Substantive Due Process & Punitive Damages

1. Substantive Due Process & Punitive Damages • BMW v. Gore’s three guideposts for determining whether punitive damages are excessive under the 14th amendment: • Reprehensibility of D • Ratio of punitives to potential/actual harm caused by D • Other civil/criminal penalties for D’s conduct

2. State Farm – refining BMW guideposts • State Farm majority held that the 1st Goreguidepost (D’s reprehensibility) was the most important indicium of whether punitive damages are reasonable. • Indicia of reprehensibility: physical vs. econ harm; D indifferent to health/safety of others; are D’s actions repeated; do D’s actions hurt financially vulnerable; is there intentional malice, trickery or deceit • Opinion on R was that SF’s actions fit many of these criteria although there were credible arguments against viewing it has ultra-reprehensible. • SCT also finds that State Farm’s behavior doesn’t justify the award because: • Unreasonable or jury to consider out-of-state conduct or conduct that was dissimilar to the conduct at issue at trial (although SCT notes not all conduct has to be identical to be part of a pattern of outrageous behavior)

3. State Farm - Gore Guideposts 2 & 3 Regarding the 2nd BMW guidepost – does the SCT impose a “bright line” rule on the ratio between punitive and compensatory damages? 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 that 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 3 guideposts. D challenged the trial 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 – the Supreme Court • SCT reversed the award of punitive damages because: • Jury instruction used by lower court does not effectively guide jury discretion and allows juries to punish a D for injury that it inflicts upon non-parties who are strangers to the litigation. • Is this a procedural due process (lack of adequate safeguards) issue or a substantive due process (direct review of excessiveness) issue? • After Williams, can juries still take into account the harm to other people D has caused 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? Tradition – forms of action are separate Hostility to punitive damages – don’t want to extend beyond torts 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, BMW v. 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 about Formosa’s & Presidio’s obligations re (1) scheduling, 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 the damage come from breach of contract? What is it about fraudulent inducement that makes us so willing to award punitives? What if it wasn’t clear that the scheme was hatched before the contract was entered? 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?