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The Court of Appeal (Second Appellate District, Division Three) reversed in an unpublished opinion, finding that the trial court applied the wrong standard when reviewing the evidence.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In this unpublished opinion, the Court of Appeal (First Appellate District, Division Five) holds that a  an anti-SLAPP motion cannot be used to strike a punitive damages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.

May 5, 2017

Kimberly-Clark sues former subsidiary over $450 million punitive damages award

Law 360 reports that Kimberly-Clark Corporation has sued former subsidiary Halyard Health, Inc. over a $450 million punitive damages award handed out by a Los Angeles jury earlier this month.  

The litigation arises out of a class action in the U.S. District Court for the Central District of California.  The class members include those who bought surgical gowns made by Halyard, which  Kimberly-Clark spun off in 2014.  Attorneys for the class argued that the defendants committed fraud by marketing the gowns as impermeable when in fact they failed to protect against pathogens like Ebola.  Apparently, the plaintiffs presented no evidence of any incident in which a gown failure resulted in an injury or infection.  But that did not stop the jury from awarding $4 million in compensatory damages and $450 million in punitive damages ($350 million against Kimberly-Clark and $100 million against Halyard). 

Given the enormous size of the award and the disproportionate ratio between the punitive damages and the compensatory damages, it is not surprising that both sides have already brought in appellate lawyers for the post-trial proceedings.

Meanwhile, Kimberly-Clerk is suing Halyard in the Delaware Chancery Court, seeking indemnity for the entire award, based on an agreement the companies entered into at the time of the spin-off.  And Halyard has filed its own action in California state court, seeking a declaration that Kimberly-Clark has no right to seek reimbursement. 

We will keep an eye on this one.  With three pending lawsuits and nearly a half a billion dollars at stake, this litigation is likely to be in the news for a while.

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

Bloomberg news reports that a jury in St. Louis has awarded $5 million in compensatory damages and $105 million in punitive damages against Johnson & Johnson, in a lawsuit alleging that the company's talcum powder products (Shower to Shower and Baby Powder) caused the plaintiff's ovarian cancer.

This is the fourth time a jury in Missouri has awarded punitive damages against J&J based on claims that talc can cause ovarian cancer. A fifth trial resulted in a defense verdict.  The company says it plans to appeal, and that the verdict is contrary to governmental and scientific consensus that talc is safe.  The plaintiff's counsel accuses the company of "spending millions in efforts to manipulate scientific and regulatory scrutiny."

Johnson & Johnson is also fighting against an award of $1 billion in punitive damages in a lawsuit over allegedly defective hip implants  (Update: they also got hit for $17.5 million in punitive damages in a pelvic mesh lawsuit in Philadelphia last week.)

Related posts:

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    

April 27, 2017

Los Angeles jury awards $22 million in punitive damages against medical device company

The Star Tribune reports that yesterday a Los Angeles jury awarded $2.7 million in compensatory damages and $22 million in punitive damages in an wrongful termination suit against Minnesota-based Cardiovascular Systems, Inc., a medical device manufacturer.

The plaintiff, who worked as a regional sales manager for the defendant, claimed the company fired him for informing management of an illegal kickback scheme in which sales reps were bribing doctors to use the company's products.  The article says the company plans to appeal

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