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Litigation

Oregon High Court Voids $100 Million Punitive Awards, Grants New Trial On Amount

SALEM, Ore. - (Mealey's) A cigarette manufacturer that had been on the hook for a $100 million punitive damages award will get another shot at convincing a jury that it deserves a lesser penalty after the Oregon Supreme Court decided June 24 that the trial court erred in instructing the jury on the extent to which it could consider harm to nonparties in formulating its award (Estate of Michelle Schwarz, by and through her personal representative, Paul Scott Schwarz v. Philip Morris Inc., No. SC S053644, Ore. Sup.).

Paul Scott Schwarz and other family members filed a wrongful death case against Philip Morris U.S.A. Inc. on behalf of decedent Michelle Schwarz, who smoked Merit Lights.  A Multnomah County Circuit Court jury awarded Schwarz $168,514.22 in compensatory damages and $150 million in punitive damages, but the trial court reduced the punitive award by a third, to $100 million, in light of the jury's conclusion that the decedent was 49 percent at fault.

Philip Morris appealed to the Oregon Court of Appeals, asserting among 21 points of error that the trial court wrongly refused to administer its proffered jury instructions; Schwarz objected to the reduction in the punitive award.

A majority of the Oregon Court of Appeals, sitting en banc, affirmed the compensatory award but vacated the punitive award and remanded for a new trial on the amount.  According to the majority, the trial court erred in failing to instruct the jury that "[y]ou are not to punish a defendant for the impact of its conduct on individuals in other states" in regard to the fraud claim.  Both State Farm Mut. Automobile Ins. Co. v. Campbell (538 US 408 [2003]) and BMW of North America, Inc. v. Gore (517 US 559 [1996]) held that a state has no legitimate concern in imposing punitive damages to punish a defendant for unlawful acts committed outside its jurisdiction, the majority said, and the failure to instruct the jury on the point violated Philip Morris' due process rights.

The Oregon Supreme Court found that although the trial court correctly refused the instructions put forth by Philip Morris, it nevertheless failed to properly instruct the jury, and Philip Morris is entitled to a new trial on punitive damages as a result.

"The distinction that the Supreme Court has created between constitutionally permissible and impermissible uses of evidence of harm to others is a fine one that easily may be lost," the state high court said.  "Although it is possible that a jury could glean that distinction from defendant's proposed instructions in combination with the uniform jury instruction, it is not probable.  Defendant's proposed instructions expressly directed the jury to refrain from using evidence of harm to nonlitigants to 'punish' defendant.  The uniform jury instruction was not similarly clear in permitting the jury to use that evidence in assessing the reprehensibility of defendant's conduct and arriving at a punitive damages award."

The court declined Schwarz's invitation to affirm the verdict notwithstanding any error in jury instruction.  The Oregon Constitution clearly states that it lacks the authority in the first instance to make its own factual determination of appropriate punitive damages awards based on a defendant's conduct and the harm that conduct caused a decedent, the court said.

"The [U.S.] Supreme Court has thrust upon state courts the role of determining whether a jury award of punitive damages exceeds the outer limits that substantive due process allows, but it is still the constitutional role of the jury to decide all facts, including those necessary to assess punitive damages in the first instance," the court said.  "We cannot decide the damages that a correctly instructed jury would award, and we therefore must remand this case for a jury's decision."

[Editor's Note:  Full coverage will be in the July issue. In the meantime, the opinion is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844. Document #04-100723-001Z.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

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For more information, call editor Gerald C. Matics at 610-205-1131, or e-mail him at gerald.matics@lexisnexis.com.