Today, the U.S. Supreme Court hears arguments in a case that could be the culmination of a long-term effort by the business community to dramatically curtail punitive damages. At issue is conduct so venal that the Oregon courts called it outrageous and the movies satirized it in Thank You for Smoking.
The target of the punitive damages in this case is Philip Morris, the maker of more than half the cigarettes manufactured in the United States. The company is asking the Supreme Court to invalidate a $79.5 million punitive-damage award in a case stemming from the death of one Oregon smoker.
The case is the ultimate test of whether the Constitution imposes significant limits on punitive damages in each and every case of misconduct. Twice in the last decade, the Supreme Court has said that there are indeed limits. Most recently, the Court suggested that, at most, punitive damages should not exceed nine times the amount of damages awarded to the plaintiff for actual harm.
Today's case is quite different from previous cases because it involves what the Court has called reprehensible conduct, not just economic harm. The Court has identified reprehensible conduct as that which causes physical harm, involves reckless disregard for the health and safety of others, conduct that treachery and deceit and is part of pattern of wrongdoing resulting in large profits.
On any scale of reprehensibility, the conduct of the tobacco industry is right up there at the top. The question in this case from Oregon is: How much freedom does a state have to assess damages in an individual case involving reprehensible conduct?
This case was brought by the widow of Jesse Williams, a Portland public school janitor, who smoked Marlboros for almost 50 years. When his family tried to get him to stop, he repeatedly pointed to claims made by the tobacco industry that smoking did not cause lung cancer. When he was diagnosed with the disease in 1997, he told his family, "Those darn cigarette people finally did it. They were lying all the time." Carrying out a promise to her husband, Mayola Williams sued Philip Morris for fraud and negligence.
The trial featured internal documents that demonstrated the tobacco industry knew for nearly half of a century that cigarette smoking was harmful to health and that nicotine was addictive. As the Philip Morris research director put it in a 1980 memo, "the thing that we sell most is nicotine." "Without it," said a 1972 memo, "there would be no smoking."
Yet as late as 1994, William Campbell, the CEO of Philip Morris testified to the contrary before Congress, stating: "I believe nicotine is not addictive."
Evidence at the trial showed that privately, the industry knew Campbell's statement was not true. In fact, four decades earlier, the industry had conceived of a strategy to lull smokers into false confidence by offering them what one internal memo called a "psychological crutch" to continue smoking, namely that there was no proven health risk.
When that grew tenuous, the tobacco companies came up with light cigarettes, advertised as having less tar and nicotine. And as the trial testimony showed, Jesse Williams, like millions of other smokers, eventually switched to light cigarettes, believing that they were healthier.
The problem, says Johns Hopkins professor Jack Henningfield, is that light cigarettes were no healthier than full flavor cigarettes. Henningfield served for 16 years as head of the addiction laboratory at the National Institute for Drug Abuse. He has testified that light cigarettes were actually designed to fool the testing machine used at the Federal Trade Commission, which, for a time, endorsed the use of the term "lights" in marketing.
To scam the machine, known as the puffer, Henningfield says, Phillip Morris and other manufacturers designed the cigarettes with tiny holes at the tip.
"When you put the cigarette in the testing machine," he observes, "the machine gets lots of fresh air through those tiny holes, and it dilutes the tar and nicotine." But when a real person smokes the same cigarette, Henningfield says, the smoker's mouth and fingertips cover those holes so that a more concentrated dose of tar and nicotine is delivered.
It was information like this that led an Oregon jury to find Philip Morris guilty of fraud and negligence. Although the jury found Jesse Williams partly responsible for continuing his smoking habit, it also awarded his widow Mayola Williams $800,000 in compensatory damages. On the question of punitive damages, however, the jury ordered Philip Morris to fork over $79.5 million, 60 percent of it to go -- according to state law -- to the Crime Victim's Compensation Fund.
Philip Morris appealed to the U.S. Supreme Court, contending that the punitive-damage award in the Jesse Williams case was way out of whack with the Court's previous decisions. After all, the award was 97 times that of the compensatory damages, far more than the nine times outer limit the Supreme Court had previously suggested.
Philip Morris would not allow its lawyer to be interviewed for this story, so we turned to Ted Boutrous, who filed a brief siding with Philip Morris on behalf of other product manufacturers. Boutrous contends that the jury verdict was completely arbitrary, and that the Constitution does not allow arbitrary punishment. He elaborated that "$79.5 million really has no relationship to anything. It's really a number plucked out of thin air."
Countering that argument, Bob Peck, who represents Mrs. Williams, contends that the courts are not required "to engage in an elementary school math exercise."
Peck claims that "here the Oregon courts understood, given the gravity of the offense, and the fact that punitive damages are supposed to be proportionate to the enormity of the offense, that this was an appropriate award."
Boutrous replies that the lawyers for the Williams family, in their closing arguments, urged the jury to think about the other Jesse Williamses in the state and take their injuries into account in awarding punitive damages. That, he holds, is a denial of due process of law for Philip Morris.
"Here there was only evidence regarding one person," says Boutrous, "and so it would be unfair to punish Philip Morris for conduct regarding other people who haven't proven a case against Philip Morris."
Indeed, Boutrous contends that Phillip Morris could end up being punished repeatedly for the same conduct if there are future suits brought by other smokers in Oregon.
Not so, says Peck, noting that in the seven years since the verdict, there has been no other lawsuit against Philip Morris in the state. Furthermore, he adds, Oregon's law instructs judges to take into account any previous punitive-damage awards. More to the point, he argues, punitive damages are intended to act as a deterrent to protect the public and that is why the state statute instructs juries to take into account profitability from the misconduct and its effect on others.
"Punitive damages," Peck says, "are supposed to vindicate society's interest, not the interest of the individual bringing the lawsuit."
Boutrous replies that such a system violates all the traditions and tenets of the Constitution. He says, "It is like having a bounty hunter.... The state has deputized private plaintiff's lawyers and private plaintiffs to collect punishment and fines."
In upholding the verdict, the Oregon Supreme Court concluded that Philip Morris knew of the serious health effects of smoking, and yet, in order to keep smokers puffing cigarettes, the company engaged in a massive scheme to spread false and misleading information, all of it to suggest to the public that doubts remained on the issue. The company's conduct, the state court said, was so extraordinarily reprehensible that it could have constituted manslaughter in Oregon, a crime punishable by up to ten years in prison.
Philip Morris counters that manslaughter charges were never brought, and as Boutrous observes, under the Oregon manslaughter law, "the maximum fine would have been $50,000 and so to impose $79.5 million with a civil jury, pursuant to none of the procedural protections of the criminal trial is unfair and violates due process."
Boutrous is one of dozens of lawyers who have filed briefs in the Supreme Court on behalf of virtually the entire business community urging the Court to declare unconstitutional, once and for all, punitive-damage awards that are disproportionately large compared with the damages awarded for actual harm.
Philip Morris urges a standard that would permit no more than four times the damages for actual harm. Eleven states, however, and a large array of other organizations including consumer groups, the AARP and the American Cancer Society, disagree. They are telling the Court that putting such a limit on punitive damages in cases of extreme reprehensibility would give the green light to those who seek to profit from fraudulent conduct that recklessly disregards the health and safety of the public.
Now the Supreme Court will decide.