When a Corporation Is 'Too Big to Care' About Breaking the Law

By Joanne Doroshow, Center for Justice and Democracy at New York Law School

In many ways, the new Huffington Post/Highline "DocuSerial" focusing on the unlawful conduct of drug giant Johnson & Johnson, comes as little surprise to us. Our own blog, ThePopTort, has regulatory covered J&J's many corporate offenses including the company's illegal promotion of its schizophrenia drug, Risperdal. That is the subject of the first in the HuffPo/Highline series, explaining how J&J has pushed its salespeople to promote Risperdal illegally to children and the elderly. The drug has horrible hormonal side effects for children and can be lethal for the elderly.

J&J's misconduct would have remained largely hidden had it not been for lawsuits against the company by those injured or made sick. Indeed, this case illustrates one of the most important functions of civil lawsuits: public disclosure of information. Yet the article also crystalizes how one of the other critical functions of litigation - deterrence of unsafe practices - seems to have been upended. These days, a company making $20.6 billion can, "break the rules with relative impunity, or at least without suffering the kind of punishment that would actually hurt."

While some fault for this lies with the U.S. Department of Justice's anemic response to corporate law-breaking, even more blame may rest with laws and court decisions that drastically limit the ability of juries to assess meaningful civil damages against these companies. Indeed, in recent years, we have seen the virtual annihilation of one of the most critical tools to stop and remedy egregious corporate misconduct: the threat of punitive damages.

Unlike compensatory damages, which are meant to make victims whole after they've been hurt, punitive damages are awarded to hold reckless companies accountable through imposition of significant financial liability. Even though they are rare, punitive damages have critical importance lying not in their frequency, but in the "signals" they might send to companies like J&J. As Rand's Institute for Civil Justice once put it,

The jury's decision in any particular case indicates the potential costs of engaging in behavior similar to the defendant's.... Punitive damages are designed to punish a defendant for grossly inappropriate actions and, in so doing, to deter future such actions by signaling that their consequences can be severe.

In earlier years, punitive damages were an especially effective tool - in many ways more effective than criminal prosecutions - in protecting the public from dangerous products and practices. For example, the Dalkon Shield IUD was a highly defective birth control device first put on the market in 1971. It caused pelvic infections, septic abortions, infertility and death in thousands of women. Only after the award of punitive damages did the company finally to agree to urge doctors and women to remove the Dalkon Shield and offer to pay for the removal. The Center for Justice & Democracy published a report a few years ago listing numerous other examples of corporate practices made safer only because of the award of punitive damages.

Given the rash of corporate abuse in this country, limiting punitive damages seems like the worst possible idea at the worst possible time. Yet over the last few decades, U.S. Supreme Court decisions and state lawmakers have severely weakened punitive damages. Indeed, as we reported in 2011, at least 38 states have enacted some types of restrictions on punitive damages. Some states ban punitive damages altogether. Several states bar them when patients are injured by FDA-approved drugs. Nearly half the states now restrict punitive damages to a specified dollar amount ("flat cap") or some fixed multiple of compensatory damages ("multiplier") so they bear no relationship at all to a company's misconduct or size. A capped punitive damage award - even one totaling millions of dollars - may sound like a lot of money to you and me, but it creates no financial pressure whatsoever on a company making billions in profit.

J&J and Wall Street analysts could not be clearer about this. As HuffPo/Highline wrote, for a company "with before-tax profits of $20.6 billion for 2014, putting aside $500 million or even $1 billion a year over 15 years to cover payouts for ... claims that might come along doesn't put much of a dent in the company's financials." One analyst "perhaps unintentionally echoing the view of one senior J&J lawyer" said, "It's their cost of doing business."

Yet turning the threat of liability into a "cost of doing business" is one of the most dangerous things a society can do. Back in 1997 when I was working for consumer group Public Citizen, I helped write a report titled, Smoking Guns: Corporate Behavior and the Harmful Impact of a Punitive Damages Cap. The report was significant in that it was based on actual "smoking gun" documents uncovered in litigation showing how manufacturers often engage in cost/benefit analyses in deciding whether to stop harming or killing people. We found that a state that "caps" punitive damages essentially "tells the manufacturer that it may be more cost-effective to simply pay victims and their families for any deaths or injuries caused by a defective product than to design a safe product in the first instance or to correct a defect that has been discovered after the fact."

And now here we are, 18 years later and still talking about this: corporations still "too big to care," and laws that allow giant companies like J&J to place the public at serious risk with little financial consequence. As a nation, we should be better than this.