Man Without Qualities

Saturday, February 22, 2003

Soaking Them

Some years ago I found myself in discussions with a federal court of appeals judge about whether punitive damages should be allowed in certain asbestos injury cases. Some states in the appeals circuit clearly did allow punitive damages awards but one state's law (the state in which the case we were discussing was then pending) seemed not to allow punitive awards.

As it happened, the major source of funding for all actual and punitive damages in asbestos cases brought in the states included in that federal appeals circuit was a common trust that had a determined, finite amount of money in it. If punitive awards were allowed, the common fund would be drained by large punitive awards before some plaintiffs with actual damages to their lungs even discovered what had happened to them - at which point there would likely be nothing left to compensate them for their actual ills and scarred lungs.

The federal appeals court had already tried asking the relevant state supreme court to clarify the matter, but the state court refused to answer the question. In such cases the federal courts are generally supposed to guess what the state supreme court would do with the question if made to decide it. After much indeterminate legalistic head scratching, the federal judge tried a more practical approach. He personally knew every member of the local state supreme court (it was a small state), and he said:

"Look, every other state in this circuit is allowing its residents to get punitive damages, which will drain the trust and screw future plaintiffs. The question we're considering is whether, knowing what the other states are doing, our state supreme court is going to restrict the citizens of this state to actual damages while the residents of other states run off with big punitive damages? We're just being overly subtle and therefore stupid. There's no doubt what the answer would be if the issue were put to that supreme court in that way. The court would say: SOAK 'EM! SOAK 'EM!"

The federal court therefore decided to allow punitive damages. The wisdom of its decision was subsequently confirmed when the state supreme court actually decided the issue - reversing its own fairly clear but somewhat ambiguous precedent to reach that result. The horror of the decision was also confirmed when the trust was quickly drained by large punitive damages awards.

If the trust had been governed by law common to the states in the circuit the question would probably have been decided the other way: punitive damages would have been prohibited (or subordinated) to ensure that actual damages awards could be paid in the future. Prior to 1938 the federal courts probably would have decided the matter that way, under what was known as "federal common law." Indeed, a dissenting judge in the asbestos case wanted to revive federal common law for this reason. But the 1938 Supreme Court case Eire v Tompkins and its descendents pretty clearly ruled that out.

I think of my discussions with that federal judge every time I see a case in which some state court awards a huge damages claim against some out-of-state interest: manufacturers and insurance companies, especially. The overriding interest is so often whether imposing liability will bring money into this state.

That is, in so many cases the state court's guiding legal principle seems to be: SOAK 'EM! SOAK 'EM!"

UPDATE: I'm reminded by an astute reader to emphasize the role played by the trial lawyers bar in distorting the purposes of damages awards, and that that bar is most handily represented nationally by Senator John Edwards.

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