Lead Opinion
Philiр Morris USA, Inc. (Philip Morris), appeals a judgment awarding Jodie Bullock $13.8 million in punitive damages after a jury trial. A jury previously had awarded $850,000 in compensatory damages. Philip Morris contends the punitive damages award is barred by res judicata as a result of the settlement of an action by the California Attorney General against Philip Morris and other cigarette manufacturers, and the award is unconstitutionally excessive. Philip Morris also challenges the award of prejudgment interest from the date of the verdict. We conclude that each of these contentions is without merit.
This action involves a different cause of action from the prior action by the Attorney General so res judicata is inapplicable. In addition, Philip Morris’s conduct in intentionally deceiving smokers and the public in general for several decades concerning the adverse health effects of cigarette smoking, while formulating its cigarettes so as to make them more addictive, and aggressively advertising to youths and others before July 1, 1969, was extremely reprehensible. In light of such extreme reprehensibility, including the vast scale and profitability of Philip Morris’s misconduct, and its strong financial condition, the $13.8 million in punitive damages, approximately 16 times the compensatory damages award, is not unconstitutionally excessive. Finally, the trial court properly awarded prejudgment interest from the date of the verdict pursuant to Civil Code section 3287, subdivision (a) and rule 3.1802 of the California Rules of Court. In light of these conclusions, we will affirm the judgment and the order awarding prejudgment interest.
FACTUAL AND PROCEDURAL BACKGROUND
1. Factual Background
Betty Bullock smoked cigarettes manufactured by Philip Morris for 45 years from 1956, when she was 17 years old, until she was diagnosed with lung cancer in 2001. She smoked Philip Morris’s Marlboro brand of cigarettes until 1966, and then switched to its Benson & Hedges brand. She died in February 2003.
Scientific and medical professionals in the United States and worldwide generally agreed by the late 1950’s that cigarette smoking caused lung cancer, after several epidemiological studies reached that conclusion. Philip Morris
The “Frank Statement” stated, “We accept an interest in people’s health as a basic responsibility, paramount to every other consideration in our business, [f] We believe the products we make are not injurious to health, [f] We always have and always will cooperate closely with those whose task it is to safeguard the public health.” It announced the formation of the Tobаcco Industry Research Committee and stated, “We are pledging aid and assistance to the research effort into all phases of tobacco use and health. This joint financial aid will of course be in addition to what is already being contributed by individual companies. HQ ... [f] In charge of the research activities of the Committee will be a scientist of unimpeachable integrity and national repute. In addition there will be an Advisory Board of scientists disinterested in the cigarette industry. A group of distinguished men from medicine, science, and education will be invited to serve on this Board. These scientists will advise the Committee on its research activities.” In the years that followed, the Tobacco Industry Research Committee and its publicists disseminated the message that there was no proof that cigarette smoking was a cause of lung cancer and other diseases through news releases, distribution of research and editorial materials favorable to the tobacco industry, personal contacts with editors, journalists, and producers, and other means.
Philip Morris for many years publicly continued to insist that there was no consensus in the scientific community that cigarette smoking was a cause of lung cancer and that Philip Morris was actively pursuing scientific research to resolve the purported controversy, while privately acknowledging that there was no true controversy, that its true goal was to discredit reports that linked smoking with lung cancer, and that it had no intention of funding research that would reveal the health hazards of smoking. The Tobacco Institute, a trade organizatiоn funded by Philip Morris and other cigarette manufacturers, issued a press release in 1961 discrediting a recent article and stating that the views that smoking caused cancer “are a subject of much disagreement in the scientific world” and “the cause or causes of lung cancer continue to be unknown.” The Tobacco Institute stated in a press release in 1963 that the tobacco industry was “vitally interested in getting the facts that will provide
A cigarette company executive appearing before Congress in 1965 on behalf of several cigarette manufacturers, including Philip Morris, stated that “[n]early everyone familiar with these difficult problems will agree . . . that there is a very high degree of uncertainty” whether “smoking causes cancer or any other disease.” Later that year, the Tobacco Institute issued a press release stating, “Research to date has not established whether smoking is or is not causally involved in such diseases as lung cancer and heart disease, despite efforts to make it seem otherwise. The matter remains an open question—for resolution by scientists.” The press release stated, “we are earnestly trying to find the answers,” and, “If there is something in tobacco that is causally related to cancer or any other disease, the tobacco industry wants to find out what it is, and the sooner the better. If it is something in tobacco or the smoke, I am sure this can be remedied by the scientists.”
Philip Morris’s chief executive officer and chairman of the executive committee of the Tobacco Institute, Joseph Cullman III, stated on the television news program Face the Nation (CBS, Jan. 3, 1971), “if any ingredient in cigarette smoke is identified as being injurious to human health, we are confident that we can eliminate that ingredient.” He stated further, “We do not believe that cigarettes are hazardous; we don’t accept that.” The Tobacco Institute issued a report in 1979 entitled Smoking and Health 1969-1979: the Continuing Controversy, stating, “Scientists have not proven that cigarette smoke or any of the thousands of its constituents as found in cigarette smoke cause human disease.” The Tobacco Institute issued a report in 1984 entitled The Cigarette Controversy: Why More Research is Needed, and emphasized that “it is not known whether smoking has a role in the development of various diseases and ... a great deal more research is needed to uncover the causes and the mechanisms involved in their onset.” The 1984 report stated that the theory that cigarette smoking causes various diseases “is just that, a theory” and stated, “There were basic flaws in the methods used in the major epidemiological surveys that cast doubts on the accuracy of the claimed correlations.”
Contrary to its repeated public pronouncements, Philip Morris privately acknowledged the link between cigarette smoking and lung cancer and other diseases and sought to avoid promoting any resеarch that would reveal that link. An internal document prepared by Philip Morris in 1961 for purposes of
A 1970 memorandum from a Philip Morris research scientist to its president stated of the Council for Tobacco Research, the successor of the Tobacco Industry Research Committee, “It has been stated that CTR is a program to find out ‘the truth about smoking and health.’ What is truth to one is false to another. CTR and the Industry have publicly and frequently denied what others find as ‘truth.’ Let’s face it. We are interested in evidence which we believe denies the allegation that cigarette smoking causes disease.” Notes from a 1978 meeting of cigarette company executives and legal counsel state that the Tobacco Industry Research Committee “was set up as an industry ‘shield’ ” and that the Council for Tobacco Research “has acted as a ‘front.’ ”
Dr. William Farone, a chemist employed by Philip Morris as a scientific researcher beginning in 1976 and as director of applied research from 1977 to 1984, testified at trial that scientists working for Philip Moms knew that cigarette smoking caused cancer many years before he began to work for the company. Dr. Farone testified that during his years at Philip Morris there was no controversy among its scientists as to whether smoking caused diseases, and that public statements that it was not known whether smoking played a role in the development of various diseases and that a great deal more research was needed to identify the causes of the diseases were false. He testified that another public statement challenging the epidemiological research as inconclusive was a misleading half-truth and that Philip Morris’s scientists knew that cigarette smoke contained carcinogens and that the carcinogens caused cancer.
Dr. Farone testified that Dr. Thomas Osdene, Philip Morris’s director of research, and others told him on several occasions that Dr. Osdene’s real job and the job of scientists working under him was to maintain the appearance of a scientific controversy concerning smoking and health. Moreover, Dr. Farone testified that Philip Morris performed no animal toxicity studies of cigarettes in the United States, pursuant to a “gentleman’s agreement” with other cigarette manufacturers, but arranged for a company in Germany to perform toxicity tests on animals there. Other Philip Morris scientists explained to Dr. Farone that the reason for testing cigarettes abroad was so the results would not be available by subpoena in the United States. The test results were sent to Dr. Osdene, usually at his home, who would report the results to other Philip Morris scientists verbally and destroy the written records.
Philip Morris conducted animal research in the United States on the addictive effects of nicotine in the early 1980’s. It sought to develop a
Philip Morris heavily advertised its cigarettes on television in the 1950’s and 1960’s, until the federal government banned cigarette advertising on television in 1970. Television advertising had a particularly strong influence on youths under the age of 18, for whom there was a positive correlation between television viewing time and the incidence of smoking. Philip Morris’s print advertisements for Marlboro and other cigarette brands in 1956, when Bullock began smoking at the age of 17, and generally in the years from 1954 to 1969, depicted handsome men and glamorous young women. Some advertisements featured slogans such as “Loved for Gentleness” and “The gentlest cigarette you can smoke.”
The Attorney General of California, on behalf of the People of California, and the California Director of Health Services filed a complaint against several cigarette manufacturers, including Philip Morris, and other tobacco industry organizations in 1997. They alleged that the defendants had conspired to deceive the public concerning the adverse health effects of smoking by suppressing truthful information and spreading disinformation. They also alleged that the defendants had specifically targeted minors in their advertising and marketing campaigns. The Attorney General and Director of Health Services alleged counts for (1) recovery of the value of Medi-Cal benefits provided to treat smoking-related injuries and illnesses (Welf. & Inst. Code, § 14124.71); (2) restraint of trade in violation of the Cartwright Act (Bus. & Prof. Code, § 16700 et seq.); (3) violation of the False Claims Act (Gov. Code, § 12650 et seq.); and (4) unfair competition (Bus. & Prof. Code, § 17200 et seq.). They sought compensatory and punitive damages, civil penalties and a permanent injunction. Similar actions were commenced against the same defendants in other states.
Philip Morris and other cigarette manufacturers entered into a master settlement agreement (MSA) with 46 states, including California, in 1998
Philip Morris issued a statement on its Internet site in December 1999 acknowledging for the first time, “There is an overwhelming medical and scientific consensus that cigarette smoking causes lung cancer, heart disease, emphysema and other serious diseases in smokers. Smokers are far more likely to develop serious diseáses, like lung cancer, than non-smokers. There is no ‘safe’ cigarette. These are and have been the messages of public health authorities worldwide.” The statement also acknowledged that cigarette smoking is addictive.
2. Trial Court Proceedings and Prior Appeal
Betty Bullock sued Philip Morris in April 2001 seeking to recover damages for personal injuries based on products liability, fraud and other theories. The jury returned a special verdict in September 2002 finding that there was a defect in the design of the cigarettes and that they were negligently designed; that Philip Morris failed to adequately warn Bullock of the dangers of smoking before July 1, 1969;
On appeal, we concluded that the refusal of Philip Morris’s proposed instruction prohibiting punishment for harm caused to others was error and that the punitive damages award therefore must be reversed, but that there was no error in the compensatory damages award or the finding of oppression, fraud or malice. (Bullock v. Philip Morris USA, Inc. (2008)
The jury in the limited retrial returned a special vеrdict on August 24, 2009, awarding Bullock $13.8 million in punitive damages. The trial court entered an amended judgment on December 1, 2009, awarding $850,000 in compensatory damages, pursuant to the prior judgment, and $13.8 million in punitive damages. The court denied Philip Morris’s motion for judgment notwithstanding the verdict. The court granted Bullock’s motion for prejudgment interest on the punitive damages award from the date of the verdict. Philip Morris timely appealed the amended judgment and the order granting the motion for prejudgment interest.
CONTENTIONS
Philip Morris contends (1) the Consent Decree bars any award of punitive damages in this case under the res judicata doctrine; (2) the $13.8 million punitive damages award is unconstitutionally excessive; and (3) the award of prejudgment interest from the date of the verdict was error.
1. Res Judicata Is Inapplicable
Res judicata, or claim preclusion, precludes the relitigation of a cause of action that was litigated in a prior proceeding if three requirements are satisfied: (1) the present action is on the same cause of action as the prior proceeding; (2) the prior proceeding resulted in a final judgment on the merits; and (3) the parties in the present action or parties in privity with them were parties to the prior proceeding. (Boeken v. Philip Morris USA, Inc. (2010)
For purposes of res judicata, a cause of action consists of the plaintiff’s primary right to be free from a particular injury, the defendant’s corresponding primary duty and the defendаnt’s wrongful act in breach of that duty. (Mycogen Corp. v. Monsanto Co. (2002)
“ ‘[T]he “cause of action” is based upon the harm suffered, as opposed to the particular theory asserted by the litigant. [Citation.] Even where there are multiple legal theories upon which recovery might be predicated, one injury gives rise to only one claim for relief. “Hence a judgment for the defendant is a bar to a subsequent action by the plaintiff based on the same injury to the same right, even though he presents a different legal ground for relief.” [Citations.]’ Thus, under the primary rights theory, the determinative factor is the harm suffered. When two actions involving the same parties seek compensation for the same harm, they generally involve the same primary right. [Citation.]” (Boeken v. Philip Morris USA, Inc., supra,
The primary right that Bullock seeks to vindicate in this action is based on her personal injuries. Those personal physical and emotional injuries differ from the economic injuries and injuries to market competition alleged by the Attorney General and the Director of Health Services in their complaint. We
2. The Punitive Damages Award Is Not Unconstitutionally Excessive
a. Due Process Limitation on Punitive Damages
Punitive damages may be imposed under state law to further a state’s legitimate interests in punishing unlawful conduct and deterring its repetition. (BMW of North America, Inc. v. Gore (1996)
A court determining whether a punitive damages award is excessive under the due process clause must consider three guideposts: “(1) the degree of reprehensibility of the defendant’s misconduct; (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. [Citation.]” (State Farm, supra,
On appeal, we defer to findings of historical fact if they are supported by substantial evidence, and. we independently assess each of the three guideposts and determine de novo whether the punitive damages award is excessive under the due process clause. (State Farm, supra,
b. Degree of Reprehensibility
The degree of reprehensibility of the defendant’s conduct is the most important indicator of the reasonableness of a punitive damages award. (State Farm, supra,
A court properly may consider the defendant’s similar wrongful conduct toward others in determining the degree of reprehensibility of the defendant’s conduct toward the plaintiff. As we stated in Bullock v. Philip Morris USA, Inc., supra, 159 Cal.App.4th at pages 690-691:
“A state generally has no ‘legitimate concern in imposing punitive damages to punish a defendant for unlawful acts committed outside of the State’s jurisdiction.’ (State Farm, supra,
“The reprehensibility of the defendant’s conduct toward the plaintiff depends in part on the ‘scale and profitability’ of the course of conduct of which the defendant’s conduct toward the plaintiff is a part. (Johnson, supra, 35 Cal.4th at pp. 1207-1208.) ‘[T]he court in State Farm noted that conduct involving “repeated actions” was worse than, and could be punished more severely than, conduct limited to “an isolated incident.” (State Farm, supra, [538 U.S.] at p. 419.) [Fn. omitted.]’ (Johnson, supra, at p. 1206.) The State Farm court stated that even ‘[1] awful out-of-state conduct may be probative when it demonstrates the deliberateness and culpability of the defendant’s action in the State where it is tortious, but that conduct must have a nexus to the specific harm suffered by the plaintiff.,[
Philip Morris knew that the consensus among scientific and medical professionals was that cigarette smoking caused lung cancer and other serious diseases, that its cigarettes contained many carcinogens, and that smokers suffered lung cancer and other serious diseases at rates far greater than nonsmokers. Despite that knowledge, Philip Morris and other cigarette manufacturers for many years conducted a public campaign designed to obscure and deny the truth. Philip Morris falsely asserted that there was no consensus in the scientific and medical community concerning the adverse health effects of smoking and that the relationship between smoking and health was unknown. Philip Morris assured its customers that if it learned that any cigarette ingredient caused cancer it would remove that ingredient, and falsely stated that it did not believe that smoking was hazardous. Philip Morris repeatedly asserted that more research was needed and that it was diligently pursuing that research, but avoided sponsoring any research that would reveal the hazards of smoking and went to great lengths to avoid disclosing its own toxicological data. Rather than remove nicotine from its cigarettes as it had the ability to do, Philip Morris added urea to its cigarettes to enhance the effect of nicotine so as to further exploit its customers’ addiction and gain new customers. Its customers included individuals such as Bullock who first began to smoke as youths before July 1, 1969, attracted in part by an aggressive advertising campaign in television, print and other media that was particularly appealing to youths.
The harm caused by Philip Morris’s misconduct was physical rather than economic because the evidence shows that Bullock suffered a debilitating and terminal illness, lung cancer, as a result of Philip Morris’s fraudulent scheme. The first reprehensibility factor listed by the court in State Farm, supra,
The third reprehensibility factor, “whether ... the target of the conduct had financial vulnerability” (State Farm, supra,
The fourth and fifth factors are “whether ... the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident.” (State Farm, supra,
Finally, Philip Morris earned well over $100 billion in profits, in 2009 dollars, from 1954 through the original trial date in 2002, arising in large part
Because each of the five factors weighs in favor of high reprehensibility and in light of the vast “scale and profitability” of its actions, we conclude that Philip Morris’s misconduct was extremely reprehensible.
c. Disparity Between Actual Harm and Punitive Damages
The second guidepost is that punitive damages must bear a “ ‘reasonable relationship’ ” to compensatory damages or to the actual or potential harm to the plaintiff. (Gore, supra, 517 U.S. at pp. 575, 580; accord, State Farm, supra, 538 U.S. at pp. 424-426.) “[Cjourts must ensure that the measure of punishment is both reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered.” (State Farm, supra, at p. 426.)
The United States Supreme Court has consistently rejected the notion that a mathematical formula or fixed ratio defines the constitutional limit. The high court in Gore stated, “we have consistently rejected the notion that the constitutional fine is marked by a simple mathematical formula,” and “[i]t is appropriate ... to reiterate our rejection of a categorical approach.” (Gore, supra,
The California Supreme Court in Johnson, supra,
The statement in State Farm, supra,
The California Supreme Court in Simon, supra,
State Farm, supra,
The ratio of punitive damages to compensatory damages here is approximately 16 to 1. The $850,000 compensatory damages award includes $100,000 for pain and suffering experienced by Bullock for approximately two years from the time of her diagnosis with lung cancer until she succumbed to her physical injuries and died in February 2003. Unlike the situation where the plaintiff is awarded a generous amount for emotional distress arising from economic harm with no physical injury (State Farm, supra,
Boeken v. Philip Morris, Inc., supra,
Boeken cited the holding in Diamond Woodworks, Inc. v. Argonaut Ins. Co., supra,
Boeken v. Philip Morris, Inc., supra,
Philip Morris cites Exxon Shipping Co. v. Baker (2008)
The United States Supreme Court in Exxon Shipping reviewed the $5 billion punitive damages award under federal maritime common law and did not decide the maximum amount that would satisfy due process. (Exxon Shipping, supra, 554 U.S. at pp. 501-502.)
Exxon Shipping, supra,
Citing awards in other cases in California and nationwide, Philip Morris argues that there is an emerging consensus that “six-figure damage awards are more than ‘substantial’ enough to trigger this 1:1 upper limit.” We cannot discern any emerging consensus in this regard relevant to the extremely reprehensible conduct at issue in this case. Moreover, we do not regard the amount of compensatory damages as a fixed upper limit where damages are “substantial,” as we have stated.
Simon stated that the third guidepost, civil penalties for comparable misconduct, “is less useful in a case like this one, where plaintiff prevailed only on a cause of action involving ‘common law tort duties that do not lend themselves to a comparison with statutory penalties’ [citation].”
e. Financial Condition
The defendant’s financial condition remains an essential consideration under California law and a permissible consideration under the due process clause in determining the amount of punitive damages necessary to further the state’s legitimate interests in punishment and deterrence. (State Farm, supra,
f. Other Considerations
Philip Morris contends its obligations under the MSA, the recently enhanced federal regulation of the tobacco industry and other circumstances reduce the need for punishment and deterrence. Philip Morris argues that its substantial and continuing payment obligations under the agreement and the MSA’s prohibition of some of the same types of conduct on which its liability in this case is based serve as deterrents to future misconduct.
Bullock and Philip Morris stipulated that the MSA “provides for payments to the states for reimbursement of funds spent on health care costs of individuals, among other things” and that the MSA “does not provide any payments to individuals and does not provide any payments for punitive damages.” The substantial payments under the MSA reflect the substantial damages to the states allegedly caused by the cigarette manufacturers, and are by no means a measure of punishment. In any event, we need not decide whether, or the extent to which, settlement payments for compensatory damages generally may reduce the need for punishment or deterrence and limit the amount of punitive damages that otherwise would be constitutionally permissible because the evidence in this case suggests that the MSA has no meaningful deterrent effect on Philip Morris and others аnd is not an effective punishment.
Bullock’s forensic economics expert testified at trial that Philip Morris’s revenues and profits actually increased markedly (revenues increased by $4.3 billion in 1999 alone) due to increased cigarette prices as a result of the MSA. As Boeken v. Philip Morris, Inc., supra,
Philip Morris also argues that the conduct that harmed Bullock was undertaken decades ago by individuals who are no longer associated with the company and that its current employees and shareholders do not deserve to be punished. Philip Morris argues that it “is effectively a different company from the one whose conduct was at issue in this case,” and that it now is subject to regulations and other constraints that did not exist in previous years. Philip Morris argues further that the evidence shows that it is “committed to change” and that it “has neither the inclination nor the capacity to repeat the misconduct that gave rise to this case.”
Although these arguments might have persuaded the jury to award a more moderate amount than was awarded in the original trial, they do not compel the conclusion that the $13.8 million award is grossly excessive in relation to California’s legitimate interests in punishment and deterrence.
Finally, the Civil Justice Association of California as amicus curiae argues that prior awards of punitive and compensatory damages against Philip Morris for the same course of conduct are relevant to the amount of punitive damages necessary to deter and punish in this case. (See Boeken v. Philip Morris, Inc., supra,
We believe that the extreme reprehensibility of Philip Morris’s misconduct, including the vast scale and profitability of its course of misconduct, and its financial condition justify the $13.8 million punitive damages award against Philip Morris. Our conclusion is the same regardless of whether the ratio of 16 to 1 cаn be said to significantly exceed a single-digit ratio, so we need not decide that question.
3. The Award of Prejudgment Interest Was Proper
Civil Code section 3287, subdivision (a) states, “Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day, except during such time as the debtor is prevented by law, or by the act of the creditor from paying the debt. . . .”
Civil Code section 3287, subdivision (a) provides that a party may recover prejudgment interest on an amount awarded as damages from the date that the amount was both (1) due and owing and (2) certain or capable of being made certain by calculation. (Koyer v. Detroit F. & M. Ins. Co. (1937)
Damages are certain or capable of being made certain by calculation, or ascertainable, for purposes of Civil Code section 3287, subdivision (a) if the defendant actually knows the amount of damages or could compute that
Damages determined by a verdict are made certain as of the date that the verdict is entered, so prejudgment interest begins to accrue on that date. (Holdgrafer v. Unocal Corp. (2008)
DISPOSITION
The judgment and order awarding prejudgment interest are affirmed. Bullock is entitled to recover her costs on appeal.
Klein, P. J., concurred.
Notes
Our recitation of the facts is based on the evidence presented at trial viewed in the light most favorable to Bullock as the successful plaintiff. (Roby v. McKesson Corp. (2009)
Federal law preempts certain state law claims arising from the advertising or promotion of cigarettes after July 1, 1969. (15 U.S.C. § 1334(b); Public Health Cigarette Smoking Act of 1969, Pub.L. No. 91-222, § 3 (Apr. 1, 1970) 84 Stat. 88; Altria Group, Inc. v. Good (2008)
We ordered the substitution of Jodie Bullock in the place of Betty Bullock after the death оf Betty Bullock (Code Civ. Proc., § 377.31; Cal. Rules of Court, rule 8.36(a)). We use the name Bullock to refer to either Jodie Bullock or Betty Bullock, as appropriate in context.
We had previously affirmed the judgment, concluding that the punitive damages award was not constitutionally excessive. The California Supreme Court granted review of our prior opinion and later transferred the matter back to this court with directions to vacate our decision and reconsider the cause in light of Philip Morris USA v. Williams (2007)
Opinions applying the laws of states that do not subscribe to the primary rights theory of res judicata, holding that personal injury actions were precluded by the settlement of tobacco litigation in other states in connection with the MSA, are neither on point nor persuasive. (E.g., Grill v. Philip Morris USA, Inc. (S.D.N.Y. 2009)
State Farm held that the Utah courts erred by awarding punitive damages based on the defendant’s dissimilar acts that “had nothing to do with” the conduct that injured the plaintiffs. (State Farm, supra, 538 U.S. at pp. 422-424.) State Farm stated that there was no evidence of any conduct by the defendant similar to the conduct that harmed the plaintiffs (id. at p. 424) and concluded that the reprehensibility of the defendant’s conduct, involving a purely economic transaction with no threat of physical harm, warranted “a more modest punishment” (id. at p. 419) than the $145 million in punitive damages awarded by the jury.
We need not decide precisely what period of time is most relevant for these purposes or determine the specific amount of profits earned during that period of time.
Another court considering essentially the same course of misconduct is in accord. (Boeken v. Philip Morris, Inc. (2005)
Just as the measurement of compensatory damages is inexact, the due process limitation on the amount of punitive damages also is inexact and affords considerable discretion to the trier
The jury in State Farm awarded the plaintiffs $2.6 million in compensatory damages for emotional distress, reduced by the trial court to $1 million, arising from the defendant insurance company’s bad faith refusal to settle an action against the plaintiffs. (State Farm, supra, 538 U.S. at pp. 413-415.) The jury also awarded $145 million in punitive damages. (Id. at p. 415.) State Farm stated, “[i]n the context of this case, we have no doubt that there is a presumption against an award that has a 145-to-l ratio.” (Id. at p. 426.) State Farm explained that the $1 million compensatory damages award arose from a purely economic transaction with no physical injury, and that the plaintiffs “suffered only minor economic injuries for the 18-month period in which State Farm refused to resolve the claim against them.” (Id. at p. 426.) State Farm also stated that the $1 million compensatory damages award “was substantial” and “was complete compensation.” (Ibid.) State Farm noted that much of the plaintiffs’ emotional distress was caused by their outrage and humiliation аroused by the defendant’s misconduct, and stated that damages for such emotional distress contain a “punitive element” that is duplicated in a punitive damages award. (Ibid.) State Farm concluded that the $145 million punitive damages award was arbitrary. (Id. at p. 429.) The court therefore reversed the judgment and remanded the matter to the Utah state court to determine the appropriate amount of punitive damages in the first instance. (Ibid.)
Because the state’s legitimate interests in punishment and deterrence are not served if the amount of punitive damages is so small relative to the defendant’s wealth as to constitute only a nuisance or a routine cost of doing business (Simon, supra,
Simon rejected the notion that “ ‘in the usual case’ ” ratios greater than four to one are presumptively invalid and disapproved the statement in Diamond Woodworks, Inc. v. Argonaut Ins. Co. (2003)
The plaintiff in Simon was awarded $5,000 in compensatory damages for promissory fraud arising from his attempt to purchase an office building from the defendant, and was awarded $1.7 million in punitive damages. (Simon, supra,
State Farm, supra,
“Today’s enquiry differs from due process review because the case arises under federal maritime jurisdiction, and we are reviewing a jury award for conformity with maritime law, rather than the outer limit allowed by due process; we are examining the verdict in the exercise of federal maritime common law authority, which precedes and should obviate any application of the constitutional standard.” (Exxon Shipping, supra, 554 U.S. at pp. 501-502.)
In any event, we do not consider $850,000 in compensatory damages to be “substantial,” within the meaning of State Farm, supra,
State Farm discussed the third guidepost, civil penalties for comparable misconduct, only briefly, stating that the most relevant civil sanction was a $10,000 fine for an act of fraud, “an amount dwarfed by the $145 million punitive damages award.” (State Farm, supra,
“jT]he presumption of unconstitutionality applies only to awards exceeding the single-digit level ‘to a significant degree.’ (State Farm, supra,
Dissenting Opinion
In State Farm Mut. Automobile Ins. Co. v. Campbell (2003)
Under State Farm and its progeny, the punitive damages award constitutes excessive punishment in violation of the due process clause. Boeken v. Philip Morris, Inc. (2005)
In State Farm, the Supreme Court applied three guideposts set forth in BMW of North America, Inc. v. Gore (1996)
As to the first guidepost, I agree with the majority that the conduct of Philip Morris USA, Inc., was highly reprehensible and more egregious than other conduct that would support an award of punitive damages. As to the third guidepost, I agree with the opinion that “[w]e are aware of no statutory penalty for misconduct that is comparable in a meaningful way to the misconduct at issue here.” (Maj. opn., ante, at p. 570.) The third guidepost, therefore, plays no role in my conclusion that the punitive damages award of $13.8 million in this case violates due process.
The second State Farm guidepost is the ratio of punitive to compensatory damages. As to this guidepost, the State Farm court explained that “courts must ensure that the measure of punishment is both reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered.” (State Farm, supra,
Interpreting this latter statement, the California Supreme Court held in Simon v. San Paolo U.S. Holding Co., Inc. (2005)
Both State Farm and Simon recognized a few limited exceptions to the single-digit ratio limit. The only one potentially applicable in this case is where the compensatory damages consist of a “small” (i.e., not “substantial”) amount and defendant’s conduct is “highly” or “extremely” reprehensible (i.e., “particularly egregious”).
In State Farm, the court explained this exception as follows: “[B]ecause there are no rigid benchmarks that a punitive damages award may not surpass, ratios greater than those we have previously upheld may comport with due process where ‘a particularly egregious act has resulted in only a small amount of economic damages.’ [Citations.] The converse is also true, however. When compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee. The precise award in any case, of course, must be based upon the facts and circumstances of the defendant’s conduct and the harm to the plaintiff.” (State Farm, supra,
In Simon, the California Supreme Court also addressed this exception. The court initially touched upon the exception in passing by stating: “[R]atios between the punitive damages award and the plaintiff’s actual or potential
The first is that when Simon actually discussed the exception it quoted State Farm. The Simon court held: “Nor can the 340-to-l ratio here be justified on the ground that 1 “a particularly egregious act has resulted in only a small amount of economic damages.” ’ ” (Simon, supra,
Moreover, the Simon court did not apply “extreme reprehensibility” and “small amount” of damages as separate exceptions. In Simon, the amount of compensatory damages was $5,000 (Simon, supra,
Had the Simon court held that a small amount of damages was an independent exception to the single-digit ratio limit, the case would have gone the other way. The plaintiff could have recovered punitive damages in an amount more than 10 times the amount of the compensatory award because the compensatory damages were small. The implication of Simon, therefore, is that either an award of a small amount of damages or a finding of high reprehensibility is not enough, by itself, to justify an exception to the single-digit limit. At a minimum, Simon holds that the two components must be viewed together for purposes of the ratio guidepost.
This interpretation of the small-damages-high-reprehensibility exception was applied in Planned Parent v. Coalition, Life Activists (9th Cir. 2005)
Planned Parenthood is consistent with my interpretation of State Farm and Simon. Even when the defendant’s conduct is highly reprehensible, if the compensatory damages are substantial, an award exceeding a single-digit ratio between punitive and compensatory damages to a significant degree violates due process, unless another exception applies.
In this case, the jury awarded Jodie Bullock $850,000 in compensatory damages. This was a substantial compensatory award. Although Philip Morris’s conduct was highly reprehensible, under both State Farm and Simon, a punitive damages award in the amount of $13.8 million does not comport with due process because it exceeds a single-digit ratio to a significant degree.
The majority states “relative to Philip Morris’s financial condition, $850,000 in compensatory damages is a small amount.” (Maj. оpn., ante, at p. 566.) disagree with this analysis. Defendant’s financial condition is irrelevant to the issue of whether a compensatory award is “small” or “substantial” for purposes of the ratio guidepost.
I recognize that drawing a line between small and substantial damages for purposes of determining whether an award of punitive damages can exceed the single-digit ratio limit is not an easy task. The $850,000 award in this case, however, clearly falls in the substantial damages category. The State Farm court held that a $1 million compensatory award was substantial. (State Farm, supra,
In Gober v. Ralphs Grocery Co. (2006)
In its discussion of the ratio guidepost, the majority states that “[w]e . . . have no reason to believe that [Bullock’s] compensatory damages contain any significant punitive element.” (Maj. opn., ante, at p. 567.) I agree. That conclusion, however, does not justify exceeding the single-digit ratio limit.
In State Farm, the court noted that sometimes compensatory damages have a punitive element because they include compensation for emotional distress caused by humiliation or indignation aroused by the defendant’s conduct. (State Farm, supra,
It is important to keep in mind that where, as here, the compensatory award is substantial, a ratio of 1 to 1 “can reach the outermost limit of the due process guarantee.” (State Farm, supra,
The present case is identical in all material respects to Boeken. As the majority in this case concedes, the Boeken case involved the same defendant, the same causes of action, the same counsel, and virtually the same conduct. The jury in Boeken awarded the plaintiff $5,539,127 in compensatory damages and $3 billion in punitive damages, which was reduced by the trial court to $100 million. The Court of Appeal, however, held that the plaintiff was entitled to no more than a single-digit ratio of punitive damages in
The majority attempts to distinguish Boeken by noting that the Boeken court cited Diamond Woodworks, Inc. v. Argonaut Ins. Co. (2003)
The majority also states that Boeken is distinguishable because the Boeken court did not have the benefit of Simon, which was subsequently published. There is nothing in Boeken, however, that is inconsistent with Simon. Simon simply applied State Farm to the facts in that case. It did not, of course, alter State Farm's holding regarding federal due process limitations on punitive damages. With respect to the ratio guidepost, Boeken relied heavily on State Farm (Boeken, supra, 127 Cal.App.4th at pp. 1695-1696), and there is no reason to believe that the Boeken court would have decided the case differently in the wake of Simon.
Finally, the majority argues: “Because the $5,539,127 compensatory damages award in Boeken was significantly greater than the $850,000 award in this case, a lesser multiple of compensatory damages in that case was required to further the state’s interests in punishment and deterrence relating to the same course of conduct at issue here.” (Maj. opn., ante, at p. 568.) I disagree.
For purposes of the ratio guidepost, the compensatory award in this case is not materially different from the one in Boeken because both awards are substantial. The purpose of the ratio guidepost is to ensure that punitive damages are “reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered.” (State Farm, supra,
Under State Farm, Simon, and Boeken, Bullock was entitled to no more than a single-digit ratio of punitive to compensatory damages. However, because of Philip Morris’s highly reprehensible conduct and its great wealth, as well as the lack of a punitive element in the compensatory award, I conclude, like the Boeken court, that Bullock was entitled to an award of punitive damages at the highest end of the single-digit ratio range. (Boeken, supra,
The $13.8 million punitive damages award exceeded, to a significant degree, a single-digit ratio in comparison to the compensatory damages, and is in violation of due process. I therefore respectfully dissent.
Appellant’s petition for review by the Supreme Court was denied November 30, 2011, SI96763. Kennard, J., and Chin, J., did not participate therein.
I otherwise agree with the remainder of the majority opinion’s discussion, including the part relating to prejudgment interest. I would, nonetheless, reverse the trial court’s order awarding prejudgment interest because it is based on an award of punitive damages that violates defendant Philip Morris’s due process rights.
A higher ratio might also be permissible where “ ‘the injury is hard to detect or the monetary value of noneconomic harm might have been difficult to determine’ ” (State Farm, supra,
Although a defendant’s wealth is a legitimate consideration, it cannot justify punitive damages unconstitutionally disproportionate to compensatory damages (State Farm, supra, 538 U.S. at pp. 427-428) or “substitute for the high court’s guideposts in limiting awards” (Simon, supra,