WASHINGTON--The Supreme Court may use a tobacco liability case to determine whether due process guarantees allow a jury to levy punitive damages on a defendant for the effects of its conduct on people who are not a party to the suit.

That was one of two questions presented to the high court last week as it heard arguments in Philip Morris USA vs. Mayola Williams. The other question is whether, in reviewing a jury's award of punitive damages, an appellate court's conclusion that a defendant's conduct was highly reprehensible and analogous to a crime can override the constitutional requirement that punitive damages be reasonably related to the plaintiff's harm.

The case centers on the Oregon Supreme Court's Feb. 2 ruling that upheld a $79.5 million punitive damage award to the widow of a smoker. The award came atop a compensatory award of $821,485, which was later reduced by $300,000 to bring it in line with Oregon's cap on wrongful death damages. The size of the punitive damage award seemed to go against the guidelines spelled out by the U.S. Supreme Court in its 2003 decision in State Farm Mutual Insurance Co. vs. Curtis Campbell et al. In that case, the high court's majority held that under most circumstances, punitive damages in excess of single-digit multiples of the underlying compensatory damages are so disproportionate as to be unconstitutional.

The Oregon Supreme Court, however, said that Philip Morris' conduct was so "extreme and outrageous" that the guidelines didn't apply. In addition, the Oregon court also took into account harm allegedly sustained by other smokers who weren't parties to the Williams' lawsuit. Philip Morris appealed to the high court.

"It's one thing to produce a punishment that can be properly replicated in case after case without producing an excessive total punishment," said Andrew L. Frey, a partner in the New York office of law firm Mayer Brown Rowe & Maw L.L.P., who presented Philip Morris' case before the high court last week. "It's another thing to punish in case after case for the same harms."

But Robert S. Peck, president of the Washington-based Center for Constitutional Litigation P.C., who presented Mrs. Williams' case, said that juries don't look at punitive damages as "multiples," adding that they shouldn't do so. Instead, he said, they are looking at misconduct.

The justices did not delve into question of what multiple can be used to determine the constitutionality of punitive damages, but rather focused on what instructions a jury should receive under Oregon law when dealing with punitives and whether the harm done to nonparties can be a factor in determining punitive damages.

"It kind of indicates to me that the court was confused by what a proper instruction would be to the jury. I would think they would want to make it clear to the Oregon Supreme Court that injuries to third parties should not be part of the damage calculations. How the Oregon courts phrase the proper jury instruction is, of course, the critical issue, and that's where all the questions were," said Quentin Riegel, vp-litigation for the National Assn. of Manufacturers in Washington.

"They didn't really talk much about the ratio issue, so I think the general feeling is they will not address that," said Mr. Riegel. "That's an issue that's bound to come up in future cases anyway, but it will be less of a problem for business if the other issue in this case--third-party damages--is resolved properly."

"The question of what evidence is relevant in determining the amount of punitive damages is more important, because that arises in almost every case, where the question of ratios only arises when a jury makes an award in excess of nine-to-one," said Victor Schwartz, general counsel for the Washington-based American Tort Reform Assn.

"What struck me about the argument was they were focusing on pebbles on a beach without any real discussion of the beach itself when there were really two beaches," he said.

"The first would be whether the court meant in State Farm to say in the overwhelming number of cases, the ratio of nine-to-one was an absolute limit. We believe the ratio applies except in the unusual cases where the compensatories are modest and the defendant's conduct is particularly reprehensible," Mr. Schwartz said. "The other beach is to have a clear picture of what evidence is admissible or not admissible with respect to the defendant's conduct toward persons other than the plaintiff."

The senior staff attorney for the Boston-based Tobacco Products Liability Project said that the justices appeared in "general agreement" that there is an exception to the general single-digit multiplier rule set out in the State Farm decision. That exception takes into account the reprehensibility of the defendant's conduct, said Edward Sweda.

"It would be perfectly consistent with that State Farm standard to affirm the Oregon Supreme Court ruling," said Mr. Sweda. But he added that the Philip Morris case was unlikely to be vehicle for revoking or altering the basic formula set forth in State Farm as a general rule.

Punitive damages

Since 1993, the Supreme Court has moved toward restricting what it considers disporportionate punitive damages.

1993: TXO Production Corp. vs. Alliance Resources Corp. The court lets stand a punitive damage award that is 526 times the underlying compensatory damages award.

1996: BMW of North America vs. Ira Gor. Faced with a lower court's award of punitive damages 500 times that of the underlying compensatory damages, the Supreme Court rules for the first time that punitive damages can be so disproportionate to compensatory damages as to violate constitutional guarantees.

2003: State Farm Mutual Automobile Insurance Co. vs. Curtis B. Campbell et al. The Supreme Court rules that, under most circumstances, a punitive damage award of more than a single-digit multiple of the underlying compensatory award violates constitutional due process guarantees.