Archive for the ‘Spoliation of Evidence’ Category

A $9 Billion Punitive Damages Verdict in Actos Drug Trial (How much is too much?)

punishmentWe once again see a whopping punitive damages verdict and need to discuss: Just how much is too much? For the reasons that follow, I think that a ratio of punitive:compensatory damages of 100:1 or greater are sustainable based on current opinions from the Supreme Court.

At issue for the moment is a $9 Billion punitive damage award against Japan’s Takeda Pharmaceutical and Eli Lilly this week. The case concerned the diabetes drug Actos, and the manufacturer’s failure to warn that it increases the chances of bladder cancer. There was also a $1.5M compensatory damage award.

The punitive award spanking was no doubt influenced by the defendants’ destruction of documents. Juries tend to hate it when people destroy important documents.

It isn’t my objective to analyze the details of the trial, which I did not follow, only to go back and try to forecast what the judge might do with the punitive damage award, and more importantly, what the appellate judges will do if the matter doesn’t settle.

But there really isn’t a straight answer. In the most significant Supreme Court ruling on the subject, State Farm v. Campbell, the majority opinion by Justice Kennedy gave three conflicting statements on the subject. He cited first, for instance, to the older case of BMW v. Gore, that:

[W]e concluded that an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety.

For reference, BMW v.Gore dealt with punitive damages against a car dealer that repainted a new car that had been damaged, but had failed to disclose it. The verdict was $4,000 in compensatory damages. But the jury also awarded $4,000,000 in punitive damages as it was the policy of BMW to do this.

For this purely commercial transaction, the Supreme Court felt that due process was not served by such a large award, as the defendant didn’t have notice of this potentiality. And with that, the court established three guideposts to determine if a punitive award was constitutional or not:

  1. The degree of reprehensibility of the conduct;
  2. The ratio between punitive award and plaintiff’s actual harm, and
  3. The legislative sanctions provided for comparable misconduct.

Now lets return to the court’s State Farm decision, because, as I noted before, there were three seemingly contradictory statements. Having first quoted the 4x amount as being reasonable, Justice Kennedy then went on to write:

[F]ew awards exceeding a single-digit ratio between punitive and compensatory damages will satisfy due process.

So now Kennedy is at at a 9:1 ratio. But just as Gore was a commercial transaction, so too was State Farm v. Campbell. In that case Campbell caused a terrible auto collision, and State Farm acted in bad faith in defending its insured. At issue was not the personal injuries of the victims, but the contract between State Farm and Campbell.

Perhaps, since a physical injury was not truly at stake in State Farm, or perhaps just to cobble together a majority, Justice Kennedy then went on to make a third comment on the permissible extent of a punitive damage award, knocking out both the 4x and 9x ratios he had previously described:

Nonetheless, because there are no rigid benchmarks that a punitive damages award may not surpass, ratios greater than those we have previously upheld may comport with due process where “a particularly egregious act has resulted in only a small amount of economic damages.”

Following State Farm, it had become accepted wisdom among many that the Supreme Court would only allow a single digit multiplier, notwithstanding that last quote, or perhaps a bigger multiplier in only the smallest of cases.

But I never believed that the “single-digit ratio” was  a real line in the sand. One reason is that the Supremes eventually let stand a 97:1 ratio in Philip Morris v. Williams, a cigarette case with an $821,000 compensatory award and a 97.5M punitive award that went up to the Supreme Court on multiple occasions.

Now some would argue that letting something stand without deciding the issue (SCOTUS granted cert on the case’s third and final trip to the high court and then later dismissed it as improvidently taken) is not the same as affirming a lower court decision.

But here is something else: That 9:1 ratio nonsense from State Farm is confirmed as nonsense by looking at the conduct of  two members of the 6-3 State Farm “single-digit” majority. First, a review of the oral argument the second time Philip Morris v. Williams came before SCOTUS  (p. 30, line 5) finds this statement by Justice Breyer:

…the more severely awful the conduct, the higher the ratio between the damage award and the injury suffered by this victim in court. And if it’s really bad, you’re going to maybe have a hundred times this compensation instead of only ten times or five times. So — we take it into account, the extent of the harm that could be suffered, in deciding what that ratio should be. That means it goes to the evilness of the conduct.

So Justice Breyer seems not to think too much of that 9x single-digit formulation.

And then there is Justice Stevens, also in the 6-3 State Farm majority. When SCOTUS sent Philip Morris back to Oregon for a redetermination of punitive damages based on jury instructions, Justice Stevens dissented. He was also OK letting that 97:1 ratio stand.

Since both Stevens and Breyer were part of the 6-3 State Farm majority, it is clear that there was most definitely not a majority of justices willing to stick to single digit multipliers for a personal injury case.

So what will happen in the Actos litigation? I think that a punitive damage award of 100x or greater is in the cards if the plaintiffs satisfy the court that the conduct was reprehensible (the second guidepost in the BMW v. Gore). And I also think, given the significant document destruction that led to that whopper of an award, that satisfying that element won’t be too difficult.

Assuming that the $1.5M in compensatory damages aren’t touched, I think that ultimately a punitive award of $150M+ is sustainable under current law.

Allen v. Takeda Pharmaceuticals North America Inc., 12-cv-00064.

Spoliation of Evidence, in the News

OK, which wise guy messed with the evidence?

Two cases in two different New York courts hit the same topic this past week: The evidence had been lost or destroyed. But if you thought that a couple hundred years of jurisprudence would have long resolved and standardized how these things are handled, you would be mistaken.

Case 1 takes place in federal court, where a musician used YouTube to offer up a $1M reward for his lost/stolen laptop. The artist, Ryan Leslie, claimed it had valuable intellectual property on it, that being unreleased songs, and he was desperate for its return. And he got the laptop back.

But despite getting it back, Leslie didn’t want to pay, claiming that the hard drive was damaged and the intellectual property that was on it couldn’t be accessed.

But he had an even bigger problem then wrestling with his attempt to renege on his promise. And that problem was that he gave the laptop to the manufacturer to obtain the information, and the manufacturer then wiped the hard drive clean. Oops.  Was the information actually there or not?

This is the crux of the legal argument, as quoted from the decision:

A party has an obligation to preserve evidence when “the party has notice that the evidence is relevant to litigation or when a party should have known that the evidence may be relevant to future litigation.”

Leslie was on notice that the information on the hard drive may be relevant to future litigation and, as a result, had an obligation to preserve that information.

So what is the standard in federal court for a sanction against the party that loses or destroys the evidence? Is it intentional destruction of evidence? Bad faith? Mere negligence? In the Second Circuit, the answer is, “it depends.” Decisions are made on a case by case basis according to the Second Circuit. And in this case, trial judge Judge Harold Baer found that because “the hard drive was destroyed when litigation was all but certain, I find that Leslie and his team were at least negligent in their handling of the hard drive.”

While the judge was asked by the plaintiff to grant summary judgment — an automatic win without a trial — he opted instead to give an adverse inference to the jury. They would be told, as a matter of law, that Leslie had possession of the hard drive and could assume litigation would follow based on the facts. The jury could, in other words, assume the worst.

And with that, the jury came back a few days ago with a $1M verdict.

Switch now to case 2, this time in state court. In Staten Island, a medical malpractice case is being waged over administration of the drug Plavix. The problem? Staten Island University Hospital has lost (or deep-sixed?) the critical ”Medication Discharge Reconciliation Form” that would contain the information that was needed. As per Judge Joseph Maltese, sitting in the trial court:

[O]ut of the entire medical record concerning the plaintiff, the June 21, 2011 “Medication Discharge Reconciliation Form” is missing.

Oops, again. But while the standard may be loose in federal court as to what to do in this situation (the discretionary case-by-case basis described above) it is not in state court. Judge Maltese pointed out that the hospital knocked itself out with a single punch:

“It is well settled that when a party negligently loses or intentionally destroys key evidence, thereby depriving the non-responsible party from being able to prove its claim or defense, the responsible party may be sanctioned by the striking of its pleading.” Here, the crux of the plaintiff’s case is the defendant hospital’s failure to prescribe the proper medication upon her release on June 21, 2011. While this court is sympathetic to the defendant hospital’s contention that it has diligently searched for the record, it does not change the fact that after nearly a year of searching it has not been found. Staten Island University Hospital has been negligent in maintaining the plaintiff’s file, which it had a duty to maintain for six years from the date of discharge.

For the non-lawyers in the crowd, striking a pleading means an automatic win. It’s what the plaintiff wanted in the laptop case, but the judge declined to give opting for a lesser sanction.

Two different cases on spoliation, one state, one federal. The results are the same (plaintiff wins).  But the way each one got there is different (one case given to the jury with a negative inference and the other taken out of the jury’s hands and decided as a matter of law).

Hey, I found it interesting. Your mileage may vary.