April 11, 2008

NY Appellate Court Reverses $17 million in punitive damages - Rose v. Philip Morris

An intermediate appellate court in New York overturned a tobacco verdict yesterday in the case of Norma Rose v. Philip Morris USA. The jury had awarded $3.4 million in compensatory damages and $17.1 million in punitive damages based on claimed negligence in the design of cigarettes with higher levels of tar and nicotine than so-called "light cigarettes." As has been reported by the NY Law Journal ("Tobacco Companies Win Upset of Damages Award") the three-judge majority threw out the entire verdict for failure to prove the elements of the negligence claim. Two judges dissented, arguing that negligence liability could be found even if, as the majority put it, "plaintiffs offered no evidence of consumer acceptability of light cigarettes -- which was the only way to prove that light cigarettes were a feasible alternative design."

What may be most interesting to readers of this blog is that, despite the dissenters' view that the plaintiffs' tort claim was viable, they asserted that the punitive damages claim was not:

To warrant an award of punitive damages, there must be proof of recklessness, or a conscious disregard of the rights of others. [Citation] It is also well settled that punitive damages may not be premised upon mere negligence. [Citations] . . . [T]here was evidence to suggest that the defendant consciously disregarded the health risks posed to billions of consumers.

Nevertheless, Philip Morris’s conduct in marketing different cigarette brands with a range of tar and nicotine yields cannot subject it to punishment under New York law. As a matter of due process, an award of punitive damages cannot be based upon conduct – such as that at issue here – that the defendant could reasonably have believed to be lawful. In BMW of N. Am., Inc. v. Gore (517 U.S. 599, 574, 116 S.Ct 1589, 1598, 134 L.Ed.2d 809, 826 (1996)), the Supreme Court explained that “[e]lementary notions of fairness enshrined in our constitutional jurisprudence dictate that a person receive fair notice... of the conduct that will subject him to punishment.” See also Bouie v. City of Columbia, 378 U.S. 347, 355, 84 S.Ct. 1697, 1703, 12 L.Ed.2d 894, 900 (1964)(when punishment is imposed based on novel construction of statute, “the effect is to deprive [defendant] of due process of law in the sense of fair warning that his contemplated conduct constitutes a crime”).

Philip Morris did not have “fair notice” that the conduct at issue in this case might result in severe punishment. Indeed, the verdict in this case is novel. Congress not only has made a purposeful choice to regulate sales and advertising rather than to bar the sales of regular cigarettes, but has also blocked attempts to regulate tar and nicotine levels. The Surgeon General has never recommended removing regular-yield cigarettes from the market. No state or federal legislator or regulator has ever adopted a rule banning or restricting full-flavored cigarettes. And until this case, no court had ever held any tobacco manufacturer liable simply for continuing to sell regular brands, much less suggested that such conduct was punishable. In my view, punitive damages may not be imposed under such circumstances.

This question of punitives may go up to the next level---the article linked above reports that plaintiffs' counsel intend to appeal to New York's high court, and the fact that there's a two-judge dissent means they get to do this as a matter of right.