August 29, 2013

Court of Appeal orders reduction of $19M punitive damages award to $350,000 (Nickerson v. Stonebridge) - PART I

Today, the California Court of Appeal published one of the most interesting punitive damages opinions that court has issued in quite some time.  The opinion has so many interesting aspects, our discussion of the case will be split up into several posts.  In this first post, we're going to talk about the puzzling disposition of the case.

This is an insurance bad faith case in which a jury awarded $31,500 in contract damages, $35,000 in tort damages, and $19 million in punitive damages. The defendant, Stonebridge Life Insurance, filed a motion for JNOV and a new trial motion arguing excessive punitive damages, among other things.  The trial court denied the JNOV motion but granted a conditional new trial, giving the plaintiff the option to avoid the new trial by accepting a remittitur of the punitive damages to $350,000.  The plaintiff declined the remittitur and both parties appealed.

On appeal, the court concludes that the jury's $19 million award was excessive as a matter of federal due process, and that the maximum constitutionally permissible award is $350,000.  (We'll have more discussion of the court's excessiveness analysis in later posts).

Based on the court's conclusion that $350,000 is the constitutional maximum, we would have expected the following disposition: the trial court's order denying JNOV is reversed, and the trial court is directed to grant a partial JNOV reducing the punitive damages to the constitutional maximum of $350,000 (see, e.g., Gober and Simon).  The court's conditional new trial order would then be moot.

Instead, the Court of Appeal did exactly the opposite.  It affirmed the order denying the motion for JNOV and reversed the order granting a new trial.  But it nevertheless directed the trial court to reduce the amount of punitive damages to $350,000.  Huh?

If the constitutional maximum is $350,000, the trial court did exactly the right thing by granting a new trial based on excessive damages.  The trial court's only error was that it should also have granted partial JNOV to reduce the award to the constitutional maximum, and the new trial should have been merely an alternative ruling.  So why does the Court of Appeal affirm the JNOV ruling and reverse the new trial ruling?  It should be the other way around. The end result is the same in this case either way, but this disposition may cause undue confusion in future litigation. 

Related posts:

L.A. trial court reduces punitive damages award against Stonebridge insurance from $19 million to $350,000

L.A. jury awards $19 million in punitive damages and $35,000 in compensatory damages in insurance bad faith case