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Oregon's Highest Court Holds State Did Not Waive Right to Punitive Damages in Case against Philip Morris

Thursday, December 15, 2011

Rebecca L. Tsai | Bloomberg Law Williams v. RJ Reynolds Tobacco Co., Nos. CC 970503957, SC S059014, CC 970604457, SC S059248, 2011 BL 305477 (Or. Dec. 2, 2011) In a certified appeal, the Oregon Supreme Court held that the state did not waive its right to recover punitive damages from Philip Morris, Inc. In doing so, the Court determined that the state's claim did not arise from Philip Morris's tobacco-related activities and thus was not waived by a prior settlement between the tobacco company and the state.

Philip Morris Refuses to Pay Punitive Damages to State

In 1997, the State of Oregon filed a suit against several cigarette manufacturers and distributors, including Philip Morris, Inc., alleging that it had "incurred hundreds of millions of dollars in increased Medicaid expenses for medical care for low-income Oregon residents and increased health insurance premiums for public employees as a result of the tobacco companies' unlawful conduct." The next year, Oregon and 45 other states settled their respective claims against the tobacco companies in a Master Settlement Agreement (MSA). By signing the agreement, the states agreed in relevant part to release the companies from past and future claims dealing with their tobacco products. In return, the companies would make annual payments to the states representing the cost of cigarette-related health care. Jesse Williams, a long time smoker of Philip Morris cigarettes, died in March 1997 of lung cancer. His estate brought a lawsuit for fraud and negligence against Philip Morris in Oregon state court. In addition to compensatory damages, a jury awarded the estate $79.5 million in punitive damages on the fraud claim. The award was upheld on appeal. Philip Morris paid the full amount of the compensatory damages to the estate. It also paid 40 percent of the punitive damages award, the percentage allocated to the estate under the state's split recovery statute, which provides that, upon entry of a verdict including punitive damages, 40 percent will be paid to the prevailing party and the remaining 60 percent to the state's victim compensation fund. See Or. Rev. Stat. § 31.735. It refused to pay the remaining amount to the state, arguing that the state had released its right to its portion of the award pursuant to the MSA. The trial court held that neither the estate nor the state was entitled to the balance of the punitive damages award, and the state intermediate appellate court certified the ensuing appeal to the Oregon Supreme Court.

Oregon's Claim Was Not Released under the MSA

The MSA defined "released claims," in relevant part, as "those Claims directly or indirectly based on, arising out of or in any way related, in whole or in part, to (A) the use, sale, distribution, manufacture, development, advertising, marketing or health effects of, (B) the exposure to, or (C) research, statement[s] or warnings regarding Tobacco Products." The state's claim to the damages award, however, did not arise from the facts underlying the estate's claim. Rather, it arose automatically under Section 31.735, which "applies without regard to the subject matter or nature of [the] claims in the civil action in which punitive damages [were] awarded." That is, if the state were to continue to pursue its share of the damages award, it would do so by suing "to enforce the statute, not to recover damages for Philip Morris's tobacco-related conduct." Thus, the state did not waive its right to a share of the punitive damages awarded to the estate by virtue of its participation in the MSA. While the Court acknowledged that there may be a "causal connection" between the estate's claim and the state's interest in the punitive damages, this relation did not "change the legal nature of the state's interest in its share of that award." Accordingly, the Court reversed the trial court's decision and remanded for further proceedings. DisclaimerThis document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.

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