September 4, 2015

Court of Appeal publishes decision on financial condition evidence (Soto v. Borg-Warner)

We previously reported on this decision in which the Court of Appeal reversed a $32.5 million punitive damages award due to a lack of meaningful evidence of the defendant's financial condition. As we noted, the decision explains how plaintiffs can be prepared to present evidence of the defendant's financial condition, notwithstanding the statute that prohibits pretrial discovery on that issue without a court order.

Since that report, the opinion has now been certified for publication.  This actually happened about a month ago but we neglected to report it at the time.  Sorry for the delay, loyal blog readers.

(Disclosure: Horvitz & Levy LLP submitted one of two requests for publication.)

August 12, 2015

Submit your nominees for best legal blogs

The Expert Institute is promoting their "2015 Best Legal Blog Contest" and calling for nominations from blog readers and subscribers.  If you're inclined to submit a vote, consider our sister blog, At the Lectern, which has unparalleled coverage of everything related to the California Supreme Court.  The deadline for nominations is Friday, August 21.

Ninth Circuit clarifies standard for recovering punitive damages in failure-to-protect claims against police officers (Castro v. County of Los Angeles)

This Ninth Circuit opinion clarifies the showing necessary to recover punitive damages for certain types of lawsuit against government officials under 42 U.S.C. section 1983.

The plaintiff, Jonathan Castro, was arrested for public intoxication and placed into a "sobering cell" at the local police station.  While he was in custody, he was savagely beaten by another intoxicated arrestee, leaving him with permanent traumatic brain injuries.

Castro sued the officers on duty, claiming they violated his civil rights by placing a violent inmate in his cell and failing to supervise them.  After a jury trial, he recovered $2.6 million in compensatory damages plus $18,000 in punitive damages.  The officers appealed.

The officers argued, among other things, that the evidence did not support an award of punitive damages.  That required the Ninth Circuit to examine the standards for recovery of punitive damages in cases like this.  The liability standard for failure-to-protect claims is whether the defendants acted with "deliberate indifference" to a substantial risk of serious harm.  Punitive damages are available when the defendant acted with "reckless or callous indifference" to federally protected rights of others.

These definitions raise the question whether there a difference between "deliberate indifference" and "reckless or callous indifference."  In other words, once a plaintiff establishes liability, does the plaintiff need to prove anything else to get punitive damages?  The Ninth Circuit answered "no."  The court concluded that the terms are effectively synonymous.  Accordingly, once the jury in this case found that the defendant acted with deliberate indifference, the jury was free to tack on punitive damages.     

August 8, 2015

Oakland jury awards $46 million in punitive damages against AIG

Business Insurance reports that a jury in Oakland has ordered three AIG companies to pay $46 million in punitive damages, on top of $9.3 in compensatory damages.  The plaintiff, Victaulic Co., sued the AIG companies for bad faith in connection with their response to third-party lawsuits against Victaulic in various states.

To our knowledge, no punitive damages award of this size has ever survived appeal in a California  insurance bad faith case. 

Full disclosure: Horvitz & Levy LLP represents AIG in several pending California cases

August 4, 2015

New York jury awards $48 million in punitive damages in crane collapse case (subscription required) is reporting that a Manhattan jury yesterday awarded $48 million in punitive damages, on top of $48 million in compensatory damages, against the owner of a construction crane that collapsed and killed two men. 

This award is one of the largest awards we have seen this year, second only to the award of $122.5 million awarded against a doctor accused of injuring the chairman of the Arkansas State Medical Board with a bomb. 

The $48 million award in the crane case is just barely larger than a Georgia jury's $47.9 million award against a landlord blamed for a gas explosion.  That award has already been reduced to $250,000 under a statutory cap.

The next highest punitive award appears to be a Philadelphia jury's award of $38.5 million against a security firm.

July 29, 2015

AutoZone settles case involving $185 million punitive damages verdict (Juarez v. AutoZone)

The Daily Transcript is reporting that a federal judge has agreed to dismiss all of the plaintiff's claims in the employment case against AutoZone that generated an eye-popping $185 million punitive damages award in 2014.  According to the Daily Transcript story, neither side will confirm that the case settled.  But settlement seems to be the only explanation for the fact that both sides jointly requested dismissal of all claims.

The plaintiff's counsel acted wisely by settling this one.  The award was so large---three times the largest award ever affirmed on appeal in California---that the judge might have decided to award a complete new trial rather than just reducing the amount of punitive damages.  Case law in California and elsewhere permits a trial court to grant a new trial on the ground that the the jury's verdict was the result of passion and prejudice, rather than a reasoned assessment of the evidence.  The size of the award here certainly made this case a candidate for that approach.

Related posts:

Trial judge in AutoZone case hears arguments on post-trial motions
California federal jury awards $185 million in punitive damages in pregnancy discrimination case (Juarez v. AutoZone)

July 15, 2015

Court of Appeal reverses $32.5 million punitive damages award due to lack of financial condition evidence (Soto v. Borg-Warner)

Over the years we have reported on a lot of California appellate opinions that reversed a punitive damages award because the plaintiff failed to present meaningful evidence of the defendant’s financial condition.  This unpublished opinion is especially notable, and not just because it involves an enormous punitive damages award.  The opinion contains a road map for how plaintiffs can conduct discovery of the defendant’s finances without risking the sort of forfeiture that occurred here.

Readers of this blog are well aware that in California, plaintiffs have the burden of presenting evidence of the defendant’s financial condition as a prerequisite to recovering punitive damages.  But plaintiffs cannot seek pretrial discovery of the defendant’s finances without first obtaining a court order.  To obtain such an order, plaintiffs must demonstrate a substantial probability of prevailing on their punitive damages claim.  (Civil Code section 3295(c).)

Many plaintiffs choose not to seek a court order.  Instead, they wait until the jury makes a finding that the defendant acted with malice, and then then ask the defendant to immediately produce its financial condition information.

One problem with that approach is that the defendant, without knowing in advance what information the plaintiffs are seeking, may not be in a position to immediately produce the information that the plaintiffs are seeking.  In this case, for example, the plaintiffs asked the defendant to produce a witness who resides in Michigan and could not reasonably be expected to appear the next day in a California courtroom without any advance notice.

Another problem is that the defendant may not possess the requested information.  For example, plaintiffs often ask for a balance sheet, but some defendants, especially individuals and closely held corporations, may not have any balance sheet.  Defendants are not required to manufacture evidence in order to respond to a discovery request.  Plaintiffs need to gather whatever documents are available, depose witnesses, and perhaps involve a forensic accountant in order to get an accurate picture of the defendant’s finances.  That is difficult to do in the middle of trial.

So what is the alternative?  According to this opinion, if a plaintiff does not obtain a court order before trial permitting financial condition discovery, the plaintiff should at least take advantage of the subpoena process provided by Civil Code section 3295(c).  The plaintiff can issue subpoenas to the defendant requiring it to be prepared to produce financial condition information if and when it becomes necessary, and the defendant may be required to identify relevant documents and witnesses who can testify on the issue of financial condition.  Another alternative is to reach a stipulation with the defendant, who would agree to gather specific documents, bring them to trial under seal, and make them immediately available in the event the jury makes a finding of malice.  If the plaintiff sits back and does nothing to initiate financial condition discovery until after the jury’s finding of malice, the plaintiff is at the mercy of the court’s discretion whether to delay the proceedings to permit discovery.

In this case, the plaintiffs chose the “do nothing” strategy.  They did not seek pretrial discovery of the defendant’s financial condition, did not use the statutory subpoena procedure, and did not reach a stipulation with the defendant.  When the jury found malice and the plaintiffs requested financial information that was not immediately available, the trial court declined to exercise its discretion to delay the trial to permit the plaintiffs to complete their discovery.  (The plaintiffs did not even ask for that—the court raised the idea and then rejected it.)  The best the plaintiffs could do was present an expert to testify about the financial condition of the defendant’s parent company.  That expert was able to provide only a little information about the actual defendant; the expert testified about the defendant’s revenues from one line of business, but could not shed any light on the defendant’s liabilities or expenses.

The Court of Appeal (Second Appellate District, Division Four) found the plaintiff's showing wholly inadequate to support an award of punitive damages: the expert’s testimony “at most demonstrated that some portion of [defendant’s] business turned a profit.  It did not provide any of the requisite current information about [defendant]’s overall financial condition outside [that product] line.”

The Court of Appeal concluded that the plaintiffs, not the defendants, were responsible for this absence of evidence:

 [P]laintiffs erroneously believed the financial information they obtained through publicly available channels would be sufficient until [defendant] pointed out, on the eve of the punitive damages phase, that their expert had analyzed the wrong company. The court was not obligated to accommodate plaintiffs’ last-minute attempt to obtain the correct information through traditional discovery channels. There was no indication that [defendant] in any way hampered or even opposed plaintiffs’ efforts to obtain the information in a more timely fashion. To the contrary, the record reflects that plaintiffs did not undertake any effort to obtain the information at an earlier juncture, whether by issuing a subpoena, seeking a stipulation, or a making a motion pursuant to Civil Code section 3295, subdivision (c). (See Kelly, supra, 145 Cal.App.4th at pp. 919- 920.) Instead, they assumed [the defendant] would simply come forward with the information, unprompted. “Whatever merit there might be to that approach in other cases, it was an unfortunate choice in this one.” (Amoco Chemical Co. v. Certain Underwriters at Lloyd’s of London, England (1995) 34 Cal.App.4th 554, 562.) By all indications, plaintiffs had a full and fair opportunity to engage in discovery but elected to take the wait-and-see approach. They must bear the consequences of the resultant evidentiary shortfall. (See Baxter, supra, 150 Cal.App.4th at p. 681; Kelly, supra, 145 Cal.App.4th at p. 920; contra Mike Davidov Co., supra, 78 Cal.App.4th at pp. 609-610; Green v. Laibco, LLC, supra, 192 Cal.App.4th at pp. 453-454.)
 As a result, the Court of Appeal completely vacated the $32.5 million punitive damages award.  Because the plaintiffs had a chance to conduct proper discovery and failed to do so, they are not entitled to go back and try again. 

July 12, 2015

New York appellate court addresses punitive damages in asbestos litigation

In California, a number of punitive damages cases in recent years have involved asbestos exposure.  See, for example, Bankhead v. Arvinmeritor, Pfeifer v. John Crane, and Izell v. Union Carbide

New York has its share of asbestos litigation as well, but a long-standing case management order prevented plaintiffs from seeking punitive damages in those cases, at least in New York City.  Recently, a new presiding judge modified that order and allowed punitive damages claims to proceed in asbestos cases.  In fact, she ruled that plaintiffs could wait until the close of evidence to indicate whether they will seek punitives.

A slew of defendants challenged that modification, leading to this appellate opinion.  The appellate court ruled that the trial court had the authority to modify the case management order, but she exceeded her authority when she allowed plaintiffs to wait until the close of evidence.  That was improper, according to the Appellate Division, First Department, because due process requires that a defendant be provided with an opportunity to conduct discovery and establish a defense to a claim for punitive damages.  The order deprived defendants of their due process rights by leaving them guessing, until the close of trial, whether the plaintiffs would seek punitive damages.

The National Law Review reports that the decision puts the long-term viability of punitive damages in New York City asbestos cases back in question.

July 1, 2015

Canadian appellate court reduces record-setting $4.5 million punitive damages award

The StarPhoenix of Saskatoon reports that an appellate court in Saskatchewan has reduced an "unprecedented" $5 million damages award in an insurance bad faith case.

The plaintiff claimed that two insurance companies unreasonably denied his claims for workers' compensation benefits. The trial court (Justice Murray Acton of the Saskatoon Court of Queen's Bench) awarded him $450,000 for emotional distress and $4.5 million in punitive damages.  At the time, Justice Acton said he hoped the large award would gain the attention of the insurance industry.

Instead, the award attracted the attention of the Court of Appeal, which issued a 94-page opinion that dramatically reduced the "extravagant" damages.  The three-judge panel reduced the emotional distress damages to $45,000 and reduced the punitive damages to $675,000.

The opinion is an illustration of the stark contrast between Canadian courts and American courts when it comes to damages.  We are long past the time in this country when anyone would call a $5 million damages award in a bad faith case "unprecedented" or "record-setting."

Will American-style damages awards gain a foothold in Canada?  Perhaps, if this story is any indication.  But for now at least, the Saskatchewan Court of Appeal is holding the line.

New York jury awards $16 million in punitive damages in sexual harassment case

This story in the New York Daily News reports that a federal jury in Manhattan has awarded $2 million in compensatory damages and $16 million in punitive damages to a plaintiff who claimed that her employer sexually harassed her and then defamed her.  The plaintiff was seeking $850 million, so perhaps the jury thought they were showing restraint by awarding "only" $16 million in punitives.