The state of Oregon has settled its claim for $200 million in punitive damages against truck manufacturer Freightliner, according to the Statesman Journal and OregonLive.com.

The settlement ends a dispute that raised very interesting questions about the consequences of “split-recovery” statutes that authorize a state to recover a portion of any punitive damages award. In this case, which we discussed last February, German truck manufacturer Man AG sued Freightliner in Oregon state court. Man AG won an $850 million jury verdict, including $350 million in punitive damages. Under Oregon law, the state becomes a creditor on any punitive verdict when entered, and is entitled to 60 percent of any punitive award.

Before the state could collect its cut, the parties settled and Man agreed to drop the punitive damages portion of the verdict. The trial court vacated the original judgment and dismissed the case pursuant to the settlement, but the state intervened and appealed from the judgment of dismissal, arguing that the parties could not bargain away the state’s 60 percent share of the award. The Court of Appeals agreed that the state had standing to proceed on the merits of the appeal. The Oregon Supreme Court then agreed to hear the issue of the state’s standing.

In the meantime, as the global economy worsened and truck sales declined, the City of Portland and Multnomah County complained to the state that the lawsuit might force Freightliner to close its plant in Portland. Despite these objections, the state pressed on with its claims. Sure enough, Freightliner announced in October of last year that it had decided to close the plant, as reported by the Portland Tribune. A spokesman for the state said the closure had nothing to do with the state’s $200 million claim, but the general counsel of Frieightliner disagreed, saying company executives were “deeply disappointed that Oregon would sue us while other states are courting us.”

Apparently, the state had a change of heart, and agreed to settle in order to keep the plant open. The state gave up its $200 million claim in exchange for a donation of $150,000 to a crime victims fund, but if Freightliner closes its plant, it has to pony up another $300,000 to the state.

We can expect more litigation like this in states that have adopted split-recovery statutes. These laws may turn out to have a variety of unintended consequences.

Hat tip: Robin’s Nest.

According to this Bloomberg.com report, the state of Oregon has filed papers to protect its right to collect a share of the $137 million punitive damages award Adidas recovered from Collective Brands, Inc. (the owner of Payless Shoes) in a trademark infringement case.

An Oregon statute provides that 60 percent of all punitive damages awards go to the state. In a case decided earlier this year, the Oregon Court of Appeals recognized the state’s right to intervene in a case with a large punitive damages award. In that case, the parties had reached a settlement that did not involve the state. The state, a non-party, appealed the judgment of dismissal, arguing that the parties could not bargain away the state’s share of the award. The Court of Appeal, on its own motion, called for briefing on the state’s standing to pursue the appeal, and ultimately ruled in favor of the state.

In this fascinating opinion issued yesterday, the Oregon Court of Appeals ruled in favor of the Oregon Attorney General in his effort to collect the state’s share of a $350 million punitive damages verdict in a case where the state was not a party litigant.

In the underlying case, German truck manufacturer Man AG brought a lawsuit in Oregon state court against Freightliner, now known as Daimler Trucks North America. Man won an $850 million jury verdict, including $500 million in compensatory damages and $350 million in punitive damages. Under Oregon law, the state becomes a creditor on any punitive verdict when entered, and is entitled to 60 percent of any punitive award.

Before the state could collect its cut, while Freighliner’s posttrial motion challenging the punitive award was pending, the parties settled and Man agreed to drop the punitive damages portion of the verdict. Without ruling on the posttrial motion, the trial court vacated the original judgment on the jury verdict and entered a new judgment dismissing the case pursuant to the settlement.

The state appealed from the judgment of dismissal, arguing that the parties could not bargain away the state’s 60 percent share of the award. The Court of Appeals, on its own motion, asked the parties to brief the question of the state’s standing to pursue this appeal. After briefing and argument, the court concluded that the state has standing to proceed on the merits of the appeal.

It will be interesting to see how this plays out. If the state wins the right to prevent a plaintiff from agreeing to dismissal of an action after verdict, the ability of parties to enter post-verdict settlement agreements will be greatly inhibited. But if the state loses, the split-recovery statute may be effectively nullified because many parties will realize that they both come out ahead if they jettison the state’s statutory share of the judgment to arrive at a settlement figure that is lower than the defendant would have to pay under the judgment, but perhaps higher than the plaintiff would receive if the judgment were affirmed.

This is the sort of issue that may arise in California if the Legislature revives our punitive damages sharing statute. In 2004 our Legislature passed a bill entitling the state to 75 percent of any punitive damages award, but the law had a built-in sunset provision of only two years. Because the law applied only to complaints that were filed and litigated to conclusion (including appeals) within a narrow two-year window, it expired without impacting a single case. In August 2006 the Legislature attempted to extend the effective date of the bill, by passing the bill in a late-night session without any hearings or debate. Governor Schwarzenegger vetoed the bill, inviting the sponsor to resubmit the bill in the next legislative session for proper hearings and debate. Nothing has happened since.