April 4, 2009

Oregon Drops Punitive Damages Claim in Order to Save Jobs

The state of Oregon has settled its claim for $200 million in punitive damages against truck manufacturer Freightliner, according to the Statesman Journal and OregonLive.com.

The settlement ends a dispute that raised very interesting questions about the consequences of "split-recovery" statutes that authorize a state to recover a portion of any punitive damages award. In this case, which we discussed last February, German truck manufacturer Man AG sued Freightliner in Oregon state court. Man AG won an $850 million jury verdict, including $350 million in punitive damages. Under Oregon law, the state becomes a creditor on any punitive verdict when entered, and is entitled to 60 percent of any punitive award.

Before the state could collect its cut, the parties settled and Man agreed to drop the punitive damages portion of the verdict. The trial court vacated the original judgment and dismissed the case pursuant to the settlement, but the state intervened and appealed from the judgment of dismissal, arguing that the parties could not bargain away the state's 60 percent share of the award. The Court of Appeals agreed that the state had standing to proceed on the merits of the appeal. The Oregon Supreme Court then agreed to hear the issue of the state's standing.

In the meantime, as the global economy worsened and truck sales declined, the City of Portland and Multnomah County complained to the state that the lawsuit might force Freightliner to close its plant in Portland. Despite these objections, the state pressed on with its claims. Sure enough, Freightliner announced in October of last year that it had decided to close the plant, as reported by the Portland Tribune. A spokesman for the state said the closure had nothing to do with the state's $200 million claim, but the general counsel of Frieightliner disagreed, saying company executives were "deeply disappointed that Oregon would sue us while other states are courting us."

Apparently, the state had a change of heart, and agreed to settle in order to keep the plant open. The state gave up its $200 million claim in exchange for a donation of $150,000 to a crime victims fund, but if Freightliner closes its plant, it has to pony up another $300,000 to the state.

We can expect more litigation like this in states that have adopted split-recovery statutes. These laws may turn out to have a variety of unintended consequences.

Hat tip: Robin's Nest.