November 7, 2008

Ninth Circuit Reduces Punitive Damages Award; $60 Million Jury Award Reduced to $1.1 Million After Two Appeals

The Ninth Circuit has issued a published order reducing a $4 million punitive damages award down to $1.1 million, for a three-to-one ratio of punitive to compensatory damages.

The case, Southern Union Company v. Irvin, involved a lawsuit by Southern Union Company against James Irvin, the chairman of the Arizona Corporation Commission. Southern Union argued that Irvin was motivated by "personal interests" to block a proposed merger between Southern Union and an Arizona utility company. A jury awarded $975,181 in compensatory damages to Southern Union and assessed 40 percent fault to Irvin. The jury then awarded an additional $60 million in punitive damages against Irvin.

Irvin appealed and the Ninth Circuit vacated the punitive damages award as constitutionally excessive. (See S. Union Co. v. Sw. Gas Corp. (9th Cir. 2005) 415 F.3d 1001, 1009.) On remand, the district court offered Southern Union the chance to accept a remittitur of the punitive damages to $4 million, which was slightly more than ten times the compensatory damages assessed against Irvin. Southern Union accepted the remittitur and Irvin appealed again.

In the second appeal, the Ninth Circuit issued an order, joined by Judges Fernandez and Reinhardt, concluding that the $4 million punitive damages award was still excessive. Instead of remanding the case to the district court again, the Ninth Circuit reduced the punitive damages to $1.1 million, three times the compensatory damages awarded against Irvin. The court focused primarily on the lack of reprehensibility of Irvin's conduct, noting that (1) the harm was not physical and did not involve health or safety, (2) the harm was inflicted on a wealthy corporation, not a financially vulnerable individual, (3) the incident was isolated, (4) Irvin was not motivated by a desire for personal financial gain, and (5) the compensatory damages award against Irvin provided significant deterrence by itself.

Judge Reinhardt wrote a separate concurrence suggesting that he would have affirmed the award if the defendant were a wealthy corporation.

Jude Noonan wrote a dissenting opinion in which he suggested that the majority was "mak[ing] up facts" and "suppress[ing] facts established at trial." In Judge Noonan's view, the record established, contrary to the majority's view, that Irvin was motivated by a desire for personal financial gain. Also, Judge Noonan argued that Irvin's misconduct during litigation justified a higher punitive damages award. (Note: if this case were tried under California law, consideration of the defendant's litigation would be inappropriate. See De Anza Santa Cruz Mobile Estates Homeowners Assn. v. De Anza Santa Cruz Mobile Estates (2001) 94 Cal.App.4th 890, 895-896 [“[P]unitive damages in a tort action cannot be based on evidence of defendants' litigation conduct occurring subsequent to the underlying tort . . .”].)

A few points about the majority opinion jump out at me:

  • In keeping with recent trends, the majority essentially ignored the third BMW guidepost for reviewing the constitutionality of punitive damages---the "comparable penalties" guidepost. This guidepost seemed like a significant innovation when BMW was decided, but it has not had much of an impact on the development of punitive damages law since BMW.
  • The majority dropped a footnote citing the Exxon Valdez case (Exxon Shipping v. Baker). The majority noted that Baker was a maritime law case, not a constitutional case, but the majority nevertheless called attention to the adoption of a one-to-one ratio in Baker.
  • For purposes of calculating the ratio, the majority compared the punitive damages award to Irvin's share of the compensatory damages award, as reduced by the allocation of fault. That may seem like the obvious approach, but we have seen several cases in which plaintiffs argue that a punitive damages award should be compared to the plaintiff's total compensatory damages, ignoring any allocation of fault.
  • When evaluating the reprehensibility of Irvin's conduct, the majority treated Irvin's conduct as an isolated incident, even though Irvin's actions in this case involved a four-month course of conduct. The majority's approach is consistent with other cases holding that a defendant should not be treated as a repeat offender just because the conduct towards the plaintiff involved multiple different acts; there must be evidence that the defendant previously engaged in the same sort of conduct towards someone else.
  • The majority expressly stated that Irvin's $400,000 share of the compensatory damages award was "substantial," but the majority did not discuss the Supreme Court's statement in State Farm v. Campbell that the ratio of punitive to compensatory damages should be low, perhaps only one-to-one, in cases involving "substantial" compensatory damages. I wonder whether the defendant called that statement to the court's attention.
All in all, it's somewhat surprising to see the Ninth Circuit, particularly Judge Reinhardt, taking a fairly conservative and restrained approach to the punitive damages award in this case. I suspect that may have a lot to do with the fact that the plaintiff in this case is a wealthy corporation and the defendant is an individual, instead of the other way around.