Paul Scott Schwarz v. Philip Morris USA, Inc.

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 trial limited to the amount of punitive damages.

Estate of Michelle Schwarz v. Philip Morris Inc., 348 Or 442,

235 P3d 668 (Schwarz I), adh’d to as modified on recons,

349 Or 521, 246 P3d 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

1 The trial court later reduced the punitive damages award to a total of $100

million.

Cite as 272 Or App 268 (2015) 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 P3d 409 (2006)]; Williams v. Philip Morris Inc.,

340 Or 35, 39-43, 127 P3d 1165 (2006), * * * vac’d on other

grounds by [Philip Morris USA v. Williams], 549 US 346,

127 S Ct 1057, 166 L Ed 2d 940 (2007), on remand, 344

Or 45, 176 P3d 1255, cert dismissed, [556 US 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 Estate of Michelle Schwarz v. Philip Morris USA, Inc.

throughout decedent’s smoking life, defendant conspired

with other cigarette manufacturers to wage a massive disinformation

campaign 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

Cite as 272 Or App 268 (2015) 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.

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

274 Estate of Michelle Schwarz v. Philip Morris USA, Inc.

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

others similarly situated from like conduct in the future.”

The court emphasized that, during the trial, the

jury might hear evidence

“that concerns the degree of reprehensibility of Philip

Morris’s conduct described above. Such evidence may not be

considered for the purpose of contradicting any of the first

jury’s findings. Neither party may prove that Philip Morris

never made false representations, that Philip Morris did

not intend to deceive Mrs. Schwarz or that she was in any

way at fault for relying on Philip Morris’s false representations.

You may consider such evidence only for the purpose

of determining the degree of reprehensibility of Philip

Morris’s conduct and the amount of punitive damages that

Philip Morris should pay.”

The retrial jury was also instructed that the first jury had

awarded $118,514.22 for the estate’s economic damages and

Cite as 272 Or App 268 (2015) 275

$50,000 for its noneconomic damages, “for a total of

$168,514.22 in compensatory damages for the estate’s losses,

including Mrs. Schwarz’s medical and funeral expenses,

her disability and pain and suffering; and her spouse’s and

children’s loss of her society, companionship and services.”

However, the court instructed the jury, “Oregon law does not

provide compensatory damages for loss of life to the person

who has died or to her estate in this type of case.”

At the second trial, in addition to the binding conclusions

of the first jury, there was evidence presented, as

in the first trial, related to defendant’s financial condition

and its conduct in relation to the low-tar fraud. We recount

the facts on those issues in the light most favorable to plaintiff.

See Parrott v. Carr Chevrolet, Inc., 331 Or 537, 542, 17

P3d 473 (2001) (“We view the evidence, and the reasonable

inferences to be drawn therefrom, in the light most favorable

to plaintiff, the party in whose favor the jury returned

the verdict.”).

Throughout the years, after studies in the 1950s

began to link cigarette smoking and, particularly, tar with

disease, defendant reacted by attempting to cast doubt on

that connection. In addition, defendant denied that nicotine

was addictive. Defendant continued to take a public position

until the late 1990s that nicotine was not addictive and that

smoking had not been proven to cause disease.

However, in 1964, following the release of the Surgeon

General’s widely publicized report linking smoking to disease,

while continuing to deny an established connection

between smoking and disease, defendant also reacted by,

among other things, seeking to develop what one executive

called “a psychological crutch and a self-rationale to

continue smoking.” After the Surgeon General’s report was

released, defendant looked into the market potential of a

“health cigarette.” An internal confidential report on that

issue noted that many smokers were concerned about the

relationship of cigarette smoking to health. According to the

report, women, “particularly, young women, would constitute

the greatest potential market for a health cigarette.”

Furthermore, it concluded that the “illusion of filtration is

as important as the fact of filtration” and, therefore, a new

276 Estate of Michelle Schwarz v. Philip Morris USA, Inc.

“health” cigarette should use a “radically different method

of filtration but need not be any more effective.”

Having recognized the potential for such a health

cigarette and consumer taste for “lighter products,” defendant

began marketing Merit cigarettes in 1976. Those cigarettes

contained filters, porous paper, and “puffed” tobacco,

all of which resulted in lower tar and nicotine ratings when

they were smoked by the Federal Trade Commission (FTC)-

standard testing machine.2 However, as defendant knew,

people do not “smoke like the machine.” Instead, people who

are addicted to nicotine compensate—they subconsciously

adjust the way they smoke by, among other things, covering

the holes in the filter, inhaling more deeply, holding

smoke longer in their lungs, or taking more puffs of each

cigarette. Smokers compensate in order to continue taking

in the same amount of nicotine as they have become used to.

Defendant knew that, as a result of compensation, smokers

of low-tar cigarettes smoke in such a way that they inhale

much more tar than the FTC machine would predict; compensation

causes smokers of low-tar cigarettes to inhale the

same amount of tar as they would if smoking a “full flavor”

brand of cigarettes. Nonetheless, defendant considered the

FTC-standard test favorable because it gave “low numbers.”

Indeed, defendant’s purpose was to give smokers a way to

rationalize continuing to smoke in the face of the evidence

that smoking causes disease.

According to a document on the history of Merit cigarettes

from defendant’s files, Merit marketing was centered

on the premise that the cigarette delivered both low tar and

great taste. Defendant spent record amounts to advertise

the introduction of Merit, designing “provocative headlines

and important looking copy which looked like it had real

news value.” Such headlines—“Tar/Taste Theory Exploded!

- Smoke Cracked! - Taste Barrier Broken!”—gave the message

that Merit provided “low tar with taste.” (Underscoring

omitted.) Over the years, defendant engaged in various

advertising campaigns to promote Merit cigarettes, including

2 The FTC machine “smokes” cigarettes by drawing standard preset “puffs”

of smoke into the machine at set intervals until a set length of the cigarette is

burned.

Cite as 272 Or App 268 (2015) 277

continuing to use “its original reportorial format” and a

“blind challenge” in which smokers were sent “two unidentified

packs of Merit” and a letter emphasizing those cigarettes’

“benefits versus their own brand.” One of the primary

objectives of defendant’s advertising was to “point out

Merit’s tar advantage over competitive low tar brands.”

Michelle Schwarz, who had been smoking since she

was 18 years old, switched from smoking full-flavor cigarettes

to Merit cigarettes when they were released in 1976.

Although she had switched with the understanding that

low-tar cigarettes were safer, after switching, she changed

the way that she smoked, as described above.

In 1999—the year that Michelle Schwarz died—after

denying the link between smoking and disease for decades,

defendant began to publicly acknowledge that smoking

causes cancer. As required by law and its Master Settlement

Agreement (MSA) with the states, see Williams v. RJ Reynolds

Tobacco Company, 351 Or 368, 373, 271 P3d 103 (2011) (attorneys

general of 46 states entered into a “global settlement

agreement with Philip Morris and the other tobacco companies”

in which, among other things, the tobacco companies

agreed “to adhere to restrictions on their advertising and

marketing”), defendant’s advertising of cigarettes was significantly

limited. Defendant also started a website that included

information regarding the health effects of smoking. However,

until 2010, when the law changed to prohibit it, defendant continued

to call its cigarettes “light” and “low tar.”

The jury also heard evidence relating to defendant’s

financial condition. According to plaintiff’s expert, defendant

is extremely strong financially. In the several years

before trial, its net earnings had been several billion dollars

per year. For example, according to the expert, defendant’s

earnings in 2010 were $3.3 billion, with net daily earnings

for that period at a little over $9 million, and defendant is

worth approximately $50 billion.3 There was also evidence

3 The financial information presented related to defendant, Philip Morris

USA, Inc. There was evidence that Philip Morris USA, Inc., does business only in

the United States and United States territories. In addition, we note that there

was evidence that, although defendant makes payments to the states under the

MSA, the cost of those payments is passed on to cigarette purchasers through

settlement-related price increases.

278 Estate of Michelle Schwarz v. Philip Morris USA, Inc.

that defendant’s sale of low-tar cigarettes accounts for a significant

percentage of its total sales.

At the end of the parties’ presentation of evidence,

the court again instructed the jury regarding the first jury’s

binding conclusions. In particular, it again instructed the

jury that the first jury had conclusively determined, by clear

and convincing evidence, that (1) defendant made false representations

that low-tar cigarettes delivered less tar and

nicotine to the smoker and were, therefore, safer and healthier

than regular cigarettes and an alternative to quitting

smoking; (2) defendant knew those representations were

false or recklessly made them without knowing if they were

true or false; (3) defendant intended to mislead Michelle

Schwarz; (4) Michelle Schwarz reasonably relied on the false

representations; (5) as a result of that reliance, Michelle

Schwarz suffered injury and death; (6) defendant’s conduct

demonstrated a reckless and outrageous indifference to a

highly unreasonable risk of harm; and (7) defendant acted

with a conscious indifference to the health, safety, and welfare

of others. It instructed that, because

“the Oregon Supreme Court has ordered that the new jury

consider only one issue, the amount of punitive damages, it

is improper for you to second-guess, question or re-examine

the findings made by the first jury. Those findings are binding

on you, on the Court and on the parties and must be

followed. You are therefore required to make an award of

punitive damages in this case and the only question for you

to decide is the amount of those punitive damages.”

After deliberating, the jury awarded plaintiff punitive damages

of $25 million. Thereafter, defendant moved to reduce

the jury’s award pursuant to ORS 31.730(2), asserting that

the award was grossly and unconstitutionally excessive.

Defendant also argued that plaintiff failed to present sufficient

evidence to support any award above a nominal amount

and asserted that “the court should enter judgment in favor

of plaintiff in a nominal amount, such as $1” because any

award above such a nominal amount was “arbitrary.” The

trial court denied the motion and entered a general judgment

awarding punitive damages of $25 million.

As noted, on appeal, defendant contends that the

trial court erred in failing to reduce the jury’s award of

Cite as 272 Or App 268 (2015) 279

punitive damages pursuant to ORS 31.730(2) and (3) because

the punitive damages award is “arbitrary and excessive, in

violation of Oregon law” and the Due Process Clause of the

Fourteenth Amendment to the United States Constitution.

(Boldface omitted.) In particular, defendant asserts that

the “record in this case * * * cannot support anything more

than a nominal award” of punitive damages and that any

amount above a nominal award was arbitrary. Defendant

further argues that, even if the jury could award “some nonnegligible

amount of punitive damages, the amount it did

award was unconstitutionally excessive.” (Emphases in original.)

As explained below, we reject defendant’s assertion

that there was no evidence to support more than a nominal

award of punitive damages and conclude that the award

of punitive damages was not unconstitutionally excessive.

Accordingly, the trial court did not err in denying defendant’s

motion to reduce the award under ORS 31.730.

Pursuant to ORS 31.730(1), in a civil case, punitive

damages are recoverable only where it has been proven “by

clear and convincing evidence that the party against whom

punitive damages are sought has acted with malice or has

shown a reckless and outrageous indifference to a highly

unreasonable risk of harm and has acted with a conscious

indifference to the health, safety and welfare of others.”

Here, however, as noted, whether that standard was met

was not before the jury on retrial. As the Supreme Court

held, in the first trial, the jury, in awarding punitive damages,

necessarily found 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. Schwarz II, 349 Or at

523. Thus, as the court made clear, that determination by

the first jury as to defendant’s conduct was not in question;

the only issue to be considered by the jury on remand was

the appropriate amount of punitive damages.

Pursuant to ORS 31.730(2),

“[i]f an award of punitive damages is made by a jury, the

court shall review the award to determine whether the

award is within the range of damages that a rational juror

would be entitled to award based on the record as a whole,

viewing the statutory and common-law factors that allow

280 Estate of Michelle Schwarz v. Philip Morris USA, Inc.

an award of punitive damages for the specific type of claim

at issue in the proceeding.”

Furthermore, in addition to any reduction that may be made

under subsection (2), pursuant to ORS 31.730(3),

“upon motion of a defendant the court may reduce the

amount of any judgment requiring the payment of punitive

damages entered against the defendant if the defendant

establishes that the defendant has taken remedial measures

that are reasonable under the circumstances to prevent

reoccurrence of the conduct that gave rise to the claim

for punitive damages. In reducing awards of punitive damages

under the provisions of this subsection, the court shall

consider the amount of any previous judgment for punitive

damages entered against the same defendant for the same

conduct giving rise to a claim for punitive damages.”

(Emphasis added.)

In this case, in its final instructions, the court

instructed the jury that, in deciding the amount of punitive

damages, among other things, it should consider the following

criteria:

“The likelihood at the time that serious harm would arise

from the defendant’s misconduct; the degree of defendant’s

awareness of that likelihood; the profitability of defendant’s

misconduct; the duration of the misconduct and any concealment

of it * * *; the attitude and conduct of the defendant

upon discovery of the misconduct; and the financial

condition of the defendant, but you may not increase the

punitive damage * * * award above an amount that is

appropriate merely because a defendant has substantial

financial resources.”4

4 We observe that, although the punitive damages claim at issue in the second

trial was for fraud, the factors on which the jury was instructed mirror the

factors to be considered pursuant to ORS 30.925(2) in making a punitive damages

award in a product liability civil action. See also ORS 30.900 (a product

liability civil action is “a civil action brought against a manufacturer, distributor,

seller or lessor of a product for damages for personal injury, death or property

damage arising out of” any “design, inspection, testing, manufacturing or

other defect in the product”; “failure to warn regarding a product”; or “failure

to properly instruct in the use of a product”); Williams v. Philip Morris Inc., 344

Or 45, 58, 176 P3d 1255 (2008), cert dismissed as improvidently granted, 556

US 178 (2009) (“Oregon law provides that, in product liability actions (such as

the present case), punitive damages should be awarded (if at all) based on seven

criteria” contained in ORS 30.925(2)). Neither party asserts that the trial court

incorrectly instructed the jury to consider these factors in deciding the amount of

punitive damages in this case.

Cite as 272 Or App 268 (2015) 281

Defendant asserts that “plaintiff’s evidence was insufficient

to allow the jury to follow these instructions.” Plaintiff

counters that the record contains some evidence that would

have allowed the jury to consider the listed factors. Having

reviewed the record presented at the second trial, we agree

with plaintiff.

As to the first two factors, the record contains evidence

from which the jury could conclude that defendant

was aware that serious harm would likely result from its

low-tar fraud. Specifically, evidence relating to the links

between smoking and disease, compensation in smokers

of low-tar cigarettes, and defendant’s knowledge of both of

those phenomena, combined with evidence regarding defendant’s

development and marketing of low-tar cigarettes

related to those factors. The jury instructions regarding the

first jury’s verdict in this case and the elements that were

conclusively established thereby also relate to the issue of

defendant’s awareness that serious harm would likely result

from its conduct. In particular, defendant had knowingly

or recklessly made false representations that low-tar cigarettes

were safer and healthier than regular cigarettes and

an alternative to quitting smoking and, in making those

representations, had intended to mislead Michelle Schwarz.

Furthermore, in that conduct, defendant demonstrated a

“reckless and outrageous indifference to a highly unreasonable

risk of harm.” Those conclusions support a determination

by the jury that serious harm was likely to result

from defendant’s conduct and that defendant was aware

of that likelihood. With respect to the third factor, in our

view, the evidence relating to defendant’s marketing efforts

and financial condition gave the jury evidence from which it

could appropriately determine that defendant’s misconduct

was profitable. With respect to the fourth factor, the duration

of defendant’s misconduct and any concealment of it, there

was evidence that defendant’s misconduct extended over

decades, including its continued use of the term “low tar” to

describe its cigarettes until 2010. Furthermore, the nature

of the misconduct itself—defendant fraudulently represented

that low-tar cigarettes delivered less tar and nicotine

to the smoker and were, therefore, safer and healthier than

regular cigarettes and an alternative to quitting smoking—

was pertinent to the jury’s consideration of “concealment.”

282 Estate of Michelle Schwarz v. Philip Morris USA, Inc.

With respect to the fifth factor, the attitude of defendant

upon the discovery of the misconduct, we note that, in

addition to defendant’s continued use of the terms “light”

and “low tar” until prohibited by law in 2010, there was evidence

from which the jury could conclude that, despite being

aware that its low-tar cigarettes were not safer, defendant

delayed acknowledging that for decades.

Finally, regarding the sixth factor, as defendant

concedes, there was evidence from plaintiff’s expert regarding

the financial condition of defendant. In sum, we conclude

that there was evidence before the jury that allowed it to

consider the factors as instructed and its verdict is not “irrational”

in light of those factors. We reject defendant’s argument

to the contrary.

Defendant next contends that, in any event, in light

of the compensatory-damage award, the jury’s award of

$25 million in punitive damages is unconstitutionally excessive.

In defendant’s view, plaintiff could be awarded no more

than “nine times the amount of compensatory damages

($1,516,626).” Defendant further asserts that the award is

not necessary for punishment or deterrence.

“Punitive damages awards that are ‘grossly excessive’

violate the Due Process Clause of the Fourteenth

Amendment to the United States Constitution, because

excessive punitive damages serve no legitimate purpose

and constitute arbitrary deprivations of property.” Goddard

v. Farmers Ins. Co., 344 Or 232, 251, 179 P3d 645 (2008).

“[W]hen reviewing a punitive damages award for excessiveness,

the reviewing court must view the facts in the light

most favorable to the jury’s verdict if there is evidence in the

record to support them. In other words, the reviewing court

must resolve all disputes regarding facts and factual inferences

in favor of the jury’s verdict and then determine, on

the facts as the jury was entitled to find them, whether the

award violates the legal standard of gross excessiveness.”

Parrott, 331 Or at 556-57 (internal citations omitted); see id.

at 555 (“[C]alculating punitive damages is the function of

the jury.”).

The United States Supreme Court has identified

three guideposts that should be considered in determining

Cite as 272 Or App 268 (2015) 283

whether a jury’s punitive damages award comports with due

process:

“(1) the degree of reprehensibility of the defendant’s misconduct;

(2) the disparity between the actual or potential

harm suffered by the plaintiff and the punitive damages

award; and (3) the difference between the punitive damages

awarded by the jury and the civil penalties authorized

or imposed in comparable cases.”

State Farm Mut. Automobile Ins. Co. v. Campbell, 538 US

408, 418, 123 S Ct 1513, 155 L Ed 2d 585 (2003); see BMW

of North America, Inc. v. Gore, 517 US 559, 574-75, 116 S Ct

1589, 134 L Ed 2d 809 (1996) (identifying three guideposts

for evaluating award of punitive damages). In light of the

principles outlined by the Court, we conclude, contrary to

defendant’s assertion, that the jury’s award of punitive damages

was not “unconstitutionally excessive.”

We begin by addressing the first guidepost, the degree

of reprehensibility of defendant’s conduct, which the Court

has identified as the most “important indicium of the reasonableness

of a punitive damages award[.]” Campbell, 538

US at 419 (internal quotation marks omitted); see also Gore,

517 US at 575 (punitive damages should reflect the enormity

of a defendant’s offense; “some wrongs are more blameworthy

than others”); Hamlin v. Hampton Lumber Mills,

Inc., 349 Or 526, 539, 246 P3d 1121 (2011) (acknowledging

that the “reprehensibility guidepost” is the most important

in determining the reasonableness of an award of punitive

damages). Reprehensibility is evaluated

“by considering whether: the harm caused was physical as

opposed to economic; the tortious conduct evinced an indifference

to or a reckless disregard of the health or safety of

others; the target of the conduct had financial vulnerability;

the conduct involved repeated actions or was an isolated

incident; and the harm was the result of intentional

malice, trickery, or deceit, or mere accident.”

Campbell, 538 US at 419. According to the Court, “punitive

damages should only be awarded if the defendant’s culpability,

after having paid compensatory damages, is so reprehensible

as to warrant the imposition of further sanctions

to achieve punishment or deterrence.” Id.; Lithia Medford

284 Estate of Michelle Schwarz v. Philip Morris USA, Inc.

LM, Inc. v. Yovan, 254 Or App 307, 322, 295 P3d 642 (2012)

(“[T]he United States Supreme Court has recognized that a

state like Oregon has a particular interest in deterring and

punishing conduct that causes its citizens physical harm,

evidences a disregard of their health or safety, or takes

advantage of their vulnerability.” (Internal quotation marks

omitted.)).

Applying those factors in this case, the jury was

entitled to conclude that defendant’s conduct was extraordinarily

reprehensible. First, the harm caused by defendant’s

conduct was physical, not merely economic. Indeed,

the severity of the physical harm was extreme: As a result

of defendant’s fraud, Michelle Schwarz suffered injury and

death. Cf. Campbell, 538 US 408 (automobile liability insurer

bad-faith failure to settle claims within policy limits); Gore,

517 US 559 (automobile distributor failed to disclose that

automobile had been repainted after being damaged prior

to delivery); Lithia Medford LM, Inc., 254 Or App 307 (auto

dealer misrepresented value of a vehicle and then intimidated

the purchaser to get the car back). In light of all the

facts, this subfactor supported the jury’s award of punitive

damages.

Likewise, defendant’s conduct demonstrated indifference

to or reckless disregard for the health or safety of others.

Defendant marketed its low-tar brand of cigarettes—a product

defendant knew to have deadly health consequences—

to convince smokers that there was a reasonable alternative

to quitting smoking. As the court instructed the jury,

based on the first jury’s verdict, when defendant misrepresented

low-tar cigarettes to be safer and healthier than

regular cigarettes and an alternative to quitting smoking,

defendant demonstrated a reckless and outrageous indifference

to a highly unreasonable risk of harm and acted with

a “conscious indifference to the health, safety and welfare of

others.”

Furthermore, the conduct at issue was not merely

an isolated incident; rather, it was one part of a concerted

decades-long effort to deceive smokers and the public about

the dangers of smoking, and to keep them smoking by falsely

representing low-tar cigarettes to be safer and healthier.

Cite as 272 Or App 268 (2015) 285

There was evidence that defendant’s low-tar representations

had been made countless times over many years, and that

defendant continued to market cigarettes as “light” or “low

tar” until prohibited by law in 2010.

As well, the harm was not a result of mere accident,

but was the result of deceit. Defendant made its representations

knowing they were false or made them recklessly without

knowing whether they were true or false, it intended to

mislead Michelle Schwarz, and she died as a result of her

reliance on those misrepresentations. In sum, in this case,

the jury was entitled to conclude that defendant’s conduct

was extraordinarily reprehensible in light of the first jury’s

binding determinations along with the additional evidence

presented during the punitive damages trial. Cf. Williams,

340 Or at 56 (reprehensibility guidepost favored a significant

punitive damage award under the following circumstances:

“The harm to Williams was physical—lung cancer

cost Williams his life. Philip Morris showed indifference to

and reckless disregard for the safety not just of Williams

but of countless other Oregonians, when it knowingly

spread false or misleading information to keep smokers

smoking. Philip Morris’s actions were no isolated incident,

but a carefully calculated program spanning decades. And

Philip Morris’s wrongdoing certainly involved trickery and

deceit.”). Thus, the reprehensibility of defendant’s conduct—

the most important guidepost—supports the jury’s imposition

of a very significant punishment.

We turn next to consideration of the difference

between the punitive damages awarded by the jury and

the applicable penalties authorized or imposed in comparable

cases. Although defendant asserts that the third guidepost

is “irrelevant here,” plaintiff disagrees, and points to

the Oregon Supreme Court’s discussion of this guidepost in

Williams in support of that contention. In Williams, Jesse

Williams’s widow and personal representative of his estate

brought an action against Philip Morris for, among other

things, negligence and fraud, asserting a connection between

the decedent’s smoking habit and his death. 340 Or at 38.

The jury found that Williams’s death was caused by smoking,

that he continued smoking in significant part because

he thought it was safe to do so, and that Philip Morris

286 Estate of Michelle Schwarz v. Philip Morris USA, Inc.

knowingly and falsely led him to believe that was the case.

With respect to the fraud claim, the plaintiff was awarded

both compensatory damages of approximately $821,000 and

$79.5 million in punitive damages. In reviewing the punitive

damages award to determine if it was unconstitutionally

excessive, the court considered the “ ‘comparable sanctions’

guidepost.” Id. at 58. The court observed that evaluation of

that guidepost

“requires three steps. First, courts must identify comparable

civil or criminal sanctions. Second, courts must consider

how serious the comparable sanctions are, relative to

the universe of sanctions that the legislature authorizes

to punish inappropriate conduct. Third, courts must then

evaluate the punitive damage award in light of the relative

severity of the comparable sanctions.”

Id. According to the court, this guidepost “may militate

against a significant punitive damage award if the state’s

comparable sanctions are mild, trivial, or nonexistent.

However, the guidepost will support a more significant punitive

damage award when the state’s comparable sanctions

are severe.” Id.

Although it noted that courts must exercise care

when relying on comparable criminal sanctions in considering

this guidepost, the court observed that “the basis for

holding that Philip Morris’s actions in this case compare to

a familiar crime is not speculative or remote.” Id. at 59. The

court explained that,

“[v]iewing the facts in the light most favorable to plaintiff,

Philip Morris’s actions, under the criminal statutes in place

at the beginning of its scheme in 1954, would have constituted

manslaughter. See ORS 163.040 (1953). Today, its

actions would constitute at least second-degree manslaughter,

a Class B felony. See ORS 163.125(1)(a). Individuals who

commit Class B felonies may face up to 10 years in prison

and a fine of up to $250,000. ORS 161.605(2) (term of imprisonment);

ORS 161.625(1)(c) (fine). Corporations that commit

a felony of any class may be fined up to $50,000, or required

to pay up to twice the amount that the corporation gained by

committing the offense. ORS 161.655(1)(a) and (3).”

Id. at 59-60 (footnotes omitted). In light of those criminal

sanctions, “both for any individual who participated and for

Cite as 272 Or App 268 (2015) 287

the corporation generally,” the court concluded that Philip

Morris was on notice that “Oregon would take such conduct

very seriously.” Id. at 60. Accordingly, the court concluded

that that guidepost supported a “very significant punitive

damage award.” Id.

The same is true in this case. Here, defendant

engaged in fraudulent conduct—it made false representations,

either recklessly or knowing those representations

were false, with the intent to mislead Michelle Schwarz. And

those misrepresentations resulted in Michelle Schwarz’s

death. ORS 163.125 provides:

“(1) Criminal homicide constitutes manslaughter in

the second degree when:

“(a) It is committed recklessly;

“* * * * *

“(2) Manslaughter in the second degree is a Class B

felony.”5

If the conduct is homicide committed “recklessly under circumstances

manifesting extreme indifference to the value

of human life,” it constitutes first-degree manslaughter and

is a Class A felony. ORS 163.118. As the court discussed in

Williams, severe criminal sanctions are applicable to even the

lesser of those offenses. See ORS 161.605(2) (Class B felony

punishable by 10 years imprisonment); ORS 161.625(1)(c)

(fine for a Class B felony up to $250,000); ORS 161.655(1)(a)

and (3) (corporation may be sentenced to pay a fine up to

$50,000 for a felony, or be required to pay up to “double the

amount of the corporation’s gain from the commission of the

offense”). Just as in Williams, the severity of the applicable

criminal sanctions put defendant on notice that its conduct

in this case would be taken seriously, and this guidepost

supports the jury’s imposition of a significant award of punitive

damages.

5 The term “recklessly” is defined in ORS 161.085(9):

“ ‘Recklessly,’ when used with respect to a result or to a circumstance

described by a statute defining an offense, means that a person is aware

of and consciously disregards a substantial and unjustifiable risk that the

result will occur or that the circumstance exists. The risk must be of such

nature and degree that disregard thereof constitutes a gross deviation from

the standard of care that a reasonable person would observe in the situation.”

288 Estate of Michelle Schwarz v. Philip Morris USA, Inc.

We turn, finally, to the disparity between the actual

or potential harm suffered by plaintiff and the punitive

damages award. According to defendant, because the ratio

of punitive to compensatory damages is 148 to 1, the jury’s

award of punitive damages is unconstitutional. In defendant’s

view, an award beyond a single digit ratio is impermissible.

Plaintiff, for its part, asserts that, in considering

the actual or potential harm in this case, the fact that the

“compensatory award did not compensate for the loss of

Michelle Schwarz’s life” must be taken into consideration.

As explained below, we reject defendant’s contention that,

in light of this guidepost, the punitive damages award is

unconstitutional.

Although there is “a presumption against an award

that has a 145-to-1 ratio,” Campbell, 538 US at 426, the

United States Supreme Court has consistently rejected the

notion that a particular fixed ratio defines the constitutional

limit on punitive damages. Id. at 425 (declining “to impose

a bright-line ratio which a punitive damages award cannot

exceed” and noting that “there are no rigid benchmarks that

a punitive damages award may not surpass”); Gore, 517 US

at 582 (“[W]e have consistently rejected the notion that the

constitutional line is marked by a simple mathematical formula[.]”);

Hamlin, 349 Or at 533 (United States Supreme

Court’s “repeated refusal to set any ‘rigid benchmark’ beyond

which a punitive damages award becomes unconstitutional”

is key to a proper understanding of the second guidepost).

“[B]ecause there are no rigid benchmarks that a punitive

damages award may not surpass, ratios greater than those

[the courts] have previously upheld may comport with due

process where ‘a particularly egregious act has resulted in

only a small amount of economic damages.’ ” Campbell, 538

US at 425 (quoting Gore, 517 US at 582)). On the other hand,

when “compensatory damages are substantial, then a lesser

ratio, perhaps only equal to compensatory damages, can

reach the outermost limit of the due process guarantee.” Id.

The amount that may be awarded depends on “the

facts and circumstances of the defendant’s conduct and the

harm to the plaintiff.” Id. Thus, in Campbell, a bad-faith

insurance case where the jury had awarded $1 million

in compensatory damages and $145 million in punitive

Cite as 272 Or App 268 (2015) 289

damages, the Court observed that the compensatory damages

of “$1 million for a year and a half of emotional distress,”

were “complete compensation.” Id. at 426. The Court

also noted that much of the distress suffered by the plaintiffs

“was caused by the outrage and humiliation [that they] suffered

at the actions of their insurer; and it is a major role of

punitive damages to condemn such conduct. Compensatory

damages, however, already contain this punitive element.”

Id.; see Williams, 340 Or at 49 (in Campbell, the plaintiffs

had “received a substantial compensatory damages award;

they were injured economically, not physically; and [the

insurer] paid the excess verdict before [the plaintiffs] sued

them, so their economic injuries were minor. Additionally,

the outrage and humiliation that [the insurer] caused [the

plaintiffs] may have been considered twice—once in the

compensatory damage award and again in the punitive

damage award.” (Internal citation omitted.)).

Here, several considerations play into our assessment

of this guidepost. First, as plaintiff points out, and in

contrast to Campbell, the compensatory damages awarded

here did not constitute “complete compensation” for the

harm caused by defendant’s conduct. As a result of defendant’s

conduct, Michelle Schwarz suffered injury and death.

But, as the trial court instructed the jury in this case, the

$168,514.22 in compensatory damages awarded to plaintiff

accounted for “Mrs. Schwarz’s medical and funeral expenses,

her disability and pain and suffering; and her spouse’s and

children’s loss of her society, companionship and services.”

However, those damages did not account for the loss of her

life itself, as “Oregon law does not provide for compensatory

damages for loss of life to the person who has died or to her

estate in this type of case.” Thus, the compensatory damages

did not account for all of the harm directly suffered

as a result of the actions of defendant. Rather, defendant’s

conduct caused harm for which defendant was not required

to pay.

Furthermore, in our view, less than $170,000 is

a relatively small amount for the death of a human being

and would not serve an appropriate admonitory function in

the circumstances of this case. As noted above, defendant

engaged in particularly egregious acts in this case, but that

290 Estate of Michelle Schwarz v. Philip Morris USA, Inc.

conduct resulted in a relatively small amount of compensatory

damages in light of the harm that resulted. See Hamlin,

349 Or at 534-35 (courts have flexibility when it comes to

applying ratios where a highly reprehensible act results in

a small damages award). For that reason, we view this as a

case where a greater than usual ratio would be appropriate.

See Lithia Medford LM, Inc., 254 Or App at 307 (approving

a punitive damages award with a ratio of 200 to 1 where the

defendant’s conduct was reprehensible and the compensatory

damages were small).

Finally, as the Supreme Court explained in Williams,

“the absence of bright-line rules necessarily suggests that

the two other guideposts—reprehensibility and comparable

sanctions—can provide a basis for overriding the concern

that may arise from a double-digit ratio.” 340 Or at

63. In other words, in a case where the defendant’s conduct

is extreme, a higher ratio may comport with due process.

Thus, in Williams, the court explained:

“And this is by no means an ordinary case. Philip

Morris’s conduct here was extraordinarily reprehensible,

by any measure of which we are aware. It put a significant

number of victims at profound risk for an extended period

of time. The State of Oregon treats such conduct as grounds

for a severe criminal sanction, but even that did not dissuade

Philip Morris from pursuing its scheme.

“In summary, Philip Morris, with others, engaged in a

massive, continuous, near-half-century scheme to defraud

the plaintiff and many others, even when Philip Morris

always had reason to suspect—and for two or more decades

absolutely knew—that the scheme was damaging the

health of a very large group of Oregonians—the smoking

public—and was killing a number of that group. Under such

extreme and outrageous circumstances, we conclude that

the jury’s $79.5 million punitive damage award against

Philip Morris comported with due process, as we understand

that standard to relate to punitive damage awards.”

Id. at 63-64.

Here, likewise, Philip Morris engaged in extraordinarily

reprehensible conduct. Its conduct was a continuation

of its decades-long scheme to defraud plaintiff and others

and keep them smoking cigarettes, although it knew of the

Cite as 272 Or App 268 (2015) 291

health consequences. In order to give smokers a psychological

crutch, it misrepresented the nature of its low-tar

cigarettes, conveying the message that they were safer and

healthier than regular cigarettes when, in fact, they were

not. As the first jury found, defendant acted with a conscious

indifference to the health, safety, and welfare of others, and

its conduct demonstrated a reckless and outrageous indifference

to a highly unreasonable risk of harm. Under the

circumstances of this case, like in Williams, given the reprehensibility

of defendant’s conduct, contrary to defendant’s

contention, the ratio of punitive damages to compensatory

damages does not compel a conclusion that the award of

punitive damages violates due process.

Finally, we note that the court in Williams approved

a far larger punitive damages award—$79.5 million—for

similar conduct. Furthermore, the jury was instructed to

consider, “in view of the defendant’s financial condition,

what amount [would be] necessary to punish it and discourage

future wrongful conduct.” Given the extreme reprehensibility

of defendant’s conduct, taken together with the evidence

of defendant’s financial resources and the intended

punishment and deterrent function of the award, although

$25 million is a serious sanction, the jury could properly

conclude that such an award was appropriate.

In sum, we conclude that the jury’s award of punitive

damages was not arbitrary or unconstitutionally excessive.

Accordingly, the trial court did not err in denying

defendant’s motion to reduce the punitive damages award.

Affirmed