Punitive Damages: Calling for a Legislative Solution

By February 21, 2007General

The Wall Street Journal editorialized today on the U.S. Supreme Court’s ruling that overturned a $79.5 million punitive damages award to the widow of an Oregon man who had smoked for more than four decades. We wrote about the salutory decision here.

Salutory, but limited. The Journal’s piece said the court had “split the difference,” still leaving much uncertainty in the appropriate rendering of punitive damages in civil cases.

The Court currently has a petition before it to hear another punitive-damages case, this one involving a rollover in a Ford Explorer SUV. The case would give the Justices another opening to address what safeguards are necessary to ensure that the rights of defendants and plaintiffs alike are respected when it comes to the evidence and arguments that can be presented to ring up huge damage awards. In the long run, it may be that procedural safeguards on how these cases are argued and how juries are told to weigh the evidence could make judicial limits on outsize punitive damages less important, but yesterday’s ruling in Philip Morris v. Williams is unlikely to be the final word.

Which sent us in search of more information about Ford’s petition for review in the case the Journal refers to, one known as Buell-Wilson v. Ford Motor Company. Mrs. Buell-Wilson sued Ford after being paralyzed when her Ford Explorer turned over on a California freeway when she swerved to avoid road debris; a jury awarded her $368 million, including $246 million in punitive damages. Even as courts have reduced the damage awards, Ford cites the fact that Explorer met all safety standards to continue its appeals.

Ted Frank of the American Enterprise Institute has written an excellent monograph on the Buell-Wilson case. (Frank is quoted on the Philip Morris decision here.) Recasting Ford’s specifics into a broader context, Frank argues:

“[Punitive] damages should not be available when the questioned behavior is simply a good-faith dispute over optimal design, especially when the design at issue meets government standards. How can Ford be said to have carried on a “willful and conscious disregard of the rights or safety of others” if they designed the vehicle to be among the best performers in its class? Punitive damages are meant to be reserved for cases of acting in bad faith, and a good-faith dispute over design is not a fair means to impose punishment, even if a manufacturer turns out in hindsight to be wrong.

Frank makes many more compelling points, including one we fully embrace: Determining non-economic damages is an exercise is arbitrariness, one the courts are ill-equipped to handle. Congress should act to impose some certainty, needed if America is to compete economically.

It remains difficult to discern any fundamental fairness in punitive damages that can be awarded for good-faith engineering disagreements, or in wholly arbitrary noneconomic damages in which only a trial lawyer’s imagination determines the magnitudes of wealth transfers of tens or hundreds of millions of dollars. Products liability has become a means of transferring wealth from the guilty and innocent alike to attorneys’ and random plaintiffs’ pockets. This does not deter design defects–it just deters design. American competitiveness requires putting reasonable rules back in this game show: cap indeterminate noneconomic damages to reduce distortions in the system; ensure evidentiary rules that give the jury the chance to make a judgment based on the best scientific evidence available (including use of neutral court-appointed experts to assist jurors in the battle of the experts); and create objective safety standards for manufacturers that provide a safe harbor from unfair liability determinations. Only with these fixes can America focus on manufacturing products rather than manufacturing litigation tales.

As we said, an excellent analysis, one Congress should take to heart.