March 28, 2008

Garza v. Asbestos Corporation: Court of Appeal Affirms $10 Million Punitive Damages Award

The First Appellate District, Division Three, upheld a $10 million punitive damages award in an asbestos case. The opinion is only partially published, and the punitive damages issues are discussed in the unpublished portion of the opinion. The opinion was authored by Judge Horner, a superior court judge sitting on the Court of Appeal by temporary assignment.

The ratio of punitive-to-compensatory damages, six-to-one, is not particularly noteworthy by itself. But the court's reasoning in upholding the award is surprising in several respects, and seems to depart from established principles of California law.

First, in upholding the jury's finding that the defendant acted with malice and oppression, the court relied on historical studies, dating back to 1918, showing a link between asbestos and health problems. But the court cites no evidence that the defendant knew, back in the 1930's through the 1950's when it sold the products at issue, that those particular products would generate the sort of exposure levels that might cause health problems. That is an important element of a punitive damages claim in asbestos cases, because the scientists who prepared the early studies believed (incorrectly as it turns out) that asbestos was hazardous only in cases of prolonged exposure at high concentrations. The tragedy of asbestos is that it took decades for anyone to realize that even relatively low-level exposures could result in health problems. When that became clear, most everyone stopped using asbestos. For that reason, few asbestos cases involve punitive damages awards, because plaintiffs are ordinarily unable to show that the defendant knew about hazards that were unknown even to the scientific community at the time. Indeed, in most asbestos cases the plaintiffs do not even seek punitive damages. Yet this opinion seems to conclude that punitive damages can be obtained based on nothing more than a showing that the defendant was aware of some connection between asbestos and health risks, regardless of the exposure levels at issue.

The second surprising aspect of the court's opinion is its discussion of the defendant's financial condition. According to the plaintiffs' own expert testimony, the $10 million punitive damages award represents between 28 and 77 percent of the company's value. As the court acknowledged, California courts have repeatedly stated that punitive damages should not exceed 10 percent of the defendant's net worth. But the court avoided this rule by stating that the plaintiffs' evidence of net worth was "patchy and limited," and that the defendant "could have presented evidence on these questions but chose not to do so." According to the court, the plaintiffs "filled the evidentiary void" as best they could. There is a serious problem with that analysis: the California Supreme Court held in Adams v. Murakami that the plaintiff has the burden of introducing evidence of the defendant's financial condition, and if the evidence is lacking the plaintiff cannot recover punitive damages. Thus, unless the plaintiff can show that the defendant wrongly refused discovery requests regarding its financial condition, the plaintiff's failure to prove the defendant's ability to pay the punitive damages award should be a reason to reverse the award, not affirm it. The court's opinion does not even mention Adams.