As the name of this blog suggests, our primary focus is California punitive damages litigation. We summarize all of the punitive damages decisions, published and unpublished, issued by the California appellate courts and the Ninth Circuit. Occasionally, however, we discuss notable punitive damages decisions from other jurisdictions, especially where the award is especially high or the issues are especially interesting. This opinion from the South Carolina Supreme Court is one of those out-of-jurisdiction cases that caught my eye.

This case, Mitchell v. Fortis Insurance, involved an insurer’s recission of a health insurance policy for an HIV-positive teenager. The jury awarded the plaintiff $150,000 in damages for the bad faith recission of the policy and $15 million in punitive damages (a ratio of 100 to 1).

On appeal, the South Carolina Supreme Court affirmed the liability finding and the compensatory damages but reduced the punitive damages from $15 million to $10 million. Although the reduced number was still 67 times larger than the plaintiff’s actual damages, the court justified the award based on the potential harm the plaintiff could have suffered. The court cited the U.S. Supreme Court’s 1993 decision in TXO Production Corp., which stated that reviewing courts may compare a punitive damages award not only to the actual harm inflicted on the plaintiff, but also “the magnitude of the potential harm that the defendant’s conduct would have caused to its intended victim if the wrongful plan had succeeded.”

The South Carolina Supreme Court said the evidence showed the defendant’s conduct could have caused the plaintiff an additional $1.1 million in damages. Comparing the punitive damages to the jury’s actual damages award plus the potential harm, the court came up with a ratio of 9.2 to 1. The court concluded that such a ratio was acceptable given the highly reprehensible nature of the defendant’s conduct.

This case illustrates one of the possible avenues for plaintiffs to circumvent the single-digit ratio language in BMW v. Gore and State Farm v. Campbell. Although many plaintiffs cite “potential” harm as a way of justifying an otherwise unconstitutional ratio, courts rarely uphold awards on that basis. In California, our Supreme Court has held that courts may consider potential harm only to the extent that such harm was foreseeable by the defendant and “likely to occur.” (See Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1149, 1177-1178.) Those limitations make it difficult for plaintiffs to rely on potential harm in many cases, but as this case illustrates, the concept can be a powerful weapon for plaintiffs under the right circumstances.

Retired federal judge H. Lee Sarokin has posted this essay on the Huffington Post: “Do Corporate Fines and Punitive Damages Serve Their Purposes?” Judge Sarokin argues that the purposes of punitive damages – – punishment and deterrence – – are not accomplished when courts impose punitive damages against corporations. Judge Sarokin reasons that the company’s innocent shareholders end up paying the price, while the corporate executives who committed the punishable acts (who are often long gone from the corporation by the time of any punitive damages judgment) get to keep their huge salaries and bonuses. Judge Sarakon argues that punitive damages should be imposed on the executives, not their companies.

Judge Sarokin’s argument has a certain logic to it, but something tells me we won’t see states outlawing punitive damages against corporations any time soon. It’s not out of the question, however, that a court reviewing a punitive damages award against a corporation might take into consideration the fact that the wrongful conduct was committed long ago by people who are no longer involved with the company.

We previously reported on a huge judgment against Microsoft for alleged infringement of a patent owned by i4i Limited Partnership. In our report, we said (based on another blog’s post about the same case) that the judgment included $40 million in punitive damages.

Microsoft has now filed its opening brief on appeal (link courtesy of AmLaw Daily), which makes clear that this is technically not a punitive damages case at all. The district court awarded $40 million in “enhanced damages,” which are authorized under the Lanham Patent Act for cases of wilful infringement. Such damages are conceptually similar to punitive damages (since they are awarded to punish the defendant, not to compensate the plaintiff), but they are not true “punitive damages” in the traditional sense of that term. Sorry for the misinformation. Nothing to see here. Move along.

Bloomberg reports that a Los Angeles jury has awarded $13.8 million in punitive damages in the retrial of Bullock v. Philip Morris. The compensatory damages were $850,000.

As readers of this blog may recall, last year the Court of Appeal reversed a $28 million punitive damages award in this case and ordered a retrial on punitive damages. We blogged quite a bit about that decision and the subsequent proceedings before the California Supreme Court. In a nutshell, the Court of Appeal reversed because the trial court improperly refused a defense request for an instruction telling the jury not to punish for harm to others (i.e., an instruction based on Philip Morris v. Williams.)

The jury in the first trial actually awarded $28 billion in punitive damages, resulting in the second largest judgment in U.S. history. The trial court, however, cut that down to $28 million on posttrial motions. On retrial, plaintiffs’ lawyer Michael Piuze again asked the jury to award “billions,” but instead he got a little less than half of the previous $28 million award. Still a lot of money, but surely a disappointment to Piuze. According to Bloomberg, one of the dissenting jurors wanted to award $500 million. As it is, the $13.8 million award is more than 16 times higher than the actual damages.

The Hawaii Intermediate Court of Appeals has issued an opinion reversing a $12.5 million punitive damages award in a products liability case.

The plaintiff was injured in an auto accident and sued Takata Corporation, a seatbelt manufacturer. The plaintiff claimed he was wearing his seatbelt during the accident but it failed to restrain him and he was ejected from the vehicle. After a jury trial, the plaintiff obtained a judgment for $4.5 million in compensatory damages and $12.5 million in punitive damages.

The Hawaii appellate court reversed the entire judgment and ordered a new trial, ruling that the trial court had erroneously excluded testimony by a defense expert. The court, having ordered a complete new trial, did not need to address any punitive damages issues. Nevertheless, it went on to hold that the plaintiff was not entitled to punitive damages because he failed to prove by clear and convincing evidence that Takata knew or should have known that the seatbelt in question was susceptible to failure.

This is just my personal nonscientific observation, but there seems to be an above-average percentage of complete reversals in cases involving huge punitive damages awards. If that’s true, it’s probably because a disproportionately large punitive damages award is often a sign that something went wrong during the trial. That’s my defense lawyer perspective but I’m sure the plaintiffs’ bar sees things differently.

UPDATE: For a summary of other aspects of the opinion (Udac v. Takata), see Hawaii Legal News.

Reuters has this report about the results thus far in the series of individual smoker lawsuits taking place in Florida.

As mentioned in prior posts, these suits are taking place as a result of the Florida Supreme Court’s 2006 decision in Engle v. Liggett Group, which reversed a $145 billion class action punitive damages award and ruled that the plaintiffs had to bring their own individual cases to prove that cigarettes caused their illnesses.

According to the Reuters story, the plaintiffs have prevailed in seven of the nine cases to go to trial thus far, winning damages ranging from $600,000 to $30 million. Only two of the plaintiffs have recovered punitive damages.

Back in 2007, a New Mexico jury awarded $3.2 million in compensatory damages and $50 million in punitive damages for the alleged neglect of a nursing home patient. The defendant appealed, arguing, among other things, that the punitive damages were unconstitutionally excessive, since the ratio of punitive damages to compensatory damages exceeded 15 to 1.

Last week, the New Mexico Court of Appeals issued an opinion (Keith v. ManorCare, Inc.) reversing the entire judgment and ordering a new trial. The court did not reach the ratio issue because it concluded that the trial court made a prejuducial instructional error that affected both liability and damages, requiring a complete new trial.

U.S. District Judge Leonard Davis of the Eastern District of Texas has entered judgment against Microsoft for $200 million in compensatory damages and $40 million in punitive damages, based on Microsoft’s willful infringement of a patent owned by i4i Limited Partnership. Judge Davis has also ordered Microsoft to stop selling any version of Microsoft Word that is capable of opening an XML file. In other words, Microsoft can no longer sell Microsoft Word 2003 or Microsoft Word 2007.

Hat tip: Patently-O.

Bloomberg is reporting that U.S. District Judge John Keenan intends to dismiss the plaintiffs’ punitive damages claims in a massive lawsuit against Merck & Co.

The lawsuit alleges that Merck’s osteoporosis drug Fosamax causes irreversible “jaw rot.” (I don’t know exactly what that is, but it doesn’t sound good.) Merck is facing more than 850 lawsuits over Fosamax. Judge Keenan’s ruling comes in connection with three bellwether trials set to begin on August 11.

The plaintiffs’ lawyers are downplaying the dismissal of their punitive damages claim. “The punitive damages are just the gravy,” said plaintiffs’ counsel Timothy O’Brien.

The Associated Press is reporting that a Los Angeles jury has awarded a $370 million verdict, including $25 million in punitive damages, in a defamation lawsuit against Georges Marciano, co-founder of Guess, Inc.

The plaintiffs in the action are five former employees of Marciano. He sued them in 2007, accusing them of stealing from him. His claims were dismissed, but the ex-employees counter-claimed for defamation.