September 7, 2009

Fisher v. Wells Fargo: $750k Punitive Damages Award is Excessive

The California Court of Appeal (Fourth District, Division Two) issued this unpublished opinion last week, reducing a punitive damages award from $750,000 to $150,000 in a case involving $15,000 in compensatory damages.

The opinion is not particularly noteworthy, although it does illustrate that in cases involving small compensatory damages, California appellate courts will often allow a higher than normal ratio of punitive damages to compensatory damages, but not as high as 50 to 1.

This case involves the Fair Credit Reporting Act, which authorizes punitive damages for willful violations of the act. The jury found that the defendant, Wells Fargo, willfully violated the act by providing false information to TransUnion about plaintiff's credit and failing to conduct a complete investigation when plaintiff complained.

Wells Fargo appealed and the Court of Appeal rejected its argument that the record contained no evidence of a willful violation. But the court agreed with Wells Fargo that punitive damages award was excessive. The court said the defendant's conduct was low on the "hierarchy of reprehensibleness" because it involved purely economic harm, did not reflect an indifference to health or safety, did not involve repeat offenses, and did not involve intentional malice, trickery, or deceit. The court also noted that the plaintiff failed to present evidence that it was financially vulnerable. I can't think of any other opinions off the top of my head which have squarely held that plaintiffs have the burden of establishing their financial vulnerability for purposes of analyzing the reprehensibility of the defendant's conduct.

Discussing the issue of ratio, the court held that the 50-to-1 ratio in this case, like any ratio in excess of single digits, is presumptively suspect. The court stated that ratios in excess of single digits are sometimes permissible when the compensatory damages are unusually small, but the court did not view the $15,000 award in this case as small enough to warrant a larger ratio. The court nevertheless concluded that a 10-to-1 ratio would be permissible. Ordinarily such a high ratio would be reserved for only the most extremely reprehensible conduct, but the court allowed the high ratio presumably because of the relatively small amount of punitive damages.