April 24, 2013

$4.8M punitive damages award reversed for lack of evidence that corporate management participated in wrongdoing (Martinez v. Rite Aid)

In October 2010 we reported about this $4.8 million punitive damages award against Rite Aid in a disability discrimination case.  Yesterday, the California Court of Appeal (Second Appellate District, Division Seven) vacated that award in an unpublished opinion

The Court of Appeal based its decision on Civil Code section 3294, subdivision (b), which provides that a corporation cannot be liable for punitive damages based on the acts of an employee unless a corporate officer, director, or managing agent committed, authorized, or ratified those acts.  The Supreme Court has defined a managing agent as a person who has the authority to determine corporate policy, meaning formal policies that affect a substantial portion of the company and are likely to come to the attention of corporate leadership.

The Court of Appeal held that none of the three different corporate employees who allegedly discriminated against the plaintiff qualified as managing agents within the meaning of section 3294.  One was a "human resources manager," one was a "store district manager," and the third was a "pharmacy district manager."  The court found that, although all of them had "manager" in their title, none of them had any real authority to establish formal company policies for a substantial portion of the company.  As a result, the court reversed the punitive damages award, entitling Rite Aid to judgment in its favor on that issue.  (For unrelated reasons, the court also reversed the jury's $3.4 million compensatory damages award and ordered a new trial on that issue.)