 33. Today, punitive damages
awards are “higher and more frequent in the United States than they
are anywhere else.” Exxon Shipping, 128 S.Ct. at 2623. Indeed,
whereas multi-million dollar verdicts were once unheard of in the
United States, several verdicts in the past years have exceeded $1
billion. See id. at 36-37. For example, in 2000, a Florida jury awarded
$146 billion against the American tobacco companies in a class action
lawsuit. In August 2006, a Florida jury ordered a Morgan Stanley
broker to pay $1.45 billion to an investor for defrauding him in the sale
Harvey L. Kaplan
Angela M. Seaton
of his camping gear company. Multi-million dollar punitive damage
awards are also becoming increasingly frequent. In February 2008, a
Nevada jury awarded $134 million in compensatory and punitive
damages to three plaintiffs who claimed that a prescription medication
caused their breast cancer. In August 2006, a Louisiana jury awarded
$51 million to a plaintiff who claimed his heart attack was caused by
a prescription pain medication. All of the foregoing jury awards were
appealed and later overturned and/or reduced, however, these
examples illustrate the uncertainty of punitive damages.
Not only have the amount of punitive damage awards “skyrocketed”
in the past few decades (see Haslip, 499 U.S. at 18), the inconsistency
in these awards has wrecked havoc on the United States’ civil justice
system. See Exxon Shipping, 128 S.Ct. at 2625 (“The real problem, it
seems, is the stark unpredictability of punitive awards.”). First, it is
difficult to predict whether punitive damages will be submitted for a
jury’s consideration because there is no “bright-line” rule for
determining what evidence is necessary to sustain a claim for punitive
damages. As a result, much is left to the court’s discretion. Likewise,
if a punitive damage claim is submitted to the jury, “[t]he difficulty of
predicting whether punitive damages will be awarded by [the] jury in
any particular case and the marked trend toward astronomically large
amounts when they are awarded, have seriously distorted settlement
and litigation processes and have led to wildly inconsistent outcomes
in similar cases.” Tort Reform Record, available online at the
American Tort Reform Association website, www.atra.org. A study
cited by the Supreme Court in Exxon Shipping revealed that while the
median ratio of punitive damages to compensatory damages was
0.61:1, the mean ratio was 2.90:1 with a standard deviation of 13.81
prompting the Court to comment “the thrust of these figures is clear:
the spread is great, and the outlier cases subject defendants to punitive
damages that dwarf the corresponding compensatories.” Exxon
Shipping, 128 S. Ct. at 2625.
In short, the prospect of punitive damages is a “wild card” that often
drives unreasonable settlements, particularly in the context of mass
tort litigation. For example, in November 2007, a $4.85 billion class
action settlement was reached involving claims for heart attacks
related to prescription drugs; in late 2007, a federal judge in New
Orleans approved a $330 million settlement between Murphy Oil
Corporation and residents of a New Orleans suburb flooded by crude
oil during Hurricane Katrina.
Responding to the growing concern that punitive damages were
“run[ning] wild,” (Haslip, 199 U.S. at 18), the United States
Supreme Court has given substantial attention to the topic during
the past ten years. See State Farm Mut. Auto. Ins. Co. v. Campbell,
538 U.S. 408, 417 (2003) (stressing a concern about the “imprecise
manner in which punitive damages systems are administered); see
also Exxon Shipping, 128 S.Ct. 2605; Philip Morris USA v.
Williams, 127 S. Ct. 1057 (2007); Cooper Indus., Inc. v.
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