Lachenmeier, Enloe & Rall - February, 2004 Publication

Clearing Away the Smoke - The Oregon Supreme Court's Recent Ruling on Punitive Damages
February 2006

     On February 2, 2006, the Oregon Supreme Court upheld a $79.5 million punitive damage award against cigarette manufacturer Phillip Morris, finding that its reprehensible conduct, which affected many Oregonians, justified the award even in the face of a 14th Amendment Federal Due Process challenge. See Williams v. Phillip Morris, ____ Or ____ (2006).

     This is the latest decision in a longstanding struggle between the Oregon Court’s desire to follow the Oregon Constitutional directive in Article 7, Section 3, to not re-examine any “fact tried by a jury” and the U.S. Supreme Court’s insistence that Due Process under the 14th Amendment mandates that courts review damage awards. (A much more detailed description of the history of this conflict is set forth in “Punitive Damages in Oregon—A Reluctant Court Struggles with Limitations” first published in the September 2003 issue of the OCAA newsletter and now available here on our website.)

     This case was brought by Mayola Williams as Personal Representative of her deceased husband James Williams, a longtime smoker who died of smoking related lung cancer in 1997. The plaintiff based a fraud claim against Phillip Morris on a 40 year publicity campaign in which Phillip Morris, and the tobacco industry as a whole, systematically attempted to mislead the public concerning the dangers of smoking tobacco, trying to create in the public mind an impression that there were legitimate reasons to doubt the dangers of smoking. Additionally, the tobacco companies tried to maximize the addictive properties of nicotine, even while denying that cigarettes were addictive. In essence, the plan was to do everything possible to keep smokers smoking.

     James Williams alleged that he believed the tobacco industry when it claimed that cigarettes were not necessarily dangerous and it was not until he came down with lung cancer that he realized that he had been deceived.

Procedural History

     A Multnomah County jury returned a verdict for plaintiff on both fraud and negligence claims awarding $821,485.50 for compensatory damages, of which $21,485.80 were economic damages incurred before Mr. Williams’ death and $800,000 in non-economic damages. On the negligence claim the jury found Mr. Williams 50% at fault and declined to award punitive damages. However, on the fraud claim, the jury awarded the $79.5 million in punitive damages at issue here. The trial court then reduced the compensatory damages to the non-economic cap for wrongful death of $500,000. The trial court also decided that the $79.5 million punitive damages was excessive under federal standards and reduced the award to $32 million.

     Both plaintiff and Phillip Morris appealed to the Oregon Court of Appeals, which reversed the trial court’s reduction of the punitive damages and reinstated the $79.5 million award. The Oregon Supreme Court denied review, but the US Supreme Court accepted review and then remanded it to the Court of Appeals for reconsideration in light of State Farm Mutual Automobile Insurance Company v. Campbell. (See lengthy discussion in prior article, supra.)

     Phillip Morris raised four issues in its petition for review to the Oregon Supreme Court. Because two were dealt with the first time around and were not involved in the remand by the US Supreme Court, the Oregon Supreme Court focused on just two: Can punitive damages be imposed for alleged harm to non-parties? and Was the punitive damage award unconstitutionally excessive in light of the due process clause of the 14th Amendment?

Harm to Others

The Court first addressed Phillip Morris’ claim that you cannot, in light of the US Supreme Court holding in Campbell, use an injury to others to support the punitive damage award for this individual. The issue was raised in the context of jury instructions. The evidence was that the same conduct that harmed the decedent also harms other Oregonians. Noting that what was disapproved in Campbell was evidence of dissimilar conduct, which was allowed in evidence in that case, including conduct impacting people in other states where that same conduct was legal, the Oregon Court had no trouble distinguishing Campbell from the facts at hand. Here the Court specifically approved of the Court of Appeals’ analysis that “because the defendant’s tortious conduct was a routine part of its business practice, that it was unwilling to change, we also considered the potential injury that its misconduct may have caused to past, present, and future customers.” The Oregon Supreme Court went on to say “Considering the foregoing material as a whole, we conclude that evidence of similar conduct against other parties may be relevant to a punitive damage award.”

Federal Due Process

The Oregon Supreme Court systematically analyzed all of its recent cases and all of the Federal Court cases and noted that the reprehensibility of defendant’s conduct represents the most important factor when examining the reasonableness of the punitive damages award. The Court, quoting from the US Supreme Court’s analysis in the Gore case at 517 US 575, held that courts should consider whether:

“The harm caused was physical as opposed to economic; the tortious conduct evinced indifference to or reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident.”

Acknowledging other US Supreme Court guidelines that suggested that the ratio between punitive damages and compensatory damages normally should not exceed 4 to 1 the Court, but construing the facts in favor of the plaintiff as required since plaintiff was the prevailing party, found:

“There can be no dispute that Phillip Morris’ conduct was extraordinarily reprehensible. Phillip Morris knew that smoking caused serious and sometimes fatal disease, but nonetheless spread false or misleading information to suggest to the public that doubts remained about that issue. It deliberately did so to keep smokers smoking knowing that it was putting the smokers’ health and lives at risk, and it continued to do so for nearly half a century.”

The bottom line was that the Oregon Supreme Court dealt systematically with every issue and guideline outlined by the US Supreme Court. The Oregon Supreme Court then concluded:

“Under such extreme and outrageous circumstances, we conclude that the jury’s $79.5 million punitive damage award against Phillip Morris comported with due process, as we understand that standard to relate to punitive damage awards.”

It seems likely that the cigarette companies will appeal once more to the US Supreme Court. It does not seem likely that the U.S. Supreme Court will accept review unless the majority of the Court believes that it really is improper to punish a defendant for conduct to others, even when it is the very same type and kind of conduct that caused the harm to the plaintiff.

Post Script

There is now pending in Multnomah County Circuit Court another unusual case against Phillip Morris among others. It is entitled Campbell v. AW Chesterton, et al and currently is scheduled to go to trial in 2007. The claim there is that Mr. Campbell, an alleged lifelong non-smoker, came down with lung cancer as a result of the combined affects of exposure to asbestos and exposure to secondary smoke in his workplace over a long period of time. The claim there is that the cigarette companies knew for years that second hand smoke was a cause of lung cancer and that second hand smoke in combination with asbestos was particularly dangerous. Further it is alleged that the cigarette companies did nothing to inform or warn people of the risks. It is complicated because it is also a case in which numerous asbestos defendants have been sued with the claim that the synergistic affects of asbestos and cigarette smoke greatly increased the risks of lung cancer to Mr. Campbell. Nonetheless, the potential for a substantial punitive damage award in the secondary smoke arena would seem to be significant since Mr. Campbell was a non-smoker that had no choice but to be in the environment he was in in order to work. That assumes, of course, that plaintiff can prove his factual allegations and survive the anticipated legal challenges to the science involved. I will revisit that case post-verdict.

If you have any questions, please feel free to contact the author, Rudy R. Lachenmeier, by phone at (503) 768-9600, or by email at rudy@lerlaw.com.