Is There A Constitutional Right To Punitive Damages?

We recently came across a post on a Bricker & Eckler blog, about a recent Ohio Supreme Court case, Havel v. Villa St. Joseph, 963 N.E.2d 1270 (Ohio 2012), upholding the constitutionality of an Ohio statute imposing mandatory bifurcation in punitive damages cases.  Havel held, after considerable back and forth:

[The statute] does not violate the Ohio Constitution and is constitutional because it is a substantive law that prevails over a procedural rule.  Inherent in our conclusion is rejection of the argument that dicta contained in Sheward [an infamous anti-tort reform decision], which described the former version of [the statute] as governing a procedural matter. . . .  Sheward never considered the bifurcation question we confront in this case.  Thus, we are not required to follow out-of-context dicta as precedent.

Havel, 963 N.E.2d 1279 (quoting and following Arbino v. Johnson & Johnson, 880 N.E.2d 420, 443 (2007)).  That’s an excellent result, but by addressing the issue in this way the Court did not have to pass on a more fundamental question that we’ve been pondering, which is whether a plaintiff has any constitutional right punitive damages in the first place.

In that regard, the Bricker post helped us out.  In discussing Havel, it mentioned that “Ohio’s caps on punitive damages have been upheld as constitutional (in Arbino v. Johnson & Johnson).”  There’s that decision again.  Arbino seemed like a pretty good place to start looking for an answer to the basic constitutional question, so we took a look.  Sure enough, Arbino turned out to be a recent example of what we’ve now come to conclude is a virtually universal rule that, until a judgment in an individual case is actually entered, there is no “vested right” to pursue a claim for punitive damages.  Nor for that matter is elimination of a punitive damages remedy a “taking.”  Basically, punitive damages are a form of punishment, not compensation, to which no constitutional right attaches.  As the Ohio Supreme Court stated in Arbino:

[R]egulation of punitive damages is discretionary and that states may regulate and limit them as a matter of law without violating the right to a trial by jury. . . .  [P]unitive damages are not compensation for injury.  Instead, they are private fines levied by civil juries to punish reprehensible conduct and to deter its future occurrence.  The purpose of punitive damages is not to compensate a plaintiff, but to punish and deter certain conduct.

880 N.E.2d at 441 (citations and quotation marks omitted).

As it turned out, Arbino is hardly alone.  Here’s what some other state supreme courts have said on the issue:

Indiana:

[A] party has no prejudgment property interest in a punitive damages award. . . .  [T]here is no vested property right in an award of punitive damages. . . .  [U]nder either the federal or the [state constitution] Takings Clause, there is no property right in a claim for punitive damages. Rather, consistent with their punitive nature, punitive damages are akin to a fine exacted by the government . . . to deter and punish wrongdoers.

Cheatham v. Pohle, 789 N.E.2d 467, 474 (Ind. 2003) (citations and quotation marks omitted).

Oregon:

[A] plaintiff has no right or entitlement to punitive damages as a remedy . . . and, as a result, the jury has complete discretion not to award punitive damages, even if a plaintiff successfully proves all elements of a claim.  Consequently, before entry of a final judgment, a plaintiff . . . always has had, at most, an expectation of such an award. . . .  A vested right must be something more than a mere expectation based upon the anticipated continuance of existing laws; it must have become a title legal or equitable to the present or future enjoyment of property.  We therefore hold that plaintiffs do not have a vested prejudgment property right in punitive damages.

Demendoza v. Huffman, 51 P.3d 1232, 1245 (Or. 2002) (citations omitted).

Kansas:

[A]ll of our cases recognized that a plaintiff has no vested right to punitive damages and that no right, cause of action, or remedy existed . . . separate and apart from an action for compensatory damages.  Exemplary damages are in no case a right of the plaintiff, but are assessed at the discretion of the jury for the purpose indicated. . . .  [N]o citizen has a right to recover punitive damages; therefore, there is no life, liberty, or property interest of a plaintiff involved where punitive damages are concerned.

Smith v. Printup, 866 P.2d 985, 997 (Kan. 1993) (citations and quotation marks omitted).

Georgia:

A plaintiff has no vested property right in the amount of punitive damages which can be awarded in any case, and the legislature may lawfully regulate the amount of punitive damages which can be awarded.

Mack Trucks, Inc. v. Conkle, 436 S.E.2d 635, 639 (Ga. 1993) (citations omitted).

Florida:

[Plaintiff] has no cognizable, protectable right to the recovery of punitive damages at all.  Unlike the right to compensatory damages, the allowance of punitive damages is based entirely upon considerations of public policy.  Accordingly, it is clear that the very existence of an inchoate claim for punitive damages is subject to the plenary authority of . . . the legislature.  In the exercise of that discretion, it may place conditions upon such a recovery or even abolish it altogether . . . .  The right to have punitive damages assessed is not property; and it is the general rule that, until a judgment is rendered, there is no vested right in a claim for punitive damages.  It cannot, then, be said that the denial of punitive damages has unconstitutionally impaired any property rights of appellant.

Gordon v. State, 608 So.2d 800, 801-02 (Fla. 1992).

Iowa:

Plaintiff also contends that the punitive damage award constitutes property entitled to constitutional protection under both the federal and [state] constitutions. . . .  [A] plaintiff has no vested right in a particular measure of damages. . . .  [P]unitive damages are remedial and that a plaintiff has no vested right to such damages prior to the entry of a judgment.  Consequently, a statutory provision limiting a punitive damage award may be applied retrospectively without violating due process or equal protection . . . .  [P]unitive damages are not allowed as a matter of right and are discretionary. . . .  [P]unitive damages are not intended to be compensatory and that a plaintiff is a fortuitous beneficiary of a punitive damage award simply because there is no one else to receive it.  Under our view of punitive damages . . ., plaintiff did not have a vested right to punitive damages prior to the entry of a judgment.

Shepherd Components v. Brice Petrides-Donahue & Associates, Inc., 473 N.W.2d 612, 619 (Iowa 1991) (citations and quotation marks omitted).

Missouri:

[P]unitive damages are remedial and a plaintiff has no vested right to such damages prior to the entry of judgment.  Punitive damages are never allowable as a matter of right and their award lies wholly within the discretion of the trier of fact.  The purpose of punitive damages is to inflict punishment and to serve as an example and deterrent to similar conduct. . . .  Such damages being allowed in the interest of society, and not to recompense solely the victim, to deny them cannot be said to deny any constitutional right or to encroach upon any judicial function, or to violate any constitutional guaranty of separation of powers.

Vaughan v. Taft Broadcasting Co., 708 S.W.2d 656, 660 (Mo. 1986) (citations omitted).  See also Rhyne v. K-Mart Corp., 594 S.E.2d 1, 14 (N.C. 2004) (“plaintiffs do not have a vested prejudgment property right in punitive damages”); Evans v. State, 56 P.3d 1046, 1058 (Alaska 2002) (as to “a cap on punitive damages, limiting them before they are awarded to successful plaintiffs, no constitutional problem exists”; punitive damages may be “limited or abolished”); Meech v. Hillhaven West, Inc., 776 P.2d 488, 503 (Mont. 1989) (“no vested right to exemplary damages”); Fust v. Attorney General, 947 S.W.2d 424, 431 (Mo. 1997) (a plaintiff has “no vested property interest” in punitive damages claim); Smith v. Hill, 147 N.E.2d 321, 325 (Ill. 1958) (“a vested right to punitive, exemplary, vindictive or aggravated damages arises only when such damages have been allowed by a judgment); Langford v. Vanderbilt University, 287 S.W.2d 32, 34 (Tenn. 1956) (“[p]unitive damages . . . are allowed as a mere penalty”; “[a] mere penalty never vests but remains executory”); Louisville & Nashville Railroad v. Street, 51 So. 306, 307 (Ala. 1909) (no property right in punitive damages award).

For once, we didn’t have to delve too deeply to find an answer to a legal question (or a subject for a blog post – coming up with ideas daily is no easy matter).  Those are just the state Supreme Court cases that we know about which hold that there is no constitutional right to pursue punitive damages.  Lots of lower court opinions echo these same rulings.  Constitutional challenges have been rejected under due process, taking, jury trial, open courts and various other state constitutional provisions.  It makes sense.  While compensatory damages might present a closer question (depending on issues such as retroactivity), there’s simply no constitutional right for one private party to demand that another private party be punished.

Is There A Constitutional Right To Punitive Damages?

We recently came across a post on a Bricker & Eckler blog, about a slightly less recent Ohio Supreme Court case, Havel v. Villa St. Joseph, 963 N.E.2d 1270 (Ohio 2012), upholding the constitutionality of Ohio’s statute imposing mandatory bifurcation in punitive damages cases.  Havel held, after considerable back and forth:

[The statute] does not violate the Ohio Constitution and is constitutional because it is a substantive law that prevails over a procedural rule.  Inherent in our conclusion is rejection of the argument that dicta contained in Sheward [an infamous anti-tort reform decision], which described the former version of [the statute] as governing a procedural matter. . . . Sheward never considered the bifurcation question we confront in this case. Thus, we are not required to follow out-of-context dicta as precedent.

Havel, 963 N.E.2d 1279 (quoting and following Arbino v. Johnson & Johnson, 880 N.E.2d 420, 443 (2007)).  That’s an excellent result, but by addressing the constitutional issue in this way the Court did not have to pass on a more fundamental question that we’ve been pondering, which is whether a plaintiff has any constitutional right punitive damages in the first place.

In that regard, the Bricker post helped us out.  In discussing Havel, it mentioned that “Ohio’s caps on punitive damages have been upheld as constitutional (in Arbino v. Johnson & Johnson).”

There’s that case again.

Arbino seemed like a pretty good place to begin seeking an answer to the basic constitutional question, so we took a look. Sure enough, Arbino turned out to be a recent example of what we’ve come to conclude is a virtually universal rule that, until a judgment in an individual case is actually entered, there is no “vested right” to pursue a claim for punitive damages.  Nor for that matter is elimination of a punitive damages remedy a “taking.”  Basically, punitive damages are a form of punishment, not compensation, to which no constitutional right attaches.  As the Ohio Supreme Court stated in Arbino:

[R]egulation of punitive damages is discretionary and that states may regulate and limit them as a matter of law without violating the right to a trial by jury. . . .  [P]unitive damages are not compensation for injury.  Instead, they are private fines levied by civil juries to punish reprehensible conduct and to deter its future occurrence.  The purpose of punitive damages is not to compensate a plaintiff, but to punish and deter certain conduct.

880 N.E.2d at 441 (citations and quotation marks omitted).

As it turned out, Arbino is hardly alone. Here’s what some other state supreme courts have said on the issue:

Indiana:

[A] party has no prejudgment property interest in a punitive damages award. . . .  [T]here is no vested property right in an award of punitive damages. . . .  [U]nder either the federal or the [state constitution] Takings Clause, there is no property right in a claim for punitive damages.  Rather, consistent with their punitive nature, punitive damages are akin to a fine exacted by the government . . . to deter and punish wrongdoers.

Cheatham v. Pohle, 789 N.E.2d 467, 474 (Ind. 2003) (citations and quotation marks omitted).

Oregon:

[A] plaintiff has no right or entitlement to punitive damages as a remedy . . . and, as a result, the jury has complete discretion not to award punitive damages, even if a plaintiff successfully proves all elements of a claim.  Consequently, before entry of a final judgment, a plaintiff . . . always has had, at most, an expectation of such an award. . . .  A vested right must be something more than a mere expectation based upon the anticipated continuance of existing laws; it must have become a title legal or equitable to the present or future enjoyment of property.  We therefore hold that plaintiffs do not have a vested prejudgment property right in punitive damages.

Demendoza v. Huffman, 51 P.3d 1232, 1245 (Or. 2002) (citations omitted).

Kansas:

[A]ll of our cases recognized that a plaintiff has no vested right to punitive damages and that no right, cause of action, or remedy existed . . . separate and apart from an action for compensatory damages.  Exemplary damages are in no case a right of the plaintiff, but are assessed at the discretion of the jury for the purpose indicated. . . .  [N]o citizen has a right to recover punitive damages; therefore, there is no life, liberty, or property interest of a plaintiff involved where punitive damages are concerned.

Smith v. Printup, 866 P.2d 985, 997 (Kan. 1993) (citations and quotation marks omitted).

Georgia:

A plaintiff has no vested property right in the amount of punitive damages which can be awarded in any case, and the legislature may lawfully regulate the amount of punitive damages which can be awarded.

Mack Trucks, Inc. v. Conkle, 436 S.E.2d 635, 639 (Ga. 1993) (citations omitted).

Florida:

[Plaintiff] has no cognizable, protectable right to the recovery of punitive damages at all.  Unlike the right to compensatory damages, the allowance of punitive damages is based entirely upon considerations of public policy.  Accordingly, it is clear that the very existence of an inchoate claim for punitive damages is subject to the plenary authority of . . . the legislature.  In the exercise of that discretion, it may place conditions upon such a recovery or even abolish it altogether. . . .  The right to have punitive damages assessed is not property; and it is the general rule that, until a judgment is rendered, there is no vested right in a claim for punitive damages.  It cannot, then, be said that the denial of punitive damages has unconstitutionally impaired any property rights of appellant.

Gordon v. State, 608 So.2d 800, 801-02 (Fla. 1992).

Iowa:

Plaintiff also contends that the punitive damage award constitutes property entitled to constitutional protection under both the federal and [state] constitutions. . . .  [A] plaintiff has no vested right in a particular measure of damages. . . .  [P]unitive damages are remedial and that a plaintiff has no vested right to such damages prior to the entry of a judgment.  Consequently, a statutory provision limiting a punitive damage award may be applied retrospectively without violating due process or equal protection . . . .  [P]unitive damages are not allowed as a matter of right and are discretionary. . . .  [P]unitive damages are not intended to be compensatory and that a plaintiff is a fortuitous beneficiary of a punitive damage award simply because there is no one else to receive it.  Under our view of punitive damages . . ., plaintiff did not have a vested right to punitive damages prior to the entry of a judgment.

Shepherd Components v. Brice Petrides-Donahue & Associates, Inc., 473 N.W.2d 612, 619 (Iowa 1991) (citations and quotation marks omitted).

Missouri:

[P]unitive damages are remedial and a plaintiff has no vested right to such damages prior to the entry of judgment.  Punitive damages are never allowable as a matter of right and their award lies wholly within the discretion of the trier of fact. The purpose of punitive damages is to inflict punishment and to serve as an example and deterrent to similar conduct. . . .  Such damages being allowed in the interest of society, and not to recompense solely the victim, to deny them cannot be said to deny any constitutional right or to encroach upon any judicial function, or to violate any constitutional guaranty of separation of powers.

Vaughan v. Taft Broadcasting Co., 708 S.W.2d 656, 660 (Mo. 1986) (citations omitted).  See also Rhyne v. K-Mart Corp., 594 S.E.2d 1, 14 (N.C. 2004) (“plaintiffs do not have a vested prejudgment property right in punitive damages”); Evans v. State, 56 P.3d 1046, 1058 (Alaska 2002) (as to “a cap on punitive damages, limiting them before they are awarded to successful plaintiffs, no constitutional problem exists”; punitive damages may be “limited or abolished”); Meech v. Hillhaven West, Inc., 776 P.2d 488, 503 (Mont. 1989) (“no vested right to exemplary damages”); Fust v. Attorney General, 947 S.W.2d 424, 431 (Mo. 1997) (a plaintiff has “no vested property interest” in punitive damages claim); Smith v. Hill, 147 N.E.2d 321, 325 (Ill. 1958) (“a vested right to punitive, exemplary, vindictive or aggravated damages arises only when such damages have been allowed by a judgment); Langford v. Vanderbilt University, 287 S.W.2d 32, 34 (Tenn. 1956) (“[p]unitive damages . . . are allowed as a mere penalty”; “[a] mere penalty never vests but remains executory”); Louisville & Nashville Railroad v. Street, 51 So. 306, 307 (Ala. 1909) (no property right in punitive damages award).

For once, we didn’t have to delve too deeply to find an answer to a legal question (or a subject for a blog post – coming up with ideas daily is no easy matter).  Those are just the state Supreme Court cases that we know about which hold that there is no constitutional right to pursue punitive damages.  Lots of lower court opinions echo these same rulings.  Constitutional challenges have been rejected under due process, taking, jury trial, open courts and various other state constitutional provisions.  It makes sense.  While compensatory damages restrictions might present a closer question (depending on issues such as retroactivity), there’s simply no constitutional basis for one private party having an absoute right to demand that another private party be punished.

Guest Post - Pay For Delay, There For The Taking?

This is the first gues post that DDL has had by a law student in its five+ year history.  We weren't sure at first, when the offer to post was made, but once we read it, our concerns vanished.  Heck, it's probably better written than half the stuff we throw out there.

So all of what follows - and all credit or blame therefor - belongs to Brenna Jenny, a Harvard Law 3L whom we now know is a dedicated fan of the blog.

*****************

The most topical constitutional issue implicated by the pharmaceutical industry has been the intersection between off-label promotion and the First Amendment.  While we continue to await the Second Circuit's decision in United States v. Caronia, a new constitutional consideration has been receiving increased attention: the Takings Clause.  In a recent article in Food and Drug Law Journal, Professor Richard Epstein argues that the Biologics Price Competition and Innovation Act of 2009 ("Biosimilars Act") raises Fifth Amendment concerns.  66 Food & Drug L.J. 285 (2011).  Professor Epstein's argument may have force against other legislative fixes Congress would seek to apply to the pharmaceutical industry, such as Representative Bobby Rush's (D-IL) recent proposal (HR 3995) to ban all reverse payment settlements between brand and generic drug manufacturers.

First some background on the Biosimilars Act.  In order to facilitate FDA approval of "biosimilar" biological products (the analogue to generic drugs in the Hatch-Waxman context), the Biosimilars Act allows the FDA to rely on the pioneer's biologics license application (:BLA") when determining whether a new entrant's product is "highly similar" to the existing version.  (The FDA earlier this month released some much-anticipated draft guidance on this, and other, topics).  As under Hatch-Waxman, the second-comer is allowed to introduce far less clinical data than the innovator, and this shortcut allows the copycat product to make it to market sooner, with lower cost.  The Biosimilars Act mirrors the quid pro quo created in the Hatch-Waxman Act:  although innovators lose on one hand (the trade secrets disclosed in their applications are used by the FDA in approving a competitor's products) they gain on the other (the innovator not only is granted a twelve-year period of exclusivity, but the filing of a biosimilar application is considered an artificial act of infringement, allowing the innovator to file suit and litigate any patent claims before the biosimilar reaches the market.)

Companies choosing to file BLAs after the passage of the Biosimilars Act can be seen as "opting in" to this quid pro quo, agreeing to allow the FDA to indirectly use their intellectual property in exchange for the benefits provided by the Act.  But Professor Epstein maintains that applicants who filed BLAs before passage of the Act:

had investment-backed expectations - based in statute, FDA regulations, and longstanding FDA practice - that their data would not be used or relied on by the agency, directly or indirectly, for the purpose of approving competitors.  Taking these trade secrets for the benefit of a competitor thus requires just compensation in order to avoid a constitutional violation.

The term "investment-backed expectations" alludes to the Supreme Court case Penn Central Transportation Co. v. New York, in which the Court held that regulatory interference with the investment-backed expectations of property owners is a critical factor weighing in favor of compensation.  438 U.S. 104 (1978).

Despite universal agreement that patents are property, whether patents fall within the protection of the Takings Clause is actually an unsettled issue.  Although a 2006 Federal Circuit decision held that patent infringement by the government is not a cognizable Fifth Amendment violation, Zoltek Corp. v. United States, 442 F.3d 1345, 1352 (Fed. Cir. 2006), Congress should not feel liberated from the constraints of the Takings Clause when regulating the intellectual property of the pharmaceutical industry.  Just four years prior to Zoltek, the Supreme Court insisted that "courts must be cautious before adopting changes that disrupt the settled expectations of the inventing community," because "[f]undamental alterations ... risk destroying the legitimate expectations of inventors in their property."  Festo v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722, 739 (2002).  This language directly reflects the Court's discussion of investment-backed expectations in Penn Central.

Therefore, when Congress acts in ways that significantly alter the "legitimate expectations of inventors in their" patents, it does so at least under the shadow of the Fifth Amendment.  A recent legislative proposal regarding reverse payment settlements modifies the ability of patent holders to craft settlements, threatening to trigger the Takings Clause.  Reverse payment settlements have been a hot topic recently, as the FTC and DOJ have found themselves stalled at an utter impasse with the courts over how to treat them.  The FTC in particular has begged Congress to step in and act.

What are these settlements and why do they create such an uproar?  Reverse payment settlements occur when a generic drug company seeks to enter the market before the expiration of a patent.  Citing either patent invalidity or non-infringement, the generic manufacturer, pursuant to the Hatch-Waxman Act, must notify the branded company of its intention to enter.  The branded company then has an opportunity to invoke a thirty-month stay, during which it can litigate the patent claims.  Many of these cases end in settlement, which may involve a payment from the branded company to the generic, with an agreement that the generic will not enter the market until a pre-determined date (prior to the patent's expiration).  The FTC and DOJ have argued that these settlements are nothing but a smoke screen for a branded company to buy off generic competition by sharing a portion of its monopoly profits.

Although the FTC and the DOJ have passionately insisted these settlements violate antitrust laws, and should be deemed presumptively illegal, courts have consistently been unpersuaded.  Both the Federal Circuit and the Second Circuit (and arguably the Eleventh Circuit as well, although its case law is subject to differing interpretations) have granted reverse payment settlements significant room to thrive:  as long as the branded company's suit against the generic is not a "sham," and the resulting settlement meets a few low hurdles, such as allowing other generic companies to subsequently challenge the patent and not restricting the marketing of non-infringing products, the court settlement does not violate antitrust laws.  Arkansas Carpenters Health & Welfare Fund v. Bayer AG, 604 F.3d 98, 106 (2d Cir. 2010). Citing a patent's presumption of validity, courts have tended to view these settlements as falling within the bounds of a patent holder's property rights.

Previous congressional proposals, including one introduced last year by Senator Kohl (S. 27), would have granted the FTC and DOJ's requests and made reverse payment settlements presumptively illegal.  Rep. Bobby Rush's bill goes a step further: any settlement involving a generic drug filer receiving something of value and agreeing not to research, develop, or sell a drug that is the subject of an infringement claim would be an "unfair method of competition," in violation of section 5 of the FTC Act.

This bill takes an arrow out of the proverbial patent holder's quiver of property rights, and a segment of settlement options is now off the table.  When considering reverse payment settlements, several courts have approvingly cited Judge Posner's insistence that a patent holder "is entitled to defend the patent's validity in court, to sue alleged infringers ... whatever its private doubts ... and to settle the suit to avoid risking the loss of the rights.  No one can be certain that he will prevail in a patent suit."  Asahi Glass Co., Ltd. v. Pentech Pharmaceuticals, Inc., 289 F. Supp. 2d 986, 993 (N.D. Ill. 2003).  Some opinions have even gone so far as to say that reverse payment settlements are a "natural consequence" of the Hatch-Waxman Act.  King Drug Co. of Florence, Inc. v. Cephalon, Inc., 702 F. Supp. 2d 514, 529 (E.D. Pa. 2010).  When patent holders filed under the previous regulatory regime, their disclosure provided them with a right to exclude, by settlement if necessary, and courts have recognized this right.  Rep. Rush's bill would alter those expectations.  Given the near infamous expense and uncertainty associated with patent litigation, it is no small change to hamstring a patent holder's terms of settlement when his property is challenged.

To be sure, patent holders certainly cannot have an investment-backed expectation of engaging in monopolization.  But although antitrust law prohibits patent misuse, HR 3995 raises concerns that the government is leveraging antitrust law to take away property rights which patent holders possess under Hatch-Waxman.  Courts that have addressed reverse payment settlements have drawn a line around activities taken within the patent's zone of the right to exclude and segregated them - as valid exercises of a property right - from the reach of antitrust law.  As the Federal Circuit has pointed out, patents are inherently anticompetitive, and there is a certain degree of anticompetitive behavior which antitrust law cannot touch.  In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323, 1333 (Fed. Cir. 2008).  By redefining "unfair method of competition," HR 3995 seeks to expand the boundary line of what antitrust law can reach, and correspondingly what will no longer fall within the property rights of a patent holder's right to exclude.  If Congress simply changed the scope of the property right, without invoking antitrust, patent holders may have a real claim to a taking under Penn Central.  The question posed by Rep. Rush's bill is not whether it is good policy to redefine an "unfair method of competition," in order to ban reverse payment settlements, but rather whether the government can use antitrust law as an end-run around a takings inquiry.  As Congress continues to contemplate if, and how, it wishes to step in and change courts' treatment of reverse payment settlements, it should be aware that the pharmaceutical industry may have valid constitutional claims to raise about its methods.

Federalism And Tort Reform

On Wednesday, we discussed the relevant parts of pending tort reform legislation.  Earlier in the month we updated our favorite federalist point, which is that federal courts should not issue expansive interpretations of state tort law when sitting in diversity jurisdiction.

OK, what do those two things have to do with one another.

Well, one of our fellow travelers on tort matters, Walter Olsen, has a thoughtful piece over at Cato on whether federalist principles limit the ability of congress to impose top-down tort reform on the states - although we hasten to point out that even a quasi-libertarian like him sees a role for federal tort reform in products liability and class actions.  Here's his point:

[T]he Constitution contemplates federal supervision of state courts when they reach out to assert power over transactions and litigants outside their own boundaries. It has far less to say about intruding upon the authority of those courts over disputes that arose between their own residents and are unmistakably under their own law. . . .  Where does this leave federal-level liability reform? It suggests a very real difference between areas like product liability and nationwide class actions—in which suits ordinarily cross state lines, and the majority of runaway verdicts are against out-of-state defendants—and more conventional kinds of tort litigation arising from car crashes, slip-and-falls, and medical misadventure, where cases are mostly filed against locally present defendants. As a rough rule of thumb, it’s worth presuming that most of the local suits do not externalize heavy costs across state lines and should accordingly be left alone by Congress unless it is itself vindicating some constitutional right or coordinating the functioning of some constitutionally authorized federal government activity.

Walter doesn't say anything in particular about the punitive damages legislation we commented on, we think he'd find them to be OK, since they're tied to FDA regulation, and we think he's agree that federal regulation of the drugs and medical devices (at least those in interstate commerce) is constitutional.

But what does he think about malpractice reform?  Go read his post for all the details, but basically he thinks the better way to go would be to require anybody who's care is being subsidized by the federal government have to agree to whatever limitations on suit that Congress might think is appropriate.

Interesting idea ... and an interesting question.