April 15, 2017

Sacramento jury awards $7.5 million in punitive damages against group home

The Sacramento Bee is reporting that a jury in Sacramento has awarded $7.5 million in punitive damages and $4.5 million in compensatory damages against EMQ Families First, a group home for emotionally troubled youth.  The plaintiffs alleged that their adopted son, who was a resident at the facility, left the facility without supervision and was sexually assaulted by another minor.

March 29, 2017

Another proposal to eliminate tax deductions for punitive damages in California (SB 66)

Under current law, a business that is ordered to pay a punitive damages award can take a tax deduction for that payment, as a business expense.  In recent years it has become an annual ritual for state and federal legislators to propose bills to eliminate such deductions.

In keeping with that trend, California senator Bob Wieckowski, D-Fremont, has introduced SB 66.  The bill was approved by the Senate Governance and Finance Committee last week and is set for a hearing before the Senate Appropriations Committee on April 3.

We will keep an eye on this proposal, but so far we haven't seen any reason to believe that the California legislature will approve this bill after rejecting similar proposals repeatedly in the past.

Related posts:

Sen. Leahy introduces another proposal to eliminate tax deductions for payments of punitive damages

Another proposed bill to eliminate federal tax deductions for payments of punitive damages

Bill to eliminate tax deductions for punitive damages appears to be dead
Assembly approves bill to prevent tax deduction of punitive damages; Senate not expected to act until August
Committee on Appropriations approves bill to prohibit deductions of punitive damages

Another proposal to prohibit California taxpayers from deducting punitive damages

Assembly rejects proposal to eliminate tax deductions for punitive damages
Proposed California bill would prevent tax deductions for punitive damages

Proposal to eliminate [federal] tax deduction for punitive damages still alive

Senate Adopts Proposal to Eliminate Tax Deduction for Punitive Damages
More from Prof. Markel on Tax Policy and Punitive Damages

"Taxing Punitive Damages"

Proposed [federal] legislation would eliminate tax deduction for punitive damages

Obama administration proposes to eliminate tax deduction for payment of punitive damages 

March 28, 2017

Sacramento bankruptcy judge orders bank of Bank of America to pay $45 million in punitive damages, including $40 million to nonparties (Sundquist v. Bank of America)

The Daily Journal (subscription required) is reporting that U.S. Bankruptcy Judge Christopher M. Klein of Sacramento issued an opinion last week requiring Bank of America to pay $1 million in compensatory damages and $45 million in punitive damages for wrongfully foreclosing on a couple's home.  But the 45-to-1 ratio is by no means the most eye-catching aspect of the award.  According to the Daily Journal article, the order directs Bank of America to pay most of the punitive damages to non-parties: the National Consumer Law Center and the National Consumer Bankruptcy Rights Center would receive $10 million each, while five law schools in the University of California system would receive $5 million each. 

Legal commentators have argued for many years that punitive damages should be given to charities, rather than to the plaintiffs and their attorneys.  And I have seen news reports in which a victorious plaintiff promises to donate a punitive damages award to charity.  But this is the first time I can recall any court actually ordering a punitive damages award to be gifted to a non-party.  I haven't seen the order yet, but I am wondering what authority the judge relied on in making that ruling.  And how did he go about selecting the beneficiaries of that award?  This promises to be interesting. An appeal seems virtually certain.

Court of Appeal rejects challenge to $5.65 million punitive damages award, citing inadequate appellate record (Raskin v. Petrosyan)

We have reported on many cases in which the California Court of Appeal reversed a punitive damages award because the plaintiff failed to present meaningful evidence of the defendant's ability to pay.  In this case, however, the court rejected that type of challenge to a sizable punitive damages award.

The plaintiff claimed that an art dealer misrepresented the value of works he sold to the plaintiff.  The jury awarded the plaintiff over $6 million in compensatory damages and another $5.65 million in punitive damages. The defendant argued on appeal that the punitive damages award should be reversed in its entirety because the plaintiff presented insufficient evidence of the defendant's financial condition, but the Court of Appeal (Second Appellate District, Division Three) concluded in a five-page unpublished opinion that it could not evaluate that issue because the appellate record was inadequate.  The court said that the defendant failed to provide a reporter's transcript of the trial proceedings, thereby preventing the court from determining whether the testimony provided by the plaintiff, if any, was sufficient. 

March 3, 2017

A mixed bag of unpublished opinions (Haworth, Saller, Frederick)

The California Court of Appeal issued a trio of unpublished opinions on punitive damages last month, with mixed results for plaintiffs and defendants.  Here's a quick recap:

1.  In Haworth v. Adams the Second Appellate District, Division Two, affirmed a punitive damages award of $13.3 million in a case involving claims of fraud and elder abuse.

The opinion is unclear about what punitive damages issues the defendant raised on appeal.  At one point the opinion states that the defendant argued the punitive damages award was unsupported by the evidence and motivated by passion and prejudice. Those are classic state-law arguments governed by a well developed body of California cases.  But the opinion does not discuss any of those cases, and instead launches into a discussion of federal constitutional standards for excessiveness, without ever actually addressing the sufficiency of the evidence or the passion and prejudice issue.

Aside from that confusion about what issues the defendant raised, the opinion's excessiveness analysis is itself problematic.  According to the opinion, the California Supreme Court has held that a ratio of "9 or 10 to 1 is the appropriate benchmark for determining whether a reasonable relationship exists between an exemplary and compensatory damages award." The opinion then concludes that the award in this case is not excessive because the ratio of 10 to 1 falls within the Supreme Court's "benchmark."

That analysis suggests that any ratio of 10 to 1 or less is necessarily constitutional. But the California Supreme Court has expressly stated otherwise: "multipliers less than nine or 10 are not, however, presumptively valid."  (See Simon v. San Paolo U.S. Holding Co..)  And both the U.S. Supreme Court and the California Supreme Court have indicated that a ratio of 1 to 1 may be the maximum in cases involving substantial compensatory damages awards.  (See Roby v. McKesson.) The $1.3 million compensatory damages award in this case certainly qualifies as substantial, but the Court of Appeal did not address whether the size of that award required a smaller ratio.  Perhaps the defendant did not raise those issues (if the defendant even raised a constitutional excessivness argument at all).

2.  In Saller v. Crown Cork & Seal the Second Appellate District, Division One, reversed a $3.6 million punitive damages award because the plaintiff failed to present evidence of the defendant's financial condition.  Horvitz & Levy represented the defendant in that case so I won't provide any commentary about it.

3.  In Frederick v. Pacwest Security Services the Second Appellate District, Division Seven, affirmed a $63,000 punitive damages award, rejecting the defendant's argument that the plaintiff failed to present sufficient evidence of the defendant's financial condition.  The court observed that the record contained evidence of the defendant's gross receipts, net income, loan amounts, and line of credit. The court found that such evidence was enough to satisfy the plaintiff's burden of proving the defendant's ability to pay the award.  Moreover, the court found the award was not excessive in relation to the defendant's finances, because although the award was equal to the defendant's entire annual net income, it represented less than one percent of the company's annual gross receipts.

February 27, 2017

South Korea moves towards permitting limited punitive damages in products liability cases

Last year we reported on a movement towards permitting punitive damages in South Korea.  That movement appears to be gaining steam, with KBS World Radio reporting that a committee within the South Korean national assembly has approved a bill that would authorize punitive damages against corporations in product liability cases.  The proposal would limit punitive damages to no more than three times the amount of compensatory damages.

Florida appellate court orders new trial in tobacco case with $23.6 billion punitive damages award

Law 360 reports that Florida's First District Court of Appeal has ordered a new trial in a case in which a jury awarded $23.6 billion in punitive damages to the family of a smoker. (See our post about the verdict in 2014.) 

The Court of Appeal's opinion holds that the plaintiffs' counsel committed misconduct during closing arguments by making several improper arguments.  Counsel argued that RJR Reynolds acted wrongly by defending itself, and that it had employed a dishonest legal strategy.  The court observed that "the purpose of closing argument is to facilitate reasoned analysis of the facts and the evidence, not to denigrate the opposing party with outlandish conspiracy theories."   The court observed that the misconduct was "clearly intended to stir the passions of the jury," which apparently it did, judging by the size of the award.

February 20, 2017

Arkansas Senate agrees to let voters decide on constitutional amendment limiting punitive damages

Arkansas could soon join the ranks of states that place a ceiling on punitive damages.  This article from the Magnolia Reporter of Arkansas reports that the Arkansas Senate voted in favor of a resolution (SJR8) that will ask the voters of Arkansas whether to amend that state's constitution to impose a cap on punitive damages.  The amendment would limit punitive damages to the greater of $250,000 or three times compensatory damages.

February 1, 2017

New Jersey federal jury awards $50 million in punitive damages against Lockheed Martin

A few days ago, Law.com reported that a jury in federal district court in New Jersey has awarded $1.5 million in compensatory damages and $50 million in punitive damages in an age discrimination suit against Lockheed Martin. 

The article says the plaintiff bought claims under New Jersey state law and the federal Age Discrimination in Employment Act (ADEA).  The Fifth Circuit recently reaffirmed that the ADEA does not authorize punitive damages, so presumably the punitives were awarded under state law.  But even if New Jersey state law permits punitive damages for such claims, the award is not likely to survive post-trial review, given the 33-to-1 ratio between punitive and compensatory damages.

January 31, 2017

Montana House moves to tighten limits on punitive damages

Insurance Journal reports that the Montana House voted last week 60-40 to further tighten that state's legislative cap on punitive damages.  Under existing Montana law, punitive damages are capped at the lesser of $10 million or 3 percent of the defendant's net worth.  The new law would add a further limitation, prohibiting punitive damages from exceeding three times the amount of compensatory damages.

Back in 2014, a Montana trial court found the current statutory cap unconstitutional. The parties appeared to have settled that dispute, because there was no appeal to the Montana Supreme Court.  That court had another case in 2014 that raised the issue of whether the cap is constitutional, but the court ended up vacating the punitive damages award on other grounds

In any event, California plaintiffs' attorneys can rest easy.  California remains among the minority of states having no legislative limitation on the amount of punitive damages.