Thursday, October 9, 2003

Jury awards: Court sets guidelines

Punish, don't destroy

Sometimes, the U.S. Supreme Court speaks volumes without even issuing an opinion. That was the case Monday, when it tossed out an $80 million punitive damage award against cigarette maker Philip Morris in a suit brought by the family of an Oregon janitor who died of lung cancer.

In two brief sentences, the justices ordered Oregon courts to reconsider the case, and sent a clear message that courts nationwide must curb astronomical awards that aim to destroy businesses, not just punish them.

That's a welcome development, not just for businesses, but for consumers who want to keep the costs of goods and services down - and workers who want to keep their jobs. And it vindicates states such as Ohio whose lawmakers have advocated reforms to stem the more outrageous punitive awards, even if such cases are few and far between.

Philip Morris' guilt in the case was not at issue. Nor was the $800,000 in compensatory damages awarded to the family. Nor was the finding that Philip Morris' behavior merited punitive damages.

But the $80 million award, the court said, was out of proportion. The Oregon judges were instructed to go back to their books and study an April decision, State Farm vs. Campbell, in which the Supreme Court set guidelines. It said that depending on the circumstances of each case, a punitive-to-compensatory ratio of more than 10-to-1 could be unconstitutional, violating the 14th Amendment.

In the Philip Morris case, the ratio was 100-to-1; in the State Farm, case, it was 145-to-1.

Compensatory damages, the court pointed out, are designed to make the plaintiff whole. Punitive damages against the defendant are meant for retribution and deterrence, but they are not a tool for juries to "use their verdicts to express biases" against big business. "A defendant should be punished for the conduct that harmed the plaintiff, not for being an unsavory individual or business," the court wrote.

The real winners may be smaller businesses, for whom a large punitive award can be a virtual death sentence.

But lawyers who have made an art form out of using courts to try to eradicate legal industries they deem to be bad - tobacco, fast food, who knows what next - aren't pleased. They argue we'll see a flood of big-business challenges to juries' damage awards. That's hardly likely, except in cases where the awards go flagrantly beyond the court's rule-of-thumb ratio - in which cases challenges may be justified.

Caps and ceilings may not work, and they're certainly not appropriate for the Supreme Court to impose on various state courts. But it has reinforced the principle that punitive damages should have some relation to reality. We hope courts and juries get the idea.

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