Amicus Curiae Brief — Shell Oil Co. v. Hebble

AG (9) | Supreme Co.'h. US

\ f FILED

NOV_1 2 20)0

IN THE | oF rice On PE CLERK |

Supreme Court of the Anited States

No. 10-349

SHELL OIL COMPANY, and SWEPI LP

(As Successor-in-Interest to SHELL

WESTERN E & P, INC.),

Petitioners,

Ve

NANCY FULLER HEBBLE, et al.,

Respondents.

On Petition for Writ of Certiorari to the

Court of Civil Appeals

for the State of Oklahoma

BRIEF OF PRODUCT LIABILITY ADVISORY

COUNCIL, INC. AS AMICUS CURIAE

IN SUPPORT OF PETITIONERS

Of Counsel: TERRI S. REISKIN

Counsel of Record

WALLACE KING DOMIKE

& REISKIN, PLLC

2900 K Street, NW

Suite 500

Washington, DC 20007

(202) 204-1000

treiskin@wallaceking.com

HUGH F. YOUNG, JR.

PRODUCT LIABILITY

ADVISORY COUNCIL, INC.

1850 Centennial Park Drive

Reston, Virginia 20191

(703) 264-5300

Attorneys for Amicus Curiae

November 12, 2010

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 — WASHINGTON, D.C. 20002

TABLE OF CONTENTS

Page

DER aks OF AUT TICE E LEIS oiccescsssccssersrecevesavszesse ii

INTEREST OF THE AMICUS CURIAE............ ]

SUMMARY OF ARGUMENT ..............0.......000 3

I aires kira hansacivecnckabixaksataesdiecsnsidsansdexess 5

I. IN THE WAKE OF STATE FARM,

PUNITIVE DAMAGES AWARDS CON-

TINUE TO BE UNPREDICTABLE AND

ARBITRARY IN VIOLATION OF DUE

PN irc der atncaiearitaparhatiidssadaveababexeweays

A. In Small Compensatory Damages

Cases, Reprehensibility is Used as

the Rationale for Grossly Excessive

PSUR CIE ie cecacsctvicasserevsatincaseece 8

B. The Use of Potential Harm in Place

of Actual Damages’ Encourages

Speculation and Subverts the Role of

EO” EEL a et RAR eT ee a 12

C. Courts Improperly Exceed the 1:1

Ratio Even when Compensatory

Damages are Substantial.................... 14

|

D. Geographic and Jurisdictional Varia-

bility in Application of the Ratio

Guidepost Adversely Affects the

COUREIEY OF PUBCIOS, .......cccccsescrcossccssesecess 16

Il. THE PROBLEM OF UNPREDICTABLE

APPLICATION OF THE GUIDEPOSTS

IS COMPOUNDED BY INCONSIS-

TENT DEFINITIONS OF “COMPEN-

SATORY” DAMAGEG...........cccssesssseeseeeesees 19

(i)

il

TABLE OF CONTENTS—Continued

Page

Ill. PRODUCT MANUFACTURERS ARE

ADVERSELY AFFECTED BY UNPRE-

DICTABLE AND ARBITRARY PUNI-

TIVE DAMAGES AWARDS ....................- 20

IIIT ip cesiscccnlaccatsscusdisachitelasiwbindcanatesnees 24

APPENDIX A: Corporate Members of the

Product Liability Advisory Counci!, Inc. as of

IIE << 1.2 ccs saver canes cavacesantsans masexeuvesisenveneie la

ill

TABLE OF AUTHORITIES

CASES Page

Austin v. Stokes-Craven Holding Corp.,

691 8.E.3d 135 (S.C. 2010) ........cerccecoerseces 10

Bains LLC v. Arco Products Co., 405 F.3d

Te Tee Ge, Sains 16

Bennett v. Reynolds, 315 S.W.3d 867 (Tex.

SD sn angiskixnniendiceceneniuhd aca aa 12

BMW N. Am., Inc. v. Gore, 517 U.S. 559

GD iessacnsnnsnonvatsinseanarmisscnteacsoraaeee passim

Bronakowski v. Lindhurst, _S.W.3d

___, 2009 Ark. App. 513 (2009)............... 6

Campbell v. State Farm Mut. Auto. Ins.

Co, 98 P.3d 409 (Utah 2004)..........0..00000... 14

Craig Outdoor Adver., Inc. v. Viacom

Outdoor, Inc., 528 F.3d 1001 (8th Cir.

FI initinprestiecressssiesncaaccnaeneen ee 14

Exxon Shipping Co. v. Baker, 128 S. Ct.

Be SI ciishttsttisarsisninanaiinaeann 5

Flax v. DaimlerChrysler Corp., 272 S.W.3d

By CU IED vickscsccncencresentansaceanenal 7,15, 18

Gober v. Ralphs Grocery Co., 137 Cal. App.

GA BP CD cntaddcntncdesincnssetecseecsieetaae 15,17

Hangarter v. Provident Life & Accident

Ins. Co., 373 F.3d 998 (9th Cir. 2004)...... 7,17

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

CR cventoossenisestacscaniscseciaasaa eee 24

Kemp v. Am. Tel. & Tel. Co., 393 F.3d 1354

(11th Cir. 2004) ...ccccccccccscscesessesceesssseeeeee on 6, 10

Krysa v. Payne, 176 S.W.3d 150 (Mo. App.

ee ORT TO ene 88) 6, 10

Mathias v. Accor Economy Lodging, Inc.,

347 F.3d 672 (7th Cir. 2003).............:eeee 6, 11

Modern Management Co. v. Wilson, 997

PB SF CAs Dr easiscrsiectittisgssadnecoaan 20

iv

TABLE OF AUTHORITIES—Continued

Page

Pacific Mut. Life Ins. Co. v. Haslip, 499

Nee cre ssckdrasepaseressncgeissnsesensess 15

Roby v. McKesson Corp., 101 Cal. Rptr. 3d

eg A TS) |) 20

Selizer v. Morton, 154 P.3d 561 (Mont.

ears iastsnccacsnsenesessscessoessesceses 14,17

State Farm Mut. Auto Ins. Co. ov.

Campbell, 538 U.S. 408 (2008)................. passim

Superior Fed. Bank v. Jones & Mackey

Const. Co., LLC, 219 S.W.3d 643 (Ark.

IED is ccosscsusssesesccncesscssscsveccssccesees 11

Trinity Evangelical Lutheran Church and

School-Freistadt v. Tower Ins. Co., 661

N.W.2d 789 (Wis. 2003) ..................44. 8,9, 11,13

TXO Prod. Corp. v. Alliance Resources

Corp., 509 U.S. 443 (1993)................ccceee 12

Vasquez-Lopez v. Beneficial Oregon, Inc.,

152 P.3d 940 (Or. Ct. App. 2007) ........... 13

Williams v. Conagra Poultry Co., 378 F.3d

EE TEE, UIE) ccccsssecssscsssesveccssecsvcccceees 6

Willow Inn, Inc. v. Public Service Mut. Ins.

Co., 399 F.3d 224 (3d Cir. 2005)............... 20

Zhang v. Am. Gem Seafoods, Inc., 339 F.3d

1020 (9th Cir. 2003)...........cccccccssescccssssceees 15, 17

MISCELLANEOUS

Alison F. Del Rossi and W. Kip Viscusi,

The Changing Landscape of Blockbuster

Punitive Damages Awards, 12 Am. L. &

Econ. Rev. 116 (2010) ...............cceeeeeeeeeeees 16, 22

Royal Furgeson, Civil Jury Trials R.J.P.?

Can it Actually Happen in America?, 40

St. Mary’s L.J. 795 (2009)............... eee 23

Vv

TABLE OF AUTHORITIES.—Continued

Marc Galanter, The Hundred-Year Decline

of Trials and the Thirty Years War, 57

Stan. L. Rev. 1255 (20085) ................:0sse00

Richard L. Manning, Changing Rules in

Tort Law and the Market for Childhood

Vaccines, 37 J.L. & Econ, 247 (1994).......

David G. Owen, Problems in Assessing

Punitive Damages Against Manufac-

turers of Defective Products, 49 U. Chi.

Has BGs: Ie CUE ncadschicconanedccascamasenseubaniniacues

Hon. Sam Sparks and George Butts,

Disappearing Juries and Jury Verdicts,

39 Tex. Tech L. Rev. 289 (2007)...............

U.S. GEN. ACCOUNTING OFFICE, GAO/

AIMD-95, MEDICAL LIABILITY: IM-

PACT ON HOSPITAL AND PHYSI-

CIAN COSTS EXTENDS BEYOND

INSURANCE 16 (1995) ......... cc ccceeeeeeeees

W. Kip Viscusi, Corporate Risk Analysis: A

Reckless Act?, 52 Stan. L. Rev. 547

CRIN coiarscskceetasnoexiatccucdchiseckeiatermaciseatanaaes

Page

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21

IN THE

Supreme Court of the United States

No. 10-349

SHELL OIL COMPANY, and SWEPI LP

(As Successor-in-Interest to SHELL

WESTERN E & P, INC.),

Petitioners.

V.

NANCY FULLER HEBBLE, et al.,

>

Respondents

On Petition for Writ of Certiora2ri to the

Court of Civil Appeals

for the State of Oklahoma

BRIEF OF PRODUCT LIABILITY ADVISORY

COUNCIL, INC. AS AMICUS CURIAE

IN SUPPORT OF PETITIONERS

INTEREST OF AMICUS CURIAE '

The Product Liability Advisory Council, Inc

(PLAC) is a non-profit association with 100 corporate

members representing a broad cross-section of

American and international product manufacturers.

' Pursuant to Rule 37.6, amicus states that no counsel for a

party has authored this brief in whole or in part, and no person

or entity other than amicus, its members and their counse! has

made a monetary contribution to fund the preparation or

submission of this brief. Pursuant to Rule 37.2(a), al) parties

received timely notice and have consented to the filing of this

brief

y 2

a

These companies seek to contribute to the improve-

ment and reform of law in the United States and

elsewhere, with emphasis on the law governing the

liability of manufacturers of products. PLAC’s

perspective is derived from the experiences of a

corporate membership 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 900 briefs as amicus curiae

in both state and federal courts, including this Court,

presenting the broad perspective of product manufac-

turers seeking fairness and balance in the application

and development of the law as it affects product

liability. A list of PLAC’s corporate members is

attached as Appendix A.

PLAC is particularly interested in the issues raised

by this case, because product manufacturers are

disproportionately affected by punitive damages

awards. The due process protections afforded by the

United States Constitution are essential to ensure

that punitive damages awards are rendered in a

manner that is scrupulously fair to the defendant.

State and federal courts have interpreted the puni-

tive damages guideposts set out by this Court in a

wildly inconsistent fashion. Whether this is the

result of confusion or a willful attempt to circumvent

the Court’s dictates, product manufacturers and

others are routinely subject to arbitrary and grossly

excessive punitive damages awards. PLAC believes

its viewpoint will assist in the Court in achieving a

better understanding of the nature of the problem

and the reasons why it is critical for the Court to

provide additional clarification regarding the rela-

tionship among the guideposts and the proper appli-

3

cation of the ratios between compensatory and puni-

tive damages.

SUMMARY OF ARGUMENT

In the more than seven years since this Court

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

538 U.S. 408 (2003), the punitive damages guideposts

and the ratios between compensatory and punitive

damages set out by the Court have proven to be of

little use in ensuring a system of justice in which

defendants can be reasonably apprised of the penal-

ties they may face. The relationship among the

guideposts is unclear, allowing courts to use the

reprehensibility guidepost to trump the others.

Courts are also confused about application of the

ratios, and have defaulted to the position that a 9:1

or lower ratio will always pass muster, despite this

Court’s holding that in cases with substantial

compensatory damages, a ratio of 1:1, and in almost

all other cases, a ratio of 4:1, approaches the outer

limits of due process.

Since State Farm, courts have applied ratios from

1:1 to 2172:1, and all levels in between. In some

courts, the perceived reprehensibility of the conduct

is used to justify extremely high ratios. In others, the

“potential harm”—often loosely defined—is substi-

tuted for the jury’s actual damages award, so as to

transform a very large ratio into a much smaller one.

Courts routinely exceed a 1:1 ratio between compen-

satory and punitive damages, although the compen-

satory award is unquestionably substantial. Even

more troubling is the fact that courts in different

Circuits have interpreted State Farm in different

ways. In short, the outer limits of due process differ

greatly depending on the fortuity of where and in

what court a case happens to be decided. This is

4

inconsistent with our constitutional guarantees,

which should be applied similarly regardless of what

court is meting out justice.

Even when ratios are applied in a manner gener-

ally consistent with State Farm’s ruling, courts have

applied different approaches to determining the

components of “compensatory” damages. In this case,

the court included pre-judgment interest at a punitive

rate, while other courts have included various other

components, including attorneys’ fees and lost profits.

A ratio whose numerator and denominator cannot be

readily and consistently determined is of little use to

courts attempting to ensure that punitive damage

awards comport with due process, or to defendants

assessing potential liability should they go to trial.

The problem of inconsistent application of the State

Farm ratios, while significant in itself, is magnified

when the ratio itself is malleable depending on what

a court includes as compensatory.

These problems are perhaps more keenly felt by

product manufacturers than by other litigants,

because of the fact that product liability cases more

often involve physical injuries or deaths. Aside from

the obvious emotional component of these cases,

which can result in higher jury verdicts, they often

lead to punitive damages awards. The inability of

manufacturers and sellers to assess their level of risk

results in forced settlements, higher prices, less

innovation and a marketplace where some products

are simply not economical to design and sell because

of the risk of unfettered and unpredictable liability.

The Court should grant certiorari in this case to

clarify the application of the ratios set forth in State

Farm and the relationship among the guideposts, and

to make clear that compensatory damages do not

5

include pre-judgment interest and other “add-ons”, so

that due process guarantees are applied similarly

regardless of the court or jurisdiction in which a

defendant may find itself.

ARGUMENT

Despite this Court’s efforts to lend consistency to

the process by which punitive damages are awarded

and reviewed, defendants in state and federal courts

continue to experience wide variations in how the

guideposts and ratios are applied. The “stark unpre-

dictability”’ of punitive awards violates due process

because defendants are deprived of “fair notice . . . of

the severity of the penalty that a State may impose.”

BMW N. Am.., Inc. v. Gore, 517 U.S. 559, 574 (1996).

The decision of the Oklahoma Court of Civil Appeals

is only one of many state and federal cases in which

the guideposts have been twisted beyond recognition.

Review is necessary in order to clarify the

relationship among the guideposts and the proper

application of the ratios between compensatory and

punitive damages.

I. IN THE WAKE OF STATE FARM, PUNI-

TIVE DAMAGES AWARDS CONTINUE TO

BE UNPREDICTABLE AND ARBITRARY

IN VIOLATION OF DUE PROCESS

In State Farm, this Court elaborated on the guide-

posts set forth in Gore in an effort to prevent

arbitrary and constitutionally excessive punitive

damages awards. While declining to provide “rigid

benchmarks”, 538 U.S. at 425, the Court made clear

that all three guideposts should be considered, and

gave guidance as to the ratios to be used in evaluat-

* Exxon Shipping Co. v. Baker, 128 S. Ct. 2605, 2625 (2008).

6

ing punitive damages awards. Specifically, the Court

explained that “few awards exceeding a single-digit

ratio between punitive and compensatory damages,

to a significant degree, will satisfy due process” and

that “an award of more than four times the amount of

compensatory damages might be close to the line of

constitutional impropriety.”. Jd. The Court further

held that, “When 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. The $1

million awarded to the plaintiffs in State Farm was

recognized to be “substantial”, and, accordingly, the

Court held that it “likely would justify a punitive

damages award at or near the amount of compensa-

tory damages.” Id. at 429.

Despite the Gore and State Farm framework,

courts continue to reach results that are flatly incon-

sistent with it and wildly divergent. Ratios from 1:1

all the way to 2174:1 have been approved as purpor-

tedly consistent with due process constraints. See,

e.g., Williams v. Conagra Poultry Co., 378 F.3d

790 (8th Cir. 2004) (1:1 ratio applied in Title VII

employment discrimination case); Kemp v. Am. Tel. &

Tel. Co., 393 F.3d 1354 (11th Cir. 2004) (2174:1 ratio

in RICO case involving gambling charges included in

long distance bills). Despite State Farm’s direction

that “few awards exceeding a single-digit ratio. . .

will satisfy due process,” 538 U.S. at 425, numerous

courts have found reasons to exceed single digits,

often by a large margin. See, e.g., Mathias v. Accor

Economy Lodging, Inc., 347 F.3d 672 (7th Cir. 2003)

(37:1 ratio in bedbug infestation case); Arysa_ uv.

Payne, 176 S.W.3d 150 (Mo. App. 2005) (27:1 ratio in

fraud case involving vehicle sale); Bronakowski uv.

Lindhurst, _S.W.3d__, 2009 Ark. App. 513 (2009)

7

(42:1 ratio in case involving trees cleared from plain-

tiffs’ property without permission resulting in

economic harm of $592.85).

Courts seem most inclined to permit hugely

lopsided ratios when the amount of compensatory

‘ damages is small, using as justification such factors

as perceived reprehensibility or potential damages.

Indeed, although it is to some extent a subjective

indicator, a high degree of reprehensibility is

routinely cited in support of grossly excessive puni-

tive damages awards. In such cases, the reprehensi-

bility guidepost effectively becomes the only guide-

post. Other courts have applied ratios exceeding 1:1

even where compensatory damages are unquestiona-

bly substantial. See, e.g., Hangarter v. Provident Life

& Accident Ins. Co., 373 F.3d 998 (9th Cir. 2004) (in

case involving denial of disability benefits where

compensatory damages were over $1.9 million, court

approved punitive damages of $5 million, a ratio of

2.6:1); Flax v. DaimlerChrysler Corp., 272 S.W.3d 521

(Tenn. 2008) (ratio of 5.35:1 approved in automobile

defect case involving death of child where compensa-

tory damages were $2.5 million).

If this Court had “concerns over the imprecise

manner in which punitive damages systems are

administered”’ when State Farm was decided in

2003, the way in which its holdings have been

applied by lower courts since that time should give

rise to nothing short of extreme consternation, if not

outright alarm.

% State Farm, 538 U.S. at 417.

8

A. In Small Compensatory Damages Cases,

Reprehensibility is Used as the Ration-

ale for Grossly Excessive Punitive

Damages

Many of the highest ratios are applied in cases

where compensatory damages are small. Courts in

this situation seem to struggle with how to justify

large punitive damages awards, often citing the

reprehensibility of the conduct. This scenario was

contemplated in State Farm, 538 U.S. at 425 (“ratios

greater than those we have previously upheld may

comport with due process where ‘a particularly egre-

gious act has resulted in only a small amount of

economic damages”) (quoting Gore, 517 U.S. at 582).

But permitting unfettered discretion in such circums-

tances to use any ratio imaginable belies the notion

that there are any “outermost limits” to the due

process guarantee. Moreover, permitting the repre-

hensibility guidepost to trump the ratio guidepost

means that, for many courts, the analysis is over once

reprehensibility is determined. In this way, a subjec-

tive determination of reprehensibility is used to obli-

terate due process guarantees.

A case in point is Trinity Evangelical Lutheran

Church and School-Freistadt v. Tower Ins. Co., 661

N.W.2d 789 (Wis. 2003). The Trinity case arose out

of an insurance policy that erroneously omitted

certain coverage due to the agent’s mistake in writing

the application. The error was discovered after an

accident resulted in litigation against the insured

church, but the insurer declined to reform the policy.

The trial judge granted summary judgment to

the policyholder on the bad faith claim, awarding

$17,500 in compensatory damages, and a jury

returned a punitive damages award of $3.5 million—

9

a ratio of more than 200:1. Notwithstanding this

ratio, the court affirmed the award, citing the

insurance company’s reprehensible conduct, inclu-

ding its status as a “recidivist” because it was the

defendant in a case more than 30 years earlier in

which the court held that an insurer has a duty to

reform an insurance policy upon discovery of a

mutual mistake. Jd. at 801. The court never even

mentioned the 200:1 ratio between actual and

punitive damages, but, instead, recast the ratio as 7:1

on the basis of plaintiffs evidence that its potential

exposure in the underlying litigation was $490,000.

Id. at 803°

As a dissenting judge noted, the comparison between

the facts of Trinity and the State Farm case is

striking, yet in State Farm, this Court compared the

actual compensatory damages in the bad faith claim

(not the potential verdict in the underlying action)

with the punitive damages award and found the ratio

of 145:1 unconstitutional. Jd. at 811 (Sykes, J., dissent-

ing). The judge continued, “The majority’s position

[using the $490,000 potential award as the denomi-

nator]... amounts to nothing more than a manipula-

tion of the ratio for purposes of due process scrutiny.”

Id. The dissent also exposed the absurdity of the

majority’s reprehensibility analysis, noting that: this

was a case that arose from a mistake; it involved

economic injury only; Trinity was never at risk in the

underlying action; no one’s health or safety was at

risk; there was no financial vulnerability; and the 30-

* A dissenting judge made clear that Trinity would never

have been exposed to liability in the auto accident case, because

even if Tower did not provide coverage under its policy, the

insurance agent’s errors and omission policy would provide

coverage. Id. at 810-11 (Sykes, J., dissenting).

10

year old contract case in no way supported a

“recidivist” label. Id. at 810.

Similarly, Shell’s conduct in this case resulted in

only economic injuries, posed no risk to anyone’s

health or safety, did not involve repeated similar

instances, and was not directed at a financially vul-

nerable plaintiff. Yet the court found Shell’s conduct

to be so reprehensible as to support a ratio as high as

87:1, depending on how “compensatory” damages are

counted.° Thus, even though the Court has laid out

the elements of reprehensibility with relative clarity,

the interpretation is subjective and leads to dissimi-

lar outcomes for similar conduct. Compare Krysa v.

Payne, 176 S.W.3d 150 (Mo. App. 2005) (27:1 ratio in

case involving fraud and breach of warranty where

vehicle was sold without disclosure that it was

actually two damaged vehicles welded together) with

Austin v. Stokes-Craven Holding Corp., 691 S.E.2d

135 (S.C. 2010) (8:1 ratio in fraud case involving sale

of automobile without disclosure of prior accident).

Other courts have allowed perceived reprehensi-

bility to run roughshod over the other guideposts.

See, e.g., Kemp, 393 F.3d at 1363 (affirming 2174:1

ratio in case where defendant’s inclusion of charges

for telephone gambling game in long-distance charges

was characterized as “large-scale corporate malfeas-

ance”). In cases where there is a confluence of bad

conduct, an unsympathetic (or simply large corpo-

rate) defendant and an innocent victim, disproportio-

nate punitive damages awards are allowed to stand

®* When the same case can be characterized as involving

multiple ratios depending on what is counted as “compensatory”,

it is apparent that the State Farm ratios are toothless as a means

to combat grossly excessive punitive damages awards.

ll

because “a particularly egregious act has resulted in

only a small amount of economic damages.” Gore,

517 U.S. at 582. As one of the dissenters in Trinity

observed, “The plaintiff was a church, the defendant

was an insurance company, and the judge was mak-

ing official pronouncements about the defendant’s

bad faith. Is there any wonder that the jury awarded

$3,500,000 in punitive damages?” 661 N.W.2d. at 806

(Prosser, J., dissenting). See also Mathias, 347 F.3d

at 677 ($5000 compensatory damages and $186,000

in punitive damages, a 37:1 ratio, affirmed in bedbug

case where the defendant’s conduct was judged

“outrageous”); Superior Fed. Bank v. Jones & Mackey

Const. Co., LLC, 219 S.W.3d 643 (Ark. Ct. App. 2005)

(17.6 to 1 ratio is not constitutionally excessive or

“breathtaking” due to substantial degree of

reprehensibility).°

As the Texas Supreme Court stated in reversing an

award of $1.25 million in punitive damages in a case

involving actual damages of $5327.11 as a result of

the conversion of 13 head of cattle:

If courts fail to diligently police the “particularly

egregious” exception, they insulate from due-

process review precisely those cases where judi-

cial review matters most: those involving

unsympathetic defendants where juries are most

likely to grant arbitrary and excessive awards.

Allowing a freewheeling reprehensibility excep-

tion would subvert the constraining power of the

ratio guidepost.

® The court stated, “Our research indicates that this factor

{the ratio] seems to engender great confusion and controversy in

comparison with the other factors. We believe this is due in no

small part to the U.S. Supreme Court’s rather conflicting state-

ments on the matter.” Superior Fed., 219 S.W.3d at 651.

12

Bennett v. Reynolds, 315 S.W.3d 867, 879 (Tex. 2010)

(emphasis added; footnote omitted). Yet this is

exactly what is happening in courts across the

country.

B. The Use of Potential Harm in Place of

Actual Damages Encourages Specula-

tion and Subverts the Role of the Jury

Courts have also permitted ratios greatly in excess

of 4:1, or even single digits, in cases where the poten-

tial harm, rather than actual harm, is judged to be

the appropriate denominator. In TXO Prod. Corp. v.

Alliance Resources Corp., 509 U.S. 443 (1993), a

plurality of the Court said, “It is appropriate to

consider the magnitude of the potential harm that

the defendant’s conduct would have caused to its

intended victim if the wrongful plan had succeeded,

as well as the possible harm to other victims that

might have resulted if similar future behavior were

not deterred.” Jd. at 460. The plurality affirmed a

$10 million punitive damages award with a ratio of

526:1, citing potential harm and reprehensibility of

the conduct. Writing separately, Justice O’Connor

took issue with the plurality’s approach, stating, “I

believe it likely, if not inescapable, that the jury was

influenced unduly by TXO’s out-of-state status and

its large resources.” Jd. at 495.’

’ Justice O’Connor was also critical of the state appellate

court’s application of “cavalier standards in the course of a

cursory examination of the case.” Jd. at 496. The same could be

said of the Oklahoma Court of Civil Appeals in this case, whose

two-paragraph treatment of the punitive damages award is

unquestionably “cursory” and arguably “cavalier”.

13

The outcome in 7'‘XO would seem to be in question

in light of the Court’s more recent punitive damages

jurisprudence. But the use of often speculative

assessments of “potential harm” in order to justify

ratios that are in evident conflict with the guideposts

continues to be a problem. For example, in Vasquez-

Lopez v. Beneficial Oregon, Inc., 152 P.3d 940 (Or. Ct.

App. 2007), which involved a predatory lending

claim, the appellate court reinstated the jury’s origi-

nal $500,000 punitive damages award, recharacte-

rizing what had been a 7.5:1 ratio as a 1.53:1 ratio.

In lieu of the actual compensatory award of just

under $32,000, the appellate court estimated the

potential harm of the defendant’s conduct as the

interest that would have been paid over the life of the

loan, which came to over $326,000. Jd. at 958; see

also Trinity, 661 N.W.2d at 803 (200:1 ratio

converted to 7:1 by insertion of $490,000 in potential

harm in place of actual $17,500 compensatory

award).

Not only are assessments of potential harm often

speculative, but use of potential harm, rather than

actual damages, subverts the role of the jury. “The

jury system long has been a guarantor of fairness, a

bulwark against tyranny, and a source of civic

values.” TXO, 509 U.S. at 473 (O’Connor, J.). The

willingness of some courts to ignore the compensa

tory damages as found by the jury constitutes patent

manipulation in order to justify the punitive damages

award. See Trinity, 661 N.W.2d at 811 (Sykes, J.,

dissenting). Ironically, the inviolability of the jury’s

determination of the appropriate amount of punitive

damages necessary to punish and achieve retribution

is cited by the very courts that so eagerly push aside

the jury’s compensatory damages decision. While

there may be a rare case in which consideration of

14

potential harm is justified, in most cases deference

should be given to the jury’s decision on compensa-

tory damages.”

‘

*» Courts Improperly Exceed the 1:1

Ratio Even When Compensatory Dam-

ages Are Substantial

Many state and federal courts nave departed

considerably from a 1:1 ratio even in cases where

compensatory damages are substantial. Perhaps the

most egregious example is the decision of the Utah

Supreme Court on remand in Campbell v. State Farm

Mut. Auto. Ins. Co., 98 P.3d 409 (Utah 2004), where

the court reduced the punitive damages award to a

ratio of 9:1, despite the fact that the compensatory

award of over $1 million was unquestionably sub-

stantial.’ Notwithstanding this Court’s instruction

that, in such cases, “a lesser ratio, perhaps only equal

to compensatory damages, can reach the outermost

limit of the due process guarantee,” State Farm, 538

U.S. at 425, the Utah court considered the 9:1 ratio

justified in light of State Farm’s highly reprehensible

conduct.

Similar results have obtained in other cases. See,

e.g., Seltzer v. Morton, 154 P.3d 561 (Mont. 2007) (9:1

ratio affirmed in case involving $1.4 million in

compensatory damages for malicious prosecution and

abuse of process arising out of art authenticator’s

opinion); Craig Outdoor Adver., Inc. v. Viacom

Outdoor, Inc., 528 F.3d 1001 (8th Cir. 2008) (8.36:1

* The exception would be a case such as this one where the

jury was directed to include pre-judgment interest in its

“compensatory” award.

* The definition of “substantial” is, of course, subject to inter

pretation, lending additional uncertainty to the proper appli

cation of the ratio

15

ratio in commercial fraud case with $125,000 in

compensatory damages); Zhang v. Am. Gem Seafoods,

Inc., 339 F.3d 1020 (9th Cir. 2003) (7.2:1 ratio applied

in employment discrimination and retaliatory dis-

charge case in which $360,000 in compensatory

damages were awarded); Flax, 272 S.W.3d 521

(5.35:1 ratio in automobile products liability case

where jury awarded $2.5 million for death of child).

What these courts have in common is a willingness

to read State Farm to permit a high single-digit ratio,

regardless of whether the compensatory damages are

“substantial” or even whether the conduct at issue is

objectively reprehensible. See, e.g., Gober v. Ralphs

Grocery Co., 137 Cal.App.4th 204, 222-23 (2006) (6:1

ratio approved despite “modest degree of reprehensi-

bility” and substantial compensatory damages). In the

process, courts disregard completely this Court’s ruling

in Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 23-

24 (1991), that a four-to-one ratio “may be close to the

line” of constitutional impropriety. See also Gore, 517

U.S. at 581; State Farm, 538 US. at 425.

While the Court in State Farm evidently wanted

to leave room for a very small number of cases in

which individual factors might make a larger ratio

permissible, appellate courts around the country

have driven a proverbial truck through this opening,

If the Constitution requires a 1:1 ratio in almost all

cases with substantial compensatory damage awards,

it is apparent that courts across the country either do

not understand this or are acting in disregard of

constitutional requirements. In either event, it is

apparent that this Court needs to clarify the relation-

ship among the three Gore guideposts, so that subjec-

tive assessments of reprehensibility are not permit-

ted to trump the ratio guidepost entirely, and to

16

elucidate the proper application of the ratios set out

in State Farm.'°

D. Geographic and Jurisdictional Varia-

bility in Application of the Ratio

Guidepost Adversely Affects the Qual-

ity of Justice

The problem of inconsistency in use of the ratio

guidepost is worse in some courts and jurisdictions

than others. A similar case involving similar parties

in two different parts of the country can result in

starkly different punitive damages awards depending

on the approach of the reviewing courts. While some

appellate courts have taken to heart the State Farm

ratio of 1:1 in cases involving substantial compensa-

tory damages, others view 4:1 as a starting point, and

some courts take the /aissez-faire view that as long as

the ratio is in single digits, due process is assured.

For example, in Bains LLC v. Arco Products Co.,

405 F.3d 764 (9th Cir. 2005), the Ninth Circuit

mentioned the putative 1:1 ratio established by State

Farm only in passing, despite finding that the

compensatory damages of $50,000 were substantial.

Bains involved claims for breach of contract and

violation of § 1981 brought by a trucking company

that alleged it suffered economic damages as a result

of discrimination. Explaining that this was not the

" In a recent study of punitive damayes awards exceeding

$100 million, the authors concluded that, “If strictly applied,

limiting the ratio of punitive damayes to compensatory damages

to 1:1 would eliminate about two-thirds of the cases from the

$100 million blockbuster category.” Alison F. Del Rossi and

W. Kip Viscusi, The Changing Landscape of Blockbuster

Punitive Damages Awards, 12 Am. L. & Econ. Rev. 116, 155

(2010).

17

rare case that would justify punitive damages in

excess of a single-digit ratio, the court ruled that the

“controlling Supreme court authority . . . implies a

punitive damages ceiling in this case of, at most,

$450,000 (nine times the compensatory damages).”

Id. at 776.

Other Ninth Circuit cases similarly take 4:1 or

higher as the appropriate starting point in the analy-

sis. In Zhang, another § 1981 race discrimination

case, the court affirmed a 7:1 ratio, saying, “We are

aware of no Supreme Court or Ninth Circuit case

disapproving of a single-digit ratio between punitive

and compensatory damages, and we decline to extend

the law in this case.” 339 F.3d at 1044. See also

Hangarter, 373 F.3d at 1014 (rejecting defendant’s

argument that punitive damages should not exceed a

1:1 ratio because State Farm’s ruling is “not binding,

no matter how factually similar the cases may be”).

Some state appellate courts have _ similarly

explored only the upper boundaries of the State Farm

ratios while ignoring the lower ones. In Seltzer, the

Montana Supreme Court rejected the notion that “a

9:1 ratio is in almost all cases the constitutional

limit.” 154 P.3d at 611. Citing Hangarter, the court

said, “[T]he Ninth Circuit Court of Appeals has recog-

nized that Campbell’s reference to a 1:1 ratio does not

establish a categorical rule in favor of a 1:1 ratio

where compensatory damages are substantial.” Jd. at

612. The Montana court held that a ratio of 18:1

complies with State Farm’s ruling because it does not

exceed single digits “to a significant degree.” Id.; see

also Gober, 137 Cal.App.4th at 222 (affirming 6:1

ratio in case involving substantial compensatory

damages and “a modest degree of reprehensibility”).

18

In Flax, the Supreme Court of Tennessee, in a case

involving an alleged design defect in a seat back,

found that an award of $2.5 million is not “so large as

to require a ratio of 1:1.” 272 S.W.3d at 539. Nor did

the Flax court think that it needed to adhere to a

ratio of 4:1. Id. at 540. Flax is also notable because

the court expressed confusion about the relationship

among the three guideposts. Noting that the third

guidepost “seems to compel a dramatically different

conclusion” than the other two—i.e., a much lower

punitive damages award—the court confessed it was

“unfortunately left with little guidance as to how to

resolve this discrepancy because both Gore and

Campbell are cases in which all of the guideposts

suggest the same result.” Jd. Accordingly, it simply

ignored the discrepant third guidepost and approved

a 5:35.1 ratio.

The picture that emerges is one of confusion, both

for the courts who have to apply the guideposts and

for litigants who need to understand their potential

liability if punitive damages are imposed. Faced with

uncertainty, it appears many courts have concluded

that the constitutionally “safe” course is to approve

punitive damages awards with a 9:1 or lower ratio,

regardless of the degree of reprehensibility or

whether the compensatory damages are substantial.

If this Court takes only the most outrageous or

shocking cases, it leaves the lower courts free to run

roughshod over the Court’s dictates that 1:1, or at

most 4:1, is at the outer limits of due process

requirements. The Court should grant review in

order to put teeth into the ruling that a 1:1 ratio is

the outer limit of due process in a case with substan-

tial compensatory damages, that all the guideposts

must align for a punitive damages award in excess of

19

1:1, and that it is the exceedingly rare case that

would justify a ratio in excess of 4:1.

Il. THE PROBLEM OF UNPREDICTABLE

APPLICATION OF THE GUIDEPOSTS IS

COMPOUNDED BY = INCONSISTENT

DEFINITIONS OF “COMPENSATORY”

DAMAGES

Due process limitations are required to lend

predictability to the amount of punitive damages that

may be awarded in a given case. Facing litigation, a

defendant can arguably apply the reprehensibility

factors to its own conduct to assess the likelihood

that reprehensibility will be found and to what

extent. Similarly, potential compensatory damages

can be estimated. If a consistent, or, at least,

predictable, ratio were applied between punitive and

actual damages, the defendant would have a reason-

ably good sense of the outer limits of its exposure in

any given case. However, there is no consistency or

predictability to the ratios, which is problem enough.

When combined with fluid concepts of what can be

included in the definition of “compensatory” damages,

the problem is magnified to the point of unconstitu-

tionality.

A ratio is only useful if the defendant can predict

the likely numerator and denominator. Not only is

such predictability sorely lacking at the beginning of

a case, but the fact that, after the jury’s verdict, the

same set of facts can be manipulated to support a

variety of different ratios reveals that the guidelines

are, indeed, illusory and insubstantial. Here, the

inclusion of pre-judgment interest as part of the

compensatory award inflated the actual damages of

$750,000 to a whopping $13.2 million after applica-

tion of the 12% interest rate evidently intended by

20

the legislature as penal. This resulted in what would

have been a ratio of 86:1 being reduced to only 4:1, a

result the Oklahoma court found in its cursory

fashion to pass constitutional muster. In doing so,

the court did not even give lip service to any reason

for its departure from the 1:1 State Farm ratio for

cases involving substantial compensatory damages.

The inclusion of pre-judgment interest is only one

example of the types of “add-ons” used by some courts

to deflate the ratio from one that seems excessive to

one that is at least facially constitutional. These

range from attorneys’ fees to statutory penalties to

cases in which emotional distress is a component of

the compensatory award. See, e.g., Willow Inn, Inc. v.

Public Service Mut. Ins. Co., 399 F.3d 224 (3d Cir.

2005) (attorneys’ fees); Modern Management Co. v.

Wilson, 997 A.2d 37 (D.C. 2010) (statutory treble

damages); Roby v. McKesson Corp., 101 Cal. Rptr. 3d

773 (Cal. Ct. App. 2010) (emotional distress partially

punitive). As in this case, other courts have included

as “compensatory” elements of damages that far

exceed the actual harm caused to the plaintiff,

resulting in unconstitutional punitive damages

awards. This Court should grant certiorari to rectify

the injustice done to Petitioners and to provide clear

guidance to other courts regarding the proper compo-

nents of “compensatory” damages for purposes of the

due process ratios.

Ill, PRODUCT MANUFACTURERS ARE

ADVERSELY AFFECTED BY UNPRE-

DICTABLE AND ARBITRARY PUNITIVE

DAMAGES AWARDS

Product manufacturers are among the defendants

who are often adversely affected by unpredictable

and grossly excessive punitive damages awards. It is

21

not difficult to see why, as the elements of reprehen-

sibility—”the most important indicium of the reason-

ableness of a punitive damages award”''!—are

present in many product liability cases. These cases

often involve physical, as opposed to economic harm.

Design defect cases always involve intentional

decisions regarding costs and benefits of the product’s

design, and manufacturers are thus more likely to be

considered to be in reckless disregard of health or

safety. See, e.g., David G. Owen, Problems in Assess-

ing Punitive Damages Against Manufacturers of

Defective Products, 49 U. Chi. L. Rev. 1, 24-26 (1982)

(“[A] manufacturer’s choices involving necessary

safety trade-offs and statistically inevitable risks

always can be viewed in a sense as intentional

wrongs to consumers hurt by such products. . . .”).

The defendant is often a large corporation (likely

from another state) while the plaintiff is an injured

individual (sometimes a child or elderly person), who

is by definition more vulnerable, both financially and

otherwise. The design decisions at issue affect

millions of identical products, so juries are often

aware of other similar incidents and injuries, making

the conduct seem even more reprehensible. Jd. at 28-

30. And juries are subject to hindsight bias, which

comes into play in cases involving cost-benefit analy-

sis with disturbing frequency. See, e.g., W. Kip

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

Stan. L. Rev. 547, 563 (2000) (“Instead of comparing

expected benefits and costs, jurors may compare the

enormous cost to the victim with the relatively

negligible cost of the safety improvement.”)

'! Gore, 517 U.S. at 575.

22

Since, in practice, the reprehensibility guidepost

trumps the ratio guidepost, product manufacturers

are likely to be inordinately affected by grossly exces-

sive punitive damages awards. In a recent study of

so-called “blockbuster” punitive damages awards

(those of $100 million or more) issued since 1985, the

authors concluded that a disproportionate number of

such awards involved the automobile, cigarette,

pharmaceuticalV/health care and _ energy/chemical

industries. Alison F. Del Rossi and W. Kip Viscusi,

The Changing Landscape of Blockbuster Punitive

Damages Awards, 12 Am. L. & Econ. Rev. 116, 126

& Table 2 (2010). The mean ratio of punitive to

compensatory damages ranged from 19:1 for the

automobile industry to 11,125:1 for the cigarette

industry. Id.”

The effect of such disproportionality directed at

product manufacturers strikes at the heart of our

economy. The threat of unlimited liability results in

higher prices for consumer goods, less innovation and

self-imposed restrictions on the products. that

are developed and brought to market. See, e.g., U.S.

GEN. ACCOUNTING OFFICE, GAO/AIMD-95, MEDICAL

LIABILITY: IMPACT ON HOSPITAL AND PHYSICIAN COSTS

EXTENDS BEYOND INSURANCE 16 (1995) (“Manufac-

turers pass on their liability costs to hospitals and

physicians in their products’ prices.”); Richard L.

Manning, Changing Rules in Tort Law and the

Market for Childhood Vaccines, 37 J.L. & Econ. 247,

273 (1994) (“liability costs have caused dramatic

increases in vaccine prices”).

’* The latter ratio is even more alarming than it appears,

because a Florida jury’s $145 billion punitive damages award in

a tobacco class action was excluded. /d.

23

In addition, the inability to predict and manage

liability risks has a tendency to force settlements

because proceeding to trial is simply too dangerous.

Much has been written about the decline of the jury

trial, particularly in federal courts. See, e.g., Marc

Galanter, The Hundred-Year Decline of Trials and

the Thirty Years War, 57 Stan. L. Rev. 1255 (2005);

Hon. Sam Sparks and George Butts, Disappearing

Juries and Jury Verdicts, 39 Tex. Tech L. Rev. 289

(2007). Certainly, one factor that has influenced this

trend is the threat of large punitive damages awards.

See, e.g., Royal Furgeson, Civil Jury Trials R.I.P.?

Can it Actually Happen in America?, 40 St. Mary’s

L.J. 795, at 861 (2009) (“One of the major criticisms

of juries is the unpredictability of their decisions on

punitive damages.”) If defendants are unwilling to

try cases because of the risk of runaway punitive

damages awards, jury trials will continue to die a

slow death, and our system of justice will be further

eroded.

24

CONCLUSION

As in Gore, “a review of this case would help to

illuminate ‘the character of the standard that will

identify unconstitutionally excessive awards’ of puni-

tive damages.” 517 U.S. at 568 (quoting Honda

Motor Co. v. Oberg, 512 U.S. 415, 420 (1994)). The

Court should grant the petition for a writ of certiorari

in order to clarify the limits on punitive damages

awards imposed by due process, to establish the

proper relationship among the Gore guideposts, and

to end continuing uncertainty about the proper

components of “compensatory” damages.

Respectfully submitted,

Of Counsel: TERRI S. REISKIN

HUGH F. YOUNG, JR. Counsel of Record

PRODUCT LIABILITY WALLACE KING DOMIKE

ADVISORY COUNCIL, INC. & REISKIN, PLLC

1850 Centennial Park Drive 2900 K Street, NW

Reston, Virginia 20191 Suite 500

(703) 264-5300 Washington, DC 20007

(202) 204-1000

treiskin@wallaceking.com

Attorneys for Amicus Curiae

November 12, 2010

APPENDIX

la

APPENDIX A

Corporate Members of the

Product Liability Advisory Council, Inc

as of 11/9/2010

Total: 100

3M Brown-Forman

Corporation

Altec Industries Caterpillar Inc.

Altria Client Services Inc. Chrysler Group LLC

Anheuser-Busch Continental Tire the

Companies Americas LLC

Arai Helmet, Ltd. Cooper Tire and Rubber

Company

Astec Industries Crown Equipment

Corporation

Bayer Corporation Daimler Trucks North

America LLC

Beretta U.S.A Corp. The Dow Chemical

Company

BIC Corporation E.I. duPont de Nemours

and Company

Biro Manufacturing Eli Lilly and Company

Company, Inc.

BMW of North America, Emerson Electric Co.

LLC

Boeing Company Engineered Controls

International, Inc.

Bombardier Recreational Environmental Solutions

Products Group

BP America Inc. Estee Lauder Companies

Bridgestone Americas Exxon Mobil Corporation

Holding, Inc.

as

Ford Motor Company

General Electric Company

General Motors

Corporation

GlaxoSmithKline

The Goodyear Tire &

Rubber Company

Great Dane Limited

Partnership

Harley-Davidson Motor

Company

Hawker Beechcraft

Corporation

Honda North America,

Inc.

Hyundai Motor America

Illinois Tool Works, Inc.

International Truck and

Engine Corporation

Isuzu Motors America,

Inc.

Jaguar Land Rover North

America, LLC

Jarden Corporation

Johnson & Johnson

Johnson Controls, Inc.

a

Joy Global Inc., Joy

Mining Machinery

Kawasaki Motors Corp.,

U.S.A.

Kia Motors America, Inc.

Kolcraft Enterprises, Inc.

Kraft Foods North

America, Inc.

Leviton Manufacturing

Co., Ine

Lincoln Electric Company

Magna International Inc.

Marucci Sports, L.L.C.

Mazak Corporation

Mazda (North America),

Inc.

Medtronic, Inc.

Merck & Co., Inc.

Michelin North America,

Inc.

Microsoft Corporation

Mitsubishi Motors North

America, Inc.

Mueller Water Product

Niro Inc

Nissan North America,

Inc.

Novartis

Pharmaceuticals

Corporation

PACCAR Ine.

Panasonic

Pella Corporation

Pfizer Inc.

Porsche Cars North

America, Inc.

Purdue Pharma L.P.

Remington Arms

Company, Inc.

RJ Reynolds Tobacco

‘

Company

Schindler Elevator

Corporation

SCM Group USA Inc.

Segway Inc.

Shell Oil Company

The Sherwin-Williams

Company

Smith & Nephew, Inc.

St. Jude Medical, Inc.

3a

Stanley Black & Decker,

Inc.

Subaru of America, Inc.

Synthes (U.S.A.)

Techtronic Industries

North America, Inc

Terex Corporation

TK Holdings Inc.

The Toro Company

Toshiba America

Incorporated

Toyota Motor Sales, USA,

Inc.

Vermeer Manufacturing

Company

The Viking Corporation

Volkswagen of America,

Inc.

Volvo Cars of North

America, Inc.

Vulcan Materials

Company

Whirlpool Corporation

Yamaha Motor

Corporation, U.S.A.

Yokohama Tire

Corporation

Zimmer, Inc.