BY RACHEL CHEESEMAN

SALEM- The Oregon State Supreme Court released an opinion Thursday on a case involving Philip Morris Inc., a large tobacco company, and the estate of a woman who died from complications with lung cancer.

Michelle Schwartz died after smoking cigarettes for 45 years. Her husband, the personal representative of her estate, sued Philip Morris for marketing an addictive product that caused adverse health effects. Punitive damages are awarded to change the behavior of the defendant, which was Philip Morris Inc. in this case.

The trial court awarded $170,000 to offset medical costs as well as emotional suffering and $100 million in punitive damages. Going along with the Court’s ruling, the case has been sent back to the trial court for a reevaluation of the punitive damages.

Philip Morris appealed saying that Schwartz’s attorney did not adequately instruct the jury of the constitutional limits of awarding punitive damages. By the Court’s ruling, the instructions were “incomplete and therefore incorrect.”

He argued that the instructions should explicitly state that the jury could not “impose punishment for harms suffered by persons other than the plaintiff” or “for the impact of its conduct on individuals in other states.” This precedent was established by the United States Supreme Court in the case Williams v. Philip Morris Inc.

While such information cannot be used directly in determining the amount awarded in punitive damages, it is usable in determining the reprehensibility of the defendant’s conduct.

The Court ruled that this must also be made clear to the jury through implicit instruction. It wrote “when the law draws a line between the proper and improper use of evidence, a jury instruction must be equally explicit in describing what falls on each side of that line.”

Norman Williams, a law professor at Willamette University and unrelated to the plaintiff in Williams v. Philip Morris Inc., was involved with punitive damage litigation before he was a professor. He said that the ruling, while constitutionally consistent, could potentially confuse a jury and more guidance would have been useful.

The Oregon Trial Lawyers Association filed a brief in this case and has filed brief in support of Mayola Williams in Williams v. Philip Morris Inc. but could not be reached for comment.

The case also represents a substantial departure from the US Supreme Court’s guidelines for punitive damage awards. In previous cases, the US Supreme Court has ruled that punitive damage awards 10 times the compensatory damage awards should be suspect, and in some cases even a one to one award for punitive damages might be excessive.

The punitive damages awarded in this case are more than 500 times the amount awarded in compensatory damages after it was reduced. The original amount of $150 million would have been more than 880 times the compensatory damages.

Williams described the awarded amount as “shocking” and “grossly excessive.”

“That’s not even close to permissible,” Williams said.

Williams said that juries in cases like this “typically act reasonable and don’t award mammoth punitive damage awards,” but large defendant’s like tobacco corporations, motor companies and insurance providers were equally likely to be hit by a “runaway jury.”

As the issue that reached the court was on the instruction of the jury, not the appropriateness of the punitive damage awards, there is potential for this case to be re-appealed after the remand of the case.

“I would be surprised if on remand, there isn’t a significant battle regarding just how much punitive damages could be awarded,” Williams said.

BY RACHEL CHEESEMAN

SALEM - The $562 million dollar budget shortfall was a heavy blow dealt to agencies across the state, but it was not the last.

An accounting error resulted in an overestimation of projected revenue from tobacco taxes and resulted in an additional $15 million shortfall in the general fund, explained Mazen Malik, a senior economist for the legislative revenue office, raising the final number to $577 million.

Tobacco taxes were calculated to bring in 22 percent of sales from tobacco products, when they actually bring in only 22 cents per pack of cigarettes. This error changed the revenue from tobacco taxes from $480.9 million to $396.4 million, a difference of about $84.5 million and an overestimation of about 21 percent. In addition to the general fund, revenue from tobacco taxes goes toward smoking cessation programs and advertisements, public transportation and the Oregon Health Plan.

Economists were quick to catch the error. Agencies were notified the day after the original forecast, Wednesday, May 27.

Patrick Cooney of the Oregon Department of Transportation said ODOT receives only 2 cents per pack in tobacco tax revenues, so the effect of the miscalculation was “very minimal.”

This shortfall will be added to the current deficit, and agencies statewide will have to factor this in as they attempt to rebalance their budgets.

While this will increase across-the-board budget cuts needed to balance the budget by only two-tenths of a percent, from 9.1 to 9.3 percent, it does increase the current budget deficit by 2.6 percent. Certain agencies that rely heavily on general fund money, like the “big three” departments of Education, Human Services and Public Safety, will have to find ways to further trim their budgets.

The Department of Education will have to cut approximately an additional $6.6 million from its budget, after already being asked to cut $252 million. This will result in cutting another $6 million from the money appropriated by the state for kindergarten through twelfth grade education.

The Department of Human Services will have to cut an additional $4 million from their budget, after cutting $158 million.

The Department of State Police will have to cut another $260,000, and the Department of Corrections another $2 million. At $84.46 to house one inmate per day, that translates to the cost of housing 65 inmates for one year.

Jeanine Hohn, communications manager for the Department of Corrections, said that the additional $2 million was a “drop in the bucket” compared to the $52 million they now will have to cut.

“Obviously, the agency is going to have a challenging time making any kind of cuts,” Hohn said. “We will work closely with the governor’s office and legislative leadership to have the least amount of impact on our correctional system as possible, if that is possible. “

Ann Snyder of the Oregon Youth Authority explained that her agency might take one of several steps to reduce spending in the agency by the necessary $11.9 million, originally forecasted at $11.5 million.

“Some of the options would be we hold additional vacancies, we delay program implementation, we reduce services somehow,” said Snyder. “It means an additional $400,000.”