United States: Federal District Court Issues Split Decision On Admissibility Of Evidence Bearing On Punitive Damages

Last Updated: November 11 2015
Article by Evan M. Tager and Andrew L. Frey

As we have observed in a prior post, defendants in punitive damages cases often fail to develop evidence in mitigation of the amount of punitive damages, enabling the plaintiff to focus the jury on evidence about the defendant's wealth and to argue—essentially with no resistance—that a substantial award of punitive damages will be necessary to change the defendant's conduct in light of that wealth.

Bucking this trend, Wright Medical Technology and Wright Medical Group, the defendants in multidistrict litigation alleging defects in their hip implants, have developed evidence designed to persuade juries that large punitive awards would be unnecessary and counterproductive. In particular, the Wright Medical defendants have developed evidence about the various deleterious effects that a large punitive award might have.  They also have developed evidence relating to their good "corporate character."

In a recent decision, however, a federal district court in Atlanta granted a plaintiff's motion in limine to exclude evidence of the potential effects of a significant punitive award, while reserving until trial its ruling on the plaintiff's motion to exclude evidence of the Wright Medical defendants' good corporate character.

The evidence on the harmful effects of a large punitive award that the Wright Medical defendants sought to introduce included testimony about the availability of implant devices and the cost of such devices, the effect of a large award on the defendants' ability to compete in the marketplace, and the layoffs that might result if a large award were imposed.

In evaluating the evidence about the potential effects of a large punitive award, the district court began by reciting the standard for imposing punitive damages under Utah law, which governs the particular plaintiff's claim.

The court held that "the evidence Defendants seek to introduce regarding the impact of punitive damages on device innovation does not make any fact regarding whether punitive damages may be awarded more or less probable, nor is it factual information of consequence in deciding the action."

Moreover, the court said, "[t]o allow evidence that an award of punitive damages might stifle or chill innovation in the development of medical devices generally, and hip implant devices specifically, would require a distracting departure in the trial of the core issues in this case to litigate the nebulous issue of whether an award of punitive damages would actually chill innovation and, even if it did, to what extent would innovation be stifled.  This would delay the trial of this case and likely waste considerable time."  It accordingly held that the evidence is inadmissible under Fed. R. Evid. 401 and 403.

This ruling rests in substantial part on a non sequitur.  By narrowly focusing on the evidence's relevance (or lack thereof) to the state of mind necessary for imposition of punitive damages liability, the court seems to have overlooked the fact that the jury in an unbifurcated trial like this one would also be asked to determine the amount of punitive damages that should be imposed. The effects of a punitive award are manifestly relevant to a jury's determination of the amount of punishment.

The principal purpose of punitive damages, as imposed on corporations, is deterrence. (After all, the effects of a punitive exaction fall on the corporation's stakeholders—primarily its shareholders and employees—who rarely are the persons who engaged in the wrongful conduct and therefore are not deserving of punishment.)  Punitive damages serve that objective when compensatory damages alone are insufficient to achieve adequate deterrence.

At the same time, however, excessive liability produces overdeterrence, which is every bit as socially undesirable as underdeterrence. Because a jury is given no "sentencing" framework within which to evaluate the defendant's conduct, apart from often highly misleading financial information (see our prior post on this topic), the evidence proffered by the Wright Medical defendants goes to the heart of the jury's punishment-setting task. If a jury can't take into account the alleged chilling effect that overdeterrence from an unduly large punitive award might have on innovation or the collateral damage to employees that could be caused by a large award, who can?

No doubt some time would be required to adequately explore the consequences for the defendants and society at large of a large punitive award in the event the jury were to find punishable conduct in the case. But the excluded evidence is central to the jury's punishment-setting role, and millions of dollars are potentially at stake.

The court appears to be more open-minded about the Wright Medical defendants' good-character evidence. Though noting that such evidence generally is inadmissible under Rule 404(a), the court allowed that "it is conceivable, if not likely, that Defendants' mission statement and the manner in which it guided them in the manufacture of hip implant devices is probative of Defendants' intent for the purpose of the jury's consideration of a punitive damages award."  The court accordingly reserved until trial the decision whether to admit this evidence.

Although more open-minded about this category of evidence, here again, the court appears to be focusing too narrowly on liability for punitive damages.  Though the defendants' good-character evidence may well be relevant to that issue for the reasons identified by the court, it is all the more relevant to the amount of punitive damages in the event that the jury finds that the defendants acted with the mental state required for finding liability.  It is inconceivable, for example, that a judge in a criminal sentencing would refuse to consider evidence of the defendant's good character.

The evidence in question here—characterized by the defendants as including evidence of their "actions, achievements and distinctions in commercial and community-based settings" and their "corporate mission statement and how [they] uphold[] that mission statement in designing and manufacturing medical devices that improve the quality of people's lives"—is relevant to refute the inevitable argument that a large punitive award is necessary to deter the defendants from engaging in similar conduct in the future. Put simply, a large punishment is less necessary when the defendant is a company with strong business ethics and a reputation for good works than when the defendant is a serial bad actor or otherwise unsavory business.

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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.

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