The Supreme Court reviewed this case to answer questions concerning the due process limitations on punitive awards recognized in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), and State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408 (2003). The Oregon Supreme Court affirmed a punitive award to a deceased smoker’s widow in the amount of approximately $80 million, which was 97 times the amount of compensatory damages awarded. In reviewing the punitive award, the U.S. Supreme Court was to consider two issues: first, whether the high reprehensibility of a defendant’s conduct can authorize a punitive award of 10 or more times the amount of compensatory damages, and, second, whether a jury may consider effects on third parties not only to determine the appropriate punishment for the plaintiff’s injuries but also to punish the defendant for the third-party harms.
The NAM joined with the Pharmaceutical Research and Manufacturers of American (PhRMA), the American Chemistry Council and the Business Roundtable in an amicus brief describing 21 examples where plaintiffs' lawyers try to multiply punitive damages by citing harm to individuals who are not parties to the case, or by seeking to regulate the conduct of a company or of an entire industry. We oppose juries being asked to substitute their judgment for that of legislatures and regulatory agencies.
On February 20, 2007, the Supreme Court ruled 5 to 4 to overturn the lower court ruling. It held that a jury may not punish a defendant for harming persons who are not before the court. In a nuanced opinion, it ruled that a jury may consider actual or potential harm to others in deciding how reprehensible the conduct was, but may not punish for the harm caused others. Punishment should be assessed based on the claim of the plaintiff before the court. States have some flexibility to determine the rules that will help minimize jury confusion over this standard.
The ruling is an important milestone in the Court's recent willingness to try to insure that punitive damages are properly limited and fair under the Due Process Clause. Key to the decision were votes by Justices Roberts and Alito, whose views on punitive damages were unknown until now.
The court declined to decide what multiplier of actual damages is constitutionally acceptable for determining punitive damages in this case.