In a post a few weeks ago, I reported on a verdict by a federal jury in Atlanta awarding $1 million in compensatory damages and $10 million in punitive damages against the manufacturer of a hip implant. Not to be outdone, on December 14 a state-court jury in California awarded $9.8 million in compensatory damages and an eye-popping $70 million in punitive damages against Johnson & Johnson subsidiary Ethicon in a case alleging defects in a hemorrhoid stapler used to perform surgery on a hemorrhoid suffer.
As my colleagues and I have explained in prior posts about punitive awards against Boston Scientific, Wright Medical Technology, and Takeda, Ethicon is likely to have a compelling argument that the punitive award is excessive, given both the deterrent effect of the highly generous amount of compensatory damages awarded and the fact that the exaction could not be replicated in other cases involving the same alleged defect without the aggregate punishment being grossly excessive.
In addition, according to media reports, the plaintiffs introduced evidence that Johnson & Johnson's net worth is $6.8 billion and exhorted the jury to remove a percentage of that net worth as punishment. The punitive award represents just over 1% of $6.8 billion.
As my colleague Andy Frey has pointed out in a lengthy post, the notion that an organizational defendant's net worth is relevant in setting punitive damages is fundamentally misguided. But even if it were relevant, the Supreme Court's statement in State Farm that "[t]he wealth of a defendant cannot justify an otherwise unconstitutional punitive award" should leave no doubt that it is improper to base punitive damages on a percentage of a company's net worth.
Indeed, even before State Farm the Tenth Circuit held in Continental Trend Resources, Inc. v. OXY USA Inc. that, after BMW, "a large punitive award against a large corporate defendant may not be upheld on the basis that it is only one percent of its net worth or a week's corporate profits." If a punitive award may not be upheld on that ground, it follows that it is impermissible to request that the jury calculate its punishment in that way.
Relatedly, plaintiffs' request to base punitive damages on a percentage of net worth should be vulnerable to challenge under the rationale set forth in this post by Lauren Goldman. To summarize, a request for a specific amount of punitive damages—particularly an amount that would be excessive if actually imposed—deprives the defendant of a fair trial by skewing the jury's frame of reference in a way that is calculated to produce a high punitive award.
Unless the case settles, Ethicon will likely file post-verdict motions in the trial court. We will report on the resolution of those motions.
Tags: Corporate Wealth, Improper argument, ratio
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