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Supreme Court to rule on key damages issue

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WASHINGTON—The U.S. Supreme Court's new term may feature very few risk management-related cases, but that lack of quantity doesn't mean the court's actions lack the potential to have a profound impact on risk management.

In fact, Philip Morris USA vs. Mayola Williams may prove to be a landmark punitive damages decision. The justices will hear arguments Oct. 31 concerning whether an appellate court can conclude while reviewing a jury's punitive damage award that the defendant's conduct was so reprehensible as to override the constitutional requirement that punitive damages be reasonably related to the harm suffered by a plaintiff (BI, June 5). The justices will also decide whether due process permits a jury to punish a defendant for the effects of its conduct on parties that weren't part of the suit.

Phillip Morris vs. Williams is one of only two risk-management cases the high court agreed to review before its final pre-term issue of orders this week.

The other case--Lily Ledbetter vs. Goodyear Tire & Rubber Co.--deals with an illegal pay discrimination action brought under Title VII of the Civil Rights Act of 1964. The question posed is whether, and if so under what circumstances, a plaintiff may bring such an action when the allegedly disparate pay was received within the statutory 180-day limitation period but resulted from allegedly discriminatory decisions that happened earlier.

Philip Morris involves the Oregon Supreme Court's Feb. 2 ruling upholding a $79.5 million punitive damage award to a smoker's widow. The punitive damage award, however, came on top of a compensatory award of $521,000. In 2003, the U.S. Supreme Court held in State Farm Mutual Automobile Insurance Co. vs. Curtis Campbell that punitive damages in excess of single-digit multiples of underlying compensatory damages are under most circumstances as disproportionate as to be unconstitutional. However, the Oregon Supreme Court earlier this year held that the cigarette maker's conduct was so "extreme and outrageous" that the guidelines didn't apply.

Jonathan Franklin, head of the Supreme Court and appellate practice in the Washington office of Fulbright & Jaworski L.L.P., told a Washington Legal Foundation briefing that he believes the case "is the most important business case" accepted thus far by the court for this term. "The issues go far beyond tobacco litigation," he said.

In addition, the case is the first time the Supreme Court has considered a product liability punitive damages case rather than a business tort punitive damages case, Mark Levy, chair of Kilpatrick Stockton L.L.P.'s Supreme Court and appellate litigation group, noted during a Supreme Court preview held last week by the National Chamber Litigation Center.

Mr. Levy pointed out that the Oregon court took into account harm allegedly caused by other smokers who were not part of the Williams lawsuit when allowing the punitive damage award to stand. That interpretation could lead to the "endless possibility of multiple punishments" where the other plaintiffs remain unknown, he said.

Lori Nugent, the Chicago-based chair of the punitive damages practice area of Philadelphia-based law firm Cozen O'Connor, called Phillip Morris vs. Williams "the most important punitive damages" case the Supreme Court has faced. "If the court were to permit unbounded punitive damages, corporate defendants would face the possibility of bankruptcy every time they faced a serious punitive damage exposure in any court of the United States," she said.

Ledbetter involves a woman who worked at a Goodyear plant in Gadsden, Ala., for nearly 20 years. She sued Goodyear, claiming it paid her less than her male counterparts because of her gender. Goodyear reviewed Ms. Ledbetter's salary annually, and Goodyear held that Ms. Ledbetter's case depended on whether she could prove that unlawful discrimination impacted an annual salary review within 180 days of her filing her discrimination charge. A jury, however, took into account 19 years of Ledbetter's salary history before ruling in her favor.

The 11th U.S. Circuit Court of Appeals reversed the lower court in August 2005, holding that "all we need to do is examine the last salary decision Goodyear made that affected Ledbetter's pay during the limitations period."

Employers are concerned that the high court could expand their exposures, say legal experts.

"What happened in Ledbetter was that the trial court allowed the plaintiff to focus in great detail on years and years of her compensation and employment history, although only her last compensation change was arguably within the limitations period based upon the Supreme Court's relatively recent decision in 2002 in case of National Railroad Passenger Corp. vs. (Abner) Morgan," said Jonathan Wetchler, a partner at Wolf, Block, Schorr & Solis-Cohen L.L.P. in Philadelphia.

"Some employers are concerned about the case because they fear that the Supreme Court might expand the exception laid out in Morgan to bring in claims beyond the limitation period to compensation claims. Right now Morgan has generally been interpreted to only allow claims to proceed on a 'continuing violation' theory if they allege hostile work environment," he said,

"The Ledbetter case could turn out to be a big-impact ruling," said Gerald Maatman, a partner at Seyfarth Shaw L.L.P. in Chicago.

"While its focus is on the application of Title VII's statute of limitations and the extent to which workers can reach back and challenge pay practices decisions outside the limitations period, the Supreme Court's disposition of the case is apt to ripple across current class-action litigation," Mr. Maatman said. "The scope of liability periods and examination of historical pay practices are at the center of most big Title VII class actions, and the stakes are high with plaintiffs looking to broaden the actionable pay practice liability and defendants hoping to close and narrow the liability window. The Ledbetter case will be watched closely on account of its potential impact on class actions," he said.