Written By Attorneys William O. Krekstein and Sharon Lynn Jones

Note: This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.

Even with the safeguards set forth by the United States Supreme Court in State Farm v. Campbell, a corporate defendant faced with a punitive damage award is still not guaranteed that the award will be reasonable, proportionate, or reflect only the harm it caused to the plaintiff. On January 31, 2008, upon remand from the United States Supreme Court, the Oregon Supreme Court chose to reaffirm its award of $821,485.50 in compensatory damages and $79.5 million in punitive damages against tobacco giant Philip Morris USA in a case alleging deceit and fraud in downplaying the association between smoking and cancer. Williams v. Philip Morris USA, --- P.3d ---, 2008 WL 256614 (Or. Jan. 31, 2008). In doing so, the court seemed to ignore the United States Supreme Court's instruction to reassess its decision under Campbell where it set forth guidelines for courts to use in evaluating an award of punitive damages to ensure that defendants are not arbitrarily punished. See State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003). Campbell emphasized the need for courts to pay special attention to punitive damage awards that are not based solely upon the defendant's conduct towards the plaintiff. Campbell also noted that few punitive damage awards exceeding a single digit ratio when compared with compensatory damages will satisfy due process under the Constitution.

In Williams, the Oregon Court of Appeals rejected a proposed jury instruction from Philip Morris that would have prohibited the jury from punishing Philip Morris for the impact of its misconduct on persons outside of the litigation. Williams v. Philip Morris Inc., 182 Or. App. 44, 48 P.3d 824 (2002). Philip Morris sought review by the United States Supreme Court on multiple issues, including the excessiveness of the punitive damage award in light of Campbell, and the trial court's refusal to give the company's proposed instruction to the jury. On its first review, the high court remanded the case so the state court could analyze the punitive damage award under the standards set forth in Campbell. Philip Morris USA v. Williams, 540 U.S. 801 (2003). The award was reaffirmed under the state court's interpretation of Campbell. Williams v. Philip Morris Inc., 340 Or. 35, 127 P.3d 1165 (2006). Philip Morris appealed again, and on its second review, the Supreme Court determined that the state court's analysis under Campbell had been flawed with respect to determining the reprehensibility of Philip Morris' conduct. Philip Morris USA v. Williams, 552 U.S. ---, 127 S.Ct. 1057 (2007). The issue was whether the state court had allowed the jury to consider harm the company caused to individuals who were not parties to the litigation in assessing the reprehensibility of the company's conduct, and therefore base the punitive damage award on damage done to non-parties. The level of reprehensible conduct is one guide used in Campbell in reviewing the fairness of punitive damages. Though a jury may hear evidence of harm caused by the defendant to parties outside of the litigation to assess the reprehensibility of a company's conduct, it may not assess punishment based on that conduct. The case was remanded a second time so that the state court could review whether the jury's punitive damage award included punishment for harm caused to individuals who were not parties to the litigation.

Rather than reassessing the punitive damage award as directed, the Oregon Supreme Court chose to focus its opinion on the appropriateness of Philip Morris' proposed jury instruction. In its analysis, the state court acknowledged that the jury instruction proposed by Philip Morris complied with the due process standards articulated in Campbell, yet failed because it did not comport to the additional requirements provided under Oregon's law of punitive damages. The court upheld the refusal to permit the proposed instruction to the jury because it misstated Oregon's law of punitive damages. Under Oregon law, it is mandatory for a jury in a products liability case to consider seven criteria in order to justify the imposition of punitive damages. The proffered instruction from Philip Morris suggested that consideration of the seven factors by the jury was discretionary. In addition, Oregon law provides that a jury can consider the profitability of the misconduct in determining an award of punitive damages. Contrary to this, Philip Morris's instruction asked the jury to focus on the motive or intent of the company and only consider the illicit profits it acquired as a result of its misconduct. The court therefore reaffirmed the punitive damage award without any meaningful discussion of the propriety of a punitive damage award almost one hundred times greater than the compensatory damages. Williams, 2008 WL 256614 at *9.

This case demonstrates a state court's utilization of state law and procedural mechanisms to uphold large punitive damage awards that it perceives as justified, and, perhaps more importantly, to attempt to avoid scrutiny under the principles of Campbell. On June 9, 2008 the United States Supreme Court agreed to hear the case for a third time. The issue to be addressed is whether the Oregon court was correct in affirming the award since the jury instruction on punitive damages proffered by Philip Morris misstated state law. NLdH will continue to follow this important case.