Corporates reel as US jury awards reach record high

Critics call for a punitive award ceiling as tobacco litigation sees damages top $30bn. Husnara Begum reports

US jury verdicts are getting bigger, with corporate defendants in the firing line like never before.

The total value of last year's jury awards was nearly three and a half times greater than in 2001. According to research published in The National Law Journal, of the 100 largest verdicts of 2002, there were five verdicts of at least $500m (£311.7m) and 22 of at least $100m (£62.3m), compared with three and 18 respectively in 2001.

US litigators interviewed by The Lawyer believe that this is because jurors are much more suspicious of large corporations following scandals such as Enron and WorldCom. Alfred Carlton, president of the American Bar Association (ABA), said that there is a “distrust of large corporations over and above the deep pocket theory”.

Head of Sidley Austin Brown & Wood's Los Angeles litigation group Peter Ostroff, who is acting for one of the defendants in Association of Apartment Owners of Royal Palm Resort

  • Mitsui Construction Co Ltd, said: “The numbers that have floated around in the economy over the past few years have inflated dramatically.
  • “Unthinkable numbers have been available and banded around and this is just a by-product of that. In order to send a message with impact you must send a bigger message. But we shouldn't expect these numbers to continue going up forever.”

    Carlton warns that The National Law Journal's report should be read with caution. He argues that the results reveal only a snapshot and do not necessarily show any trends. He believes that almost all of the cases referred to in the report will be appealed and “the appellate court is notorious for reducing non-economic damages”.

    The report shows that a total of $32bn (£19.95bn) of punitive damages were awarded in the top 50 verdicts of 2002. In 2001, this figure was just $3.2bn. However, $28bn (£17.46bn) of the 2002 punitive damages awards relate to the verdict in Bullock

  • Philip Morris Inc tobacco litigation.

    Last October, a Los Angeles jury awarded a record $28bn in punitive damages and $850,000 (£530,000) in compensatory damages to plaintiff Betty Bullock, a 64-year-old who suffers from small cell lung cancer. This was the largest award for any individual in history. However, last December, the trial judge said that the $28bn verdict was excessive and slashed the punitive damages payable to Bullock to $28m (£17.5m). The case will now proceed on appeal as if damages were $28m.

    One source close to the parties said that there were two likely causes for the jury's decision to return such an enormous verdict. He said: “Firstly, the State of California has waged a very aggressive and successful campaign to turn residents against tobacco companies. Secondly, California is a very tough place for a corporate defendant to get a fair trial. Ridiculously large punitive damages awards are not nationwide. In many cases they're restricted to the West Coast.”

    Even though most of the punitive damages that were awarded last year relate to Bullock

  • Philip Morris Inc, the jury verdicts will give further ammunition to critics of the current system who want to cap awards of non-economic payments such as punitive damages.

    Currently, there is no ceiling on the amount of punitive damages that a jury can award. In BMW of North America Inc

  • Gore, the US Supreme Court said that a punitive damages award that is four times greater than the compensatory award is “close to the constitutional limit”. In that case, the jury awarded the plaintiff Ira Gore $4m (£2.5m) in punitive damages on top of $4,000 (£2,500) compensation. The Supreme Court of Alabama reduced the payment to $2m (£1.2m) on appeal. BMW appealed again to the US Supreme Court, which said that it was still too much and sent the case back to Alabama. In May 1997, the Alabama Supreme Court reduced the award to $50,000 (£31,200).

    Trial courts generally exercise their discretion and reduce punitive damages when very large sums are awarded, but because there is no guidance about what basis trial courts should make reductions on, decisions are unpredictable.

    King & Spalding partner Judge Griffin Bell, who sits on the advisory board of US tort reform group Our Common Good, is in favour of replacing punitive damages with fines payable to relevant states of the federal government. He said: “The only solution that can be brought about is to treat all punitive damages as fines. Punitive damages started out in the UK as a slap on the wrist but we [the US] turned them into something totally different.”

    Arnold & Porter litigation partner Peter Bleakley, the defence lawyer in Bullock

  • Philip Morris Inc, believes that there are appropriate circumstances for punitive damages. “I'm not against the concept of punitive damages. But the way it's done in the US – by juries with little or no reasonably articulated standard or virtually no limitations – I think is very bad,” he said.

    In Bleakley's view there should be a reasonable relationship between punitive and compensatory damages. According to The National Law Journal, the ratio of punitive damages to compensatory awards has shot up substantially. In 2001, the median punitive award was 2.3 times the size of the median compensatory award; in 2002, this ratio rose to 4.5.

    ABA president Carlton is generally in favour of punitive damages and thinks that they are a useful and flexible tool for a jury under the right circumstances. He is opposed to introducing a ceiling because the trial courts already have powers to reduce excessive awards.

    The National Law Journal's report also reveals the entry of seven civil rights verdicts into the top 100, compared with none in 2001. Intellectual property verdicts rose from three to eight. The largest award, of $136m (£84.8m), was made to 23 recording companies against Media Group Inc, a Californian recording company that copied and sold more than 1,500 rap and Latin songs as well as performances by Madonna, James Brown and Elvis Presley.

    The lowest verdict relates to Blazo

  • McClaren Regional Medical Center. Plaintiff Evelyn Blazo was awarded $22m (£13.7m) for medical malpractice. According to the report, in 1991 38 verdicts topped $20m, and in 1996 that number increased to 66 – last year, $20m did not even make it into the top 100.