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Schwarz v. Philip Morris USA, Inc.

Court of Appeals of Oregon

July 15, 2015

Paul Scott Schwarz, Personal Representative of the ESTATE OF MICHELLE SCHWARZ, Plaintiff-Respondent,
v.
PHILIP MORRIS USA, INC., a foreign corporation, Defendant-Appellant, and ROTHS IGA FOODLINER, INCORPORATED, Defendant

Argued and submitted September 9, 2014

Multnomah County Circuit Court. 000201376. Henry Kantor, Judge.

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.

James S. Coon argued the cause for respondent. With him on the brief was Swanson, Thomas, Coon & Newton.

Before Sercombe, Presiding Judge, and Hadlock, Judge, and Tookey, Judge.

OPINION

Page 932

[272 Or.App. 270] SERCOMBE, P. J.

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

Page 933

trial limited to the amount of punitive damages. Estate of Michelle Schwarz v. Philip Morris Inc., 348 Or. 442, 235 P.3d 668 ( Schwarz I ), adh'd to as modified on recons, 349 Or. 521, 246 P.3d 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 [272 Or.App. 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 P.3d 409 (2006)]; Williams v. Philip Morris Inc., 340 Or. 35, 39-43, 127 P.3d 1165 (2006), * * * vac'd on other grounds by [ Philip Morris USA v. Williams ], 549 U.S. 346, 127 S.Ct. 1057, 166 L.Ed.2d 940 (2007), on remand, 344 Or. 45, 176 P.3d 1255, cert dismissed, [556 U.S. 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 Or.App. 272] throughout decedent's smoking life, defendant conspired with other cigarette manufacturers to wage a massive disinformation campaign

Page 934

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 [272 Or.App. 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.

Page 935

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 [272 Or.App. 274] 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 ...

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