Coyote Blog

A Florida jury awarded the widow of a deceased smoker $23 Billion in punitive damages against RJ Reynolds.

Here is what confuses me -- the $23 billion is obviously not the damages to the woman and her family directly (that was a separate much lower figure) but is somehow calculated as a penalty for RJ Reynolds pursuing bad practices with everyone.  This has to be a penalty for harm to many people, perhaps to all of RJ Reynolds customers.  So what happens when there is a second suit?  Can another person get yet another $23 billion, forcing RJ Reynolds to essentially pay twice for the same bad practices?  Or if a million other ex-customers sued, could RJ Reynolds be forced to pay $23 quadrillion in total? Or should past punitive damages for the same actions be deducted from future awards, saying something like "RJ Reynolds should be penalized $23 billion but that was already paid out to someone else so the net in this suit is zero."

I have no problem suing for actual harm and have opposed limits on regular damage awards -- who can say in advance what the actual damages might have been?  Damage caps tend to be a poor substitute for cleaning up the real problems, which include junk science, no penalty for frivolous suits, and presumption of guilt against deep-pocketed defendants.  But I have never, ever understood punitive damages.

Update:  Jacob Sullum has some related thoughts

Although the main purpose of tort litigation is supposed to be making victims whole, so-called punitive damages explicitly aim to punish wrongdoers. That is usually the function of the criminal justice system, which therefore provides additional protections for defendants, including a higher standard of proof, stricter evidence rules, and penalties prescribed by statute. Attorneys seeking punitive damages do not have to contend with any of those safeguards.

The very concept of punitive damages is oxymoronic, since actual damages (a.k.a. compensatory damages) are a measure of the harm caused by a tort. Punitive damages, by contrast, express a jury's outrage at the defendant's conduct and may be completely unmoored from the injury suffered by the plaintiff (who nevertheless gets the money). In this case, the punitive damages are about 1,400 times the actual damages, which the jury put at $16 million. That huge mutiple seems to violate Florida law, which caps the ratio of punitive to compensatory damages at three or four unless "the defendant had a specific intent to harm the claimant"—a description that clearly does not apply to a tobacco company with millions of customers, even if it prevented them from making informed decisions by hiding the dangers posed by its products.

I am sympathetic to the OWS hatred for bailouts and crony capitalism, but struggle to understand how they intend to fix the consequences of the exercise of government power in the private world with yet more exercise of government power in the private world.

Apropos of very little, I found this bit from Matt Taibi funny (emphasis added)

1. Break up the monopolies. The so-called "Too Big to Fail" financial companies – now sometimes called by the more accurate term "Systemically Dangerous Institutions" – are a direct threat to national security. They are above the law and above market consequence, making them more dangerous and unaccountable than a thousand mafias combined. There are about 20 such firms in America, and they need to be dismantled

I am pretty sure that, by definition, a single industry cannot have 20 monopolies.

Though I share the same concern, my solution is to just let them fail.  Right now, the cost of capital for these large companies is lower than the cost of capital for smaller companies because, even though many of them have far worse balance sheets than smaller banks, investors feel they have too big to fail protection.  Let a few fail and have the cost of capital shoot up for larger companies and you can be pretty damn sure they market itself will break up these companies.

In some ways it reminds me of the market premium given in the 1960's to multi-industry conglomerates like ITT.  When the capital markets made their cost of capital low, everyone tried to copy their conglomerate strategies.  When these strategies started failing and companies like RJ Reynolds found their diversification into shipping and shower curtains was a business disaster, capital dried up for these Frankenstein monsters and most of them were broken up.  All without a hint of government intervention, either to save them or kill them.

Its telling that no one on the Left or with OWS who gives this advice for financial institutions takes their own advice with, say, auto companies.  GM should have failed and likely been broken up as well.

This is a great example of a point I often make about regulation aiding incumbents and large companies against smaller companies and upstarts.  From the DC Examiner, via Radley Balko

Philip Morris, openly and without qualification, backs Kennedy's and Waxman's bills to heighten regulation of tobacco.

Philip Morris stands to benefit from this regulation in many ways. First, all regulation adds to overhead, and thus falls more heavily on smaller firms. Second, restrictions on advertising help Philip Morris' Marlboro, a brand everyone already knows, by keeping lesser-known brands in the shadows. (Existing restrictions on advertising have already helped Philip Morris in this regard, with an added benefit spelled out in Altria's annual report: "Marketing and selling expenses were lower, reflecting regulatory restrictions on advertising and promotion activities. "¦ ")

Finally, if the bill passes and the FDA gets added control over the industry, Philip Morris, more than any of its competitors, will have access to those bureaucrats and agency heads making the decisions. For all these reasons, RJ Reynolds and other tobacco companies oppose the bills Kennedy and Waxman are pushing.