Amicus Curiae Brief — State Farm Mutual Automobile Insurance v. Campbell

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Supreme Court, U.S.

FILED

(3) AUG 2 3 2004

OFFICE OF THE CLERK

No. 04-116

IN THE

Supreme Court of the United States

STATE FARM MUTUAL AUTOMOBILE INSURANCE CO.,

: Petitioner,

INEZ PREECE CAMPBELL and MATTHEW C. BARNECK,

Special Administrator and Personal Representative of the

ESTATE OF CURTIS B. CAMPBELL,

Respondents.

On Petition For A Writ Of Certiorari

To The Utah Supreme Court

BRIEF OF THE PRODUCT LIABILITY

ADVISORY COUNCIL AS AMICUS CURIAE

IN SUPPORT OF PETITIONER

Of Counsel: THEODORE B. OLSON

HUGH F. YOUNG, JR. Counsel of Record

PRODUCT LIABILITY THEODORE J. BOUTROUS, JR.

ADVISORY COUNCIL, INC. THOMAS H. DUPREE, JR.

1850 Centennial Park Drive GIBSON, DUNN & CRUTCHER LLP

Suite 510 1050 Connecticut Avenue, NW

Reston, VA 20191 Washington, DC 20036-5306

(703) 264-5300 (202) 955-8500

Counsel for Amicus Curiae

QUESTIONS PRESENTED

In defiance of this Court’s admonition that “application

of the Gore guideposts to the facts of this case ... likely

would justify a punitive damages award at or near the amount

of compensatory damages,” 538 U.S. 408, 429, the Utah Su-

preme Court on remand imposed a punitive damages award

that is nine times the compensatory damages award, relying

in large part on the “lack of remorse” and “callousness” State

Farm purportedly displayed in its pleadings.

Amicus will address the following questions:

1. Whether a defendant’s nonfrivolous legal arguments

and speech contained in pleadings challenging a punitive

damages award may serve as the basis for punishment and

for justifying the challenged award.

2. Whether the Utah Supreme Court misapplied the ratio

guidepost, and violated this Court’s mandate, by awarding

punitive damages in an amount nine times the substantial $1

million compensatory damages award for emotional distress.

TABLE OF CONTENTS

Page

(QUES TIRING PERE er OE MR os ssn cisncocesicusevencievssstassseavesiananlaeees ee.

TABLE OF AUT ROURI ED nvcssscsescccsesenninnnssneakenameeee ill

INTEREST OF ARGPCUS COI oni iicsesicnessssastispeasintoonion ]

STAT MRINGD o00<0cccscxsevnssssicuaiennesrenieenebateieuabrnieene ses aeeeompias 2

SUMMARY GF ARLAIIEIIIGE osixtcscisericerinoueamdameneraee 3

ARGIUMIINT ....005cisscssssscateeeoene eee 5

I. THIS COURT SHOULD REAFFIRM AND

CLARIFY THAT PUNITIVE DAMAGES

MAY NOT BE BASED ON A

DEFENDANT’S LITIGATION

POSITTICONG AIDS Be is vsasepenscscrstnesvscssssserevseess 5

A. The Decision Below Is Inconsistent

With This Court’s First Amendment

FORME ss saicaxencxusrinncbaidatiesrae mand mutaesiiees 6

B. The Lower Courts Have Split Over

Whether Punitive Damages May Be

Based On A Party’s Litigation Positions

Pile QR ssciseisiceclzemannnmnnennncnatons 13

I]. THE UTAH COURT’S MISAPPLICATION

OF THE RATIO GUIDEPOST DEFIES

AND UNDERMINES THIS COURT’S

RTL TIGD oc cincssssocheniaees ce ene eee 14

A. The Ratio Requirement Is A Crucial

Constitutional Protection ..................::ccceceee 14

B. Many Lower Courts Are Evading State

Farm’s Ratio Requirement.......................0.0.05. 17

Oe) ORT. 6. Been erin 8 tr ee Foe 20

ill

TABLE OF AUTHORITIES

Page(s)

CASES

Barber v. Nabors Drilling U.S.A., Inc., 130 F.3d

RMN NUIPUR 5555 dassicsscinciconsseshussatecanesveacansensasdacn 12

Barber v. Union Pacific R.R. Co., 2004 WL

352525 (Ark. Feb. 26, 2004), petition for

cert. pending, No. 04-47 (docketed July 12,

RE Sk ee ee ele: 2

BE&K Constr. Co. v. NLRB, 536 U.S. 516

eg dibs da nny Gascbostainbininsevusnincein se xaan-ca 8

Bill Johnson’s Restaurants, Inc. v. NLRB, 461

acs esse 6d dnsedvesashanksaancenntinscssandnionns 8-9

paaw V. Gore, 317 US. 359 (1996)...........................6. passim

Bocci v. Key Pharmaceuticals, Inc., 76 P.3d 669

NE HI MI ih sh nciccsunsesasistacatnissnansivavaccescasde 19

Buell-Wilson v. Ford Motor Co., No.

GIC800836 (Cal. Super. Ct. Aug. 19, 2004)................. 16

California Motor Transport Co. v. Trucking

ke | er 7

Carroll v. Otis Elevator Co., 896 F.2d 210

ae pn ni nlcis es ucisgeceosesiassnjacsibenicexdsuwsicasoxus 16

Chambers v. NASCO, Inc., 501 U.S. 32 (1991)...........0000.. 10

Coleman v. Gulf Ins. Group, 718 P.2d 77

agar Gade fo tdsnsiesasdacasdnansasssindccdees 13

Cooter & Gell v. Hartmarx Corp., 496 U.S. 384

nes easssvensndlisrckan 10

De Anza Santa Cruz Mobile Estates

Homeowners Ass’n v. De Anza Santa Cruz

Mobile Estates, 94 Cal. App. 4th 890

I, I nislvssncnsssnsavnibaresnvexnneosusvineriecsees 13

Douglas v. DaimlerChrysler Corp., No.

CV2001-019659 (Ariz. Super. Ct. July 2,

esc daanienkdphansninnepescswarstexnencocsure 18-19

Eastern R.R. Presidents Conference v. Noerr

Motor Freight, Inc., 365 U.S. 127 (1961)...........0000000..... 7

Fleischmann Distilling Corp. v. Maier Brewing

ek A. 9

__Gurary v. Winehouse, 235 F.3d 792

I a ac 11

Hangarter v. Provident Life & Accident Ins.

Mey ee ee | 17

Hillrichs v. Avco Corp., 514 N.W.2d 94

NNN iti did aia, tdi vo pasickne see keddaraivasiicais\iavnakesalniaes 12

Hollock v. Erie Ins. Exch., 842 A.2d 409

i I, i isc snes cans scbvenonaavnnvsvesendxnasos 14

Honda Motor Co. v. Oberg, 512 U.S. 415

NN cca paees meas ular eee 17

In re Yagman, 796 F.2d 1165 (9th Cir. 1986)......0.0.000000.... 10

Jenkins v. Ohio Cas. Ins. Co., 794 So. 2d 228

aie IN nsec clade eetnecrecetaSleswnceceakd 12

Jones v. Rent-a-Center, 281 F. Supp. 2d 1277

py MN WU s Sct oo esas cord ca ea nsntoscamaeaceedbateuscinewafeiatiaks 18

Kaplan v. DaimlerChrysler, A.G., 331 F.3d

a BI oo oes hark taacestecusxeetsutincieecerennes 10-11

Legal Services Corp. v. Velazquez, 531 U.S. 533

SIRE ine gonna encanta ian ete er 6-7

Mathias vy. Accor Economy Lodging, Inc., 347

Fl arty pe Be | Sealer maneny ee Smiur eran my a 14

McClain v. Metabolife Int’l, Inc., 259 F. Supp.

Be BAe Ee FR, BD anne tnecicnicnns int ercete tenets 17-18

McDonald v. Smith, 472 U.S. 479 (1985) ..c.cccccccccescesvessesseee 8

Metropolitan Life Ins. Co. v. Steffey, No. 96-

2239, 1997 WL 705235 (6th Cir. Nov. 4,

BD cx cuitscsscnestekcescasudead tena aee the dele ne 11

Miller v. Aaacon Auto Transport, Inc., 447

me Me oe ae |. | eee 14

NAACP v. Button, 371 U.S. 415 (1963) ...........0 eee 6,7

New York Times Co. v. Sullivan, 376 U.S. 254

DI sie des sv ceacncscoscevascavpeas pase ranneaeee age eee 6

Prof. Real Estate Investors, Inc. v. Columbia

Pictures Indus., Inc., 508 U.S. 49 (1993) «0.0.0.0... 11

Romo v. Ford Motor Co., 113 Cal. App. 4th 738

ct Sh PI BI sieve inden cce nina sanst has nereenppsennenntes 19

Satcher v. Honda Motor Co., 52 F.3d 1311

CE, Doe tke soe ceceeaemacee 12

Sobley v. Southern Natural Gas Co., 302 F.3d

Ree Cee Ge. SE aiken Aiea ceed 13

Southwestern Tel. & Tel. Co. v. Danaher, 238

ER oe Se en MN re Ay rrartnncl Rye est rors 11

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

Oe de: Se GE Scotian tnasemenamarccamel passim

Stromberg v. California, 283 U.S. 359 (1931) ........0..ceee 6

Talamini v. Allstate Ins. Co., 470 U.S. 1067

CI ica ssic en ssinciecnccsxammsastoutavieeern ake etree tanner 8

United Mine Workers of Am. v. Illinois State Bar

Mae De, FAP I Bet CRT iv Radracertensssneccnaenes 7

United States v. Jackson, 390 U.S. 570 (1968)................00... 8

Waddill v. Anchor Hocking, Inc., 78 P.3d 570

RR Me a agree prop cede se svanrsncvncenibnicoeven’ 19

Williams v. Philip Morris, Inc., 92 P.3d 126

OO a I glee eaves sas canhccodcdav ndeanscvare 18

CONSTITUTIONAL PROVISIONS

ae Ee I Bos petal dedacendcnverovasnanceugnsoaceus passim

LF :Bs Senecg IN IIE cetectrsAcsecrcnss cans scovosasanieeainces passim

RULES

PU Uh ae We 8 Ree srccnisiainie eas neo diemanabaanesie 9

OTHER AUTHORITIES

Reid Hastie et al., Looking Backward in

Punitive Judgments: 20-20 Vision?, in Cass

R. Sunstein et al., Punitive Damages: How

FUT GH FO CN siesntssvrnnnsrksctariachnanieresieintasinnss 16

James A. Henderson, Jr., Design Defect

Litigation Revisited, 61 CORNELL L. REV.

Et, | IR LAY Acne Mmm RAN ag 17

James A. Henderson, Jr., Judicial Review of

Manufacturers’ Conscious Design Choices:

The Limits of Adjudication, 73 COLUM. L.

BY. GRE CER re nid ince eee 17

Restatement (Second) of Torts § 908, cmt. c

UT IRs scavsrvavasssiarsouccanianceben eee ae eee 15

Stephen Breyer, Breaking the Vicious Circle:

Toward Effective Risk Regulation 59 (1992)................ 16

W. kip Viscusi, Corporate Risk Analysis: A

Reckless Act?, 52 STAN. L. REV. 547 (2000)................. 16

BRIEF OF THE PRODUCT LIABILITY

ADVISORY COUNCIL AS AMICUS CURIAE

IN SUPPORT OF PETITIONER

INTEREST OF AMICUS CURIAE!

The Product Liability Advisory Council, Inc. (PLAC) is

a non-profit association with over 130 corporate members

representing a broad cross-section of American and interna-

_ tional product manufacturers. These companies seek to con-

tribute to the improvement and reform of law in the United

States and elsewhere, with emphasis on the law governing

the liability of manufacturers ofproducts. PLAC’s perspec-

tive is derived from the experiences of a corporate member-

ship that spans a diverse group of industries in various facets

of the manufacturing sector. In addition, several hundred of

the leading product liability defense attorneys in the country

are sustaining (non-voting) members of PLAC. Since 1983,

PLAC has filed over 650 briefs as amicus curiae in both state

and federal courts, including this Court, presenting the broad

perspective of product manufacturers seeking fairness and

balance in the application and development of the law as it

affects product liability. A list of PLAC’s corporate mem-

bers is attached in the Addendum.

In this brief, PLAC will address an issue of great impor-

tance to product manufacturers: the fair administration of

punitive civil sanctions. Because plaintiffs routinely seek

punitive damages in product liability cases, PLAC’s mem-

bers have a strong interest in ensuring that the constitutional

limitations on such awards are strictly enforced, and that pu-

nitive damages are not used to punish defendants and their

attorneys for vigorously challenging excessive and unconsti-

1 pursuant to this Court’s Rule 37.3(a), letters of consent from all par-

ties to the filing of this brief have been filed with the Clerk. Pursuant to

Rule 37.6, PLAC states that this brief was not authored in whole or in

part by counsel for any party, and that no person or entity other than

PLAC or its counsel made a monetary contribution to the preparation or

submission of this brief.

tutional verdicts. Indeed, it is an increasing trend for plain-

tiffs to argue that a corporate defendant’s conduct during the

litigation is an appropriate basis for a substantial punitive

damages award, and another case presenting this issue is

pending before this Court. See Barber v. Union Pacific R.R.

Co., _S.W.3d___, 2004 WL 352525 (Ark. Feb. 26, 2004)

(imposing punitive damages based on alleged spoliation of

evidence, i.e., discovery-related conduct unconnected to the

underlying tort), petition for cert. pending, No. 04-47 (dock-

eted July 12, 2004).

STATEMENT

In vacating the Utah Supreme Court’s original judgment,

this Court held that the Utah court erred by “award[ing] puni-

tive damages to punish and deter conduct that bore no rela-

tion to the Campbells’ harm.” 538 U.S. at 422. This Court

explained that “[a] defendant’s dissimilar acts, independent

from the acts upon which liability was premised, mav not

serve as the basis for punitive damages.” Jd. Due Process

does not permit courts to punish a defendant “for being an

unsavory individual or business,” but rather requires that any

punishment be strictly related to “the conduct that harmed the

plaintiff.” Jd. at 423. For these reasons, the Court explained,

“the Utah Supreme Court’s decision cannot be justified on

the grounds that State Farm was a recidivist.” Jd.

This Court also found that the Utah court erred in apply-

ing the ratio guidepost of BMW v. Gore, 517 U.S. 559

(1996), holding that “[w]hen compensatory damages are sub-

stantial, then a lesser ratio, perhaps only equal to compensa-

tory damages, can reach the outermost limit of the due proc-

ess guarantee.” 538 U.S. at 425. It noted that “[t]he com-

pensatory award in this case was substantial” and that the

Campbells received “complete compensation” in that they

“were awarded $1 million for a year and a half of emotional

distress.” Jd. at 426. The Court also held that the award of

emotional distress damages counseled in favor of a lower ra-

tio, reasoning that such damages “likely were based on a

component which was duplicated in the punitive award.” Jd.

In light of these principles, this Court concluded that “a puni-

tive damages award at or near the amount of compensatory

damages” would likely be appropriate. /d. at 429.

On remand, the Utah Supreme Court imposed a punitive

damages award of approximately $9 million—nine times the

amount of compensatory damages. While promising “un-

wavering fidelity to the letter and spirit of the mandate,” the

Utah court justified its ruling by characterizing this Court’s

ruling as offering “words of prediction, not direction.” Peti-

tioner’s Appendix (“Pet. App.”) 2a, 5a. The Utah court

based the punitive damages award in large part on its deter-

mination that “State Farm has not voiced so much as a whis-

per of apology or remorse,” as evidenced by State Farm’s

arguments in its appellate briefs and at trial. Id. at 12a-13a.

The court emphasized its continuing “incredulity” over the

fact that “State Farm refuses in its brief on appeal to concede

any error or impropriety in the handling of the Campbell

case,” concluding that “State Farm’s obdurate insistence that

its treatment of the Campbells was proper clearly calls out for

vigorous deterrence.” Jd. (citation omitted).

Turning to the ratio guidepost, the Utah court deemed

this Court’s holding “plausible as an abstract proposition,”

but not binding on remand because it “does not account for

the circumstances of the compensatory damages award in this

case.” Pet. App. 15a. The court then held that the presence

of emotional distress damages warranted a higher ratio, be-

cause “conduct which causes $1 million of emotional distress

and humiliation is markedly more egregious than conduct

which results in $1 million of economic harm.” Jd. at 16a.

In short, the Utah court concluded, “the trial court’s determi-

nation that State Farm caused the Campbells $1 million of

emotional distress warrants condemnation in the upper sin-

gle-digit ratio range rather than the 1-to-! ratio” endorsed by

this Court.

SUMMARY OF ARGUMENT

The Utah court expressly punished State Farm for sub-

mitting briefs and asserting legal positions that the court

deemed “callous” and demonstrating a “lack of remorse.”

This conclusion cannot be reconciled with the First Amend-

ment’s protection of free speech and the right to petition gov-

ernment, made applicable to the States through the Due Proc-

ess Clause of the Fourteenth Amendment. The court did not

find State Farm’s arguments frivolous or made for an im-

proper purpose—nor could it, given that State Farm pre-

vailed on many of those arguments before this Court. In-

deed, this Court and many others have recognized in a vari-

ety of contexts that punitive sanctions are inappropriate when

reasonable people could disagree about the propnety of the

challenged arguments or conduct. Permitting this $9 million

punishment to stand would chill vigorous advocacy and send

a warning sign to litigants and their counsel that additional

punishment may await those who have the temerity to defend

themselves or assert legal positions a court may deem insuf-

ficiently remorseful.

The Utah court blatantly defied this Court’s mandate

concerning the proper application of the ratio guidepost. The

Utah court is not alone in this regard: many courts, including

courts reconsidering cases in light of State Farm, have ig-

nored this Court’s holding that where “compensatory dam-

ages are substantial, then a lesser ratio, perhaps only equal to

compensatory damages, can reach the outermost limit of the

due process guarantee.” 538 U.S. at 425. The ratio require-

ment is particularly important in product liability cases,

where the compensatory damages are often substantial, yet

the defendant’s level of reprehensibility is low. This Court

should grant review to reinforce that a 1:1 limit in such cases

is not merely a “prediction,” Pet. App. 5a, but a meaningful

restriction on punitive damage awards.

ARGUMENT

I. THIS COURT SHOULD REAFFIRM AND

CLARIFY THAT PUNITIVE DAMAGES

MAY NOT BE BASED ON A DEFENDANT’S

LITIGATION POSITIONS AND SPEECH

This Court squarely held that State Farm was not a re-

cidivist, and barred the Utah court from imposing or increas-

ing punitive damages on that basis. 538 U.S. at 423 (“the

Utah Supreme Court’s decision cannot be justified on the

grounds that State Farm was a recidivist”). On remand, the

Utah court seemingly acknowledged that the inquiry must

focus on “whether the reprehensible conduct was repeated,”

and conceded the total “absence of prior bad acts” by State

Farm. Pet. App. 12a-13a. But the Utah court then evaded

this Court’s holding by reasoning that State Farm was likely

to commit future misconduct because its litigation positions

and pleadings demonstrated “callousness” and a “lack of re-

morse,” and that a severe punitive sanction was therefore

warranted. Jd. at 13a.

The Utah court’s reasoning is worse than just illogical:

it flouts this Court’s mandate in many respects. It presumes

future recidivism and thus punishes State Farm for imaginary

torts that it has never committed; it focuses on conduct that

obviously does not “replicate[ ] the prior transgressions”; and

it punishes State Farm “for being an unsavory individual or

business” rather than for “the conduct that harmed the plain-

tiff.” 538 U.S. at 423. If, as this Court held, it is improper to

punish a company for unrelated bad acts that it has already

committed, it is even more improper to punish a company for

bad acts that have not occurred, that may never occur, that

may or may not be related to the challenged conduct, and for

which the company may have to pay damages if they do oc-

cur. See 538 U.S. at 423 (emphasizing due process dangers

of “multiple punitive damages awards for the same con-

duct”).

In addition to these violations of the mandate, the Utah

court’s opinion cannot be reconciled with numerous deci-

sions of this Court that have emphasized the strong First

Amendment protections that attach to speech made in court

proceedings, as well as the many decisions recognizing that

the constitutional right to petition government encompasses

seeking relief through the courts. By punishing State Farm

for its in-court speech, and the purported “lack of remorse”

displayed in its pleadings, the Utah court violated State

Farm’s rights under the First Amendment and the Due Proc-

ess Clause, and established a precedent that, if left standing,

will chill vigorous advocacy and expose defendants to mul-

timillion-dollar punishments simply for making arguments

that a court deems “callous.” Pet. App. 13a.

A. The Decision Below Is Inconsistent

With This Court’s First Amendment

Jurisprudence

This Court has long recognized that the Constitution

guarantees the right of access to the court system as well as

the right of litigants to defend their case with zeal and vigor.

The First Amendment “protects vigorous advocacy,” NAACP

v. Button, 371 U.S. 415, 429 (1963), and restrictions on the

types of arguments attorneys may make in court “implicate[ ]

central First Amendment concerns.” Legal Servs. Corp. v.

Velazquez, 531 U.S. 533, 547 (2001). The First Amend-

ment’s restrictions are made applicable to the States through

the Due Process Clause of the Fourteenth Amendment. New

York Times Co. v. Sullivan, 376 U.S. 254, 277 (1964); see

also Stromberg v. California, 283 U.S. 359, 368 (1931) (“It

has been determined that the conception of liberty under the

due process clause of the Fourteenth Amendment embraces

the nght of free speech.”).

An attorney’s speech in pleadings and the courtroom is

plainly protected under the First Amendment. In Velazquez,

531 U.S. 533, a group of attorneys challenged a statutory

provision forbidding the Legal Services Corporation from

paying attorneys to take cases challenging existing welfare

laws. This Court held that the funding restriction violated the

First Amendment, explaining that “[t]here can be little doubt

that the [statute] funds constitutionally protected expression,”

and recognizing that the obvious import of the statute was to

skew “the ordinary course of litigation” by providing that

certain positions “cannot be expressed” in court. Jd. at 548.

This Court explained that the restriction on attorney speech

was “inconsistent with the proposition that attorneys should

present all the reasonable and well-grounded arguments nec-

essary for proper resolution of the case” and that “[b]y seek-

ing to prohibit the analysis of certain legal issues and to trun-

cate presentation to the courts, the enactment under review

prohibits speech and expression upon which courts must de-

pend for the proper exercise of the judicial power.” /d. at

545; see also Button, 371 U.S. at 429-31 (Virginia statute

barring legal organization from soliciting cases is unconstitu-

tional under First and Fourteenth Amendments).

The First Amendment also guarantees the nght “to peti-

tion [the Government] for a redress of grievances”—-a right

that is “among the most precious of the liberties safeguarded

by the Bill of Rights.” United Mine Workers of Am. v. Illi-

nois State Bar Ass’n, 389 U.S. 217, 222 (1967). In the No-

err-Pennington line of cases, this Court has recognized that

the Petition Clause protects conduct and speech before Con-

gress and the courts aimed at redressing grievances and re-

solving disputes. In Eastern R.R. Presidents Conference v.

Noerr Motor Freight, Inc., 365 U.S. 127, 135 (1961), this

Court held that “no violation of the [Sherman] Act can be

predicated upon mere attempts to influence the passage or

enforcement of laws” and that such an interpretation “would

raise important constitutional questions” with regard to the

“right of petition.” Jd. at 135, 137-38. The right to petition

the legislature recognized in Noerr was extended to petition-

ing the judiciary in California Motor Transport Co. v. Truck-

ing Unlimited, 404 U.S. 508, 510-11 (1972), where this

Court held that “[t]he right of access to the courts is indeed

but one aspect of the right to petition.” The Court explained

that “it would be destructive of rights of association and of

petition to hold that groups with common interests may not

. use the channels and procedures of state and federal

agencies and courts to advocate their causes and points of

view respecting resolution of their business and economic

interests.” Jd.; see also McDonald v. Smith, 472 U.S. 479,

484 (1985) (“filing a complaint in court is a form of petition-

ing activity”).

This Court has repeatedly enforced the Petition Clause

outside the antitrust context, rejecting attempts to punish

companies for taking disputes to court. For example, in Bill

Johnson’s Restaurants, Inc. v. NLRB, 461 U.S. 731, 742-43

(1983), this Court held that in light of the “right of access to

the courts” guaranteed by the First Amendment, “[t]he filing

and prosecution of a well-founded lawsuit may not be en-

joined as an unfair labor practice, even if it would not have

been commenced but for the plaintiff's desire to retaliate

against the defendant.” Likewise, in BE&K Constr. Co. v.

NLRB, 536 U.S. 516, 532 (2002), this Court held that an em-

ployer’s lawsuit was protected by the right to petition and

could not form the predicate for a government sanction, ex-

plaining that “[e]ven unsuccessful but reasonably based suits

advance some First Amendment interests.” See also Tala-

mini v. Allstate Ins. Co., 470 U.S. 1067, 1070-71 (1985)

(Stevens, J., concurring) (“Creating a risk that the invocation

of the judicial process may give rise to punitive sanctions

simply because the litigant’s claim is unmeritorious could

only deter the legitimate exercise of the right to seek a peace-

ful redress of grievances through judicial means.”).2

This Court’s free speech and right-to-petition decisions

reflect the bedrock principle that parties should not be penal-

2 In United States v. Jackson, 390 U.S. 570 (1968), this Court held

unconstitutional a statutory provision allowing for heightened criminal

penalties on defendants who exercised their right to a jury trial. The

Court held that the “inevitable effect” of the provision was “to discourage

assertion of the Fifth Amendment right not to plead guilty and to deter

exercise of the Sixth Amendment night to demand a jury trial.” Jd. at 581.

The Court concluded that “Congress cannot impose such a penalty in a

manner that needlessly penalizes the assertion of a constitutional night.”

Id. at 583.

ized for invoking their legal rights and asserting a vigorous

defense. “The right to litigate is an important one,” Bill

Johnson’s, 461 U.S. at 744, and “since litigation is at best

uncertain one should not be penalized for merely defending

or prosecuting a lawsuit.” Fleischmann Distilling Corp. v.

Maier Brewing Co., 386 U.S. 714, 718 (1967). The Utah

court in this case, however, expressly punished State Farm

for exercising its First Amendment right to litigate and vig-

orously defend itself by awarding punitive damages for the

perceived “callousness” and “lack of reimorse” displayed in

State Farm’s pleadings and litigation positions.

It is plainly improper to punish a litigant for defending

the lawfulness of its conduct in court. This principle has par-

ticular significance in the context of product liability litiga-

tion, where manufacturers are often sued multiple times on

the basis of the same alleged defect in their product. In situa-

tions where the defendant wins case after case, and then loses

in a single instance before a single jury, it is inappropriate to

punish that defendant for continuing to defend itself in future

actions.

To be sure, a litigant is not absolutely immune from

sanction or punishment for in-court speech. A litigant may

be sanctioned for filing a frivolous pleading, for example, or

for making false or perjurious statements. But the Utah court

did not find State Farm’s legal positions to have been frivo-

lous or made in bad faith—nor could it have, given that State

Farm prevailed in its challenge to the punitive damage

award. Rather, the Utah court found fault in what it deemed

an insufficiently repentant attitude manifested in State

Farm’s briefs. See, e.g., Pet. App. 13a (State Farm “refuses

in its brief on appeal to concede any error or impropriety in

its handling of the Campbell case”) (citation omitted); id.

(“State Farm’s obdurate insistence that its treatment of the

Campbells was proper clearly calls out for vigorous deter-

rence.”); id. (“State Farm’s defiance strongly suggests that it

will not hesitate to treat its Utah insureds with the callous-

ness that marked its treatment of the Campbells.”).

Moreover, even in the context of sanctions, this Court

(and many others) have been sensitive to the First Amend-

ment and due process rights at stake and to the dangers of

deterring zealous advocacy by attorneys. In Cooter & Gell v.

Hartmarx Corp., for example, this Court recognized that

Federal Rule of Civil Procedure 11 “must be read in light of

concerns that it will... chill vigorous advocacy.” 496 U.S.

384, 393 (1990). The Court explained:

If appellants were routinely compelled to shoulder

the appellees’ attorney’s fees, valid challenges to

district court decisions would be discouraged. The

knowledge that, after an unsuccessful appeal of a

Rule 11 sanction, the district court that originally

imposed the sanction would also decide whether

the appellant should pay his opponent’s attorney’s

fees would be likely to chill all but the bravest liti-

gants from taking an appeal.

Id. at 408. The same reasoning applies here: the knowledge

that an aggressive defense could ultimately be used as the

very basis for upholding the punishment would chill vigorous

advocacy. See also Chambers v. NASCO, Inc., 501 U.S. 32,

68 (1991) (Kennedy, J., dissenting) (a court’s “unchecked

power’ to sanction “can be applied to chill the advocacy of

litigants attempting to vindicate ... important federal

rights”); In re Yagman, 796 F.2d 1165, 1182 (9th Cir. 1986)

(“[Z]ealous advocacy is the attorney’s ideal. Hard-fought,

energetic and-honest representation is at the bedrock of our

judicial process. None of the various rules and statutes that

authorize sanctions are intended, nor should they be imple-

mented, to chill an attorney’s enthusiasm or creativity in pur-

suing factual or legal theories.”) (quotations omitted).

A litigant should not be punished for making arguments

that are reasonable, even if the court finds the arguments un-

persuasive or even erroneous. Many courts have endorsed

this principle, holding that when a party’s legal position falls

within the realm of reasonable argument or debate, sanctions

are inappropriate. See, e.g., Kaplan v. DaimlerChrysler,

A.G., 331 F.3d 1251, 1255 (11th Cir. 2003) (“{c]Jourts assess

[Rule 11] sanctions . . . when the party files a pleading that is

based on a legal theory that has no reasonable chance of suc-

cess and that cannot be advanced as a reasonable argument”’)

(quotation omitted); Gurary v. Winehouse, 235 F.3d 792, 798

(2d Cir. 2000) (sanctionable conduct occurs “when it is clear

under existing precedents that there is no chance of success

and no reasonable argument to extend, modify or reverse the

law as it stands”) (quotation omitted); Metropolitan Life Ins.

Co. v. Steffey, No. 96-2239, 1997 WL 705235, at *1 (6th Cir.

Nov. 4, 1997) (reversing sanctions where appellant “made a

reasonable argument”). Cf Professional Real Estate Inves-

tors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60

(1993) (“sham” exception to Noerr-Pennington immunity

requires that “the lawsuit ... be objectively baseless in the

sense that no reasonable litigant could realistically expect

success on the merits”).

The notion that punitive damages are unwarranted where

the propriety of the defendant’s conduct is open to reasonable

debate, or is the subject of a reasonable disagreement within

- the public or the relevant industry or community, has a long

pedigree. In Southwestern Tel. & Tel. Co. v. Danaher, 238

U.S. 482, 490 (1915), this Court held that a $6,300 civil pen-

alty violated due process where the defendant was “well jus-

tified in regarding [its conduct] as reasonable and in acting

on that belief’—even assuming that the defendant “should

have known that the Supreme Court of the State ... might

hold the [conduct] unreasonable.”

Similarly, in BMW v. Gore, the jury found that the de-

fendant’s policy with respect to the disclosure of factory re-

pairs constituted “‘gross, oppressive, or malicious’ fraud”

even though that policy was consistent with statutes defining

disclosure obligations in about 25 States. 517 U.S. at 565.

Alabama had no such disclosure statute, and the Court “ac-

cept[ed] . . . the jury’s finding that BMW suppressed a mate-

rial fact which Alabama law obligated it to communicate.”

Id. at 579-80. Nevertheless, the Court recognized that BMW,

in attempting to determine what it was required to disclose,

“could reasonably rely on [other] state . . . statutes for guid-

ance.” Jd. at 579. The Court also noted that the “diversity”

of state laws “demonstrates that reasonable people may dis-

agree about the value of a full disclosure requirement.” /d. at

570. The Court concluded that a failure to disclose is “less

reprehensible . . . when there is a good faith basis for believ-

ing that no duty to disclose exists,” id. at 579-80, and when

“a corporate executive could reasonably interpret” the law to

allow nondisclosure. Jd. at 578. The Mississippi Supreme

Court employed the same reasoning in Jenkins v. Ohio Cas.

Ins. Co., 794 So. 2d 228, 234 (Miss. 2001), where it held that

punitive damages were unjustified in a bad faith lawsuit

against an insurer when the insurer “had an arguable or le-

gitimate basis for denying the claim.”

This principle has been repeatedly recognized in product

liability cases as well, as courts have held that punitive dam-

ages cannot be imposed where “there is a ‘genuine dispute in

the scientific community as to” the reasonableness of the de-

sign. Satcher v. Honda Motor Co., 52 F.3d 1311, 1317 (Sth

Cir. 1995); see also Hillrichs v. Avco Corp., 514 N.W.2d 94,

100 (Iowa 1994) (punitive damages inappropriate where

“reasonable disagreement” exists over risks and utilities of

product). In fact, this proposition is so basic to the law of

punitive damages that the Fifth Circuit has held that it is

“plain error’—i.e., an error “so fundamental as to result in a

miscarriage of justice”’—to permit a jury to award punitive

damages where the evidence “demonstrated a good faith dis-

pute” as to whether the defendant’s conduct was lawful.

Barber v. Nabors Drilling U.S.A., Inc., 130 F.3d 702, 710

(Sth Cir. 1997) (quotation omitted).

In sum, the conduct for which State Farm was pun-

ished—in-court speech by its attorneys—falls squarely

within the rights of free speech and petition secured by the

First Amendment and the Due Process Clause. Given that

State Farm’s legal arguments succeeded in persuading this

_ Court that the punitive damage award was excessive and un-

constitutional, there can be no doubt that its position was rea-

sonable, even if the Utah court felt that the company could

have been less “callous” in asserting it. Punitive damages

simply may not be imposed for such speech and this Court

should grant State Farm’s petition.

B. The Lower Courts Have Split Over Whether

Punitive Damages May Be Based On A

Party’s Litigation Positions And Speech

The decision below compounds the confusion in the

lower courts over the relevance of a defendant’s litigation

conduct to a punitive damage award. Many lower courts,

some even in the wake of State Farm, have followed the

Utah court’s approach and relied on a defendant’s litigation

positions to justify or increase a punitive sanction. Other

courts, in sharp contrast, have recognized that such consid-

erations are irrelevant to a punitive damage award. Guidance

from this Court is necessary to dispel the confusion in the

lower courts and to reject decisively the Utah court’s mis-

guided and unconstitutional approach.

Many courts have properly held—directly in conflict

with the Utah court—that a defendant’s litigation conduct

and speech cannot be used-as the basis for a punitive damage

award. For example, in Sobley v. Southern Natural Gas Co.,

302 F.3d 325, 341-42 (Sth Cir. 2002), the Fifth Circuit ex-

plained that an insurer’s “litigation positions and tactics” —

even those that are “ultimately unsuccessful”—“do[ ] not

constitute the kind of malice, willfully wrongful conduct,

gross negligence, or reckless disregard for the insured’s

rights for which punitive damages are properly imposed.”

The California Supreme Court has similarly recognized that

“the potential ‘chilling effect’ on appeals ... would be

greatly exacerbated if every appellant faced the prospect that

a jury might impose additional damages—compensatory and

punitive—in a subsequent action based on its assessment of

[the appellant’s] motive in prosecuting the appeal.” Coleman

v. Gulf Ins. Group, 718 P.2d 77, 81 (Cal. 1986); accord De

Anza Santa Cruz Mobile Estates Homeowners Ass’n v. De

Anza Santa Cruz Mobile Estates, 94 Cal. App. 4th 890, 918

(Ct. App. 2001) (a defendant’s “trial tactics and litigation

—

conduct may not be used to impose punitive damages in a

tort action’).

Many courts disagree with this approach, however, and

specifically rely on the defendant’s litigation conduct in as-

sessing punitive damages, just as the Utah court did here.

For example, in Mathias v. Accor Economy Lodging, Inc.,

347 F.3d 672, 677 (7th Cir. 2003) (Posner, J.), a decision that

cited repeatedly to State Farm, the Seventh Circuit empha-

sized the defendant’s “great stubbornness with which it has

defended this case” as a major justification for a large

amount of punitive damages. Similarly, in Miller v. Aaacon

Auto Transport, Inc., 447 F. Supp. 1201, 1206 (S.D. Fla.

1978), the court explained that the “defendant’s tactics in this

court of grudging retreat, rock by rock, fence row by fence

row” were relevant to (although they did not ultimately war-

rant) a punitive damages award. See also Hollock v. Erie Ins.

Exch., 842 A.2d 409, 419-22 (Pa. Super. Ct. 2004) (affirming

punitive damage award largely on the basis of the defendant

insurer’s conduct during trial of bad faith claim rather than

on conduct giving rise to the claim).

In sum, this Court should grant review to eliminate any

doubt that the First Amendment and the Due Process Clause

bar the imposition of punitive damages on a defendant for

doing nothing more than daring to defend itself in a court of

law.

ll. THE UTAH COURT’S MISAPPLICATION OF

THE RATIO GUIDEPOST DEFIES AND

UNDERMINES THIS COURT’S RULING

A. The Ratio Requirement Is A Crucial

Constitutional Protection

This Court’s decision in State Farm reflected and en-

shrined the important constitutional principle that a punitive

sanction must bear a reasonable relationship to the actual

harm to the plaintiff caused by the defendant. See 538 US.

at 424-28. Importantly, this Court held that in cases where

“compensatory damages are substantial, then a lesser ratio,

perhaps only equal to compensatory damages, can reach the

outermost limit of the due process guarantee.” Jd. at 425.

This Court then made abundantly clear that the case at bar

presents this exact situation, noting that “[t]he compensatory

award in this case was substantial,” and that “in light of the

substantial compensatory damages awarded (a portion of

which contained a punitive element),” the “likely” result on

remand should be “a punitive damages award at or near the

amount of compensatory damages.” Jd. at 426, 429 (empha-

sis added).

The Utah court’s decision defies this Court’s ruling by

approving a 9:1 ratio and imposing a $9 million punitive

damage award that dwarfs the $1 million this Court indicated

was likely the maximum amount permitted under the Consti-

tution. This decision must not be allowed to stand. If the

Utah court is allowed to impose a 9:1 ratio in this case—

where the relevant factors point to a 1:1 ratio, and this Court

explicitly instructed the Utah court that 1:1 was the probable

outcome—this Court’s holding will be severely undermined.

This Court should grant certiorari and confirm that State

Farm means what it says: although a 9:1 ratio may be the

presumptive outermost constitutional limit, it is not the norm,

and for cases such as this one, a 1:1 ratio (or something very

close to it) may not be exceeded.

In many cases, even a 1:1 ratio can result in an excessive

and unconstitutional sanction. For example, awards of com-

pensatory damages often include a large component of non-

economic damages, such as awards for pain and suffering or

emotional distress. As this Court recognized, these types of

noneconomic damage awards are very similar to punitive

damage awards in that they “contain [a] punitive element,”

and “‘[iJn many cases in which compensatory damages in-

clude an amount for emotional distress, such as humiliation

or indignation aroused by the defendant’s act, there is no

clear line of demarcation between punishment and compen-

sation and a verdict for a specified amount frequently in-

cludes elements of both.” 538 U.S. at 426 (quoting Re-

statement (Second) of Torts § 908, cmt. c, p. 466 (1977)).

Moreover, noneconomic damages are often plagued by the

same problems as punitive damages, such as inadequate

guidance to juries, lack of objective criteria against which to

measure outcomes, and the general absence of principled

bases for judicial review—all of which leads to radically

varying and arbitrary awards. Although this Court empha-

sized that the presence of noneconomic damages requires a

lower ratio, many courts (such as the Utah court, which used

the presence of noneconomic damages to increase the award,

see Pet. App. 16a) have misapplied or outnght ignored this

aspect of State Farm. See, e.g., Buell-Wilson v. Ford Motor

Co., No. GIC800836 (Cal. Super. Ct. Aug. 19, 2004) (impos-

ing $75,000,000 in compensatory damages, largely for non-

economic harm, and $75,000,000 in punitive damages).

The ratio requirement is particularly important in prod-

uct liability cases, where juries frequently award large

amounts of compensatory damages—often containing a sub-

stantial noneconomic component—so that even a 1:1 ratio

can result in a severe sanction. Moreover, in many such

cases the defendant’s level of reprehensibility is low: the al-

leged defect is not readily apparent, and the claim involves a

reasonable disagreement over a complex design judgment

that the manufacturer made in good faith. Jurors in such

cases are confronted with deciding whether a product creates

“too much risk” in the context of individual cases involving

tragic personal injuries, using hindsight, on the basis of a

highly technical record and arcane and often conflicting opin-

ion testimony from engineers and scientists. Stephen Breyer,

Breaking the Vicious Circle: Toward Effective Risk Regula-

tion 59 (1992); Carroll v. Otis Elevator Co., 896 F.2d 210,

215-16 (7th Cir. 1990) (Easterbrook, J., concurring). Jurors

are not always well suited to make such judgments. See W.

Kip Viscusi, Corporate Risk Analysis: A Reckless Act?, 52

STAN. L. REV. 547, 586-90 (2000) (noting that jurors often

demonstrate bias against companies that engage in nsk-safety

balancing); Reid Hastie et al., Looking Backward in Punitive

Judgments: 20-20 Vision?, in Cass R. Sunstein et al., Puni-

tive Damages: How Juries Decide 96, 108 (2002) (conclud-

ing that “hindsight bias is almost inevitable when jurors

make punitive damages decisions”). See also James A. Hen-

derson, Jr., Judicial Review of Manufacturers’ Conscious

Design Choices: The Limits of Adjudication, 73 COLUM. L.

REV. 1531, 1534 (1973) (“courts are not suited to the task of

establishing specific product safety standards in the course of

applying general reasonableness tests to determine the ade-

quacy of allegedly defective products”); James A. Hender-

son, Jr., Design Defect Litigation Revisited, 61 CORNELL L.

REV. 541 (1976).

The result is that product liability cases pose great dan-

ger that juries will “use their verdicts to express biases

against big businesses,” Honda Motor Co. v. Oberg, 512 U.S.

415, 431-32 (1994), even more so than in cases involving

economic torts, such as this one. A strong affirmation of the

ratio principle will help ensure that this crucial constitutional

protection is strictly enforced.

B. Many Lower Courts Are Evading State

Farm’s Ratio Requirement

This Court’s guidance on the proper application of the

ratio analysis is urgently needed, as the decision below re-

flects a growing trend. Many lower courts have essentially

disregarded State Farm’s holding that a 1:1 ratio is the pre-

sumptive limit in cases where compensatory damages are

“substantial.” As the Ninth Circuit recently declared, “State

Farm’s 1:1 compensatory to punitive damages ratio is not

binding, no matter how factually similar the cases may be.”

Hangarter v. Provident Life & Accident Ins. Co., 373 F.3d

998, 1014-15 (9th Cir. 2004). These courts have misinter-

preted State Farm’s language that “in practice, few awards

exceeding a single-digit ratio between punitive and compen-

satory damages, to a significant degree, will satisfy due proc-

ess,” 538 U.S. at 425, as presumptively authorizing ratios of

up to 9:1 in any case. For example, one court reasoned that

“a red flag goes up” only if the award exceeds a 9:1 ratio, and

suggested that any lower ratio “presumptively passes muster

under the Due Process Clause.” McClain v. Metabolife Int'l,

Inc., 259 F. Supp. 2d 1225, 1231 (N.D. Ala. 2003). Another

court opined that State Farm “guides this court to conclude

that . . . a single-digit ratio likely is constitutionally permissi-

ble.” Jones v. Rent-a-Center, Inc., 281 F. Supp. 2d 1277,

1289 (D. Kan. 2003).

This trend is especially apparent in several recent deci-

sions involving products, a number of which were vacated by

this Court and remanded for reconsideration in light of State

Farm.

For example, in Williams v. Philip Morris, Inc., 92 P.3d

126 (Or. Ct. App. 2004), following a GVR, the Oregon court

upheld a 96:1 ratio and imposed a $79 million punitive dam-

age award against Philip Morns. Even though the case was

brought by the estate of a single plaintiff, the court upheld the

award by theorizing that other individuals not before the

court may have been harmed by the defendant’s conduct—

and that the punishment could be justified by reference to

these hypothetical persons and imaginary harms. Thus, the

court reasoned, because the defendant “inflicted potential

harm on the members of the public in Oregon,” a punitive

award of $79 million was permissible, even though the plain-

tiff had been awarded only $820,000 in compensatory dam-

ages. /d. at 144. Acknowledging that the award vastly “ex-

ceed[s] a single-digit ratio,” the court opined that “it is diffi-

cult to conceive of more reprehensible misconduct” and thus

the “unique facts in this case . . . justify more than a single-

digit award under the Due Process Clause.” /d. at 145.

In Douglas v. DaimlerChrysler Corp., No. CV2001-

019659 (Ariz. Super. Ct. July 2, 2004), the court affirmed a

$50 million punitive damage award against DaimlerChrys-

ler—over 13 times the amount of the substantial $3.75 mil-

lion compensatory damage award—for a purported design

defect in a Dodge Ram pickup truck. Relying on the inter-

pretation offered in a law review article by a plaintiff's attor-

ney rather than this Court’s plain language, the Arizona court

held that “contrary to reports, [State Farm] does not require

that punitive damages be no more than nine times greater

than compensatory.” /d. at 5S. Moreover, the court held that

for purposes of the ratio analysis, the “denominator”—i.e.,

the baseline amount of compensatory damages—should in-

clude the compensatory damages attributable to a nonparty

defendant that was held 50 percent responsible for the harm.

Id. at 1. In short, the court held that DaimlerChrysler could

be punished for harm committed by another party—a result

that violates State Farm and bedrock principles of due proc-

ess.

In Waddill v. Anchor Hocking, Inc., 78 P.3d 570 (Or. Ct.

App. 2003), the plaintiff was injured when her fishbow] shat-

tered. She sued the manufacturer, and was awarded

$100,000 in compensatory damages and $1 million in puni-

tive damages. Following a GVR from this court, the Oregon

court declined to reduce the award to a 1:1 ratio, but rather

held that “the maximum constitutionally permissible award

in this case is four times the compensatory damages for

which defendant is responsible,” id. at 576, and imposed a

$400,000 sanction. See also Bocci v. Key Pharmaceuticals,

Inc., 76 P.3d 669 (Or. Ct. App. 2003) (approving 7:1 ratio in

product liability case on remand following GVR).

Finally, in Romo v. Ford Motor Co., 113 Cal. App. 4th

738 (Cal. Ct. App. 2003), another case GVR’d for reconsid-

eration in light of State Farm, the California Court of Appeal

held that a 5:1 ratio was appropriate in a defective design

case, even though the compensatory damage awards of ap-

proximately $5 million were undeniably “substantial,” and

even though a significant portion of the compensatory awards

reflected noneconomic harm. The court made clear that it

did not consider itself “strictly constrained by the single-digit

multiplier set forth in State Farm,” id. at 763, let alone by

this Court’s holding that where “compensatory damages are

substantial, then a lesser ratio, perhaps only equal to compen-

satory damages, can reach the outermost limit of the due

process guarantee.” 538 U.S. at 425.

This Court should grant review to confirm that the 1:1

ratio in such cases is not, in the words of the Utah court,

merely an “abstract proposition,” Pet. App. 15a, but is rather

a meaningful limitation on punitive damage awards.

CONCLUSION

For the foregoing reasons, this Court should grant State

Farm’s petition and schedule this case for plenary review. In

the alternative, the Court should summarily reverse the deci-

sion below, as the opinion of the Utah Supreme Court is

plainly inconsistent with this Court’s mandate.

Respectfully submitted.