September 5, 2013

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

Last week we blogged about this published opinion and its curious disposition.

In this post, we discuss some interesting aspects of the majority opinion, which held that any punitive damages award over $350,000 would be unconstitutional.

First, I am confused by this statement at the outset of the legal discussion, indicating that excessiveness is the only issue on appeal:"[t]he contentions on appeal raise only the question of whether the remitted punitive damage award passes constitutional muster under the due process clause."  That's confusing because the dissenting opinion says that the appellant challenged not only the amount of the award, but also the sufficiency of the evidence supporting the jury's finding of fraud: "Stonebridge contends there is no substantial evidence that it intentionally misrepresented or concealed a material fact and therefore there is no substantial evidence to support the fraud finding."

So which is it?  Did Stonebridge challenge the sufficiency of the evidence or not?  If so, the majority opinion should have addressed that issue before embarking upon an excessiveness analysis.  Stonebridge's argument seems to warrant serious consideration, given that the dissenting justice actually agrees with Stonebridge on that point.  The mysterious omission of this argument from the majority opinion makes me suspect that the majority opinion was originally written to be a dissent, but that's pure speculation.

Turning to the merits of the majority's excessiveness analysis, here are some notable aspects:

1. The court concluded, for purposes of measuring the reprehensibility of Stonebridge's conduct, that Stonebridge caused no physical harm, despite the jury's award of emotional distress damages.  The court distinguished Roby, in which the Supreme Court found that the plaintiff's emotional distress was a form of physical harm.  The Court of Appeal said emotional distress can be treated as physical harm only if the plaintiff suffers some physical symptoms.

2.  The court concluded, for purposes of computing the ratio of punitive to compensatory damages, that it could not consider the jury's award of policy benefits or Brandt fees.  The court distinguished Major v. Western Home, a case in which the court included Brandt fees in the ratio analysis.  The court pointed out that in Major the jury awarded Brandt fees before it awarded punitive damages.  Where, as here, the trial court awards Brandt fees after the conclusion of the jury trial, those fees cannot be used to uphold the jury's punitive damages award.  (This aspect of the majority opinion follows the reasoning of Amerigraphics.)

3.  The court concluded that any ratio in excess of 10 to 1 would be unconstitutional, even though the court thought Stonebridge's conduct was particularly bad, implicating four of the five reprehensibility subfactors identified in BMW.  The court described the $35,000 compensatory damages award as "small," but did not invoke the statement in BMW that "low awards of compensatory damages may properly support a higher ratio . . . if, for example, a particularly egregious act has resulted in only a small amount of economic damages."

4.  The court rejected the notion that a higher ratio could be justified by the defendant's sizable wealth. While that analysis is consistent with the Supreme Court's admonition that wealth cannot be used to uphold an otherwise unconstitutional award, it seems in tension with this panel's prior decision in Bullock v. Philip Morris (Bullock II), which cited the defendant's wealth to justify a 16 to 1 ratio.

Related post:

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