June 9, 2016

California Supreme Court rules for plaintiff in dispute over ratio calculations in insurance bad faith cases (Nickerson v. Stonebridge)

The California Supreme Court issued its opinion this morning in Nickerson v. Stonebridge.

Ordinarily, a California Supreme Court decision on punitive damages would be big news around here.  But in this case, not so much.  The scope of the decision is so narrow that it won't apply to many cases, and even when it does it will not make much difference. 

The issue involves "Brandt fees," a particular type of compensatory damages available only in insurance bad faith cases. Brandt v. Superior Court held that when an insurance company withholds policy benefits in bad faith, forcing the policyholder to bring a lawsuit to obtain those benefits, the policyholder can recover the attorney's fees he or she incurred to obtain the benefits that the insurer unreasonably withhold.  Those fees are treated as an element of the policyholder's compensatory damages.

Brandt fees can be awarded by a jury along with all the other available damages, or the parties can stipulate to allow the trial court to decide the issue of Brandt fees. 

In this case, the parties stipulated that the trial court would decide the Brandt fees after the jury's verdict.  The jury then awarded $35,000 in damages for emotional distress and $19 million in punitive damages.  The trial court tacked on $12,500 in Brandt fees.

As you might expect, the defendant challenged the punitive damages as excessive in violation of due process.  The trial court agreed with that argument and concluded that 10-to-1 was the maximum permissible ratio of punitive damages to compensatory damages under the facts of this case.  In applying that ratio, the court considered only the $35,000 in compensatory damages awarded by the jury, and not the additional $12,500 in compensatory damages that the court had awarded in Brandt fees.  Accordingly, the trial court stated that it would order a new trial unless the plaintiff agreed to a reduction of the punitive damages to $350,000.

The plaintiff rejected the reduction in punitive damages and appealed the order granting a new trial.  The Court of Appeal affirmed the trial court's ruling, rejecting the plaintiff's argument that the trial court should have taken the Brandt fees into account for ratio purposes.  The Court of Appeal observed that the jury did not know about the Brandt fees when it awarded punitive damages, and therefore the Brandt fees could not be considered in determining the propriety of the jury's award.

The Supreme Court disagreed.  Justice Kruger, writing for a unanimous court, explained that a court reviewing a punitive damages award for constitutional excessiveness is not tasked with regulating the jury's decisionmaking process.  Instead, the court must determine whether the result reached by the jury exceeds the bounds of due process:

Because the Gore guideposts are designed to govern postverdict judicial review of the amount of a jury‘s award, not the adequacy of the jury‘s deliberative process, there is no apparent reason why a court applying the second guidepost may not consider a postverdict compensatory damages award in its constitutional calculus.
The Supreme Court therefore sent the case back to the Court of Appeal, where the punitive damages award will presumably be increased to $475,000, which is ten times the combined emotional distress damages and Brandt fees.

A few notes and observations:

1.  The Supreme Court did not address whether the lower courts were correct in setting a 10-to-1 ratio.  The petitioner raised that issue when seeking review, but the Supreme Court expressly declined to tackle that question.

2.  Nothing in this opinion authorizes courts to consider other types of attorney's fees, besides Brandt fees, for ratio purposes.  The court was careful to explain that Brandt fees are in a special category because, unlike other attorney's fees, they are a form of compensatory damages.

3.  The Supreme Court pointed out an error by the trial court that the parties themselves did not identify: when the trial court concluded the jury's punitive damages awarded was excessive, it should not have allowed the plaintiff to choose between a new trial or a reduction in punitive damages. The trial court should have just reduced the award to the constitutional maximum without ordering a new trial.  A new trial would be pointless because the plaintiff could not possibly obtain anything higher than the constitutional maximum.  The Supreme Court made the same point in its earlier decision in Simon v. San Paolo, but courts continue to make this error, so it is nice to see the Supreme Court trying to fix that problem.

4.  The opinion highlights problems with the statement in Brandt that trial courts can perform a postjudgment assessment of punitive damages, if the parties so stipulate.  Under California's longstanding "one final judgment rule," a trial court should not enter judgment until all the issues in a case have been resolved.  That means there can be no judgment until after the compensatory damages are have been determined.  So how can a trial court award Brandt fees after judgment, when Brandt fees are an element of compensatory damages?  And how can jurors deciding punitive damages comply with the CACI instruction that tells them to make their award proportionate to the plaintiff's actual harm, if the jury does not yet know the extent of the plaintiff's actual harm because the Brandt fees have not yet been calculated?  The Supreme Court's opinion hints at some of these problems, but ultimately declines to address them because both parties had stipulated to the procedure adopted.

June 8, 2016

Nickerson opinion coming tomorrow

For all you insurance bad faith mavens, the California Supreme Court has announced that it will issue its opinion in Nickerson v. Stonebridge tomorrow at 10 a.m.   The opinion will be available here.

As a reminder, the opinion will decide the following issue:

Is an award of attorney fees under Brandt v. Superior Court (1985) 37 Cal.3d 813 properly included as compensatory damages for purposes of calculating the ratio between punitive and compensatory damages where the fees are awarded by the jury, but excluded from compensatory damages when they are awarded by the trial court after the jury has rendered its verdict?
 Related posts:

California Supreme Court will hear oral arguments in punitive damages case on April 7 (Nickerson v. Stonebridge Insurance)

California Supreme Court limits issues for review in Nickerson v. Stonebridge

California Supreme Court grants review in Nickerson v. Stonebridge

Court of Appeal orders reduction of $19M punitive damages award to $350,000 (Nickerson v. Stonebridge) - PART II

Court of Appeal orders reduction of $19M punitive damages award to $350,000 (Nickerson v. Stonebridge) - PART I

May 16, 2016

Supreme Court declines to address due process question arising from partial retrial on punitive damages

The Supreme Court has denied Philip Morris' petition for certiorari in the Schwarz case, in which an Oregon jury awarded $25 million in punitive damages after a previous award of $150 million was reversed on appeal.  The $25 million award was still 148 times larger than the compensatory damages awarded by the first jury.

PM's petition raised the following due process question that arises when a court allows punitive damages to be awarded by a separate jury that did not decide the liability issues in the case:

[W]hether it violates due process for a jury in a partial retrial to determine the amount of punitive damages, but not the threshold question of liability for punitive damages, where the first jury did not specify which of multiple possible tort theories was the basis for its finding that the defendant was liable for punitive damages.
This question touches on just one of the many problems that can arise when punitive damages and compensatory damages are awarded by separate juries.  Courts have disagreed about how juries should be instructed in these situations, and what evidence the second jury should be permitted to hear.  For now these questions will remain unanswered.

May 6, 2016

Johnson & Johnson hit with another big punitive damages award in Missouri over talc-based powder products

Many of our readers have probably already heard about this verdict, which came down a few days ago, but in case you missed it . . .

Reuters is reporting that a Missouri state jury has decided Johnson & Johnson should pay $5 million in compensatory damages and $55 million in punitive damages in a products liability lawsuit involving Baby Powder and Shower to Shower Powder.  The plaintiff's theory is that talc in these products caused her to develop ovarian cancer. 

If this all sounds familiar, that's because in February another jury in the same court awarded $72 million, including $62 million in punitive damages, in a case with nearly identical allegations.  Johnson & Johnson has announced its intention to appeal in both cases.

May 5, 2016

Nebraska jury awards $2.4 billion in punitive damages

10 11 News of Nebraska is reporting that a state court jury has awarded $2.6 billion, including $2.4 billion in punitive damages, to a father whose daughter was allegedly murdered by the defendant.  This is a symbolic award, as the defendant is in prison and presumably doesn't have $2.6 billion laying around.

April 20, 2016

Court of Appeal reinstates punitive damages claim against DirecTV (Salinda v. DirecTV)

In this disability discrimination case against DirecTV, the plaintiff won a jury verdict for $1.18 million in compensatory damages.  But she could not get punitive damages because the trial court granted a motion DirecTV's for summary adjudication on that issue.  DirecTV argued, and the trial court agreed, that plaintiff could not obtain punitive damages because she could not prove that any corporate officer, director, or managing agent was responsible for the alleged misconduct against the plaintiff.

The Court of Appeal (Second Appellate District, Division Three) reversed in an unpublished opinion.  The court noted that, under Supreme Court precedent, an employee does not qualify as a "managing agent" within the meaning of Civil Code section 3294 unless the employee has substantial discretionary authority over decisions that ultimately determine company policy.  In this case, DirecTV submitted declarations from several employees who stated, "I have no discretion or independent authority over decisions that ultimately determine corporate policy."  The Court of Appeal said these declarations were insufficient because they merely restated the legal standard, and  the declarants should instead have provided descriptions of their job duties and responsibilities so that the trial court could decide for itself whether they might qualify as managing agents.  Accordingly, the Court of Appeal reinstated the plaintiff's punitive damages claims and sent the case back to the trial court for further proceedings.

This analysis of this opinion closely tracks this 2013 decision, which was originally unpublished but was later ordered published.

April 19, 2016

Punitive damages against yoga guru reduced from $6.47 million to $4.6 million

In January we reported on a large punitive damages award against Bikram Choudhury, founder of Bikram Yoga.  My News LA reports that the trial judge (Judge Mark Mooney of the Los Angeles Superior Court) has ordered the plaintiff to accept a reduction of the punitive damages from $6.47 to $4.6 million or face a new trial.  The reduced amount is five times the amount of compensatory damages (the jury awarded seven times the compensatories).

Unpublished opinion departs from precedent, gives plaintiff a second chance after failure of proof (Modarres v. Thomas)

This unpublished opinion reverses a punitive damages award because the plaintiff failed to present meaningful evidence of the defendant's financial condition at the time of trial.  That holding is nothing unusual.  What is unusual, however, is that the Court of Appeal (Fourth Appellate District, Division Three) gave the plaintiff a do-over on that element of proof.

Under longstanding California law, plaintiffs who fail to carry their burden of proof are not entitled to a "second bite at the apple."  (Kelly v. Haag (2006) 145 Cal.App.4th 910, 919-920; see also these four unpublished opinions.)  If the plaintiff had a full and fair opportunity to prove the defendant's financial condition and failed to do so, there is no reason to give the plaintiff a second chance.  The Court of Appeal should reverse the punitive damages award and direct the trial court to enter judgment for the defendant on that issue.

In this case, however, the Court of Appeal sends the case back to the trial court to allow the plaintiff to conduct further discovery in order to present the evidence she neglected to present the first time around.  The opinion does not explain why the court departed from the usual rule, which raises the question whether anyone briefed this issue, and whether the Court of Appeal was made aware of the usual rule.  The defendant may want to consider a petition for rehearing.

April 18, 2016

Wisconsin jury awards $700 million in punitive damages against Indian company in trade secrets case (Epic v. Tata)

The Wisconsin State Journal reports that a federal district court jury in Wisconsin has awarded nearly $1 billion in damages, including $700 million in punitive damages, against Tata Consultancy Services for theft of trade secrets. The plaintiff, software maker Epic, accused a Tata employee of posing as an Epic customer in order to gain access to proprietary information on Epic's computer network. 

This case reminds us once again that punitive damages are awarded in cases that do not fit the mold of consumer versus large corporation.  Epic, the plaintiff here, is a corporation that generated revenues in excess of $2 billion in 2015.  

The Times of India reports that Tata intends to appeal.  The story reports that, according to Tata, the district court judge has already indicated he will reduce the amount of damages.

$10 million punitive award in hip implant case reduced to $1.1 million

Guideposts reports on a Georgia district court's decision to reduce the punitive damages against Wright Medical Technology for alleged defects in a hip implant device.

Related posts:

Atlanta jury awards $10 million in punitive damages against hip implant manufacturer