February 5, 2021

Court of Appeal vacates $15 million punitive damages award in asbestos-injury case (Morgan v. J-M Manufacturing, Inc.)

This unpublished opinion addresses a significant recurring issue in California punitive damages litigation, and should be published. 

A jury awarded $15 million in compensatory damages and $15 million in punitive damages against J-M Manufacturing, a company that sold asbestos-containing pipes in the early 1980s.  The jury found that the plaintiff was exposed to dust from the pipes while he was overseeing construction sites and watching other workers cut those pipes.  

The plaintiffs' claim for punitive damages was not based on the conduct of any particular corporate officer, director, or managing agent.  Instead, they treated the defendant as a monolithic entity.  They argued that  "they" engaged in despicable conduct, without specifying exactly who "they" were.

On appeal, when the defendant pointed out the absence of evidence of wrongdoing by an officer, director, or managing agent, as required by Civil Code section 3294, the plaintiffs argued that they did not need to present such evidence under the circumstances of this case.  Citing Romo v. Ford Motor, they argued they could obtain punitive damages by proving that the entire organization acted with malice, without identifying any particular individual who did so.  

We have seen this argument repeatedly from plaintiffs in California products liability cases. The Court of Appeal here (Second District Division One) rejected it, correctly recognized that what Romo actually held is that a plaintiff can satisfy the managing agent requirement "through evidence showing the information in possession of the corporation and the structure of management decisionmaking that permits an inference that the information in fact moved upward to a point where corporate policy was formulated.  These inferences cannot be based merely on speculation, but they may be established by circumstantial evidence, in accordance with ordinary standards of proof."

Because the plaintiffs here had presented no evidence about the "structure of management decisionmaking" they could not take advantage of this aspect of Romo.  Accordingly, due to a total lack of evidence to satisfy the managing agent requirement, the Court of Appeal vacated the punitive damages award.

UPDATE (2/19/21):  This opinion has now been certified for publication.  

January 29, 2021

Court of Appeal affirms trial court order that vacated $7.5 million punitive damages award due to insufficient managing agent evidence (Verotel Merchant Services v. Rizal Commercial Bank)

This unpublished opinion is worth a read for anyone litigating a California punitive damages case involving a "managing agent" issue under Civil Code section 3294.

The facts are complicated but here's a simplified recap:  Plaintiff was an online merchant who accepted credit card payments. Plaintiff sent its credit card transactions to the defendant, a bank.  The transactions were processed by an intermediary, who was secretly pocketing a percentage of the transactions.  The plaintiff caught on and sued the bank for fraud, claiming the intermediary was the bank's agent.  The bank argued that the intermediary was actually the plaintiff'agent.  A jury sided with the plaintiff, awarding $1.5 million in compensatory damages and $7.5 million in punitive damages.

The trial judge, Michael J. Raphael (who is now a Court of Appeal justice), granted the defendant's JNOV motion and vacated the punitive damages.  He ruled that the bank could not be liable for punitive damages because the intermediary was not a managing agent of the bank. In so doing, he correctly anticipated the Supreme Court's holding in Conservatorship of O.B., and took the clear-and-convincing evidence standard into account when evaluating the sufficiency of the evidence.

The plaintiff appealed, arguing that the trial court applied the wrong standard in its JNOV order because it focused too much on the small number of accounts that the intermediary handled, in comparison to the bank's overall business.  The Court of Appeal (Second District, Division Four) rejected that argument because the trial court's analysis was squarely in line with the Supreme Court's decision in White v. Ultramar, which held that a managing agent must have the ability to affect a "substantial portion" of the defendant's business.    

The plaintiff also argued that the trial court, when it ruled on the JNOV, should not have applied the holding in Roby v. McKesson that a managing agent must be in a position to create "formal policies that affect a substantial portion of the company."  The plaintiff argued that standard was inapplicable because the jury was not instructed on it.  That argument was actually adopted by a different Court of Appeal last year in a published opinion. (See Colucci v. T-Mobile [refusing to follow the Roby standard because it was not set forth in jury instructions].)  In this case, however, the Court of Appeal didn't buy it.  The court held that nothing about the holding of Roby is inconsistent with the standard CACI jury instruction that tells jurors to consider whether a managing agent has the power to determine corporate policy.  Therefore, the court was correct to consider Roby's guidance when evaluating the sufficiency of the evidence under that standard.

Retirement tribute to Andy Frey

Mayer Brown's Guideposts blog has a nice tribute to Andy Frey, who retired from that firm at the end of 2020.  It's no exaggeration to say that Andy had more influence on the development of punitive damages law over the past 40 years than any other lawyer.  

Andy argued four punitive damages cases in the Supreme Court, all of which had a profound impact on the development of modern punitive damages law: Browning-Ferris v. Kelco, Honda v. Oberg, BMW v. Gore, and Philip Morris v. Williams.

I had the pleasure of working with Andy on several occasions, starting with the Lockheed Litigation cases in the late 1990s.  He consulted with our firm on on those appeals, always offering creative suggestions and exploring new ideas for moving the boundaries of the law in this area.  The California Court of Appeal ultimately reversed a $380 million punitive damages award in one of those appeals, which marked the beginning of my focus on this practice area.

Congratulations Andy and best wishes for a happy retirement.

January 27, 2021

Court of Appeal affirms $8 million punitive damages award against owner of mobile home park (Belanger v. Biggs)

Here's a belated post about a decision issued last month.  I've been meaning to write about it for a while  but I've been unable to get to it until now.

The case involves a protracted dispute between the owners of a mobile home park and two individual mobile home owners.  The dispute began in 2005, when heavy rains caused a landslide on the hillside above the two mobile homes owned by the plaintiffs, rendering the homes uninhabitable.  Litigation ensued, and the parties reached a settlement in 2011.  The settlement permitted the plaintiffs to keep their homes in the park and did not permit the park owners to remove them unless specifically ordered to do so by a governmental agency, or if their removal was necessary to stabilize the hillside.
The park owners decided to remove the plaintiffs' mobile homes and sell them to third parties, even though the neither of the two conditions had been satisfied.  To complete the sale, the owners forged signatures on bills of sale and title applications.
The plaintiffs sued for fraud and breach of contract.  A jury awarded them each about $470,000 in compensatory damages and $4 million in punitive damages (a ratio in excess of eight to one).
The defendants appealed, challenging the punitive damages as excessive. The Court of Appeal (Second District, Division Three) rejected that argument in an unpublished opinion.
First, the court found that the defendants' conduct implicated nearly all of the factors that indicate a high level of reprehensibility.  Typically, conduct that causes purely economic injury is viewed as less reprehensible than conduct that involves intentional physical injuries (as in the O.J. Simpson civil case), but the court here was so outraged by the defendants' deliberate deceit that it placed the conduct at the top of the reprehensibility scale.
Next, the court rejected the defendants' reliance on the principle that the ratio of punitive damages to compensatory damages should be low, perhaps no more than one-to-one, where the compensatory damages are substantial.  The Supreme Court first announced this principle in State Farm v. Campbell, where it explained that the principle applies with even more force when the compensatory damages include an award for emotional distress.  The Court of Appeal declined to follow that aspect of State Farm, on the ground that the plaintiffs presented evidence of emotional and mental harm.  That aspect of the opinion is a bit puzzling, because every plaintiff who recovers emotional distress damages must present some evidence of emotional distress.  Otherwise the award would be vacated.  So it is difficult to see how this case differs from the other cases in which courts have applied the State Farm rationale.  Fortunately, the opinion is not published, so lower courts will not need to figure out how to harmonize this opinion with the reasoning of State Farm.

December 16, 2020

Supreme Court grants cert in punitive damages case, but declines to consider punitive damages issue (TransUnion v. Ramirez)

Today the Supreme Court granted a certiorari petition that raised two remedies issues, the second of which involves punitive damages:

1. Whether either Article III or Rule 23 permits a damages class action where the vast majority of the class suffered no actual injury, let alone an injury anything like what the class representative suffered. 

2. Whether a punitive damages award that is multiple times greater than an already-substantial classwide award of statutory damages, and is orders of magnitude larger than any actual proven injury, violates due process. 

However, the order granting certiorari expressly limits review to the first issue.  The Supreme Court has not considered the issue of excessive punitive damages since Exxon Shipping in 2008, and the justices apparently have no interest in revisiting that issue again anytime soon.

Hat tip: Rick Hasen  

December 11, 2020

Court of Appeal reverses $6 million punitive damages award in products liability case (Soulliere v. Suzuki)

This unpublished Court of Appeal opinion doesn't directly address any punitive damages issues, but is noteworthy because it wipes out a substantial punitive damages award.

The plaintiff was involved in an accident while riding a Suzuki motorcycle.  He sued Suzuki, claiming the motorcycle's brakes were defective, and persuaded a jury to award $1.7 million in compensatory damages and $6 million in punitive damages.

The Court of Appeal (Fourth District, Division Three) reversed.  The court concluded that the plaintiff failed to introduce sufficient evidence that the accident resulted from a defect in the motorcycle, and that the trial court made multiple evidentiary and instructional errors. Accordingly, the court vacated the entire judgment including the punitive damages.

December 10, 2020

Texas appellate court affirms $50 million punitive damages award in drunk driving case

Law 360 reports that a Texas intermediate appellate court has affirmed a jury's award of $9.8 million in compensatory damages and $50 million in punitive damages. The defendant caused a fatal collision while intoxicated.

Court of Appeal allows rec league hockey player to seek punitive damages for on-ice collision (Szarowicz v. Birenbaum)

In this published opinion, the Court of Appeal allows a plaintiff to seek punitive damages for injuries he sustained in a recreational hockey game when he was violently checked by another player.

Ordinarily, under the primary assumption of risk doctrine, a participant in a sporting event cannot sue another participant for an injury that results from the inherent risks of the sport.  The trial court applied that doctrine here and granted the defendant's motion for summary judgment.  The trial court noted that, although the plaintiff was participating in a "no check" hockey league, the parties' witnesses agreed that "no check" does not mean "no contact," and that being checked is still an inherent risk of playing "no-check" hockey. 

The Court of Appeal (First District, Division Two) reversed the judgment and reinstated all of the plaintiff's claims, including his claim for punitive damages.  The court held that the primary assumption of risk doctrine does not apply when the defendant intentionally injures the plaintiff.  The court pointed to testimony from plaintiff's teammates, who said it appeared that the defendant in this case was intentionally trying to injure the plaintiff, rather than trying to make any legitimate hockey play.  According to the court, a jury could rely on that testimony and find that the defendant intended to harm the plaintiff, which would not only permit the plaintiff to recover compensatory damages, but would potentially support an award of punitive damages as well.

Presumably, plaintiffs' counsel will use this opinion as a template to pursue punitive damages for in-game collisions in other contact sports, and will oppose summary judgment motions with declarations by eyewitnesses who testify that the defendant appeared to have an intent to injure.

November 24, 2020

Supreme Court denies review in Albarracin v. Fidelity National

The Supreme Court of California has denied Fidelity National's petition for review in the Albarracin case, discussed here and here.

November 14, 2020

California Supreme Court to rule soon on Fidelity National's petition for review (Albarracin v. Fidelity National)

We previously reported on the Court of Appeals' affirmance of a $2 million punitive damages award in this employment case.  As we noted, the court concluded that a $250,000 compensatory damages award was not "substantial" for purposes of the rule that lower punitive-to-compensatory ratios are warranted in cases with substantial compensatory damages.

Fidelity National has petitioned for review, raising the following issues (quoted directly from the petition):

1.    Under Auto Equity Sales, Inc. v. Superior Court
(1962) 57 Cal.2d 450, 455 (Auto Equity Sales), this Court’s
decisions “are binding upon and must be followed by all the state
courts of California.”
     Does this stare decisis doctrine require the intermediate
appellate courts, in unpublished decisions, to either follow or
meaningfully distinguish this Court’s relevant holdings? 
2.        This Court and the U.S. Supreme Court require
reviewing courts to independently determine the constitutionality
of punitive damages awards, including whether such an award
bears a reasonable relationship to compensatory damages.
    Does the fact that a compensatory award is moderate—that
is, neither large enough to suggest an inherent punitive element
nor small and purely economic—itself justify “a much higher
ratio” of punitive damages (here, nearly 8-to-1)?

The Supreme Court has granted itself a 30-day extension of time to rule on the petition, moving the due date from November 21 to December 21.  Expect a ruling soon.