Supreme Court Strengthens Constitutional Protections Against Arbitrary and Excessive Punitive Damage Awards

February 23, 2007

In a 5-4 opinion issued this week, the United States Supreme Court struck down a $79.5 million punitive damage award as unconstitutional under the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution. In so doing, the Court held for the first time that a jury may not issue a punitive damage award in order to punish a defendant for injuries suffered by nonparties to the litigation. Moreover, the Court set aside the Oregon jury verdict on the ground that the trial court had failed to establish sufficient procedural safeguards to prevent the issuance of such an award based on harm to nonparties. This decision is an important development that is likely to have a significant impact on a wide spectrum of major civil litigation across the country, including cases involving product liability and commercial torts. Gibson Dunn & Crutcher LLP filed a brief amicus curiae on behalf of the Product Liability Advisory Council in the case, Philip Morris USA v. Williams, No. 05-1256 (Feb. 20, 2007).

In an opinion authored by Justice Stephen G. Breyer, the Court this week squarely held for the first time that “the Constitution’s Due Process Clause forbids a State to use a punitive damages award to punish a defendant for injury that it inflicts upon nonparties or those whom they directly represent, i.e., injury that it inflicts upon those who are, essentially, strangers to the litigation.” Such awards, the Court reasoned, deny defendants the opportunity, guaranteed by due process, to present every available defense, as they would ordinarily be able to do when specific plaintiffs present specific circumstances in pursuit of relief. Moreover, such awards magnify the potential for arbitrary decision-making and lack of notice that animates the Court’s Due Process jurisprudence with respect to punitive damages: “[T]o permit punishment for injuring a non-party victim would add a near standardless dimension to the punitive damages equation. . . . The jury will be left to speculate. And the fundamental due process concerns to which our punitive damages cases refer — risks of arbitrariness, uncertainty and lack of notice — will be magnified.”

The Court acknowledged that a plaintiff may submit evidence of harm to nonparties in order to demonstrate the degree of the defendant’s reprehensibility in its conduct against the plaintiff, consistent with the Court’s earlier decisions in BMW v. Gore and State Farm Mutual Automobile Ins. v. Campbell, so long as that evidence is not also used to punish the defendant for harms inflicted upon nonparties to the litigation. However, because the trial court failed to establish procedures to ensure that the jury used evidence of harm to non-parties in a constitutionally appropriate manner, the Court set aside the jury award. As the Court explained, “state courts cannot authorize procedures that create an unreasonable and unnecessary risk” that juries will misuse such evidence, and that “[a]lthough the States have some flexibility to determine what kind of procedures they will implement, federal constitutional law obligates them to provide some form of protection in appropriate cases.” Moreover, the Court placed the burden directly on the States to ensure that juries are given sufficient, meaningful guidance on the critical issues: “[T]he Due Process Clause requires States to provide assurance that juries are not asking the wrong question, i.e., seeking . . . to punish for harm caused strangers.” Accordingly, the Court vacated the punitive damage award in its entirety and remanded the case to the Oregon Supreme Court to determine whether a new trial or reduction of the award was the appropriate remedy.

This week’s decision is the latest in a series of recent rulings by the U.S. Supreme Court strengthening constitutional protections against arbitrary or excessive punitive damage awards. For example, in BMW v. Gore, 517 U.S. 559 (1996), the Court noted that “[e]lementary notions of fairness enshrined in our constitutional jurisprudence dictate that a person receive fair notice not only of the conduct that will subject him to punishment, but also of the severity of the penalty that a State may impose.” Accordingly, the Court held that the Due Process Clause provides three guideposts for determining whether a punitive damage award is unconstitutionally excessive: the degree of reprehensibility of the defendant’s conduct, the disparity between the harm or potential harm suffered by the plaintiff and the punitive damages award, and the difference between the punitive damages award and the civil penalties and awards authorized or imposed in comparable cases. In State Farm Mutual Automobile Ins. v. Campbell, 538 U.S. 408 (2003), the Court expanded on and strengthened the three guideposts set out in BMW v. Gore. In particular, the Court established a general constitutional presumption against awards that exceed a single digit ratio between punitive and compensatory damages.

Following on the heels of BMW v. Gore and State Farm, the Philip Morris ruling is especially noteworthy, as it may portend a significant new trend in the Supreme Court’s punitive damages jurisprudence. While State Farm and BMW v. Gore focused on the failure to provide fair notice of the severity of the punishment that could be imposed, the right to fair notice of the conduct that can give rise to punishment is even more fundamental. Whereas BMW v. Gore and State Farm require courts to examine the size of a particular punitive damage award to determine whether it is unconstitutionally excessive, Philip Morris requires courts to establish certain procedural safeguards, without which a punitive damage award of any size will be treated as constitutionally suspect. Gibson Dunn recently filed a certiorari petition for Ford Motor Company raising due process challenges to vague standards of liability for punitive damages in product liability actions, and that case could give the Court an opportunity to further clarify the constitutional requirements in this area.

Finally, the Philip Morris decision is especially significant because it marks the first time since their confirmation to the U.S. Supreme Court that Chief Justice John G. Roberts, Jr. and Justice Samuel A. Alito, Jr. have expressed their views on whether and to what extent the Due Process Clause protects defendants against arbitrary and excessive punitive damage awards. First, they declined to join Justices Antonin Scalia, Clarence Thomas, and Ruth Bader Ginsburg, who dissented in Philip Morris and have traditionally opposed the development of stronger constitutional protections against punitive damage awards. Second, although Justice John Paul Stevens authored BMW v. Gore and joined the majority in State Farm, he dissented in this week’s ruling, although he reiterated in Philip Morris his agreement with the earlier decisions. This week’s ruling thus not only confirms that there is now a 6-3 majority on the U.S. Supreme Court in favor of robust constitutional protections against arbitrary and excessive punitive damage awards. It also suggests that Chief Justice Roberts and Justice Alito may be prepared to expand upon the Court’s modern punitive damages jurisprudence even further than Justice Stevens, one of the original framers of this jurisprudence, is willing to do, especially in the context of requiring that clear standards and meaningful procedural safeguards exist before such punishments may be imposed.

Gibson, Dunn & Crutcher has one of the country’s preeminent practices in appellate and constitutional litigation, with lawyers nationwide assisting corporations with their most sensitive and challenging matters. The firm pioneered constitutional challenges to punitive damages more than two decades ago, and has secured reversal or significant reduction of many massive punitive damage verdicts.

Our lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, Theodore B. Olson (202-955-8668, [email protected]) in the firm’s Washington, D.C. office, Theodore J. Boutrous, Jr. (213-229-7804, [email protected]) or William E. Thomson (213-229-7891, [email protected]) in the firm’s Los Angeles office, or James C. Ho (214-698-3264, [email protected]) in the Dallas office.

© 2007 Gibson, Dunn & Crutcher LLP

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