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    A NEW KIND OF “OUTRAGEOUS MISCONDUCT”:

    EFFORTS TO UNDERMINE LAW’S ABILITY TO DETER AND PUNISH

    INTENTIONAL AND OUTRAGEOUS CORPORATE BEHAVIOR

    Candace Howard

    University of Maryland School of Law

    ABSTRACT

The current tort “reform” movement, if successful, will completely undermine our most effective

    tool for deterring outrageous corporate misconduct: the threat of punitive damages. Such

    “reform” would have a particularly egregious impact on the environment and public health

    because, due to a lack of enforcement and the undetectable nature of many pollutants,

    environmental offenses are often more difficult to deter than other types of offenses. The essay

    argues that, although rarely imposed for environmental offenses, punitive damages are especially

    vital in that arena because, when imposed, they are richly deserved. It concludes that, rather than tort reform, what we need in order to protect the health and safety of our communities is

    bankruptcy reform.

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    A NEW KIND OF “OUTRAGEOUS MISCONDUCT”:

    EFFORTS TO UNDERMINE LAW’S ABILITY TO DETER AND PUNISH

    INTENTIONAL AND OUTRAGEOUS CORPORATE BEHAVIOR

    You can‟t strike [at a corporation‟s] heart. It has none. The only way you can get

    the attention of a corporation and talk to it is through its pocketbook… You can

    talk to the president of Johns-Manville. He is not too busy to talk to you, and you

    can send him a message. But when you do, it is going to have to be loud enough

    for him to hear it. And you can say to him that, at least in southern Mississippi,

    „We are not going to condone this kind of action.‟

    - Scott Baldwin, plaintiff‟s attorney in Jackson v. Johns-Manville, from

    his summation, justifying their request of a $3 million punitive damages 1 award.

I. Introduction

    Asbestosis and mesothelioma are irreversible, progressive respiratory diseases which

    2slowly and painfully suffocate their victims. Both diseases are caused exclusively by the

    inhalation of asbestos dust and only become manifest some ten to forty years after the victim‟s

    3initial exposure. Upon being diagnosed with mesothelioma, a unique form of cancer, 75% of

    4patients die within one year.

    In the early 1980s, it came to light that Johns-Manville, one of the largest asbestos

    manufacturers, had been fully aware of the connection between exposure to asbestos dust and the

    development of serious respiratory disease for at least fifty years. During that fifty-year period,

    Johns-Manville not only failed to warn potential victims of the risks associated with its product,

    but it also actively concealed that information in order to safeguard company profits. As one

     1 PAUL BRODEUR, OUTRAGEOUS MISCONDUCT 242-43 (Pantheon Books 1985). 2 WHO Regional Offices for Europe, Copenhagen, Denmark, Air Quality Guidelines - Second Edition, Chapter 6.2 Asbestos, 5-6 (2000) available at http://www.euro.who.int/document/aiq/6_2_asbestos.pdf. 3 Id. 4 Health Central, General Health Encyclopedia available at http://www.healthcentral.com/mhc/top/000115.cfm.

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particularly egregious facet of a large-scale cover-up, the company routinely withheld x-ray

    results from periodic employee physical exams refusing to inform their employees that a

    5 In a 1949 company memorandum, Dr. Kenneth serious respiratory disease had been diagnosed.

    W. Smith, the medical director of Canadian Johns-Manville, stated that the employees “have not been told of the diagnosis, for it is felt that as long as the man feels well, is happy at home and at

    6work and his physical condition remains good nothing should be said.” For the unwitting

    employee, this unconscionable practice subjected him to additional exposure to the deadly dust,

    substantially contributing to the seriousness of his illness. For Johns-Manville, however, this

    practice was win-win. Not only did the company benefit from the additional years of labor by

    experienced employees, but they also increased the likelihood that they would escape all liability

    for their intentional misconduct. Often, employees would not discover their illness until after

    retirement, when the statute of limitations had elapsed on their workers compensation and tort

    7claims. In a further attempt to conceal the dangerous nature of their product, Johns-Manville

    and other manufacturers persuaded scientists to delay publication of findings that would be

    detrimental to the asbestos industry, or to soften the impact of such reports by obscuring their

    8results.

    The asbestos manufacturers also manipulated the legal system in order to conceal the

    risks of asbestos. When asbestos victims finally realized that their respiratory diseases were

    caused by exposure to asbestos and sued the manufacturers, the companies always settled out of

    9court -- eliminating the potential of publicly-accessible trial records. Further, as a condition of

     5 BRODEUR, supra note 1 at 174-75. 6 Id. 7 David Rosenberg, The Dusting of America: A Story of Asbestos Carnage, Cover-up, and Litigation, 99 HARV. L.

    REV. 1693, 1698 (1986) (reviewing PAUL BRODEUR, OUTRAGEOUS MISCONDUCT (1985)). 8 Id. at 1700. 9 For instance, out of thirty-five hundred lawsuits that Johns-Manville had disposed of, thirty-four hundred were

    settled out-of-court. BRODEUR, supra note 1 at 4.

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these out-of-court settlements, manufacturers demanded strict confidentiality and assurance from

    plaintiffs‟ lawyers that they would forgo all future asbestos suits and withhold from other

    10 The cases that actually reached trial plaintiffs‟ lawyers any evidence that had been obtained.

    encountered an additional hurdle in the form of a highly effective “state of the art” defense,

    which asserted that asbestos manufacturers could not be held liable for claims arising from

    11asbestos exposure that occurred before the release of a certain epidemiological study in 1965,

    12because manufacturers had no prior knowledge of the risks of asbestos. This defense was later crippled by plaintiffs‟ lawyers who, working together, were able to pool evidence which

    conclusively revealed that Johns-Manville had known about the dangers of asbestos since the

    13early 1930s.

    After this revelation, asbestos manufacturers quickly scrambled back to settling most

    disputes out-of-court, in order to avoid exposure to large compensatory and punitive damages

    14awards which were being awarded with greater frequency. In the late spring of 1982, however, Johns-Manville puzzled plaintiffs‟ attorneys by allowing a number of cases that would

    15have formerly settled out-of-court, to go to trial. It soon became apparent that this was yet

    another calculated maneuver designed to minimize Johns-Manville‟s financial losses when the

    16company filed for Chapter 11 bankruptcy, automatically staying all pending litigation.

    The tort system with its prospect of punitive damages is an indispensable tool for

    uncovering and combating outrageous corporate misconduct, like that engaged in by Johns-

    Manville and other asbestos manufacturers. In the absence of punitive damages, asbestos

     10 BRODEUR, supra note 1 at 90. 11 Selikoff, Churg, & Hammond, The Occurrence of Asbestosis Among Insulation Workers in the United States, 132

    ANNALS N.Y. ACAD. SCI. 139 (1965). 12 BRODEUR, supra note 1 at 136-37. 13 Id. at 216-19. 14 Id. at 216. 15 Id. at 278-79. 16 Id.

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manufacturers could not have been punished for their callous actions and the public would

    remain at the mercy of companies who could coldly calculate that they could profit from failing

    promptly to disclose known risks in the future. By deterring such “outrageous misconduct,” punitive damages awards help ensure that, in the future, the public is warned of potential dangers

    and that guilty parties are punished. However, our tort system, which is the best vehicle for

    addressing such intentional misconduct, is currently under attack by the so-called “tort reform”

    movement. Representatives of business interests are promoting federal and state legislation to

    limit tort liability and to restrict damages awards, including awards of punitive damages, by

    focusing the public‟s attention on anecdotes of alleged abuses. These so-called abuses are

    unrelated to the field of environmental torts, but they are cleverly designed to dupe citizens into

    relinquishing their best protection against outrageous and intentional misconduct by the

    industries the tort reformers represent.

    Part II of this essay examines the genesis of punitive damages awards and the evolution

    of their use in the courts, discussing their usefulness in deterring future intentional misconduct

    that undermines public health and safety. Additionally, it responds to the claims of tort reform

    proponents who seek to restrict punitive damages awards and whose true aim is to protect

    industry from legitimate legal claims.

    Part III argues that efforts to restrict punitive damages awards threaten to curtail our most

    effective weapon against outrageous corporate misconduct. This section explores how such

    limits would be especially detrimental in the field of environmental and public health law where

    punitive damages, although rarely sought, have been extremely important to vindicate society‟s

    interests.

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    The concluding section paints a picture of the world we can expect to inhabit if punitive

    remedies are reduced or eliminated and it summarizes why this vital tool should not be restricted.

    II. Punitive Damages in Our Society and the Threat of “Tort Reform”

    Punitive damages are an indispensable tool in the hands of the community, enabling it to

    hold powerful entities accountable for their dangerous misconduct. From the very beginning in

    th Century, the role of punitive damages in the U.S. legal system has not changed the 18

    significantly they are still employed to punish and deter outrageous misconduct by

    17defendants. However, today, as the scale of harm companies are capable of inflicting on

    society has vastly expanded, punitive damages are even more important than ever before to

    protect public health and the environment. The current tort reform movement that seeks to

    restrict or eliminate the availability of punitive damages is a transparent attempt to diminish that

    18power.

    A. The Early History of Punitive Damages

    Punitive, or exemplary, damages are awarded in addition to compensatory or nominal

    damages and are designed not to compensate a victim for an injury, but to punish and deter the

    19outrageous misconduct of defendants. “Outrageous conduct” is characterized by either an evil

    20motive or a reckless indifference to the rights of others. Punitive damages are never awarded

    21for mistakes, accidents or mere negligence. The amount of a punitive damages award is

    22determined by the fact finder, either a judge or jury, who is deciding a case. Unlike civil or

     17 See infra notes 24-39 and accompanying text. 18 See infra note 84-87 and accompanying text. 19 RESTATEMENT (SECOND) OF TORTS ? 908 (1979). 20 See id. 21 See id. cmt. b. 22 See id. cmt. d.

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criminal penalties, punitive damage awards paid by defendants traditionally have been received

    23 by the plaintiff, not the state or federal treasury.

    In Genay v. Norris, one of the earliest punitive damage awards recorded in the United

    States, a plaintiff was awarded ?400 in 1784 by the South Carolina Supreme Court in order to

    24punish a defendant for having adulterated the plaintiff‟s wine. The Genay court may have decided to award punitive damages, in part, because the plaintiff suffered excruciating pain and,

    25in part, because the defendant was a physician who should have known better. Before adoption in America, punitive damages had been awarded by English courts for approximately twenty

    2627years. Many of the earliest cases involved seductions of a plaintiff‟s daughter, however, by the 1800s, punitive damages were being awarded for a wide variety of actions in which a

    28defendant‟s conduct constituted gross negligence, or involved malicious intent. Some examples which characterize the awards of that time include: a train passenger who was awarded

    exemplary damages after the gross negligence of a train company allowed a collision between

    29two trains; a farmer who was awarded double damages in his action against a railroad company

    30for its failure to compensate him for three hogs that were struck and killed by a company train;

     23 Minnesota Pollution Control Agency, Citizen Environmental Lawsuits, Fact Sheet 37 (July 1997) available at http://www.pca.state.mn.us/water/pubs/feedlot37.pdf at p.3. 24 1 SCL 3, 1 Bay 6 (S.C. 1784). 25 Id. 26 See Wagoner v. Bennett, 814 P.2d 476, 488 n.33 (Okla. 1991) (stating that the earliest English case awarding

    exemplary damages appeared to be Wilkes v. Wood, 98 Eng. Rep. 489 (C.P. 1763)). It has also been suggested that thpunitive damages have their origin in 13 century England in the form of amercements which were fines levied

    against the king‟s subjects for minor criminal offenses against the Crown. See Browning-Ferris Industries v. Kelco Disposal, 492 U.S. 257, 268-69 (1989) (rejecting an argument that punitive damages are the modern-day analog to

    the English amercements, which were the inspiration for the Excessive Fines Clause, and, therefore, should be

    prohibited by the Excessive Fines Clause of the Eighth Amendment). 27 Anthony J. Sebok, What did Punitive Damages Do? Why Misunderstanding the History of Punitive Damages

    Matters Today, 78 CHI.-KENT. L. REV. 163, 191 (2003). 28 See, e.g., supra notes 29-31 and accompanying text. 29 Milwaukee & St. Paul R. Co. v. Arms, 91 U.S. 489 (1876). 30 Minneapolis & St. Louis R. Co. v. Beckwith, 129 U.S. 26 (1889).

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and a voter who was awarded punitive damages in his action against a voting official who,

    31 motivated by partisan malice, refused the voter access to the polls.

    Punitive damages were rarely awarded and relatively modest in size until the late 1970s,

    when a number of companies were forced to pay large sums in widely reported products liability

    32lawsuits. Perhaps due to the indelible memory of those highly publicized cases, many

    Americans continue to believe that products liability torts constitute the bulk of the punitive

    damages which are awarded. This, however, is not the case. Most punitive damages are

    awarded in automobile personal injury and landowner liability actions, followed by medical

    33malpractice, business, and then product liability actions.

    Although punitive damages and compensatory damages are awarded for different reasons,

    in practice, the distinction between the two is somewhat nebulous. For the most part, a

    compensatory award is intended to make a victim whole by monetarily indemnifying her for any

    34actual losses. Punitive damages are awarded, when the defendant has acted with recklessness,

    malice, or deceit, in order to deter similar future misconduct and to express the censure of the

    35community. Between the two types of awards, there may also be a degree of cross-over

    because, like punitive damages, some types of compensatory damages cannot be valued in

    precise dollar amounts. For instance, there is no precise mechanism that a jury may employ to

    calculate intangible claims such as pain and suffering as opposed to other types of compensatory

    damages, such as lost wages. To compound matters, compensatory awards for such intangible

     31 Friend v. Hamill, 34 Md. 298, 314 (1871). 32 Victor E. Schwartz & Leah Lorber, Twisting the Purpose of Pain and Suffering Awards: Turning Compensation Into "Punishment," 54 S.C. L. REV. 47, 51-52 (2002). 33 Erik Moller, Trends in Civil Jury Verdicts: New Data from Fifteen Jurisdictions, Research Brief, Rand Institute

    for Civil Justice available at http://www.rand.org/publications/RB/RB9025/RB9025.html (describing the work published as Trends in Civil Jury Verdicts Since 1985, by, RAND MR-694-ICJ, 1996, 105 pp). The study was

    based on all civil jury verdicts reached from 1985 to 1994 in 15 state courts of general jurisdiction across the nation.

    Id. 34 Black‟s Law Dictionary 394 (7th ed. 1999). 35 Black‟s Law Dictionary 396 (7th ed. 1999).

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harms are relatively new and may have been compensated historically through punitive damage

    36 Despite this potential commingling of roles, it is awards prior to the nineteenth century.

    nevertheless clear that courts have always viewed punitive damages as tools of deterrence and

    3738retribution. In Day v. Woodworth, which was decided in 1852, the Supreme Court stated that

    39“exemplary or vindictive” damages had been awarded for tort actions for more than a century.

    Considering the potential for overlap between compensatory and punitive damages, it

    would not be surprising if jurors occasionally conflated the roles of each by awarding punitive

    damages in order to compensate the victim and by awarding compensatory damages in order to

    punish the tort feasor. This might conceivably occur in states where punitive damages have been

    statutorily capped. In response to such caps, juries may shift the would-be excess punitive

    damages award into the compensatory damages category, attributing the extra damages to

    intangible harms, rather than lessening the total award for the victim. However, even if such

    isolated practices exist, they would not signify a nationwide misapprehension by juries of their

    proper roles. When a jury is given full reign to award compensation and punishment as it deems

    proper, there is no reason to suspect that it would characterize a compensatory award as a

    punitive damage or vice versa. It is only when a jury‟s ability to allocate the awards as it sees fit is thwarted by external means (such as tort reform) that monetary damages may be

    “misallocated.”

     36 See, e.g., Pac. Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 61 (U.S., 1991) (O‟Connor, J., dissenting) (suggesting that the role of punitive damages prior to the 19th century encompassed a compensatory function since compensatory

    awards for injuries such as pain and humiliation did not yet exist) (citing Exemplary Damages in the Law of Torts,

    70 HARV. L. REV. 517, 520 (1957)). 37 In one of the early seduction cases, Tullidge v. Wade, 95 Eng. Rep. 909 (K.B. 1769), the court emphasized that

    the purpose of punitive damages was to express the public “insult” caused by the defendant‟s actions – a decidedly retributive function. Sebok, supra note 27 at 191. 38 13 How. 363 (1852). 39 Id. at 371.

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    B. Punitive Damages Safeguard Public Health and the Environment

    Although one aim of punitive damages is retribution, their ability to deter future

    misconduct may be their most beneficial function. For this reason, punitive damages are also

    called exemplary damages, because the punished party will serve as an example to deter

    others. The availability of punitive damages equips citizens with the means to deter the

    outrageous misconduct of otherwise untouchable entities. Historically, the imposition of

    punitive damages has precipitated the recall of dangerous items, the enhancement of safety

    40 Consequently, punitive procedures, and the inclusion of warning labels on dangerous products.

    damages do not merely punish the offender they also act as sentinels of public health and safety.

     The deterrent function of punitive damages is especially potent in situations where an

    actors conduct is harmful but not deterred through regulatory means. For example, an actor

    may be undeterred by the threat of fines where the magnitude of such fines is not great enough to

    outweigh the benefits of the misconduct. Additionally, there is no regulatory deterrence at all

    where an actor‟s harmful conduct is in full compliance with applicable regulations. In both cases,

    punitive damages may be the only way to deter the undesirable conduct. Despite adequate

    regulatory deterrence, in the hands of concerned citizens, the threat of punitive damages will

    successfully leverage community interests against those of the actor thus ensuring public health

    and safety.

    One of the best-known examples of the ability of punitive damages to protect the safety

    of the public involved the 1972 Ford Pinto hatchback. In that case, punitive damages were

    particularly effective because Ford‟s decision to conceal knowledge about the safety hazards of its vehicle was not deterred by ordinary threats of civil or criminal penalties. In Grimshaw v.

     40 See infra notes 41-62 and accompanying text.

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