Date: 07-18-2015

Case Style: Paul Scott Schwarz v. Philip Morris USA, Inc.

Case Number: A152354

Judge: Sercombe

Court: Oregon Court of Appeals on appeal from the Circuit Court, Multnomah County

Plaintiff's Attorney: James S. Coon argued the cause for respondent. With him on the brief was Swanson, Thomas, Coon & Newton.

Defendant's Attorney: William F. Gary argued the cause for appellant. With him on the opening brief were Sharon A. Rudnick, J. Aaron Landau, and Harrang Long Gary Rudnick P.C. With him on the reply brief were Sharon A. Rudnick and Harrang Long Gary Rudnick P.C.

Description: The issue in this “low tar” tobacco case centers on a
jury’s award of punitive damages to plaintiff against defendant
Phillip Morris USA, Inc. (Philip Morris). Following a
trial in 2002, the jury awarded plaintiff $168,514 in compensatory
damages and $150 million in punitive damages.1
However, concluding that the trial court had not properly
instructed the jury on the issue of punitive damages, the
Oregon Supreme Court remanded the case to the trial court
for a new trial limited to the amount of punitive damages.
Estate of Michelle Schwarz v. Philip Morris Inc., 348 Or 442,
235 P3d 668 (Schwarz I), adh’d to as modified on recons,
349 Or 521, 246 P3d 479 (Schwarz II) (2010). Thereafter,
following a trial in 2012, a jury awarded plaintiff $25 million
in punitive damages. Defendant appeals, raising four
assignments of error. We reject without discussion defendant’s
second, third, and fourth assignments and write only
to address its first assignment, in which it contends that the
“trial court erred in refusing to reduce the punitive damages
award pursuant to ORS 31.730(2) and (3) because the award
is arbitrary and excessive, in violation of Oregon law and
federal due process.” (Boldface omitted.) As explained below,
we conclude that the trial court did not err and, accordingly,
affirm.
The background of this case was recounted in
Schwarz I. In 2000, plaintiff, who is the husband of and personal
representative for decedent Michelle Schwarz, brought
an action against defendant, Philip Morris. Schwarz I, 348
Or at 445. Plaintiff asserted claims for relief “based on allegations
of negligence, strict product liability, and fraud in
the manufacturing, marketing, and research of defendant’s
brand of low-tar cigarettes.” Id. Plaintiff “adduced the following
evidence” at the first trial in 2002:
“Michelle Schwarz began smoking cigarettes in 1964
when she was 18 years old. She attempted to quit smoking
numerous times but was unable to do so. In 1976, defendant
introduced a new product, Merit cigarettes, to the market
for tobacco products. Advertisements for the new brand
1 The trial court later reduced the punitive damages award to a total of $100
million.
Cite as 272 Or App 268 (2015) 271
touted that the cigarettes contain less tar than existing
‘full flavor’ cigarettes but still tasted like the full-flavor
brands. Out of a belief that ‘low tar and nicotine filters are
better for you,’ decedent switched from a full-flavor brand
that defendant manufactured to its low-tar Merit brand.
After switching brands, decedent continued to smoke the
same quantity of cigarettes—approximately one pack per
day—but subconsciously altered her method of smoking.
She took longer puffs, inhaled the smoke more deeply, and
held it longer in her lungs. In 1999, at the age of 53, decedent
died from a brain tumor that was the result of metastatic
lung cancer.
“The method of smoking that decedent had adopted after
switching to defendant’s low-tar brand was consistent with
the behavior of smokers generally. Persons addicted to nicotine
in cigarettes tend to develop a certain ‘comfort level’
of nicotine, and, when smoking cigarettes that contain less
nicotine, those smokers are likely to ‘compensate’—that is,
adjust subconsciously the manner in which they smoke—in
order to achieve that ‘comfort level.’ Compensation causes
smokers of low-tar cigarettes to inhale the same levels of
tar, the primary carcinogen found in cigarettes, as they
would ingest by smoking a full-flavored brand. Defendant
was not only aware of the phenomenon, that awareness
played a major role in the development of its low-tar brand.
A primary purpose of defendant’s decision to bring low-tar
cigarettes to market was to give smokers what one tobacco
executive labeled a ‘crutch,’ that is, a product that enabled
smokers to rationalize continued indulgence of a habit that
they otherwise would consider to be deadly.
“Defendant’s behavior with respect to the development
and marketing of low-tar cigarettes was but one iteration
of a larger pattern of deceiving smokers and the rest
of the public about the dangers of smoking. See [Estate of
Michelle] Schwarz [v. Philip Morris Inc., 206 Or App 20,
29-35, 135 P3d 409 (2006)]; Williams v. Philip Morris Inc.,
340 Or 35, 39-43, 127 P3d 1165 (2006), * * * vac’d on other
grounds by [Philip Morris USA v. Williams], 549 US 346,
127 S Ct 1057, 166 L Ed 2d 940 (2007), on remand, 344
Or 45, 176 P3d 1255, cert dismissed, [556 US 178], 129
S Ct 1436, 173 L Ed 2d 346 (2009) (explaining in greater
detail defendant’s conduct). Beginning in the mid-1950s
(when reports first emerged about a link between smoking
and lung cancer and other deadly diseases) and enduring
272 Estate of Michelle Schwarz v. Philip Morris USA, Inc.
throughout decedent’s smoking life, defendant conspired
with other cigarette manufacturers to wage a massive disinformation
campaign designed to create the perception of
uncertainty about the health risks of cigarettes, when in
fact research by those same tobacco companies confirmed
the adverse health consequences of smoking.”
Id. at 445-47.
In a special verdict, the jury found defendant liable
on all three of plaintiff’s claims; on the negligence and strict
product liability claims, the jury apportioned to Michelle
Schwarz 49 percent of the fault.
“The jury awarded $118,514.22 in economic damages,
$50,000 in noneconomic damages, and punitive damages
on each of plaintiff’s three claims: $25 million on the
negligence claim, $10 million on the strict product liability
claim, and $115 million on the fraud claim, for a total
punitive damages award of $150 million. Defendant made a
post-verdict motion to reduce the punitive damages award.
The trial court ruled that that award was ‘grossly excessive’
and, without apportionment among the claims, reduced the
punitive damages award to a total of $100 million.”
Id. at 450. On review before the Supreme Court, defendant
asserted, and the court agreed, that the trial court had not
properly instructed the jury regarding punitive damages.
Id. at 458. Accordingly, the court vacated the punitive damages
award and remanded the case for a new trial limited
to the question of punitive damages. Id. at 460. On reconsideration,
the court clarified that the issue on remand was
not whether defendant is liable for punitive damages, but,
instead, what was the correct amount of those damages:
“At trial of this case, the court instructed the jury that,
to recover punitive damages, plaintiff had to show, by clear
and convincing evidence, that defendant had ‘ “shown a
reckless and outrageous indifference to a highly unreasonable
risk of harm and [had] acted with a conscious indifference
to the health, safety, and welfare of others.” ’ 348
Or at 447. By awarding punitive damages in any amount,
the jury necessarily found that defendant’s conduct was
as described and that defendant was liable for punitive
damages. Defendant did not challenge, on appeal, the sufficiency
of the evidence to support that conclusion, and
that conclusion is not subject to retrial on remand. As we
Cite as 272 Or App 268 (2015) 273
explained in our earlier opinion, id. at 458, the jury was
permitted to use evidence of harm to others to assess the
reprehensibility of defendant’s conduct and, working from
that factual premise, to determine defendant’s liability for
punitive damages, and the trial court did not err in that
aspect of its instruction to the jury.
“The trial court also instructed the jury that, if it found
that defendant’s conduct was as described, it could consider
various factors, including the likelihood of serious harm
and the degree of defendant’s awareness of that harm, and
award an amount of punitive damages not to exceed $300
million. In doing so, the trial court erred in failing to inform
the jury that, while it could use evidence of harm to others
to determine the reprehensibility of defendant’s conduct, it
could not directly punish the defendant for that harm. Id.
Thus, that error likely affected the jury’s determination
of the amount of punitive damages to award and that was
the limited reason that we decided that a new trial was
necessary. We remanded this case to the trial court for a
‘new trial limited to the question of punitive damages.’ Id.
at 460. That wording may lack precision. The logic of our
earlier opinion made it plain that the trial court’s instructional
error had incorrectly stated the law that governed
the jury’s determination of the amount of punitive damages,
not the jury’s decision that punitive damages should
be awarded. We therefore clarify that, in remanding for a
new trial, we intended for a new trial limited to the amount
of punitive damages.”
Schwarz II, 349 Or at 523-24 (emphasis and brackets in
original).
On remand, plaintiff presented what he referred to
as a “streamlined” case, seeking a determination of punitive
damages only on his fraud claim, and not his negligence and
strict product liability claims.
At the beginning of the trial, the court instructed
the jury, among other things, regarding the binding verdict
of the jury from the 2002 trial. Specifically, the jury was
instructed, at the outset of the case:
“The first jury found the following facts by clear and
convincing evidence:
“No. 1: Philip Morris made false representations that
low-tar cigarettes delivered less tar and nicotine to the
274 Estate of Michelle Schwarz v. Philip Morris USA, Inc.
smoker and were, therefore, safer and healthier than regular
cigarettes and an alternative to quitting smoking.
“No. 2: Philip Morris knew the representations were
false or recklessly made the representations without knowing
if they were true or false.
“No. 3: Philip Morris intended to mislead Michelle
Schwarz.
“No. 4: Michelle Schwarz reasonably relied on Philip
Morris’s representations.
“And No. 5: Michelle Schwarz suffered injury and
death as a direct result of her reliance on Philip Morris’s
misrepresentations.
“* * * * *
“The first jury found that Philip Morris was liable for
punitive damages for fraud. The first jury found by clear
and convincing evidence that Philip Morris’s conduct
demonstrated a reckless and outrageous indifference to a
highly unreasonable risk of harm and that Philip Morris
acted with a conscious indifference to the health, safety
and welfare of others.
“Based on the above finding, you must determine the
appropriate amount of punitive damages that is necessary
to punish Philip Morris’s fraudulent acts as found by the
first jury, to deter Philip Morris [from] committing these
and similar fraudulent acts in the future and to deter
others similarly situated from like conduct in the future.”
The court emphasized that, during the trial, the
jury might hear evidence
“that concerns the degree of reprehensibility of Philip
Morris’s conduct described above. Such evidence may not be
considered for the purpose of contradicting any of the first
jury’s findings. Neither party may prove that Philip Morris
never made false representations, that Philip Morris did
not intend to deceive Mrs. Schwarz or that she was in any
way at fault for relying on Philip Morris’s false representations.
You may consider such evidence only for the purpose
of determining the degree of reprehensibility of Philip
Morris’s conduct and the amount of punitive damages that
Philip Morris should pay.”
The retrial jury was also instructed that the first jury had
awarded $118,514.22 for the estate’s economic damages and
Cite as 272 Or App 268 (2015) 275
$50,000 for its noneconomic damages, “for a total of
$168,514.22 in compensatory damages for the estate’s losses,
including Mrs. Schwarz’s medical and funeral expenses,
her disability and pain and suffering; and her spouse’s and
children’s loss of her society, companionship and services.”
However, the court instructed the jury, “Oregon law does not
provide compensatory damages for loss of life to the person
who has died or to her estate in this type of case.”
At the second trial, in addition to the binding conclusions
of the first jury, there was evidence presented, as
in the first trial, related to defendant’s financial condition
and its conduct in relation to the low-tar fraud. We recount
the facts on those issues in the light most favorable to plaintiff.
See Parrott v. Carr Chevrolet, Inc., 331 Or 537, 542, 17
P3d 473 (2001) (“We view the evidence, and the reasonable
inferences to be drawn therefrom, in the light most favorable
to plaintiff, the party in whose favor the jury returned
the verdict.”).
Throughout the years, after studies in the 1950s
began to link cigarette smoking and, particularly, tar with
disease, defendant reacted by attempting to cast doubt on
that connection. In addition, defendant denied that nicotine
was addictive. Defendant continued to take a public position
until the late 1990s that nicotine was not addictive and that
smoking had not been proven to cause disease.
However, in 1964, following the release of the Surgeon
General’s widely publicized report linking smoking to disease,
while continuing to deny an established connection
between smoking and disease, defendant also reacted by,
among other things, seeking to develop what one executive
called “a psychological crutch and a self-rationale to
continue smoking.” After the Surgeon General’s report was
released, defendant looked into the market potential of a
“health cigarette.” An internal confidential report on that
issue noted that many smokers were concerned about the
relationship of cigarette smoking to health. According to the
report, women, “particularly, young women, would constitute
the greatest potential market for a health cigarette.”
Furthermore, it concluded that the “illusion of filtration is
as important as the fact of filtration” and, therefore, a new
276 Estate of Michelle Schwarz v. Philip Morris USA, Inc.
“health” cigarette should use a “radically different method
of filtration but need not be any more effective.”
Having recognized the potential for such a health
cigarette and consumer taste for “lighter products,” defendant
began marketing Merit cigarettes in 1976. Those cigarettes
contained filters, porous paper, and “puffed” tobacco,
all of which resulted in lower tar and nicotine ratings when
they were smoked by the Federal Trade Commission (FTC)-
standard testing machine.2 However, as defendant knew,
people do not “smoke like the machine.” Instead, people who
are addicted to nicotine compensate—they subconsciously
adjust the way they smoke by, among other things, covering
the holes in the filter, inhaling more deeply, holding
smoke longer in their lungs, or taking more puffs of each
cigarette. Smokers compensate in order to continue taking
in the same amount of nicotine as they have become used to.
Defendant knew that, as a result of compensation, smokers
of low-tar cigarettes smoke in such a way that they inhale
much more tar than the FTC machine would predict; compensation
causes smokers of low-tar cigarettes to inhale the
same amount of tar as they would if smoking a “full flavor”
brand of cigarettes. Nonetheless, defendant considered the
FTC-standard test favorable because it gave “low numbers.”
Indeed, defendant’s purpose was to give smokers a way to
rationalize continuing to smoke in the face of the evidence
that smoking causes disease.
According to a document on the history of Merit cigarettes
from defendant’s files, Merit marketing was centered
on the premise that the cigarette delivered both low tar and
great taste. Defendant spent record amounts to advertise
the introduction of Merit, designing “provocative headlines
and important looking copy which looked like it had real
news value.” Such headlines—“Tar/Taste Theory Exploded!
- Smoke Cracked! - Taste Barrier Broken!”—gave the message
that Merit provided “low tar with taste.” (Underscoring
omitted.) Over the years, defendant engaged in various
advertising campaigns to promote Merit cigarettes, including
2 The FTC machine “smokes” cigarettes by drawing standard preset “puffs”
of smoke into the machine at set intervals until a set length of the cigarette is
burned.
Cite as 272 Or App 268 (2015) 277
continuing to use “its original reportorial format” and a
“blind challenge” in which smokers were sent “two unidentified
packs of Merit” and a letter emphasizing those cigarettes’
“benefits versus their own brand.” One of the primary
objectives of defendant’s advertising was to “point out
Merit’s tar advantage over competitive low tar brands.”
Michelle Schwarz, who had been smoking since she
was 18 years old, switched from smoking full-flavor cigarettes
to Merit cigarettes when they were released in 1976.
Although she had switched with the understanding that
low-tar cigarettes were safer, after switching, she changed
the way that she smoked, as described above.
In 1999—the year that Michelle Schwarz died—after
denying the link between smoking and disease for decades,
defendant began to publicly acknowledge that smoking
causes cancer. As required by law and its Master Settlement
Agreement (MSA) with the states, see Williams v. RJ Reynolds
Tobacco Company, 351 Or 368, 373, 271 P3d 103 (2011) (attorneys
general of 46 states entered into a “global settlement
agreement with Philip Morris and the other tobacco companies”
in which, among other things, the tobacco companies
agreed “to adhere to restrictions on their advertising and
marketing”), defendant’s advertising of cigarettes was significantly
limited. Defendant also started a website that included
information regarding the health effects of smoking. However,
until 2010, when the law changed to prohibit it, defendant continued
to call its cigarettes “light” and “low tar.”
The jury also heard evidence relating to defendant’s
financial condition. According to plaintiff’s expert, defendant
is extremely strong financially. In the several years
before trial, its net earnings had been several billion dollars
per year. For example, according to the expert, defendant’s
earnings in 2010 were $3.3 billion, with net daily earnings
for that period at a little over $9 million, and defendant is
worth approximately $50 billion.3 There was also evidence
3 The financial information presented related to defendant, Philip Morris
USA, Inc. There was evidence that Philip Morris USA, Inc., does business only in
the United States and United States territories. In addition, we note that there
was evidence that, although defendant makes payments to the states under the
MSA, the cost of those payments is passed on to cigarette purchasers through
settlement-related price increases.
278 Estate of Michelle Schwarz v. Philip Morris USA, Inc.
that defendant’s sale of low-tar cigarettes accounts for a significant
percentage of its total sales.
At the end of the parties’ presentation of evidence,
the court again instructed the jury regarding the first jury’s
binding conclusions. In particular, it again instructed the
jury that the first jury had conclusively determined, by clear
and convincing evidence, that (1) defendant made false representations
that low-tar cigarettes delivered less tar and
nicotine to the smoker and were, therefore, safer and healthier
than regular cigarettes and an alternative to quitting
smoking; (2) defendant knew those representations were
false or recklessly made them without knowing if they were
true or false; (3) defendant intended to mislead Michelle
Schwarz; (4) Michelle Schwarz reasonably relied on the false
representations; (5) as a result of that reliance, Michelle
Schwarz suffered injury and death; (6) defendant’s conduct
demonstrated a reckless and outrageous indifference to a
highly unreasonable risk of harm; and (7) defendant acted
with a conscious indifference to the health, safety, and welfare
of others. It instructed that, because
“the Oregon Supreme Court has ordered that the new jury
consider only one issue, the amount of punitive damages, it
is improper for you to second-guess, question or re-examine
the findings made by the first jury. Those findings are binding
on you, on the Court and on the parties and must be
followed. You are therefore required to make an award of
punitive damages in this case and the only question for you
to decide is the amount of those punitive damages.”
After deliberating, the jury awarded plaintiff punitive damages
of $25 million. Thereafter, defendant moved to reduce
the jury’s award pursuant to ORS 31.730(2), asserting that
the award was grossly and unconstitutionally excessive.
Defendant also argued that plaintiff failed to present sufficient
evidence to support any award above a nominal amount
and asserted that “the court should enter judgment in favor
of plaintiff in a nominal amount, such as $1” because any
award above such a nominal amount was “arbitrary.” The
trial court denied the motion and entered a general judgment
awarding punitive damages of $25 million.
As noted, on appeal, defendant contends that the
trial court erred in failing to reduce the jury’s award of
Cite as 272 Or App 268 (2015) 279
punitive damages pursuant to ORS 31.730(2) and (3) because
the punitive damages award is “arbitrary and excessive, in
violation of Oregon law” and the Due Process Clause of the
Fourteenth Amendment to the United States Constitution.
(Boldface omitted.) In particular, defendant asserts that
the “record in this case * * * cannot support anything more
than a nominal award” of punitive damages and that any
amount above a nominal award was arbitrary. Defendant
further argues that, even if the jury could award “some nonnegligible
amount of punitive damages, the amount it did
award was unconstitutionally excessive.” (Emphases in original.)
As explained below, we reject defendant’s assertion
that there was no evidence to support more than a nominal
award of punitive damages and conclude that the award
of punitive damages was not unconstitutionally excessive.
Accordingly, the trial court did not err in denying defendant’s
motion to reduce the award under ORS 31.730.
Pursuant to ORS 31.730(1), in a civil case, punitive
damages are recoverable only where it has been proven “by
clear and convincing evidence that the party against whom
punitive damages are sought has acted with malice or has
shown a reckless and outrageous indifference to a highly
unreasonable risk of harm and has acted with a conscious
indifference to the health, safety and welfare of others.”
Here, however, as noted, whether that standard was met
was not before the jury on retrial. As the Supreme Court
held, in the first trial, the jury, in awarding punitive damages,
necessarily found that defendant had shown a reckless
and outrageous indifference to a highly unreasonable risk
of harm and had acted with a conscious indifference to the
health, safety, and welfare of others. Schwarz II, 349 Or at
523. Thus, as the court made clear, that determination by
the first jury as to defendant’s conduct was not in question;
the only issue to be considered by the jury on remand was
the appropriate amount of punitive damages.
Pursuant to ORS 31.730(2),
“[i]f an award of punitive damages is made by a jury, the
court shall review the award to determine whether the
award is within the range of damages that a rational juror
would be entitled to award based on the record as a whole,
viewing the statutory and common-law factors that allow
280 Estate of Michelle Schwarz v. Philip Morris USA, Inc.
an award of punitive damages for the specific type of claim
at issue in the proceeding.”
Furthermore, in addition to any reduction that may be made
under subsection (2), pursuant to ORS 31.730(3),
“upon motion of a defendant the court may reduce the
amount of any judgment requiring the payment of punitive
damages entered against the defendant if the defendant
establishes that the defendant has taken remedial measures
that are reasonable under the circumstances to prevent
reoccurrence of the conduct that gave rise to the claim
for punitive damages. In reducing awards of punitive damages
under the provisions of this subsection, the court shall
consider the amount of any previous judgment for punitive
damages entered against the same defendant for the same
conduct giving rise to a claim for punitive damages.”
(Emphasis added.)
In this case, in its final instructions, the court
instructed the jury that, in deciding the amount of punitive
damages, among other things, it should consider the following
criteria:
“The likelihood at the time that serious harm would arise
from the defendant’s misconduct; the degree of defendant’s
awareness of that likelihood; the profitability of defendant’s
misconduct; the duration of the misconduct and any concealment
of it * * *; the attitude and conduct of the defendant
upon discovery of the misconduct; and the financial
condition of the defendant, but you may not increase the
punitive damage * * * award above an amount that is
appropriate merely because a defendant has substantial
financial resources.”4
4 We observe that, although the punitive damages claim at issue in the second
trial was for fraud, the factors on which the jury was instructed mirror the
factors to be considered pursuant to ORS 30.925(2) in making a punitive damages
award in a product liability civil action. See also ORS 30.900 (a product
liability civil action is “a civil action brought against a manufacturer, distributor,
seller or lessor of a product for damages for personal injury, death or property
damage arising out of” any “design, inspection, testing, manufacturing or
other defect in the product”; “failure to warn regarding a product”; or “failure
to properly instruct in the use of a product”); Williams v. Philip Morris Inc., 344
Or 45, 58, 176 P3d 1255 (2008), cert dismissed as improvidently granted, 556
US 178 (2009) (“Oregon law provides that, in product liability actions (such as
the present case), punitive damages should be awarded (if at all) based on seven
criteria” contained in ORS 30.925(2)). Neither party asserts that the trial court
incorrectly instructed the jury to consider these factors in deciding the amount of
punitive damages in this case.
Cite as 272 Or App 268 (2015) 281
Defendant asserts that “plaintiff’s evidence was insufficient
to allow the jury to follow these instructions.” Plaintiff
counters that the record contains some evidence that would
have allowed the jury to consider the listed factors. Having
reviewed the record presented at the second trial, we agree
with plaintiff.
As to the first two factors, the record contains evidence
from which the jury could conclude that defendant
was aware that serious harm would likely result from its
low-tar fraud. Specifically, evidence relating to the links
between smoking and disease, compensation in smokers
of low-tar cigarettes, and defendant’s knowledge of both of
those phenomena, combined with evidence regarding defendant’s
development and marketing of low-tar cigarettes
related to those factors. The jury instructions regarding the
first jury’s verdict in this case and the elements that were
conclusively established thereby also relate to the issue of
defendant’s awareness that serious harm would likely result
from its conduct. In particular, defendant had knowingly
or recklessly made false representations that low-tar cigarettes
were safer and healthier than regular cigarettes and
an alternative to quitting smoking and, in making those
representations, had intended to mislead Michelle Schwarz.
Furthermore, in that conduct, defendant demonstrated a
“reckless and outrageous indifference to a highly unreasonable
risk of harm.” Those conclusions support a determination
by the jury that serious harm was likely to result
from defendant’s conduct and that defendant was aware
of that likelihood. With respect to the third factor, in our
view, the evidence relating to defendant’s marketing efforts
and financial condition gave the jury evidence from which it
could appropriately determine that defendant’s misconduct
was profitable. With respect to the fourth factor, the duration
of defendant’s misconduct and any concealment of it, there
was evidence that defendant’s misconduct extended over
decades, including its continued use of the term “low tar” to
describe its cigarettes until 2010. Furthermore, the nature
of the misconduct itself—defendant fraudulently represented
that low-tar cigarettes delivered less tar and nicotine
to the smoker and were, therefore, safer and healthier than
regular cigarettes and an alternative to quitting smoking—
was pertinent to the jury’s consideration of “concealment.”
282 Estate of Michelle Schwarz v. Philip Morris USA, Inc.
With respect to the fifth factor, the attitude of defendant
upon the discovery of the misconduct, we note that, in
addition to defendant’s continued use of the terms “light”
and “low tar” until prohibited by law in 2010, there was evidence
from which the jury could conclude that, despite being
aware that its low-tar cigarettes were not safer, defendant
delayed acknowledging that for decades.
Finally, regarding the sixth factor, as defendant
concedes, there was evidence from plaintiff’s expert regarding
the financial condition of defendant. In sum, we conclude
that there was evidence before the jury that allowed it to
consider the factors as instructed and its verdict is not “irrational”
in light of those factors. We reject defendant’s argument
to the contrary.
Defendant next contends that, in any event, in light
of the compensatory-damage award, the jury’s award of
$25 million in punitive damages is unconstitutionally excessive.
In defendant’s view, plaintiff could be awarded no more
than “nine times the amount of compensatory damages
($1,516,626).” Defendant further asserts that the award is
not necessary for punishment or deterrence.
“Punitive damages awards that are ‘grossly excessive’
violate the Due Process Clause of the Fourteenth
Amendment to the United States Constitution, because
excessive punitive damages serve no legitimate purpose
and constitute arbitrary deprivations of property.” Goddard
v. Farmers Ins. Co., 344 Or 232, 251, 179 P3d 645 (2008).
“[W]hen reviewing a punitive damages award for excessiveness,
the reviewing court must view the facts in the light
most favorable to the jury’s verdict if there is evidence in the
record to support them. In other words, the reviewing court
must resolve all disputes regarding facts and factual inferences
in favor of the jury’s verdict and then determine, on
the facts as the jury was entitled to find them, whether the
award violates the legal standard of gross excessiveness.”
Parrott, 331 Or at 556-57 (internal citations omitted); see id.
at 555 (“[C]alculating punitive damages is the function of
the jury.”).
The United States Supreme Court has identified
three guideposts that should be considered in determining
Cite as 272 Or App 268 (2015) 283
whether a jury’s punitive damages award comports with due
process:
“(1) the degree of reprehensibility of the defendant’s misconduct;
(2) the disparity between the actual or potential
harm suffered by the plaintiff and the punitive damages
award; and (3) the difference between the punitive damages
awarded by the jury and the civil penalties authorized
or imposed in comparable cases.”
State Farm Mut. Automobile Ins. Co. v. Campbell, 538 US
408, 418, 123 S Ct 1513, 155 L Ed 2d 585 (2003); see BMW
of North America, Inc. v. Gore, 517 US 559, 574-75, 116 S Ct
1589, 134 L Ed 2d 809 (1996) (identifying three guideposts
for evaluating award of punitive damages). In light of the
principles outlined by the Court, we conclude, contrary to
defendant’s assertion, that the jury’s award of punitive damages
was not “unconstitutionally excessive.”
We begin by addressing the first guidepost, the degree
of reprehensibility of defendant’s conduct, which the Court
has identified as the most “important indicium of the reasonableness
of a punitive damages award[.]” Campbell, 538
US at 419 (internal quotation marks omitted); see also Gore,
517 US at 575 (punitive damages should reflect the enormity
of a defendant’s offense; “some wrongs are more blameworthy
than others”); Hamlin v. Hampton Lumber Mills,
Inc., 349 Or 526, 539, 246 P3d 1121 (2011) (acknowledging
that the “reprehensibility guidepost” is the most important
in determining the reasonableness of an award of punitive
damages). Reprehensibility is evaluated
“by considering whether: the harm caused was physical as
opposed to economic; the tortious conduct evinced an indifference
to or a reckless disregard of the health or safety of
others; the target of the conduct had financial vulnerability;
the conduct involved repeated actions or was an isolated
incident; and the harm was the result of intentional
malice, trickery, or deceit, or mere accident.”
Campbell, 538 US at 419. According to the Court, “punitive
damages should only be awarded if the defendant’s culpability,
after having paid compensatory damages, is so reprehensible
as to warrant the imposition of further sanctions
to achieve punishment or deterrence.” Id.; Lithia Medford
284 Estate of Michelle Schwarz v. Philip Morris USA, Inc.
LM, Inc. v. Yovan, 254 Or App 307, 322, 295 P3d 642 (2012)
(“[T]he United States Supreme Court has recognized that a
state like Oregon has a particular interest in deterring and
punishing conduct that causes its citizens physical harm,
evidences a disregard of their health or safety, or takes
advantage of their vulnerability.” (Internal quotation marks
omitted.)).
Applying those factors in this case, the jury was
entitled to conclude that defendant’s conduct was extraordinarily
reprehensible. First, the harm caused by defendant’s
conduct was physical, not merely economic. Indeed,
the severity of the physical harm was extreme: As a result
of defendant’s fraud, Michelle Schwarz suffered injury and
death. Cf. Campbell, 538 US 408 (automobile liability insurer
bad-faith failure to settle claims within policy limits); Gore,
517 US 559 (automobile distributor failed to disclose that
automobile had been repainted after being damaged prior
to delivery); Lithia Medford LM, Inc., 254 Or App 307 (auto
dealer misrepresented value of a vehicle and then intimidated
the purchaser to get the car back). In light of all the
facts, this subfactor supported the jury’s award of punitive
damages.
Likewise, defendant’s conduct demonstrated indifference
to or reckless disregard for the health or safety of others.
Defendant marketed its low-tar brand of cigarettes—a product
defendant knew to have deadly health consequences—
to convince smokers that there was a reasonable alternative
to quitting smoking. As the court instructed the jury,
based on the first jury’s verdict, when defendant misrepresented
low-tar cigarettes to be safer and healthier than
regular cigarettes and an alternative to quitting smoking,
defendant demonstrated a reckless and outrageous indifference
to a highly unreasonable risk of harm and acted with
a “conscious indifference to the health, safety and welfare of
others.”
Furthermore, the conduct at issue was not merely
an isolated incident; rather, it was one part of a concerted
decades-long effort to deceive smokers and the public about
the dangers of smoking, and to keep them smoking by falsely
representing low-tar cigarettes to be safer and healthier.
Cite as 272 Or App 268 (2015) 285
There was evidence that defendant’s low-tar representations
had been made countless times over many years, and that
defendant continued to market cigarettes as “light” or “low
tar” until prohibited by law in 2010.
As well, the harm was not a result of mere accident,
but was the result of deceit. Defendant made its representations
knowing they were false or made them recklessly without
knowing whether they were true or false, it intended to
mislead Michelle Schwarz, and she died as a result of her
reliance on those misrepresentations. In sum, in this case,
the jury was entitled to conclude that defendant’s conduct
was extraordinarily reprehensible in light of the first jury’s
binding determinations along with the additional evidence
presented during the punitive damages trial. Cf. Williams,
340 Or at 56 (reprehensibility guidepost favored a significant
punitive damage award under the following circumstances:
“The harm to Williams was physical—lung cancer
cost Williams his life. Philip Morris showed indifference to
and reckless disregard for the safety not just of Williams
but of countless other Oregonians, when it knowingly
spread false or misleading information to keep smokers
smoking. Philip Morris’s actions were no isolated incident,
but a carefully calculated program spanning decades. And
Philip Morris’s wrongdoing certainly involved trickery and
deceit.”). Thus, the reprehensibility of defendant’s conduct—
the most important guidepost—supports the jury’s imposition
of a very significant punishment.
We turn next to consideration of the difference
between the punitive damages awarded by the jury and
the applicable penalties authorized or imposed in comparable
cases. Although defendant asserts that the third guidepost
is “irrelevant here,” plaintiff disagrees, and points to
the Oregon Supreme Court’s discussion of this guidepost in
Williams in support of that contention. In Williams, Jesse
Williams’s widow and personal representative of his estate
brought an action against Philip Morris for, among other
things, negligence and fraud, asserting a connection between
the decedent’s smoking habit and his death. 340 Or at 38.
The jury found that Williams’s death was caused by smoking,
that he continued smoking in significant part because
he thought it was safe to do so, and that Philip Morris
286 Estate of Michelle Schwarz v. Philip Morris USA, Inc.
knowingly and falsely led him to believe that was the case.
With respect to the fraud claim, the plaintiff was awarded
both compensatory damages of approximately $821,000 and
$79.5 million in punitive damages. In reviewing the punitive
damages award to determine if it was unconstitutionally
excessive, the court considered the “ ‘comparable sanctions’
guidepost.” Id. at 58. The court observed that evaluation of
that guidepost
“requires three steps. First, courts must identify comparable
civil or criminal sanctions. Second, courts must consider
how serious the comparable sanctions are, relative to
the universe of sanctions that the legislature authorizes
to punish inappropriate conduct. Third, courts must then
evaluate the punitive damage award in light of the relative
severity of the comparable sanctions.”
Id. According to the court, this guidepost “may militate
against a significant punitive damage award if the state’s
comparable sanctions are mild, trivial, or nonexistent.
However, the guidepost will support a more significant punitive
damage award when the state’s comparable sanctions
are severe.” Id.
Although it noted that courts must exercise care
when relying on comparable criminal sanctions in considering
this guidepost, the court observed that “the basis for
holding that Philip Morris’s actions in this case compare to
a familiar crime is not speculative or remote.” Id. at 59. The
court explained that,
“[v]iewing the facts in the light most favorable to plaintiff,
Philip Morris’s actions, under the criminal statutes in place
at the beginning of its scheme in 1954, would have constituted
manslaughter. See ORS 163.040 (1953). Today, its
actions would constitute at least second-degree manslaughter,
a Class B felony. See ORS 163.125(1)(a). Individuals who
commit Class B felonies may face up to 10 years in prison
and a fine of up to $250,000. ORS 161.605(2) (term of imprisonment);
ORS 161.625(1)(c) (fine). Corporations that commit
a felony of any class may be fined up to $50,000, or required
to pay up to twice the amount that the corporation gained by
committing the offense. ORS 161.655(1)(a) and (3).”
Id. at 59-60 (footnotes omitted). In light of those criminal
sanctions, “both for any individual who participated and for
Cite as 272 Or App 268 (2015) 287
the corporation generally,” the court concluded that Philip
Morris was on notice that “Oregon would take such conduct
very seriously.” Id. at 60. Accordingly, the court concluded
that that guidepost supported a “very significant punitive
damage award.” Id.
The same is true in this case. Here, defendant
engaged in fraudulent conduct—it made false representations,
either recklessly or knowing those representations
were false, with the intent to mislead Michelle Schwarz. And
those misrepresentations resulted in Michelle Schwarz’s
death. ORS 163.125 provides:
“(1) Criminal homicide constitutes manslaughter in
the second degree when:
“(a) It is committed recklessly;
“* * * * *
“(2) Manslaughter in the second degree is a Class B
felony.”5
If the conduct is homicide committed “recklessly under circumstances
manifesting extreme indifference to the value
of human life,” it constitutes first-degree manslaughter and
is a Class A felony. ORS 163.118. As the court discussed in
Williams, severe criminal sanctions are applicable to even the
lesser of those offenses. See ORS 161.605(2) (Class B felony
punishable by 10 years imprisonment); ORS 161.625(1)(c)
(fine for a Class B felony up to $250,000); ORS 161.655(1)(a)
and (3) (corporation may be sentenced to pay a fine up to
$50,000 for a felony, or be required to pay up to “double the
amount of the corporation’s gain from the commission of the
offense”). Just as in Williams, the severity of the applicable
criminal sanctions put defendant on notice that its conduct
in this case would be taken seriously, and this guidepost
supports the jury’s imposition of a significant award of punitive
damages.
5 The term “recklessly” is defined in ORS 161.085(9):
“ ‘Recklessly,’ when used with respect to a result or to a circumstance
described by a statute defining an offense, means that a person is aware
of and consciously disregards a substantial and unjustifiable risk that the
result will occur or that the circumstance exists. The risk must be of such
nature and degree that disregard thereof constitutes a gross deviation from
the standard of care that a reasonable person would observe in the situation.”
288 Estate of Michelle Schwarz v. Philip Morris USA, Inc.
We turn, finally, to the disparity between the actual
or potential harm suffered by plaintiff and the punitive
damages award. According to defendant, because the ratio
of punitive to compensatory damages is 148 to 1, the jury’s
award of punitive damages is unconstitutional. In defendant’s
view, an award beyond a single digit ratio is impermissible.
Plaintiff, for its part, asserts that, in considering
the actual or potential harm in this case, the fact that the
“compensatory award did not compensate for the loss of
Michelle Schwarz’s life” must be taken into consideration.
As explained below, we reject defendant’s contention that,
in light of this guidepost, the punitive damages award is
unconstitutional.
Although there is “a presumption against an award
that has a 145-to-1 ratio,” Campbell, 538 US at 426, the
United States Supreme Court has consistently rejected the
notion that a particular fixed ratio defines the constitutional
limit on punitive damages. Id. at 425 (declining “to impose
a bright-line ratio which a punitive damages award cannot
exceed” and noting that “there are no rigid benchmarks that
a punitive damages award may not surpass”); Gore, 517 US
at 582 (“[W]e have consistently rejected the notion that the
constitutional line is marked by a simple mathematical formula[.]”);
Hamlin, 349 Or at 533 (United States Supreme
Court’s “repeated refusal to set any ‘rigid benchmark’ beyond
which a punitive damages award becomes unconstitutional”
is key to a proper understanding of the second guidepost).
“[B]ecause there are no rigid benchmarks that a punitive
damages award may not surpass, ratios greater than those
[the courts] have previously upheld may comport with due
process where ‘a particularly egregious act has resulted in
only a small amount of economic damages.’ ” Campbell, 538
US at 425 (quoting Gore, 517 US at 582)). On the other hand,
when “compensatory damages are substantial, then a lesser
ratio, perhaps only equal to compensatory damages, can
reach the outermost limit of the due process guarantee.” Id.
The amount that may be awarded depends on “the
facts and circumstances of the defendant’s conduct and the
harm to the plaintiff.” Id. Thus, in Campbell, a bad-faith
insurance case where the jury had awarded $1 million
in compensatory damages and $145 million in punitive
Cite as 272 Or App 268 (2015) 289
damages, the Court observed that the compensatory damages
of “$1 million for a year and a half of emotional distress,”
were “complete compensation.” Id. at 426. The Court
also noted that much of the distress suffered by the plaintiffs
“was caused by the outrage and humiliation [that they] suffered
at the actions of their insurer; and it is a major role of
punitive damages to condemn such conduct. Compensatory
damages, however, already contain this punitive element.”
Id.; see Williams, 340 Or at 49 (in Campbell, the plaintiffs
had “received a substantial compensatory damages award;
they were injured economically, not physically; and [the
insurer] paid the excess verdict before [the plaintiffs] sued
them, so their economic injuries were minor. Additionally,
the outrage and humiliation that [the insurer] caused [the
plaintiffs] may have been considered twice—once in the
compensatory damage award and again in the punitive
damage award.” (Internal citation omitted.)).
Here, several considerations play into our assessment
of this guidepost. First, as plaintiff points out, and in
contrast to Campbell, the compensatory damages awarded
here did not constitute “complete compensation” for the
harm caused by defendant’s conduct. As a result of defendant’s
conduct, Michelle Schwarz suffered injury and death.
But, as the trial court instructed the jury in this case, the
$168,514.22 in compensatory damages awarded to plaintiff
accounted for “Mrs. Schwarz’s medical and funeral expenses,
her disability and pain and suffering; and her spouse’s and
children’s loss of her society, companionship and services.”
However, those damages did not account for the loss of her
life itself, as “Oregon law does not provide for compensatory
damages for loss of life to the person who has died or to her
estate in this type of case.” Thus, the compensatory damages
did not account for all of the harm directly suffered
as a result of the actions of defendant. Rather, defendant’s
conduct caused harm for which defendant was not required
to pay.
Furthermore, in our view, less than $170,000 is
a relatively small amount for the death of a human being
and would not serve an appropriate admonitory function in
the circumstances of this case. As noted above, defendant
engaged in particularly egregious acts in this case, but that
290 Estate of Michelle Schwarz v. Philip Morris USA, Inc.
conduct resulted in a relatively small amount of compensatory
damages in light of the harm that resulted. See Hamlin,
349 Or at 534-35 (courts have flexibility when it comes to
applying ratios where a highly reprehensible act results in
a small damages award). For that reason, we view this as a
case where a greater than usual ratio would be appropriate.
See Lithia Medford LM, Inc., 254 Or App at 307 (approving
a punitive damages award with a ratio of 200 to 1 where the
defendant’s conduct was reprehensible and the compensatory
damages were small).
Finally, as the Supreme Court explained in Williams,
“the absence of bright-line rules necessarily suggests that
the two other guideposts—reprehensibility and comparable
sanctions—can provide a basis for overriding the concern
that may arise from a double-digit ratio.” 340 Or at
63. In other words, in a case where the defendant’s conduct
is extreme, a higher ratio may comport with due process.
Thus, in Williams, the court explained:
“And this is by no means an ordinary case. Philip
Morris’s conduct here was extraordinarily reprehensible,
by any measure of which we are aware. It put a significant
number of victims at profound risk for an extended period
of time. The State of Oregon treats such conduct as grounds
for a severe criminal sanction, but even that did not dissuade
Philip Morris from pursuing its scheme.
“In summary, Philip Morris, with others, engaged in a
massive, continuous, near-half-century scheme to defraud
the plaintiff and many others, even when Philip Morris
always had reason to suspect—and for two or more decades
absolutely knew—that the scheme was damaging the
health of a very large group of Oregonians—the smoking
public—and was killing a number of that group. Under such
extreme and outrageous circumstances, we conclude that
the jury’s $79.5 million punitive damage award against
Philip Morris comported with due process, as we understand
that standard to relate to punitive damage awards.”
Id. at 63-64.
Here, likewise, Philip Morris engaged in extraordinarily
reprehensible conduct. Its conduct was a continuation
of its decades-long scheme to defraud plaintiff and others
and keep them smoking cigarettes, although it knew of the
Cite as 272 Or App 268 (2015) 291
health consequences. In order to give smokers a psychological
crutch, it misrepresented the nature of its low-tar
cigarettes, conveying the message that they were safer and
healthier than regular cigarettes when, in fact, they were
not. As the first jury found, defendant acted with a conscious
indifference to the health, safety, and welfare of others, and
its conduct demonstrated a reckless and outrageous indifference
to a highly unreasonable risk of harm. Under the
circumstances of this case, like in Williams, given the reprehensibility
of defendant’s conduct, contrary to defendant’s
contention, the ratio of punitive damages to compensatory
damages does not compel a conclusion that the award of
punitive damages violates due process.
Finally, we note that the court in Williams approved
a far larger punitive damages award—$79.5 million—for
similar conduct. Furthermore, the jury was instructed to
consider, “in view of the defendant’s financial condition,
what amount [would be] necessary to punish it and discourage
future wrongful conduct.” Given the extreme reprehensibility
of defendant’s conduct, taken together with the evidence
of defendant’s financial resources and the intended
punishment and deterrent function of the award, although
$25 million is a serious sanction, the jury could properly
conclude that such an award was appropriate.
In sum, we conclude that the jury’s award of punitive
damages was not arbitrary or unconstitutionally excessive.
Accordingly, the trial court did not err in denying
defendant’s motion to reduce the punitive damages award.

Outcome: Affirmed

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