January 27, 2012

Two unpublished opinions address the relationship between compensatory damages and punitive damages, with different results (Romero v. Leon Max; Starrh and Starrh v. Aera Energy)

The California Court of Appeal issued two unpublished opinions this week discussing the rule that punitive damages cannot be awarded without an award of compensatory damages.  Both cases involve a little twist on that rule, and both arguably should be published.

In Romero v. Leon Max, an employment case, a jury rendered the following verdict for the plaintiff:

  • $0 in compensatory damages and $50,000 in punitive damages on her claim for intentional infliction of emotional distress
  • $6,349.10 in compensatory damages and $0 in punitive damages on her claims for wrongful discharge and retaliation
The jury expressly found that the defendant acted with malice in connection with the intentional infliction of emotional distress claim, but did not act with malice in connection with the wrongful discharge and retaliation claims.

The trial court tossed the punitive damages award on the ground that it was not supported by any compensatory damages award, and the Court of Appeal (Second Appellate District, Division One) affirmed.  The court held that, because the plaintiff's only "actual damages" were awarded on claims that did not involve malice, the plaintiff could not recover any punitive damages:  "no punitive damages are appropriate based on 'actual damages' awarded on any cause of action in which this finding [of malice, oppression, or fraud] was not made."

It's worth noting that the defendant was able to make this argument only because the special verdict form was drafted in such a way that the jury had to decide the issue of malice separately for each cause of action.  If the verdict form had contained only one catch-all question about malice at the end of the form (as is often the case), the defendant would not have been able to demonstrate that the jury awarded punitive damages only on the claim for which it did not award any actual damages.  So kudos to defense counsel at Towle Denison for some nice lawyering.

In Starrh and Starrh Cotton Growers v. Aera Energy, the Court of Appeal (Fifth Appellate District) held that the plaintiff was entitled to pursue a punitive damages claim even though the jury did not make a finding that the plaintiff suffered any actual harm.  The plaintiff, who claimed that the defendant's oil extraction operations contaminated the plaintiff's groundwater, obtained an $8.5 million damages award on a disgorgement theory.  In other words, the jury awarded damages based on the benefits the defendant obtained through its misconduct, not based on any actual losses suffered by the plaintiff.

After the jury returned the $8.5 million award, the trial court concluded, based on certain findings that the jury made about the timing of the defendant's conduct, that the jury could not possibly find that the defendant acted with malice.  Accordingly, the trial court did not submit the issue of malice to the jury.

The Court of Appeal reversed, holding that the trial court should have submitted the question of punitive damages to the jury, and should have allowed both parties to present evidence and argument on the issue, because the evidence would have supported a finding that the defendant acted with malice.  The defendant argued on appeal that imposing punitive damages in the case would violate the Due Process Clause because the jury did not find any "actual harm."  The court rejected that argument, stating that punitive damages are not limited "to cases in which the underlying damages verdict is measured by reference to the plaintiff's loss rather than the defendant's gain."  The court noted that California law has permitted punitive damages where the compensatory award is only nominal, and therefore doesn't represent any actual harm to the plaintiff.

The end result is that, in Romero the plaintiff proved actual harm but was not entitled to punitive damages, and in Starrh the plaintiff did not prove any actual harm but was entitled to punitive damages.  Both cases may be consistent with existing law, but the results aren't exactly intuitive.