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Paper argues against group's take on punitive damages

By Jessica M. Karmasek | Nov 10, 2011


WASHINGTON (Legal Newsline) - The authors of a legal paper argue that a September study by the Center for Justice & Democracy on punitive damage awards is filled with "significant flaws" and "half-truths."

Victor E. Schwartz and Cary Silverman, who authored "Punitive Damage Awards: The Rest of the Story" published Friday in the Washington Legal Foundation's Legal Backgrounder, take issue with CJ&D's white paper, "What You Need to Know About... Punitive Damages."

Schwartz is chairman of the law firm Shook, Hardy & Bacon LLP's Washington-based Public Policy Group and is the legal counsel for the American Tort Reform Association, a coalition of more than 300 businesses and corporations.

Silverman is of counsel in Shook, Hardy & Bacon's Public Policy Group.

CJ&D's study found that punitive damage awards, unconstrained by procedural safeguards or statutory or constitutional limits, are needed to protect Americans from corporate misconduct and unsafe products.

Schwartz and Silverman argue that punitive damages overkill can do just the opposite -- "eliminate the public's access to beneficial products."

"At the foundation of a fair justice system and the importance America places on due process is that individuals and businesses have fair notice of their liability and that punishment is proportionate to any wrongful conduct," they wrote.

In their paper, the authors take issue with six of CJ&D's claims. The first is that punitive damages are rare.

Schwartz and Silverman argue that it is not the number of actual awards that measure the fairness of the punitive damages process, but whether procedural safeguards and standards exist.

"Without them, those who are sued are likely to settle regardless of the merits rather than risk a multimillion- or billion-dollar verdict," they wrote.

Given the fear of an excessive award, a vast majority of cases settle out of apprehension, not the merits of the case, the authors explain.

"Personal injury lawyers know that even a small risk of an extraordinary verdict can significantly boost the settlement value of their cases," they wrote.

CJ&D, in its study, also claimed that punitive damages have been "around for centuries."

True, but today's punitive damages would be "unrecognizable" to the Founding Fathers, Abraham Lincoln or even Harry Truman, Schwartz and Silverman say.

Historically, punitive judgments were both rare and, by today's standards, almost trivial in amount, the authors say. However, that began to change in the late 1960s and 1970s for various reasons.

First, the nature of cases in which punitive damages are available changed. Second, the purpose of punitive awards gradually changed. And third, it was only in the late 1960s that courts began awarding punitive damages in mass tort litigation, particularly in the developing field of product liability, the authors explain.

Among CJ&D's other claims is that unlimited punitive damages are necessary to protect Americans.

Schwartz and Silverman say there is no such evidence.

"If this assertion is accurate, then one would expect greater reports of injury in states without punitive damages or with statutory limits," they wrote.

"There is a glaring problem with this assertion that is left unexplained by the white paper -- where is the data?"

A handful of states -- Connecticut, Louisiana, Massachusetts, Michigan, Nebraska, New Hampshire and Washington -- generally do not allow or severely constrain punitive damages, the authors note.

Another 24 states limit the size of punitive damage awards, many of which have been in place for years, they say.

"Despite this legal landscape, no study has found that residents of states (or countries) that do not have, or have constrained, punitive damages are more likely to be injured by a defective product, misled by a fraudulent advertisement, or otherwise placed at a greater likelihood of harm than states that permit unlimited awards," they wrote.

The two point out that for more than 23 years, Virginia has placed a $350,000 limit on punitive damages, while neighboring West Virginia has not adopted such a cap.

"Is there any showing that the conduct of corporations is worse in Virginia than West Virginia? We are unaware of even anecdotal evidence supporting this view," they wrote.

"Market forces, the threat of basic lawsuits, and government regulation and enforcement are more than enough to encourage optimum behavior."

In fact, it is unlimited punitive damages overkill that often results in the elimination of effective and much-needed products by the American people, Schwartz and Silverman argue.

"CJ&D's white paper argues that punitive damages have led to the removal of dangerous products from the market, but it actually shows how overkill has to led to the loss of safe, beneficial products due to liability concerns," they wrote.

CJ&D's paper highlights how a punitive damage verdict led to the removal of the Copper-7 intrauterine device, or IUD, from the market.

Schwartz and Silverman argue that the outcome was "probably bad" for society.

"As a result of a single $8.75 million punitive damage award, an entire method of contraception used by millions of women was voluntarily removed from the market," they wrote.

IUDs, the authors note, are the most common reversible method of birth control used by women in the world, yet less than 1 percent of women in the U.S. use an IUD as their method of birth control.

"Almost every decade it seems that a new 'study' appears that reflects the plaintiffs' bar's view that our current punitive damages system is 'just fine,'" they wrote. "But each attempt, like that recently put forth (by) CJ&D, relies on limited data to argue points that conflict with real world experience."

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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