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‘The Impropriety of Punitive Damages in Mass Torts’: Highlights, Observations

September 8, 2017 in  News

New York Law Journal 

Are punitive damages inappropriate in mass tort cases? Should they be eliminated from all forms of mass tort litigation? “Yes”, says Cornell Professor of Law Emeritus, James A. Henderson Jr. Who is Professor Henderson? Why do his observations and opinions deserve our attention? Well, for one thing, he is a respected scholar whose prodigious articles on torts issues over the years have helped inject principles of reasonableness into the tort liability explosion of the 1970s to this day.

Second, he is the co-reporter (along with Prof. Aaron D. Twerski) of the American Law Institute’s prestigious Restatement (Third) of Torts: Products Liability (1998), an authoritative treatise that is widely consulted and cited by lawyers and courts around the country. And, if that weren’t enough, his two textbooks (co-authored with Twerski), “Torts: Cases and Materials” and “Products Liability: Problems and Process,” help guide the education of thousands of law students. So, when a scholar of that superior mettle warns against the law crossing the bounds of propriety in mass tort case handling, we ought to pay attention.

Henderson’s new article is called, “The Impropriety of Punitive Damages in Mass Torts.” It is published as part of Cornell Law School’s Legal Studies Research Paper Series (No. 17—33; the paper can be downloaded without charge from the Social Science Research Network Electronic Paper Collection). The Cornell Law Faculty Research Program and the U.S. Chamber Institute of Legal Reform provided research support.

Given limited space in this column, here is some of the pith and substance of the author’s 37-page, well-footnoted article. We only survey highlights and do not plunge into the depths of Henderson’s analysis. But the full article is worth a read. He starts by observing that punitive damages have been around for centuries in classic one-on-one tort actions. And, while mass torts are of more recent origin (and not without difficulties), they can be referred to as “traditional.” Despite the legitimacy of both institutions when employed separately, “loud warning signals should sound when, as with drinking and driving, they are combined.”

Mass tort litigation dates back to the 1960s when reforms in federal procedure began to allow the procedural aggregation of fault-based claims sharing common issues of fact and law. These included class actions and multidistrict consolidations (so-called MDLs) aimed primarily at achieving efficiency by allowing common issues to be tried simultaneously. The early cases involved class actions with a single defendant and multiple plaintiffs urging traditional, fault-based tort law. Plaintiffs included claims for punitive damages that fit conceptually within the fault-based action as a whole.

Nontraditional Aggregation

However, fault-based mass torts were followed by significant numbers of emerging, nontraditional, enterprise-liability-based forms of mass tort. These nontraditional forms of claims aggregation involve not only “procedural” aggregation but also “substantive” aggregation. This occurs when courts eliminate constituent elements from traditional tort doctrine-most dramatically, the element of a defendant’s fault-“to construct generic, strict liability claims brought by large numbers of plaintiffs against entire industries.”

The latter, nontraditional mass torts are based on innovative claims that ask courts to eliminate important doctrinal elements such as defect, fault and causation from traditional tort theories. These new doctrines aim to impose liability on entire industries, through their members, for harms caused to multitudes of plaintiffs by the generic risks that those industries present to the public. The emergent pattern echoes, to some extent, the metamorphosis in asbestos claims. Early cases in the 1960s were traditional, fault-based individual and class actions. By the early 1980s major asbestos suppliers declared bankruptcy. Facing depletion and exhaustion of solvent companies, new lawyer-inspired expedients evolved, creating nontraditional forms of litigation.

So, plaintiffs who could not identify the particular sources of asbestos to which they had been exposed joined groups of defendants within a given asbestos-related industry (or several) and invoked various theories of “collective responsibility.” They argued that exposure from various sources over periods of years had cumulative deleterious effects. Thus, they argued, any exposure to a defendant’s products should suffice to impose joint and several liability (even though exposure to a particular defendant’s product was not sufficient, by itself, to cause plaintiffs injury). Courts have more recently been pressured to accept other doctrinal expansions to spread the net of available asbestos defendants.

Thus, for example, using failure to warn theory, plaintiffs have sued defendants who do not supply products containing asbestos but that may be used, post-sale, by others in combination with asbestos products made by others. In June 2016, the New York Court of Appeals upheld a judgment for the plaintiff against a manufacturer of (non-asbestos) pump valves for harm caused by asbestos-containing gaskets manufactured and distributed by an unrelated company and installed by the purchasers of the pump valve. Dummit v. A. W. Chesterton, eta/., 2016 N.Y. LEXIS 1762 (Ct. App. June 28, 2016).

Further revisions of tort doctrine can promote nontraditional mass torts. Examples are: increasing the categories of injuries, besides personal injury and property damage, to include claims for compensation for increases in plaintiffs’ risks of future injury; mental distress for being placed at higher risk; and medical monitoring costs needed to detect asbestos-related illnesses at their earliest stage.

Tobacco litigation is a high-profile example of a “lawful but disfavored industry” that attracted lawsuits by state attorneys general seeking, on restitution grounds, reimbursement of tobacco-related health expenditures by their states. In 1998, a master settlement agreement was reached calling for the payment of $246 billion to the states and the non-governmental lawyers who had managed the litigation. Plaintiffs also sued tobacco companies for so called “economic losses” sustained by smokers who purchased cigarettes allegedly misrepresented to be “light” or those labeled “lowered tar and nicotine.”

The lead pigment industry has seen its share of mass tort litigation based on “public nuisance” actions commenced by units of government (owners of public buildings) and claims by nongovernmental plaintiffs. Because the buildings are old and adequate records are almost never available, “causation is a difficult issue.” The firearms industry is another example of trying to push the mass tort envelope. Plaintiffs insist that members of the firearms industry “owe a duty to market their products so as to rescue the public from gun-related criminal activity by unrelated third parties.” The two theories most often advanced are “negligent marketing” and “public nuisance.” In some cases, plaintiffs rely on theories of “collective causation” that would apportion responsibility among industry members according to market shares.

Other industries targeted for mass tort nontraditional liability are fast foods (e.g., obesity causation); soft drinks (e.g., concealment of potentially harmful ingredient; and false “no artificial flavors” labeling); high caffeine-content energy drinks (“Energy drinks can be deadly” and the industry has not properly warned of the known dangers); alcoholic beverages; and health care. In Iowa, a plaintiff, who was injured on defendant’s trampoline, filed suit claiming all trampolines are inherently unreasonable in design because they all involve inherent risks of harm that cannot be eliminated by altering the designs. The Iowa high court rejected the claim. Nevertheless, the case illustrates how the frontiers are being pushed towards what Henderson calls “product category liability.”

Policy Objectives

It is anyone’s guess, says Henderson, which large industry will be the next target of nontraditional forms of mass tort. The author asks: Will portions of the sports equipment industry become subject to an onslaught of mass tort claims because hundreds of thousands of persons are injured each year while engaging in healthful and enjoyable, but inherently risky, sports activities?

Punitive damages traditionally have been justified where the defendant acted in “willful or reckless disregard of plaintiffs rights,” or engaged in “outrageous conduct” creating a substantial risk of significant harm, or acted with actual “malice” or “reckless indifference to the rights of others.” The majority of courts agree that only defendants who are egregiously blameworthy deserve to be punished in this manner. Mere negligence, or even gross negligence, will not suffice. Because juries are given wide latitude in determining the size of the punitive awards, the policy objectives to be served by punitive damages-namely, retribution and deterrence-can be adversely affected.

Retribution is a “backward-looking end-in-itself,” based on the moral concept of “just desert.” But deterrence is a “forward-looking means-to-an-end,” serving to reduce future, inefficiently harmful conduct by the defendant and others. However, in mass tort litigation, many of the enterprises attacked are “lawful, socially beneficial-albeit risky-enterprises.” To be sure, a few individual defendants who are joined in mass torts will have acted especially badly in ways that relate uniquely to them. “But it is a stretch to insist that operating a lawful, albeit risky, business should, in itself, constitute sufficiently wrongful behavior to justify punitive damages.”

The policy objective of “retribution” is on shaky ground here. And the “deterrence” rationale is weak from the outset since many enterprises are regulated by government and subject to investigations, fines, criminal exposure and ordered recalls. Deterrence of misconduct already exists in normal, fault-based lawsuits seeking compensation for injuries. Further, the time frame dimension of lawsuits undercuts the force of deterrence. Products sold long ago become the subjects of litigation that can take years to process. By the time of a trial outcome, exhaustion of appeals and possible retrials, what exactly is there to deter? The products sold years later will be better, improved and responsive to the demands of the market and government regulation in any event.

The author goes on to specify the unfairness of allowing punitive damages in emerging, nontraditional forms of mass tort. They are “manifestly inappropriate.” As these lawsuits evolve into a form of “strict enterprise liability,” there will be an increased inertia for lawyers to file so-called settlement class actions trying to exact huge sums from defendants, “seemingly in exchange for terminating the rights of under-represented future claimants for pennies on the dollar.” There also is unfairness in unleashing punitive damages upon members of industries not yet selected as mass tort targets because of the lack of adequate forewarning to them of such exposure.

Professor Henderson’s well-researched analysis is thought-provoking and a good threshold from which to forge advocacy in real litigation.