The latest in a series of United States Supreme Court cases limiting punitive damages forbids a state from using a punitive damages award to punish a defendant for harm inflicted on nonparties and charges state courts with responsibility, if requested, for shielding defendants from the risk that the jury might award punitive damages for harm to nonparties.
Federal constitutional limits on punitive damage claims are once again at the forefront. In Philip Morris USA v. Williams, 127 S.Ct. 1057 (2007), the U.S. Supreme Court held that federal due process forbids a state from using a punitive damage award to punish the defendant for harm inflicted on nonparties to the lawsuit.1 The Court also charged state courts with the responsibility, if requested, of providing some sort of protection for defendants against the risk that the jury might award punitive damages for harm to nonparties.2 The recent decision will certainly affect the submission of the punitive damages case to the jury in Minnesota courts, especially in the areas of jury instructions and potential evidentiary limitations. Yet any punitive damages case involves consideration of the well-developed substantive Minnesota law that will continue to govern any potential punitive damages case. This article will discuss the evolution of Minnesota law on punitive damages, review recent federal due process limitations imposed by the U.S. Supreme Court, and suggest how these limitations will be applied by the state courts.
Minnesota Punitive Damages Law
Punitive damages have been recognized and permitted in Minnesota since the state’s formation, initially as a matter of common law.3 These early cases applied the traditional “preponderance of the evidence” standard to punitive damages claims.4 In 1978, the Legislature enacted Minn. Stat. §549.20 against a “backdrop of concern over the increasing number of punitive damages awards in product liability cases.”5 The statute “was intended to codify our common law on punitive damages,”6 but also
reflected an intent to limit punitive damages in civil actions by making the remedy available “only upon clear and convincing evidence that the acts of the defendant show a willful indifference to the rights or safety of others.”7
The statute was amended in 1990 to substitute “deliberate disregard” for “willful indifference.” The newer standard was intended to be a “heightened” one,8 and the amended statute specifically defines “deliberate disregard.”9 The statute also requires that the plaintiff show the defendant’s deliberate disregard not just by a preponderance of the evidence but by “clear and convincing evidence.”10
If punitive damages are sought, any party may request a bifurcated trial so that the initial proceeding is limited to a determination of whether compensatory damages are to be awarded. If a defendant is found liable in the first phase for compensatory damages, there will be a separate proceeding to “determine whether and in what amount punitive damages will be awarded.”11
The statute also requires that every award of punitive damages be reviewed by the court in light of the factors set out in the statute for measuring punitive damages. The court must make specific findings with respect to the relevant factors and, upon review of the jury’s determination, may limit the punitive damages award.12
The federal judges in the District of Minnesota apply the pleading requirements of Minn. Stat. §549.20 to punitive damages claims arising from causes of action premised upon Minnesota law, concluding that the statute is “substantive” rather than “procedural” for purposes of Erie analysis.13 Although this rule is “well settled”14 and applied “consistently”15 by the federal court in Minnesota, it is the minority view among federal courts and has not escaped criticism.16
Since the purpose of punitive damages is to punish serious misbehavior, the focus in determining the amount of punitive damages is on the defendant’s conduct, not on the plaintiff’s harm.17 The statute provides as follows:
Any award of punitive damages shall be measured by those factors which justly bear upon the purpose of punitive damages, including the seriousness of hazard to the public arising from the defendant’s misconduct, the profitability of the misconduct to the defendant, the duration of the misconduct and any concealment of it, the degree of the defendant’s awareness of the hazard and of its excessiveness, the attitude and conduct of the defendant upon discovery of the misconduct, the number and level of employees involved in causing or concealing the misconduct, the financial condition of the defendant, and the total effect of other punishment likely to be imposed upon the defendant as a result of the misconduct, including compensatory and punitive damage awards to the plaintiff and other similarly situated persons, and the severity of any criminal penalty to which the defendant may be subject.
The jury instructions paraphrase these factors for consideration and make clear that it is not an exclusive list of considerations.18
A plaintiff is not required to prove every one of these factors in order to justify an award of punitive damages. Thus, for example, “evidence of a defendant’s financial condition is an important consideration … but it is not necessarily an essential element to prove entitlement to those damages.”19 However, all of the factors are relevant to a reviewing court’s determination of the appropriateness of a punitive damages award.20
Initially, the appropriate amount of punitive damages is a question for the jury, but the “open ended and volatile nature of punitive damages” requires the court to exercise close supervision over the award.21 In general, Minnesota courts will look for proportionality between the egregious conduct and the amount of damages.22 In so doing, Minnesota courts have considered several factors affecting the appropriateness of jury awards,23 and have not infrequently remitted awards found to be excessive.24
Federal Constitutional Limitations
Punitive damage claims also involve consideration of federal constitutional limits. In a trio of decisions starting in 1993,25 the U.S. Supreme Court concluded that punitive damage awards raise important federal due process considerations that directly affect the state’s ability to provide for this remedy. While recognizing punitive damages serve the state’s legitimate interest in punishing unlawful conduct and deterring its repetition,26 the U.S. Supreme Court concluded such awards are similar to criminal sanctions and raise both procedural and substantive federal due process concerns. The Philip Morris decision is the fourth in the series, and is significant for the fact that it charges the state courts with providing adequate protections for defendants at the time the issue is submitted to the jury, rather than through trial court review after the fact.
This more active role began about 20 years ago, when the Supreme Court expressed a general concern about the lack of adequate guidance given to juries in determining punitive damages awards, as well as a concern about excessive punitive awards. At first, the Court seemed content to provide guidance to the states only in developing procedures to ensure that juries do not impose punitive damages in an arbitrary or irrational manner and thereby violate the due process guarantee of the 14th Amendment.27 Along the way, however, the Court suggested that punitive damages awards may also raisesubstantive due process concerns. The first hint of this substantive dimension is found in Browning Ferris Industries of Vermont v. Kelco Disposal, Inc., 492 U.S.257 (1989), and later given considerable emphasis in TXO Production Corp v. Alliance Resources Corp, 509 U.S. 443 (1993), where Justice Stevens framed the question before the Court as “whether that punitive damages award violates the Due Process Clause of the 14th Amendment, either because its amount is excessive or because it is the product of an unfair procedure.”28
Then, in BMW of North America v. Gore, 517 U.S. 559 (1996), the Court finally focused its full attention on this substantive dimension of due process review and, for the first time, reversed an award of punitive damages, not for being procedurally wanting, but for being “grossly excessive” in violation of the Due Process Clause. BMW set forth three “guideposts” for reviewing courts to use to determine whether a punitive damages award has been narrowly tailored to satisfy a state’s interest in punishing conduct so as to protect its own consumers and its own economy. The guideposts are (1) the degree of reprehensibility of the defendant’s conduct toward the plaintiff, (2) the ratio between the compensatory award and the punitive award, and (3) a comparison of the punitive damages award to any civil or criminal penalties that could be imposed for comparable conduct. BMW admonished reviewing courts to reverse punitive awards if, after carefully scrutinizing the record while applying these three guideposts, they determine that a “more modest” award would satisfy the state’s interest in punishing the defendant’s conduct. The case necessarily requires a heightened review of punitive damages awards should such awards be appealed.
A few years later, in Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424 (2001), the Court held that federal and state appellate courts must review de novo the trial court’s determination of the constitutionality of a punitive damages award. This emphasized the need for heightened review where the constitutionality of the award was directly challenged. Thus, while a reviewing court will defer to the trial court’s discretion on whether the award comports with Minnesota law,29 a challenge to the constitutionality of the award as grossly excessive or violating due process is reviewed de novo.
In 2003, in State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003), the Court further refined its notion of the “grossly excessive” limitation on punitive awards. The Court found that the state’s decision to impose punitive damages was permissible, but that “a more modest” award would have served Utah’s interest in punishing and deterring State Farm and others from similar conduct in the future, and so reversed the award as unconstitutional.30 Applying its BMW guideposts to its review, the Court clarified several issues as to the evidence that can be considered in making the reprehensibility analysis, provided further guidance on the ratio between compensatory awards and punitive awards, and provided some guidance on the relationship of the punitive award to public fines or penalties levied for comparable conduct.
In assessing reprehensibility, Campbell makes it clear that a state may not punish for conduct that may have been lawful where it occurred or even for unlawful acts that occurred outside of a state’sjurisdiction.31 Nor may a defendant be punished for “dissimilar acts, independent from the acts upon which liability was premised.”32
As to the ratio between compensatory damages and punitive damages, Campbell said that while there are no “concrete constitutional limits on the ratio … in practice, few awards exceeding a single-digit ratio … will satisfy due process.”33 Moreover, the Court said that “[w]hen compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages,” can satisfy due process.34 While concluding that “there are no rigid benchmarks that a punitive damages award may not surpass,” the Court suggested that larger ratios may be constitutionally permissible where the plaintiff suffered economic damages only, the amount of economic damages is small, and the defendant’s conduct is particularly egregious.
As to the third benchmark, the Campbell court noted that “[t]he most relevant civil sanction under Utah state law … appears to be a $10,000 fine for an act of fraud, an amount dwarfed by the $145 million punitive damages award.”35 However, the Court also observed that while the existence of a criminal penalty for the defendant’s conduct shows the seriousness with which the state views such conduct, it provides little assistance to the jury in determining the appropriate amount of punitive damages. Since it is more difficult to impose criminal sanctions due to a heightened burden of proof and other factors, the Court observed that “the remote possibility of a criminal sanction does not automatically sustain a punitive damages award.”36
Dozens of appellate rulings in the wake of Campbell resulted in a reduction in the size of many punitive damages awards, but in the vast majority of instances, the ratio of punitive damages to compensatory damages remained greater than the 1:1 ratio that the Campbell court proposed for all but extraordinary cases.37 Reviewing courts also began to reflect their understanding of the otherBMW guideposts as further clarified by Campbell. However, the post-Campbell cases do not reflect a consistent understanding or application of the Supreme Court’s guidance in that case. Many courts seem to have determined to apply Campbell as narrowly as possible.
The last chapter in this saga, for the moment, is Philip Morris USA v. Williams, 127 S.Ct. 1057 (2007). In a 5-4 opinion filed on February 20, 2007, the Court explicitly held that a jury may not punish a defendant through a punitive award for harm inflicted on nonparties to the lawsuit. The Court also addressed the procedure for implementing this limitation, stating that a state trial court should, upon request, provide assurances and authorize procedures to ensure that the jury does not award damages for harm inflicted upon nonparties.
In the Philip Morris case, an Oregon jury found that Jesse Williams smoked in significant part because he was deceived by Philip Morris into believing that it was safe to do so. The trial court rejected a jury instruction proposed by Philip Morris that stated that punitive damages could not “punish the defendant for the impact of its alleged misconduct on other persons, who may bring lawsuits of their ownin which other juries can resolve their claims” and award punitive damages for those harmed.38 The jury ultimately awarded his estate $821,485 in compensatory damages and $79.5 million in punitive damages. The Oregon Supreme Court affirmed the trial judge’s denial of the requested jury instruction, and the U.S. Supreme Court agreed to review the case.
In its opinion, the Supreme Court held that the 14th Amendment’s due process clause forbids a state from using a punitive damages award to punish for harm inflicted on nonparties to the lawsuit. According to the Court, the due process clause prevents a state from punishing a defendant without that defendant being able to present every available defense, which would be impossible to do with respect to nonparties. Without this limitation, a plaintiff would be asking a jury to speculate on the number of victims and circumstances in which they were injured. The Court noted that while evidence of harm to nonparties might be relevant to assess whether conduct was “reprehensible,” the jury could go no further and punish for harm to nonparties.39
More importantly, however, the Court addressed the procedural aspects of implementing this limitation on the jury award. If requested, the state court is responsible for providing some form of protection against the risk that the jury will award punitive damages for harm inflicted on nonparties.40 While noting states have some flexibility in deciding appropriate protections for each case, the Supreme Court charged the state courts with the responsibility of ensuring the jury asks the “right question”41 and avoiding procedures that create an “unreasonable and unnecessary risk” of jury confusion.42
Impact on Minnesota Law
The Philip Morris decision will certainly have an impact on submission of the punitive damages case to the jury. Practitioners should therefore be mindful of a number of considerations. First, the decision did not articulate exactly what sort of protections will be necessary to adequately protect the defendant. Most likely, the protections may vary depending on the particular case, and may include exclusion of certain evidence, strongly worded jury instructions, more explicit special verdict forms, or even special admonitions to the jury. For example, if the trial court screens certain evidence, the jury may never hear or consider evidence of the defendant’s conduct affecting nonparties. Or if such evidence is admitted for the limited purpose of showing the conduct was “reprehensible,” which is permissible under due process standards,43 the trial judge may give a cautionary instruction to the jury on the limited use of such evidence. Depending on the case, these protections should be adjusted for the case at hand, with the overarching goal to ensure the jury is asking the “right question” when it considers and awards punitive damages, and understands that an award can only punish the defendant for harm or potential harm to the plaintiff alone. The current pattern instruction will require some alteration to ensure such message is clearly given to the jury.44
Second, while the decision charges the state courts to ensure appropriate protections are used, it also appears to put most of the burden on the defendant to request such appropriate protections.45 WhileMinnesota appellate courts do, in limited circumstances, permit the appeal of plain error, the parties are generally responsible for requesting jury instructions and evidentiary limitations that accurately reflect Minnesota law and any constitutional limits. In a punitive damage situation, defendants must be careful to request such adequate protections through jury instructions, special verdict forms, and evidence limitations, and to preserve error if such protections are denied. In most cases, it is helpful to consult with an appellate practitioner to ensure that the appropriate protections are requested.
Philip Morris and its Supreme Court predecessors add another facet to the well-developed Minnesota law on punitive damages claims. The recent decision also charges the state court and the defendant with ensuring that appropriate protections are in place for preventing the jury from awarding punitive damages for harm suffered by nonparties. It will likely prompt some changes in both evidentiary issues and jury instruction issues in future cases, in supplement to the other protections provided in the Minnesota statutes and common law.
1 127 S.Ct. at 1063.
2 127 S.Ct. at 1064-65.
3 See Lynd v. Picket, 7 Minn. 184, 7 Gil. 128 (1862); Jensen v. Peterson, 264 N.W.2d 139 (Minn. 1978).
4 See Gryc v. Dayton-Hudson, 297 N.W.2d 727, 738-39 (Minn. 1980).
5 Jensen v. Walsh, 623 N.W.2d 247, 250 (Minn. 2001).
8 See Bougie v. Sibley Manor, Inc., 504 N.W.2d 493, 500 n.4 (Minn. App. 1993).
9 See Minn. Stat. §549.20, subd. 1(b).
10 See Minn. Stat. §549.20, subd. 1(a) (2003). See also Ulrich v. City of Crosby, 848 F. Supp. 861, 868 (D. Minn. 1994); Becker v. Alloy Hardfacing & Eng’g Co., 401 N.W.2d 655, 659 (Minn. 1987).
11 Minn. Stat. §549.20, subd. 4 (2003).
12 Minn. Stat. §549.20, subd. 5 (2003).
13 Berczyk v. Emerson Tool Co., 291 F. Supp. 2d 1004, 1008 (D. Minn. 2003); Olson v. Snap Prods., Inc., 29 F. Supp. 2d 1027, 1034 (D. Minn. 1998). The issue was first analyzed by Judge Devitt inKuehn v. Shelcore, Inc., 686 F. Supp. 233, 234 (D. Minn. 1988).
14 Backlund v. City of Duluth, 176 F.R.D. 316, 320 n.3 (D. Minn. 1994).
15 Engele v. Indep. Sch. Dist. No. 91, 846 F. Supp. 760, 768 (D. Minn. 1994).
16 See Josh Jacobson, “Pleading Punitive Damages: An Erie Dilemma,” 58 Bench & Bar of Minn. 2 (Feb. 2001), at 17 ff.
17 See Jensen v. Walsh, 623 N.W.2d 247, 250 (Minn. 2001).
18 See Steenson & Knapp, 4 Minnesota Practice: Jury Instruction Guides – Civil, CIVJIG 94.10.
19 Nugent v. Kerr, 543 N.W.2d 688, 691 (Minn. App. 1996).
20 See Johnson v. Ramsey County, 424 N.W.2d 800, 807-08 (Minn. App. 1988).
21 Mzorka v. Archdiocese of St. Paul and Minneapolis, 482 N.W.2d 806, 813 (Minn. App. 1992); Hodder v. Goodyear Tire & Rubber Co., 426 N.W.2d 826, 835 (Minn. 1988).
22 Mzorka, supra at 813; Hodder, supra at 837.
23 See, e.g., Lundman v. McKown, 530 N.W.2d 807 (Minn. App. 1995); Mzorka v. Archdiocese of St. Paul and Minneapolis, supra; Anderson v. Amundson, 354 N.W.2d 895 (Minn. App. 1984).
24 See, e.g., Mzorka v. Archdiocese of St. Paul and Minneapolis, supra; Bradley v. Hubbard Broadcasting, Inc., 471 N.W.2d 670 (Minn. App. 1991); Hodder v. Goodyear Tire & Rubber Co., supra at 837.
25 See BMW of North America v. Gore, 517 U.S. 559 (1996); Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424 (2001); State Farm Mut.
Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003).
26 BMW, supra, at 568.
27 See the line of cases including Aetna Life Ins. Co. v. Lavoie, 475 U.S. 813 (1986); Bankers Life and Cas. Co. v. Crenshaw, 486 U.S. 71 (1988); Browning Ferris Indus. of Vermont v. Kelco Disposal, Inc., 492 U.S. 257 (1989); Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1 (1991); and TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443 (1993).
28 509 U.S. 443, 447 (1993).
29 See Ray v. Miller Meester Advertising, Inc., 664 N.W.2d 355 (Minn. App. 2003), aff’d, 684 N.W.2d 404 (Minn. 2003).
30 538 U.S. 408, 429 (2003).
31 Campbell, 538 U.S. at 421 (2003).
32 Id. at 422.
33 Id. at 424-25.
34 Id. at 425.
35 Id. at 428.
37 See, e.g., McLain v. Metabolife Int’l, Inc., 259 F. Supp. 2d 1225 (N.D. Ala. 2003); Romo v. Ford Motor Co., 113 Cal. App. 4th 738 (2003); Henley v. Philip Morris, Inc., 112 Cal. App. 4th 198 (2003). By mid-2005, only two rulings had reduced the punitive award to a 1:1 ratio. See Williams v. Con Agra Poultry Co., 378 F.3d 790 (8th Cir. 2004); TVT Records v. Def Island Jam Music Group, 279 F. Supp. 2d 413 (S.D.N.Y. 2003).
38 127 S.Ct. 1057, 1061 (2007) (emphasis added).
39 Id. at 1064.
40 Id. at 1065.
41 Id. at 1064.
42 Id. at 1065.
43 Id. at 1064.
44 The current instruction follows the language of Minn. Stat. §549.20 and states jurors may award punitive damages if the “defendant acted with deliberate disregard for the rights or safety of others,” and should consider “the seriousness of the hazard to the public that may have been or was caused by the defendant’s misconduct.” Steenson & Knapp, 4 Minnesota Practice: Jury Instruction Guides – Civil, CIVJIG 94.10. A jury could understand that language to allow them to punish the defendant for harm caused to nonparties. While the instruction also tells the jury that it “may not consider any harm to persons who are not parties to this case that was the result of lawful conduct in another state” in compliance with the Campbell decision, this language would likely need to be expanded to exclude all harm to nonparties, even for similar conduct.
45 Id. at 1065 (where the risk of misunderstanding the purpose of the award is great, “a court, upon request, must protect against that risk) (emphasis added).
J. DAVID PRINCE is a professor of law at William Mitchell College of Law. He teaches in the areas of torts, toxic torts, and products liability law. He is Of Counsel at Larson•King, where he focuses his practice on products safety and product liability prevention, mass tort and products liability litigation, appellate advocacy, and alternative dispute resolution.
PAULA DUGGAN VRAA is a partner with Larson•King in St. Paul, focusing her practice on appellate advocacy and insurance coverage disputes. She is a former law clerk of Judge Harriet Lansing of the Minnesota Court of Appeals and an adjunct professor of law for appellate advocacy at the University of St. Thomas Law School.