Supreme Court Rejects Firms’ Pleas on Damages

The Supreme Court Monday upheld a series of multimillion-dollar damage awards against major corporations, rejecting claims that they represented “excessive fines” banned by the Constitution.

The damage awards--handed down by juries to punish wrongdoing by big businesses--included a $4-million judgment against Atlantic Richfield in Los Angeles, a $6.9-million award won by Downey Savings & Loan against an Ohio insurance company and an $11.2-million judgment against the makers of Playtex tampons.

Lawyers for the corporations noted in their appeals that the bulk of the awards in the cases were “punitive” damages, above the “actual” damages that compensated the injured parties for the losses they suffered. Juries often award extra damages to send a message to big companies about wrongdoing, and major corporations and insurance companies have been calling for the courts and legislatures to rein in these spiraling sums in recent years.

New Strategy Rejected

The contention that the awards constituted excessive fines banned by the Eighth Amendment, which also prohibits “cruel and unusual punishment,” was one of the newest strategies employed in the campaign. The amendment has generally been applied only in criminal cases, but corporate attorneys have argued for an expanded interpretation.

The argument, which once looked promising for big business, was squelched Monday. The result was foreshadowed two weeks ago when the justices upheld a $1.6-million punitive damage award against a Chicago insurance company that was found guilty of failing to pay a $20,000 claim in Mississippi. At the time, the high court said it was acting because the insurance company had not “properly presented” the constitutional argument in the Mississippi courts.

However, on Monday, the justices dismissed without comment the six other pending cases where corporations were appealing big punitive damage judgments. Only Justices Sandra Day O’Connor and Anthony M. Kennedy expressed interest in hearing the cases.

“We’re very disappointed. I think they have sent a pretty clear signal (that) they don’t want to get involved in this issue until it has been aired more in the lower courts and by the state legislatures,” said Larry Simms, a Washington lawyer who represented several of the corporations in their unsuccessful appeals.

The damage awards that were upheld include:

- $5.1 million in punitive damages assessed against Ohio Casualty Insurance, which failed to pay off a claim filed by Downey S&L; for its losses resulting from a scheme by one of its own branch managers (Ohio Casualty vs. Downey S&L;, 87-159). In 1973, the Costa Mesa-based savings and loan institution had an insurance policy to cover it from losses incurred through acts of dishonest employees, but the Ohio company failed to act on Downey’s claim. A Los Angeles jury assessed a total of $6.9 million, including actual damages. These awards were upheld by the state Supreme Court earlier.

- $3.5 million in punitive damages assessed against Arco in a suit filed by John Nielsen, an independent gas station operator for Arco in San Diego (Arco vs Nielsen, 87-1196). In the late 1970s, the oil company was seeking to get its dealers to convert to “mini-market” operations in which they would sell groceries and other sundries as well as gasoline. But Nielsen contended that he was deceived into making the switch by Arco officials who gave him inflated profit projections.

Nielsen went bankrupt in 1981, several months after making the switch and had to sell his dealership to the company. A jury in San Diego awarded him $525,788 for his losses and tacked on the extra $3.5-million award against the oil giant. Nielsen was not available for comment Tuesday, but his attorney, George J. Berger of San Diego, said Arco defrauded Nielsen by not showing him a market survey that indicated that Nielsen could not succeed with a mini-mart at that location.

- A Kansas jury awarded a total of $11.2 million to the family of Betty O’Gilvie, who died of toxic shock syndrome in 1983 (Playtex vs. O’Gilvie, 87-1021). The package of tampons included a warning that said the product was “associated with toxic shock syndrome,” but the jury concluded that the company knew far more about the dangers of the product than it had disclosed. It awarded her family $1.2 million in damages for their loss and added on a $10-million punitive award against Playtex Holdings Inc.

In other actions, the high court:

- Ruled unanimously that most natural gas should be removed from price controls, a decision that the government says could save consumers $100 million a year. The decision (FERC vs. Martin Exploration Management Co, 87-363) is a victory for suppliers and consumers of natural gas, but a loss for producers. The Natural Gas Policy Act phased out price controls but created a complicated scheme for deciding what is “old” gas and deregulated “new” gas. The opinion by Justice William J. Brennan Jr. said the intent was to deregulate as much gas as possible and to have it sold at lower market prices.

- Ruled that federal regulators may quickly remove a bank executive from his job when he has been accused of criminal wrongdoing. The unanimous opinion (FDIC vs. Mallen, 87-82) gives officials of the Federal Deposit Insurance Corp. the authority to act swiftly in cases where fraud by bank officials is suspected. The ruling also said that bank officials do not have a constitutional right to have a hearing on the charges before they are removed from their positions.

- Struck down an Ohio law that gave special sales tax credits to producers of ethanol in Ohio (New Energy Co. vs. Limbach, 87-654). The law also gave the tax credits to producers from other states if their states gave special credits to the Ohio ethanol companies. The unanimous opinion by Justice Antonin Scalia called the law an example of “economic protectionism” by one state that is forbidden by the Constitution’s goal of facilitating interstate commerce.

- Refused to resurrect federal rules that would force local cable television operators to carry all local TV stations (National Assn. of Broadcasters vs. Century Communications, 87-1510).

Times Staff Writers James Granelli in Orange County and Chris Kraul in San Diego contributed to this story.