Law review article contends that puntive damage claims have been precluded in class actions

Inferential preclusion of punitive damage claims in many class actions is the premise of a forthcoming Law Review article by Professor Sheila Scheuerman of the Charleston College of Law. (Scheuerman, Sheila B., Two Worlds Collide: How the Supreme Court's Recent Punitive Damages Decisions Affect Class Actions (2008, forthcoming) Baylor Law Review, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1127691.) Although self-described as an alternative assessment of the impact of recent Supreme Court punitive damage decisions, the article ultimately echoes the refrain advanced by, among others, members of the defense bar immediately following the United States Supreme Court’s decision in Philip Morris USA v. Williams, 127 S.Ct. 1057 (2007).

The abstract to the Scheuerman article describes it thusly:

This article examines the intersection between two controversial areas of the law - punitive damages and class actions - and argues that the Supreme Court's recent jurisprudence clarifying the due process limits on punitive damages has broad implications on the procedural laws governing the types of cases that can properly be certified as a class action. Specifically, the article discusses the Supreme Court's evolving approach to punitive damages from one that considered the harm a defendant's conduct caused to society as a whole to one that now focuses almost exclusively on the harm to the specific individual bringing the lawsuit. This shift, which recently culminated in the Court's 2007 decision in Philip Morris USA v. Williams, constitutionally requires that the amount of a punitive damages award relate to the amount of harm suffered by the party bringing the suit. That requirement is at odds with class action practices that treat punitive damages as a common, class-wide issue and that have allowed juries to assess a punitive damages award before evaluating the harm to the individual class members. The article argues, therefore, that where injuries are not uniform among class members, punitive damages cannot be pursued as a class-wide remedy.

(Christopher Robinette, Scheuerman on Punitive Damages and Class Actions (May 3, 2008) www.lawprofessors.typepad.com; see also, Ted Frank, How the Supreme Court's Recent Punitive Damages Decisions Affect Class Actions (May 3, 2008) www.pointoflaw.com, citing Robinette, and Curt Cutting, How the Supreme Court's Recent Punitive Damages Decisions Limit Class Actions (May 4, 2008) calpunitives.blogspot.com, also citing Robinette.)

Ted Frank, at PointofLaw.com, views the Scheuerman article as an unfulfilled promise that essentially repeats commentary from the blawgosphere a year earlier:

This is similar to the point made by Beck and Herrmann and Marc Moller, but ostensibly different: Scheuerman claims she is arguing for a narrower view than Beck and Herrmann do, but never delivers on her footnoted promise to address the argument in Part III of her paper.

(Ted Frank, How the Supreme Court's Recent Punitive Damages Decisions Affect Class Actions (May 3, 2008) www.pointoflaw.com.) In her article, Scheuerman asserts, “If injuries – or compensatory damages – vary among class members, punitive damages cannot be determined on a class-wide basis.” (Scheuerman, Sheila B., Two Worlds Collide: How the Supreme Court's Recent Punitive Damages Decisions Affect Class Actions (2008, forthcoming) Baylor Law Review, at p. 2, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1127691.) In that same passage, Scheuerman asks whether the Philip Morris decision means “the end of punitive damages class actions, as some defense lawyers have argued?” (Ibid.) In a footnote, Scheuerman promises to answer the rhetorical question:

Jim Beck and Mark Herrmann argue that Philip Morris means the end of any punitive damages claim being assessed in class action litigation. Hanging on the Court’s language regarding “non-parties,” Beck and Herrmann suggest that “aggregate punitive awards (including those encompassing “nonparties” who are “directly represent[ed] by parties) are necessarily “standardless and “speculative” in violation of Due Process.” As explained infra Part III, such claims exaggerate the Court’s holding in Philip Morris.

(Id., at p. 2, n. 15, citations omitted.)  It is this implicit promise by Scheuerman to contrast her thesis with that of Beck, Hermann, and others, that draws PointofLaw.com blogger Frank’s assessment that Sheuerman promises something new without delivering.

To independently assess whether Scheuerman breaks with the most strident defense bar assessments of Philip Morris, it is helpful to view their contentions together. In 2007, Beck and Hermann declare:

The broad questions that injury to persons not before the court present – How many victims? How badly injured? Under what circumstances? – all are likely to produce “standardless” awards violative of due process. Id. at 6. While the court is discussing an individual award – the implications of Williams for the already sputtering proposition that punitive damages can be decided in class-wide, representative litigation are obvious. The nails are on the coffin.

The Court found “no authority supporting the use of punitive damages awards for the purpose of punishing a defendant for harming others.” Id. at 6. The concept of “potential harm,” the Court clarified, means only harm potentially caused the plaintiff. Id. (emphasis original). While harm to others is relevant to reprehensibility, that fact does not permit counsel to argue or a court to charge that a jury may award punitive damages in part to rectify harm to others. “A jury may go no further. . .and use a punitive damages verdict to punish a defendant directly on account of harms it is alleged to have visited on nonparties.” Id.

(Beck/Hermann, Send Them a Message (February 20, 2007) druganddevicelaw.blogspot.com.)  Scheuerman’s article, in Part III, concludes:

Thus, procedural due process requires that where compensatory damages mandate an individualized inquiry, punitive damages likewise pose an individual issue. This ensures that the substantive due process limits on punitive damages are respected. The punitive award will bear a reasonable relationship to the plaintiff’s harm, and the defendant will have the opportunity to defend against each claim.

(Scheuerman, Sheila B., Two Worlds Collide: How the Supreme Court's Recent Punitive Damages Decisions Affect Class Actions (2008, forthcoming) Baylor Law Review, at p. 28, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1127691.) Is this really a limitation on the Beck/Hermann claim? Beck and Hermann tout punitive damage awards in class actions as residents of a coffin, with nails at the ready. Scheuerman purports to describe a lesser death, giving last rites only to those actions were compensatory damages require individual inquiry. While PointofLaw.com may be exaggerating the lack of differentiation between Scheuerman’s premise and the Beck/Hermann proclamation, it isn’t much of an exaggeration.

Under the Scheuerman thesis, only class actions where compensatory damages can are ascertained without any individual inquiry are suitable for potential punitive damage awards. But the list of such qualifying class actions seems small indeed. Applying the Scheuerman proposition, the consumer class action where everyone gets their $1.50 refunded might be suitable for classwide punitive damages, but wage & hour class actions (where compensation varies by employee), tort-type class actions, consumer class actions with major fraud components, discrimination class actions, securities fraud class actions and false advertising/unfair competition class actions are all unsuitable for punitive damage awards.

Some commentators have offered similar, but not identical, analyses. For example, the Cato Institute Blog, Cato-at-Liberty, viewed the impact of Philip Morris as creating “trouble for large-scale punitive damage classes.” (Mark Moller, Philip Morris v. Williams and Class Actions (February 21, 2007) www.cato-at-liberty.org.) But many view Philip Morris as simply injecting more confusion into an already murky area of law:

This is where the Court’s decision is confusing. As Justice Stevens, Justice Thomas, and Justice Ginsburg point out in their dissents, it is hard to understand how juries will be able to weigh the evidence of harm to others in determining how reprehensible the defendant’s conduct was without punishing the defendant for that conduct. Justice Breyer’s majority opinion expresses confidence that states will be able to provide adequate direction, but that confidence seems largely unjustified. Philip Morris USA v. Williams is, therefore, an uncertain guidepost for the future. Lawyers for the victims of corporate wrongdoing should be able to continue to offer evidence of the impact of that wrongdoing. It will be up to the lower courts to sort out just how they can do so, and how the jury should weigh the evidence, consistent with the Supreme Court’s confusing standards.

(Jay Feinman, Guest Blogger: Effect of Philip Morris is Uncertain (February 20, 2007) www.acsblog.org.) Ted Frank agrees: “I tend to agree with Bruce Nye's view that the practical effect before juries is going to be next to nothing and with Jay Feinman's view that the ultimate effect will be to muddy the law until the Court revisits the issue again.” (Ted Frank, More on Philip Morris (February 20, 2007) www.pointoflaw.com, citing Feinman, supra, and Nye, Phillip Morris USA v. Williams – How Will The Latest SCOTUS Punitive Damages Decision Play Out in California? (February 20, 2007) www.calbizlit.com.)

Ultimately, this debate seems incomplete. Philip Morris is an individual action. The Supreme Court provides no guidance in its decision for class action litigation in which punitive damages are sought. Second, no commentator addresses the body of law that finds absent class members to be quasi-parties to the action. Courts could easily sidestep the Philip Morris issues by noting that, upon certification, any punitive damages awarded by the jury will be awarded only to parties to the action (i.e., the class members). Third, the defense-oriented voices in this debate talk about punitive damages as though certification of such claims is tantamount to an award of punitive damages. The only effect of certification is to permit the classwide adjudication of issues; it is not an award of punitive damages. Fourth, these commentators complain that punitive damages in a class action cannot be determined until compensatory damages are determined. But this is true even in individual actions. Liability must be established, then compensatory damages, and, finally, punitive damages that are, in some measure, related to the compensatory award and the nature of the conduct. Moreover, it is unclear why, if an action is suitable on due process grounds for classwide determination of liability and compensatory damages, it is not also appropriate to use the classwide compensatory award as the starting point for assessing an associated punitive damage award. The real upshot of the discussion by Scheuerman, Moller, Beck, Hermann, and others, is to suggest that class actions, in an of themselves, are unconstitutional. Regardless of where one stands on the usefulness of class actions, too much water is under the bridge for the Supreme Court to ever adopt that pie-in-the-sky defense bar argument.

So, while an educational read, Scheuerman does not advance the case that the Supreme Court has precluded punitive damage awards in class actions.  Instead, she expands upon the blawgosphere commentary of February 2007.

The art of the post headline is much like the art of the fishing lure: bait it right and they will come. But the headline must ultimately capture some essence of the story that follows, or the author risks the ire of a deceived reader. This post’s headline asks a question of seismic import in class action jurisprudence. The answer, evidently, is in the eye of the beholder until the next time that the United States Supreme Court has an opportunity to answer the question without creating dozens more.