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Saturday, April 26, 2014

A Nine Billion Dollar Punitive Damages Verdict and Why it Won't Last

Some of my favorite shows are on late at night. As a result, I have seen a lot of commercials from law firms that solicit potential plaintiffs in drug-related injury cases. One commercial I saw the other night claimed that a plaintiff had received a 6 billion dollar verdict in a lawsuit against a drug company. I thought that this was misleading -- damages in that amount needed to have been given to a class of plaintiffs, right?

Turns out my instinctual reaction was wrong. The ad was referring to this 6 billion dollar verdict against Takeda Pharmaceuticals. The 6 billion dollar amount was a punitive damages award and was based on the company's apparent practices of covering up the risk of harms posed by one of its drugs. This verdict was accompanied by an additional 3 billion dollar punitive damages award against its marketing partner, Eli Lilly. In addition to punitive damages, the plaintiff was awarded 1.25 million in compensatory damages.

The Wall Street Journal Law Blog summarizes why these damages will probably be reduced:

But how likely is it that the companies will actually fork over that amount? Not very, say legal experts. 
“There’s no way that these [damages] will be $9 billion at the end of the day,” said Mark Lanier, the lawyer for the husband and wife who sued the companies. U.S. District Judge Rebecca Doherty, who is presiding over the case in Lafayette, La., “will do what she thinks is right,” he said. 
. . . 
Compensatory damages are meant to compensate a party for loss or injury. Punitive damages are meant to punish and deter. But the two must bear some relationship to one another, the U.S. Supreme Court has ruled. 
In the 2003 case State Farm Mutual Automobile Insurance Co. v. Campbell and the 1996 case BMW of North America Inc. v. Gore, the high court ruled that excessive punitive damages are unconstitutional. 
What is excessive? It depends on the size of the compensatory damages. Generally speaking, punitive damages that are more than nine times that of compensatory damages have a poor survival rate, the Supreme Court ruled. Put another way, the ratio of compensatory damages to punitive damages typically should be a single digit.
The punitive damages multiplier in this case is far larger than a single digit. With compensatory damages measuring in at 1.25 million, the punitive damages are 7,200 times that amount. That's even higher than the 5,000-to-one verdict that I blogged about here (which was also something I learned about due to late-night television shows).

While this case involves a notably high ratio that is almost certain to be overturned, I still think it is a little strange that the plaintiff's attorney said that there was "no way" that the verdict would stand. While the attorney is almost certainly correct, if I were a party involved in litigation, I would not want my attorney speaking out and saying that the verdict I'd just been awarded is certain to be reduced.

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