This is one of a series of articles under the by line “Butler on Bad Faith” originally published in Mealey’s Litigation Report: Insurance Bad Faith, Vol. 18, #5, p. 29 (July 7, 2004). © Copyright Butler 2004.
In Liggett Group Inc. v. Engle,(1) the Florida’s Third District Court of Appeal reversed the largest punitive damage award in history. The circumstances of the award indicate it would have bankrupted the defendants and was, in essence, a civil death sentence. If that were the only error, Engle would merely mark another notch in the continued upward spiral of American jury awards. However, the compounded procedural and constitutional errors in Engle make it particularly useful for those who wish to examine the pros and cons of the current system of punitive damages. For those commentators (and dissenters) who would question the need for constitutional limitations on such awards, Engle is an abject warning that, even with increasing supreme court intervention, the system may be well off its intended track.
In State Farm v. Campbell,(2) the United States Supreme Court focused in part on the due process implications posed by the ratio between “actual damages” and often widely speculative “punitive” damages.(3) This was certainly an issue in Engle. However, among a parade of other horribles, the appeals court also found reversible error in the appropriateness of the class,(4) the trial plan,(5) the conduct of plaintiff’s counsel, and the relationship between the punitive damage award and the assets of the defendants. These errors combined for a result that should prompt a reexamination of the purpose of punitive damages and the necessarily individual nature of due process.(6)
Now before the Florida Supreme Court, Engle involves a class action suit filed on behalf of six south Florida lead plaintiffs. The plaintiffs alleged that their addiction to nicotine made them unable to stop smoking. They asserted that, as a consequence of their addiction, they developed medical problems including cancer, heart disease, colds and sore throats. They sued the defendants, including the Liggett Group, Philip Morris, Lorillard, Brown & Williamson and R.J. Reynolds, on theories of strict liability, negligence, breach of express warranty, fraud, conspiracy to commit fraud and intentional infliction of emotional distress.
Even a cursory review of the appellate decision reveals Engle is replete with constitutional error. However, the Florida Supreme Court has not explained why it accepted the case for review. The plaintiffs had argued that the decision by the Third District Court of Appeal decertifying the class conflicted with rulings from other Florida appellate districts. As a consequence, the court might intend merely to address the class certification issue.(7) District Court of Appeals also found the award was intended to bankrupt the defendants, a result inconsistent with established state law. However, it remains clear that the award exceeded the standards established by the U.S. Supreme Court in Campbell, and thus presumptively violated the due process clause of the United States Constitution. Any of these findings would provide a basis for review by the Florida Supreme Court.(8)
In general, the purpose of a suit for civil damages is to make the plaintiff whole.(9) It is clear the various states have discretion to permit suits for damages in their courts and to set the limits on such suits.(10) In comparison, punitive damages are generally seen as a windfall to plaintiffs. The purpose of punitive damages is, theoretically, to punish and thus deter the tortfeasor in an effort to protect the interests of members of the public other than the plaintiff.(11) Logic would seem to dictate that the penalty permitted by state law should go to the state for the good of all rather than to the fully compensated plaintiff.
Commentators have argued back and forth about the appropriateness of the current system of awarding punitive damages to individual plaintiffs.(12) In Engle we see the constitutional implications of such a system in sharp relief. As the court noted, the state of Florida, acting on behalf of all members of the public, had already sued the defendants for fraud, conspiracy, and the sale of a defective and “addictive” products, the same allegations of the class members in Engle. In the earlier suit, the state had asserted punitive-damage claims.(13) Other states around the country brought similar suits which were settled in 1997 and 1998.(14) Florida entered into the Florida Settlement Agreement (“FSA”), which resolved with finality all of Florida’s claims, including those for punitive damages.
The fundamental unfairness of multiple punitive damage awards for the same conduct was not lost on the defendants. They moved to preclude any punitive award on the grounds that the “public’s” punitive damage claims against the tobacco industry had been settled in the prior lawsuit. The trial court denied the motions. In its reversal, the Florida Court of Appeals reaffirmed the basic principle that, whoever might be the nominal plaintiff, punitive damages, at least theoretically, inure to the benefit of society. Thus the earlier punitive damage settlement by the state was binding upon the state’s citizens even though they were not named parties to the earlier suit.(15)
Apart from its application of principles of res judicata to punitive damages, the Engle decision is interesting for its concise restatement of the principle underlying that application. The court states bluntly that the plaintiffs, as private citizens, do not have a “right” to the recovery of punitive damages. Instead, such damages merely serve as punishment for conduct that is adjudged to be a “public wrong.” As such, punitive damages are awarded solely as a matter of public rights or interests, in order to serve the public policy of punishment and deterrence.(16) As a result, the court properly found the earlier Florida settlement of punitive damages against the defendants precluded the plaintiffs’ punitive-damage claims in Engle.
The U.S. Supreme Court’s focus on the ratio between the alleged harm and punitive damages in Campbell(17) suggests that the application of the principles of res judicata could be more expansive than that applied by the court in Engle. If res judicata bars the Florida plaintiffs’ claim in Engle, why wouldn’t the punitive damage award in Campbell bar all future punitive damage claims by Utah residents for claims handling practices by the insurer in that case? After all, the evidence was not limited to conduct against the named plaintiff. Instead, the evidence was expanded to the limit of activities that would support the “state’s” interest in deterrence. Once such evidence is entered against the defendant, any resulting punitive damage award presumably addresses the state’s, and hence every state citizen’s, interest in punitive damages for such conduct during the period addressed by plaintiff’s evidence. Subsequent claims for punitive damages by other state citizens would seemed to be cumulative and thus barred by the principles espoused by the supreme court in Campbell.(18)
In essence, even a single digit punitive damage award would seem to violate constitutional protections if it comes on the heels of a different punitive damage award for the same conduct in another case.(19) As the Engle court suggested, the trial court is obligated to examine the record to determine whether the behavior at issue in the instant case was used to support the award of punitive damages against the defendant in an earlier case. Unless the earlier plaintiff limited the evidence to the facts involving his or her particular claim, it would seem they will have foreclosed subsequent punitive damage claims by other, similarly situated, members of the public. After all, the punitive damage award in the earlier case was theoretically entered to protect that public rather than to merely enrich the earlier plaintiff and his or her counsel.
One can anticipate the protest by plaintiff’s counsel that such a result enriches the first citizen (and their counsel) to the courthouse, depriving future plaintiff’s (and their counsel) of their “fair” share of the spoils. As noted by the court in Engle, the plaintiffs never had a right to punitive damages. If the state legislatures wish, they can ameliorate the unfairness of such windfalls by providing the successful plaintiff with a bounty for litigating the issue of punitive of damages on behalf of their fellow citizens and appropriating the bulk of the award for the good of those citizens.
Much has been written on the nature of the Campbell(20) factors and the importance of striking the appropriate constitutional balance between actual damages and punitive damages.(21) Engle addresses a more personal limitation. Regardless of the ratio between the actual and punitive damages, the state interests cited in support of punitive damages would seem to prohibit a jury from crafting a punitive damage award that is intended merely to bankrupt (kill) the corporate defendant. Florida, like many other states, prohibits bankrupting punitive awards.(22) Nonetheless, the jury in Engle, urged on by appeals to racial prejudice, jury nullification and the personal representations of plaintiffs’ counsel, seemed intent on precisely that. The experts employed by both sides agreed that the $145 billion punitive award would extract all value from the defendants and put them out of business.
As noted by the appeals court in Engle, the power of state courts is necessarily constrained by principles of federalism, including preemption. The tobacco industry is heavily regulated. It is clear that the U.S. Congress has the power to legislate such businesses out of existence. It is equally clear that it chooses not to do so.(23) The various states are constrained by federal regulation. No individual state has the power to outlaw or punish behavior Congress has, by legislation, decided is lawful. Engle raises the question of whether state courts can be used as an alternate means to accomplish such an end.(24) The Florida Court of Appeals reminds us that, however unsympathetic a defendant, due process prohibits the various states from allowing their civil court systems to be used to do what the public’s elected representatives decline to do by legislation.(25)
In additional to principles of federalism, the court in Engle discusses the due process considerations implicit in bankrupting awards. The court’s reasoning suggests that, in addition to violating Florida law, such civil death sentences, violate constitutional protections. In essence, punitive damages are constitutional because the various states can articulate a valid interest in the deterrence and punishment of behavior that poses a threat to its citizens.
In Engle, the defendants properly established their net worth and ability to pay through the introduction of the defendants’ audited financial statements and through the testimony of each manufacturer’s CEO. The defendants established that their consolidated net worth was no more than $8.3 billion and their collective capacity to pay any punitive award and continue operations was far less.
An examination of the defendants’ individual punitive damage awards leaves little doubt as to the jury’s intention.(26) The jury either decided to completely disregard the implications for the evidence as to net worth, or affirmatively decided to use that evidence in an unconstitutional manner.(27) The record shows that each punitive damage award was actually a double digit multiple of that defendant’s individual net worth.(28)
Ratio of Award to Net Worth
Brown & Williamson
Engle illustrates a tension that has not been well resolved by the courts. The supreme court has instructed that the appropriateness of a punitive damages award cannot be justified solely upon the wealth of the defendant.(30) Instead, the state’s (or the jury’s) desire for retribution and deterrence must be balanced against the requirement that the punishment be reasonable and proportionate to the harm suffered by the particular plaintiff. Theoretically, any punitive damage award must also protect the state’s interest in preserving the actual damage claims of other prospective plaintiffs.(31) While important to the issue of deterrence, the focus on the net worth of the defendants increases the danger that the jury will arbitrarily use the verdict to express their personal bias against the defendants or against big business in general.(32)
In Campbell,(33) the supreme court held that a punitive damage award that exceeded a single-digit ratio between punitive and compensatory damages presumptively violated due process. While the court declined to set a bright line, there is no doubt that the vague boundary put forth by the supreme court was utterly abandoned by the Florida trial court.
The Florida jury in Engle awarded $12.7 million in compensatory damages to the three named plaintiffs(34) and $145 billion in punitive damages, a ratio of $11,417 for every dollar of actual damages. Under the trial court’s novel procedure, punitive damages were determined before any findings of actual damages. In defense of the trial court, one might argue that the amount of actual damages is still unknown. Perhaps, once actual damages for each member of the class are determined, the ratio between actual and punitive damages may well be within the limitations set by the supreme court in Campbell. However, such an argument ignores the very basis for the supreme court’s direction on punitive damages.
In both BMW of North America, Inc. v. Gore and State Farm v. Campbell,(35) the supreme court cautioned that the due process clause of the fourteenth amendment prohibits the imposition of grossly excessive or arbitrary punishments.(36) While acknowledging the permissible state interests in deterrence and retribution, the court advised reviewing courts to consider three guideposts: (1) the degree of reprehensibility of the defendant’s misconduct;(37) (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.(38) The supreme court made it clear that state sanctioned awards which were excessive and disproportionate to the wrong committed would constitute an unconstitutional deprivation of the defendant’s property.
Despite this guidance, the trial court in Engle somehow fashioned a trial plan that permitted the jury to determine punitive damages before any finding of liability. In fact, the trial plan adopted by the Florida court seemed almost designed to make it impossible to adhere to the basic constitutional restrictions imposed by the Campbell court. Without a finding of liability, there was no way for the jury to measure the degree of reprehensibility of the defendant’s misconduct as to the individual plaintiffs. Similarly, a complete failure to determine the actual or potential harm suffered by the plaintiff made it impossible for the jury to determine a punitive damages award that would within the appropriate range. Lastly, bereft of any determination of actual damages, neither the jury nor the trial court was in any position to compare the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed for comparable conduct. Instead, the jury’s verdict as to punitive damages seemed to reflect nothing more that a determination that the defendants were bad, most assuredly hurt some, as yet unknown, people, and should thus be punished. While the court in Campbell declined to draw a “bright line,” the line actually drawn is not so dim as to suggest that the actions of the Florida trial court and jury might ever pass constitutional muster.
Under the supreme court’s rulings, it is clear that, at a minimum, due process requires that punitive damage awards reflect some rational connection between the harm brought about by improper conduct and a resulting punitive damage award arguably imposed to protect the legitimate interests of society. It is also clear that counsel, as officers of the court, have a duty to act within the law. Finally the constitutional process requires courts to step in when counsel fail in their duty. Otherwise, a trial for actual and punitive damages becomes, at best, an unconstitutional popularity contest between the plaintiff and defendant. At worse it becomes an exercise in which jurors abandon the law and, on the basis of whimsy, fashion their own plan for the redistribution of wealth within their communities. If the Florida Appeals Court has correctly summarized the record, the trial in Engle exemplifies the potential constitutional pitfalls inherent in the current system.
The Florida Court of Appeals notes what it believes to be obvious error on the part of the trial court in the conduct of the case. However, it reserves its harshest language for what it perceives as the improper tactics of plaintiffs’ counsel. As one reads the appellate decision, a number of starling phases fairly leap off the page. At one point the court characterizes the behavior of plaintiffs’ counsel as “racial pandering.” The court also notes with disapproval those portions of the trial record where it believes plaintiffs’ counsel repeatedly encouraged the jury to ignore the law when reaching their decision on damages. Finally, the court highlights argument by plaintiffs’ counsel that it interprets as an invitation for the jury to disregard the negative impact of a huge award because the award would be inevitably be subject to appellate review and payment over time.
In Phase 1 of the trial the jury was to try certain “common issues,” determine the potential entitlement of subclasses to punitive damages and then determine a “basis or ratio” for computing punitive damages individually for each class member within each subclass. In opening statements during Phase I, plaintiffs’ counsel told the jury that the defendants “study races” and “divide the American consumer up into groups,” including “white” and “black.” During this phase, plaintiffs’ counsel apparently compared defendants’ conduct with genocide and slavery. The trial court sustained a defense objection but, undeterred, plaintiffs’ counsel proceeded to tell the jury that, like slavery and the Holocaust, there was just one “side” to whether the defendants should continue to sell cigarettes. Plaintiffs’ counsel also presented an expert who testified that defendants’ advertising had “perpetuated” the “racial segregation” of America through the 1970’s and 1980’s.
If such conduct was not a sufficient departure into constitutional error, plaintiff’s counsel again descended into what the appellate court believed to be racial pandering during his cross-examining of a historian called by the defense. Noting that the defendants’ historian had done some work on the study of Vice President John Calhoun, plaintiff’s counsel suggested that the witness admired Calhoun, a defender of slavery before the Civil War. As noted by the Florida Appeals Court, plaintiff’s counsel used the witness’s resume reference to launch into the following speech about slavery:
[Y]ou know, according to people like Calhoun, there were two sides to that story. I mean, one side was: let’s abolish slavery, and let’s give people their freedom. And the other side was espoused by an intellectual such as Calhoun: No, slavery is okay. It’s good. We need it. It’s good for the South, good for the economy. Correct? There were two sides to that issue, according to people like Calhoun.
Having done his best to transform a suit about medical injuries due to tobacco use into a referendum on racism, plaintiff’s counsel sought to free the jury from any other possible restraint on their emotions. The following excerpt, cited by the Florida Appeals Court in its reversal, illustrates the directness of counsel’s appeal for jury nullification:
If you admit that you sell a product that causes cancer–I admit my product causes cancer–and if you also admit it’s also addictive, get out of the business. That’s the only moral, ethical, religious, decent judgment to make. . . . If you sell a product which causes cancer and which is addictive, stop selling it. Stop selling it, because you know it’s doing unbelievable harm to your fellow Americans.
The defendants’ objection was inexplicably overruled. Plaintiffs’ counsel continued:
[The defendants say] [i]t’s a legal product. It’s a legal product. Legal don’t make it right. Legal don’t make it right.
Plaintiffs’ counsel then explicitly tied these racial references to appeals for jury nullification of the law during closing argument. He set the stage by telling the jury:
And let’s tell the truth about the law, before we all get teary-eyed about the law. Historically, the law has been used as an instrument of oppression and exploitation.
According to the Florida Appellate Court, plaintiffs’ counsel repeatedly urged the jury to fight what he called “unjust laws” citing the civil disobedience of Martin Luther King and Rosa Parks. He compared the defendants’ reliance on the laws which provided for the lawful marketing of tobacco to positions taken by defenders of slavery and of the Holocaust. He compared the jurors’ task, to the fight against segregation, the civil rights movement and as a fight against unjust laws. Counsel then tied this period in the past directly to the defendants, by telling the jury to stand up to the defendants’ “lawful” conduct in marketing and selling cigarettes.
While one may be prompted to chalk up “missteps” by counsel to the inevitable emotion of litigation, this does not seem to have been the case in Engle. As noted by the Florida Appellate Court, there was striking evidence that the impermissible conduct of plaintiffs’ counsel was intended to produce precisely the constitutional error that occurred. The court noted with disapproval that, after the Phase I closing arguments, the defendants discovered a book authored by plaintiffs’ counsel. According to the court, in that book counsel boasts about having used the identical race-based nullification arguments in an earlier murder trial in which he obtained an acquittal. In Engle, plaintiff’s counsel repeated his earlier performance almost exactly, well aware that the nullification arguments and racial appeals he presented to the jury would result in incurable prejudice. What plaintiffs’ counsel apparently failed to realize was that while a criminal acquittal cannot be appealed on those grounds, a civil verdict obtained by such tactics is destined for the proverbial dustbin.
Assuming that the appellate court has accurately characterized the record at trial, one is left with a disturbing unwillingness by the trial court to rein in improper conduct by plaintiff’s counsel. Anyone who has spent time as a member of the judiciary can sympathize with the reluctance to grant a mistrial after a lengthy case. Clearly, if inadvertent error can be cured with an instruction, the interests of the parties and the public dictate a less extreme response. However, if we are to credit the observations of the Florida Appellate Court, plaintiff’s counsel in Engle began Phase I with open racial pandering and never looked back. Given the impact of such conduct on any case, it would seem that the time to talk about a mistrial would have been on that first day. After a second such reference, prudence would seem to suggest that plaintiffs’ counsel, and the case, should have been shown the courthouse door.
In one of his repeated appeals for jury nullification, plaintiff’s counsel devoted a portion of his argument analogizing the sale of tobacco product to segregated water fountains in the courthouse. He advised the jury, “The point I’m making is, the point I’m making, that some day, some day our kids and grandchildren are going to say … [h]ow did you let them get away with it? How did you let them get away with it?” Given the extent and nature of the improper conduct by plaintiffs’ counsel, a similar question might well be posed to the Engle trial court.
The decision in Campbell prompted some to suggest that the worst abuses of the current punitive damage system might be behind us. That view, and the supreme court’s most basic guidance, has apparently failed to trickle down to some state trial courts. Almost a year after the reversal of Engle, a Texas jury awarded $100 million in actual damages and $900 million in punitive damages to the family of a woman who died of primary pulmonary hypertension after taking the diet drug Pondimin.(39) The facts advanced by the defendant indicated that the woman was morbidly obese, had a family history of cardiovascular disease and did not develop symptoms of primary pulmonary hypertension until more than four years after she stopped taking the drug. Defendant also pointed out the deceased had taken four other diet drugs after taking Pondimin. Nonetheless, in a verdict disturbingly reminiscent of Engle, the jury found the maker of the drug acted with actual malice in marketing the drug.
In addition to its apparent contravention of the constitutional restrictions outlined by the supreme court, the verdict permitted by the trial judge exceeded the state’s estimated $4 million cap on punitive damages. Motions to set aside the award are pending before the trial court. We will have to wait and see if the Texas trial court provides any more relief than the trial court in Engle.
In Campbell,(40) the supreme court held that a punitive damage award that exceeded a single-digit ratio between punitive and compensatory damages presumptively violated due process. While the court declined to set a bright line, there is no doubt that the vague line actually drawn was crossed in Engle. Even if the awards had not been calculated to bankrupt the defendants, the ratio between the actual damage award and punitive damages violated due process.
Despite the transparent nature of the error, the trial court denied the defendants’ motions for remittitur or a new trial. In light of its description of the record, it is not surprising that, in its reversal, the Florida Appellate Court found the denial was an abuse of discretion. Among the other errors discussed above, the appellate court found that the award was excessive as a matter of law, did not promote a valid societal interest and thus violated the due process rights of the defendants.
Quite apart from these interesting due process issues, the Engle award has had the rather bizarre effect of making allies of the various states and the defendant tobacco companies. This latest punitive award was supposedly entered to protect society. However, if the Engle award is upheld, it is clear that it will bankrupt the defendants. If it does, the Engle award will strip the various states of the fruits of earlier punitive awards, awards that would actually have gone to benefit the broader society. All eyes are therefore, once again, on the Florida Supreme Court, as new collection of strange bedfellows wait with bated breath.