July 16, 2008

Shapiro v. Clark: Court of Appeal Reverses Order Requiring Defendant to Bond Punitive Damages Portion of Default Judgment

This published opinion by the California Court of Appeal (Sixth District) involves a fairly obscure corner of punitive damages law, namely, whether a trial court can require a defendant who is seeking relief from default to post a bond to cover the amount of the plaintiff's punitive damages claim. The short answer is, "no."

The trial court entered a default judgment against Pamela Clark and two co-defendants, holding them jointly and severally liable for $300,000 in compensatory damages and $1.5 million in punitive damages. Clark alone sought relief from default, providing a variety of reasons why she should be excused from her failure to answer the complaint, including the fact that her adult son died unexpectedly during the time period when her answer was due. The trial court entered an order denying Clark's request for relief from default unless she agreed to post a bond of $1.8 million with the superior court for the duration of the litigation.

The Court of Appeal acknowledged that trial courts have discretion to require a party to post a bond in order to obtain relief from a default judgment. The bonding requirement protects the plaintiff in the event of an eventual recovery. But the court found that the bond required by the trial court in this case was excessive. The court noted that the bond grossly exceeded the amount of compensatory damages at issue, and the bond could not be justified based on the plaintiff's prospect of obtaining punitive damages:

A punitive damages award is “essentially a windfall for plaintiffs that the law permits for public policy reasons.” . . . We question whether a bond protecting only a plaintiff’s interest in a “windfall” can ever constitute a reasonable condition . . . We have found no case in which such a condition was imposed, let alone upheld on appeal. Nor do we detect any circumstance in this case that might justify such a condition. . . . The essential function of the law is to strike a balance between competing interests and policies. As against the policy strongly favoring adjudication on the merits, and appellant’s interest in securing such an adjudication, respondents’ interest in securing the payment of a windfall, and the policy of punishing wrongdoers through civil actions in tort, lack sufficient weight to sustain the order under review. We conclude that insofar as the amount of the bond exceeded an amount reasonably anticipated to make the plaintiff whole, its imposition as a condition of relief was an abuse of discretion.
Thanks to Ben Shatz at Manatt, Phelps & Philips for alerting me to this decision.

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