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Rose v. Brown & Williamson Tobacco Corp.9/29/2005
ensatory and punitive damages awards is already greater than that of a smaller firm. To increase an individual punitive damages award based upon the corporation's wealth is unnecessary, as wealthy corporations will already be paying punitive damages awards in more cases than smaller corporations. (Id. at 508-509 .) These arguments, however, were dicta, raised only after the Court had determined that defendant was not liable for the underlying claim and that its conduct was not sufficient to support a punitive damages award.
Moreover, these arguments do not support defendants' contention that evidence of their financial condition must be excluded. Turning to the first argument, while a punitive damages award against a corporation will ultimately hurt the corporation's shareholders, it should be noted that, in order for a punitive damages award to be rendered, the corporation must have acted in a malicious, wanton, or reckless manner. Shareholders finance the corporation's activities and may even profit from the wrongful conduct. Consequently, when entitlement to punitive damages has been established, shareholders cannot be considered innocent of the corporation's malfeasance. Moreover, while some investors may only possess modest wealth, they are protected by limited liability laws and will only be liable to the extent of their investment in the corporation.
As to the second argument, it is indeed true that, in using a corporation's net worth to determine punitive damages, the corporation that retains its profits may face greater liability than the corporation that distributes its profits. However, this argument supports the position that the latter corporations are under-penalized, not that the former are over-penalized. The best way to remedy this inconsistency is to err on the side of inclusion, not exclusion, of evidence relating to a corporation's financial condition. The jury should consider not only the corporation's net worth, but its net annual revenue, profits it may have derived from its tortious conduct, and any other relevant financial information.
Finally, simply because a firm is large and may have greater potential liability, it does not follow that it will actually pay more damages than a smaller firm. Thanks to economies of scale, a wealthier company can afford to engage in liability limiting activities that may be too expensive for smaller companies. For instance, a wealthier corporation can afford to lobby legislatures for liability limiting regulations, to undertake public relations campaigns to sway public opinion about its product, and even to engage in litigation tactics to deter future lawsuits. The Court of Appeals for the Seventh Circuit has opined that wealthy defendant may fully litigate a claim against it, pressing every issue it can and exhausting all avenues of appeal, not because it hopes to be successful in that claim but because it hopes to deter future claims. (Mathias v. Accor Economy Lodging, Inc., 347 F3d 672, 677 [7th Cir 2003]). A wealthy defendant who faces wide potential liability for a defective product, could fully litigate the first cases brought against it, refusing to settle even when its liability is clear, in order to establish a reputation as a "tough" defendant. Plaintiff attorneys, who often accept contingency fee agreements and advance their client's litigation expenses out of their own pockets, would face greater costs and the inherent uncertainty of a jury's verdict and would be less inclined to accept cases against that defendant. Defendant would face the same costs and risks, but if it had the resources to absorb those costs and risks, it would be rewarded with fewer lawsuits over time and a reduction in its overall liability. The
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