Florida Jury Awards $275 Million in Punitive Damages

According to the St. Petersberg Times, a jury has awarded $55 million in compensatory damages and $275 million in punitive damages against a drunk driver who killed a 13-year-old girl. The award seems largely symbolic, since the defendant could never possibly pay it. But if this award survives appeal, it would be the fourth largest punitive damages award ever affirmed in the U.S., as far as we are aware. (The current top five awards are listed in this post.)

"Predicting the Constitutionality of Punitive Damages"

When a jury awards a large punitive damages awards, one of the first question for the lawyers on both sides is: Will this award survive posttrial and appellate review? A new paper posted on SSRN may help answer that question. Profesors Edward K. Cheng and Albert Yoon have written an essay entitled "Predicting the Constitutionality of Punitive Damages." Here's the abstract:

The constitutional doctrine governing punitive damages captivates legal scholars and jurists in part because it is both complex and evolving. The unpredictability, however, presents difficulties for attorneys and their clients, who need greater certainty to make practical decisions about litigation and settlement. In this Essay, we offer a statistical approach for predicting court decisions on the constitutionality of punitives. As it turns out, basic logisitic regression methods with appropriate model selection can be quite effective, although we make further gains using a Bayesian hierarchical approach. Using a new dataset of cases challenging punitive damage constitutionality from 1989 to 2008, our hierarchical model can predict out-of-sample outcomes with 76-85 percent accuracy. These results suggest that while constitutionality may not be subject to a deterministic formula, it can be effectively modeled statistically. Beyond the punitive damages context, our work additionally offers a glimpse of the potential of statistical models for predicting a wide variety of legal questions.

Hat tip: Torts Prof Blog.

$8.5 Million In Punitive Damages for Erectile Dysfunction

I swear I'm not making this up. According to this story on Law.com, a Georgia jury has awarded $750,000 in compensatory damages and $8.5 million in punitive damages to a man who allegedly suffered permanent damage to his penis as a result of a botched treatment for erectile dysfunction.

The plaintiff responded to an ad by the Boston Medical Group promising "sex for life." The company's clinic gave him its "secret formula" to inject into his penis. After he gave himself the first injection, he experienced "the best erection he's ever had in his life." Unfortunately, it proved to be a little too good. Two days later, he still had the erection. He went back to the clinic for treatment, but the clinic couldn't help him and he ended up in a hospital emergency room. Ultimately, he suffered permanent damage to his penis and is now unable to have an erection without the use of Viagra or Cyalis.

It certainly sounds like an unpleasant experience (especially the part about the plaintiff sticking a needle into his penis), but if the guy already had an erectile problem when he visited the clinic, isn't he now in exactly the same position he was in before he went there? Does that really merit an $8.5 million punitive damages award, on top of $750,000 in compensatory damages? Something tells me this verdict is not going to withstand review.

I can't wait to hear what Lowering the Bar has to say about this one.

Hodge v. Guarantee Real Estate: Defendant Entitled to Fees for Defending Meritless Punitive Damages Claim

Can a plaintiff who pursues a meritless punitive damages claim be forced to pay the defendant's attorney fees for defending that claim? Yes, according to this unpublished opinion from the California Court of Appeal (Fifth Appellate District).

Under California Code of Civil Procedure section 2033.420, if a party serves a proper request for admission (RFA) and the opposing party fails to admit the truth of a matter contained in the RFA, the party that served the request can recover its attorney fees for proving the truth of that matter at trial.

In this case, the plaintiffs' complaint included a claim for punitive damages. The defendants served RFAs on the plaintiffs, asking them to admit that the defendants did not act with malice, oppression, or fraud (the prerequisites for recovering punitive damages under Civil Code section 3294). The plaintiffs denied the RFAs. At trial, the plaintiffs were unable to present any evidence of malice, oppression, or fraud, so the trial court granted a nonsuit on punitive damages.

The defendants then moved for attorney fees under section 2033.420. The trial court agreed that the conditions for awarding fees under section 2033.420 were met, but the court denied the defendants' motion on the ground that the plaintiffs' punitive damages allegations did not increase the overall fees incurred by the defense.

The Court of Appeal reversed. It held that the trial court erred by refusing to award any attorneys' fees. At the least, the defendants should have been awarded the fees they incurred in bringing their nonsuit motion on punitive damages.

UPDATE: The California Attorney's Fees blog has a post about this opinion here.

"Saving Lives Through Punitive Damages"

Professors Joni Hersch and W. Kip Viscusi have posted a paper on SSRN entitled "Saving Lives Through Punitive Damages." From the title, you might expect this paper to assert one of the traditional arguments in favor of punitive damages: that the threat of unpredictably large punitive damages awards is necessary to deter corporate misconduct and protect consumer safety. In fact, the article takes a different approach. Here's an excerpt from the abstract:

This article proposes that the value of statistical life be used to set the total damages amount needed for deterrence when punitive damages are warranted in wrongful death cases. The appropriate level of damages should be achieved by adjusting the value of punitive damages. . . . The U.S. Supreme Court’s focus on punitive damages ratios is misplaced, as it is the total damages amount, not the ratio, that is instrumental. The criteria for evaluating punitive damages in bodily injury cases should be different than for property damages cases.

You may be wondering, as I was, exactly how "the value of statistical life" is calculated. In a nutshell, the value of statistical life is somewhere between $5 million and $9 million. Here's an explanation from the article:

To illustrate the VSL concept, consider the following example. Suppose a worker is willing to accept a fatality risk of 1/10,000 in return for annual wage compensation of $900. The value of statistical life, or the value per unit risk, is $900 divided by 1/10,000, or $9 million. Viewed somewhat differently, if 10,000 workers were each exposed to a 1/10,000 risk of death and each required $900 in compensation to face this risk, there would be a total of $9 million in compensation paid for the 1 expected, or statistical, death. By the same token, these workers would be willing to pay $900 for a fatality risk reduction of 1/10,000. Thus, the buying price and selling price for changes in risk are the same for very small changes in risk.

The VSL approach is accepted methodology within the economics literature and government agencies. Dozens of peer reviewed studies that estimate the VSL have been published in major economics journals, and the methodology has been recommended for use by government agencies by the U.S. Office of Management and Budget. While the values used by government agencies differ and have changed over time, most agencies now use figures in the range of $5 million to $9 million. Here we will focus on the $9 million figure for concreteness.

As the authors point out, this approach would sometimes yield ratios of punitive damages to compensatory damages exceeding 1-to-1, and possibly exceeding single digits. On the other hand, this approach would not allow 8 or 9-figure awards to a single plaintiff, like the $50 million punitive damages award affirmed by the California Court of Appeal in Boeken v. Philip v. Morris.

This is an entirely academic exercise, because the states are not likely to abandon their traditional methods for awarding punitive damages. I can just hear the howls that would be generated by this approach. Critics would say it reduces the value of human life to a cold statistical computation. No state legislator is going to get behind that one. But this proposal is nonetheless a very thought-provoking and innovative solution to a problem (the lack of any concrete standards for imposing punitive damages in personal injury cases) that has long plagued American tort law.

Hat tip: Torts Prof Blog.

New Look, Same Great Taste!

Regular readers may notice that the look of this blog has changed. Don't be alarmed.

We will continue to provide the same scintillating content, covering all the drama and excitement in the world of California punitive damages litigation. (Yeah, perhaps that's overstating things just a wee bit.) The new look simply echoes our newly redesigned law firm website: http://www.horvitzlevy.com/.

Montana Supreme Court Reverses Punitive Damages Award; Trial Court Excluded Evidence of Regulatory Compliance

Although this blog is generally California-centric, last week we reported on an interesting out-of-state opinion, and here's another one. In Malcolm v. Evenflo, a products liability action against a manufacturer of child seats, the Montana Supreme Court reversed a $3.7 million punitive damages award because the trial court wrongly excluded evidence that the defendant complied with federal safety standards.

Some readers may think this is a no-brainer. After all, if a jury is being asked to decide whether a manufacturer acted with reckless disregard towards the safety of its consumers, the jury should at least be allowed to consider the fact that the defendant complied with all applicable safety regulations, right? Well, at least two Montana Supreme Court justices didn't see it that way.

Two justices dissented from this opinion, taking the position that a defendant's compliance with safety regulations is not relevant to the issue of punitive damages, and would only confuse and mislead the jury. The dissent recites in detail all of the plaintiffs' evidence in support of their claim for punitive damages. That evidence, as described by the dissent, certainly makes the defendant look bad. But even if the weight of the evidence favored the plaintiff, it seems to me that the defendant should have at least been allowed to present its evidence to the jury.

Gullwing Int'l v. Ostermeier: $1 Million in Punitive Damages Affirmed

I have some doubts about the analysis in this unpublished opinion issued yesterday by the California Court of Appeal (Second Appellate District, Division Two).

The jury in this fraud case awarded $17.1 million in punitive compensatory damages and $1 million in punitive damages. Obviously that's not the sort of ratio that raises eyebrows. Nevertheless, the defendant argued that the Court of Appeal should reverse the punitive damages award because the plaintiff failed to present evidence of the defendant's net worth. As readers of this blog are aware, California punitive damages awards are commonly reversed on that basis.

The Court of Appeal's opinion here acknowledges that "'[n]et worth' has become the guidepost of punitive damages" in California. The opinion then goes on to say that the plaintiff sufficiently proved the defendant's net worth by presenting evidence that the defendant received several million dollars in cash from the plaintiff, owned several airplanes, and sold a piece of commercial property for $2.1 million.

The opinion makes no mention of any evidence regarding the defendant's liabilities or expenses. It is well established under California law that evidence of income and assets alone, without evidence of liabilities and expenses, is not sufficient to prove net worth. (See Kelly v. Haag (2006) 145 Cal.App.4th 910, 917 [reversing punitive damage award with directions when plaintiff introduced evidence of the defendant’s assets, but “there was no evidence of any encumbrances on the [defendant’s] properties at the time of trial, or of other liabilities [defendant] may have had”].)

Since we launched this blog in 2008, three other opinions have reversed punitive damages awards because the plaintiff's evidentiary presentation did not include evidence of the defendant's liabilities and expenses. This opinion stands alone in affirming an award without such evidence. Perhaps the plaintiff presented such evidence and the court simply didn't mention it in the opinion. But if the plaintiff presented no such evidence, the opinion's analysis is inconsistent with existing law.

Also, the opinion seems to overlook the effect of the $17.1 million compensatory damages award on the defendant's financial condition. Other California courts have said that the effect of the jury's verdict should be considered when evaluating the defendant's ability to pay punitive damages. (See Washington v. Farlice (1991) 1 Cal.App.4th 766, 776.) The size of the compensatory verdict in this case dwarfs all the other evidence of the defendant's assets discussed by the Court of Appeal, but the opinion does not seem to take that into account.

Fortunately, this opinion is unpublished, so the aspects of the opinion that seem to depart from existing law will not have any precedential effect.

South Carolina Supreme Court Cites "Potential Harm" to Support $10M Punitive Damages Award; Actual Damages Were $150,000

As the name of this blog suggests, our primary focus is California punitive damages litigation. We summarize all of the punitive damages decisions, published and unpublished, issued by the California appellate courts and the Ninth Circuit. Occasionally, however, we discuss notable punitive damages decisions from other jurisdictions, especially where the award is especially high or the issues are especially interesting. This opinion from the South Carolina Supreme Court is one of those out-of-jurisdiction cases that caught my eye.

This case, Mitchell v. Fortis Insurance, involved an insurer's recission of a health insurance policy for an HIV-positive teenager. The jury awarded the plaintiff $150,000 in damages for the bad faith recission of the policy and $15 million in punitive damages (a ratio of 100 to 1).

On appeal, the South Carolina Supreme Court affirmed the liability finding and the compensatory damages but reduced the punitive damages from $15 million to $10 million. Although the reduced number was still 67 times larger than the plaintiff's actual damages, the court justified the award based on the potential harm the plaintiff could have suffered. The court cited the U.S. Supreme Court's 1993 decision in TXO Production Corp., which stated that reviewing courts may compare a punitive damages award not only to the actual harm inflicted on the plaintiff, but also "the magnitude of the potential harm that the defendant's conduct would have caused to its intended victim if the wrongful plan had succeeded."

The South Carolina Supreme Court said the evidence showed the defendant's conduct could have caused the plaintiff an additional $1.1 million in damages. Comparing the punitive damages to the jury's actual damages award plus the potential harm, the court came up with a ratio of 9.2 to 1. The court concluded that such a ratio was acceptable given the highly reprehensible nature of the defendant's conduct.

This case illustrates one of the possible avenues for plaintiffs to circumvent the single-digit ratio language in BMW v. Gore and State Farm v. Campbell. Although many plaintiffs cite "potential" harm as a way of justifying an otherwise unconstitutional ratio, courts rarely uphold awards on that basis. In California, our Supreme Court has held that courts may consider potential harm only to the extent that such harm was foreseeable by the defendant and "likely to occur." (See Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1149, 1177-1178.) Those limitations make it difficult for plaintiffs to rely on potential harm in many cases, but as this case illustrates, the concept can be a powerful weapon for plaintiffs under the right circumstances.

Hur v. Lee: Employer Not Vicariously Liable for Punitive Damages

Many of the cases we blog about raise unresolved issues on the margins of the law. Not this one. Here, the trial court seems to have overlooked one of the most basic principles of punitive damages law.

California law has long provided that employers are not vicariously liable for punitive damages based on the acts of their employees. Punitive damages can be imposed against an employer only upon a finding that (1) an officer, director, or managing agent authorized or ratified the misconduct, or (2) the employer knowingly retained an unfit employee. (See Civil Code section 3294.)

The trial court in this case found that a corporation failed to supervise one of its agents, who committed fraud. The trial court made no findings that any officer or managing agent personally participated in, authorized, or ratified the fraud, or that the corporation employed the agent with knowledge of his unfitness. Nevertheless, the court awarded $100,000 in punitive damages against the corporation.

The Court of Appeal (Second Appellate District, Division Four) reversed the punitive damages in an unpublished opinion. The court correctly held that the trial court's findings were sufficient to find the corporation liable for compensatory damages (under a theory of respondeat superior) but not punitive damages. This seems like such a straightforward and obvious result, I'm amazed the issue didn't get resolved earlier in the litigation process.

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.

Should Corporations Be Immune from Punitive Damages?

Retired federal judge H. Lee Sarokin has posted this essay on the Huffington Post: "Do Corporate Fines and Punitive Damages Serve Their Purposes?" Judge Sarokin argues that the purposes of punitive damages - - punishment and deterrence - - are not accomplished when courts impose punitive damages against corporations. Judge Sarokin reasons that the company's innocent shareholders end up paying the price, while the corporate executives who committed the punishable acts (who are often long gone from the corporation by the time of any punitive damages judgment) get to keep their huge salaries and bonuses. Judge Sarakon argues that punitive damages should be imposed on the executives, not their companies.

Judge Sarokin's argument has a certain logic to it, but something tells me we won't see states outlawing punitive damages against corporations any time soon. It's not out of the question, however, that a court reviewing a punitive damages award against a corporation might take into consideration the fact that the wrongful conduct was committed long ago by people who are no longer involved with the company.

$25 Million in Punitive Damages Against Cuba

The Associated Press is reporting that a federal district judge in Miami has ordered Cuba to pay $2.5 million in compensatory damages and $25 million in punitive damages to the mother of a journalist who has been imprisoned in Cuba since 2003.

The imposition of punitive damages against a foreign nation for acts that occurred outside the U.S. raises some interesting constitutional questions. But those questions won't be answered in this case because no one representing Cuba is defending this case. According to the AP story, the plaintiff is confident she'll be able to collect on this judgment, but she'll have to get in line behind the plaintiffs who obtained a $1 billion judgment against Cuba earlier this year.

Patton v. Target Corp.: Ninth Circuit Certifies Punitive Damages Question to Oregon Supreme Court

A Ninth Circuit panel consisting of Judges Pregerson, Rymer, and Tashima issued this published order today, certifying a question to the Oregon Supreme Court.

The dispute in this case centers around Oregon's split-recovery statute (OR REV. STAT. section 13.735), which provides that the state of Oregon is entitled to 60 percent of any punitive damages award rendered under Oregon law. The statute applies to punitive damages cases decided under Oregon law in federal court.

The statute gives parties a strong incentive to settle whenever punitive damages are awarded. Settlement benefits both parties because the plaintiff can obtain more, and the defendant can pay less, by cutting the state out of the deal. Or at least the parties here thought they could achieve that result. The state had other ideas.

The jury in this case awarded roughly $85,000 in compensatory damages and $900,000 in punitive damages. After the verdict, but before the district court entered judgment, the parties settled and jointly moved for a judgment dismissing the case. The motion did not disclose the amount of the settlement and did not provide for any payment to the state. The state intervened, arguing that it had a vested interest in its share of the punitive damages award and that the parties could not settle without its consent. The district court (Judge Brown of the District of Oregon) allowed the state to intervene but ultimately granted the parties' motion. The state appealed.

On appeal, the Ninth Circuit determined that the split-recovery statute is ambiguous with respect to the state's ability to block this kind of settlement. The statute provides that the state becomes a "judgment creditor" upon rendition of a punitive damages verdict, which doesn't really make any sense because ordinarily there can be no judgment creditor without an actual judgment. The statute doesn't explain what rights the state has as a judgment creditor before judgment has been entered. Rather than interpreting the statute itself, the Ninth Circuit has certified the following question to the Oregon Supreme Court:

When a jury has returned a verdict that includes an award of punitive damages under Oregon law, is the State of Oregon’s consent necessary before a court may enter a judgment giving effect to any settlement between the parties that would result in a reduction or elimination of the punitive damages to which the State would otherwise be entitled under Oregon Revised Statutes § 31.735?

The Oregon Supreme Court is almost certain to accept this issue. As we noted in a previous post, this same issue was pending before the Oregon Supreme Court in another case, but the court never reached the issue because the state decided to settle its claim for a share of the punitive damages award.

Related posts:

Oregon Drops Punitive Damages Claim in Order to Save Jobs

Man v. Freightliner—Oregon Court of Appeals Allows State to Pursue a Share of $350 Million Punitive Damages Verdict After Parties Settle

Walmach v. Foster Wheeler: California May Punish for Out-of-State Conduct

The California Court of Appeal (Second District, Division Three) issued this unpublished opinion today, affirming a $2 million punitive damages award. The court ruled that the trial court did not violate the Due Process Clause by imposing punitive damages for conduct that occurred outside of California.

The defendant's alleged misconduct in this case occurred in Washington, a state which does not allow punitive damages. On appeal, the defendant argued that California cannot impose punitive damages for conduct that occurred in another state. The defendant cited the statement in BMW v. Gore that "a State may not impose economic sanctions on violators of its laws with the intent of changing the tortfeasors' lawful conduct in other States." The defendant also cited these statements in State Farm v. Campbell:

A State may not punish a defendant for conduct that may have been lawful where it occurred . . . Nor, as a general rule, does a State have a legitimate interest in imposing punitive damages to punish a defendant for unlawful acts committed outside of the State's jurisdiction.

The Court of Appeal rejected these arguments for multiple reasons.

First, the court observed that the defendant's conduct (manufacturing a defective product) was not in fact lawful in Washington. In Washington, as in California, selling a defectively designed product is a tort. In my view, that analysis is insufficient to resolve the issue, because it fails to address Campbell'scomment that a state generally has no legitimate interest in punishing lawful or unlawful out-of-state conduct.

Second, the court held that California may legitimately punish a defendant for out-of-state conduct that causes injury in California. In this case, the plaintiff was a resident of California when he was injured by the defendant's product. This seems like a more legitimate response to the BMW/Campbell extraterritoriality problem. In essence, the court is saying the conduct was not truly out-of-state conduct, because the plaintiff's exposure and injury occurred in California.

Third, the court observed that the defendant had not challenged the trial court's jurisdiction, and had not argued that Washington law should govern this case. According to the court, because defendant did not challenge the application of California law, the comity and due process considerations discussed in BMW and Campbell did not prohibit the trial court from awarding punitive damages under California law. I am not quite sure about the validity of this argument. BMW and Campbell are based upon the principle of fair notice; a defendant cannot be punished unless it had fair notice that its conduct would be punishable. I don't know how a court can say that a defendant operating in a state that does not allow punitive damages has fair notice that it might be subjected to punitive damages in another state decades later. If the defendant knowingly sold its product in California, that might provide a basis for concluding that the defendant had fair notice of potential liability for punitive damages under California law. But on a different set of facts, where the defendant does not intend or expect that its product will be used in another state, the imposition of punitive damages would seem to be a Due Process problem, even if that state may have personal jurisdiction over the dispute.

In any event, this opinion is not likely to be the last word on these issues. Given the growing number of lawsuits being filed in California for conduct that occurred in other states, or even other countries, these issues are bound to recur.