Washington Legal Foundation 2009 Massachusetts Avenue, N.W. Washington, D.C (202)

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1 Washington Legal Foundation 2009 Massachusetts Avenue, N.W. Washington, D.C (202) Via UPS Next Day Air The Honorable Tani Cantil-Sakauye, Chief Justice and the Honorable Associate Justices California Supreme Court 350 McAllister Street San Francisco, CA Re: Bullock v. Philip Morris USA, Inc. Case No. S Amicus Curiae Letter of Washington Legal Foundation To the Chief Justice and Associate Justices: Amicus curiae Washington Legal Foundation (WLF) respectfully requests that the Court grant Philip Morris USA, Inc s currently pending Petition for Review in the above-styled case. WLF is a non-profit public interest law and policy center with supporters in all 50 States. WLF devotes a substantial portion of its resources to defending freeenterprise, individual rights, and a limited and accountable government. In particular, WLF regularly participates in tort reform efforts. WLF is concerned that economic development and consumer welfare are being impeded by improperly excessive punitive damage awards in tort actions. To that end, WLF regularly participates in court proceedings touching upon the propriety and scope of damage awards. See, e.g., State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003); United States v. Bajakajian, 524 U.S. 321 (1998); BMW of North America v. Gore, 517 U.S. 559 (1996). WLF also regularly supports efforts to expand the due process rights of litigants to seek appellate review of excessive or improper punitive damage awards. See, e.g., Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424 (2001); Honda Motor Co. v. Oberg, 512 U.S. 415 (1994). WLF fully supports Petitioner s efforts to obtain review of the two questions presented in their petition. WLF writes separately to emphasize that, contrary to the Court of Appeal s decision below, corporate wealth cannot justify an otherwise unconstitutional punitive damages award. Campbell, 538 U.S. at 427. For this reason, corporate wealth is without doubt the least relevant and appropriate factor to consider when reviewing the fairness of a punitive damages award. As the

2 The Honorable Tani Cantil-Sakauye, Chief Justice, et al. Page 2 Supreme Court recognized in Honda Motor Co. v. Oberg, 512 U.S. 415, (1994), the presentation of evidence of a defendant s net worth creates the potential that juries will use their verdicts to express bias against big business, particularly those without strong local presences. See also TXO Prod. Corp. v. Alliances Res. Corp., 509 U.S. 443, 464 (1993) ( We agree... that emphasis on the wealth of the wrongdoer increase[s] the risk that [a punitive damage] award may... [be] influenced by prejudice against large corporations, a risk that is of special concern when the defendant is a nonresident. ). Courts and commentators have long lamented the inherent prejudice that emphasis on a defendant s financial condition imposes on large corporate defendants. See Kenneth S. Abraham & John C. Jeffries, Punitive Damages & the Rule of Law: The Role of Defendant s Wealth, 18 J. Legal Stud. 415, 424 (1989) ( The admission of this evidence threatens to bring the politics of resentment into the courtroom. Particularly where a large corporation is involved, juries are tempted to ad hoc redistribution of wealth. ); D.B. Dobbs, Ending Punishment in Punitive Damages: Deterrence-Measured Remedies, 40 Ala. L. Rev. 831, (1989) ( Concentration on wealth in proof, jury instructions, and judicial decisions on excessiveness, is concentration on an item only fortuitously or remotely related to appropriate deterrence levels, but it is one that tends to justify enormous punitive awards, which are not subject to any limiting measure. ). Even Professor David Owen, a longtime advocate of punitive damages in products liability cases, acknowledged nearly thirty years ago the frequent abuse of the wealth factor in punitive damage awards against large corporations: [W]ealth no longer serves as a clearly limiting factor on the range of jury discretion. Instead, a jury instructed to use the wealth of a multi-million or multibillion dollar corporation as a yardstick in assessing punitive damages is almost forced to think in terms of seven figures... or eight figures... or even nine figures. David G. Owen, Problems in Assessing Punitive Damages Against Manufacturers of Defective Products, 49 U. Chi. L. Rev. 1, (1982). Accordingly, in BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 566 (1996), the Supreme Court rejected the premise that the net worth of a corporate defendant justifies a proportionally large award, holding that a $2 million punitive award against BMW was grossly excessive notwithstanding an unquestioned finding that the judgment would not have a substantial impact on [BMW s] financial position. The concurring opinion by Justice Breyer agreed, finding the connection between wealth and deterrence difficult to comprehend given the distant relation between a defendant s wealth and its responses to economic incentive. Id. at 591 (Breyer, J.,

3 The Honorable Tani Cantil-Sakauye, Chief Justice, et al. Page 3 concurring). Thus, the use of wealth as an open-ended basis for inflating awards when the defendant is wealthy precisely what the court of appeal engaged in here cannot be counterbalanced by other factors that fail to constrain significantly an award that purports to punish a defendant s conduct. Id. The tenuous connection between wealth and deterrence was discussed at length in Zazu Designs v. L Oreal, S.A., 979 F.2d 499 (7th Cir. 1992), one of the earliest opinions to move beyond a superficial considerations of this issue. As Zazu noted, assessing punitive damages in light of net worth treats having a large net worth as though it, rather than the underlying misconduct, were the wrong to be deterred! 979 F.2d at 508. Whereas [f]or natural persons, the marginal utility of money decreases as wealth increases, so that higher fines may be needed to deter those possessing great wealth, emphasis on wealth is particularly misguided where, as here, the defendant is a corporation. Id. As the Seventh Circuit explained: Corporations are abstractions; investors own the net worth of the business. These investors pay any punitive award (the value of their shares decreases), and they may be of average wealth. Pension trusts and mutual funds, aggregating the investments of millions of average persons, own the bulk of many large corporations. Seeing the corporation as wealthy is an illusion, which like other mirages frequently leads people astray. Id. See also Kemezy v. Peters, 79 F.3d 33, (7th Cir. 1996) (endorsing the Zazu court s analysis and emphasizing that, in some cases, the assumption of divergent marginal utility of money based on wealth may be questionable even as to natural persons). Numerous commentators agree that neither corporate size nor wealth is relevant to a punitive damages inquiry. See, e.g., Abraham & Jeffries, supra, at 415 ( In our view, the defendant s wealth is irrelevant to the goal of deterring socially undesirable conduct.... ); Bruce Chapman & Michael Trebilcock, Punitive Damages: Divergence in Search of a Rationale, 40 Ala. L. Rev. 741, 824 (1989) ( In the case of economic wrongs, the conventional economic theory of deterrence... suggests no role for corporate wealth in structuring an optimal deterrence regime. ); Robert Cooter, Punitive Damages for Deterrence: When and How Much?, 40 Ala. L. Rev. 1143, (1989) (demonstrating that the total assets or wealth of the defendant is typically inappropriate to deterrence of economically self-interested decision makers ); G.T. Schwartz, Deterrence & Punishment in the Common Law of Punitive Damages: A Comment, 56 S. Cal. L. Rev. 133, 140 (1982) ( The wealth of

4 The Honorable Tani Cantil-Sakauye, Chief Justice, et al. Page 4 the defendant bears no obvious relationship to deterrence goals. ). As the Seventh Circuit explained in Zazu: Corporate assets finance ongoing operations and are unrelated to either the injury done to the victim or the size of the award needed to cause corporate managers to obey the law. Net worth is a measure of profits that have not been distributed to the investors. Why should damages increase because the firm reinvested its earnings? 979 F.2d at 508. Indeed, with respect to the size of the defendant s assets, the Seventh Circuit explained how imposing greater damages on wealthier corporate defendants can actually be counterproductive: Absolute size, like net worth, also is a questionable reason to extract more per case.... If a larger firm is more likely to commit a wrong on any given transaction, then its total damages will increase more than proportionately to its size without augmentation in any given case; if a larger firm is equally or less likely to commit a tort per transaction, the court ought to praise the managers rather than multiply the firm s penalty. Id. at In its opinion below reviewing the punitive damage award in this case, the court of appeal made no attempt to connect Philip Morris USA, Inc. s financial condition to any legitimate punitive damages objective, much less the reasonableness of the jury s award in that context. The net effect of the court of appeal s failure to provide any meaningful scrutiny of this award was to provid[e] no significant constraints or protection against arbitrary results. BMW, 517 U.S. at 591. For the foregoing reasons, and for those stated in Philip Morris USA, Inc s Petition for Review, this Court should grant review. Respectfully submitted, /s/ Daniel J. Popeo Daniel J. Popeo Chairman and General Counsel WASHINGTON LEGAL FOUNDATION cc: See attached Proof of Service /s/ Cory L. Andrews Cory L. Andrews Senior Litigation Counsel WASHINGTON LEGAL FOUNDATION

5 PROOF OF SERVICE WASHINGTON, DISTRICT OF COLUMBIA I am over 18 years of age and not a party to this action. I am employed in Washington, D.C. My business address is 2009 Massachusetts Avenue, N.W., Washington, D.C On, I served true copies of the foregoing document described as Amicus Curiae Letter in Support of Petition for Review on the interested parties in this action as follows: SEE ATTACHED SERVICE LIST BY MAIL: I enclosed the document(s) in a sealed envelope or package addressed to the persons at the addresses listed in the Service List and placed the envelope for collection and mailing, following our ordinary business practices. I am readily familiar with Washington Legal Foundation s practice for collecting and processing correspondence for mailing. On the same day that the correspondence is placed for collection and mailing, it is deposited in the ordinary course of business with the United States Postal Service, in a sealed envelope with postage fully prepaid. I declare under penalty of perjury under the laws of the District of Columbia that the foregoing is true and correct. Executed on, at Washington, D.C. /s/ Cory L. Andrews Cory L. Andrews

6 Bullock v. Philip Morris USA, Inc. Case No. S SERVICE LIST Ronald C. Redcay Arnold & Porter 777 South Figueroa Street 44th Floor Los Angeles, CA Frank P. Kelly Shook Hardy & Bacon LLP 1 Montgomery Street Suite 2700 San Francisco, CA Lauren R. Goldman Mayer Brown LLP 1675 Broadway New York, NY Theodore J. Boutrous Gibson Dunn & Crutcher LLP 333 S. Grand Avenue Los Angeles, CA Michael J. Piuze Geraldine Weiss Law Offices of Michael J. Piuze Wilshire Blvd., Suite 1170 Los Angeles, CA Kenneth John Chesebro 1600 Massachusetts Avenue, #801 Cambridge, MA The Honorable Susan Bryant-Deason Los Angeles County Superior Court Department North Hill Street Los Angeles, CA Attorneys for Plaintiff and Respondent JODIE BULLOCK Attorneys for Plaintiff and Respondent JODIE BULLOCK Case No. BC

7 California Court of Appeal Second Appellate District, Div S. Spring Street, 2nd Fl., N. Tower Los Angeles, CA Case No. B222596