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In this day and age, a punitive damages award of $20 million is not uncommon. But when that award is coupled with a compensatory award of $520, resulting in a punitive-to-compensatory ratio of a whopping 38,000 to 1, that turns heads. And when the U.S. Court of Appeals for the Federal Circuit affirmed this result in January ( Tronzo v. Biomet Inc., No. 00-1007), it attracted attention. The case has also drawn the services of Carter Phillips, a nationally known appellate lawyer in the Washington, D.C., office of Chicago’s Sidley & Austin. Carter was hired by Biomet to petition the U.S. Supreme Court for certiorari in June. Among the lawyers asked to comment on this case, opinions vary wildly. Fred Baron, president of the Association of Trial Lawyers of America, says, “This is an unusual case that will probably never happen again” and “has very little significance.” But Andrew Frey, a lawyer in the New York office of Chicago’s Mayer, Brown & Platt and an authority on punitives, suggests that the circuit panel would do well to ask itself: “Do we have to reach this result?” If the answer is no, Frey asks, “Then why the hell would they?” Tronzo is a patent infringement case that now revolves around the simple question of whether Biomet waived its right to appeal the $20 million punitives award. In the late 1980s, Dr. Raymond Tronzo, an orthopedic surgeon and inventor from Palm Beach, Fla., was working on a hip socket replacement. He met with people from Biomet, a Warsaw, Ind.-based manufacturer of orthopedic devices, and confided in them with the understanding that a deal would be arranged after he obtained a patent. By the time he secured one, however, Tronzo found that Biomet had hired two doctors who, using some of his own ideas, designed a similar device that Biomet was already marketing. In 1991, the surgeon sued in U.S. District Court for the Southern District of Florida, claiming patent infringement, breach of confidential relationship, fraud and unjust enrichment. Five years later, a jury found in his favor on every claim. Biomet acknowledged that sales of its device totaled nearly $50 million and, after a series of post-trial motions, the jury’s verdict was capped by Judge Daniel Hurley at $7.1 million in compensatory and $20 million in punitive damages. At this juncture the case strayed from any result that either side could have expected. Biomet appealed the verdict to the Federal Circuit. Even though its lawyers had challenged both the compensatory and punitive damages as excessive in post-trial motions, Biomet’s appellate attorneys, led by Donald R. Dunner of Washington D.C.’s Finnegan, Henderson, Farabow, Garrett & Dunner, focused on liability and compensatories in the appeal. The punitive damages were mentioned only twice, both times in one-sentence footnotes arguing that if the court found Tronzo had not proved damages, he was entitled to neither the compensatory nor the punitive awards. Biomet’s failure to include this in the body of the brief, and to add an argument suggesting that a reduction of the compensatories would require an adjustment of the punitives, would later prove costly. On Aug. 28, 1998, the appeals court reversed the finding of patent infringement, upheld the finding of fraud and breach of confidential relationship and reversed the compensatory award, finding it was improperly based on Biomet’s profits from sales of its own device. The evidence had failed to establish the necessary “nexus between the damages claimed and the injury incurred,” Senior Circuit Judge Glenn Archer wrote for a unanimous three-judge panel. In remanding, the court directed the district judge to ascertain damages by reviewing the existing record or gathering additional evidence. Back in Florida, Judge Hurley declined to seek new evidence. In a flurry of hearings and motions during the summer of 1999, the judge and the lawyers sifted the record — and sifted some more. In the end, Hurley ruled that the only compensatory damages that Tronzo was entitled to were $520 — the amount that he had paid to get his patent. This, in turn, spurred a motion from Dunner arguing that there was now a constitutional problem. He didn’t challenge the plaintiff’s right to punitives but said that the ratio of $20 million in punitives to $520 in compensatories violated the guidelines the U.S. Supreme Court established in the landmark BMW of North America v. Gore, 517 U.S. 559. In that 1996 case, the majority reversed a 500-to-1 ratio. Although the opinion emphasized that the ratio was only one of three “guideposts” for determining whether a punitive award is constitutionally permissible, and specifically said that “low awards of compensatory damages may properly support a higher ratio,” it also called the 500-to-1 ratio “breathtaking.” Tronzo’s appellate lawyer, James F. Davis of Howrey Simon Arnold & White, strenuously objected to Judge Hurley’s reopening the punitives issue, which Davis argued had been excluded from the circuit court’s mandate and which, in any case, Biomet had waived. Dunner countered that Biomet could not have waived the issue, since it had only become “ripe” when the district court slashed the compensatory award. The district court agreed and decided that, given the low compensatory award, a 100-to-1 ratio was within BMW‘s constitutional bounds. That was how the court set punitives at $52,000. FINAL APPEAL Now it was Davis’ turn to appeal. On Jan. 17, 2001, Judge Archer, writing again for a unanimous Federal Circuit panel, let the new compensatories stand but reversed the lower court’s reduction of the punitives. “Biomet could have asserted that, if the compensatory damages award is lowered, constitutional requirements mandate that the punitive award be commensurately adjusted; Biomet did not make any such challenge,” Archer wrote, without mentioning the footnotes that contemplated only a reversal of damages. After concluding that Biomet’s “belated attack on the punitive damages award was foreclosed by our mandate in Tronzo I,” the judge offered the company a glimmer of hope. “[I]t may be appropriate in some circumstances for a court to revisit an issue that would otherwise be deemed waived and beyond the scope of an appellate mandate,” he said. A “substantial change in the evidence” might warrant that response, he said, adding that Biomet argued that an escalation of the ratio from 2.8 to 1 to 38,000 to 1 was such an occasion. But he dashed this argument as well. The ratio was only one test. The Supreme Court had recognized reprehensibility of conduct as more important, and the circuit court noted that Biomet never challenged on appeal the jury’s finding of “wanton or willful conduct in support of the punitive damages liability.” Biomet petitioned for rehearing before the panel or en banc, both of which requests were quickly denied. Now its fate rests with Carter Phillips, who hopes this will be the 34th case he argues before the Supreme Court. “These guys did this right,” Phillips says of Dunner and his colleagues. “In a situation where you have a low ratio, do you have to make a purely speculative argument with respect to the punitive damages?” The purported waiver is the issue he intends to argue rather than the ratio. That’s the question he believes the Supreme Court will wish to review. Looking back at the circuit court’s decision last January, Dunner calls it “one of the most disconcerting holdings that I’ve been involved in.” And it was entirely unexpected. “When we went up on appeal,” he says, “we thought this was a slam-dunk issue. I don’t feel I made any mistake. I don’t feel that I did something I shouldn’t have done or should have done something that I didn’t.” Of the footnote, he says, “If you’re going to raise a hypothetical issue that is not ripe and does not exist, the ideal place to raise it is in a footnote. And needless to say, Tronzo did not turn on a footnote.” Davis, his adversary in court and friend outside it, says he isn’t sure why Biomet failed to appeal the punitives, but twice the company’s counsel in Judge Hurley’s court after remand admitted that they hadn’t. Davis points to an explanation he offered the circuit court in his response to Biomet’s petition for a rehearing. Biomet “sought to forestall judicial inquiry into the record supporting the punitive award for fear it would poison the well,” he wrote. Davis then referred to Judge Hurley’s findings that the company had “made false statements to the [U.S. Food and Drug Administration],” which the judge viewed as evidence of “the reprehensibility of defendant’s conduct” and justification of punitive damages. Asked whether he failed to appeal to avoid the FDA issue, Dunner says, “There wasn’t a single decision made on that basis. I don’t ever remember that coming up.” For Daniel Hann, the Tronzo case has been a long ordeal. “I never imagined the case would take this much time and exhaust as many resources as it has,” says Biomet’s general counsel. He says that the case has already cost “in excess of $1 million” in legal fees. “It’s been a very long road,” he says. “I believe, with all due respect to the federal circuit, that the result is clearly unconstitutional under the BMW analysis, and it’s a flawed interpretation of the mandate rule. I hope the Supreme Court sees fit to correct it.” He believes there’s a 50-50 chance the court will take the case. Thomas Goldstein is not so sure. A Washington sole practitioner who practices exclusively before the Supreme Court, and who is counsel on 11 cases granted cert this term, he puts the odds of the court’s accepting Tronzo at 30 percent if Phillips finds a circuit conflict on the waiver issue, 5 percent to 10 percent if he doesn’t. Frey, who successfully argued BMW before the Supreme Court, finds the whole matter disturbing. “There’s a feeling of ‘gotcha’ about this that isn’t very attractive,” he says. And if the jury so misunderstood the actual damages the plaintiff suffered, he asks, “how can you say that they would have returned $20 million in punitive damages?” Baron, of the trial lawyers’ association, scoffs at such talk. “I wonder if he would have been so baffled if the mistake had been made by the plaintiff’s lawyer,” he muses. “Then they would have been saying, ‘Tough tushy!’ “

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