Appellate Panel Sets New Ratio for Tobacco Damages

By Leslie Simmons
Daily Journal Staff Writer

      Is $28 million too much for Philip Morris USA to pay in punitive damages to the family of a dead smoker?
      Two 2nd District Court of Appeal justices don't think so, but a third justice says they may have gone too far in punishing the tobacco giant.
      And with attorneys on both sides unhappy with Friday's outcome at the 2nd District, further litigation is likely.
      Friday's ruling breaks away from other appellate courts that have slashed punitive awards in tobacco cases to fit within the guidelines established in recent years by the U.S. Supreme Court.
      Even though the award approved Friday is only one-thousandth the size of the damages initially imposed by a jury, some lawyers say $28 million may be too much for the plaintiff who won just $850,000 in compensatory damages.
      The majority in Friday's ruling found that Philip Morris' "highly reprehensible" conduct in misleading smokers about the harms of cigarettes justified a 33-to-1 ratio between punitive and compensatory damages. Bullock v. Philip Morris, B164398.
      "Although the ratio significantly exceeds single digits, we conclude that the extreme reprehensibility of Philip Morris's misconduct, including the scale and profitability of the course of misconduct, justifies the greater ratio," Justice H. Walter Croskey concluded in Friday's opinion. Justice Joan Dempsey Klein joined.
      But in light of the U.S. Supreme Court's holding that the ratio should generally not exceed 9-to-1, the dissenting justice on the 2nd District panel said Philip Morris should be ordered to pay no more than $7.65 million.
      "I find that the punitive damages award in this case constitutes a grossly excessive punishment" and violates the Fourteenth Amendment, Justice Patti S. Kitching wrote.
      In 2002, a Los Angeles jury awarded smoker Betty Bullock $850,000 in compensatory damages and $28 billion in punitive damages. Among Bullock's claims was that Philip Morris concocted a decades-long fraud scheme in which it stated several times smoking was not linked to lung cancer, despite some studies that indicated otherwise.
      The trial court later cut the punitive award to $28 million. Bullock died in February 2003.
      On appeal, Bullock's attorney, Michael Piuze, argued to reinstate the multi-billion-dollar verdict.
      Philip Morris attorneys argued the damages were excessive, citing the landmark 2003 ruling from the nation's highest court. State Farm Mutual Automobile Insurance Co. v. Campbell, 123 S.Ct. 1513.
      The high court in State Farm applied three "constitutional guideposts" in determining a valid ratio: the reprehensibility of the defendant's misconduct; the disparity between the plaintiff's injury and the punitive damages award; and the difference between the punitive damages and the civil penalties ordered in comparable cases.
      The court also found that a defendant's wealth and out-of-state conduct generally could not be factored into the calculation of punitive damages.
      In defense of Friday's ruling, plaintiffs attorney Brian Panish, of Los Angeles' Panish Shea & Boyle, said State Farm doesn't set a firm ceiling.
      "I think it gave some guidelines, but it didn't set it in stone," he said. "And the guidelines adjust depending on conduct and other factors."
      Croskey emphasized that in Bullock's case, the tobacco company's conduct was truly terrible.
      "Philip Morris for many years and through extensive efforts deliberately exploited that vulnerability through a deceptive, broad-based publicity campaign, manipulation of the narcotic effect of nicotine in cigarettes, and other means, we conclude that this factor weighs in favor of high reprehensibility," Croskey wrote.
      But attorney Ted Boutrous Jr. of Gibson Dunn & Crutcher said the decision is ripe for state Supreme Court review.
      Boutrous pointed to another tobacco case in which the 2nd District two years ago cut a $100 million punitive award against Philip Morris to $50 million, which made the ratio 9-to-1.
      In that case, jurors awarded smoker Richard Boeken $5.5 million in compensatory damages. The jury's original punitive damage award was $3 billion, but the trial court reduced it to $100 million.
      Bullock's attorney Piuze also handled the Boeken case and relied on much of the same evidence and the same claims against Philip Morris.
      "It is troubling because now we have decisions from two respected courts of appeal that really are directly contradictory and that means we need clarification brought to it from the California Supreme Court or U.S. Supreme Court," Boutrous said.
      The Boeken precedent isn't the only one that will give Philip Morris grounds to appeal Friday's Bullock ruling
      In 2004, the 1st District Court of Appeal reduced a $50 million punitive award to $9 million in another tobacco case against Philip Morris.
      In a statement Friday, the tobacco company's general counsel, William Ohlemeyer, said the corporation "believes the decision warrants further review and we will seek that review from the California Supreme Court."
      Piuze said he welcomes another round of appeals, which he said is "virtually guaranteed." His goal is to get the $28 billion award reinstated.
      The appellate panel, he said in an e-mail, erred in not conducting a de novo review of the case.
      "Instead, the court only said that the trial judge's reduced amount was not too much," Piuze wrote.
     

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