DAMAGES | Juries can't impose punitives on behalf of nonlitigants

The U.S. Supreme Court on Feb. 20 and Feb. 21 rendered the following decisions: The justices ruled, 5-4, that a punitive damages award based on a jury’s desire to punish a defendant is a taking of property without due process. Philip Morris USA v. Williams, No. 05-1256. Following the death of Jesse Williams, a heavy cigarette smoker, his widow sued Philip Morris, alleging negligence and deceit. An Oregon state jury found that Philip Morris, in leading Williams to believe that smoking was safe, had been negligent and had engaged in deceit. The jury awarded compensatory damages of about $821,000 and punitive damages of $79.5 million. Philip Morris appealed, claiming that, in seeking to punish a company for injury to parties not before the court, a jury violates the due process clause of the U.S. Constitution. The Oregon Supreme Court affirmed. The justices vacated and remanded. Writing on behalf of the court, Justice Stephen G. Breyer said that while punitive damages may properly be imposed to further a “State’s legitimate interests in punishing unlawful conduct and deterring its repetition,” unless a state insists upon proper standards to rein in a jury’s discretionary authority, its punitive damages system may deprive a defendant of “fair notice . . . of the severity of the penalty that a State may impose.” In addition, the due process clause forbids a state to use a punitive damages award to punish a defendant for injury inflicted on strangers to the litigation. First, a defendant threatened with punishment for such injury has no opportunity to defend itself against the charge. Second, it introduces arbitrariness and uncertainty into litigation. Breyer’s opinion was joined by Chief Justice John G. Roberts Jr. and justices Anthony M. Kennedy, David H. Souter and Samuel A. Alito Jr. Justices John Paul Stevens, Antonin Scalia, Clarence Thomas and Ruth Bader Ginsburg dissented. ANTITRUST The justices ruled unanimously that the two-pronged test that the high court had established in 1993 for antitrust “predatory pricing” claims also applies to “predatory bidding” claims. Weyerhaeuser v. Ross-Simmons Hardwood Lumber, No. 05-381. Ross-Simmons Hardwood Lumber Co. Inc., a sawmill, filed an antitrust suit against Weyerhaeuser Co., alleging that Weyerhaeuser drove it out of business by bidding up the price of sawlogs to a level that prevented Ross-Simmons from being profitable. As proof, Ross-Simmons pointed to Weyerhaeuser’s large share of the alder purchasing market, rising alder sawlog prices, and Weyerhaeuser’s declining profits during that period. A Washington federal jury returned a verdict in favor of Ross-Simmons. The 9th U.S. Circuit Court of Appeals affirmed, rejecting Weyerhaeuser’s argument that the test applied to antitrust predatory-pricing claims in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993), should apply to antitrust predatory-bidding claims. The justices reversed, holding that the Brooke Group test applied equally to antitrust predatory-pricing and predatory-bidding claims, and that because Ross-Simmons had not satisfied the Brooke Group standard, its predatory-bidding theory of liability can’t support the jury’s verdict. Writing on behalf of the court, Thomas said Brooke Group established two prerequisites for recovery on a predatory-pricing claim: First, a plaintiff must show that the prices complained of are below cost. Second, it must show that an alleged predator was likely to recoup “its investment in below-cost pricing.” Predatory-pricing and predatory-bidding claims both need to prove the deliberate use of unilateral pricing measures for anti-competitive purposes and the incurring of short-term losses in the expectation of huge profits later. A predatory-bidding plaintiff must prove that the predator’s bidding caused the cost of the relevant output to rise above the revenues generated in the sale of those outputs. Only higher bidding that leads to below-cost pricing in the relevant output market will suffice as a basis for predatory-bidding liability. CRIMINAL PRACTICE The justices held, 5-4, that the one-year statute of limitations for seeking federal habeas corpus relief from a state-court judgment, stipulated in the Antiterrorism and Effective Death Penalty Act of 1996, 28 U.S.C. 2244(d), is not tolled during the pendency of a certiorari petition before the U.S. Supreme Court. Lawrence v. Florida, No. 05-8820. A Florida state jury convicted Gary Lawrence of first-degree murder and sentenced him to death. The Florida Supreme Court affirmed, and the U.S. Supreme Court denied certiorari on Jan. 20, 1998. On Jan. 19, 1999, 364 days later, Lawrence filed for state post-conviction relief. The relief was denied, and the Florida Supreme Court affirmed, issuing its mandate on Nov. 18, 2002. While Lawrence’s petition for certiorari was pending, he filed a federal habeas application, which was dismissed as untimely under Section 2244(d)’s one-year limitations period. All but one day of the limitations period had lapsed during the 364 days from the time Lawrence’s conviction became final and when he filed for state post-conviction relief. The limitations period was tolled while the Florida courts considered his state application. The federal court concluded that Lawrence had only one day to file a federal habeas application after the Florida Supreme Court issued its mandate. The 11th Circuit affirmed. The justices affirmed, holding that Section 2244(d) doesn’t toll the one-year limitations period during the pendency of a certiorari petition before the U.S. Supreme Court. According to Section 2244(d), Thomas wrote on behalf of the court, the statute of limitations is tolled only while state courts review the application. A state post-conviction application “remains pending” “until the application has achieved final resolution through the state’s post-conviction procedures.” The U.S. Supreme Court is not a part of those “procedures.” The application is therefore not “pending” after the state court’s post-conviction review is complete. Thomas’ opinion was joined by Roberts, Scalia, Kennedy and Alito. Ginsburg’s dissent was joined by Stevens, Souter and Breyer. CIVIL RIGHTS The justices ruled, 7-2, that the statute of limitations on a 42 U.S.C. 1983 claim seeking damages for a false arrest begins to run when the claimant is detained pursuant to legal proceedings. Wallace v. Kato, No. 05-1240. In 1994, Chicago police officers arrested 15-year-old Andre Wallace in connection with the shooting of John Handy. Wallace confessed to the murder and waived his Miranda rights. Prior to trial, Wallace sought unsuccessfully to suppress his confession as the product of an unlawful arrest. He was convicted of first-degree murder and sentenced to 26 years in prison. An intermediate Illinois appellate court ruled that the police had arrested Wallace without probable cause. In 2002, prosecutors dropped charges against him. In 2003, Wallace filed a Section 1983 suit against the city of Chicago. An Illinois federal court and the 7th Circuit ruled that the Section 1983 suit was time-barred because Wallace’s cause of action accrued at the time of his arrest, not when he was released from prison. The justices affirmed. Writing on behalf of the court, Scalia said that the statute of limitations for a Section 1983 suit is two years in Illinois. For false arrest, the statute begins to run when the alleged false imprisonment ends. Wallace’s imprisonment didn’t end when he was released from custody but when he appeared before the examining magistrate and was bound over for trial. Since more than two years had elapsed between that date and the filing of his suit, the action was time-barred. Roberts, Stevens, Kennedy, Souter, Thomas and Alito concurred. Breyer and Ginsburg dissented. BANKRUPTCY The justices ruled, 5-4, that, under the Bankruptcy Code, a debtor’s right to convert a Chapter 7 bankruptcy to a Chapter 13 proceeding is not absolute, and may be forfeited. Marrama v. Citizens Bank of Massachusetts, No. 05-996. In filing a Chapter 7 bankruptcy petition, Robert Marrama misrepresented the value of his Maine property and claimed falsely that he had not transferred it during the preceding year. Marrama sought to convert the proceeding to Chapter 13. The bankruptcy judge denied his request, finding bad faith. Affirming, the 1st Circuit rejected Marrama’s argument that he had an absolute right to convert under Section 706(a) of the Bankruptcy Code. The justices affirmed, holding that Marrama had forfeited his right to convert because he didn’t qualify as a debtor under Chapter 13. Writing on behalf of the court, Stevens said that Section 706(a) does not limit a court’s authority to take appropriate action in response to fraudulent conduct by a litigant who has demonstrated that he is not entitled to the relief available to the typical debtor. Stevens’ opinion was joined by Kennedy, Souter, Ginsburg and Breyer. Alito, Roberts, Scalia and Thomas dissented.