PUNITIVE DAMAGES IN OHIO

Global StrategyThis article addresses Punitive Damages in Ohio Post Philip Morris and Exxon Decisions.

Punitive Damages in Ohio – Post Philip Morris and Exxon
by
Joseph M Lyon, Esq.
THE LYON FIRM
www.thelyonfirm.com

I. INTRODUCTION

In Philip Morris USA v. Williams1, in a 5-4 decision that defied traditional political ideology,2 the United States Supreme court held that the “due process clause prohibits juries from basing punitive damages awards and punishing defendants for harm to other nonparties”. 3 The qualified holding in Philip Morris allows juries to consider harm to nonparties in assessing the “reprehensibility” of the defendant’s conduct; however, the jury may only render a punitive award that constitutes punishment for the harm to the individual plaintiff or damages meant to deter against future harm. 4 In practice, the decision left trial judges and appellate courts with the difficult task of instructing on punitive damages and then evaluating whether the evidence was used properly. This paper will address several areas of confusion and identify how Ohio law has implemented the holding in this case and the previous precedent in its jury instructions and legislation. Specifically, the paper will focus on the guiding principles of (A) reprehensibility, (B) ratio of punitive to compensatory damages, and (c) comparable conduct and penalties.

II. THE THREE GUIDEPOSTS OF PUNITIVE DAMAGES

Philip Morris was the third case in a string of Supreme Court cases that placed constitutional limits on punitive damages awards in civil actions. While the Supreme Court fully recognized that punitive damages serve an important and critical purpose in the civil litigation context and in protecting states interests, the Court also recognized that an unpredictable system can lead to unfair and improper results. Therefore, the court sought to establish appropriate standards to avoid arbitrary results where awards are “grossly excessive”. In BMW of North America, Inc. v. Gore, the Court held that a $2 million punitive award was “grossly excessive” where there was only $4,000 compensatory. 5 The Court noted that “elementary notions of fairness…dictate that a person receive fair notice not only of the conduct that will subject him to punishment but also of the severity of the penalty the State may impose.” The Court went on and 6 established three “guideposts” to assist the lower courts in determining whether a defendant has fair notice and whether an award is grossly excessive:(1) Reprehensibility, (2) Ratio of punitive damages to actual compensatory loss, and (3) presence of other state punishments (criminal, civil sanctions) for the conduct. In response to these decisions, many states, including Ohio have enacted legislation to establish more certainty in the rare punitive damages cases.

A. THE MORE REPREHENSIBLE THE CONDUCT, THE LARGER AN APPROPRIATE PUNITIVE AWARD

The Supreme Court consistently noted that “the most important indicium of the reasonableness of a punitive damages award” is the reprehensibility of the defendant’s conduct.(7) In BMW, the court considered the following factors (a) whether the harm was purely economic; (b) whether there was a risk to public safety; (C) whether the acts constituted an indifference or disregard to the safety of others; (d) whether the defendant made any affirmative acts of misconduct or concealed evidence of improper conduct. The “[punitive] damages imposed on a defendant should reflect the enormity of the offense”8, the “gravity of the conduct”9, and the State’s interest in deterring such in state conduct. 10 Certainly, violent offenses and offenses of “trickery and deception” are more serious than non-violent, non-deceptive acts.(11)

i. Ohio Factors for Reprehensibility

Ohio has enacted a specific statute to assist with the determination of reprehensible conduct. The revised code provides (12) in determining the amount of punitive or exemplary damages, the court shall consider factors including, but not limited to, the following:

  1. The likelihood that serious harm would arise from the misconduct of the manufacturer or supplier in question;
  2. The degree of the awareness of the manufacturer or supplier in question of that likelihood;
  3. The profitability of the misconduct to the manufacturer or supplier in question;
  4. The duration of the misconduct and any concealment of it by the manufacturer or supplier in question;
  5. The attitude and conduct of the manufacturer or supplier in question upon the discovery of the misconduct and whether the misconduct has terminated;
  6. The financial condition of the manufacturer or supplier in question;
  7. The total effect of other punishment imposed or likely to be imposed upon the manufacturer or supplier in question as a result of the misconduct, including awards of punitive or exemplary damages to persons similarly situated to the claimant and the severity of criminal penalties to which the manufacturer or supplier in question has been or is likely to be subjected.(13)

ii. Out of State Activity: Admissible v. Not Admissible

In balancing the State’s interest and the defendants right to due process, the Supreme Court placed certain limits on a jury considering the Defendant’s out of state conduct. Two types of out-of-state conduct cannot be considered in assessing punitive damages: 1. out-of-state conduct, even unlawful out-of-state conduct that has no nexus to the conduct at issue; and 2. lawful out-of-state conduct that is lawful where it occurs. However, the decision strongly supports the introduction of evidence of harms to non-parties in assessing the reprehensibility of a defendant’s deliberateness and culpability in the state where it is tortious, but that conduct must have a nexus to the specific harm suffered by the plaintiff.

[Williams] argues that she is free to show harm to other victims because it is relevant to a different part of the punitive damages constitutional equation, namely, reprehensibility. That is to say, harm to others shows more reprehensible conduct….Philip Morris, in turn, does not deny that a plaintiff may show harm to others in order to demonstrate reprehensibility. Nor do we. Evidence of actual harm to nonparties can help to show that the conduct that harmed the plaintiff also posed a substantial risk to the general public, and was particularly reprehensible.(14)

Thus, for example, in a product liability action, the defendant’s out-of-state conduct during the manufacturing, marketing, design of a product that injures the plaintiff is admissible. Moreover, reports and other evidence of other injuries caused by the same product under the same or similar circumstances, even if those injuries occurred in other states is also admissible for punitive damages evaluation. The primary issue is that any evidence that supports the claim that the defendant failed to take corrective action after notice of the defect and those injuries is relevant; it demonstrates the pattern and intent and complete conscious disregard for the health and safety of others, or manifests a flagrant disregard for the safety of persons who might be harmed by the product in question,15 which goes to the factor of reprehensibility.

iii. Ohio Instructions on Out-of State Conduct

Punitive damages jury instructions are more critical because of the constitutional concerns expressed in BMW, State Farm and Philip Morris. The Ohio instructions are as follows:

DAMAGES TO NON-PARTIES (ADDITIONAL). Evidence was introduced that (insert name of defendant)‘s conduct has resulted in harm to persons other than (insert name of plaintiff). This evidence may be considered only for the purpose of helping you decide whether (insert name of defendant) showed a flagrant disregard for the safety of other persons who might be harmed by his/her/its conduct. However, you are not to punish (insert name of defendant) for the direct harm his/her/its alleged misconduct caused to other persons.

DEFENDANT’S OUT-OF-STATE CONDUCT (ADDITIONAL). Evidence was introduced of (insert name of defendant)‘s conduct in (another state) (other states). You may not use that conduct to punish (insert name of defendant) if that conduct was legal where it occurred. This evidence may be considered only for the purpose of helping you decide whether (insert name of defendant) showed a flagrant disregard for the safety of other persons who might be harmed by his/her/its conduct.(16)

B. THERE IS NO BRIGHT LINE FOR RATIO OF DAMAGES

The second factor the courts have considered in the reasonableness of an award is the ratio of the punitive award to the actual harm suffered by the Plaintiff—“It is not possible to draw a mathematical bright line between constitutionally acceptable and constitutionally unacceptable that would fit every case.”(17) In fact, the Court has “consistently rejected” such a formula, noting that “low awards of compensatory damages may properly support a higher ratio”, if a “particularly egregious act has resulted in only a small amount of economic damages.“18 Most importantly, the ratio should include not only the actual and potential harm to the plaintiff, but also the potential harm to other victims. The Supreme Court noted in TXO: 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.(19)

i. Exxon Shipping Co. v. Grant Baker

In 1989 a 900 foot Exxon supertanker carrying 53 million gallons of crude oil (over a million barrels) crashed into the Bligh Reef, tearing open the hull and spilling 11 million gallons of oil into the Prince William Sound. During the trial, evidence was presented that the captain, Joseph Hazelwood, was an alcoholic and the Exxon management knew he had relapsed. Although Exxon had a clear policy of prohibiting employees from serving on board within four hours of consuming alcohol, there was no evidence that the company monitored or enforced this policy. On the day of the disaster, witnesses testified that Hazelwood consumed at least five double vodkas (15 ounces of 80 proof vodka) before boarding the ship. Expert testimony was offered indicating that his blood alcohol level was approximately .241 at the time of the disaster. The spill resulted in Billions of dollars of economic loss for cleanup efforts and business income to the community that were depended upon the Sound for their livelihoods.

As a result, Exxon spent $2.1 billion in cleanup efforts, paid $900 million toward restoring natural resources, and made voluntary payments of $300 million to fishermen, property owners and other private parties. The remaining cases were consolidated into a mandatory class action of all plaintiffs seeking punitive damages. In the compensatory phase of the trial, the jury awarded $287 million and other claims were settled for $22.6 million. In the punitive phase of the trial, the jury awarded $5,000 against Hazelwood and $5 billion against Exxon. On appeal, the court reduced the verdict to $2.6 billion.

The primary issue in the Exxon case was whether the award, under maritime common law, exceeded the bounds justified by the punitive damages goal of deterring reckless conduct. Justice David Souter, writing for the 5-3 majority, concluded that punitive damages should be in a 1-to-1 ratio with compensatory damages. The court’s opinion in Exxon has been viewed as a departure from its prior decisions where it refused to establish a bright-line ratio and is limited to cases involving maritime law. (20)

ii. Ohio has a ratio of two to one.

Notwithstanding, Ohio law is in line with the ratio outlined in Exxon. An Ohio court cannot enter judgment for punitive damages in excess of two times the amount of the compensatory damages awarded to the plaintiff from that defendant. If the defendant is a small employer or individual, the court shall not enter judgment for punitive or exemplary damages in excess of the lesser of two times the amount of the compensatory damages awarded to the plaintiff from the defendant or ten percent of the employer’s or individual’s net worth when the tort was committed up to a maximum of three hundred fifty thousand dollars.

C. OTHER STATE CIVIL AND CRIMINAL PENALTIES

Punitive damages are appropriate to further a state’s interest in deterring such conduct. One measure of the state’s interest is to look towards other fines in that state. In BMW, the court noted that the $2 million punitive award was substantially greater than Alabama’s $2,000 fine and penalties associated with the conduct. 21 “A reviewing court engaged in determining whether an award of punitive damages is excessive should ‘accord substantial deference’ to legislative judgments concerning the appropriate sanctions for such conduct.“22

Under Ohio law, punitive damages may not be awarded against a defendant if punitive damages have already been awarded and have been collected, in any state or federal court.

References

  1. 127 S.Ct 1057 (2007)
  2. Chemerinsky, Erwin. More Questions About Punitive Damages, Trial May 1, 2007 Vol. 43, No. 5. (Perhaps the ruling’s greatest significance is the composition of the Court’s majority. Justice Stephen Breyer wrote the opinion, joined by Chief Justice John Roberts and Justices Samuel Alito, Anthony Kennedy, and David Souter. Justices Ruth Bader Ginsburg, Antonin Scalia, John Paul Stevens, and Clarence Thomas dissented. Until this decision, it was not known how the two newest justices, Roberts and Alito, would view constitutional challenges to punitive damages. Some Court watchers speculated that they might agree with fellow conservative justices Scalia and Thomas, who in earlier cases had found that the Constitution imposes no restrictions on the size of punitive awards. But Philip Morris shows that they will be part of a five-person majority to enforce due process limits on punitive damages. That, and the lack of clarity in the Court’s opinion—virtually ensures that the Supreme Court will revisit the issue in the near future.)
  3. Philip Morris, 127 S. Ct. 1057
  4. Id.
  5. BMW of North America, Inc. v. Gore, 116 S.Ct. 1589 (1996)(The case arose from a fraud claim under Alabama law, where an auto dealer repainted the car without disclosing that to the customer at the time of sale.)
  6. Id.
  7. Id.
  8. Id. at 1594.
  9. Browning-Ferris Industries of Vt., Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 301 (1989)
  10. Philip Morris at 1057 (syllabus)
  11. BMW at 1594.
  12. ORC 2307.80
  13. Id.
  14. Philip Morris at 1061.
  15. OJI; ORC 2307.80
  16. Arkin, Sharon. “Busting Myths about Punitives in Products Cases”. Trial Vol. 41 No.9 (Sept.1005). The instruction, in essence, put the burden on the defendant to prove that its out-of-state conduct was lawful in other states. In most products liability actions, it will be virtually impossible to show that any state permits a manufacturer to knowingly distribute defective products without liability for injuries.
  17. BMW, at 2 (Syllabus)
  18. BMW, at 1595.
  19. Arkin, Sharon.
  20. See Haslip (The court rejected a bright line ration and approved a ratio of more than 4 to 1 as constitutional); see Also, TXO where the Court approved a 526 to 1 ration. Furthermore, In Campbell, the court stated: [W]e have consistently rejected the notion that the constitutional line is marked by a simple mathematical formula, even one that compares actual and potential damages to the punitive award. We decline again to impose a bright-line ratio which a punitive damages award cannot exceed.
  21. BMW at 1590.
  22. Browning Ferris, 492 U.S. at 301 (O’Conner, concurring opinion in part)against that defendant based on the same act or course of conduct that is alleged to have caused the injury or loss to person or property for which the plaintiff seeks compensatory damages and that the aggregate of those previous punitive or exemplary damage awards exceeds the maximum amount of punitive damages that may be awarded under Ohio law. However, there are several exceptions to this rule: (1) if the court determines by clear and convincing evidence that the total amount of prior punitive or exemplary damages awards was totally insufficient to punish that defendant’s behavior of a type described in division; (2) the defendant acted purposely and knowingly; and (3) the defendant has been convicted of or pleaded guilty to a criminal offense that is a felony, that had as an element of the offense one or more of the culpable mental states of purposely and knowingly as described in that section, and that is the basis of the tort action.

III. CONCLUSION

In light of Supreme Court precedent on punitive damages, the Ohio Legislature has enacted very specific legislation that provides guidance to the court on this difficult issue. Practitioners in Ohio should be familiar with the revised code sections and Supreme Court precedent as well as the applicable jury instructions. These materials are attached for your reference.