CORPORATE AMERICA’S “SAFETY NET”?

Business groups followed the Campbell case closely to see if the decision would provide some uniformity to punitive damages awards. "There will be significant repercussions for years to come," predicted Robin Conrad, senior vice president of the U.S. Chamber of Commerce's litigation arm. Shortly after Campbell, she noted, ―The Supreme Court has ordered lower courts to reconsider two multimillion-dollar judgments against Ford Motor Co. in light of the Campbell ruling‖ (Greenberger, 2003). With these two decisions, the Supreme

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While some courts have approved awards exceeding suggested single-digit ratios, the Chamber of Commerce‘s survey of post-Campbell decisions shows progress toward lower ratios. The Campbell ratio was exceeded by only 13 of 31 under-$1 million punitive damages awards examined by the Chamber.

Evidence indicates that trial and appellate courts are taking the Campbell decision into consideration and reducing punitive damages awards to gain consistency with its holding. For example, a Florida appellate court, relying on Campbell, reversed a $145 billion punitive damages award (the largest in history at that point), archly noting, "Awarding the GNP of several European countries is error" (Gigot, 2003).

The amount of punitive damages awarded, the kind of evidence allowed at trial, and the jury instructions given all have been affected by Campbell. Evan Tager states that the Campbell decision ―accomplishes the Court‘s evident purpose of restoring order to the administration of punitive damages‖ and provides a clearer philosophy for structuring punitive damages awards (Tager, 2003).

Exxon‘s supertanker grounded and more than 10 million gallons of crude oil were dumped into Prince William Sound. Prior to the accident, the supertanker‘s captain, who had suffered from alcohol-abuse problems and who had a blood-alcohol content in excess of .06 eleven hours after the spill, ―inexplicabl[y]‖ decided to leave the bridge and go to his cabin ―to do paperwork‖ (Exxon Shipping Co. v. Baker, 2008). With the captain in his cabin rather than on the bridge, his unlicensed subordinates had to try to navigate the course turn. They were unsuccessful.

In the first phase of the trial, the jury found Exxon and the captain reckless. This finding was based on jury instructions that ―[a] corporation is responsible for the reckless acts of those employees who are employed in a managerial capacity while acting in the scope of their employment‖ (Exxon Shipping Co. v. Baker, 2008).

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The jury also received instructions that the purposes of punitive damages are ―to punish and deter the defendant‖ (Exxon Shipping Co. v. Baker, 2008). As a result, the jury awarded $5,000 in punitive damages against the captain but $5 billion in punitive damages against Exxon.

In June 2008 – more than nineteen years after the spill – the U.S. Supreme Court determined that the punitive damages awarded against Exxon were excessive. The Court‘s analysis included a review of Campbell. Until the Exxon decision, the Court‘s response to allegedly excessive punitive damages awards had been ―confined by claims at the constitutional level‖ – in other words, restricted to state-court awards arguably violating due process. The Exxon Court determined that ―[t]he more promising alternative is to leave the effects…to the jury or judge who assesses the value of actual loss, by pegging punitive to compensatory damages using a ratio or maximum multiple‖ (Exxon Shipping Co. v. Baker, 2008). The Court held that a 1:1 ratio of punitive to compensatory damages was a ―fair upper limit‖ in a maritime case such as Exxon (Exxon Shipping Co. v. Baker, 2008).

Damages experts generally agree that Campbell heavily influenced the Exxon decision. According to Professor Douglas Laycock of the University of Texas School of Law, the Exxon Valdez "award was dead as soon as State Farm v. Campbell came down." He went on to predict, "It's going to be a very rare case where these big-number judgments stand up‖ (Gold, 2003).

In Campbell, the Supreme Court attempted to clarify and limit punitive damages. However, the gates of uncertainty were not fully closed: "This is not the end," said Lori S. Nugent, head of the punitive damages practice in the Chicago office of Philadelphia's Cozen O'Connor. "Justice Scalia was absolutely right when he said that there will be many decisions in the future on punitive damages. And there should be" (Coyle, 2003). A single decision, according to Nugent, should not hold the ultimate power in other cases. What Campbell did

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The Court‘s analysis in Campbell is arguably ambiguous, specifically with respect to the reprehensibility and ratio guideposts of the prior seminal case on punitive damages, Gore. Based on these ambiguities, it remains relatively easy for lower courts to apply the Campbell decision inconsistently. In addition, the Campbell decision does not fully address the current trend of multiple punitive damages awards for the same wrongful conduct. Campbell ensures only that, though similar conduct is still allowable as evidence, conduct dissimilar to what is relevant to the case is not punishable. In this way, a plaintiff‘s attorney may still present evidence of similar harm to the jury, and punitive damages could be enforced multiple times; evidence pertaining to out-of-state conduct still could be relevant in certain circumstances.

The former Minnesota Attorney General Mike Hatch, who supported Campbell with an amicus brief on behalf of a number of other states, stated, "You can look to conduct outside the state only if it violates laws in those states and is relevant to the conduct that caused the damages‖ (Coyle, 2003). If the law does not affect another state in any way or if the destructive behavior is completely unrelated, there is no legitimacy in looking outside a state. The ambiguity of the decision has allowed plaintiffs to circumvent the guidelines and distinguish the decision factually. It is argued that as large punitive damage awards face stricter scrutiny, plaintiffs' lawyers will shift their focus to increasing compensatory damage awards, which will in turn lower the ratio between punitive damages and compensatory damages to ensure that it falls within Campbell’s recommended single-digit zone.

According to Victor Schwartz of the Washington office of Shook Hardy & Bacon, who filed a brief supporting State Farm on behalf of the Product Liability Advisory Council, "There are many aspects of compensatory damages that can be used by savvy plaintiff lawyers to enhance the compensatory component in a way that is more difficult to attack. Judges are more willing to analyze punitive damage awards than other awards such as pain and suffering awards‖ (Coyle, 2003).

Since the Campbell decision, courts have relied on what they call a lack of a ―bright line rule‖ that enables the courts to award damages in excess of Campbell’s single-digit ratio. Courts have also argued that the Supreme Court did not specify whether the Campbell decision should apply to situations in which punitive damages are calculated according to statutory authority.

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Arguing along similar lines, the defendants in Accounting Outsourcing, LLC v. Verizon Wireless cited Campbell when arguing that statutory awards imposed by the Telephone Consumer Protection Act (TCPA) and Louisiana‘s Unsolicited Telefacsimile Messages Act (UTMA) were grossly excessive and thus violated the due process clauses of the Fifth Amendment and Fourteenth Amendment (329 F. Supp.2d. 808, 2004). The court disagreed and refused to extend the Campbell holding to these facts, noting that the Court in Campbell was particularly concerned with giving fair notice to potential defendants regarding potential damages amounts. Because the TCPA and UTMA impose statutory punishments, the court held that defendants were unable to claim that they were without notice and thus found the argument based on Campbell to be without merit.

To ensure that multiple and excessive punitive damage awards are reduced while still compensating plaintiffs for their injuries, many states have already enacted statutes setting punitive damages limitations. To achieve a further reduction in excessive and multiple punitive damages awards, more states need to play an active role – including ―setting limits, enacting split-recovery statutes and focusing on the historical perspective of punitive damages‖ (Sud, 2005). It would be in the interests of the states that have not yet done so to enact similar statutes if they want to ensure consistency involving punitive damages awards.

While Campbell and Exxon crossed significant hurdles, a distance remains in the quest for balance between punitive and compensatory damages. Until states follow suit and enact their own statutes limiting punitive damage

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Another crucial decision that will influence future cases nationwide is Philip Morris USA v. Williams. In this procedural saga, the U.S. Supreme Court (February 2007) vacated a $79.5 million punitive damages verdict upheld by the Oregon Supreme Court against a tobacco company. Without modification, the punitive-to-compensatory damages ratio would have been 97:1. The Court stated that due process ―forbids a State to use a punitive damages award to punish a defendant for injury that it inflicts upon nonparties or those whom they directly represent, i.e., injury that it inflicts upon those who are, essentially, strangers to the litigation‖ (Philip Morris v. Williams, 2007).

The case was filed by the widow of Jesse Williams, who for 40 years smoked Marlboro cigarettes manufactured by Philip Morris. The widow argued that her husband‘s death, the result of lung cancer, was a product of the company‘s lies to her husband about the dangers of smoking. The punitive damages award skyrocketed based in large part on the plaintiff‘s argument that the fraudulent lies by Philip Morris harmed ―other Jesse Williams in the last 40 years in the State of Oregon.‖ In other words, this argument made Philip Morris answer for difficult-to-identify third parties.

In a 5-4 decision, the U.S. Supreme Court vacated the $79.5 million judgment and remanded the case to the Oregon courts for reconsideration. The Court looked to two main factors. First, when taking nonparties into consideration in issuing an award, the process of defending oneself becomes impossible. In other words, due process needs to guarantee a defendant the opportunity to present every available defense. Second, it becomes very difficult to gather truthful and reliable information from nonparties. Whether other victims were as uninformed about the consequences of smoking as the victim is truly questionable. In this respect, the second factor considered was the high level of ambiguity associated with potential harm to nonparties.

The Philip Morris decision, which broke new ground with respect to evidence relating to nonparties, held that evidence of harm to other victims can be introduced in the trial court to show reprehensibility, but that punitive damages awards cannot compensate the plaintiff for that harm to others. In other words, the consideration of damages to victims outside of a case might aid in revealing damages to the victim under examination, but ―a jury may not go further than this and use a punitive damages verdict to punish a defendant directly on account of harms it is alleged to have visited on nonparties.‖ The Court continued, ―We therefore conclude that the Due Process Clause requires

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States to provide assurance that juries are not asking the wrong question, i.e., seeking, not simply to determine reprehensibility, but also to punish for harm caused strangers‖ (Philip Morris v. Williams, 2007).

In January 2008, the Oregon Supreme Court affirmed its decision to disallow jury instructions that had asked jury members to consider factors that they likely would not understand. Essentially disregarding the mandate of the U.S. Supreme Court, the Oregon Supreme Court ruled that due process had not been violated and purportedly affirmed the enormous punitive damages (nearly 100:1) award. In June 2008, the United States Supreme Court granted partial certiorari, although it partially dismissed this grant of certiorari in March 2009. It is unclear how long this second Williams case will take in wending its way through the appeal-and-remand process.

CONCLUSION: UNCLEAR PRECEDENTS?

Although four U.S. Supreme Court decisions have reversed punitive damages awards, the future of the law in this area is still uncertain. None of these cases was a unanimous ruling. In addition, each decision applied subjective rather than purely objective limitations on punitive damages awards.

Those who favor restrictions on punitive damages can find comfort in this line of judicial reasoning but need to recognize the wide ―maneuvering room‖ still available to lower courts. The only certainty seems to be that further guidance from the United States Supreme Court is necessary. Another variable adding complexity is that members of the U.S. Supreme Court are likely to change in the imminent future. Indeed, Sonia Sotomayor was confirmed in August 2009 as an Associate Justice of the United States Supreme Court justice to replace retired Justice David Souter, and Elena Kagan was sworn in as an Associate Justice a year later to replace retired Justice John Paul Stevens. It remains to be seen how the newly constituted Court will view the issue of punitive damages.

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409 (Apr. 23, 2004). Coyle, M. 2003. ―More battles to come: In ruling on punitive damages in case

involving State Farm auto insurance, justices prescribe ratios.‖ Palm

Beach Daily Business Review 49.A8:165. Exxon Shipping Co. v. Baker, 554 U.S. __, 128 S. Ct. 2605 (2008). Gigot, P. A. 2003. ―Punitive schmunitive.‖ The Wall Street Journal, A24. Gold, R. 2003. ―U.S. Court rejects punitive award for Exxon spill,‖ The Wall

Street Journal, B2. Greenberger, R. S. 2003 ―Split decisions for business in high-court rulings,

industry posts a victory among losses.‖ The Wall Street Journal, A4. Hollock v. Erie Ins. Exchange, 842 F. 409 (2d. Cir. 2004). Kinnaird, S. B. 2003. ―The impact of State Farm v. Campbell,‖ Insurance Week,

2004). Sud, N. 2005. ―Punitive damages: Achieving fairness and consistency after State

punitive damages in bad faith litigation,‖Mealey’s Litigation Report:

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Albany State University

Western Kentucky University

Knowledge management (KM) can affect the quality of decisions, customer service and the control of costs in both public and for-profit organizations, yet it is often introduced only briefly in educational programs involving business and public administration. The importance of social networks has only recently begun to be introduced within the field of knowledge management in terms of how knowledge tends to flow among employees. This paper reports a classroom experience that introduced knowledge management to students in a public administration course using a computer simulation created to be run on Rockwell Automation's modeling and simulation software called ―Arena‖. Students enhanced their knowledge of KM and gained appreciation of the importance of clear and unfettered communication within social networks.

In the midst of the U.S. economic meltdown and the likelihood of a "jobless recovery" the importance of business education programs designed to help students know and demonstrate the inherent value of an organization‘s human capital is critical. Students should be able to understand knowledge management (KM) and demonstrate how social relationships among employees, and patterns of supervisory and non-supervisory communication within organizations, affect quality decision making. Knowledge management is concerned with the entire process of discovery and creation of knowledge (Davenport & Prusak, 2000; Ichijo & Nonaka, 2006; Parker & Cross, 2004; O'dell & Grayson, 1998).

The ability to continually learn and improve internal communication processes is an important competitive advantage for organizations as they that seek capacity to adapt rapidly to changing conditions. Continual learning and process improvement require the sharing of knowledge among employees. Knowledge sharing cannot, however, be managed by coercion or mandated policies. Many organizations unintentionally discourage knowledge and

Neubauer, Rogers and Yang

information sharing among employees through reward and incentive systems that favor individual (or departmental) performance rather than the overall success of the organization.

Knowledge is what people know. It is difficult or impossible for one person to "manage" the knowledge within the mind of another person, or to force the disclosure of knowledge to others. When directed to share knowledge, employees are likely to offer nothing more than what is absolutely essential. Managers are as unable to force knowledge sharing as farmers are unable to force their crops to grow. Both farmers and managers can, however, create the conditions that facilitate desired outcomes. The presence or absence of knowledge sharing in an organization is largely a function of organizational culture, norms and individual values.

In order to effectively encourage knowledge sharing among employees, managers need an understanding of the importance of social networks within organizations. Social networks are relatively informal structures based upon friendships, norms and values, professional interests, and physical proximities. Such networks are often affected by the use of e-technology. Social networks are also fluid in nature. Moreover, some associations or networks among pairs of employees are strong and lasting, while others are weak and transient. Self trust, relationship trust and organizational trust may be major determinants of the strength and duration of social networks within and across organizational units. Social networks may often emerge naturally. People of like backgrounds, interests and job functions tend to form associations. Nevertheless, associations likely to be the most valuable to an organization are strong associations between employees with different backgrounds and interests who may work in different parts of the organization, performing different job functions. Associations that span traditional organizational boundaries often hold the greatest potential for improved performance and enhanced value to customers (Porter, 2008).

E-mail and other Internet technologies have dramatically increased the spontaneous development and growth of social networks within and between organizations. Realizing that social networks can also be counterproductive, students should learn to become managers who see the linkages between knowledge management and social networks and can encourage the positive aspects of social networking, while being mindful of possible risks. When attempting to learn important concepts such as KM, and the consequences of communication patterns in organizations, students can benefit from learning aids such as computer animations and simulations (Alessi & Trollip, 2001; Vygotsky et. Al., 1978). This paper reports the experiences of a class of graduate students and their instructor with a new KM assignment involving a computer simulation of patterns of communication among a small team of ―first responders‖.

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