December 15, 2009

North Carolina Supreme Court Applies "Clear and Convincing" Standard to Appellate Review of Punitive Damages

The North Carolina Supreme Court's decision last week in Scarborough v. Dillard's addresses an issue that has divided California appellate courts for quite some time.

The issue is whether the "clear and convincing evidence" standard has any role in appellate review of punitive damages awards. In most jurisdictions, plaintiffs are not entitled to punitive damages unless they can prove by clear and convincing evidence that the defendant acted with malice. But what happens when a defendant challenges a jury's award of punitive damages, arguing that the award is not supported by substantial evidence? Should the reviewing court (either an appellate court or a trial court ruling on a JNOV motion) apply the usual "substantial evidence" rules without regard to the heightened standard of proof, and uphold the award if there is any slight amount of evidence supporting a finding of malice? Or should the reviewing court take the heightened standard of proof into account?

As we have reported in prior posts, California courts are all over the map on this issue. There is published case authority expressly holding that reviewing courts should take the "clear and convincing" standard into account. (See Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847 [“since the jury’s findings were subject to a heightened burden of proof, [this court] must review the record . . . in light of that burden. In other words, [this court] must inquire whether the record contains ‘substantial evidence to support a determination by clear and convincing evidence’”].) But there are other cases outside the punitive damages context holding that the clear and convincing evidence standard does not apply on appellate review. We occasionally see unpublished opinions (like this one and this one) applying this analysis to punitive damages decisions without even mentioning Shade Foods.

California Supreme Court opinions spanning a century or more leave the question up in the air, as we noted here. Last year the California Supreme Court granted review on this issue, but later dismissed review because the parties settled the case. Sooner or later, the court is likely to take this issue up again, but for now California law is in limbo.

In North Carolina, however, it is now clear that reviewing courts should take the clear and convincing standard into account:

[W]e hold that in reviewing a trial court’s ruling on a motion for judgment
notwithstanding the verdict on punitive damages, our appellate courts must
determine whether the nonmovant produced clear and convincing evidence from
which a jury could reasonably find one or more of the statutory aggravating
factors required by N.C.G.S. § 1D-15(a) and that that aggravating factor was
related to the injury for which compensatory damages were awarded. Reviewing the trial court’s ruling under the “more than a scintilla of evidence” standard does
not give proper deference to the statutory mandate that the aggravating factor
be proved by clear and convincing evidence. Evidence that is only more than a
scintilla cannot as a matter of law satisfy the nonmoving party’s threshold
statutory burden of clear and convincing evidence.

Hat tip: North Carolina Business Litigation Report

Related post:

Interesting North Carolina Punitive Damages Decision on the Standard of Review