# Amicus Curiae Brief — Philip Morris USA v. Williams

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0249%3A23

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2007
- **Citation:** 549 U.S. 346

## Text

-

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0249%3A23. Public record. Not legal advice.