State high courts tackle punitives.

Punitive damages are under attack again, this time in state supreme courts. The Center for Constitutional Litigation (CCL)--building on expertise it developed in U.S. Supreme Court cases like State Farm v. Campbell, Cooper v. Leatherman, and BMW v. Gore---is helping defend plaintiffs' rights to seek punitive damages.

Three recent cases are likely to shape the law for years to come in Oregon and California--and perhaps in other states.

Oregon Supreme Court 

Philip Morris USA, Inc. v. Williams. On June 9, 2004, the Oregon Court of Appeals restored a $78.5 million punitive damages verdict against Philip Morris on behalf of a smoker's family. The ratio of punitive to compensatory damages was 96:1. CCL President Robert Peck and Litigation Counsel Julie Schroeder, along with Oregon cocounsel, argued that in State Farm the Supreme Court did not establish binding maximum ratios and that the Court acknowledged that many factors could justify an award higher than one based on the 9:1 ratio the Court suggested might sometimes be appropriate.

The appeals court fully accepted CCL's arguments, which focused on why State Farm did not mandate a reduction in the jury's award.

The Oregon Supreme Court granted review in December, ordered briefs to be filed this spring, and set oral argument for May. No matter the outcome, a petition for certiorari to the U.S. Supreme Court is expected.

California Supreme Court

Johnson v. Ford Motor Co. The plaintiff bought a used Taurus from a dealer. The original owner had taken the car to the dealer several times for transmission repairs and eventually demanded that Ford buy back the car under California's "lemon law."

If the dealer had done so, it would have been required to disclose the car's problems to prospective buyers. Instead, following Ford's companywide policy, the dealer refused to designate the car a lemon and told the people who bought the used car that it had no significant problems.

They sued for fraud when they learned the truth, receiving $17,811 in compensatory damages and $10 million in punitive damages. The appeals court upheld Ford's liability, for punitive damages but, citing State Farm, reduced the punitive award to three times the compensatory damages.

The issue on appeal to the California Supreme Court is whether punitive damages can be based on principles of general deterrence of wrongful conduct, or whether Slate Farm limits these damages to an amount tied to the plaintiff's harm. In an amicus brief prepared for ATLA, CCL Senior Litigation Counsel Ned Miltenberg argued that it is proper for juries to award punitive damages based on the defendant's similar misconduct toward others in the same state, and on the "profitability" of the misconduct.

Simon v. Sao Paolo United States Holding Co. The same damages-ratio question arose in this real estate dispute. The plaintiff agreed to pay $1.1 million for a building worth $1.5 million. Before the deal was finalized, the seller secretly contracted with another buyer, depriving the plaintiff of a $400,000 gain and prompting a suit for fraud. Although a state statute limited compensatory damages to out-of-pocket expenses, the jury also awarded $1.7 million in punitive damages.

ATLA's amicus brief by Senior Litigation Counsel Jeffrey White argues that because compensatory damages often do not reflect actual harm (due to damages caps, limits on wrongful death damages, and so forth), the historic policy that punitives served requires courts to focus on actual harm rather than follow arbitrary ratios.