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

Montana Supreme Court hears arguments on constitutionality of punitive damages cap

We recently reported on a case against Hyundai in which a Montana trial judge ruled that Montana's cap on punitive damages is unconstitutional.  In that post, we noted that the Montana Supreme Court would make the ultimate decision about the cap's constitutionality. 

As it turns out, the Montana Supreme Court may be addressing that issue sooner than we thought.  The issue is already teed up in Masters Group International v. Comerica BankThe Bozeman Daily Chronicle reports that the Masters Group case was argued in the Montana Supreme Court just last Friday.  The story notes, however, that the Supreme Court might not decide the constitutionality of the cap because the court could dispose of the case on other grounds. 

Incidentally, the plaintiffs' counsel in Masters Group also represents the plaintiffs in the Hyundai case.

September 26, 2014

En banc Fifth Circuit disallows punitive damages in maritime cases involving claims of unseaworthiness (McBride v. Estis Well Service)

The Fifth Circuit issued an en banc opinion yesterday addressing whether punitive damages are available under the Jones Act or general maritime law (a species of federal common law) for a defendant's failure to maintain a seaworthy vessel.  The court answered that question "no."

The plaintiff in this case was the personal representative of a man who "met his death in the service of his ship."  The plaintiff brought a claim for unseaworthiness under general maritime law and a claim for negligence under the Jones Act, seeking both compensatory and punitive damages.  The trial court ruled that punitive damages are unavailable for either claim, but a three-judge panel of the Fifth Circuit reversed.  The panel believed that the Supreme Court's decision in Atlantic Sounding v. Townsend permits recovery of punitive damages under maritime law for causes of action, like unseaworthiness, that predate the Jones Act. 

The en banc court disagreed.  It held that the case is controlled not by Townsend but by the Supreme Court's earlier decision in Miles v. Apex Marine Corp., which held that the Jones Act limits a seaman's recovery for unseaworthiness to "pecuniary losses."  Because punitive damages are non-pecuniary, the court concluded that Miles prohibits punitive damages for claims of unseaworthiness.  The Court distinguished Townsend on the ground that it involved claims for "maintenance and cure," not unseaworthiness.

A dissenting opinion argues that Townsend cannot be so easily distinguished.  According to the dissent, Townsend stands for the broader proposition that punitive damages are available for all maritime claims unless Congress has expressly prohibited them.  Because Congress has not expressly disallowed punitive damages for unseaworthiness claims, the dissent would permit them.

That's a thumbnail sketch of the case.  It's actually a lot more complicated, and consists of five separate opinions spanning 73 pages. 

It won't be surprising if this case ends up in the Supreme Court.

HT: How appealing 

Related posts:

Fifth Circuit grants rehearing to address availability of punitive damages in seaworthiness cases

September 24, 2014

Montana trial judge declares state's cap on punitive damages unconstitutional, but reduces award against Hyundai from $240 mllion to $73 million

Earlier this year we reported that a Montana jury awarded $240 million in punitive damages against Hyundai for a crash that killed two teenagers.  We noted that Montana has a statute that prohibits punitive damages in excess of $10 million.  (The statute actually limits the award to the lesser of $10 million or 3 percent of a defendant's net worth.)

The Associated Press reports that the trial judge in that case has declared Montana's cap on punitive damages unconstitutional.  The story doesn't reveal why the judge thought the statute unconstitutional.  Most courts have rejected constitutional challenges to punitive damages caps, but this ruling comes closely on the heels of a recent decision by the Missouri Supreme Court striking down a cap in that state.  This is just a trial court decision; the Montana Supreme Court will be the ultimate arbiter of the propriety of the cap in Montana.

After striking down the cap, the judge nonetheless concluded that the $240 million awarded by the jury was excessive.  She reduced the award to $73 million, nine times the compensatory damages of $8.1 million.

Presumably Hyundai will appeal to the Montana Supreme Court and will argue not only that the statutory cap is valid, but also that the punitive damages cannot exceed the amount of the already substantial compensatory damages award.

September 22, 2014

Forthcoming article: "Surprisingly Punitive Damages"

Professor Bert Huang of Columbia Law School has posted a preview of his forthcoming Virginia Law Review article entitled Surprisingly Punitive Damages.  The article proposes a solution for the redundant effect of punitive damages in mass tort cases, as described in the abstract:

Think first of the classic problem of redundant punitive damages: A defendant has caused a mass tort. Plaintiff 1 sues, winning punitive damages based on the overall reprehensibility of that original act. Plaintiff 2 also sues — and also wins punitive damages on the same grounds. So do Plaintiff 3, Plaintiff 4, and so forth.

Next, consider a more subtle problem: Many statutes set the minimum award per claim at a super-compensatory level, based on the assumption that private suits may need extra inducement. But when enforcement turns out to be more vigorous than was assumed — most famously, when thousands or millions of claims are brought at once — then the damages in even a single case can stack up to surprisingly punishing effect.

These problems share a conceptual feature that I analyze here: The damages in each context can be seen as encompassing two distinct components — a “variable” portion that properly varies with the number of claims, and a “fixed” portion that should be awarded only once. The crucial error that leads to surprisingly punitive damages is repeatedly awarding not only the variable but also the fixed component of damages, in cases with multiple claims.

One natural solution for neutralizing such redundancy is to allow courts to run concurrently the fixed component of such repeated awards. This paper explores how a “concurrent damages” approach might be applied to variations of each problem; addresses its pros, cons, and complications; and explores how it relates to other procedural devices, including preclusion and aggregation.
I haven't had a chance to read the article yet, but it comes "highly recommended" by Professor Lawrence Solum (Georgetown) at Legal Theory Blog.

September 16, 2014

Seventh Circuit vacates $100 million punitive damages award against ConAgra

In 2012 we reported on a $100 million punitive damages award against ConAgra Foods, Inc. arising out of a fire in a grain elevator.  According to Reuters, the U.S. Court of Appeals for the Seventh Circuit has reversed that punitive damages award in its entirety, finding that ConAgra was not liable for the fire.  Read the opinion here.

September 15, 2014

New Mexico jury awards $65 million in punitive damages; Texas jury awards $15 million

I'm catching up on punitive damages news after being out of the office last week.  While I was out, the AP reported that a jury in New Mexico awarded $2.3 million in compensatory damages and $65 million in punitive damages in a lawsuit alleging that the plaintiff was given a pacemaker he didn't need.  That's a ratio in excess of 28 to one, which should not survive post-trial and appellate review.

Also last week, Crain's Cleveland Business reported that a jury in Texas awarded $3.6 million in compensatory damages and $15 million in punitive damages in a mesothelioma case against the Goodyear Tire & Rubber Company.  By statute, punitive damages in Texas are capped at the greater of (1) $200,000 or (2) two-times the economic damages, plus an amount equal to the non-economic damages, not to exceed $750,000.  So unless the plaintiffs can persuade the Texas courts that the cap is unconstitutional (see the post below), that award won't survive either.

Missouri Supreme Court strikes down punitive damages cap as unconstitutional

Last week, Missouri's high court issued a unanimous opinion holding that a statutory cap on punitive damages violates the Missouri Constitution.

The statute in question provides that a punitive damages award against a single defendant cannot exceed $5,000 or five times the amount of actual damages, whichever is greater.  The Missouri Supreme Court, relying on an earlier decision in which it invalidated a cap on noneconomic damages, struck down the punitive damages cap based on the provision in the Missouri constitution guaranteeing the right to a jury trial.

The opinion rests on the premise that, prior to the adoption of the Missouri constitution in 1820, juries in Missouri had discretion to award punitive damages.  When the state constitution was adopted, the clause preserving the right to a jury trial was intended to guarantee the then-existing common law jury trial rights.  Therefore, according to the court, the punitive damages statute is unconstitutional because it takes away a plaintiff's right to have a jury award an uncapped amount of punitive damages.

As we have noted in prior posts, most state courts have rejected arguments like this in cases challenging the legality of statutory caps on punitive damages.  Typically, courts rule that caps do not violate the right to a jury trial because such a right does not include unlimited punitive damages---the right only ensures that a jury must resolve any underlying factual disputes.

For a list of other states that have disagreed with the approach of the Missouri Supreme Court, see this post by Mark Behrens on the WLF Legal Pulse blog.

August 13, 2014

Court of Appeal holds that defendant's conservators must pay punitive damages award even if wipes out assets of conservatorship (Conservatorship of Parker)

In 2010 we reported on the unpublished opinion in Boothby v. Parker, which affirmed a $350,000 punitive damages award.  Four years later, the same litigation has now generated a published opinion.

The new opinion reveals that defendant Parker never paid the punitive damages award against him in the prior proceedings, because a conservatorship was established for him during that litigation.  The conservators took the position that, under the Probate Code, the decision to pay the punitive damages award against their conservatee was entirely discretionary, and that they should not be forced to pay a debt that would deprive Parker of funds needed for the necessities of life.  The trial court disagreed and ordered the conservators to pay the award.

The conservators appealed and the California Court of Appeal (Second Appellate District, Division Two) affirmed the trial court's order.  The court rejected the conservators' reliance on a provision of Probate Code section 2430, which provides that debts occurring during a conservatorship need not be paid if doing so would impair the ability to provide for the necessaries of life.  The court concluded that provision was inapplicable because Parker's liability for punitive damages "occurred" when he committed the underlying tort, not when the punitive damages were awarded or affirmed on appeal.  Thus, the payment of the debt was mandatory and not discretionary, regardless of whether paying the debt means that the conservators will no longer be able to provide for Parker's basic needs.

It's a harsh result, one that hardly seems consistent with the California cases stating that punitive damages should only punish a defendant, not destroy him financially.  The lesson appears to be that attorneys defending a conservatee against a punitive damages claim must demonstrate during the underlying tort litigation the punitive damages award will be financially ruinous to the defendant.  Otherwise, the conservators will be bound to pay the award in the future regardless of whatever financial impact it may have.

August 12, 2014

"To Bifurcate or Not to Bifurcate"

The folks over at Mayer Brown's Guideposts have a new post entitled "To Bifurcate or Not to Bifurcate," discussing whether it is strategically wise for defendants to take advantage of the bifurcation procedure that exists for punitive damages trials in many states, including California.  (See Civil Code section 3295(d).)

The post observes that many defense lawyers prefer not to bifurcate the issue of punitive damages into a separate phase of trial.  Many defense trial lawyers prefer to avoid a second round of closing arguments before a jury that has already rejected the defendant's arguments on liability and found that the defendant acted with malice. 

As Guideposts points out, however, the second phase of trial presents an opportunity for a defense to present evidence that cuts against the need for punitive damages.  Such evidence may not have been relevant to the issues of liability, but may become relevant during the second phase.  For example, evidence of subsequent remedial measures, changes in corporate culture, or penalties already imposed for the same conduct may persuade the jury that punishment is unnecessary, or that only a small punishment is warranted.

When we touched on this issue in one of our early posts back in 2008, we noted that some California lawyers take the position that when a trial is bifurcated pursuant to section 3295(d), the only relevant evidence for the second phase of trial is evidence of the defendant's financial condition.  That argument doesn't make much sense, given that the jury's task in the second phase is to evaluate the reprehensibility of the defendant's conduct.  The jury should be able to consider any evidence relevant to the issue of reprehensibility, even if such evidence was not relevant to any issue during the first phase of trial. 

Unfortunately, California cases have never squarely addressed that issue.  The unpublished opinion we discussed back in 2008 discussed the fact that the defendant presented mitigating evidence during the second phase of a bifurcated trial.  But we're still waiting for a published California opinion to address this issue and put to rest the notion that the second phase should focus entirely on the defendant's financial condition.