October 30, 2014

Court of Appeal affirms $3 million punitive damages under federal maritime law (Colombo v. BRP US Inc.)

This published California Court of Appeal opinion is a rarity.  It's a state appellate decision analyzing punitive damages awarded under federal maritime law.

Federal maritime law differs dramatically from California law on the issue of punitive damages.  For instance, the burden of proof is much lower in maritime cases; California law requires proof by clear and convincing evidence, but maritime law requires only proof by a preponderance of the evidence. California law requires proof that the defendant acted with malice, oppression, or fraud, whereas maritime law permits punitive damages based on showing of recklessness or gross negligence.  And the Supreme Court in Exxon Shipping set forth an excessive analysis for maritime cases that differs from the due process standards that apply to punitive damages awards arising under state law.

For all of these reasons, this opinion isn't likely to have much impact on punitive damages cases involving California law.  Nevertheless, the opinion is an interesting read.

The plaintiffs in this case suffered serious injuries when they fell off the back of a personal watercraft and the jet thrust from the watercraft ripped their flesh.  (The injuries were pretty gruesome; skip that part of the opinion if you are squeamish).

The defendant manufacturer had placed a warning on the watercraft, specifically addressing the risk that injured the plaintiffs.  The warning advised users of the watercraft to wear a wetsuit bottom or other protective clothing.  But the plaintiffs alleged that the defendant acted with callous disregard for safety by placing the warning in a place where only the driver of the vehicle could see it.  Plaintiffs claimed that a second warning should have been placed on the back of the vehicle.  They presented evidence that another watercraft manufacturer placed multiple warnings in different places on its vehicles.

The defendant's safety manager testified that the defendant deliberately chose not to use multiple warnings to avoid the "dilution effect" that occurs when a product bears too many warnings, including multiple warnings about the same hazard.  (See, e.g., Broussard v. Continental Oil (La.App. 1983) 433 So.2d 354, 358 [placing too many warnings on a product would "decrease the effectiveness of all the warnings"]; see also Restatement (Third) of the Law of Torts: Product Liability, Section 2, comment i ["excessive detail may detract from the ability of typical users to focus on the important aspects of the warnings"].)

Although the defendant sought to present this issue as a balancing of competing safety interests, the Court of Appeal (Fourth Appellate District, Division One) said a jury could reasonably conclude under the preponderance of the evidence standard that the defendant's conduct was reckless.

The opinion also held that the amount of the punitive damages ($1.5 million to each plaintiff) was not excessive.  The ratio of punitive damages to compensatory damages was 1-to-1 for one plaintiff and 3.78-to-1 for the other.  The defendant argued that, under Exxon Shipping, the maximum ratio under federal maritime law is 1-to-1. The court disagreed, holding that the 1-to-1 limit adopted by the majority in Exxon Shipping only applies to cases where the defendant's conduct is low on the scale of blameworthiness.  The court concluded that the defendant's conduct in this case (failing to add a duplicate warning in a different place on the product)  was "on the higher end of the scale of blameworthiness" and therefore could support the ratios awarded by the jury.

October 29, 2014

Court of Appeal vacates $500,000 punitive damages award because plaintiff failed to serve statement of damages (Chen v. Institute of Medical Education)

We have reported before on cases in which a court reversed a default-judgment punitive damages award because the plaintiff failed to serve the defendant with a statement of damages.

The plaintiffs in this case tried to avoid that fate by arguing that the record contained no evidence to support a finding that they did not serve a statement of damages.  According to the plaintiffs, the defendant could not prove that point simply by pointing out that no such statement appeared in the record.

It's a somewhat clever argument, because a statement of damages wouldn't necessarily appear in the trial court record.  It could be served but not filed with the court.  Thus, the absence of a statement of damages in the record doesn't necessarily mean that statement of damages was filed. 

But the Sixth Appellate District didn't buy it.  In this unpublished opinion, the court observed that the  plaintiffs had never actually claimed, in the trial court or on appeal, that they did serve a statement of damages.  Accordingly, the court was comfortable presuming that the plaintiffs never served a statement of damages, despite the void in the record on that point.  As a result, the court vacated the punitive damages portion of the default judgment ($500,000).

Yuba County judge vacates $15.7 million punitive damages award against mortgage loan servicing company

The Sacramento Bee reports that Judge Stephen Berrier of the Yuba County Superior Court has vacated nearly all of a jury's $16.2 million damages award against a New Jersey company that provides mortgage loan servicing.

The article reports that the plaintiff bought a home and was unable to afford his monthly mortgage, so he obtained a loan modification from the defendant (PHH Mortgage Services).  He thought the modification would reduce his monthly payments from $2,100 to $1,543 but, for reasons not explained in the story, things didn't work out that way and the plaintiff ended up over $7000 in arrears.

PHH initiated foreclosure proceedings and the plaintiff sued PHH to fend off foreclosure.  It worked.  PHH halted foreclosure and a jury awarded the plaintiff $16.2 million in damages, including $15.7 million in punitive damages.

Judge Berrier, however, ruled that plaintiff was entitled to only $159,000.  Presumably that ruling was in response to posttrial motions filed by PHH, but the article doesn't say.  And the article doesn't say whether the $159,000 represents compensatory damages or punitive damages.  It does mention, however, that Judge Berrier found that PHH did not act with malice or reckless disregard.  That suggests he tossed out the entirety of the punitive damages award.

Thanks to Evan Tager of Guideposts for calling the story to our attention.

October 28, 2014

Judge cuts Actos punitive damages award from $9 billion to $36.8 million

The absurd $9 billion dollar punitive damages award that made headlines earlier this year is no more.  The National Law Journal reports that U.S. District Judge Rebecca Doherty of the Western District of Louisiana has reduced the award to $36.8 million.

According to the story, Judge Doherty concluded that the 6000 to 1 ratio between the punitive damages and compensatory damages was unconstitutionally excessive.  No surprise there.  She reduced the award to $27.6 million against one defendant (Takeda Pharmaceuticals) and $9.2 million against the other (Eli Lilly & Co.).  She also reduced the total compensatory damages to $1.27 million.

Even as reduced, the punitive damages are roughly 29-to-1, which is awfully hard to square with State Farm v. Campbell and its admonition that substantial compensatory damages of $1 million or more call for a low ratio.  Eli Lilly says it plans to appeal.

October 27, 2014

Sacramento federal judge tacks on another $13.1 million in punitive damages against railroad, bringing total to $30.5 million (Sierra Railroad v. Patriot Rail)

Earlier this year we reported on a jury verdict in federal court in Sacramento that awarded $22.2 million in compensatory damages and $17.4 million in punitive damages.  That verdict was apparently based on allegations that the defendant railroad breached a nondisclosure agreement and improperly poached the plaintiff railroad's clients. 

Now the Sacramento Bee is reporting that the judge in the case, U.S. District Judge Troy L. Nunley, has awarded another $13.1 million in exemplary damages for the defendant's violations of California trade secrets law.  That claim was apparently tried to the court after the conclusion of the jury trial. According to the story, Judge Nunley believed the award was appropriate because California courts have held that "an exemplary damage award of 17.5 percent of an offending company's value is sufficient to punish extremely reprehensible conduct."

I haven't yet been able to read Judge Nunley's opinion, but presumably he pulled the 17.5 percent number from a 1984 case called Devlin v. Kearny Mesa AMC/Jeep/Renault, Inc.  In that case, the court affirmed an $80,000 punitive damages award that happened to be 17.5% of the defendant's net worth.  But the court certainly did not announce a rule that punitive damages should be 17.5 percent of the defendant's net worth when the defendant's conduct was highly reprehensible.  And in the years since Devlin, other California courts have held that punitive damages are presumed to be excessive when they exceed 10 percent of the defendant's net worth.  (See, e.g., Grassilli v. Barr.)  In any event, it's hard to imagine how the purely economic harm in this business dispute could be characterized as highly reprehensible.The defendant plans to appeal, and based on the information in this article there appears to be a decent chance the Ninth Circuit will conclude Judge Nunley's decision went off the rails.

Another large verdict in Florida smoker litigation

The Winston-Salem Journal brings us a report on the latest verdict in the ongoing post-Engle litigation in Florida.  The article states that a jury has awarded a long-time smoker $14.5 million in compensatory and punitive damages against R.J. Reynolds, and $23.6 million in compensatory and punitive damages against Philip Morris.  Unfortunately, the article just states the totals without
breaking down the verdicts between compensatory and punitive damages.

The story further reports that smokers and their families have won at least 80 verdicts against tobacco companies in the post-Engle cases, while the tobacco companies have won about 40 defense verdicts.

Related posts:

Florida jury awards $14 million in punitive damages to smoker's family

 Florida jury awards smoker's family $22.5M in punitive damages

Florida appellate court reverses $79 million judgment in tobacco case
Florida appellate court reverses $40 million punitive damages award in tobacco case

Philip Morris wins sixth straight trial in Florida smoker litigation

Florida jury awards relatively modest punitive damages in smoker lawsuit

Another punitive damages award in Florida tobacco litigation

Florida jury awards $20 million in punitive damages to smoker's widow

Smoker's widow wins $12.5 million in punitive damages

Florida trial judge cuts $244 million punitive damages award

Florida jury awards $25 million in punitive damages to smoker's widow

"Smokers, tobacco, both winners in early Engle cases"

Jury rules for plaintiff in first phase of retrial after reversal of $145 billion punitive damages award

After reversal of $145 billion class action punitive damages award, Florida smokers seek punitive damages in individual suits

October 22, 2014

Court of Appeal affirms $18 million in punitive damages; reduction of compensatory damages from $30 million to $6 million does not require retrial of punitive damages (Izell v. Union Carbide)

This published opinion from the California Court of Appeal (Second District, Division Three) could be headed to the California Supreme Court.

In this asbestos personal injury action, the jury awarded $30 million in compensatory damages and $18 million in punitive damages.  The trial court ruled that the compensatory damages were excessive and reduced them to $6 million. (Technically, the court ordered a conditional new trial subject to the plaintiffs' acceptance of a remittitur.)

The defendant argued on appeal that it was entitled to a new trial on punitive damages in light of the dramatic reduction of the compensatory damages.  As noted in prior posts, California case law supports the notion that the punitive damages award should be reversed in these circumstances. The Court of Appeal in this case, however, ruled that reversal was not necessary because the punitive damages award was not constitutionally excessive when compared to the reduced compensatory damages.

The Court of Appeal's opinion overlooked a problem that has nothing to do with whether the award is constitutionally excessive.  In the punitive damages phase of this trial, the jury was instructed to select an amount of punitive damages that bears a reasonable relationship to the actual harm to the plaintiff.  So the jury came up with a number---$18 million---that the jurors thought was reasonable in relationship to $30 million in actual harm.  In other words, they thought a punitive damages award that was 60% of the compensatory damages award was reasonable. 

But it turns out that the actual harm was only $6 million.  There's at least a fair chance that the jury would have come up with a different number if they had known that.  Perhaps they would have awarded $3.6 million (60% of $6 million).  Maybe they would have gone higher.  Or lower.  No one can know.  Because no jury ever decided what amount of punitive damages is appropriate in relation to the $6 million of actual harm that occurred here, the defendant should be entitled to a new trial on that issue.

I think there's a decent chance the California Supreme Court will review this issue, for several reasons.  First, the opinion is published.  Second, Justice Kitching wrote a dissenting opinion that points out the error of the majority opinion on exactly this point.  Third, there is a conflict in California law on this issue, with multiple published opinions on point.

The last time I predicted that that the Supreme Court would grant review on this issue, I was wrong.  But there was no dissenting opinion in that case. So I'm going out on a limb and predicting that the dissent will be enough to get the Supreme Court's attention this time.

Full disclosure: our firm represents the defendant in this cases, Union Carbide, in other matters.  We were not involved in this appeal.

October 8, 2014

Nevada Supreme Court reverses $250 million punitive damages award against California tax agency (Franchise Tax Board v. Hyatt)

Several years ago we reported on a jury verdict awarding a California taxpayer $250 million in punitive damages against the California Franchise Tax Board.  In a nutshell, the plaintiff claimed that the Tax Board made misrepresentations to him and portrayed him in a false light by telling others he was a tax cheat.

The Nevada Supreme Court issued an opinion last month affirming some of the liability findings in the plaintiff's favor but wiping out most of the damages, including the punitive damages.  The court held that, “Because punitive damages would not be available against a Nevada government entity, we hold, under comity principles, that FTB is immune from punitive damages.”  Just like that, a $250 million punitive damages award is gone.  Poof! (Apologies to California Attorney's Fees.) 

Incidentally, California has the same rule: public entities are immune from punitive damages. (Government Code section 818.)

You can read more about the case at Taxable Talk and CalCorporateLaw.

Texas trial court reduces punitive damages award against Boston Scientfic from $50 million to $11.2 million.

Statutory caps on punitive damages have been in the news a lot lately.  Continuing that trend, Reuters reports that a Texas judge has reduced a punitive damages award against Boston Scientific Corp. from $50 million to $11.2 million in a lawsuit involving allegedly defective vaginal mesh implants.

The court reduced the punitive damages pursuant to Texas's statutory cap, which limits punitive damages to double the economic damages, plus an additional amount of up to $750,000 in non-economic damages.  Texas plaintiffs have already tried unsuccessfully to challenge the constitutionality of the cap.  Perhaps they'll take another run at it in this case.

The Reuters story reports that the compensatory damages award in this case was $23 million.  That must have included about $5.23 million in economic damages (2 times $5.23 million plus $750,000 equals about $11.2 million).

September 29, 2014

Federal district judge in New York reduces $7.5M punitive damages award in record industry lawsuit against founder of MP3 service

Today, Judge William H. Pauley III of the Southern District of New York issued a decision reducing a punitive damages award from $7.5 million to $750,000 in a lawsuit brought by numerous record companies against a guy who operated an MP3 downloading service.

Yes, people are still litigating over free MP3 downloads. This case has been dragging on for seven years, generating over 628 docket entries and some apparent frustration on the part of Judge Pauley, judging by the tone of his opinion.

The record industry plaintiffs obtained a jury verdict awarding over $48 million in damages, including $7.5 million in punitive damages.  In his order, Judge Pauley notes that the plaintiffs introduced no evidence of actual harm, and obtained nominal damages of only $40.  (The other damages were all civil statutory penalties.)  For this and other reasons, Judge Pauley concluded that the $7.5 million in punitive damages awarded by the jury was grossly excessive, and that the defendant is entitled to a new trial unless the plaintiffs agree to a remittitur of the damages to $750,000.  That still seems awfully high given the complete lack of evidence of any actual harm.  But it pales in comparison to the huge statutory penalties in the case, which will probably be the focus of any appeal by the defendant.

Although media reports and commentaries about punitive damages often speak as if punitive damages are only awarded against big corporations in favor of individual consumers, this case is an illustration that many actual punitive damages cases don't fit that mold.  Sometimes, as here, they involve big corporations suing an individual. 

Hat tip: Ray Beckerman