July 3, 2009

Scott v. Phoenix Schools: Wrongful Termination Alone is Not Enough to Support Punitive Damages

The California Court of Appeal (Third Appellate District) reversed a $750,000 punitive damages award in this published opinion, holding that the defendant was liable for wrongful termination, but had not acted with malice or oppression and was therefore not liable for punitive damages.

The plaintiff, the director of a preschool, refused to enroll a student because doing so would have put the school in violation of minimum teacher-student ratios for child care centers in California. When the parents complained to the school that the plaintiff was rude and dismissive, the school fired her. She sued, claiming she had been fired in violation of public policy, for refusing to violate the minimum teacher-student ratio. A jury awarded $1.1 million in compensatory damages and $750,000 in punitive damages. The Court of Appeal affirmed the jury's liability finding and compensatory damages award, but reversed the punitive damages award:

[W]e conclude that wrongful termination, without more, will not sustain a
finding of malice or oppression. There was no evidence Phoenix attempted to hide
the reason it terminated Scott. It admitted to terminating her because she would
not enroll the McMaster child. Likewise, there was no evidence Phoenix engaged
in a program of unwarranted criticism to justify her termination. Because there
was nothing more than a wrongful termination here, punitive damages were not
warranted, and the trial court should have granted defendant's motion for
judgment notwithstanding the verdict on the issue of punitive damages

Interestingly, the court's analysis seems to apply the "clear and convincing" evidence standard when reviewing the record for evidence to support the punitive damages award. (See, e.g., typed opn. p. 20 ["in order to sustain the punitive damages award, the evidence must leave no substantial doubt that Phoenix engaged in despicable conduct, or conduct intended to cause injury to Scott"].) As we have noted in prior posts, there is a split of authority in California as to whether appellate courts should consider the "clear and convincing" standard when reviewing punitive damages for substantial evidence, or whether that standard is for the exclusive use of the trial court. The California Supreme Court granted review to resolve that split last year in Harvey v. Sybase, but dismissed review when the parties settled. The Supreme Court is being asked to take that issue up again in Leeper-Johnson v. Prudential. (See the Supreme Court's on-line docket.)