Erased Tapes Case : Justices Face Issue of Large Punitive Fines

For the generation that grew up in the early years of television, memories of the banter between ventriloquist Paul Winchell and his wisecracking wooden buddy, Jerry Mahoney, are growing dim.

And the magic of Winchell and Mahoney will not be replayed for today’s children. Winchell’s shows on NBC in the 1950s were performed live, and the tapes of his 1960s programs on KTTV in Los Angeles were erased by the station in 1972, in a dispute between Winchell and the station’s management.

Now, “Winchell-Mahoney Time” is live again--this time before the Supreme Court. Winchell sued KTTV for destroying tapes thought in 1970 to be worth $50,000, and a state jury in 1986 awarded him not only $3.8 million for actual damages, but $14 million in punitive damages as well.

The Supreme Court, looking at the Winchell case and two others, will decide by June whether such large punitive damage awards violate the Eighth Amendment’s ban on “excessive fines” and the 14th Amendment’s guarantee of “due process of law.”

Big Business Complaints

Awards of such size often come out of suits against large companies, and corporate lawyers say they violate both constitutional protections. Juries, the attorneys argue, side with individuals against corporations because they mistakenly believe corporate funds to be infinite. Criminal penalties are set forth in law, but juries in civil cases can set their own fines to punish a company for malicious wrongdoing.

Consumer groups, on the other hand, say that gigantic punitive awards are the only way to punish big business for callous behavior. “This is the one chance for a jury to stand up and speak for the society and say to a big corporation: ‘We’re mad as hell and we aren’t going to take it anymore,’ ” Jeffrey White, counsel for the American Trial Lawyers Assn., said.

In the trial of the Winchell case, Jerry Mahoney himself took the stand. Over the objections of the lawyer for Metromedia, which owns KTTV, Jerry emerged from his suitcase and told Winchell that he felt comfortable because he had spotted a relative in the courtroom.

“A relative of yours?” Winchell asked. Sure, said Mahoney, right up there on the judge’s table. “His gavel and I came from the same tree.”

Attorney Frustrated

Dean Stern, the frustrated Metromedia attorney, recalled: “It was that kind of crude, slapstick humor, but you could see the jury come to life.”

Stern reminded the jurors--to no avail--that a 1965 contract between Winchell and KTTV explicitly permitted the company to erase the videotapes of the shows after six months.

“We had a contract on our side,” Stern said. “(Winchell) had an emotional appeal.”

So it is, corporate attorneys say, with most large awards for punitive damages.

On one side is a sympathetic plaintiff: a passenger horribly injured in an automobile or plane crash, a child who has suffered brain damage from medical treatment, a widow who has lost thousands of dollars through a shady business deal.

On the other side is a huge, impersonal corporation. Some such defendants--insurance companies, stock brokerages and asbestos makers, for instance--have proved to be particularly vulnerable.

Private Individuals Too

Individuals too can be hit with big punitive verdicts. A Los Angeles jury’s $21.7-million award to Marc Christian against the estate of actor Rock Hudson included a $7.2-million punitive verdict against Mark Miller, Hudson’s personal secretary, for failing to inform Christian that the actor was dying of AIDS.

Before 1970, large punitive awards were rare. But no more.

“Today, hardly a month goes by without a multimillion-dollar punitive damages verdict against a manufacturer,” Los Angeles attorney Malcolm E. Wheeler said in a brief filed with the Supreme Court on behalf of the National Assn. of Manufacturers, the U.S. Chamber of Commerce and other business groups that are urging limits on jury awards.

The watershed came in 1978, lawyers say, when an Orange County jury decreed a $125-million punitive damages award against Ford Motor Co. for a fuel tank design defect that caused its Pinto models to burst into flames when struck from the rear. (The judge, as often happens in such cases, later reduced the amount to $3.5 million.)

“After that episode,” Wheeler said, “plaintiffs’ attorneys had no qualms about coming into court and asking for $50 million or $100 million in punitive damages.”

Wheeler says in his brief that many U.S. companies simply have quit making some products--such as small airplanes, vaccines, anesthesia machines and football helmets--because of fear of lawsuits and large punitive verdicts.

The Conference Board, a business-sponsored research group, reported last year that about a third of 4,000 manufacturers surveyed “have decided against introducing new products because of liability fears.” But trial lawyers and consumer activists call these complaints from big business overblown. Punitive damage awards, they say, are still rare.

A RAND Corp. analysis of verdicts in Chicago and San Francisco over a 20-year period bore that out. It found only a gradual rise in the number of punitive verdicts, although the big awards got much bigger.

Punitive awards, said Mark Peterson, co-author of the 1987 RAND report, are “like lightning bolts. They are rare, but they really get your attention.”

Avenue of Punishment

Defenders of the current system say that juries are doing just as they should: speaking for the conscience of the community. If Ford was willing to let some Pinto drivers burn to death rather than spend $10 a car to correct the problem, they say, then Ford deserved to pay a substantial penalty.

Consumer activists say that punitive damages enable the little guy to keep the big guys in line. A $1-million award against an insurance company for failure to pay off on a $5,000 policy may seem like a large penalty, Linda A. Lipsen, counsel for Consumers Union, said. “But how else do you punish a billion-dollar corporation for that kind of behavior?” she asked. “And how do you deter them from doing it again?”

It is a battle already fought in most state capitals. Business groups have lobbied vigorously--and without great success--for limits on court verdicts that would eliminate the uncertainty now attached to punitive-damages claims. Now the business interests are hoping that the Supreme Court will do the job for them.

Their legal attack focuses on two amendments to the Constitution. The Eighth Amendment, which prohibits “cruel and unusual punishment,” also bars “excessive fines.” The 14th Amendment says that a state may not deprive someone of property “without due process of law.”

Throughout American history, the Eighth Amendment has been applied only to criminal cases, not to civil verdicts, but Theodore B. Olson, a Washington lawyer handling Metromedia’s appeal, says this is a mistake that the Supreme Court should rectify.

Punitive damages, like criminal sanctions, are intended not as compensation for the victim but as “punishment imposed by society,” Olson argued. “If society is going to punish you, it has an obligation to tell you in advance what conduct is wrong and what you might get as a penalty. It can’t be a secret.”

He and other attorneys regard it as unfair that juries base damage awards on the wealth of the company rather than on the misconduct committed. They liken this to allowing a parking fine to be based on the value of the automobile rather than the seriousness of the violation.

Under Olson’s approach, punitive damage awards would be unconstitutional unless the state had a parallel criminal statute. State criminal law should also govern the civil fine, according to this view. For example, Metromedia’s action could be considered akin to misappropriation or destruction of property, a crime in California.

Criminal laws in many states, including California, limit fines to $10,000 or less. Olson says that state legislatures could raise these limits if they thought them too low.

Other business groups have proposed less drastic changes--for example, a rule that would limit a punitive fine to a fixed percentage or multiple of the amount awarded for actual damages.

Several members of the Supreme Court clearly seem ready to put some limits on large and unpredictable punitive damages verdicts.

Justices Sandra Day O’Connor and Antonin Scalia concurred last year that a company’s right to “due process of law” is violated when a jury is given “wholly standardless discretion” to select a penalty. Other justices have made similar comments in the past, although business lawyers are not entirely confident that a majority on the court favors any one approach.

The three appeals now pending before the highest court illustrate the variety of punitive awards that juries have assessed.

In the Winchell case, the ventriloquist said he entered into the 1964 agreement to produce a daily program for children as a “joint venture” between his firm and Metromedia. The contract, signed the next year, specified that either Winchell’s April Enterprises or Metromedia could initiate a syndication agreement with other stations, with the profits to be split 50-50.

“This is the one program I would have on tape,” Winchell, 66, said in a recent interview. “I went into it because it would be good for my future.” He said that 20 years ago, he foresaw that home videotape players could make recordings of old children’s programs valuable property.

Metromedia officials say the tapes were not valuable in 1969. No other station was interested in them, they say. Nevertheless, the company turned down Winchell’s offer of $50,000 for the tapes, and negotiations between the two broke down. Ultimately, it was revealed in the 1986 trial of Winchell’s lawsuit, a Metromedia executive got fed up with Winchell and ordered the 288 tapes erased.

A state appeals court in Los Angeles last year upheld the jury’s $17.8-million award. It ruled that the 1965 contract was “inherently contradictory” because it permitted erasures but also gave both sides the right to undertake syndication. Because Winchell still believed the tapes were valuable, the court concluded, Metromedia had no right to erase them on its own.

The appeals court held that an award of $14 million in punitive damages, on top of $3.8 million in actual damages, did not violate the California law requiring punitive damages to have a “reasonable relationship” to actual damages. California law also requires punitive awards to be in line with the net worth of the defendant, and the appeals court noted that $14 million represented less than one week’s earnings for Metromedia.

When the state courts denied further appeals, the corporation agreed to pay the $3.8 million compensatory award but appealed the punitive verdict to the Supreme Court (Metromedia vs. April Enterprises, 88-625).

In the second example before the court, Goodyear Tire & Rubber Co. is appealing a $4-million punitive damages award to a Minnesota teen-ager who was injured when a 26-year-old tire rim exploded in his face. The jury agreed that the maker had tried to warn customers of the potential danger, but concluded that Goodyear should have recalled all the old rims. Goodyear paid $3.4 million in damages but appealed the punitive damages award (Goodyear vs. Hodder, 88-626).

Waste Hauler’s Appeal

The third case before the court grew out of a fierce business dispute between the Houston-based trash hauler Browning-Ferris Industries and Kelco Disposal, a local competitor for industrial waste contracts in Burlington, Vt. (Browning-Ferris vs. Kelco, 88-556).

When Browning-Ferris slashed its rates for six months, Joseph Kelley, owner of Kelco, filed an antitrust suit charging predatory pricing intended to drive him out of business. A Burlington jury agreed with Kelley and awarded Kelco $51,146 in damages. After Kelley’s lawyer urged the jury to “send a message back to Houston . . . that people like you will not tolerate business tactics like these,” the jurors tacked on $6 million in punitive damages.

Browning-Ferris, in its appeal to the Supreme Court, argues that a punitive award more than 100 times the amount of actual damages is “wildly excessive.”

After a closed conference in which all three cases were considered, the justices announced on Dec. 5 that they would review the Browning-Ferris case. Oral arguments are to be heard in April and a ruling is due by June.

If the justices follow typical procedure, they will order that the state courts reconsider their rulings in the Metromedia and Goodyear cases based on the opinion they issue on the Browning-Ferris appeal.