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Oregon Appeals Court Says Some Punitive Damages Appropriate In Negligent Misrepresentation Verdict


HLD, v. 31, n. 12 (December 2003)

Oregon Appeals Court Says Some Punitive Damages Appropriate In Negligent Misrepresentation Verdict

In October 1990, Paul R. Bocci went to an urgent care clinic where he was treated by Dr. Frederick D. Edwards after being diagnosed with gastroenteritis. Bocci was a long-time user of the asthma medication Theo-Dur, which is manufactured by Key Pharmaceuticals, Inc. (Key) and contains theophylline. Bocci was also taking the antibiotic cirprofloxacin, but had not told the prescribing physician he was taking Theo-Dur. Edwards knew Bocci was taking Theo-Dur but he did not believe a patient could develop a toxicity problem from taking the drug. Shortly after he was sent home by Edwards, Bocci was admitted to the emergency room with theophylline toxicity and he suffered seizures resulting in permanent brain damage. Bocci sued Key and Edwards in state trial court. Edwards cross-claimed against Key, claiming Key had fraudulently misrepresented information about theophylline toxicity. On a special verdict, the jury found Key was negligent in its misrepresentations that had resulted in damage to Edwards and awarded him $500,000 in compensatory damages and $22.5 million in punitive damages. Bocci was awarded $5 million in compensatory damages and $35 million in punitive damages.

Key moved for judgment notwithstanding the verdict, or in the alternative for a new trial. Key argued the combined damages for both parties was excessive and unconstitutional. Key contended the trial court should apply Or. Rev. Stat. � 30.925(2) in examining the punitive damages award. Edwards and Bocci argued the awards were constitutional. The trial court applied the criteria in � 30.925(2) and upheld the awards. Key settled with Bocci, and appealed the awards to Edwards. The appeals court affirmed the judgment. Key petitioned for review and the Oregon Supreme Court remanded in light of its decision in Parrott v. Carr Chevrolet, Inc., 17 P.3d 473 (Or. 2001.) On remand, the appeals court held the awards were not excessive, and that Key's request that the punitive damages awards be evaluated in their entirety waived any argument that they be evaluated separately. The Oregon Supreme Court denied review, and Key petitioned for a writ of certiorari to the U.S. Supreme Court. During that time, the U.S. Supreme Court decided State Farm v. Campbell, 123 S.Ct. 1513 (2003), in which it evaluated a punitive damages award, and then granted Key's petition. The U.S. Supreme Court vacated the appeals court's judgment and remanded the case for reconsideration in light of State Farm.

The Oregon Court of Appeals vacated the punitive damages award and held that the appropriate amount was seven times the compensatory damages or $3.5 million. In State Farm, the High Court used a three-factor test from BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), to evaluate a punitive damages award. The three Gore factors are: "(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."

The appeals court addressed the first Gore factor, "the degree of reprehensibility," and determined the evidence supported the conclusion that Key had indifferently and recklessly disregarded the health and safety of others, had falsely promoted its product's safety, and had engaged in nationwide misconduct in disseminating false and misleading information to the Food and Drug Administration and to physicians about the safety of Theo-Dur. The appeals court held there was substantial evidence that Key's conduct was extremely reprehensible.

The appeals court then considered the second Gore factor, which is an evaluation of the ratio of harm to the plaintiff and the punitive damages award. In State Farm, the High Court looked to whether awards have single-digit ratios or double-digit ratios, and suggested single-digit ratios are constitutional. Key argued the punitive damages to compensatory damages ratio of 45 to 1 was too high and presumptively invalid. The appeals court noted the Supreme Court had determined any ratio higher than 4 to 1 would have to involve conduct that was "particularly egregious." Key's conduct, said the appeals court, was deceitful but did not rise to the level of being "particularly egregious," and therefore the ratio of damages was excessive.

The third and final Gore factor compares the difference between the jury award and civil penalties in similar cases. Rejecting Edwards' argument that Key's misconduct could have led to a criminal prosecution, the appeals court observed that the Court in State Farm found that criminal prosecutions provide for higher standards of proof and the possibility of a criminal sanction.

Therefore, the appeals court concluded the 45 to 1 ratio was too high but a 7 to 1 ratio was constitutional. Accordingly, the appeals court reversed the award of punitive damages and remanded for a new trial unless Edwards agreed to remittitur of punitive damages of $3.5 million.

Bocci v. Key Pharm., Inc., No. A9210-07050 and A86556, 2003 WL 22097104 (Or. Ct. App. Sept. 10, 2003).

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