Litigation Lottery

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LITIGATION LOTTERY

Edwin V. Woodsome, Jr.

Is litigation the new way to get rich quick?

On July 9, 1999, in the largest personal injury award in history, a Los Angeles jury ordered General Motors to pay $4.8 billion in punitive damages to six people who were burned when the gas tank of their 1979 Chevrolet Malibu exploded after a drunk driver hit the car. Three days later, a Modesto, California jury ordered Ford Motor Company to pay $295 million in punitive damages to the family of three people who were killed when their 1978 Bronco rolled over.

According to the plaintiffs’ lawyers in the GM case, jurors were outraged when they learned that GM chose not to fix its gas tanks because the cost-benefit analysis showed that it would cost far less to settle lawsuits ($2.40 per car) than it would have cost to fix the gas tanks ($8.59 per car). So, they demonstrated their anger and their message in a language that corporations understand-money. Similarly, in the Ford case the jurors accepted the argument that Ford knew that the vehicle in question was unsafe.

Punitive damage awards are not new. California, like most states, has long permitted a jury to award punitive damages to punish the defendant for its conduct and to deter such conduct in the future. But lately the amounts awarded in punitive damages have skyrocketed, thus sparking heated discussions about what GM characterizes as a jury’s “passion and prejudice.”

This phenomenon may be explained by the fact that juries are simply getting used to seeing huge numbers in litigation. The most recent example: the $206 billion tobacco settlement with the states. (That’s $206,000,000,000!) It has been reported recently that $775 million went to the tobacco lawyers who represented Massachusetts against the tobacco industry. The eventual payout to the plaintiffs’ lawyers in the tobacco litigation will be in the many billions of dollars. Every literate person in America has seen these extraordinary numbers.

Proponents of large punitive damage awards argue that, even though juries have no formula or guidance to assess the appropriate punitive damage amount, such awards should be left alone. In BMW v. Gore (517 U.S. 599) (1996), the U.S. Supreme Court reasoned that the ratio of 500-1 between punitive and compensatory damages was too large, but did not specify an acceptable ratio or adopt a formula to be used in future calculations. There, the Court held that a punitive damage award of $2 million was “grossly excessive” when compensatory damages were only $4,000 in a consumer fraud case where a BMW, that had been painted to cover scratches from prior use, was sold as new. The Court concluded that courts reviewing punitive damage awards should consider “the degree of reprehensibility” as well as the ratio between punitive and compensatory damages. The ratio in the GM case is about 4800-1, in the Ford case about 60-1.

Over the years, the courts’ lack of guidance has created punitive damages inflation, motivating incensed jurors to larger and larger punitive damage awards. Legislators, influenced by the powerful plaintiffs’ bar, have been loathe to step in, as they should, to put a cap on punitive awards. Besides appearing out-of-control, these awards necessarily reduce the level of public trust in our jury system.

Truth be told, jurors may be doing all of us an injustice by awarding these huge verdicts. Such awards make the tort system into a kind of lottery where only a few lawyers and a few victims get rich quick at the expense of society. Even after the trial judge or appellate court reduces the awards in the GM and Ford cases, as they certainly will, at the end of the day it is consumers who bear the cost of these astronomical punitive awards. The backlash will necessarily take the form of increased product prices. For example, in the last year cigarette prices have skyrocketed as the manufacturers seek to recoup the vast settlement costs.

So in reality, who wins and who loses? If our courts cannot manage the problem, our legislators should step up. It is a sad commentary that precious few of them are willing to take the political risks involved. In the meantime, the situation simply worsens for all of us.

Edwin V. Woodsome, Jr., is a partner with Howrey & Simon.

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