We previously posted about a pending bill that would have a significant effect on California punitive damages appeals by reducing the rate of postjudgment interest, currently set at 10 percent. The bill, SB 1117, is set for a hearing before the judiciary committee of the California Senate on April 30. (See the status page for this bill on the legislature's website.)
We don't see many California appeals involving motions to strike punitive damages allegations on the ground that a complaint fails to allege clear and convincing evidence of malice, oppression or fraud. There have only been two such opinions since we started this blog over two years ago: one that affirmed a trial court order denying a motion to strike, and one that affirmed a trial court order granting a motion to strike.
Here's number three. In this unpublished opinion, the California Court of Appeal (Fourth Appellate District, Division Three) concludes that a trial court properly granted a motion to strike.
In this unpublished opinion, the California Court of Appeal (Second Appellate District, Division Five) affirms a punitive damages award of $1.3 million in an action for breach of contract and fraud arising out of a dispute between the co-owners of a real estate development corporation. The compensatory damages were nearly $13 million.
The defendant argued on appeal that the punitive damages award was procedurally improper because the trial court conducted a bifurcated trial even though the defendant had not requested bifurcation. The Court of Appeal concluded that the defendant had waived the argument because at one point he had filed a trial brief requesting bifurcation.
Last year we posted about a case in which McDonald's was hit for punitive damages because a prank caller supposedly tricked a McDonald's store manager into performing a strip search on a store employee. Actually, the manager asked her boyfriend, who was not even a store employer, to perform a body cavity search. He ended up sexually abusing the employee in the process.
Amazingly, the Kentucky Court of Appeals ordered McDonald's to pay $1 million in punitive damages to the manager who authorized the body cavity search, plus another $5 million to the victim of the strip search. The Courier-Journal of Louisville, Kentucky is now reporting that McDonald's has settled the case for an undisclosed amount.
The West Virginia Supreme Court has issued its opinion in a pollution/medical monitoring case involving a $400 million verdict against DuPont, including $196.2 million in punitive damages. The case had generated a lot of attention, not only because it was the fifth largest punitive damages award in the country in 2005, but also because the governor of West Virginia filed an amicus brief supporting DuPont's petition for review to the West Virginia Supreme Court.
The opinion remands the case for further proceedings to determine whether the this entire class action should be dismissed on punitive damages statute of limitations grounds. It also holds that, even if the plaintiffs' claims are not barred the statute of limitations, the punitive damages should be reduced because (1) they were based in part on medical monitoring damages, which shouldn't be used to calculate punitive damages because punitive damages can only be based on "actual harm," and (2) DuPont should be credited for $20 million it already paid for cleanup expenses.
Hat tip: West Virginia Citizens Against Lawsuit Abuse
Related posts:
West Virginia Supreme Court Agrees to Review $196.2 Million Punitive Damages Award Against Dupont
W. Va. Supreme Court Candidates Support Appellate Review of Punitive Damages
West Virginia Gov. Defends His Amicus Brief in Punitive Damages Case
West Virginia Governor Draws Fire for Intervening in Punitive Damages Case
Does West Virginia's Lack of a Right to Appeal a Punitive Damages Award Violate Due Process?
West Virginia Governor Files Amicus Brief Urging West Virginia Supreme Court to Review Punitive Damages Award Against DuPont
DuPont Asks West Virginia Supreme Court to Review $196.2 Million Punitive Damages Award
Florida has been making a lot of punitive damages news lately. In addition to the series of big punitive awards being handed out to smokers and their heirs, Florida's intermediate appellate court issued an interesting (and in my mind, questionable) opinion this week in Lawnwood Medical Center v. Sadow.
In Lawnwood, the jury awarded nominal tort damages against a hospital for slandering a doctor, and then added $5 million in punitive damages. The hospital appealed the award as excessive under the Florida law and the Due Process Clause of the federal constitution.
The District Court of Appeal (Fourth District) analyzed the U.S. Supreme Court's decisions in BMW v. Gore and State Farm v. Campbell, noted the ratio-based analysis in those cases, but suggested that those decisions might only apply to the specific types of misconduct involved, and not to cases involving malice. The court then suggested that cases involving malice are perhaps governed by the U.S. Supreme Court's earlier decision in TXO v. Alliance, which the Florida court viewed as imposing no ratio limits on punitive damages imposed for malicious conduct.
Obviously I am influenced by my perspective as a defense lawyer, but I think the court's analysis is deeply flawed. Nothing in BMW and Campbell suggest that the Supreme Court's three-guidepost test is inapplicable to cases involving malice. To the contrary, Campbell expressly contemplated that the test would be applied to cases involving malice. Campbell instructs lower courts to consider a variety of factors when analyzing the reprehensibility of the defendant's conduct (the first "guidepost"), including whether the defendant acted with malice. That wouldn't make much sense if the whole analysis is inapplicable to malice cases. Campbell suggested that in some situations involving extreme reprehensibility and small compensatory damages, ratios in excess of single digits might be permissible. But the court did not suggest that ratio limitations are simply inapplicable in such cases. Such an exception would dramatically undermine the BMW/Campbell analysis, given that malice is perhaps the most frequent basis for imposing punitive damages under state law.
Fortunately, the Florida court in Lawnwood stopped short of actually holding that BMW and Campbell are inapplicable to malice cases. Instead, the court certified the following question to the Florida Supreme Court:
Are punitive damages of $5,000,000 arbitrary or excessive under the Federal Constitution where the jury awarded no compensation beyond presumed nominal damages but found that defendant intentionally and maliciously harmed plaintiff by slanders per se?Stay tuned to see what the Florida Supreme Court does with this issue.
The Associated Press is reporting yet another punitive damages award in the Florida tobacco litigation: $20 million in punitive damages and $6.6 in compensatory damages. $25 million here, $12.5 million there, pretty soon it will add up to some real money.
Related posts:
Smoker's Widow Wins $12.5 Million in Punitive Damages
Florida Trial Judge Cuts $244 Million Punitive Damages Award
Florida Jury Awards $25 Million in Punitive Damages to Smoker's Widow
"Smokers, tobacco, both winners in early Engle cases"
Jury Rules For Plaintiff in First Phase of Retrial After Reversal of $145 Billion Punitive Damages Award
After Reversal of $145 Billion Class Action Punitive Damages Award, Florida Smokers Seek Punitive Damages in Individual Suits
Plaintiffs' Attorneys Win $218 Million Fee Award for Helping Obtain a Punitive Damages Verdict that Was Reversed on Appeal
In this published opinion, the California Court of Appeal (Second Appellate District, Division Two) holds that a punitive damages award of $1.7 million is excessive and must be reduced to $500,000.
The jury in this insurance bad faith case originally awarded $170,000 in compensatory damages, plus $3 million in punitive damages, for a 17.6-to-1 ratio. After the verdict, the trial court awarded $346,541.25 in attorney's fees as additional damages under Brandt v. Superior Court (1985) 37 Cal.3d 813. The trial court also concluded, however, that the jury's punitive damages award was excessive and should be reduced to $1.7 million, ten times the jury's compensatory damages award.
The Court of Appeal concluded that the trial court's reduced award was still excessive. First, the court noted that the defendant's conduct, which involved no physical harm or disregard for health and safety, implicated only one of the five "reprehensibility factors" identified by the U.S. Supreme Court in State Farm v. Campbell. The court held that the defendant could not be treated as a repeat offender merely because its conduct in this case involved a course of dealing with the plaintiff, rather than a single isolated incident; the court observed that the case involved only one insured and one claim, without any evidence that the defendant had engaged in similar conduct towards other insureds in the past.
Next, the court addressed the ratio of the punitive damages award to the compensatory damages award, and concluded that the defendant's conduct could not support a 10-to-1 ratio. The court rejected the plaintiff's invitation to add the trial court's Brandt fee award to the jury's compensatory damages award, which would yield a 3.2-to-1 ratio. The court said that the Brandt fees could not be considered for ratio purposes because they were awarded after the jury's verdict.
Having concluded that a 10-to-1 ratio was too high, the court then turned to the question of what the maximum ratio should be. Although the court discussed the U.S. Supreme Court's Exxon Shipping opinion and other recent decisions imposing a 1-to-1 ratio (including the California Supreme Court's recent decision in Roby v. McKesson), the court ultimately decided upon a 3.8-to-1 ratio, which results in an award of $500,000. The court picked that figure not just because it's a nice round number, but because defense counsel had suggested during closing argument that the jury could award as much as $500,000. The court didn't assign any evidentiary value to counsel's argument, and did not find estoppel based on that argument, but the court said it independently agreed that $500,000 was the appropriate ceiling.
Full disclosure: Horvitz & Levy LLP represented the defendant on appeal.
According to this press release on New York Injury News, a jury in Pennsylvania has awarded $95 million in punitive damages against a former nurse who admitted to killing 29 people and attempting to kill six more by administering lethal doses of drugs. It would be awfully difficult to argue against a big punitive damages award in a case like that. Unfortunately for the plaintiffs, the defendant has no assets, so they're not likely to see a penny of this award. Unless, of course, the defendant writes a book about his experiences, but a killer would never do something like that, right?
We're 46th! According to this survey conducted by the US Chamber of Commerce's Institute for Litigation Reform, California's litigation climate ranks 46th in the nation in the eyes of corporate counsel and executives. That's down from 44th in 2008, the last time the survey was conducted. The same survey lists Los Angeles County as the second worst venue in the nation. Unlike the 2008 survey, this year's survey does not include a separate ranking for each state on the issue of punitive damages.
Hat tip: CJAC
Regular readers of this blog are well aware that California appellate courts frequently reverse punitive damages awards if the plaintiff failed to introduce meaningful evidence of the defendant's financial condition. In this unpublished opinion, the Sixth Appellate District reverses another judgment on that basis, with a bit of a twist.
The trial court made a highly unorthodox damages award after a bench trial; the court awarded a lump sum amount of damages, without differentiating between compensatory damages and punitive damages. The Court of Appeal criticizes that practice, and then goes on to point out flaws in both the compensatory and punitive elements of the undifferentiated award.
First, the court concludes that the trial court used the wrong measure of compensatory damages. Then the court concludes that the trial court should have decided whether the plaintiff presented sufficient evidence of the defendant's financial condition to permit an award of punitive damages. The trial court had expressed doubt about the sufficiency of the plaintiff's evidence, but never actually decided the issue. The plaintiff tried to argue on appeal that California law does not require plaintiffs to introduce financial condition evidence, but the Court of Appeal summarily rejected that contention as a misreading of the law. So the case goes back to the trial court to make evaluate the sufficiency of the plaintiff's evidence. (And consistent with California law, the plaintiff should not be permitted to introduce new financial condidtion evidence on remand - - see Kelly v. Haag (2006) 145 Cal.App.4th 910, 914.)
Last month we blogged about a proposed bill to cap punitive damages in California at three times the amount of compensatory damages (AB X8 40). According to the state legislature's bill tracking website, the current status of that bill is: "Died at Desk."
Professors Gregg Polsky & Dan Markel of Florida State College of Law have posted an article on SSRN entitled Taxing Punitive Damages. Here's the abstract: There is a curious anomaly in the law of punitive damages. Jurors assess punitive damages in an amount that they believe will best “punish” the defendant. But, in fact, defendants are not always punished to the degree that the jury intends. Under the Internal Revenue Code, punitive damages paid by business defendants are tax deductible and, as a result, these defendants often pay (in real dollars) far less than the jury believed they deserved to pay.
To solve this problem of under-punishment, many scholars and policymakers, including President Obama, have proposed making punitive damages nondeductible in all cases. In our view, however, such a blanket nondeductibility rule would, notwithstanding its theoretical elegance, be ineffective in solving the under-punishment problem. In particular, defendants could easily circumvent the nondeductibility rule by disguising punitive damages as compensatory damages in pre-trial settlements.
Instead, the under-punishment problem is best addressed at the state level by making juries “tax aware.” Tax-aware juries would adjust the amount of punitive damages to impose the desired after-tax cost to the defendant. As we explain, the effect of tax awareness cannot be circumvented by defendants through pre-trial settlements. For this and a number of other reasons, tax awareness would best solve the under-punishment problem even though it does come at the cost of enlarging plaintiff windfalls. Given the defendant-focused features of current punitive damages doctrine, this cost is not particularly troubling. Nonetheless, a related paper of ours furnishes a strategy for overcoming this tradeoff through some basic reforms to punitive damages law.
In December of last year we reported on a jury's award of $100 million in punitive damages to ten workers who claimed they were exposed to toxic fumes at a BP plant in Galveston. We noted that the award was not likely to hold up because of the absurdly high ratio of punitive damages to compensatory damages.
As it turns out, we were correct that the award wouldn't hold up, but the ratio issue never came into play. The Associated Press is reporting that the trial judge (U.S. District Judge Kenneth M. Hoyt) has ruled that the plaintiffs are not entitled to any punitive damages in this case. According to the story, Judge Hoyt has issued a posttrial ruling stating that the plaintiffs failed to present clear and convincing evidence that BP acted with intent to harm or engaged in gross negligence, and plaintiffs are therefore entitled to no punitive damages.
I have no evidence to back this up, but my sense is that judges are more inclined to do this sort of thing (toss out a punitive damages award altogether) when the amount of the award is obviously excessive. Thus, even if they don't reach the issue of excessiveness, they are influenced by the size of the award. Maybe it's just because an obviously excessive award is a clear indication that something went awry during the jury's deliberative process.
UPDATE: California appellate specialist Donna Bader has posted some commentary about this story on her Appeal to Reason Blog. She writes:
Some will celebrate this reduction as a victory for companies. ThosePersonally, I don't see this case a victory for companies. Nor do I see it as a cause for despair because a trial judge has ignored a jury's verdict. Instead, I presume that the judge honestly concluded that the plaintiffs in this particular case had failed to introduce evidence to satisfy the legal standard for imposing punitive damages. That type of post-verdict review is an integral part of our justice system; trial and appellate judges are not supposed to reflexively accept any result reached by a jury, even if that result is unsupported by the evidence. In particular, judicial review of punitive damages awards has existed as a safeguard for as long as punitive damages have been awarded. (See, e.g., Huckle v. Money (C.P. 1763) 2 Wils. 205, 95 Eng. Rep. 768.) Sometimes that review works in favor of a defendant (corporate or otherwise), and sometimes it doesn't.
who do so may believe that individual plaintiffs should not be entitled to
punitive damages at all or that the award just seems like a lot of money. Others
will despair, as this case is just one of many where judges have reduced
punitive damages - ignoring the jury’s verdict - until they do nothing to punish
wrongdoers. As stated by plaintiff’s attorney, the decision gives BP a “free pass” to
continue hurting its workers.
This case has already gone up on appeal once, and is likely headed that way again.
In 2008 we blogged about this case, which involves a plaintiff who purchased a gas station from Shell subsidiary Equilon Enterprises and claims Equilon defrauded him by withholding material information. He claims that Equilon failed to tell him that the site of the gas station was about to become the target of state regulatory agencies, a fact that ultimately prevented him from being able to operate a gas station on the site.
When the case went to trial in 2006, the jury awarded the plaintiff $1.65 million in compensatory damages and found that Equilon acted with malice, oppression, or fraud. But the trial court dismissed the plaintiff's punitive damages claim because he failed to present meaningful evidence of the defendant's financial condition. The California Court of Appeal (Second Appellate District, Division Eight) reversed, concluding that the trial court should have given the plaintiff more time to marshal his financial condition evidence.
According to the plaintiff's attorney's press release, a new jury has awarded $50 million in punitive damages. That makes for a ratio in excess of 30 to 1, a ratio that should not withstand posttrial and appellate scrutiny. Even assuming the defendant's conduct was extremely egregious, the defendant seems to have a strong argument that the maximum ratio cannot exceed one to one, given the size of the compensatory damages award and the purely economic nature of the plaintiff's injuries.
The appeal may also raise some interesting issues about the proper procedures for a trial like this, in which one jury decided the issues of liability and malice, and another jury awarded punitive damages. In such situations, it is difficult if not impossible to ensure that the second jury bases its punitive damages award solely on the same conduct that the first jury found to be tortious and malicious. If the plaintiff made multiple arguments in the first trial, the first jury may have accepted some of those arguments and rejected others. Unless the jury made very specific findings, however, there would be no way for anyone to know the precise basis for the first jury's findings, and therefore no way to comply with the requirement of California law that punitive damages must be based on malice, oppression or fraud in the conduct that gave rise to liability.
This L.A. Times story ("Toyota Just the Latest Automaker To Face Auto Safety Litigation") is not really about punitive damages. But it does touch on the topic, and in the process it gets the facts all wrong.
The author of the story argues that products defect litigation has made cars safer. As an example of a case that spurred safety innovations, the story reports that in the 1975 case Grimshaw v. Ford Motor Co., "a California appeals court ordered the carmaker to pay $125 million in punitive damages to the victims of one of the Ford Pinto's fiery explosions."
Umm, no. The Court of Appeal ordered Ford to pay $3.5 million in punitive damages, not $125 million. The jury awarded $125 million in punitive damages, but the trial court reduced that amount to $3.5 million (by ordering a conditional new trial subject to a remittitur), and the Court of Appeal affirmed that ruling.
The story comes a little closer to the truth when it says a couple of sentences later that "[t]he award was reduced to $3.5 million in a post-verdict negotiation . . . ." But that's not right either. As noted, the punitive damages award was reduced to $3.5 million by the trial court, not as a result of a post-verdict negotiation. The post-verdict negotiations reduced the compensatory damages award from $3.5 million to a little over $3 million (see footnote 1 in the opinion), but the parties did not agree to a reduction of the punitive damages. If the parties had agreed to a post-verdict of reduction of punitive damages, there wouldn't have been an appeal on the punitive damages, and so the Court of Appeal couldn't possibly have ordered Ford to pay the full amount of the jury's award, as the story reports. In short, the article is not only wrong on the facts, but it reports facts that are just plain nonsensical.
As I said, the Times article isn't really about punitive damages, so perhaps I'm being unfair by zeroing in on that part of the article for criticism. But in my view, this article is an example of a recurring pattern; when reporters in the mainstream media start talking about punitive damages, they often mangle the facts.
There seems to be a growing split in the California Court of Appeals on the question of what should happen to a punitive damages award when a court slashes the compensatory damages award. In SEIU v. Colcord, the First Appellate District, Division One, ordered a reduction in the compensatory damages and then sent the case back to the trial court to reconsider the amount of the punitive damages in light of the reduction. But in McGee v. Tucoemas, both the trial court and the Court of Appeal refused to reevaluate the amount of punitive damages after a reduction of the punitive damages award.
In this unpublished opinion, the Second Appellate District, Division Two, affirms a $350,000 punitive damages award, even though the court reduced the compensatory damages from $725,000 to $325,000. The court relies on McGee but does not discuss SEIU or any other similar authority. (E.g., Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1254 [reducing compensatory damages and reducing punitive damages to preserve the ratio awarded by the jury].)
This is an issue that could eventually end up before the California Supreme Court.
I mention this unpublished opinion only because we report on all California appellate decisions on punitive damages. There doesn't appear to be anything particularly interesting here.
The California Court of Appeal (Second District, Division Two) concludes that the defendants' conduct warranted punitive damages because they made intentional misrepresentations with the goal of destroying the plaintiff's business. And the court affirms the amount of the award (in excess of $11 million), which was less than the amount of compensatory damages ($15 million). If there's an interesting legal angle in there somewhere, I'm not seeing it, even though it's a pretty big award.
The Gainesville Sun reports that a jury has awarded $12.5 million in punitive damages (on top of $5 million in compensatory damages) against RJ Reynolds in the latest installment of the ongoing series of lawsuits by Florida smokers.
Related posts:
Florida Trial Judge Cuts $244 Million Punitive Damages Award
Florida Jury Awards $25 Million in Punitive Damages to Smoker's Widow
"Smokers, tobacco, both winners in early Engle cases"
Jury Rules For Plaintiff in First Phase of Retrial After Reversal of $145 Billion Punitive Damages Award
After Reversal of $145 Billion Class Action Punitive Damages Award, Florida Smokers Seek Punitive Damages in Individual Suits
Plaintiffs' Attorneys Win $218 Million Fee Award for Helping Obtain a Punitive Damages Verdict that Was Reversed on Appeal
We often post about law review articles on punitive damages, but we've never before posted about an article written by a sitting state supreme court justice. Justice Robin Jean Davis of the West Virginia Supreme Court has written an article entitled Punitive Damages Law in West Virginia. The 75-page long article covers not only West Virginia state law, but also discusses the U.S. Supreme Court's punitive damages opinions.
Hat tip: the West Virginia Record
This unpublished opinion illustrates yet again the consequences of failing to comply with California's unique rule that a plaintiff cannot obtain punitive damages unless the plaintiff presents meaningful evidence of the defendant's ability to pay.
The plaintiff here won a $20,000 punitive damages award at trial. But the only evidence he presented regarding the defendant's financial condition was the fact that the defendant owned several businesses. The plaintiff did not establish the value of those businesses, the income the defendant derived from them, or the liabilities associated with them. Accordingly, the California Court of Appeal (Fourth Appellate District, Division One) vacated the punitive damages award. And because the plaintiff had a full an fair opportunity to present his evidence the first time around, he doesn't get to go back to the trial court and try again.
Here's an article suggesting that judges, as a group, tend to overstep their authority when reviewing punitive damages awards for excessiveness. The article, written by Professor Sandra Sperino of the Temple University Beasley School of Law, is entitled "Judicial Preemption of Punitive Damages." The article was published in the University of Cincinnati's Fall 2009 edition, which was recently uploaded onto Westlaw (78 UCINLR 227). Here's the abstract:
In the 1990s, the Supreme Court recognized that excessive punitive damages could violate substantive and procedural due process. In the intervening years, the public debate regarding excessive punitive damages has focused primarily on the question of whether the American judicial system should prefer the rights of injured plaintiffs or the interests of defendant corporations. More cynically, the question often becomes whether our judicial system should favor the interests of the trial attorneys' bar or the Chamber of Commerce.
While the scholarly debate has been broader, the literature has been insufficiently attentive to the manner in which the lower courts have implemented the Supreme Court's standards for assessing whether punitive damages are excessive. This Article suggests that the process judges use to review punitive damages awards for substantive constitutional excessiveness results in de facto judicial preemption, where judges improperly exercise power belonging to other constitutional actors and impinge upon important interests, such as federalism, the separation of powers, and the dynamism of the common law. Whether such de facto judicial preemption is motivated by conscious or unconscious desire to manipulate damages awards or even just by sloppy or unprincipled analysis, the effects are equally serious.
This Article describes the three problematic analytical mechanisms that cause judicial preemption and the distinct harms associated with each of them. It also demonstrates that judicial preemption is especially worrisome in the employment discrimination context, which relies on overlapping remedies regimes for full enforcement, where statutorily enacted punitive damages caps are not necessarily related to punishment and deterrence goals, and where a judge's personal opinions about punishment and deterrence may be at odds with those of legislatures and juries.
It then considers ways to counteract these harms. It concludes by asserting that the way in which the lower courts have implemented the Supreme Court's standards actually directs courts away from, rather than toward, the questions they should be asking in reviewing punitive damages awards.
Maui is one of my favorite vacation spots. I go to enjoy the island's natural beauty and balmy tropical weather. But this report from the Maui News suggests that other mainlanders visit Maui's sunny shores in search of something else: punitive damages. A jury there has awarded $43 million in punitive damages (on top of $10 million in compensatory damages) to a group of investors who claim they were defrauded in connection with their investments in a lakeside development in Tennessee. The defendant is a Chicago banker who resides part-time on Maui. The story says that locals cannot remember a larger civil verdict in Maui.
It appears that South Carolina is joining the ranks of states that have a statutory cap on the amount of punitive damages. That state's House of Representatives has passed the Comprehensive Tort Reform Bill (H. 3489) which, among other things, limits punitive damages to three times the amount of compensatory damages or $350,000 whichever is greater.
The limitation, however, would not apply in cases where "the defendant pursued an intentional course of conduct that the defendant knew or should have known would cause injury or damage." That exception would seem to open the door for plaintiffs in many cases to argue that the cap does not apply, given that punitive damages cannot even be awarded unless the defendant engaged in "willful, wanton, or reckless conduct."
The bill also provides that the limitations shall not be disclosed to the jury.
Hat tip: South Carolina Statehouse Blog
