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From Products Liability Law Daily, July 17, 2015

$25 million award to smoker’s estate upheld against tobacco’s constitutional challenges

By Pamela C. Maloney, J.D.

Despite the 148:1 ratio between a compensatory damages award and an award of punitive damages, a jury’s award of $25 million dollars to the estate of a smoker was not arbitrary or excessive, nor did it not violate state law or the U.S. Constitution, the Oregon Court of Appeals held. The evidence established that the tobacco company’s decades-long marketing of its brand of low-tar cigarettes as a healthier choice and its financial gain from its pattern of deceiving smokers about the health dangers justified the jury’s verdict (Schwarz v. Philip Morris USA, Inc., July 15, 2015, Sercombe, T.).

Background. The decedent, Michelle Schwarz, began smoking when she was 18 years old. She switched from a full-flavor brand manufactured by Philip Morris USA Inc. to its low-tar Merit cigarettes based on her belief that low tar and nicotine filters were better for her, as advertised by Philip Morris. At the age of 53, Schwartz died from a brain tumor that resulted from metastatic lung cancer. Following an initial trial on her estate’s claims based on allegations of negligence, strict product liability, and fraud in the manufacturing, marketing, and research of Philip Morris’s brand of low-tar cigarettes, the jury awarded the estate $168,514 in compensatory damages and $150 million in punitive damages.

On appeal, the Oregon Supreme Court found that the trial court had improperly instructed the jury on punitive damages and remanded the case for a new trial limited to that issue. Following a second trial, at which the estate sought a determination of punitive damages on the fraud claim only, a jury awarded the estate $25 million in punitive damages and Philip Morris appealed on four grounds; however, the court addressed only two of the arguments: (1) the trial court erred in refusing to reduce the punitive damages award because it was arbitrary and excessive in violation of Oregon law and the U.S. Constitution; and (2) the record in this case did not support anything more than a nominal award of punitive damages.

Arbitrary or excessive challenge. In evaluating the “guideposts” established for determining the amount of punitive damages, the court determined that there was sufficient evidence to support the jury’s conclusion that the tobacco company was aware that serious harm would likely result from its “low-tar fraud.” The tobacco company knew of the link between smoking and disease and knew that smokers who switch to low-tar cigarettes changed their smoking patterns to compensate for the lower rate in order to maintain the same levels of nicotine. Also, the tobacco company had knowingly or recklessly made false representations that low-tar cigarettes were safer and healthier than regular cigarettes and were an alternative to quitting, and as such had intentionally misled the decedent. In doing so, the tobacco company demonstrated a “reckless and outrageous indifference to a highly unreasonable risk of harm.” The court further found that the evidence relating to the tobacco company’s marketing efforts and financial condition gave the jury the evidence it needed to determine the profitability of the company’s misconduct. In addition, the nature of the misconduct itself—that the tobacco company had fraudulently represented that low-tar cigarettes delivered less tar and nicotine to the smoker and, therefore, were safer and healthier than regular cigarettes and an alternative to quitting smoking—supported the jury’s conclusion regarding “concealment.” Finally, the court noted that that even though the company was aware that low-tar cigarettes were not safer than ordinary ones, it delayed acknowledging that fact for decades.

Ratio to compensatory award. The court also rejected the tobacco company’s claim that given the 148:1 ratio between the punitive damages award and the compensatory award, the punitive damages award was excessive. According to the tobacco company, the award could not exceed more than nine times that of the compensatory award and the award itself was not necessary for punishment or deterrence. Again, the court reviewed the guideposts set by the U.S. Supreme Court in determining whether a jury’s award comported with due process. In doing so, the court found that in this case, the jury was entitled to conclude that the tobacco company’s conduct was “extraordinarily reprehensible.” The harm caused by its conduct was physical, not merely economic, and the severity of the physical harm—Schwarz’s death—was extreme. Furthermore, the conduct demonstrated a reckless and outrageous indifference to a highly unreasonable risk of harm and the tobacco company had acted with a conscious indifference to public health and safety. Finally, the conduct at issue was part of a concerted, decades-long effort to deceive smokers and the public about the dangers of smoking and the harm caused was not the result of an accident but was the result of the tobacco company’s deceit.

Turning to the ratio between the punitive damage award and the compensatory award, the court emphasized that the U.S. High Court consistently had rejected the notion that a particular fixed ratio defines the constitutional limit on punitive damages. Instead, the amount depended on “the facts and circumstances of the defendant’s conduct and the harm to the plaintiff.” In this case, the compensatory award did not account for all of the harm directly suffered as a result of the tobacco company’s conduct because Oregon law did not provide for compensatory damages for loss of life to the person who has died or to her estate. In addition, as noted above, the tobacco company had engaged in extraordinarily reprehensible conduct that was a continuation of its decades-long scheme to defraud the decedent and others and to keep them smoking cigarettes even though the company knew of the health consequences. Finally, the jury had been instructed to consider the tobacco company’s financial condition and award an amount that would be necessary to punish it and to discourage future wrongful conduct. Although $25 million was a serious sanction, the jury’s conclusion that the award was appropriate was supported by the evidence.

The case is No. A152354.

Attorneys: William F. Gary (Harrang Long Gary Rudnick PC) for Philip Morris USA, Inc. James S. Coon (Swanson, Thomas, Coon & Newton) for Paul Scott Schwarz.

Companies: Philip Morris USA, Inc.

MainStory: TopStory DamagesNews TobaccoProductsNews OregonNews

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