September 22, 2017

California Legislature passes bill to relax burden of proof for punitive damages in narrow category of cases

Although California juries are known to hand out hefty punitive damages, California law actually contains quite a few safeguards against arbitrary and irrational punitive damages awards. That's why many of the headline-grabbing awards are later reduced or vacated by the courts.  Perhaps, however, our Legislature is starting to chip away at those safeguards.

Both houses of the Legislature have voted to approve AB-859, which now heads to the governor for signature.  The bill lowers the burden of proof for punitive damages claims in a limited category cases: Elder Abuse claims against skilled nursing facilities that have engaged in spoliation of evidence.  If the governor signs the bill, punitive damages in such cases will now be governed by the "preponderance of the evidence" standard of proof, instead of the more stringent "clear and convincing evidence" standard.

On its face, this modification may seem insignificant.  It only applies to skilled nursing facilities, only in Elder Abuse cases, and only where spoliation of evidence has been established.  How many cases like that can there be?  Some might call this bill a nothingburger.  On the other hand, any step towards eroding the safeguards in California punitive damages law is cause for alarm for all defendants.

August 30, 2017

Court of Appeal reduces compensatory damages and orders matching reduction in punitives (Pulte Home v. American Safety Indemnity)

This published opinion issued today addresses a recurring issue in California punitive damages litigation: when an appellate court significantly reduces a compensatory damages award, what should the court do with a punitive damages award?

The best way to handle this situation is to order a re-evaluation of the punitive damages in the trial court. That means a new trial is necessary if the punitive damages were awarded by a jury.  If the punitive damages were awarded by the trial court, the Court of Appeal should send the case back to the trial judge for reconsideration.  That approach preserves the defendant's right to have the trier-of-fact assess punitive damages based on actual harm caused to the plaintiff.  Some California appellate decisions, like this one, have followed that approach.

The second-best approach is to direct the trial court to reduce the punitive damages to match the original ratio of compensatory to punitive damages.  That's the approach taken by the Court of Appeal (Fourth Appellate District, Division One) in today's Pulte Home case.  It determined that the trial court erred in calculating the compensatory damages, so it sent the case back to the trial court to recalculate the compensatory damages and then reduce the punitive damages to preserve the 1-to-1 ratio of the original award.  Although that approach maintains the original ratio, it deprives the defendant of the right to have the jury (or judge) determine whether a lesser ratio is more appropriate, in light of the fact that the harm was not as severe as originally thought.

By far the worst approach is for the Court of Appeal to simply affirm the punitive damages, without respecting the original ratio or giving the trier of fact the opportunity to determine whether a different punishment is appropriate. Unfortunately, our courts have sometimes adopted that approach, both in published and unpublished opinions.

Some day the California Supreme Court will sort this out.  We hope.  

August 21, 2017

L.A. jury awards $347 million in punitive damages against Johnson & Johnson in talc case

Reuters reports that a jury in Los Angeles today awarded $417 million in damages, including $347 million in punitive damages, against Johnson & Johnson.

This verdict follows on the heels of four other large verdicts against Johnson & Johnson in Missouri, all based on claims that the company's talc products cause ovarian cancer.  A fifth case ended in a defense verdict.

This verdict is the third-largest verdict of the year nationwide, according to Bloomberg.

Related posts:

Johnson & Johnson gets hit again for punitive damages in Missouri talc litigation

Johnson & Johnson hit for $65 million in punitive damages in third big talc verdict

Johnson & Johnson hit with another big punitive damages award in Missouri over talc-based powder products

Johnson & Johnson vows to appeal $1 billion punitive damages award in hip implant case 

July 2, 2017

California Supreme Court will decide availability of punitive damages under nursing home statute (Jarman v. HCR Manor Care)

The California Supreme Court has granted review in Jarman v. HCR ManorCare, a case involving the availability of punitive damages under Health & Safety Code section 1430, subdivision (b).  That statute gives nursing home residents the right to bring a lawsuit for violations of their rights, but authorizes only limited remedies: injunctive relief, attorneys' fees and costs, and a penalty of up to $500.

Here are the questions presented, as framed by the defendant's petition for review:

  1. Does Section 1430(b) authorize a maximum award of $500 per "cause of action" in a lawsuit, as held below, or $500 per lawsuit, as held in [two previous Court of Appeal decisions] Nevarrez and Lemaire
  2. Does Section 1430(b) authorize an award of punitive damages?
Although the statute applies only to skilled nursing facilities, it could potentially have a broader impact because the statute is similar to statutes governing other types of facilities, including hospitals.

And there's another issue lurking in the case, having to do with California's "managing agent" requirement.  As we have discussed before, Civil Code section 3294 provides that corporations cannot be liable for punitive damages based on the acts of low-level corporate employees.  A corporation can be punished only if the wrongdoing was committed (or authorized or ratified) by an officer, director, or managing agent.  The Court of Appeal in Jarman concluded that the defendant's director of nursing qualified as a managing agent because she had direct responsibility for ensuring patient care at the facility.  But the Supreme Court has held that a corporate employee does not qualify as a managing agent unless he or she has the authority to create company policy, not just implement company policy.  Because Jarman seems to be a significant departure from that precedent, it is possible that the Supreme Court may address the managing agent issue in the course of its punitive damages analysis.

Click here to view the online docket in Jarman and track ongoing developments.

Disclosure: Horvitz & Levy LLP filed an amicus letter in support of the defendant's petition for review.

June 17, 2017

Trial court improperly weighed evidence when granting JNOV on punitive damages (Swendrak v. Urode)

The case involves an odd set of facts.  The plaintiff claimed that his landlords invaded his privacy by posting a notice in his apartment complex informing all the tenants that the police had placed him under a psychiatric hold.  A jury awarded him $200,000 in compensatory damages and $650,000 in punitive damages.

The defendants moved for judgment notwithstanding the verdict (JNOV), arguing that the evidence did not support the jury's finding that they acted with malice. The trial court agreed, finding that "the weight of the evidence did not support a finding of malice by clear and convincing evidence."

The Court of Appeal (Second Appellate District, Division Three) reversed in an unpublished opinion, finding that the trial court applied the wrong standard when reviewing the evidence.  When a trial court rules on a JNOV motion, the court is not permitted to re-weigh the evidence.  The court must draw every reasonable inference in favor of the party who won at trial, and can grant JNOV only if there is no substantial evidence to support the verdict.

Here, because the trial court's JNOV order referred to the "weight" of the evidence, the Court of Appeal concluded that the trial court must have impermissibly re-weighed the evidence.  That alone might not have been enough to justify reversal, if there were no substantial evidence of malice.  But the Court of Appeal, reviewing the entire record, concluded that a jury could infer that the defendants acted with malice, and that they posted the notice about the plaintiff with intent to force him out so  they could rent his unit at a higher price.  Accordingly, the court reversed the trial court's JNOV ruling and reinstated the jury's award of punitive damages.

June 16, 2017

Anti-SLAPP motion cannot be used to strike punitive damages claim (Bhandari v. Washington Hospital)

We haven't had many occasions to blog about the intersection between punitive damages and California's anti-SLAPP statute (Code of Civil Procedure section 425.16).  That statute authorizes a special motion to strike a complaint that arises form activity exercising the rights of free speech.

In this unpublished opinion, the Court of Appeal (First Appellate District, Division Five) holds that a  an anti-SLAPP motion cannot be used to strike a punitive damages allegation.  The court explains that anti-SLAPP motions must be directed at an entire cause of action, not a prayer for a specific type of relief.

Disclosure: Horvitz & Levy LLP represents Washington Hospital in this case.

June 8, 2017

Proposal to eliminate tax deductions for punitive damages passes California Senate

The California Senate approved SB 66 by a vote of 27-13.  That doesn't necessarily mean the bill will gain approval in the Assembly.  Its common for a bill to gain approval in its house of origin before the serious fighting begins.  Stay tuned.

Related posts:

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

May 30, 2017

Bill to eliminate tax deductions set for vote on May 31

Capital & Main reports that SB 66 is set for a floor vote on Wednesday.  As we previously reported, SB 66 is the latest proposal to prevent California taxpayers from taking deductions for payments of punitive damages.

Similar proposals have failed in the past, but the Capital & Main article notes that the political climate is different now in California: "Things that have died multiple times are passing," according to Ken DeVore, the legislative director of the California chapter of the National Federation of Independent Business (NFIB).

California Court of Appeal rejects punitive damages claim against trucking company, finding no evidence of misconduct by a managing agent (CRST, Inc. v. Superior Court)

This published opinion addresses two recurring issues in California punitive damages law. Both issues involve the assessment of punitive damages against an employer for the misconduct of an employee.

Before getting into the issues, here’s a little background on the case: The defendant CRST, Inc. is a trucking company. One of its employees, Hector Contreras, was driving a CRST truck when he collided with plaintiffs Matthew and Michael Lennig. They sued Contreras and CRST, seeking compensatory and punitive damages. The based their punitive damages claim against CRST on the theory that CRST knew Contreras was an unfit employee and employed him anyway. California Civil Code section 3294 authorizes punitive damages against an employer who has advance knowledge of the unfitness of an employee and employs him with a conscious disregard of the rights or safety of others. CRST moved for summary adjudication on the punitive damages claim. When the trial court denied that motion, CRST petitioned the Court of Appeal (Second Appellate District, Division Four) for writ relief, raising the following two issues.

Issue #1: Can an employer defeat a punitive damages claim by stipulating that it is responsible for an employee’s negligence?
The California Supreme Court held in Diaz v. Carcamo that evidence of an employer’s alleged failure to train/supervise is not relevant in an action arising out of an employee’s conduct, where the employer admits the employee was in course and scope of employment. The Diaz court reasoned that once an employer has admitted responsibility for any negligence by its employee, there would be no point in allowing introduction of evidence about negligent supervision or training, because even without that evidence the employer will be fully responsible for whatever fault the jury may assign to the employee.

But what about the situation presented here, where the plaintiff is seeking punitive damages based on a failure to supervise? If the defendant admits that the employee was acting in the scope of the employment, does Diaz require the trial court to exclude all evidence of the employer’s training and supervision of the employee, thereby prohibiting the plaintiff from making its case for punitive damages? The Court of Appeal answered that question “no.” Thus, CRST could not defeat the punitive damages claim by agreeing that Contreras was acting in the course and scope of his employment at the time of the accident.

That holding effectively creates a punitive damages exception to Diaz. Evidence normally excluded under Diaz can be admitted to prove punitive damages. In such cases, the trial should probably be divided into three phases. In the first phase, the jury would decide the issues of liability and compensatory damages, without considering the evidence that is normally excluded under Diaz. In the second phase, the jury could hear that evidence and decide whether the employer acted with the requisite knowledge and conscious disregard of safety to support a punitive damages claim. In the third phase the jury would decide the amount of punitive damages, if any.

Issue #2: Does a supervisor who implements corporate policy, but does not create corporate policy, qualify as a managing agent?
We have blogged many times about California’s managing agent rule: Civil Code section 3294 provides that an employer cannot be liable for punitive damages based on the acts of a rogue employee; there must be evidence that an officer, director, or managing agent of the employer authorized or ratified the misconduct.

In this case, the court concluded that plaintiffs had created a triable issue of fact as to whether a supervisor at CRST had advance knowledge that Contreras was an unsafe driver. But the court concluded there was not a triable issue of fact as to whether that supervisor was a managing agent. The Court of Appeal emphasized that the title of “supervisor” does not make someone a managing agent. Nor does the fact that the supervisor manages a large number of employees and implements company policy. To qualify as a managing agent, a corporate employee has to have discretionary authority to create company policy.  Those principles are all consistent with prior case law, but this opinion nicely synthesizes the rule.

Lookng at the evidence in this case, the court concluded that the plaintiffs failed to present evidence that Contreras’ supervisor had any authority to create a company policy that contributed to the accident. Accordingly, the Court of Appeal concluded that the trial court should have granted CRST’s motion for summary adjudication on the issue of punitive damages.