GOP Targeting Huge Punitive Damage Awards

In August, a New Mexico jury handed down a $2.7-million punitive damage verdict against McDonald’s Corp. because an elderly woman said she had been burned by hot coffee that she spilled on her leg. The jury had already awarded her $160,000 to cover medical bills and pay for her suffering.

The extra award was intended to punish the big hamburger company for making its coffee too hot.

In September, a San Francisco law firm was hit with a $6.9-million punitive verdict because one of its partners had sexually harassed a female employee. A week later, an Alaska jury hit Exxon Corp. with a $5-billion punitive verdict, this on top of $3.8 billion that the company had paid out in fines and damage verdicts for the cleanup of the Exxon Valdez oil spill.

A month ago, a jury in Las Vegas handed up a $5-million punitive verdict, on top of a $1.6-million compensatory award, against the Hilton Hotels Corp. because it failed to prevent drunk Navy and Marine aviators from molesting a woman attending the Tailhook Assn. convention.

To corporate attorneys this latest round of huge punitive verdicts shows that despite a decade of clamoring for reform, the legal system is still out of control.

“It’s getting worse, not better. It’s become a giant lottery,” said Washington attorney Theodore B. Olson, who has repeatedly challenged punitive verdicts before the Supreme Court.

But suddenly, this month’s elections have given the business community newfound optimism. Republican candidates for Congress and state offices reported that one of the biggest applause lines was to attack “crazy lawsuits.” Now, after capturing control of Capitol Hill and 15 new statehouses, they are promising the most sweeping changes ever in the nation’s liability laws.

“At the federal level, the climate for tort reform has never been better,” said Sherman Joyce, president of the American Tort Reform Assn., a lobbying coalition whose members range from Boeing Co. and Exxon to the American Camping Assn. and the Ski Industries Assn. “The prospects also look good all across the country,” he said, noting that Republicans made big gains in California, Illinois, Michigan and Texas.

The big losers are the trial lawyers, consumer advocates who until this year have fought off significant changes in the liability laws. While a majority of senators has favored federal restrictions on product-liability lawsuits, those measures were blocked by a handful of key Democrats allied with the trial lawyers.

In the next Congress, the Republicans promise to pass a series of “common-sense legal reforms,” including the first-ever federal limits on product-liability suits. Their “contract with America” proposes to “discourage frivolous lawsuits” by making the losers pay the defendant’s costs and to put “reasonable limits on punitive damages.”

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In product-liability cases, such as the hot-coffee case, the Republican proposal would limit the punitive award to three times the actual damages or $250,000, whichever is higher. Because the jury in the coffee case said the scalded woman was due $160,000 to pay for her injuries, it could then award her $480,000 in punitive damages.

It should be noted that a trial judge in Albuquerque later reduced the punitive verdict against McDonald’s to $480,000, three times the actual damages voted by the jury.

But consumer advocates say big punitive verdicts--or even threats of such huge awards--are needed to force giant corporations to change their ways.

“It takes a lot of money to send a message to Exxon, GM (General Motors Corp.) or McDonald’s,” said Pamela Gilbert, director of Congress Watch for consumer advocate Ralph Nader’s Public Citizen project.

“The McDonald’s case is a perfect example. This (punitive verdict) was actually two days of their profits from selling coffee. It was big enough to get their attention and to get them to change their practices so they won’t scald consumers with coffee that’s too hot,” she said.

But Gilbert says she realizes that the consumer groups face an uphill battle in stopping new federal product-liability legislation in 1995.

The GOP and business lawyers say they will press a liability-reform bill next year that, besides limiting punitive damages, would:

* Free retailers and distributors from most product-liability suits. Now, those who are hurt by defective products usually sue not only the manufacturer but whoever sold the product.

* Bar punitive damages against the makers of drugs, vaccines and medical devices that have been tested and approved by the Food and Drug Administration and airplanes that have been approved by the Federal Aviation Administration. While the injured could still win damages to cover their medical bills and their suffering, they could not get punitive damages unless the product-makers deceived federal regulators.

* Reduce damage awards if the injured person misused the product or altered it in a significant way.

* Prohibit lawsuits in which the plaintiff’s use of alcohol or illegal drugs caused an accident or an injury.

Proponents of the bill say it would help U.S. manufacturers by establishing a uniform federal law on liability.

“If you are making a product now that is sold in the 50 states, you have to deal with 50 different sets of laws,” said William Fay, executive director of the Product Liability Coordinating Committee.

But the initial Republican proposal, even if it becomes law, would not necessarily affect most civil lawsuits that do not involve products. For example, the suits involving sexual harassment at the San Francisco law firm and at the Tailhook Assn. convention arose under state law and would not be affected by the proposed federal restrictions.

However, leaders of the business coalition say they hope the federal proposals will be adopted by many states.

The biggest fights are likely to focus on limiting punitive damages. Until the 1970s, it was generally understood that the criminal-justice system meted out punishment and civil lawsuits compensated the injured for damage or losses. But these days, big-time punishment usually comes from angry juries in civil cases.

Critics of this trend say punitive damages have at least three drawbacks.

First, those being punished often did not cause the damage. Certainly officials of the Hilton Hotels Corp. did not molest Paula Coughlin, the former Navy lieutenant who was assaulted at the Tailhook convention.

“That kind of verdict suggests there is something very wrong with the legal system,” said Yale University law professor George Priest. “Obviously, everyone feels badly for her, but why should the hotel be held responsible? Not the officers? Not the Navy? It doesn’t make sense.”

Second, the winners often get an undeserved windfall. Jurors in the San Francisco case were told that several women were harassed by attorney Martin Greenstein. They handed down a $50,000 compensatory verdict in favor of Rena Weeks, who worked for Greenstein for 25 days. Then they added on the $6.9-million punitive verdict, which Weeks and her lawyers will share.

Third, the punishment in civil cases depends entirely on the whim of the jury, unlike the criminal-justice system where penalties are spelled out in law. Typically, plaintiff’s lawyers ask the jury to “send a message” to a corporation by handing down a large monetary award.

Both critics and defenders of punitive damages agree that a multimillion-dollar verdict is akin to a lightning bolt--spectacular but rare. They disagree, however, on whether these lightning bolts send a valuable warning to potential wrongdoers or instead force corporations to pay exorbitant settlements to ward off outrageous jury verdicts.

The president of the Assn. of Trial Lawyers of America says civil lawsuits against corporations and the threat of big punitive damages have given “Americans the safest workplace and the safest environment” among the industrialized nations.

“If you take the deterrent effect (of punitive damages), it lets the bottom-line mentality predominate,” said Larry Stewart, a trial attorney in Miami. “The American people want to see the wrongdoers held accountable.”

But some critics say a growing number of verdicts are outrageously high and go far beyond any clear sense of punishment for wrongdoing.

For example, between January and September of this year, juries in Alabama handed down 11 separate multimillion-dollar punitive-damage verdicts, many of them against insurance companies because an agent--or someone posing as a company agent--used deception in selling a policy.

In one instance, an agent for the Prudential Insurance Co. greatly overstated the value of an annuity policy that a couple purchased for their retirement. When the company learned about the agent’s deception, it offered to return all the premiums, but the couple sued.

On April 6, a jury in rural Barbour County awarded them $430,000 in compensatory damages and $25 million in punitive damages. Another couple, whose $12,000 premium payment was stolen by an agent, won $800,000 in compensatory damages and $24.9 million from the Northwestern Mutual Life Insurance Co. In both cases, the trial judge upheld the verdicts.

Another suit against BMW, the German auto maker, gives new meaning to the old pitch of getting “cash back” with an automobile purchase. A doctor who bought a new BMW in 1990 was dismayed to later discover that his car had been damaged slightly during shipping from Germany. The company spent $600 to refinish the car but did not inform him because the problem was minor. He sued and won $4,000 in compensatory damages and $2 million in punitive damages, which were upheld by the state Supreme Court in August.

“The system is totally out of control in Alabama,” Priest said.

In fact, the Legislature once enacted a $250,000 limit on punitive damages, but it was struck down by the elected judges of the state’s high court.

Although Alabama was once the bastion of the states-rights movement, its newspapers have been proclaiming that the “legal lottery” there now “requires federal reform.”