Uncertainty plagues American litigation and accounts for the frequent analogy to a lottery. The same case tried before two different juries will produce two very different results. Within the same jurisdiction, a plaintiff might ring the bell this week, but get zeroed out the next. Factor in different jurisdictions, and the possibilities will wander all the way across the spectrum. Even accepting that some factual scenarios make a plaintiff verdict nearly inevitable, the range of damages will be panoramic. That is because the standards for fixing certain categories of damages, such as pain and suffering, are hopelessly vague.
No category of damages ratchets up the uncertainties and stakes more than punitive damages. Those awards, despite constitutional limitations, can be eye-wateringly high. (Surely it is significant that SCOTUS recognized that crazy punitive damages awards implicate constitutional rights. Why stop there? Crazy compensatories are just as confiscatory and just as bereft of due process.). The possibility of punitive damages can distort settlement calculations. It is hard to assign value to hot air. A corporate defendant must act rationally in assessing the expected possibilities of irrational awards. It is necessarily a business judgment. That process, applied in the context of risk-aversion and institutional pressures, might lead to overpayments and passing costs along to consumers. From a social perspective, is that a sound outcome? Is it efficient? Is it fair?
We alluded to constitutional limitations, which too often translate into vague and unhelpful caps. Some states do impose concrete caps. Some categories of cases (e.g., antitrust) impose fixed multipliers. Law and economics theory justifies damage multipliers as correcting for the low percentage of detection. That is, if you think there is only a 33% chance you'll be caught, then a 3x award is necessary to adjust your expectations and incentivize straight and narrow conduct. That's the theory, anyway. In any event, product liability defendants seldom benefit from such caps. For an industry that invents products that extend and improve lives, drug and medical device companies are curiously unloved.
Let's be plain about it: the standard for punitive damages in torts is a farce. At first, it sounds as if outrageous, wanton, and malicious conduct should be pretty narrow. If punitive damages were truly limited to cases in which defendants intended harm or acted with utter indifference to anticipated harm, such damages would be out of bounds in most cases. But if you throw in "gross negligence" and throw in judges who grasp hold of any hint of a factual dispute, then you can throw out any meaningful limitation. Almost every case alleging negligence will be permitted to plop punitive damages in front of the jury box. What a mess.
Indiana law is a little bit better in cabining punitive damages than other jurisdictions. Emley v. Walmart Stores, Inc., 2019 WL 2642842 (S.D. Ind. June 27, 2019), offers an example of sanity on the issue of punitive damages. In Emley, the plaintiff claimed she suffered Toxic Epidermal Necrosis TEN) as a result of acetaminophen contained in over the counter (OTC) products she purchased. The defendants moved for summary judgment. Some of the claims were governed by Indiana law. Some were governed by Tennessee law. We will focus on the former,
The defendants argued that the case against them was preempted by PLIVA v. Mensing because the defendants could not unilaterally add a warning regarding TEN. The Emley court concluded that conflict/impossibility preemption did not apply in that case because the OTC products were marketed pursuant to a tentative final monograph, whereas the product in Mensing was marketed pursuant to an ANDA, and a tentative final monograph does not prevent a manufacturer from adding a warning. The Emley court also held that nothing prevented the retailer defendant from adding a warning.
We do not agree with or delight in the preemption part of the Emley case.
But the opinion contained some better things. For instance, the court bounced the plaintiffs' negligent misrepresentation claim, held that the claims under the Indiana Deceptive Consumer Sales Act were barred by the statute of limitations, and held that the claim under the Indiana Products Liability Act boiled down to failure to warn, so the design defect cause of action had no place in the case.
Our favorite part of Emley relates to punitive damages. Under Indiana law, before a court may award punitive damages "a plaintiff must demonstrate by clear and convincing evidence that the defendant acted with malice, fraud, gross negligence or oppressiveness that was not the result of mistake of fact or law, honest error of judgment, overzealousness, mere negligence, or other human failing." This standard is not terribly different from many other jurisdictions. But unlike many of those jurisdictions, Indiana courts put some teeth in the standard. Indeed, Indiana courts "have described this consciousness and intention as requiring a show of willful and wanton conduct or a quasi-criminal state of mind."
The plaintiff in Emley alleged that the manufacturer knew acetaminophen posed a risk of potentially fatal skin reactions such as TEN, that the FDA was encouraging a stronger warning and had approved one for NDA products containing acetaminophen, and yet the manufacturer did nothing for years. It eventually beefed up the warning, but that was too late for this plaintiff The plaintiff also alleged that the manufacturer's employees regarded the additional warning as an "enhancement," and continued to sell older products without the enhanced warning even after the warning had been changed. The plaintiff lobbed in testimony by company employees that arguably reflected an indifference to patient safety.
The problem with all this evidence is that it focused on events unrelated to the only act for which the manufacturer could be liable to the plaintiffs —the November 2013 sale of its products to the plaintiffs. Later expressions of indifference, callousness, etc. were irrelevant. As the Emley court put it, summary judgment is a "put up or shut up moment in a lawsuit," and the plaintiffs had simply failed to put up clear and convincing evidence of relevant conduct warranting punitive damages.
It might be a relatively minor limitation on punitive damages, but at least it is some limitation. Too often, judicial laxity on waving punitive damages issues along to the jury prompts us to think legislative relief is the only answer. Yet every once in a while, a court does its part to shut down the punitive damages lottery ticket machine.
Originally Published by Reed Smith, November 2020
This article is presented for informational purposes only and is not intended to constitute legal advice.