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Contradicting a recent high-profile punitive damages ruling by a California court, the 9th U.S. Circuit Court of Appeals on Tuesday ruled that juries may not punish companies for conduct that occurs beyond state borders. A divided panel overturned a $69 million damage award to a Nevada couple whose 3-year-old son was killed by a parked Ford pickup truck that began to roll. Citing a 1996 U.S. Supreme Court ruling, the panel held that the jury wrongly punished Ford for a nationwide problem with parking brake roll-aways rather than focusing on conduct in its own state. “A punitive damages award that encompasses a defendant’s extraterritorial conduct may be unconstitutional even if the size of the award itself, as compared to the compensatory damages, is not outside the bounds of due process,” Judge Andrew Kleinfeld wrote. He was joined by 7th Circuit Senior Judge Harlington Wood, Jr., sitting by designation. Judge Susan Graber dissented, arguing that although the punitive award was excessive compared to the compensatory award, no questions of state sovereignty were raised by the award. To Kleinfeld, the case does raise important questions of federalism. “If Nevada imposes an award based on vindicating a national interest in safety, as the jury was encouraged to do in this case and as the district court expressly permitted, then it may deter not only conduct tortious in other states, but also innovations and economies of production that other states have purposely tailored their law not to discourage so strongly,” he wrote. Three-year-old Walter White was killed after he climbed into his parents’ Ford F-series pickup truck and somehow put the transmission in neutral. The parking brake did not hold. As the truck rolled, White either fell or climbed out of the cab. When he did, he was crushed to death under the truck’s wheels. Based on a product defect in Ford parking brakes, the jury awarded the Whites more than $2 million in compensatory damages and $151 million in punitives. U.S. District Judge David Warner Hagen of Nevada reduced the punitive damages to $69 million. Ford had asked the judge to instruct the jury that it was limited to assessing conduct in Nevada, but the judge refused, which Ford’s lawyer said on Monday is a right more companies are starting to claim. Kleinfeld agreed with Ford, citing BMW of North America v. Gore, 517 U.S. 559, which says that states cannot punish conduct by a corporation that is legal in another state. Kleinfeld extended the holding by ruling that neither can a state punish conduct that is unlawful in another state. Kleinfeld also cited plaintiff counsel’s closing argument that asked the jury to send a message to “every person in this country” as evidence that the hefty award was for conduct that occurred beyond the Nevada state line. “We cannot conclude,” Kleinfeld wrote, “that even without the instruction, the jury plainly was vindicating only the state’s interest in protecting its citizens or that it was addressing Ford’s reprehensibility only in the case at bar.” The case conflicts with a high-profile case the California Supreme Court recently refused to hear — a $290 million punitive award handed down against Ford in a rollover case. In Romo v. Ford Motor Co., 35 Cal.App.4th 1609, the company claimed that it was being punished for conduct outside California’s borders. With a 4-3 vote, the high court left the award intact. “California law is in flux and contradicts the laws of other states,” said Ford’s lawyer in Romo, Gibson, Dunn & Crutcher partner Theodore Boutrous, after Tuesday’s ruling in White v. Ford Motor Co. 02 C.D.O.S. 11628. “Guidance is needed.” It may come from Romo. Boutrous plans to file a petition for certiorari to the U.S. Supreme Court in January. Mayer, Brown, Rowe & Maw partner Andrew Frey, who represents Ford in White, agreed. “I think this decision is inconsistent with what the California Court of Appeal said in the Romo case. … The law in California is in flux now.” But for Frey, the decision was a mixed bag. “Basically, we lost the $2 million part of it and won the $70 million part, although the plaintiffs live to fight another day on that one.”

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