Wednesday, February 21, 2007

US ruling puts new limits on punitive damages

US ruling puts new limits on punitive damages
By Patti Waldmeir in Washington and Chris Bowe in New York
Copyright The Financial Times Limited 2007
Published: February 20 2007 19:43 | Last updated: February 20 2007 19:43

The US business community on Tuesday won a limited victory in the battle to restrain high punitive damage awards, when the US Supreme Court imposed a new constitutional curb on such awards.

But the 5-4 ruling, which came in a case involving Philip Morris, the big tobacco company, stopped short of the tough clampdown on punitive damages sought by US business.

The court ruled it was unconstitutional for a jury to award punitive damages to punish harm to individuals who were not involved in a lawsuit – as they did in the Philip Morris case, where the jury punished the tobacco company for the injuries to all Oregon smokers, not just the smoker whose widow brought the lawsuit.

The court said that amounted to “a taking of property . . . without due process”. It set aside the $79.5m punitive award and sent the case back to the lower court.

“To permit punishment for injuring a non-party victim would add a near standardless dimension to the punitive damages question,” Justice Stephen Breyer wrote for the court.

“This is a big win for the business community,’’ said Robin Conrad, of the US Chamber of Commerce’s litigation unit. “Today’s decision correctly addresses business’s concern that punishing defendants for harm to those not involved in the lawsuit denies a company the right to defend claims against it.”

Philip Morris said the ruling would give it an opportunity “to fully and fairly defend itself in this and other cases”.

But the court refused to rule on the larger question of the size of such awards: the punitive award in the Oregon case was almost 100 times compensatory, or actual damages. The US business community had hoped for a clear statement that such an award was excessive.

In addition, the court made clear that juries might consider harm to others in determining the size of punitive damage awards – just not directly.

The majority said juries could consider such harm in determining the “reprehensibility” of the defendant’s conduct – one factor used in setting the size of a punitive award.

“A lot will depend on future cases, whether that is practical protection or mere paper protection,” for defendants, said Mark Levy of Kilpatrick Stockton, a law firm.

Still, the ruling is good news for tobacco companies and drug companies such as Merck, which faces more than 27,000 lawsuits over its painkiller Vioxx.

■ The US Supreme Court overturned a $79m antitrust award against Weyerhaeuser, the lumber producer, in a ruling that will help to shield companies from claims that they illegally tried to drive a competitor out of business, Bloomberg reports.

The ruling is a victory for large US companies, giving them more room to bid aggressively for raw materials and other supplies without the risk of violating federal antitrust laws. Dow Chemical, Verizon Communications, Coca-Cola and Microsoft were among the companies that supported Weyerhaeuser.


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