Big 2014 Jury Awards Could Spell Trouble for Auto Makers

Huge jury verdicts against companies over fatal flaws in their products made a comeback last year, which may foretell more bad news for carmakers with defective parts.

Absent for a decade, billion-dollar verdicts returned in product-defect suits in 2014. The largest was for $23.6 billion in favor of the family of a smoker who died at 36. Coming in second was one for $9 billion to a New Yorker who linked his bladder cancer to a diabetes medication.

The re-emergance of huge verdicts comes at a bad time for the auto industry. It experienced a year of almost constant recalls, congressional hearings and scores of lawsuits against companies such as General Motors Co. and the air-bag maker Takata Corp.

“People now come into the jury room really suspicious, instead of wondering is this ambulance-chasing lawyer trying to squeeze money out of a company,” said Erik Gordon, a law and business professor at the University of Michigan in Ann Arbor. “Jurors now come in expecting to hear a story of corporate wrong-doing and are being very receptive to these stories.”

The biggest awards were for punitive damages, meant to punish companies for bad conduct and not to cover actual losses. One silver lining for the companies: based on past court rulings,it’s unlikely anything close to the initial verdict amounts will ever be paid.

Of the 10 largest punitive verdicts against corporations in U.S. history, none survived post-trial trimming by judges, according to Bloomberg data. The largest, $145 billion in a Florida tobacco class-action in 2000, was tossed out entirely on appeal.

Haunting Effect

Even so, that case continues to haunt the tobacco industry, as multiple findings on the companies’ blameworthiness are being used in individual cases, including the one that produced last year’s $23.6 billion award.

After being slashed, large punitive verdicts often have lingering effects, said attorney Victor Schwartz, who represents defendants in complex lawsuits.

“It can affect their business,” Schwartz said in a phone interview. “It can affect the reputation of the company. The stock can go down.”

Some effects become permanent, he said. “No one would name any product a Pinto again,” a reference to a Ford Motor Co.’s model linked to deaths from exploding fuel tanks.

Big verdicts attract more plaintiffs and raise the ceiling for settlement talks, said Gordon, the Michigan academic.

“When it’s knocked down, the story is on page 6,” he said. “It’s the initial headline that attracts the attention.”

Mark Behrens, an appellate defense attorney, said the threat of punitive damages increases the risk to the companies he represents.

Settlement Impact

“Punitive damages are used as leverage by the plaintiffs’ lawyers, both as a tool to force a settlement before trial and after a verdict to inflate the value of the settlement,” he said.

The family of Michael Johnson Sr., a Florida laborer who had smoked since his early teens, was awarded $16.9 in actual damages and $23.6 billion in punitive damages by a jury in Pensacola, Florida.

The verdict was cut to $16.9 million, the same amount as the jury’s compensatory verdict.

The trial judge offered Reynolds the choice of paying or getting a new trial on punitive damages. Reynolds chose the new trial.

The company doesn’t consider any of the verdict justified, said Jeff Raborn, assistant general counsel for R.J. Reynolds.

We believe the entire verdict should be set aside,’’ Raborn said in an e-mailed statement.

In the drug company case, Terrence Allen and his wife sued Takeda Pharmaceutical Co. and Eli Lilly & Co., contending he developed cancer because of their diabetes drug Actos.

The jury awarded them $1.5 million in compensatory damages and $9 billion in punitive damages.

Reduced Awards

The trial judge sliced Takeda’s punitive damages to $27.7 million and Lilly’s to $9.2 million.

The remaining judgment is still too high, a Takeda spokesman said in an e-mailed statement.

“We believe a damage award of any amount is not justified based on the evidence presented in this trial and have multiple grounds for appeal,” said Kenneth D. Greisman, general counsel of Takeda Pharmaceuticals U.S.A.

Lilly is also appealing.

“The evidence did not support claims that Actos caused the plaintiff’s bladder cancer,” Candace Johnson, a Lilly spokeswoman, said in an e-mail.

Switch Recalls

Amid this anti-company sentiment, GM has settled multiple death and injury claims connected to its 2014 ignition switch recalls, primarily through a program overseen by attorney Kenneth Feinberg that is an alternative to litigation.

The company still faces lawsuits throughout the U.S. by accident victims claiming product defects that aren’t part of the Feinberg process.

“The public is well aware of the poor choices GM made in the name of economy,” said Mark Lanier, who who won the $9 billion Actos verdict and represents GM accident victims. He said he’d take a GM case to a jury “right now in a heartbeat.”

The ninth-biggest verdict last year was against a car company, Hyundai Motor Co., over the deaths of two Montana teenagers, cousins Tanner and Trevor Olson, for which the families blamed a steering defect. It was the largest ever against that company.

Of a total award of $248 million, $240 million was for punitive damages.

Confidential Accord

The suit was settled on confidential terms, Jim Trainor, a Hyundai spokesman, said in an interview. The company didn’t admit any wrongdoing or concede any flaws in the vehicle, he said. John Bohyer, the Olsons’ lawyer, confirmed the settlement and declined to comment further.

The tobacco and Actos verdicts were the only ones for more than $1 billion in 2014.

The rest of the top five were against Trinity Industries for $525 million over alleged withholding of information from the U.S. over changes to its highway guardrail system; Royal Philips NV for $466.7 million in a medical-device patent- infringement suit by Masimo Corp.; and Medtronic Inc., $393.6 million in an Edwards Lifesciences Corp. heart-valve device patent case.