October 17, 2013

$500,000 punitive damages award reduced to $150,000 (Wallis v. PHL Associates)

The California Court of Appeal (Third Appellate District) issued this published opinion today, reducing a jury's $2 million compensatory damages award to $15,000, and reducing a $500,000 punitive damages award to $150,000.

The case involves allegations of fraud in connection with the sale of an antigen used in a vaccine.  Although the jury awarded $2 million in compensatory damages for fraud, the Court of Appeal said the evidence could only support an award of $15,000.

The court then had to decide what to do about the $500,000 punitive damages award, in light of the reduced compensatory damages award.  As we have seen, courts have taken differing approaches to that issue.  The court could have sent the case back to the trial court to reevaluate the punitive damages in light of the reduced compensatories.  Instead, the court decided to simply order a reduction of the award to $150,000, representing ten times the amount of the compensatory damages as reduced, because the defendant offered to accept that amount, and any higher amount "would surely violate [the defendant's] due process rights."

The court noted that the reprehensibility of the defendant's conduct was "moderate" because it implicated only three of the five reprehensibility factors identified in State Farm v. CampbellThe plaintiff argued that the presence of three out of five factors supports a finding of heightened reprehensibility, but the court disagreed:

Wallis argues that the reprehensibility is rather more extreme. Keeping in mind that reprehensible conduct is, by definition, reprehensible in all instances and that extreme reprehensibility is found only in exceptional cases, we conclude that this case does not rise to the level of extremely reprehensible cases.
In particular, the court noted that the defendant caused no physical harm, and did not act with an indifference to health and safety.  Accordingly, the court concluded that the jury's award of $500,000, more than 33 times the compensatory damages as reduced, could not withstand constitutional review.  The court did not have to decide the maximum permissible ratio in this case, because the defendant agreed to pay the award if reduced to a ratio of 10 to 1 ($150,000).  So the court simply ordered a reduction of the punitive damages award to that amount, without the need for any further proceedings.

Related posts:

Petition for review asks Cal. Supreme Court to resolve split in authority regarding the proper treatment of a punitive damages award after reduction of compensatories

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