From the desk of Jeffrey D. Eberhard: Punitive damage awards have been a hot topic ever since the “tort reform” of the 1980’s and 90’s. Oregon was center stage for that debate in the landmark United States Supreme Court case, Williams v. Philip Morris, where the Court upheld an award of more than $79,500,000 in punitive damages. Today, Oregon statutes significantly limit the amount the injured plaintiff can collect from a punitive damage award. In fact, plaintiffs recover up to 40% of a punitive damage award, while the state receives the remaining 60%. The same subsection of the statute also limits attorney compensation to no more than 20% of the award to the injured plaintiff. However, the statute says nothing about an attorney’s compensation for recovering money from the state’s portion of punitive damages. In the following case, the plaintiff, estate, and the plaintiff’s attorneys settled an issue related to the state’s recovery of punitive damages award in which they agreed to take an equal portion of any amount recovered from the defendant cigarette company.
Claims Pointer: Punitive damage claims are not favored by the plaintiff’s bar because 60% of the award goes to the state, as little as 10% to the plaintiff, and up to 20% to the attorney. In this case, the Oregon Court of Appeals allowed attorneys to collect more than the statutory amount (20%) set out in ORS 31.735. The Court reasoned that while the 20% limit of ORS 31.735(1)(a) applies to the amount the prevailing party (i.e., the attorney’s client) receives in punitive damages, it does not place a limit on the amount recovered from the state’s portion of a punitive damage award. The Williams case has a 20 year history and a complicated fact pattern. As part of a deal, the state agreed to give a portion of its share of punitive damages if they prevailed on appeal. In examining the legislative history, the Court determined that neither the text nor the context of the statute indicated an intent to limit attorney compensation for settling a dispute with the state regarding its portion of a punitive damage award. The Court ultimately felt that the attorney’s fees should not be limited for recovering tens of millions of dollars and that without their efforts, would not have been available to the plaintiff in the first place.
Williams v. Gaylord, 268 Or App 107 (2014), rev. denied, 357 Or 164 (April 23, 2015).
In 1997, Jesse D. Williams died of tobacco-related lung cancer. In the same year, Williams’ estate (“the estate”) retained a group of attorneys (“attorneys”) to represent it in a lawsuit against the tobacco company, Philip Morris, and entered into a contingency fee agreement which provided that the attorneys would recover 40% of any judgment or settlement. In 2006, the Oregon Supreme Court upheld a jury’s verdict awarding the estate punitive damages in the amount of $79.5 million in addition to compensatory damages. Philip Morris appealed.
While the punitive damage award was on appeal, the state, the attorneys, and the estate conferred as to whether the state was entitled to its 60% of the punitive damage award in light of the Master Settlement Agreement (MSA), an agreement between 46 states and a number of large tobacco companies. After several discussions, the state sought to settle any potential claims the estate might have to challenge the state’s right to punitive damages. The parties reached an agreement in which the state, the estate, and the attorneys would split the 60% portion among themselves.
In 2009, after the case passed to the United States Supreme Court and back to the Oregon Supreme Court, the award was upheld and Philip Morris paid the estate over $61 million in satisfaction of the compensatory damages award as well as the estate’s forty percent portion of the punitive damage award with interest. However, Philip Morris refused to pay the state its share of punitive damages on the basis that the state had waived its right to recover punitive damages pursuant to the MSA. The parties litigated the matter of whether the MSA prevented the state’s recovery of punitive damages. Ultimately, the Oregon Supreme Court held that the MSA did not prevent the state’s recovery under ORS 31.735. Williams v. RJ Reynolds Tobacco Co., 351 Or 368 (2011).
In 2012, Philip Morris paid more than $102 million to the state, who in turn remitted $46 million (45% pursuant to the prior settlement) to the estate. According to the agreement, the attorneys were owed $18.4 million (40%), but the estate only paid $8.4 million (20%). The attorney’s petitioned the trial court for a petition approving payment of attorney fees from the estate. The estate argued that it only owed the attorneys 20% of the additional award because ORS 31.735(1)(a) states in part that “in no event may more than 20 percent of” punitive damages be paid to the plaintiff’s attorney. The attorneys in turn argued that the 20% limitation only applied to “the amount awarded as punitive damages…for the prevailing party.” The parties filed cross motions for summary judgment and the trial court ruled in favor of the attorney. The estate appealed.
On appeal, the estate argued that the 20% limit or ORS 31.735 was a “universal limit” on all funds derived from punitive damages. On the other hand, the attorneys argued that the limitation clearly only applied to funds derived pursuant to the statute, not to the settlement that occurred outside of statutory guidelines. In order to make its decision, the Oregon Court of Appeals turned to principles of statutory interpretation. First, the Court looked at the text of the statute and reasoned that the 20% limitation only applied to an attorney’s fees derived from the prevailing party’s portion of punitive damages (i.e., the injured plaintiff). Second, the Court looked to a prior version of the statute for context and explained that because the prior version explicitly provided for separate attorney fees, the legislature’s failure to separate attorney fees from the prevailing party’s fees suggests that it intended to restrict only that portion of attorney fees.
The Court also reasoned that as a practical matter, the attorneys had performed a significant amount of work that yielded substantially more money for the estate by settling the estate’s claims with the state. The Court affirmed the trial court ruling, upholding the attorney’s award of the $10 million owed by the estate.
Case updates are intended to inform our clients and others about legal matters of current interest. They are not intended as legal advice. Readers should not act upon the information contained in this article without seeking professional counsel.