This fall, I will have to answer for the enormous $3 billion in punitive damages awarded Wednesday to Richard Boeken of Topanga in his lawsuit against Philip Morris for fraud and other misconduct in marketing cigarettes. As a professor who teaches punitive damages issues to first-year law students, I will hear Boeken cited in a flurry of legitimate questions centering on the perception that instant billionaire cases like Boeken's make our justice system seem more like a lottery.
And there is a serious problem, but not with the amount of punitive damages awarded. Contrary to popular perception, punitive damages are awarded in relatively few cases, and when they are awarded, the amount of money is usually not overwhelmingly large.
A 1992 Justice Department study found that punitive damages were awarded in only 6% of the cases in which the plaintiff won and that the median award was $50,000. Overall, punitive damages accounted for only 10% of all money awarded to plaintiffs.
Courts routinely note that punitive damages are intended to punish wrongdoing and to deter future misconduct. In fulfilling these goals, punitive damages serve an important societal purpose. Truly bad conduct needs to be punished and stopped, and the financial punch of punitive damages fills gaps in criminal prosecutions for wrongdoing.
For example, even many critics of tobacco litigation would likely agree that the industry deserves some punishment for its misconduct. Although compensatory damages, such as medical bills and pain and suffering awards, may be large, they are not punishment. Their focus is exclusively on making injured victims whole. Allowing only compensatory damages is like telling an auto thief that if he is caught, the worst that can happen is that he will have to return the car.
But it works the other way as well. Just as compensatory damages are not designed to punish, punitive damages are not designed to compensate. The personal enrichment of plaintiffs is merely an unfortunate byproduct of fulfilling society's goals of punishment and deterrence. Plaintiffs are made whole by receiving compensatory damages, and any punitive damages they may collect are a windfall.
As the Boeken verdict demonstrates, this windfall is, in rare cases, enormous. Because a greater amount of money is needed to truly punish rich defendants, plaintiffs who have the good fortune of being badly mistreated by extremely wealthy defendants may become rich despite the absence of any desire on the part of the courts to enrich them.
The trial judge or an appellate court probably will substantially reduce the $3-billion award, but Boeken or his heirs still will become wealthy.
Widespread recognition that plaintiffs sometimes become rich through punitive damages perpetuates the public perception of the civil courts as a lottery system, where the amount of money won is more a matter of luck than of logic. This perception erodes respect for the courts, encourages frivolous litigation and has caused jurors to grow increasingly skeptical of even legitimate injury and punitive damages claims.
A few states have addressed this problem by splitting punitive damages awards between the plaintiff and the state.
For example, Oregon law provides that plaintiffs may keep 40% of punitive damages awards, but the remaining 60% must be allocated to a state fund to compensate injured crime victims.
This way of doing things removes most of plaintiffs' windfall and places punitive damages in proper perspective as a mechanism for serving society's interests rather than the interests of plaintiffs. Plaintiffs must be left a portion of the punitive damages to provide an incentive to pursue the state's interest in punishing wrongdoing, but the state should use most of the money for the public good.
Even if splitting judgments makes some legitimate claims not economical to pursue, the benefit far outweighs that cost. Our civil justice system is not as out of control as many citizens believe, and limiting the windfall effect of punitive damages would strengthen public trust in the courts.