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 punitivesdamages to likely/actual harm caused by D • Other civil/criminal penalties available for D’s conduct

2. State Farm – refining Gore’s guideposts • State Farm majority held that the 1stGore guidepost (D’s reprehensibility) was the most important indicium of whether punitive damages are reasonable. • What are indicia of reprehensibility? • How does the Court believe State Farm fared under these indicia? Do you agree? • What role does the out-of-state conduct or dissimilar conduct play in the Court’s decision that punitive damages are excessive? Do you agree?

3. State Farm & Gore guideposts 2 & 3 • Regarding Gore’s 2nd guidepost – what presumption regarding the ratio between punitive and compensatory damages does the Court establish? • When is this Court likely to see deviation from single digit multipliers as acceptable? • Is D’s wealth a legitimate consideration? • What is the relevance of the 3rd guidepost – other fines/penalties?

4. 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’s 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

5. Philip Morris Co v. Williams – Supreme Court • Why does the SCT reverse the award – i.e., what does the jury instruction allow the jury to do? • Is this a procedural due process (lack of adequate safeguards) problem or a substantive due process (direct review of excessiveness) problem? • 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)? • What must lower courts do to ensure that juries seek “simply to determine reprehensibility” but not “punish for harm caused strangers?” • http://www.courts.mo.gov/file.jsp?id=7659

6. 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 this general hostility to punitive damages in breach of contract? • Tradition – forms of action are separate • Hostility to punitive damages – courts don’t want to extend beyond torts and “open the floodgates” of litigation • Deterrent effect on entering contracts could be too significant

7. 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 only?) • State Farm – excellent example • Tortious Interference with contract/business relations • Courts usually require that D’s breach of contract w/ P 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 some physical harm to person or property other than that under the contract • Ordinary negligence is never the basis for punitives (contract or not)

8. Formosa Plastics v. Presidio Engineers • Formosa invited Presidio to bid on a construction project for concrete foundations. Sent a bid package w/ representations re each 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 and awarded punitive damages. Texas SCT upheld despite Formosa’s argument that this was merely breach of K. Fraud was an independent tort. • Doesn’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 workmen after the project began? Is that fraud or just intentional breach? Is timing everything on these sorts of claims for punitive damages? Why?