March 4, 2008

Holdgrafer v. Unocal—California Court of Appeal Reverses Punitive Damages on Due Process Grounds

Division Six of the Second District Court of Appeal in Ventura, California has just issued its opinion in Holdgrafer v. Unocal. [Our firm is counsel for defendant Unocal.] Based on the US Supreme Court decisions in Philip Morris v. Williams and State Farm v. Campbell, the court found the $5 million punitive damages award was tainted by improperly admitted evidence. We'll offer further thoughts once we've fully digested the decision but, in the meantime, here's language from the opinion's s introduction:

In deciding whether a punitive damages award violates the constitutional prohibition of arbitrary or grossly excessive punishment, the most important factor to be considered is the reprehensibility of the defendant's conduct.[1] The United States Supreme Court has instructed courts undertaking this inquiry that "[a] defendant's dissimilar acts, independent from the acts upon which liability was premised, may not serve as the basis for punitive damages."[2] On de novo review, we conclude that evidence of two massive oil spills is too dissimilar to be considered in assessing defendant's reprehensibility in causing and responding to the underground contamination of plaintiffs' commercial property. We further conclude that in order to comply with due process, the proscription of "dissimilar acts" evidence in punitive damages cases must apply to boththe jury's predicate determination whether a defendant is liable for punitive damages (Civ. Code, § 3294, subd. (a)), as well as to its subsequent evaluation of a defendant'sreprehensibility in assessing the amount of punitive damages to be awarded.
We agree with Unocal that the punitive damages award does not comport with due process because the jury was effectively invited to punish Unocal for injuring persons or entities that are not parties to this litigation, for conduct that had nothing to do with that which harmed the plaintiffs in this case. Because Unocal's dissimilar conduct was admitted not only for the purpose of evaluating the degree of Unocal's reprehensibility in setting the amount of punitive damages, but also to prove that Unocal was guilty of malice, fraud or oppression, the jury's findings of liability for punitive damages and the amount of the award are both fatally undermined. Accordingly, although we affirm the award of compensatory damages, we reverse and remand for anew trial on punitive damages liability and the amount of such damages to be awarded, if any.

Update (3/5/2008): Here is media coverage of the opinion.