May 7, 2012

Are California courts still following the U.S. Supreme Court's lead onpunitive damages? $2.4M affirmed in a case with "low to moderate"degree of reprehensibility (Sumner Hill HOA v. Rio Mesa Holdings)

In recent years, it seemed that California courts were finally embracing the U.S. Supreme Court's observation in State Farm v. Campbell that a low ratio of punitive damages to compensatory damages, perhaps only 1 to 1, is appropriate in cases involving substantial compensatory damages.  First, several Court of Appeal opinions cited that aspect of Campbell when reducing an award to a 1 to 1 ratio. (E.g., Jet Source Charter, Inc. v. Doherty (2007) 148 Cal.App.4th 1 [ratio reduced from 4-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]; 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(2006) 142 Cal.App.4th 1260 [ratios reduced from 8.4-to-1 and 7.5-to-1 down well below 1-to-1]; Stevens v. Vons (2009) [unpublished] [ratio reduced from 10-to-1 down to 1-to-1]; Essex Ins. v. Prof. Building Contractors (2009) [unpublished] [ratio reduced from 3.7-to-1 down to 1-to-1].)

Then the California Supreme Court got into the act in Roby v. McKesson (2009) 47 Cal.4th 686 [ratio reduced from 10.7-to-1 down to 1.4-to-1, further reduced to 1-to-1 by California Supreme Court].  We expected this trend to pick up even more steam in the lower courts after Roby, but recent decisions are bucking that trend.

In Bullock v. Philip Morris, the court decided not to follow that aspect of Campbell because the court concluded that an $850,000 compensatory damages award was not "substantial," at least not when compared to the defendant's wealth.  Justice Kitching dissented from the decision to depart from Campbell, but the California Supreme Court declined to grant review.  Last month, in Bankhead v. ArvinMeritor, the Court of Appeal affirmed a $4.5 million punitive damages award in a case with a $1.85 million compensatory damages award without even mentioning that aspect of Campbell.  And now we have Sumner Hill HOA v. Rio Mesa Holdings, again affirming a ratio in excess of 1 to 1 in a case with substantial compensatory damages, without even mentioning that aspect of Campbell.

Sumner Hill involved a dispute over access to a private road leading to the San Joaquin river.  A group of homeowners in a gated community had enjoyed exclusive use of the road for years.  A developer bought the land surrounding their community, erected a gate blocking the road, and sought to impose a curfew on the use of the road. The homeowners sued for slander of title and various other torts, and a jury awarded $803,951 in compensatory damages and $2,419,800 million in punitive damages against the developer.

In an unpublished portion of an otherwise published opinion, the California Court of Appeal (Fifth Appellate District) affirmed the punitive damages award, rejecting the developer's argument that the award was unconstitutionally excessive. After analyzing the reprehensibility of the defendant's conduct under the five factors set forth in Campbell, the Court of Appeal concluded that the reprehensibility of the defendant's conduct was "at the low to moderate end of the range of wrongdoing that can support of punitive damages under California law."

Nevertheless, despite the level of reprehensibility, the substantial compensatory damages, and the ratio in excess of 1 to 1, the court allowed the punitive damages award to stand on the theory that the misconduct here -- interfering with the unrestricted private river access enjoyed by homeowners in a gated community --  supports a higher punitive damages award than interference with run-of-the-mill property rights.  Seriously.  Here's the actual quote from the opinion:

While we note that reprehensibility in this case is low to moderate, plaintiffs have received substantial compensatory damages for the harm caused by defendant‟s conduct, and the case is principally concerned with conflicting property rights claims, there is an additional factor that elevates the permissible level of punitive damages in this case. These were not run-of-the-mill property rights. Rather, the rights and interests with which defendant so callously interfered, and which plaintiffs were forced to defend in court, were intimately related to plaintiffs‟ homes and neighborhood—and plaintiffs‟ enjoyment thereof. Defendants‟ conduct threatened and/or interfered with plaintiffs‟ private residential community and unrestricted river access, which had been promised to them when they purchased their lots and had been a way of life for over two decades. We conclude that a three to one ratio of punitive to compensatory damages does not violate federal constitutional standards.
 If a court is willing to place this misconduct into a special category warranting a ratio above 1 to 1, it is difficult to imagine there is any sort of misconduct that couldn't be placed into a special category by a court with a sufficient degree of creativity.