Supreme Court Refuses to Curb Punitive Awards : Law: Business loses as justices adopt hands-off attitude toward damage verdicts. Oil firm was hit with $10-million judgment in $19,000 land dispute.

By DAVID G. SAVAGE

June 26, 1993 12 AM PT

TIMES STAFF WRITER

WASHINGTON — In a major setback for corporate America, the Supreme Court ruled Friday that juries can impose virtually unlimited damage verdicts on companies to punish them for malicious conduct or deliberate fraud.

On a 6-3 vote, the justices retreated from earlier decisions suggesting that the Constitution puts limits on punitive damages. Instead, in this case the court upheld a $10-million judgment against a Texas company that grew out of a $19,000 land title dispute, a punishment 526 times greater than the actual harm.

Although the high court has twice upheld multimillion-dollar punitive verdicts, it has suggested that a punishment that vastly exceeds the actual harm inflicted would be unfair and unconstitutional. In addition, it has said that state judges must examine jury verdicts to make sure they are not out of line with previous awards.

On Friday, however, the justices stepped back from both positions and made clear that they will take a hands-off approach to punitive verdicts.

“We do not consider the dramatic disparity between the actual damages and the punitive award controlling in a case of this character,” wrote Justice John Paul Stevens for the court.

He added that a jury can take into account not only a company’s harmful impact on actual victims but the “potential harm” it could have inflicted on thousands of others.

Under this standard, a case that appears minor at first glance can deal a crushing financial blow to even a large and powerful corporation.

The ruling also is a startling example of how a “conservative” court can be bad for big business. Repeatedly, the justices have refused to overturn jury verdicts, whether in criminal or civil cases.

Indeed, Justice Antonin Scalia, the court’s most conservative member, wrote a separate opinion rejecting the company’s claim on the same grounds that he rejects a right to abortion. Since the Constitution itself says nothing about punitive damages, the “federal courts (have) no business in this area,” Scalia said.

Some corporate attorneys were ready to give up after Friday’s setback, the third and most sweeping ruling in the last five years upholding punitive damages.

“The court is not going to write new rules of law in this area,” said Victor Schwartz, a prominent Washington lawyer who filed a brief on behalf of the National Assn. of Manufacturers and six other corporate associations. “There is a real need for new guidelines but state legislatures are going to have to fashion them.”

Consumer advocates called the ruling “a significant victory for all American consumers” because it gives ordinary persons a club to use against wealthy companies.

“Today’s decision sends a message to corporations . . . that they can’t harm victims of dangerous products and shoddy services with impunity,” said Linda Lipsen, legislative director of Consumers Union.

In recent years, many of the nation’s largest companies, including auto manufacturers, drug companies, insurance firms and media giants, have urged the justices to put some limits on the power of angry juries to assess huge punitive fines.

In February, for example, an Atlanta jury handed down a verdict of $4.2 million in compensatory damages and $101 million in punitive damages against General Motors Corp. in a case involving a 17-year-old who was killed in a pickup.

While the justices have taken notice of these soaring verdicts, they have been unwilling to declare them unconstitutional.

In the case decided Friday, lawyers for a Texas-based oil and gas company maintained that its right to “due process of law” was violated by a “grossly excessive” jury verdict.

In 1985, TXO Production Corp. tried to get title to a tract of West Virginia land that its geologists believed contained oil. Although the land was owned by a local firm known as Alliance Resources, TXO’s lawyers filed a suit and claimed that Alliance had a defective title.

But lawyers for Alliance countersued and convinced a jury that TXO’s lawyers had deliberately tried to steal the land. They also claimed that TXO had engaged in the same hard-ball tactics before.

In a closing argument, a lawyer for the West Virginia landowners called on the jurors to send a message to “this greedy bunch of Texas high rollers and wildcatters.”

Its verdict did just that. It held TXO liable for $19,000 in lawyer’s costs from the title dispute and then imposed $10 million in punitive damages. The West Virginia Supreme Court upheld the verdict on the grounds that the TXO officials were “really mean.”

Two years ago, the U.S. Supreme Court upheld the constitutionality of punitive damages in an Alabama case in which the punitive amount was four times greater than the actual damages. This ratio “may be close to the line” permitted by the Constitution, the court said then.

Last fall, lawyers for big business were cheered when the justices announced that they would hear the appeal from TXO, which is now owned by the USX Corp. in Pittsburgh, Pa.

But its decision in the case (TXO vs. Alliance, 92-479), dashed those hopes. Joining Stevens and Scalia in upholding the verdict were Chief Justice William H. Rehnquist and Justices Harry A. Blackmun, Anthony M. Kennedy and Clarence Thomas.