Posted by: bridget | 13 November 2006

Punitive Damages & Standing

The Supreme Court recently heard oral arguments in the Phillip Morris case. The question boils down to whether or not a plaintiff may seek damages because of harm done to others. The Court’s opinion should clarify its two earlier rulings in BMW v. Gore and Campbell v. State Farm, both of which limited punitive damages to “single digit” ratios of actual damages. Some of the BMW theory was that the behaviour was legal in about half of the states but actionable under Alabama law; BMW was being punished for, in some instances, legal behaviour.

The pachyderm sincerely hopes that the Supreme Court will move to limit punitive damages. Despite being a a bit of a Southerner, it is not sympathy for Big Tobacco, nor is it criticism that those who smoked knew what was coming to them, that compels her to make this statement. It is, quite simply, that plaintiffs lack the standing to sue on behalf of parties who are not participating in the litigation. Want to nail Big Tobacco for its nationwide wrongdoing? Get a class-action suit going. Otherwise, there is the (very real) possibility of one party draining all the funds of a company, leaving other aggrieved parties injured and without recovery – the first plaintiff has gotten wealthy off of their suffering. Simply put, it is unjust to collect money on behalf of the harm done to others but to not disburse those funds accordingly.

It is also unjust to punish a company multiple times over for the same offense. Consider a company that knowingly harms 10 people, for a total harm of $100 each. The first plaintiff may sue and recover punitive damages for the entire $1,000 (under Mrs. William’s theory). The second plaintiff should at least be able to recover his $100, but nothing prevents him from likewise asking for $1,000. (Consider that similarly-situated plaintiffs should be able to seek similar damages.) This would either continue down the line, until the company had paid out $10,000 – or ten times the damages. The other option – which often happens – is that the company would go bankrupt after the third or fourth plaintiff, leaving the others without recovery, as the first few plaintiffs had received damages on their behalf.

Unfortunately, the very nature of this standing issue means that potential plaintiffs cannot bring suit (except in rare circumstances) to stop this. A person who has yet to be injured or to realise full injury from tobacco cannot sue Mrs. Williams or join the Phillip Morris side in order to prevent Mrs. Williams from recovering in her name; she would not yet know that she would be injured and that, upon finding this out, the company would not have the funds to adequately compensate her. Likewise, any other potential litigant would have to first prove that he would succeed in a suit against the defendants and that his own recovery would be limited before he could join in a suit. The obvious solution is to do this by proxy: affirming the rights of Phillip Morris (or any other defendant) to limit its liability to the plaintiffs before it would allow future plaintiffs to recover.

The only other option (for injured plaintiffs) is to sue the original plaintiff for their share of the proceeds. The pachyderm actually might recommend that approach – turnabout being fair play and all.

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