Due p rocess & p unitive damages

1. Due process & punitive damages • Procedural Due Process – review pursuant to the 14th amendment to ensure appropriate procedural safeguards • Jury instructions must have sufficient guidance and there must be some sort of post verdict judicial review • Substantive Due Process – review for excessiveness • BMW v. Gore’s three guideposts for determining whether punitive damages are excessive under the 14th amendment: • Reprehensibility of D • Ratio of punitive damages to likely/actual harm caused by D • Other civil/criminal penalties available for D’s conduct

2. Philip Morris & Co. v. Williams (2007) • P’s husband died of lung cancer after smoking. P sued D for fraud claiming D had known for 40 years that cigarettes caused cancer but concealed information from the public and/or lied about it (decedent relied on those lies to continue smoking). Jury awarded $525,000 in compensatories (after remittance) and $79.5 million in punitives. Oregon SCT upheld award after applying Gore guideposts. D challenged the lower court’s jury instructions. • P’s attorney told jury to “think about how many other Jesse Williams in the last 40 years in the State of Oregon there have been….” • Jury instruction:“Punitive damages are awarded against a D to punish misconduct and to deter misconduct” and “are not intended to compensate P or anyone else for damages caused by the D’s conduct.” • State court rejected D’s request for a different instruction telling jury they could consider harm suffered by others in determining relationship of D’s conduct to P’s harm BUT that it could not punish D for the impact of its alleged misconduct on other persons who may bring lawsuits of their own

3. Philip Morris Co v. Williams – Supreme Court • SCT reversed award because jury instruction allowed jury to punish D for harm done to non-parties rather than simply to consider D’s harm to non-parties as part of D’s reprehensibility (Gore factor 1) • Note that this a procedural due process case (lack of adequate safeguards) and not a substantive due process case(direct review of excessiveness) – but they can be hard to tell apart in these mass tort circumstances with individual P lawsuits. • After Williams, can juries still take into account the harm D has caused to other people D in determining the reprehensibility of D’s conduct (Gore guidepost #1)? • Yes, as part of reprehensibility analysis but as dissents argue, it is not altogether clear how these are different. • What must lower courts do to ensure that juries seek “simply to determine reprehensibility” but not “punish for harm caused strangers?” See Mo. Model Jury Instructions. • http://www.courts.mo.gov/file.jsp?id=7659

4. Punitive Damages For Breach of Contract • General Rule: No punitive damages for breach of contract unless there is an independent tort in the contract setting that can be the basis of the punitive damages award. • WHY is there this general hostility to punitive damages in breach of contract? • Tradition – the forms of action (contract/tort) are separate • Hostility to punitive damages generally – courts don’t want to extend beyond torts and “open the floodgates” of litigation • Deterrent effect on parties entering contracts could be too significant (similar to reasons courts allow limitations on consequential damages)

5. Independent Torts (Possibly) Supporting Punitive Damages In Breach of Contract Situations • Fraud • Examples – Formosa, Haslip,State Farm, Gore • Conversion (theft) • Haslip (alternative theory) • Bad-Faith Breach (insurance contracts only?) • State Farm – excellent example • Tortious Interference with contract/business relations • Courts usually require that D’s breach of contract have the purpose of interfering w/ P’s other relationships – NOT enough that D knew could hurt other relationships • Gross Negligence (?) • Usually not a basis for punitives in breach of contract UNLESS there is physical harm to person or property in addition to economic harm ordinarily occurring from breach of the contract • Ordinary negligence is not the basis for punitives (contract or not)

6. Formosa Plastics v. Presidio Engineers • Formosa invited Presidio to bid on a construction project for concrete foundations. Sent a bid package w/ representations re parties’ obligations on (1) ordering & delivery of material, (2) work schedule, (3) beginning/end dates. • Presidio relied on these representations to enter a bid, which was accepted. • Job was substantially delayed, ended up costing far more than estimated. • Presidio discovered that Formosa intentionally lied about the bid package & ran a scheme to induce contractors to make low bids & then stay in the game even after the Formosa breached its obligations • Jury found fraud/awarded punitive damages. Texas SCT upheld despite Formosa’s argument that this was merely breach of K. Fraud was an independent tort. • Don’t most of Presidio’s damage come from breach of contract? What is it about fraudulent inducement that makes us so willing to award punitives? • What if D intentionally began scheduling deliveries or multiple workmenafter the project began? Is that fraud or just intentional breach – most likely the latter? Timing seems to matter a lot re these sorts of claims for punitive damages – Why?