February 5, 2016

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

Senator Patrick Leahy (D-Vt) issued a press release this week announcing that he has once again introduced a proposal to prevent taxpayers from deducting punitive damages as business expenses. He has repeatedly made similar proposals in the past.  This time, he has introduced the proposal as a proposed amendment to a pending energy bill.  You can view the text of the proposal here.

As in the past, Senator Leahy's press release touts the effect that the proposal would have on "big corporations," ignoring the fact that punitive damages are frequently awarded against small businesses, and that nothing in the proposed language limits its effect to big corporations.

The press release estimates that the proposal would increase tax revenue by $400 million over 10 years.  As Guideposts pointed out last year, the more likely effect of the proposal would be to increase incentives to settle punitive damages claims, so that the settlement payments could be characterized as tax deductible payments.

Related posts:

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

January 26, 2016

California Court of Appeal affirms $4 in punitive damages, declines to reinstate jury’s $20 million award (Casey v. Kaiser Gypsum)

Last week the California Court of Appeal (First District, Division Four) issued this unpublished opinion affirming a punitive damages award just under $4 million.  The jury in this asbestos case originally awarded $20 million in punitive damages, which the trial court reduced in response to the defendant’s post-trial motions.  Both parties appealed and the Court of Appeal affirmed across the board, rejecting the defendant’s request for a new trial and rejecting the plaintiff’s request to restore the jury’s $20 million award.

We won’t comment on the court’s analysis because our firm represents the defendant.

Recent California punitive awards: $6.5 million against yoga guru and $62.5 million against drunk driver

Law360 is reporting (subscription required) that a Los Angeles jury awarded $6,471,000 in punitive damages today, on top of $924,000 in compensatory damages, in a sexual harassment case against a yoga guru.  According to the article, the defendant tried to avoid the punitive damages award by claiming to be penniless, but the jurors apparently didn't buy that theory.  The article says the jurors laughed at the defendant's testimony that he built his fleet of luxury cars himself using parts he bought in junkyards. 

The defendant may have better luck arguing that the ratio of punitive damages to compensatory damages is too high, especially considering that the compensatory damages award already contains a punitive component in the form of a large award for noneconomic damages.

Another Southern California jury was even more generous in awarding punitive damages last week.  The Ventura Star reported last Friday that a jury in Oxnard awarded $125 million, half of which is punitive damages, to a man who was injured by a drunk driver.  According to the story, the plaintiff's lawyer concedes that the punitive damages are not collectible because the defendant, who is in prison, probably doesn't have $62.5 million.

January 12, 2016

Court of Appeal holds that compensatory damages award does not impact defendant's financial condition (O'Brien v. AMBS Diagnostics)

This unpublished opinion from the California Court of Appeal (Second Appellate District, Division Two) affirms a $125,000 punitive damages award. In the process, the court makes a peculiar statement that seems contrary to published authority.

The defendant argued on appeal that the award was excessive under state law because it was disproportionate to his ability to pay.  According to the defendant, the $427,926 compensatory damages award completely wiped out his net worth, leaving him with no ability to pay an additional award of punitive damages.

The court refused to consider the compensatory damages award when evaluating the defendant's financial condition.  The court cited cases stating that the defendant's financial condition should be measured "at the time of trial."  Thus, the court concluded that a judgment entered after trial cannot be considered.

That doesn't seem quite right.  Under California law, the purpose of considering the defendant's financial condition is to ensure that a punitive damages award does not destroy the defendant financially.  To figure out whether the defendant will be destroyed, the court needs to consider the impact of the entire judgment.  For example, the Court of Appeal in Washington v. Farlice, in deciding whether a $125,000 punitive damages award was excessive, evaluated the defendant's financial condition by taking into account the value of the defendant’s interest in real property after the jury found during the first phase of trial that the defendant's interest should be cut in half.

The court here was correct to consider the finances "at the time of trial," but there is no reason why that should not include the verdict that was rendered during the trial.  In any event, this opinion is unpublished and unciteable, leaving Washington v. Farlice as the law of the land on this issue.

January 7, 2016

Court of Appeal orders partial publication of punitive damages case, but leaves punitive damages discussion unpublished (Vardanyan v. AMCO Insurance)

Last month we reported on the California Court of Appeal's unpublished decision in Vardanyan v. AMCO Insurance, which reinstated a plaintiff's claim for insurance bad faith but affirmed the trial court's order granting a directed verdict on the plaintiff's claim for punitive damages.  Today that court issued an order certifying part of the opinion for publication, but the published portion does not include the discussion of the directed verdict on punitive damages.

December 29, 2015

South Carolina judge awards $32.4 million in punitive damages in dispute over employee incentive plan

Moultrie News (of Mount Pleasant South Carolina) is reporting that a trial court has awarded $21.1 million in compensatory damages and $32.4 million in punitive damages to a group of current and former paper employees of ArborGen, Inc.  The plaintiffs claimed that, under an incentive program, they were entitled to $11.3 million in equity in ArborGen, but were given only $414,330 in equity.

The Post and Courier of Charleston has additional coverage

December 23, 2015

Florida jury awards $25 million in punitive damages to husband of smoker

Law 360 (subscription required) reports on the latest verdict in the ongoing Florida tobacco litigation: $10 million in compensatory damages and $25 million in punitive damages.

Related posts:

Federal judge vacates smoker's $20 million punitive damages award
Another large verdict in Florida smoker litigation 

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

December 16, 2015

Court of Appeal affirms directed verdict on punitive damages in insurance dispute (Vardanyan v. AMCO Insurance)

This unpublished opinion by the California Court of Appeal concludes that the plaintiff presented some evidence that his insurer made mistakes, but the mistakes were not egregious enough to support punitive damages.

The plaintiff owned a rental home that had some serious problems.  Parts of the house were sinking, water damage and termite damage were popping up throughout, every room was moldy, and the front door would not open.  The plaintiff's insurer declined to provide coverage for the needed repairs, on the ground that the damage was caused in party by non-covered hazards. 

When the plaintiff sued for breach of contract and bad faith, the trial court granted a directed verdict for the defense.  The Court of Appeal (Fifth Appellate District) reversed and ordered a new trial, ruling that the plaintiff should have been allowed to argue to the jury that he was entitled to coverage if the damage was predominately caused by a covered hazard. 

The Court of Appeal also ruled, however, that the plaintiff could not seek punitive damages in the retrial.  The court concluded that the plaintiff failed to make a case for punitive damages during the first trial and was not entitled to a do-over on that issue.  According to the court, the plaintiff's evidence "may be consistent with some improprieties in claims handling, but it does not rise to the level of reprehensibility necessary to support an award of punitive damages."

Notably, the Court of Appeal stated it analyzed the plaintiff's evidence while keeping in mind the "clear and convincing" standard of proof.  Contrast that statement to this recent unpublished opinion, which said that the clear and convincing evidence standard does not apply on appeal.  So far, the docket in that case does not indicate that the defendant has asked the California Supreme Court to review that issue. 

December 15, 2015

Alameda jury awards $70 million in punitive damages against Ethicon Inc. for defective medical device

Law 360 (subscription required) is reporting that yesterday an Alameda County jury awarded $70 million in punitive damages to a woman who claimed injury from a defective hemorrhoid stapler manufactured by Ethicon, Inc., a subsidiary of Johnson & Johnson.  The plaintiff's lawyers have also issued a press release touting their victory. 

It's a safe bet that the defendant will challenge the punitive damages as excessive, especially since the compensatory damages in this case were already substantial ($9.8 million).  If the defendant is facing a multitude of other claims based on the same misconduct, that may give rise to additional arguments for challenging the award.  (See this post by the folks at Guideposts, discussing another award in the medical device context.)  We'll keep an eye out for further developments in this one.