It's past time to abolish punitive damages

It's past time to abolish punitive damages
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Short memories must explain the board room shock at news that Johnson & Johnson would have to pay attorney Mark Lanier and his clients $1.6 billion over and above the compensatory verdicts from a Missouri talcum powder trial. Punitive damages are not a new racket. They’re an old one we deluded ourselves into believing we’d fixed.

In 1984, two intrepid Texas lawyers writing in the Vanderbilt Law Review made a compelling argument for the 50-state eradication of punitive damages. More modest tort reforms ensued, such as Missouri’s passage of a punitive damages cap in 2004. But even legislative successes often were thwarted. In 2014, following the lead of courts in Arkansas and Montana, Missouri’s Supreme Court overturned the cap as unconstitutional, finding it violated the state’s right to trial by jury.

In contrast, Nebraska courts deem punitive damages unconstitutional. Washington, Michigan, and a small group of other states bar punitive damages in civil cases, seemingly without causing corporations to run amok or wreak havoc on the citizenry.

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Over time the distortive ills of punitive damage awards have become more obvious. Judicial attempts to tame runaway civil punishments in the name of due process have done too little to deter the abuses. The Supreme Court’s recent refusal to accept review in the J&J appeal served as a harsh reminder — state legislatures should fix the problem.

If caps won’t do the trick, perhaps Nebraska’s constitutional abolition provides the remedy.

The 1980s case against punitive damages was convincing enough. In an era of virtually limitless capacity for juries to fully compensate tort victims for their injuries, allowing plaintiffs and their contingency fee lawyers bonus recoveries to “punish” defendants was superfluous. Serial imposition of punitive damages posed the real risk of harming creativity and innovation. Claims that punitive damages promoted societal goals of punishment and deterrence lacked empirical support and became all the more specious when closely examined. Punitive damages served more to enrich plaintiffs’ attorneys rather than further societal goals.

All of this remains true today. A long list of unintended consequences continues to plague the punitive damages system and miscarries justice. And the expansion of both federal and state prosecutorial forays into the torts arena has displaced any credible role for civil juries in the corporate punishment business.

In the 1980s some posited that punitive damages could be insured — presenting less of a threat to business. But the 30 years since then shows insurance is not the answer. Few affordable, reliable insurance policies will cover awards for supposedly reckless conduct or defective products. And at least 14 states prohibit insuring against punitive damages for policy reasons — essentially not wanting bad actors to get bailed out by others.

This reality inflates the cost of litigation and settlement. Lawsuits with punitive counts inevitably cost more to settle, even when the written agreement says no compensation was paid toward punitive claims. Money is fungible. Plaintiffs’ lawyers love to remind defendants that a refusal to settle risks losing substantial money that isn’t covered by insurance. Thus, the mere threat of punitive damages distorts the general liability insurance market.

It’s unrealistic to expect every judge managing an overcrowded civil docket to ignore this leverage over defendants and their insurers. Over time, denials of summary judgment on punitive counts have blurred the line between recklessness and common negligence. And so even garden variety negligence complaints get padded with punitive claims and defendants pay more to avoid trial.

Claims of just punishment and deterrence ring hollow. Forget for a moment the labyrinth of codes and fines available to government for violations of seemingly any corporate indiscretion. Corporations that pay regulatory fines still face duplicative punishments in civil punitive damages cases. And yet, absent federal preemption, complying with regulations typically earns a company no shield or protection against punitive claims.

Corporate punishment also occurs when governments launch investigations on behalf of consumers or the broader public. Corporations don’t get their legal fees back when no charges are brought. And civil settlements with the regulators or AGs often bring no protection against punitive lawsuits — in fact, such settlements can invite civil lawsuits. Practically speaking, corporate defendants routinely face multiple jeopardies for the same conduct.

Punitive damages might have made sense in 19th century common law, but not in the modern regulatory state. In July, a New York federal judge allowing a punitive damages claim against a medical device manufacturer reiterated the regrettable truth that even FDA’s exhaustive approval process won’t shield a manufacturer from state law claims of reckless conduct. This begs the question — barring outright fraud on the agency, why in the world shouldn’t it?

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Punitive damages can restrict consumer choice and dampen innovation. J&J said it pulled its talc products from shelves last year in large part because of litigation, not health concerns. The science might surprise casual observers — users of talcum powder seem to develop ovarian cancers at the same statistical rate as those who don’t. Even regulators did not try to remove talc from the market. Yet a single jury in a single trial effectively decided talc’s fate.

Could the pharmaceutical industry, thankfully afforded special liability protection by federal law, have gotten so many effective COVID vaccines into arms so fast if faced with this jackpot justice?

Perhaps worst of all, punitive damages usually punish the wrong people. Most of those who made decisions about talcum powder in the 1970s and 1980s have long since retired. So, who gets punished by the misallocation of a billion dollars in 2021? J&J’s current shareholders, consumers, and today’s employees, who had nothing to do with any of it.

Much has changed since the 1980s, but the need for states to end the abusive effects of the punitive damages racket remains. Job creators, innovators, and consumers alike deserve stronger protection against this legal relic.

Samuel L. Tarry, Jr. and Davis M. Walsh are partners at McGuireWoods, LLP and are the editors of the recently published Infectious Disease Litigation: Science, Law, and Procedure from ABA Publishing.