United States Supreme Court Holds that Punitive Damages May Not Be Based on Harm to Non-Parties

A decade after the United States Supreme Court issued its landmark punitive damages decision in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), a case emanating from Alabama, the Court again spoke on the issue in February in Philip Morris USA v. Williams. In that appeal from a negligence and fraud judgment from an Oregon state court, the Court considered whether the $79.5 million punitive damages award violated the Due Process Clause of the U.S. Constitution because the award punished the defendant for harming individuals who were not parties to the action. The Court found that the award “would amount to a taking of ‘property’ from the defendant without due process.” Writing for the Court, Justice Breyer explained that, “the Constitution’s Due Process Clause forbids a state to use a punitive damages award to punish a defendant for injury that it inflicts upon nonparties or those whom they directly represent, i.e., injury that it inflicts upon those who are, essentially, strangers to the litigation.” Moreover, the notion that, “it may be appropriate to consider the reasonableness of a punitive damages award in light of the potential harm the defendant’s conduct could have caused . . . was harm potentially caused the plaintiff.” (emphasis supplied)

In reaching its decision, the Court observed that the trial court refused the defendant’s requested jury instruction which would have told the jurors that they could not punish Philip Morris for injury to persons who were not parties to the lawsuit. In closing, plaintiff’s counsel argued that the jurors should consider, “how many other Jesse Williams in the past 40 years in the State of Oregon there have been.” The Court agreed with Philip Morris’s contention that at least a portion of the punitive damages award represented punishment for harm that Philip Morris may have caused to people other than Jesse Williams, and the Court reasoned that Philip Morris had no opportunity to present defenses to the claims that nonparties might raise, defenses such as acceptance of the risk or lack of reliance. The Court also warned that such an award was particularly susceptible to arbitrariness because jurors would be prone to speculate about the number of nonparties injured and the extent of their injuries. This “standardless” assessment of damages runs afoul of the principles of certainty and notice fundamental to due process.   The Court noted that the punitive award was a nearly 100-to-1 ratio to the $821,000 compensatory damages award, but the Court did not rule upon the ratio issue.

Under Alabama law, in a case in which punitive damages are at issue, “pattern and practice” evidence sometimes is admissible as a gauge of the reprehensibility of a defendant’s conduct. Retired Alabama Supreme Court Justice Gorman Houston, presaging the issues addressed in the Williams decision, questioned the constitutionality of punitive damages awards based on this evidence. In his special concurrence in BMW of N.A. v. Gore, 646 So. 2d 619 (Ala. 1994), Justice Gore wrote, “Because evidence of BMW NA’s pattern and practice was introduced in [Yates v. BMW and Gore v. BMW], an award of punitive damages in either case based upon this pattern and practice would sufficiently punish BMW NA for this conduct, and any additional punishment would have serious problems under the United States and Alabama Constitutions. Some courts have refused to strike punitive damages awards merely because they constituted repetitive punishment for the same conduct.”