That's $23.6 billion — with a 'b'

Michael Johnson, Sr., a Florida resident, was a faithful chain smoker of Kool cigarettes from the age of 13 until his death from lung cancer at the age of 36. His widow's suit against R.J. Reynolds Tobacco Company resulted, last week, in a jury verdict against the tobacco company of $23.6 billion dollars. That's "billion" with a "b."

The jury was apparently strongly influenced by evidence of the company's conduct in denying the health effects of smoking. Johnson's widow introduced 1994 television footage that showed tobacco executives denying that smoking was harmful or addictive, despite the fact that there was material in the company's files demonstrating that it knew the contrary. Jury anger is made of such evidence.

But it is highly unlikely that Johnson's widow will ever collect her jumbo award. Reynolds is certain to appeal, and it is a close to certain as any prediction of appellate action can be that the verdict will be set aside at one level or another. If prudent counsel does not settle the case first.

The jury's verdict imposed liability of $17 million for compensatory damages, and then added punitive damages to raise the total to the $23.6 billion total. The punitive damages are the key to the case.

Punitive damages have a lengthy judicial history. The U.S. Supreme Court early held that a state could impose them "to further the state's legitimate interests in punishing unlawful conduct and deterring its repetition."

For many years business interests in the U.S., citing several extreme cases, argued that allowing a jury free rein to award punitive damages put all businesses at an unjustified financial risk. State laws provide that punitive damages can be added to compensatory damages (damages intended to make a plaintiff whole) in cases where the defendant's conduct is particularly egregious. (Every state has its own formula and governing language; California uses the term "exemplary damages" and allows them when the defendant has been guilty of "oppression, fraud or malice.")

Since, in most cases, the amount of punitive damages is within the jury's discretion, and there are generally no standards limiting that discretion, in some cases the defendant's risk of an inflamed jury was always present.

The Supreme Court, until the 1990s, declined to find a constitutional issue arising from punitive damage awards, no matter how high or how disproportionate to plaintiff's actual loss. It specifically held that the Eighth Amendment prohibition on "excessive fines" or "cruel or unusual punishments" did not apply, and ruled only that there was a procedural requirement that there be appellate review of punitive damage awards.

That appellate review did not deter the Supreme Court of the state of Alabama from upholding a punitive award of $2 million, which was added to a $4,000 compensatory damage award. That case (BMW of North America v. Gore (1996)) involved a BMW buyer who sued on discovery that the company had not disclosed to him that new car had been repainted. That was apparently too much for the court, and it decided that the Constitution did in fact have something to say on the subject. It held that the award violated the due process clause of the 14th Amendment.

The Gore decision rested on both procedural (fair notice) and substantive (avoiding the "decisionmaker's caprice") due process considerations. Moreover, it introduced three elements into Supreme Court review: the first was a strict limit on the evidence the jury may hear, the third was consideration of other civil penalties that could be authorized. But the second was the key: the ratio of the punitive award to the compensatory damage. The ratio in Gore was 145:1, and the court found that impossible to stomach. But it did not establish a numerical limiting ratio.

That was left to another case in 2003. In setting aside a punitive damage award, Justice Anthony Kennedy opined that any ratio exceeding single digits was presumptively excessive. In the particular case, the court limited the ratio to 1:1, but the suggestion of a 9:1 limit appeared to create a basic rule. The case also called for subjecting the verdict to stringent appellate review as a constitutional matter. (State Farm Mut. Auto Ins. Co. V Campbell (2003)).

Kennedy further outlined five factors to be considered in assessing the reprehensibility of the defendant's conduct: (1) Was he harm physical rather than economic; (2) did the conduct show "indifference or a reckless disregard for the health and safety of others;" (3) was the plaintiff among financially vulnerable targets; (4) did defendant's conduct involve repeated actions, as distinguished from a single incident; and (5) was the harm caused by intentional malice, trickery or mere accident. Whether or not the jury had these specific questions before them, it is clear that all but the third of these would point in the direction of the reprehensibility of the cigarette manufacturer's conduct.

These cases now exist as limits on every punitive damage award in the U.S., in both federal and state courts. The doctrine is an exception to the usual principle of American federalism that the states govern their people on matters of health, safety, morals and welfare. As such these rulings are a significant federal incursion into state substantive law. For that reason, Justices Antonin Scalia and Clarence Thomas dissented in both Gore and State Farm, arguing that the Constitution says nothing about punitive damages, and that federal incursion is unwarranted. The 14th Amendment, Scalia wrote, is no guarantee against "unfairness." (One other area in which constitutional law limits state tort liability is the law of libel, which imposes limits on state substantive law when the plaintiff is a public official or public figure, and lesser limits in all other cases.)

Under present governing doctrine, there is virtually no way that a verdict with a ratio of 1390:1 (by my rough calculation) can stand for very long. The trial court can act to set it aside or reduce it, and on appeal the Florida courts have the same power. And ultimately there is the due process jurisprudence that Supreme Court decisions have imposed on jury decisions. But if the jury intended to send tobacco companies a message that will influence similar cases, it surely has succeeded in that.