United States: When Is A 99.6% Reduction Of A Punitive Damages Award Not Enough? When The Original Award Was $9 Billion And There Are Thousands Of Other Plaintiffs Seeking Comparable Awards.

A jury in the Western District of Louisiana made headlines last spring when it awarded a stunning $9 billion in punitive damages to a plaintiff who contended that the diabetes drug Actos caused his bladder cancer.  Last week, the district court cut the award by 99.6 % to approximately $37 million. Despite the impressive scale of the reduction, in our view the remitted award remains unconstitutionally excessive.  Furthermore, the district court's lengthy opinion reveals significant errors of reasoning that we hope the Fifth Circuit will correct on appeal.  We address three of them here.

First, a new trial rather than remittitur is the appropriate remedy because the aberrational verdict shows that the jury was inflamed and failed to follow the court's instructions.  The court instructed the jury that punitive damages should be "proportionate" to actual damages and cautioned it not to punish the defendants for alleged injuries to non-parties.  The jury nevertheless set the punishment at 6,000 times the compensatory award—an amount so far in excess of the norm as to defy rational explanation.  The district court surmised that the jury wished to "deter such conduct in the future from corporations whose values are measured in the billions."

As one of us explained in a recent post addressing the role of wealth in setting punitive damages, however, there is no valid deterrence-based rationale for levying huge exactions against corporate defendants that happen to have a high net worth. The Supreme Court cautioned in State Farm v. Campbell, moreover, that when jurors are urged to increase a corporate defendant's punishment based on its balance sheet, they may "use their verdicts to express biases against big business, particularly those without strong local presences."  Here, the verdict so vastly exceeds the scale of permissible punishment that its sheer size compels the inference that the jury misunderstood its task or was swayed by improper factors.  A new trial is the proper remedy for this sort of error.

Second, the district court acknowledged but seriously misapplied Philip Morris v. Williams.  In Williams, the Supreme Court held that the "Due Process Clause forbids a State to use a punitive damages award to punish a defendant for injury that it inflicts upon . . . those who are, essentially, strangers to the litigation."  Building on the concern expressed in State Farm about the danger of repeated, duplicative punishments, the Williams Court explained that such a punishment would be arbitrary (because the jury would be speculating about how many non-parties had been injured) and would deprive the defendant of its right to defend against the non-parties' claims.  Thus, the Court ruled, although "evidence of actual harm to nonparties can help to show that the conduct that harmed the plaintiff also posed a substantial risk of harm to the general public, and so was particularly reprehensible," the jury may not "use a punitive damages verdict to punish a defendant directly on account of harms it is alleged to have visited on nonparties."  Those other alleged victims can bring their own claims, and juries in those cases may impose punitive damages if they deem that remedy to be warranted.

The district court did not correctly apply these principles. It acknowledged the Supreme Court's admonition that "one injured party should not be allowed to inflict the punishment for all who might be harmed by the Defendants' act," and it noted that 8,000 cases claiming injury from Actos are already pending in federal and state court.  But the district court nevertheless focused on the deterrent effect of the case before it, expressing concern that a punishment of even ten times the seven-figure compensatory award would be too "easily absorbed" by the large defendants to effect sufficient deterrence.  In so reasoning, it failed to recognize that inherent in Williams' limitation of punishment to the harms inflicted on the party or parties to the particular case is the principle that no single case or subset of cases should alone be assessed in terms of its efficacy in producing sufficient punishment to deter the company's entire course of conduct.  Rather, it is the collective result of all foreseeable cases challenging that conduct that should produce the desired effect.

Accordingly, faithful application of the principle underlying Williams required the district court to ask whether the total punishment would be excessive if all 8,000 plaintiffs were awarded punitive damages equal to the amount it would decide was allowable for Mr. Allen.  Had it asked that question, it would have readily seen that $37 million for the harms caused to Mr. Allen would lead to punitive damages of $296 billion for all the harms allegedly caused to the universe of plaintiffs, an amount that would substantially exceed the sum of the net worth of both defendants and the total net sales of Actos over the product's entire history.  Indeed, if every other plaintiff were awarded compensatory damages equal to the $1,475,000 awarded to the Allens, the compensatory liability alone would approach $12 billion and probably fully satisfy any need for deterrence without adding a penny of punitive damages.

But, you might say, suppose many of these other lawsuits fail and result in no punitive damages?  In fact, the district court expressed precisely that concern, noting that "other Plaintiffs might or might not be able to establish harm to themselves."  The prospect that the defendant may be exonerated in future cases does not justify imposing disproportionate punitive damages in cases of winning plaintiffs, however.  On the contrary, mixed results in litigation may show that the evidence supporting the kind of aggravated misconduct necessary to justify punitive damages, or even to support any liability, is equivocal, that the product infrequently causes the claimed adverse effects, or that the legal standards are uncertain.

As Judge Posner observed in In re Rhone-Poulenc Rorer, Inc., because different juries inevitably will interpret the same evidence differently, a "decentralized process of multiple trials, involving different juries, and different standards of liability, in different jurisdictions," is more likely to be fair than a system in which defendants "stake their companies on the outcome of a single jury trial."  Although Judge Posner was explaining why individual actions are preferable to a class action for cases like this one, that reasoning also explains why it would be a mistake to allow a single jury to punish for an entire course or disproportionate share of conduct alleged to have affected  many potential plaintiffs.

In fact, plaintiffs in the Actos cases have met with mixed success at trial.   The defendants prevailed in the three state cases tried before Allen—once winning a favorable jury verdict and twice persuading the trial courts to overturn verdicts against them.  A few weeks after the Allen trial, juries in Illinois and Nevada exonerated the defendants and found against three plaintiffs.  Last month, a Philadelphia jury awarded a plaintiff who contracted bladder cancer after taking Actos compensatory damages but rejected the claim for punitive damages.   The effect of the district court's notion that the full measure of deterrence must be accomplished in this case is to deprive the defendants of the benefit of these victories.  The court, in essence, imposed on the defendants a one-way class action.  Their victories have no binding effect in future cases; but even a single loss can be used to punish them in an amount that is wholly disproportionate to the injury in that case.  That result is irreconcilable with Williams and the notions of due process that undergird it.

Finally, the district court misapplied the requirement that there be a reasonable ratio between the compensatory and punitive damages—a rule that it deemed "dissonant" with the deterrence rationale for punitive damages.  Reviewing the Supreme Court's cases on this subject,  the court found them to contain only "limited guidance" for circumstances involving a "high degree of reprehensibility" and "the need to adequately deter such conduct in the future."

In fact, however, the Supreme Court has given very clear guidance about the permissible ratio of punitive to compensatory damages, and its decisions refute any suggestion that a 25:1 ratio is permissible when the compensatory damages exceed $1 million, even if the conduct is exceptionally reprehensible.  The Court has clearly stated that "few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process" and has held that "[w]hen compensatory damages are substantial, . . . a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee."  In addition, the Court has repeatedly expressed concern about "outlier cases [that] subject defendants to punitive damages that dwarf the corresponding compensatories," observing that the median ratio in all cases is less than 1:1 and holding that 1:1 is the maximum permissible ratio in maritime case—however reprehensible the defendants' conduct.   The district court's opinion—largely driven by its concerns about the need to deter large and wealthy companies and its fundamental misconception that it is empowered despite Williams to attempt to accomplish that in a single-plaintiff case—identifies no basis to depart from these clearly established norms.

Tags: ratio

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2014. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Mayer Brown
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Mayer Brown
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions