Punitive damages have long been a hot topic of tort reform. In claims involving potential punitive damages, it is important to remember that there are a number of limitations on such awards. The following case is exemplary among punitive damage cases but provides a clear roadmap of how Oregon courts analyze punitive damage awards.
Claims Pointer: Under ORS 31.730, punitive damages must be proven by clear and convincing evidence by showing that the responsible party “acted with malice” or “reckless and outrageous indifference to a highly unreasonable risk of harm and acted with a conscious indifference to the health, safety and welfare of others.” Even if a jury awards punitive damages, the trial court must review the award and may reduce it if it is unreasonable. In this case, the Oregon Court of Appeals reviewed a punitive damage award of $25 million and determined that it was reasonable because the defendant cigarette company’s conduct was “extraordinarily reprehensible” and because the punitive damage award was not so disparate from compensatory damages and similar penalties to render it unconstitutionally excessive.
Estate of Michelle Schwarz v. Philip Morris USA, Inc., 272 Or App 268 (2015).
In 2002, a jury awarded the estate of Michelle Schwarz (Plaintiff) $168,514 in compensatory damages (economic and non-economic damages) and a combined $150 million in punitive damages after finding Philip Morris liable for fraud, product liability, and negligence for its marketing of a low-tar cigarette that ultimately caused the death of Michelle Schwarz (Schwarz). The trial judge reduced that amount to $100 million as permitted by ORS 31.730. Philip Morris appealed only the amount of punitive damages and the Oregon Supreme Court held that the trial court properly instructed the jury that it could consider harm to others caused by Philip Morris’s “reckless and outrageous indifference to a highly unreasonable risk of harm.” However, the Court held that the trial court should have instructed the jury that it could not consider the harm to others in calculating the amount of punitive damages. In other words, the jury “could not directly punish the defendant or that harm.” The Court sent the case back to the jury to consider the sole issue of the amount of punitive damages.
On remand, the plaintiff presented evidence to the jury based only on the fraud claim. The jury was informed that they were required to accept the facts in the first trial. In the first trial, Plaintiff presented evidence that Schwarz started smoking when she was 18. She attempted to quit several times because she knew that it was harmful, but was unsuccessful in quitting. In 1976, Philip Morris released “Merit” brand cigarettes, which they marketed as a “low-tar.” Schwarz (and many others) switched to the brand believing that the cigarette was less harmful than other cigarettes. Plaintiff continued to smoke a pack a day. In 1999, Schwarz died of a brain tumor brought on by lung cancer. Philip Morris created and marketed Merit cigarettes as a “crutch” for smokers looking to quit by advertising it as a healthier option due to its low tar. However, Philip Morris knew full well that even though the cigarette had less tar, it was nonetheless just as harmful as regular cigarettes because smokers unconsciously adapted their smoking habits to inhale deeper and longer in order to compensate for the lower levels of nicotine.
The jury heard much of the same evidence as the first trial, but was also permitted to hear evidence post-dating the first trial, including that Philip Morris continued to advertise its cigarettes as “light” and “low tar” until 2010, when it was prohibited by Congress. The jury also heard evidence that Philip Morris’s net earnings in 2010 were $3.3 billion, that net daily earnings were $9 million, and that the company had a value of $50 billion. At the close of the evidence, the trial judge instructed the jury that they could only consider the issue of the amount of punitive damages. The jury awarded Plaintiff $25 million in punitive damages. The trial court reviewed the reward pursuant to ORS 31.730 and let the award stand without reducing it.
Philip Morris again appealed, arguing that the award was “arbitrary and excessive” and that the only reasonable award would be nominal damages of $1. On appeal, the Oregon Court of Appeals affirmed the trial court’s decision and upheld the jury’s award of $25 million. The Court held that the jury had sufficient evidence before it to find that Philip Morris had exhibited a “reckless and outrageous indifference to a highly unreasonable risk of harm” in the way it manufactured and marketed low tar cigarettes, among other reprehensible conduct. Therefore, the award was neither arbitrary nor excessive.
Philip Morris also argued that the punitive damage award was unconstitutionally excessive because it was almost 150 times more than the compensatory damages. The Court addressed Philip Morris’s argument by considering the following factors used to determine when a punitive damage award violates due process:
“(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.”
First, the Court found that the jury was correct in finding that Philip Morris’s conduct was “extraordinarily reprehensible” because their conduct resulted in severe physical harm (Michelle Schwarz’s death), they were indifferent to the risk because they continued to market and sale “low tar” cigarettes until 2010, and they marketed “low tar” cigarettes knowing that they were no less dangerous than other types of cigarettes.
Second, the Court examined the third consideration by comparing Philip Morris’s conduct to the conduct described in criminal statutes. The Court found that in the criminal context, the penalty would have been jail time and a $250,000 fine for an individual or up to double the amount of gain derived from the conduct. In light of those facts, the Court did not find the disparity to be unreasonable.
Third, the Court determined that the difference between the compensatory damages and the punitive damage award was merited here. The Court rejected Phillip Morris’s argument that a punitive damage award should be limited to single digits. The Court explained that the United States Supreme Court has held that limits such as ratios and caps are unconstitutional. The Court stated that each punitive damage award must be based on the harm to the individual plaintiff, and whether economic/non-economic damages provided full compensation. In this case, the Court said that $168,514 was not a commensurate award, especially for a death of a human being. The Court reasoned that because Oregon does not allow for damages for loss of life, the punitive damages were appropriate to fully compensate Plaintiff. In light of the reprehensibility of Philip Morris’s extraordinarily reprehensible conduct, the large ratio of punitive damages to compensatory damages did not violate due process.
The Court affirmed the trial court ruling upholding the punitive damage award. In closing, the Court stated that the $25 million award was far less than the $93 million that the U.S. Supreme Court
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