United States: Oregon Courts Split over Punitive Damages

This article was originally published in The Business Journal Portland - November 2004

While the U.S. Supreme Court has issued several decisions on punitive damages over the last decade that are increasingly favorable to business, Oregon's two appellate courts have a history of upholding a jury's right to award punitive damages. The disparity seems to have grown greater in the past two years.

In a 2003 decision embraced by businesses throughout the country, the U.S. Supreme Court ordered a Utah court to reduce a significant punitive damage award using a constitutional legal framework that requires judges to examine amounts awarded by juries. In State Farm vs. Campbell, the U.S. Supreme Court held that defendants have a constitutional right to have judges meaningfully review and reduce, pursuant to a series of guideposts, excessive punitive damage awards.

Some legal analysts called the Campbell decision "the most significant punitive damages decision the Supreme Court has ever issued." But a recent Oregon Court of Appeals decision raises questions about whether Oregon's courts will meaningfully apply the Campbell standards to punitive damage claims in the state. In that decision, the Oregon court applied the Campbell guideposts yet refused to reduce a $79.5 million punitive damage award given by a Portland jury to a deceased smoker. That decision highlights the tension between the respective approaches of the U.S. Supreme Court and Oregon's appellate courts.

Despite state legislation in the mid-1990s that imposed procedural restrictions on punitive damage claims, the size of punitive damage awards from Oregon juries has been increasing. And the case of Williams vs. Phillip Morris provides one of the best examples.

In that case, Mr. Williams' estate brought claims of fraud and negligence against tobacco giant Phillip Morris after Williams, a smoker, died of lung cancer. A Portland jury awarded plaintiff about $820,000 in compensatory damages and $79.5 million in punitive damages. The trial judge determined the punitive damages were excessive and violated the United States Constitution, and the trial judge reduced the award of punitive damages to $32 million.

The Oregon Court of Appeals, in its first decision in the Williams case in 2002, reversed the trial judge's reduction and reinstated the jury's punitive damage award of $79.5 million.

This decision caught the attention of the U.S. Supreme Court, a court that considers a limited number -- generally less than 100 -- of cases across the country every year. After issuing the Campbell opinion, the Supreme Court vacated the Oregon court's Williams decision and ordered the court to reconsider in light of Campbell. In short, the Supreme Court ordered the Oregon court to apply the Campbell guideposts and determine whether the punitive damage award was excessive.

The Oregon Court of Appeals issued its second opinion in the case in June of this year. The opinion contains the following somewhat surprising conclusion: "On remand, we reach the same result that we reached in our previous decision."

The Oregon court, purporting to apply the Campbell guideposts, again upheld the jury's original award of $79.5 million in punitive damages.

One controversial aspect of the Oregon court's second Williams opinion involves the ratio of punitive damages to compensatory damages awarded in the case. One of the three guideposts established by the Campbell case and prior cases from the U.S. Supreme Court is that the ratio between punitive damages and compensatory damages -- those designed to make a plaintiff whole -- should not be excessive. While the Supreme Court has refused to establish an express ratio, it has indicated that few awards of punitive damages outside a "single-digit" ratio in comparison to compensatory damages will be constitutional. In other words, if a jury awards $10,000 in compensatory damages, judges should probably reduce a punitive damage award of more than $100,000.

The Supreme Court has also stated, as noted by the Oregon Court of Appeals in its second Williams opinion, that "a ratio of 4-to-1 was close to the constitutional ceiling." In Williams, the Oregon Court of Appeals has now twice upheld a jury verdict where the ratio of punitive damages to compensatory damages is 96-to-1. The Oregon court's primary justification for its decision appears to be the defendant's conduct was reprehensible, one of the other two Campbell guideposts.

The Williams saga is not over. Phillip Morris has appealed the Oregon court's second ruling to the Oregon Supreme Court. The Williams case is important to businesses in Oregon, as many viewed Campbell as providing significant protection to businesses from excessive punitive damage awards. In addition to the parties directly involved in the case, other groups have filed briefs urging Oregon's courts to take various positions in Williams. Both the Associated Oregon Industries and the Chamber of Commerce of the United States of America filed "friend of the court" briefs urging the Oregon court to reduce the Williams award. On the other side, the Oregon Trial Lawyers Association, among others, filed a brief urging the court to uphold the punitive damage award. At this point, the level of protection Oregon businesses will receive as a result of the U.S. Supreme Court's Campbell opinion remains unclear.

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