Amicus Curiae Brief — Philip Morris USA v. Williams

-

No. 05-1256 28 2006

Ca SO OF TH CLERE

IN THE

Supreme Court of the United States

—— ——~ «-»

PHILIP MORRIS USA,

Petitioner,

v.

MAYOLA WILLIAMS,

Respondent.

On Warir or CERTIORARI TO THE SUPREME COURT OF OREGON

BRIEF OF Amici CurRIAE NATIONAL ASSOCIATION OF MUTUAL

INSURANCE COMPANIES, AMERICAN INSURANCE ASSOCIATION, AND

PROPERTY CASUALTY INSURERS ASSOCIATION OF AMERICA

IN SUPPORT OF PETITIONER

J. STEPHEN ZIELEZIENSKI SHEILA L. BiIRNBAUM

Davip F. SNYDER Counsel of Record

ALLAN J. STEIN BARBARA \WRUBEL

AMERICAN INSURANCE ASSOCIATION DouGLas W. DUNHAM

1130 Connecticut Avenue NW _ ELLEN P. QUACKENBOS

Washington, DC 20036 SKADDEN, ARPS, SLATE,

(202) 828-7171 MEAGHER & FLOM LLP

Four Times Square

MARSHA FLARRISON New York, NY 10036

NATIONAL ASSOCIATION OF

(212) 735-3000

MUuTUAL INSURANCE COMPANIES

3601 Vincennes Road RoBeErT J. HURNS

Indianapolis, IN 46268 PROPERTY CASUALTY INSURERS

(317) 875-5250 ASSOCIATION OF AMERICA

2600 River Road

Des Plaines, IL 60018

(847) 297-7800

Attorneys for Amici Curiae

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TABLE OF CONTENTS

TABLE OF AUTHIORIT EES ..cccccccccccccccsccssesccccssscescccccscoress ii

BOCES COD TEMS TI ceccccccccescccccsnccssscsccsconosossoseses l

SUMMARY OF ARGUMENT .............:cccccssseesceeeceeeseeeeeees 2

FP, cerctncintencesns ere stinsnetepemansesumnsmmmansemnetvemnees s

I. The Rule of Law Adopted by the Oregon

Supreme Court, if Permitted to Stand, Would

Result in a Vast and Unconstitutional

Expansion of Punitive Damages Liability............... ~

A. The Oregon Supreme Court's Decision

Directly Conflicts with this Court's

Decisions in Campbell and Gore. ............... 4

B. The Oregon Supreme Court's Decision

Would Subject Insurance Companies

and Other Businesses to Duplicative

and Grossly Disproportionate Punitive

IE FINED hcteiccorensstaraqenessenmetiseneinente 12

C. The Oregon Supreme Court's Decision

Wouid Subject Insurance Companies

and Other Businesses to Arbitrary and

Unpredictable Punitive Damage

PIN antstecnlantiniicannctieitirininninieniininanabiniainapiinds 16

Il. The Rule of Law Adopted by the Oregon

Supreme Court Would Improperly Transform

Civil Juries into De Facto Regulators of

Insurance Companies and Other Businesses. ........ 19

SEIT etaestcicsntnenintinsiinntptianinancicinbiiionieinnniiniann 21

TABLE OF AUTHORITIES

Cases Page(s)

In re Baycol Prods. Litig., 218 F.R.D. 197

Ss GE Sissi dun dhdnnitibdemanisinaddnidceemesepecovencngen 8

BMW of North America, Inc. v. Gore,

eee Bt | ee «dideavemawpiial passim

Campbell v. State Farm Mut. Auto. Ins. Co.,

GD P26 LISS GI FON)... cncsccecs. cccccceccccccscesesedle

Cooper Indus., Inc. v. Leatherman Tool Group, Inc.,

Se Se: SOs dis) dgcesecdandencedeissaceenestons 6

Honda Motor Co. v. Oberg, 512 U.S. 415 (1994)............ 17

Johansen v. Combustion Engineering, Inc.,

170 F.3d 1320 (11th Cir. 1999)............ soveveceosanes 20

Johnson v. Ford Motor Co., 35 Cal. 4th 1191 (2005)........ 10

Lindsey v. Normet, 405 U.S. 56 (1972)............ Suncuddiendio’ 15

Pacific Mutual Life Ins. Co. v. Haslip, 499 U.S. 1

Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (1996)......19

In re Simon II Litigation, 407 F.3d 125 (2d Cir. 2005)........8

State Farm Mutual Automobile Insurance Co. v.

Campbell, 538 U.S. 408 (2003).............ccecee sees passim

TXO Prod. Corp. v. Alliance Resources Corp.,

a Minis ta venddavdneshsicegsensgocsvnsepeesed 6

ili

United States v. South-Eastern Underwriters Ass'n,

SE Re ee iv biabanccderesccsescknnsence

Williams v. ConAgra Poultry Co., 378 F.3d 790

SG: Cade bedcndaciuacddvsensvedsisusdens

Other Authorities

Thomas B. Colby, Beyond the Multiple

Punishment Problem: Punitive Damages

as Punishment for Individual, Private

Wrongs 87 Minn. L. Rev. 583 (2003)........

John Calvin Jeffries, Jr., A Comment on the

Constitutionality of Punitive Damages,

72 Va. L. Rev. 139 (1986)........ccceceeee se

Dennis N. Jones, et al., Multiple Punitive

Damages Awards for a Single Course

of Wrongful Conduct: The Need for a

National Policy to Protect Due Process,

TP ie Bes Ss B GRE vntdcdccccncscstcccess

Eric Moller, at al., Punitive Damages in

Financial Industry Verdicts 24 (RAND

Institute for Civil Justice 1997)...............

Cass R. Sunstein, Reid Hastie, John W.

Payne, David A. Schkade & W. Kip

Viscusi, Punitive Damages: How Juries

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INTEREST OF THE AMICI’

Amici curiae National Association of Mutual Insurance

Companies ("NAMIC"), American Insurance Association

("AIA"), and Property Casualty Insurers Association of

America ("PCI") are three of the largest national trade

associations of property and casualty insurers in the United

States.

NAMIC is a full-service national insurance trade

association with more than 1,400 member companies that

underwrite 43 percent ($196 billion) of the property/casualty

insurance premiums in the United States. NAMIC members

account for 44 percent of the homeowners market, 38

percent of the automobile market, 39 percent of the workers’

compensation market, and 31 percent of the commercial

property and liability market. NAMIC benefits member

companies through advocacy, public policy and member

services.

AIA is one of the leading property-casualty insurance

trade organizations, representing approximately 400 insurers

that write more than $120 billion in premiums each year.

AIA member companies offer all types of property-casualty

insurance, including personal and commercial auto insurance,

commercial property and liability coverage for small

business, workers’ compensation, homeowners’ insurance,

medical malpractice coverage, and product liability

insurance. AIA represents its members in every state and at

= federal level in legislative, regulatory, and judicial

orums.

PCI is one of the nation’s premier insurer trade

associations, representing over 1,000 companies that write

40.7 percent of the nation’s automobile, homeowners,

' Pursuant to Supreme Court Rule 37.6, amici curiae state that no counsel

for any party to this dispute authored this brief in whole or in part and no

person or entity, other than amici curiae and their counsel, made a

monetary contribution to the preparation or submission of this brief. All

parties have given blanket consent to the filing of all amicus briefs in this

case, in letters of consent filed with the Clerk of this Court.

2

business, and workers compensation insurance. PCI serves as

an advocate for the property/casualty insurance industry

before state and federal policymakers; state and federal

courts; key insurance industry, governmental, and business

groups; the news media; and the public.

In this case, this Court has granted certiorari on two

separate but related issues, namely whether due process

permits a jury to impose punitive damages to punish the

defendant for the effects of its conduct on nonparties, and

whether the constitutional requirement that punitive damages

be reasonably related to the harm to the plaintiff can be

disregarded in cases where the court concludes there is

extraordinary reprehensibility. Amici submit this brief to

address the serious constitutional concerns raised by the first

of these issues, the punishment of a defendant's conduct

directed at nonparties.

Amici and their member companies have a substantial

interest in this issue. Insurance companies (as members of a

heavily regulated industry) often have similar or identically

worded contracts with numerous consumers and often

establish consistent policies and procedures for dealing with

claims handling and other matters. Accordingly, the Oregon

Supreme Court's ruling that a plaintiff may exact punishment

not only for a defendant's conduct toward the plaintiff, but

also for the defendant's similar conduct toward others, poses

a grave concern to Amici and their member companies. This

ruling lacks fundamental fairness both procedurally and

substantively and, unless reversed by this Court, will

establish a precedent that allows for the imposition of

“~olicative and grossly disproportionate punitive damage

~~ ards against insurance companies and other businesses.

SUMMARY OF ARGUMENT

In its decision below, the Oregon Supreme Court held that

a civil jury should be permitted to punish a defendant not

only for conduct that was directed towards the plaintiff, but

also for conduct that was directed toward or affected

nonparties. Amici respectfully submit that this holding

squarely conflicts with this Court’s decisions in State Farm

3

Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408

(2003), and BMW of North America, Inc. v. Gore, 517 U.S.

559 (1996). This holding, if allowed to stand, would have a

severe negative impact on insurance companies and

consumers across the country.

While the Oregon Supreme Court’s decision would affect

businesses and defendants of all types, it raises issues of

particular importance to the insurance industry. In the

interests of fairness and efficiency, insurance companies

commonly adopt standard policies and practices with regard

to sales and claims handling so as to treat their policyholders

and consumers in a similar fashion. The rule adopted below

would work a vast expansion of liability for punitive

damages, allowing a single jury to award a single plaintiff

massive —— damages for conduct towards other

policyholders, whose ai are not before the court and

who may intend to bring their own lawsuits or who may in

fact have no complaint about, or no legal basis to question,

the practice at issue. Not only would punitive damages

awards based upon the Oregon Supreme Court’s holding

likely be enormous and unpredictable, but they would be

duplicative as well. If each policyholder in a given state

were empowered to collect punitive damages on the basis of

theoretical harm to other policyholders in the state, then

insurance companies could be forced to pay multiple

punitive damages for the same alleged harms, contrary to

fundamental principles of due process.

The Oregon Supreme Court’s decision would also

improperly transform civil juries into de facto state insurance

regulators. The decision would expand the jury’s role

beyond that of fact finder with respect to a particular

transaction between two parties, to that of an arbiter of

unasserted and unproven hypothetical grievances of

nonparties against insurance companies. This approach

would in essence allow juries to regulate the conduct of

insurance companies on a state-wide basis. Not only do lay

juries lack the institutional competence and resources

required for such broad regulatory judgments, but the States

already have in place their own regulatory bodies dedicated

to that policymaking role. Moreover, while States have been

given broad authority to regulate the business of insurance,

4 i

they may not entrust that authority to juries in such a manner

and to such an extent as to permit grossly excessive punitive

awards that do not-serve any legitimate state interest and that

would improperly burden the business of insurance in

violation of due process and the Commerce Clause.

For these reasons, and those set forth below, Amici

respectfully submit that this Court should reverse the

decision of the Oregon Supreme Court and clarify that, as a

matter c* due process, punitive damages may not be imposed

to punisn a defendant for conduct directed at nonparties.

ARGUMENT

I. THE RULE OF LAW ADOPTED BY THE

OREGON SUPREME COURT, IF PERMITTED

TO STAND, WOULD RESULT IN A VAST AND

UNCONSTITUTIONAL EXPANSION OF

PUNITIVE DAMAGES LIABILITY

A. The Oregon Supreme Court's Decision

Directly Conflicts with this Court's

Decisions in Campbell and Gore

In its decision below, the Oregon Supreme Court rejected

Petitioner Philip Morris's argument that "Campbell prohibits

the state, acting through a civil jury, from using punitive

damages to punish a defendant for harm to nonparties." See

Petitioner's Appendix at 18a ("Pet. App. _"). The court so

held despite the lack of any evidence at trial as to the

individual circumstances of the thousands of unidentified

individuals who the Oregon Supreme Court was willing to

assume acted in reliance upon allegedly fraudulent

statements in the defendant's ae campaigns. See id.

at 8an.1.

In holding that Campbell does not prohibit punishment of

a defendant's conduct towards nonparties, the Oregon

Supreme Court approved the trial court's rejection of the jury

5

instruction proposed by Philip Morris that would have told

the jury that punitive damages “should bear a reasonable

relationship to the harm caused to” the plaintiff and that,

although the jury could "consider the extent of harm suffered

by others in determining what that reasonable relationship”

was, the jury should not "punish the defendant for the impact

of its alleged misconduct on other persons." /d. at 17a. The

Oregon Supreme Court refused to accept the notion that

harm to nonparties, while it may be relevant to evaluating the

reprehensibility of a defendant's conduct under the first Gore

guidepost, may not be directly punished through punitive

damages. See id. at 18an.3. The court stated: "It is unclear

to us how a jury could ‘consider’ harm to others, yet withhold

that consideration from the punishment calculus. If a jury

cannot punish for the conduct, then it is difficult to see why

it may consider it at all." Jd.

The Oregon Supreme Court’s decision, if followed in a

lawsuit against an insurance company, would allow a civil

jury, hearing a single case involving a single insured, to

award damages punishing conduct of a defendant insurance

company towards all other policyholders and/or consumers

state-wide — persons not before the court and who have not

been shown to have sustained any injury whatsoever. Given

that insurance companies often have large numbers of

policyholders in a state, the potential liability could be

crushing — even where, and regardless of whether, the actual

plaintiff sustained only minimal damages himself. It was

precisely this need to prevent such disproportionate liability

that was a fundamental consideration in this Court’s

decisions in Campbell and Gore.

In Campbell, this Court instructed that "courts must ensure

that the measure of punishment is both reasonable and

proportionate to the amount of harm fo the plaintiff and to

the general damages recovered." Campbell, 538 U.S. at 426

(emphasis added). The Court's opinion in Campbell

repeatedly makes clear that the harm fo the plaintiff and the

facts and circumstances of the defendant's conduct to the

plaintiff must be the basis for the jury's award of punitive

damages. See, e.g., id. at 425 ("The precise award in any

case, of course, must be based upon the facts and

circumstances of the defendant's conduct and the harm fo the

6

plaintiff.") (emphasis added). Accordingly, in Campbell, this

Court specifically rejected the Utah Supreme Court's

reasoning that the $145 million punitive award passed

constitutional muster because, although the harm to the

plaintiffs could be "appropriately characterized as minimal,"

the harm was "massive in the aggregate." Jd. at 423 (quoting

Campbell v. State Farm Mut. Auto. Ins. Co., 65 P.3d 1134,

1149 (Utah 2001), rev'd, 538 U.S. 408 (2003)). Thus,

although this Court's decision in Campbell was (given the

facts of that case) concerned with the constitutional

impropriety of punishing a defendant's dissimilar conduct

toward nonparties, the principles articulated in Campbell that

require that the constitutional punitive damages analysis be

focused on the defendant's conduct toward the plaintiff and

the harm caused to the plaintiff do not leave room for the

punishment of conduct toward nonparties, regardless of

whether the conduct is similar or dissimilar. The attempt by

plaintiff in the case at bar to escape the constitutional limits

on punitive damages awards by transforming the trial of her

own claims into a trial designed to seek punishment for the

defendant's similar course of conduct toward thousands of

other persons does not pass constitutional muster under

Campbell.

Indeed, even before Campbell, this Court emphasized that

punitive damages must bear a reasonable relationship to the

plaintiff's harm, not to harms allegedly suffered by non-

parties not before the court. See, e.g., Cooper Indus., Inc. v.

Leatherman Tool Group, Inc., 532 U.S. 424, 435 (2001) (the

Court's precedents require courts to evaluate “the

relationship between the penalty and the harm to the victim

caused by the defendant's actions") (emphasis added); id. at

440 (Gore requires examination of "the disparity between the

harm (or potential harm) suffered by the plaintiff and the

punitive damages award") (emphasis added); see also Gore,

517 U.S. at 580 (discussing "[t]he principle that exemplary

damages must bear a ‘reasonable relationship’ to

compensatory damages"); id. at 575 (condemning “the

disparity between the harm or potential harm suffered by Dr.

Gore and his punitive damages award") (emphasis added);

id. at 581 (observing that in 7XO Prod. Corp. v. Alliance

Resources Corp., 509 U.S. 443 (1993), the Court "relied on

the difference between [the punitive damages] figure and the

7

harm to the victim that would have ensued if the tortious plan

had succeeded") (emphasis added).

In Campbell, this Court identified two related concerns in

particular that require that a punitive award bear a reasonable

relationship to the harm to the plaintiff. First, the Court

emphasized that "[d]ue process does not permit courts, in the

calculation of punitive damages, to adjudicate the merits of

other parties’ hypothetical claims against a defendant under

the guise of the reprehensibility analysis ... .". Campbell,

538 U.S. at 423. Second, the Court noted "the possibility of

multiple punitive damages awards for the same conduct"

created by punishment on the basis of conduct toward

nonparties, as "in the usual case nonparties are not bound

by the judgment some other plaintiff obtains." /d.

The Oregon Supreme Court gave an improperly narrow

reading to this Court's words, confining the application of

this Court's admonition that the courts should not "adjudicate

the merits of hypothetical claims against a defendant under

the guise of the reprehensibility analysis" to “hypothetical

claims" based upon dissimilar conduct. Pet. App. 19a ("We

think that Philip Morris takes the foregoing quoted material

from Campbell out of context. The quote referred only to

dissimilar acts and dissimilar claims.") (emphasis in original).

That narrow reading is not supported by this Court's decision

in Campbeil and is adverse to the constitutional concerns

underpinning this Court's due process punitive damages

jurisprudence.

Contrary to the Oregon Supreme Court's decision, the

fundamental due process concerns raised by a court's

attempting to adjudicate the merits of the hypothetical claims

of nonparties are present whether those hypothetical claims

are based upon dissimilar conduct or similar conduct. Those

concerns are both procedural and substantive and include the

impossibility of a defendant's having a fair and adequate

opportunity to defend against the hypothetical claims of

nonparties by exploring in discovery and at trial the

individual facts and circumstances relevant to the purported

claims of such persons, as well as the fundamental unfairness

of basing a punitive award on what must amount to

speculation and conjecture — as the Oregon courts and jury

‘lid in this case!

The Oregon Supreme Court's ruling that it is permissible

tu impose punitive damages to punish a defendant for its

conduct to nonparties is incompatible with the fundamental

constitutional requirement of proportionality. As this Court

stated in Gore, “(t]he principle that punishment should fit the

crime ‘is deeply rooted and frequently repeated in common-

law jurisprudence." 517 U.S. at 575 n.24 (citation omitted).

In the context of punitive damages in civil cases, this Court's

jurisprudence makes clear that this principle requires that a

punitive damages award be proportional to the specific harm

caused to the plaintiff in the case by the defendant's conduct.

See Campbell, 538 U.S. at 426. Proportionality in civil cases

is protected and furthered by the ratio guidepost. See id. at

425-26.

Significantly, as the Oregon Supreme Court conceded,

punishment of conduct directed toward nonparties can only

occur if the ratio guidepost is disregarded. See Pet. App. 3la

(acknowledging that “the ratio guidepost considers only

harm to the plaintiff" and “is not met"). Moreover, the lack

of proportionality approved by the Oregon Supreme Court in

the case at bar is twofold. As the court concedes, there is no

proportionality between the plaintiff's harm and the punitive

award. There was also no possible check on proportionality

between the purported harm to the thousands of unidentified

Oregonians that the jury was encouraged to punish and the

amount of punitive damages that the jury concluded was

appropriate to punish that putative harm. No entitlement to

compensatory damages was established by or on behalf of

such persons, and the extent of the purported harm to them

was not (and could not be) determined.? Thus, the Oregon

? For this reason, courts in class action litigation have disallowed

plaintiffs’ attempts to have a jury award punitive damages for the class

before issues of liability and compensatory damages are decided, as

violative of the proportionality requirement. See, e.g., In re Baycol

Prods. Litig., 218 F.R.D. 197, 215-16 (D. Minn. 2003) (disapproving

class trial plan that called for a class-wide trial on punitive damages

followed by individual class members' trials for compensatory damages).

See also In re Simon II Litigation, 407 F.3d 125, 138-39 (2d Cir. 2005)

("In certifying a class that seeks an assessment of punitive damages prior

9

jury was permitted unlimited, directionless discretion in

fixing the amount of the punitive award.

The Oregon Supreme Court professed confusion as to how

it is possible to take harm to others into account in gauging

reprehensibility without directly punishing for it. Pet. App.

18a n.3. But that may be a reason for declining to allow this

kind of collateral evidence to infect the jury at all, not for

allowing the jury to punish the defendant for it as if the case

were a class action.”

to an actual determination and award of compensatory damages, the

district court's Certification Order would fail to ensure that a jury will be

able to assess an award that, in the first instance, will bear a sufficient

nexus to the actual and potential harm to the plaintiff class, and that ~vill

be reasonable and proportionate to those harms"; under Campbell, a

punitive damages award in a class action may not "include punitive

damages due to outrageous conduct by defendants towards non-class

members").

*It merits mention that, although the Court has at times suggested that

prior conduct directed at nonparties may be relevant to determining the

reprehensibility of the conduct directed at the plaintiff, the Court has

made clear that “courts must ensure the conduct in question replicates the

prior transactions.” Campbell, 538 U.S. at 423. As the Eighth Circuit

explained, “[iJn determining what conduct constitutes a previous example

of the same conduct . . . we must be careful not to let the exception

swallow the rule. By defining his or her harm at a sufficiently high level

of abstraction, a plaintiff can make virtually any prior bad acts of the

defendant into evidence of recidivism.” Williams v. ConAgra Poultry

Co., 378 F.3d 790, 797 (8th Cir. 2004). To avoid that, “the relevant

behavior must be defined at a low level of generality.” /d. This is

particularly true when the defendant is a large business or corporation. It

is the nature of-the insurance business and of many other consumer-

oriented businesses to engage in repeated similar transactions with

consumers. As with the practice at issue in Gore (not informing

consumers that minor cosmetic damage on a car was repaired before sale),

a practice may appear “reprehensible” to 2 plaintiff and his lawyer but

inay have been reasonably believed by the defendant to be lawful and

appropriate. See Gore, 517 U.S. at 578 (noting that BMW's “decision to

follow a disclosure policy that coincided with the strictest extant state

statute" was noi sufficiently reprehensible to justify the punitive award in

that case). Likewise, the plaintiffs in Campbell presented to the jury as

“reprehensible” many different insurance practices that were in fact

10

In any event, the distinction that the Oregon Supreme

Court found so elusive is one that has been drawn by both

this Court and other state supreme courts. In Gore, for

example, this Court held that, although the jury was entitled

to consider that the conduct at issue affected approximately

1,000 other car purchasers nationwide in determining the

degree of reprehensibility of that conduct, the jury could not

punish directly for the harms to those purchasers. 517 U.S.

at 568-74 & n.21. ;

More recently, the California Supreme Court explained in

Johnson v. Ford Motor Co., 35 Cal. 4th 1191 (2005) that,

To consider the defendant's entire course of conduct in

setting or reviewing a punitive damages award, even in

an individual plaintiff's lawsuit, is not to punish the

defendant for its conduct toward others. An enhanced

punishment for recidivism does not directly punish the

earlier offense .... By placing the defendant's

conduct on one occasion into the context of a business

practice or policy, an individual plaintiff can

demonstrate that the conduct toward him or her was

more blameworthy and warrants a stronger penalty to

deter continued or repeated conduct of the same nature.

Id. at 1206 n.6.

This Court in Campbell reiterated that there can be no

"bright-line" constitutional limits on the ratio between

compensatory damages and punitive damages. Campbell,

538 U.S. at 424-25. Indeed, reprehensible conduct may vary

from contemptible to extremely e¢gregious, warranting

punitive damages awards in different amounts. Depending

upon where on the range of reprehensible conduct the

defendant's conduct falls and upon the amount of

compensatory damages, a constitutionally permissible ratio

of punitive damages to compensatory damages may vary

from a 1 to 1 (or even smaller) ratio to a 9 to 1 ratio. What

lawful and even approved practices in the states where they occurred.

See Campbell, 538 U.S. at 422. Thus, even the limited use of "repeated

conduct” in the reprehensibility analysis requires restraint and wisdom on

the part of juries and courts.

11

Campbell suggests is that a jury may consider harm to

nonparties but (if at all) only for the purpose of ascertaining

the level of reprehensibility of the defendant's conduct and

only if the conduct being punished "replicates the prior

transgressions." /d. at 423. At all times, however, a punitive

damages award must bear a reasonable relationship to the

harm caused to the plaintiff and to the general damages

recovered. See id. at 426 ("courts must ensure that the

measure of punishment is both reasonable and proportionate

to the amount of harm to the plaintiff and to the general

damages recovered") (emphasis added). if the defendant

acted with extreme reprehensibility and compensatory

damages are not "substantial," a punitive damages award at

the high end of single digit ratios may be appropriate.

Conversely, if the defendant's reprehensibility is not extreme

or extraordinary, a ratio of 1 to 1 or less may be appropriate.

But in no event, under Campbell, can a plaintiff in one case

be awarded punitive damages for conduct directed at

nonparties.

Amici respectfully submit that the Court should reaffirm

the fundamental distinction between considering conduct

_ directed at nonparties as bearing on reprehensibility, and

directly punishing that conduct — which is plainly

impermissible under this Court’s decisions in Campbell and

Gore. The preservation of this simple, yet fundamental,

distinction is crucial to the insurance industry in this country

— and to the continued availability of affordable insurance to

millions of consumers nationwide.

12

B. The Oregon Supreme Court's Decision

Would Subject Insurance Companies and

Other Businesses to Duplicative and

Grossly Disproportionate Punitive Damage

Awards

The Oregon Supreme Court’s decision not only is contrary

to this Court's plain dictates in Campbell and Gore, but also

raises the specter of unconstitutionally duplicative and

disproportionate punitive damages awards. This danger is

magnified in the context of the insurance industry,.where

heavy state regulation means that similar sales and claims

handling policies and practices are typically followed with

respect to transactions with consumers.

It is common and necessary practice by insurance

companies to adopt broad standard procedures with respect

to policyholders and insureds. In order to treat their

consumers in a similar fashion, insurance companies

typically implement standard polices and practices with

regard to sales and claims handling. Under the rule adopted

by the Oregon Supreme Court, the use of such standard

practices could expose insurance companies to grave risks of

duplicative and disproportionate liability for punitive

damages for conduct directed to nonparties.

The rule of law adopted by the Oregon Supreme Court, if

allowed to stand, would create precisely the risk of

duplicative punitive damages awards that this Court

cautioned against in Campbell. As this Court observed in

Campbell, punishment on the basis of “other parties’

hypothetical claims against a defendant" creates the

possibility that punitive damages will be repeatedly collected

by different plaintiffs for the same harm to the same persons.

Campbell, 538 U.S. at 423 ("[p]unishment on these bases

creates the possibility of multiple punitive damages awards

for the same conduct; for in the usual case nonparties are not

bound by the judgment some other piaintiff obtains") (citing

Gore, 517 U.S. at 593 (Breyer, J., concurring) ("Larger

damages might also ‘double count’ by including in the

punitive damages award some of the compensatory, or

13

punitive, damages that subsequent plaintiffs would also

recover")).

This danger of duplicative punishment has_ been

recognized by numerous courts and commentators. As one

commentator has observed, -

[The] practice of punishing the defendant, in a

single case brought by a single victim, for the full

scope of societal harm caused by its entire course of

wrongful conduct . . . has led countless judges and

commentators to worry about the potential for

excessive multiple punishment: the possibility that

several victims will obtain punitive damages awards

that were each designed to punish the entire

wrongful scheme, resulting in unjustly high

cumulative punishment.

Thomas B. Colby, Beyond the Multiple Punishment Problem:

Punitive Damages as Punishment for Individual, Private

Wrongs, 87 Minn. L. Rev. 583, 587 (2003) (herein cited as

Colby, "The Multiple Punishment Problem"); see also

Dennis N. Jones, ef al., Multiple Punitive Damages Awards

for a Single Course of Wrongful Conduct: The Need for a

National Policy to Protect Due Process, 43 Ala. L. Rev. 1,

3-4 (1991).

Similarly, the Eighth Circuit in Williams v. ConAgra

a Co., 378 F.3d 790 (8th Cir. 2004), aptly explained

t:

In [Campbell], the Supreme Court emphasized that

courts cannot award punitive damages to plaintiffs

for wrongful behavior that they did not themselves

suffer. Tying punitive a to the harm actually

suffered by the plaintiff prevents punishing

defendants repeatedly for the same conduct: If a

jury fails to confine its deliberations with respect to

punitive damages to the specific harm suffered by

the plaintiff and instead focuses on the conduct of

the defendant in general, it may award exemplary

damages for conduct that could be the subject of an

independent lawsuit, resulting in a duplicative

14

punitive damages award.

Id. at 797.

For insurance companies as for other closely regulated

consumer-oriented businesses, the Oregon Supreme Court’s

disregard of this risk of duplicative punishment could have

significant negative implications. Because most insurance

company policies and practices are implemented on at least a

state-wide basis, each consumer in a given state could bring

a suit and individually collect “amages on the basis of

hypothetical harms caused to numerous other consumers in

the state — all of whom would remain free to bring their own

suits (or none of whom may feel they were harmed).

The unfairness and injustice of subjecting civil defendants

to the threat of successive, duplicative liability is beyond

dispute. See Colby, The Multiple Punishment Problem, 87

Minn. L. Rev. at 597. As one commentator has observed:

In the criminal context, this unfairness is obviated

by the law of double jeopardy. The Double

Jeopardy Clause “serves the function of preventing

both successive punishment and _§ successive

prosecution" .. . . In the civil law, where the Double

Jeopardy Clause has no lication to litigation

between private parties, the fear of unfair multiple

bites at the same apple generally finds expression in

the doctrine of res judicata.

Id. (citation omitted). However, res judicata would not

protect defendants against successive suits by different

plaintiffs, seeking to collect punitive damages for the same

“hypothetical claims" of the same nonparties. See Campbell,

538 U.S. at 423. Nor would it protect a defendant, if one of

the nonparties, whose harm has already been punished by a

large punitive award to another plaintiff, decided to press his

own claims for compensatory and punitive damages.

In addition, there is a fundamental element of unfairness in

allowing a defendant to be punished for harms to persons

who have not established their entitlement to compensatory

damages and without having an adequate opportunity to

15

defend itself. "When a defendant engages in a course of

conduct that allegedly harms a large number of a. many

of the alleged victims, if they bring their own lawsuits, will

not woul or perhaps will be unable to convince the jury

that the defendant's conduct was sufficiently malicious to

warrant the imposition of punitive damages." Colby, The

Multiple Punishment Problem, 87 Minn. L. Rev. at 596.

Likewise, under the Oregon Supreme Court's decision,

defendants would be effectively stripped of the opportunity

to assert individual affirmative defenses (e.g., statute of

limitations) or argue that a specific individual could not

prove the elements of his or her claim (e.g., actual damages,

reasonable reliance). See id. at 601. This approach is

contrary to the fundamental due process right of defendants

to have “an opportunity to present every available defense."

Lindsey v. Normet, 405 U.S. 56, 66 (1972).

Not only would the Oregon Supreme Court's decision

expose insurance companies to duplicative punitive damage

awards, but each such award would also be ly

disproportionate to the harm suffered by the plaintiff in the

case before the court. This Court has expressed its concern

about punitive damages "run wild." Pacific Mutual Life Ins.

Co. v. Haslip, 499 U.S. 1, 18 (1991). And nowhere have the

effects of this punitive damages explosion been felt more

than in the insurance industry, whose members face a higher

risk of excessive awards than any other industry. See Eric

Moller, at al., Punitive Damages in Financial Industry

Verdicts 24 (RAND Institute for Civil Justice 1997) ("juries

in page nr cases Rasp to reach ny onl nynoe ps

aw relative to the nope mw awarded than

those hearing other types of cases").

The Oregon Supreme Court's decision will only

exacerbate this crisis, at the expense not only of the

insurance industry, but also of consumers and policyholders

nationwide. The fact that insurance companies generally

adopt standard sales and claims handling practices would

likely make the industry a target for attorneys pressing

questionable, small damages claims, in the hopes of scoring

a punitive damages jackpot. The costs of defending such

suits, not to mention the potentially massive liability of even

a single disproportionate punitive damages award, would

16

inevitably affect the cost and availability of insurance

coverage for millions of Americans.

Indeed, the Oregon Supreme Court's decision, if followed,

could be used by plaintiffs’ counsel to attempt to turn

virtually any consumer suit against an insurance company

into a “bet-the-company” proposition. Any such suit, no

matter how small the compensatory damages involved and

how minor the injury to the plaintiff, could potentially

produce a large punitive award geared not to the plaintiff's

harm, but to the number of policyholders state-wide

presumed to have been affected by the defendant's conduct.

Accordingly, under the regime that would be created by

the Oregon Supreme Court’s decision, it is very likely that

duplicative and grossly disproportionate punishments would

be imposed upon insurance companies, in violation of this

Court's admonition that punitive ‘damages be both

“reasonable and proportionate to the amount of harm to the

plaintiff and to the general damages recovered." Campbell,

538 U.S. at 426. Amici respectfully submit that this Court

should provide the necessary guidance to prevent this

unconstitutional result, which could be devastating both to

insurance companies and to their consumers.

Cc. The Oregon Supreme Court's Decision

Would Subject Insurance Companies and

Other Businesses to Arbitrary and

Unpredictable Punitive Damage Awards

As this Court stated in Campbell, "elementary notions of

fairness enshrined in our constitutional jurisprudence dictate

that a receive fair notice not only of the conduct that

will subject him to punishment, but also of the severity of the

penalty that a State may impose.” Campbell, 538 US. at

417 (quoting Gore, 517 U.S. at 574).* Thus, in Campbeil

(

* See also Gore, 517 U.S. at 585 ("The fact that BMW is a large

corporation rather than an impecunious individual does not diminish its

entitlement to fair notice of the demands that the several States impose

on the conduct of its business. Indeed, its status as an active participant in

17

and Gore, this Court sought to bring predictability and

rationality to the process by which punitive damages are

awarded in this country. The decision below undermines

that effort, subjecting insurance companies and other large

corporate defendants to enormous, unpredictable, and

arbitrary punitive awards.

This Court has observed that "[p]unitive damages as an

acute danger of arbitrary deprivation of

Campbell, 538 U.S. at 417 (quoting Honda Motor Co. v.

Oberg, 512 U.S. 415, 432 (1994)). Whereas due process

“prohibit[{s] the imposition of grossly excessive or arbitrary

punishments on a tortfeasor,” Campbell, 538 U.S. at 416, the

Oregon Supreme Court's decision virtually guarantees the

imposition of such excessive and arbitrary punishments, by

allowing punitive damages to be imposed for conduct

an gen not only toward the plaintiff but toward nonparties

as well.

The Ore Supreme Court's decision represents a radical

m the protections inherent in the traditional

litigation model and creates an unreasonable risk of arbitrary

punitive awards. In traditional litigation, the “jury had only

to assess the particular transaction before it and to determine

on that basis whether the defendant's conduct warranted a

punitive award." John Calvin Jeffries, Jr., A Comment on the

Constitutionality of Punitive Damages, 72 Va. L. Rev. 139,

141 (1986). Thus, "{ajlthough not constrained by the same

procedural requirements as other forms of punishment,

punitive damages at least were based on a manageable jury

inquiry" that served to anchor punitive damages to the

eaSehise claims and injuries of the particular plaintiff at

issue

In this case, the Oregon Supreme Court improperly

approved a procedure that permitted the jury to impose

punitive on Philip Morris not only for its conduct

toward plaintiff's decedent but also for its conduct directed at

thousands of other unidentified individuals across the State

of Oregon. The precedent set by the Oregon Supreme Court,

the national economy implicates the federal interest in preventing

individual States from imposing undue burdens on interstate commerce")

18

if allowed to stand, would subvert the central due process

requirements of fairness, proportionality and reasonableness

and expose corporations and businesses to vast and

unbounded punitive awards. ,

Even under the traditional litigation model, the

consistency and rationality of juries' punitive damage awards

has repeatedly been called into question. See Cass R.

Sunstein, Reid Hastie, John W. Payne, David A. Schkade &

W. Kip Viscusi, Punitive Damages: How Juries Decide

(2002). Numerous studies have shown that, as a result of

common cognitive biases, juries do not reach reliable,

consistent conclusions as to the proper size of punitive

damages awards. Thus, although jurors show remarkable

consistency in ranking the “outrageousness" of wrongful

conduct on a bounded scale (e.g., a scale of one to ten), their

translation of such rankings into dollar punitive awards is

enormously variable and unpredictable. See id. at 29-32.

This wide variability would be severely exacerbated if, as the

Oregon Supreme Court would allow, juries are asked to

consider and punish not simply the defendant's conduct

toward the plaintiff, but also conduct directed toward

nonparties whose purported claims are not before the court

and cannot be adequately subjected to the fact-finding

process.

Through its decisions in Campbell and Gore, this Court

sought to bring a measure of predictability and restraint to,

and reduce the arbitrariness of, punitive damages awards.

The Court sought to achieve this result in part by tethering

punitive damage awards to the conduct affecting and the

actual harm sustained by the particular plaintiff. Amici

respectfully submit that the approach taken by the Oregon

Supreme Court erroneously sets aside "well-established

constraints on punitive damages," Campbell, 538 U.S. at 427,

and provides new Occasion for arbitrary and unpredictable

punitive awards.

19

Il. THE RULE OF LAW ADOPTED BY THE

OREGON SUPREME COURT WOULD

IMPROPERLY TRANSFORM CIVIL JURIES

INTO DE FACTO REGULATORS OF

INSURANCE COMPANIES AND OTHER

BUSINESSES

The Oregon Supreme Court’s decision would improperly

expand the role of civil juries from factfinders with regard to

a particular plaintiff's claims to de facto state insurance

regulators. Allowing a jury to serve as an arbiter of

unasserted and unproven hypothetical grievances of

nonparties against insurance companies increases the

chances for arbitrary and wumnpredictable results and

punishments. Lay juries lack the expertise, resources,

experience and statutory authority required for such broad

regulatory judgments. Moreover, entrusting juries with what

are in essence wide-ranging legislative or regulatory

determinations and permitting juries to assess state-wide

practices and conduct raises the risk that defendants will face

large punitive awards without fair notice either that the

conduct in question was subject to punishment or of the

severity of the potential penalty. Cf Campbell, 538 U.S. at

417 (due process requires "that a person receive fair notice

not only of the conduct that will subject him to punishment,

but also of the severity of the penalty that a State may

impose”) (citation omitted).

Permitting juries to regulate through the imposition of

punitive damages raises 0 constitutional concerns as well.

Each state has been delegated authority to regulate the

business of insurance within its boundaries. See

- Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 733 (1996)

(Kennedy, J., concurring) ("States, as a matter of tradition

and express federal consent, have an important interest in

maintaining precise and detailed regulatory schemes for the

insurance industry"). However, no state has a legitimate

interest in delegating to its civil juries the power to regulate

insurance company conduct through the imposition of

arbitrary and excessive punitive damage awards. See

Campbell, 538 U.S. at 417-18 (quoting Pacific Mut. Life Ins.

20

Co. v. Haslip, 499 U.S. 1, 59 (1991) (O'Connor, J.,

dissenting)) (“‘[T]he Due Process Clause does not permit a

State to classify arbitrariness as a virtue. .. . A State can

have no legitimate interest in deliberately making the law so

arbitrary that citizens will be unable to avoid punishment

based solely upon bias or whim."").

As this Court has recognized, the business of insurance is

interstate commerce. See United States v. South-Eastern

Underwriters Ass'n, 322 U.S. 533, 545-46 (1944). Insurance

companies, like other large corporations, are "active

participants in the national economy" and that status

"implicates the federal interest in preventing individual

States from imposing undue burdens on _ interstate

corumerce." Gore, 517 U.S. at 585. A punitive damages

award should not be "so large as to ‘implicate[] th[at] federal

interest." Johansen v. Combustion Engineering, Inc., 170

F.3d 1320, 1338 (11th Cir. 1999) (quoting Gore, 517 U.S. at

585). A rule that permits juries to punish conduct that is not

directed toward the plaintiff is likely to result in awards that

"express biases against big businesses, particularly those

without strong local presences," Campbell, 538 U.S. at 417

(citation omitted), even if that conduct is similar to the

conduct that forms the basis of the plaintiff's claims and even

if the conduct punished is limited to in-state conduct. The

risk that juries will be improperly influenced to impose large

awards on out-of-state corporations is even greater where (as

in the case at bar) the defendant's net worth is a "focal point”

of the plaintiffs punitive damages presentation. See Pet. at

27.

The Oregon Supreme Court has licensed Oregon juries to

exact enormous punitive damages awards from large

corporations, unfettered by traditional constraints of

proportionality. Such awards impermissibly threaten the

"maintenance of a national economic union unfettered by

state-imposed limitations on interstate commerce,” Gore,

517 U.S. at 517-72 (citation omitted), in violation of due

process and the Commerce Clause.

21

CONCLUSION

For the foregoing reasons, Amici respectfully submit that

this Court should reverse the decision of the Oregon

Supreme Court and clarify that, as a matter of due process,

punitive damages may not be imposed on a defendant for

conduct directed at nonparties.

J. Stephen Zielezienski

David F. Snyder

Allan J. Stein

American Insurance

Association

1130 Connecticut Avenue NW

Washington, DC 20036

(202) 828-7171

~

Marsha Harrison

National Association of Mutual

Insurance Companies

3601 Vincennes Road

Indianapolis, IN 46268

(317) 875-5250

Respectfully Submitted,

Sheila L. Birnbaum

(Counsel of Record)

Barbara Wrubel

Douglas W. Dunham

Ellen P. Quackenbos

Skadden, Arps, Slate,

Meagher & Flom LLP

Four Times Square

New York, NY 10036

212-735-3000

Robert J. Hurns

Property Casualty Insurers

Association of America

2600 River Road

Des Plaines, IL 60018

(847) 297-7800