Hold the Gravy: No Punitive Damages in Fosamax Litigation

Bloomberg is reporting that U.S. District Judge John Keenan intends to dismiss the plaintiffs' punitive damages claims in a massive lawsuit against Merck & Co.

The lawsuit alleges that Merck's osteoporosis drug Fosamax causes irreversible "jaw rot." (I don't know exactly what that is, but it doesn't sound good.) Merck is facing more than 850 lawsuits over Fosamax. Judge Keenan's ruling comes in connection with three bellwether trials set to begin on August 11.

The plaintiffs' lawyers are downplaying the dismissal of their punitive damages claim. "The punitive damages are just the gravy," said plaintiffs' counsel Timothy O'Brien.

Berry v. Taggart: Trial Court Properly Denied Motion to Strike

The California Court of Appeal (First District, Division 1) issued this unpublished opinion, affirming a trial court order denying a defendant's special motion to strike the plaintiff's complaint under Code of Civil Procedure section 425.16 (the "anti-SLAPP" statute).

I won't delve into the anti-SLAPP aspects of this opinion, which are beyond the scope of this blog. For our purposes, its important to note only that an appellate court reviewing the denial of an anti-SLAPP motion must consider whether the plaintiff established a probability of prevailing on the complaint. With respect to the punitive damages allegation in the complaint, the defendant argued that the plaintiff could not prevail on its fifth cause of action for punitive damages because California law does not recognize a "cause of action" for punitive damages.

The Court of Appeal agreed that there is no separate cause of action or tort for punitive damages under California law. But the court nevertheless concluded that the fifth cause of action in plaintiff's complaint, although styled as a cause of action for punitive damages, actually stated facts sufficient to support a cause of action for malicious prosecution. The court went on to say that, because punitive damages are unquestionably recoverable in a malicious prosecution action, plaintiff had established a likelihood of obtaining punitive damages sufficient to defeat the defendant's special motion to strike.

Superior Dispatch, Inc. v. Insurance Corp of New York: Trial Court Erred in Striking Punitive Damages Claim in Insurance Bad Faith Case

The California Court of Appeal (Second District, Division 3) issued this published opinion yesterday, reversing a trial court's grant of summary judgment to an insurer in an insurance bad faith suit.

Among other things, the opinion states that the trial court erred in striking the plaintiff's punitive damages claim because the facts alleged in the complaint would be sufficient to support a finding of "oppression," one of the predicates to awarding punitive damages under Civil Code 3294.

The punitive damages portion of the opinion is not particularly noteworthy. We mention it only in connection with our ongoing efforts to develop a complete picture of all the punitive damages decisions coming out of the California Court of Appeal.

$25 Million Punitive Damages Award in Riverside Employment Case

The Riverside Press-Enterprise is reporting that a jury has awarded $916,000 in compensatory damages and $25 million in punitive damages in an age discrimination case against Sears Holdings. The plaintiff, a former manager of a KMart store, claims he was fired as part of a company-wide policy of replacing older workers with "fresh blood."

The 27.3-to-1 ratio of punitive damages to compensatory damages is suspect, to say the least. Not surprisingly, Sears says it plans to file posttrial motions and, if necessary, an appeal.

Some Stats On Punitive Damages in the California Court of Appeal

Since we began this blog in January 2008, we've tracked every California Court of Appeal opinion on the topic of punitive damages, published and unpublished. As a result, we've collected a fair amount of data. I'm starting to sift through some of that data to see what it might tell us about how our appellate courts deal with punitive damages. I've started by looking just at the 2009 California punitive damages decisions. When I have time, I'll update these figures with the cases from 2008.

Total decisions, published and unpublished

There have been 26 California Court of Appeal decisions in 2009 addressing punitive damages, not counting cases where punitive damages were awarded but the court of appeal's opinion did not address punitive damages issues (e.g., not including Blanks v. Seyfarth Shaw, in which the Court of Appeal ordered a new trial on all issues, resulting in the reversal of a $15 million punitive damages award). Only 2 of the punitive damages opinions in 2009 have been published. (Scott and Major).

Defendants' success rates in challenging punitive damages

To date, there have been 18 appeals in 2009 involving a defendant's challenge to an award of punitive damages. (As explained below, the other cases involve defense verdicts or punitive damages claims that were dismissed before trial.)

In 13 of those 18 cases, the defendant was successful in getting a punitive damages award vacated or reduced, either by the trial court or the court of appeal. That's an overall success rate of 72 percent for defendants.

In 6 of those 18 cases (33 percent), the punitive damages were vacated entirely.

Looking exclusively at cases in which the trial court rejected the defendants' posttrial challenges, the defendants succeeded in getting some relief from the Court of Appeal (either a reduction or a completely reversal) in 8 out of 13 cases (62 percent).

Plaintiffs' success rates in appealing from trial court rulings for the defense

There have been 4 cases so far in 2009 in which a plaintiff appealed from a trial court decision dismissing a punitive damages claim (by nonsuit, directed verdict, or a motion to strike). Only one of those plaintiffs were successful (25 percent).

There have been 3 cases in which plaintiffs appealed from a decision not to award punitive damages (two jury trials and one bench trial). All 3 of those appeals were unsuccessful.

Conclusions

These sample sizes are too small to support any conclusions. And even when we have more data, it is important to keep in mind that these stats are based exclusively on appellate decisions, and do not include cases in which a trial court made a posttrial ruling that was never appealed. So you have to take all these numbers with a grain of salt.

Nevertheless, the one thing that jumps out at me from these stats is the high success rates for defendants. It will be interesting to see whether that is just a 2009 anomaly, or whether those percentages hold true when we add in the stats from the 2008 cases.

L.A. Jury Awards $370 Million Against Co-Founder of Guess Inc.

The Associated Press is reporting that a Los Angeles jury has awarded a $370 million verdict, including $25 million in punitive damages, in a defamation lawsuit against Georges Marciano, co-founder of Guess, Inc.

The plaintiffs in the action are five former employees of Marciano. He sued them in 2007, accusing them of stealing from him. His claims were dismissed, but the ex-employees counter-claimed for defamation.

Prof. Dan Markel Previews Article: "Taxing Punitive Damages"

Professor Dan Markel of the Florida State University College of Law has a post on Prawsblog previewing his upcoming article on taxation of punitive damages. Here's his preliminary abstract:

In this article, we address the important but astonishingly under-examined issues associated with the taxation law and policy related to punitive damages. For the most part, the tax consequences of punitive damages are not on anyone’s minds, and as a result of this blind spot, plaintiffs and their lawyers are likely leaving enormous amounts of money on the table in every case involving punitive damages against defendants whose torts occurred in the context of business operations. Of course, even if we assumed that decision-makers regarding punitive damages were aware of the relevant tax effects, there are still a number of other important issues affecting whether a jurisdiction should make punitive damages a) deductible from defendants’ gross income or non-deductible, and b) taxable gains to the plaintiff.

This Article examines those issues, and by doing so, spotlights the policy difficulties associated with trying to use tax law to help achieve the goals of current punitive damages law. Contrary to a number of scholars who have flatly endorsed the move to a non-deductibility rule to simply increase the putative “sting” of punitive damages, we explain what that change in taxation would augur for a broad array of policy concerns including federalism, settlement incentives, collusion against third parties, and administrative oversight. Although it is not without its own problems, we suggest that a tax-aware decision-maker might better gross-up the damages to
take account of one’s marginal tax rate rather than simply make the punitive damages non-deductible. Moreover, because we think a lot of the difficulties associated with the taxation of punitive damages cannot be readily fixed simply by tweaking tax law, we sketch out in the last two parts of the Article a vision for what a more attractive punitive damages regime would look like, and how the tax rules would correspond appropriately.

Essex Ins. v. Professional Building Contractors: Punitive Damages Reduced to 1-to-1 Ratio in Insurance Bad Faith Case

The California Court of Appeal (Second Appellate District, Division Two) has issued an opinion which, although unpublished, is a must read for anyone handling an insurance bad faith case involving punitive damages.

The jury awarded $682,000 in compensatory damages and $2.5 million in punitive damages (a ratio of 3.7-to-1) against an insurance company for unreasonably denying coverage. The trial court granted a conditional new trial unless the plaintiff agreed to accept a remittitur of the punitive damages to $682,000. The plaintiff refused to accept the remittitur and appealed from the order granting a new trial.

The Court of Appeal affirmed. First, it noted the "abuse of discretion" standard of review governs appellate review of a trial court order granting a conditional new trial based on excessive punitive damages, not the "de novo" standard of review that applies to a defendant's appeal from a judgment awarding punitive damages.

Next, the court evaluated the defendant's conduct and determined that it was relatively low on the reprehensibility scale because the plaintiff's losses were purely economic, there was no indifference to public health or safety, the plaintiff was not financially vulnerable, and the defendant was not a repeat offender.

Turning to the ratio between punitive and compensatory damages, the court cited several recent California opinions that have imposed a 1-to-1 limit in cases with relatively low levels of reprehensibility. The court rejected the plaintiff's argument that the ratio calculation should include prejudgment interest or speculative "potential harm" claimed by the plaintiff. The court also cited Justice Souter's majority opinion in Exxon Shipping, which noted that the median ratio is less than 1-to-1 across the entire gamut of circumstances that can support punitive damages.

Finally, when considering the third guidepost for evaluating punitive damages - - legislative or regulatory penalties for comparable misconduct - - the court rejected the plaintiff's argument that the defendant insurer could have been fined $10,000 under Insurance Code section 790.035 for each "will, unfair or deceptive act" in its dealing with the plaintiff. The court said that even assuming the insurer's acts were punishable under that statute, the insurer's liability in this case was based on its handling of a single claim for a single insured, and therefore was not comparable to conduct that would trigger multiple penalties under the statute.

By our count, this is the sixth California appellate decision in the past 3 years in which a punitive damages award was reduced from a single digit ratio down to a 1-to-1 ratio, either by the trial court or by the court of appeal. The others are:

Stevens v. Vons (2009) [unpublished] [ratio reduced from 10-to-1 down to 1-to-1]

Walker v. Farmers Ins. Group (2007) 153 Cal.App.4th 965 [ratio reduced from 5.6-to-1 down to 1-to-1]

Jet Source Charter, Inc. v. Doherty (2007) 148 Cal.App.4th 1 [ratio reduced from 4-to-1 down to 1-to-1]

Grassilli v. Barr (2006) 142 Cal.App.4th 1260 [ratios reduced from 8.4-to-1 and 7.5-to-1 down well below 1-to-1]

Roby v. McKesson HBOC (2006) 146 Cal.App.4th 63, review granted [ratio reduced from 10.7-to-1 down to 1.4-to-1]

Pagarigan v. Libby Care: Conclusory Allegations of Corporate Ratification Cannot Support Punitive Damages Claim

The California Court of Appeal (Second Appellate District, Division Seven) issued this unpublished opinion yesterday, affirming a trial court's order striking a claim for punitive damages.

The plaintiffs were seeking punitive damages against a corporation that operates a nursing home. The plaintiffs alleged that the nursing home was understaffed and underfunded, which ultimately led to the death of their mother, a resident at the facility.

Under California law, punitive damages cannot be awarded against a corporation unless an officer, director, or managing agent of the corporation committed, authorized, or ratified the punishable conduct. (Civil Code section 3294.) To satisfy this requirement, the plaintiffs alleged in their complaint that the decision to underfund and understaff the facility was "committed by, or authorized and ratified by officers, directors and/or managing agents." In other words, the complaint alleged a legal conclusion but did not allege any specific facts to support that conclusion.

The Court of Appeal affirmed the trial court's order striking the punitive damages claim, holding that:

absent any allegations that employees at [the nursing home] have any responsibility for or authority over . . . corporate-wide policies and procedures, rather than day-to-day management duties at one facility, or allegations that individuals . . . within [the corporation's] leadership group were aware of and ratified the corporate funding and staffing policies that allegedly led to the abuse suffered by [plaintiffs' mother], the trial court properly granted the motion to strike the claims for punitive damages

In the year and half since we launched this blog and began tracking all California appellate opinions on punitive damages, this is only the second case involving a punitive damages claim that was rejected because the allegations of the complaint were insufficiently specific. (Here's our post about the other case.)

Texas Jury Awards $145 Million in Punitive Damages

Law.com is reporting that a Texas jury has awarded $178.7 million, including $145 million in punitive damages, against NL Industries (a holding company) and its general counsel (who is personally liable for $5 million of the punitive damages). The Law.com story says the plaintiffs were minority shareholders in a subsidiary of NL Industries. They claimed they lost most of their investment when the holding company improperly stripped the subsidiary of its assets. Not suprisingly, NL is planning an appeal.

New Book on Punitive Damages from a European Perspective

TortsProf Blog has a post about a new book published by the Institute for European Tort Law entitled "Punitive Damages: Common Law and Civil Law Perspectives." The book can be purchased here for $189.00. Here's the publisher's description:

With the growing literature on the subject of punitive damages, the consensus is that it seems worthwhile and even necessary to discuss, thoroughly and on a comparative basis, the nature, role and suitability of such damages in tort law and private law in general.

This book contains reports from selected jurisdictions that explicitly allow the award of punitive damages as well as from jurisdictions which purport (sometimes emphatically) to deny their existence (although a number covertly incorporate such damages into the framework of their tort systems). It benefits from an economic analysis of punitive damages, a report from a private international law perspective, one on their insurability and one on aggravated damages. The book’s comparative report and conclusion critically evaluates the material in the above reports and advances a thorough analysis of the nature of punitive damages, the cases for and against them, and their suitability in the field of tort law. Alternative remedies in private and criminal law are also considered.

The publication will appeal to students, academics, practitioners, judges, policy makers and those in the insurance industry.

UPDATE: On a related note, Professor Michael Wells Lewis of the University of Georgia School of Law has posted an article on SSRN entitled: "A Common Lawyer's Perspective on the European Perspective on Punitive Damages." Hat tip: TortsProf Blog (again).

"Through the Looking Glass: A Respose to Professor Dan Markel's Retributive Damages"

Professor Sheila B. Scheuerman of the Charleston School of Law has written an essay, posted here on the site of Cornell Law Review's Legal Workshop, responding to an article by Professor Dan Markel of the Florida State University College of Law. Prof. Markel's article, mentioned in a few previous posts on this site, proposed that states move away from the current system of punitive damages and adopt an alternate system which he calls "retributive damages."

On the Torts Prof Blog, Prof. Scheuerman summaries her critque of Prof. Markel's proposal:

First, can the “retributive damages” model properly be considered punitive
damages? Second, do “retributive damages” avoid the doctrinal problems that have
plagued punitive damages for decades? In my view, the answer to both questions
is “no.”

More on Sotomayor and Punitive Damages

My co-bloggers have already linked to a few reports about how a Justice Sotomayor might vote in punitive damages cases. This Bloomberg.com story addresses that issue again.

As reported by Bloomberg, Judge Sotomayor struck a pro-business chord during her Senate testimony when she said that "[i]n business, the predictability of law may be the most necessary." That statement echoes the reasoning of Justice Souter in his opinion for the majority in Exxon Shipping, in which he stated that a imposing a maximum one-to-one ratio of punitive damages to compensatory damages eliminates arbitrary and unpredictable outcomes.

The Bloomberg story goes on to note, however, that Judge Sotomayor twice voted to uphold punitive damages against arguments that the awards were unconstitutionally excessive. One of those cases was Motorola Credit Corp. v. Uzan (2d Cir. 2007) 509 F.3d 74. To our knowledge, the $1 billion punitive damages award in that case is the second largest punitive damages award ever to survive appeal in the U.S. It's worth noting, however, that the punitive damages award in that case was only half the amount of the $2 billion compensatory damages award, so that award was well within the one-to-one limit advocated by Justice Souter.

I looked on Westlaw to find the other case referenced in the Bloomberg story and I found Moskowitz v. Coscette [2001 WL 51009]. In that case, the jury awarded $125,000 in compensatory damages and $75,000 in punitive damages. In a summary order, the 2nd Circuit upheld the award. Again, the award was below the one-to-one ratio limit.

In my view, these opinions don't shed much light, if any, on how Justice Sotomayor might vote on punitive damages issues coming before the Supreme Court. They certainly don't indicate how Justice Sotomayor might feel about the validity of the Supreme Court's line of cases, starting with BMW v. Gore, that imposed restrictions on the amount of punitive damages as a matter of due process. All we can say is that Judge Sotomayor has never voted to strike down a punitive damages award as excessive, but she hasn't voted to uphold a punitive damages award exceeding a one-to-one ratio either.

Huge Punitive Damages Award Brewing in Kentucky

A press release on PR Newswire reports that a Kentucky jury has ruled in favor of the plaintiffs in a mass tort action against DuPont arising out of the release of toxic fumes from a chemical plant.

So far, the jury has awarded $1.25 million in compensatory damages and $12.5 million in punitive damages. But those awards are for only 6 of 179 plaintiffs. The other 173 cases remain to be tried. Apparently, the trial court has ordered that the liability findings from this trial will be binding in the subsequent trials. The subsequent trials will apparently focus only on causation and compensatory damages. Any plaintiff who recovers compensatory damages will automatically be entitled to a punitive damages award of ten times the amount of compensatory damages.

Based on the awards to the first 6 plaintiffs, this case is on pace to generate awards totaling $37.3 million in compensatory damages and $373 million in punitive damages.

Turnabout in Dole Banana Litigation: Now Dole is Asking for Punitive Damages

We've been blogging about California litigation brought by Nicaraguan banana workers against Dole, based on alleged exposure to pesticides. Early on, the plaintiffs obtained (and then lost) a punitive damages award against Dole. The litigation has taken some bizarre twists and turns since then, including a disciplinary proceeding instigated by the Ninth Circuit against one set of plaintiffs' lawyers, and a dismissal of another action, prompted by the revelation that many of the plaintiffs in that action never worked on a banana farm and/or had fathered children, despite their claims of sterility.

The latest news in this saga is that Dole is bringing a lawsuit of its own. According to LABIZObserved, Dole has sued a filmmaker who made a pro-plaintiff documentary about Dole's conduct and the subsequent litigation. Dole claims the filmmaker (Fredrik Gertten) ignored the truth, even after the California court proceedings unfolded and revealed the falsity of the plaintiffs' claims. Dole is asking for punitive damages.

Clark v. Clark: $2.5 Million Net Worth Sufficient to Support $100,000 Punitive Damages Award

We've been blogging recently about the slew of cases reversing punitive damages awards because the plaintiff failed to present meaningful evidence of the defendant's financial condition.

Here's a change: in an unpublished opinion, the California Court of Appeal (First Appellate District, Division Three), reverses a trial court's determination that the plaintiff's evidence of the defendant's financial condition was insufficient. The Court of Appeal concluded the evidence established a net worth of $2.5 million, more than enough to support a $100,000 award. The Court of Appeal faulted the trial court improperly weighing evidence and considering evidence not before the jury.

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.)

Monier-Kilgore v. Flores: Yet Another Reversal Based on a Plaintiff's Failure to Prove the Defendant's Financial Condition

The California Court of Appeal (Third Appellate District) issued this unpublished opinion reversing $1.1 million in punitive damages because the plaintiff failed to introduce meaningful evidence of the defendant's financial condition. The plaintiff put on evidence regarding the plaintiff's income and bank deposits, but no evidence of the defendant's liabilities and expenses. The court found that without such evidence, the jury had no basis for determining the defendant's net worth or ability to punitive damages, especially since many of the defendant's assets would be needed to satisfy the compensatory damages award.

This is the third case in the past week in which a punitive damages award was reversed on this basis. (See our posts about the other two cases here and here.) It would have been four cases if the defense counsel in this case had not bailed out the plaintiff by presenting evidence of net worth after the plaintiff failed to do so.

I have lost count of how many unpublished cases we have seen on this issue since we launched this blog in January 2008. Perhaps its time for the courts to publish a few of these decisions, to remind trial lawyers of the importance of presenting meaningful evidence of the defendant's financial condition.

Exxon Mobil Asks 9th Circuit to Reconsider Valdez Costs Ruling

As reported on SCOTUSblog, Exxon Mobil has filed a petition for rehearing, asking the Ninth Circuit to reconsider its ruling that Exxon is responsible for its own costs on appeal ($70 million). Exxon argues that it should be treated as a prevailing party because it succeeded in eliminating 90% of the $5 billion punitive damages awarded by the jury.

As we noted yesterday, Exxon has decided not to challenge the Ninth Circuit's determination that the plaintiffs are entitled to interest on the reduced punitive damages award dating back to the date of the original judgment.

SCOTUSblog has posted a copy of Exxon's petition for rehearing or rehearing en banc.

Punitive Damages and Default Judgments

In California, a plaintiff cannot obtain punitive damages as part of a default judgment in a personal injury or wrongful death case unless the plaintiff first serves a statement of damages, specifying the amount of punitive damages requested. (See California Code of Civil Procedure 425.11, subd. (c).)

This rule came in to play in two unpublished decisions issued this week by the California Court of Appeal. In Anson v. St. Michael's Episcopal Church, the plaintiff failed to serve a statement of damages, and the Fourth Appellate District, Division Three, held that he was not entitled to recover punitive damages by default. By contrast, in Cantu v. Thomas, the plaintiff did serve a statement of damages requesting a specific amount of punitive damages, and the Fourth Appellate District, Division Two, affirmed the $20,000 in punitive damages he obtained by default.

UPDATE: On June 30, the Second Appellate District, Division Eight, issued another unpublished opinion on this issue. In Daniel v. Lathen, the court upheld the portion of a trial court's order that vacated a $320,000 punitive damages award obtained by default. The plaintiff was not entitled to punitive damages because he failed to serve a statement of damages before obtaining the default.