October 29, 2013

Court of Appeal affirms $14.5M punitive damages award in asbestos case (Pfeifer v. John Crane)

The California Court of Appeal issued this 68-page published opinion today, affirming a $14.5 million punitive damages award.

The opinion might not remain on the books for long, for reasons having nothing to do with the court's punitive damages analysis.  The opinion addresses an issue that's already before the California Supreme Court in another matter, Webb v. Special Electric.  Both cases raise the following question: when a supplier sells a product to a purchaser who is already aware of dangers of the product, can the supplier still be liable for failure to warn?  Because that issue is already before the court in Webb, there is a strong chance the court will grant John Crane's petition for review (assuming it files one) and hold this case pending the disposition in Webb.

Aside from that "sophisticated purchaser" issue, there is a lot of interesting stuff in this opinion. I won't attempt to summarize all 68 pages, but here are some highlights of the punitive damages analysis:

1.  The opinion states that reviewing courts should take the "clear and convincing" evidence standard into account when deciding whether a plaintiff presented substantial evidence of malice, oppression, or fraud.  As we have noted in prior posts, other recent published cases have said the same thing, but some recent unpublished opinions have disagreed.

2.   The opinion concludes that the record in this case supports the jury's finding of malice, because the plaintiffs presented evidence that John Crane knew its customers used its products in ways capable of generating dangerous levels of asbestos dust. 

3.  The opinion rejects John Crane's argument that the trial court erred by ordering John Crane to disclose information about its financial condition during trial, after the jury found that John Crane acted with malice.  John Crane argued that the plaintiffs were not entitled to that information because they failed to follow the procedure spelled out in Civil Code section 3295(c) for requesting pretrial discovery of financial condition information.  The opinion follows the holding of Mike Davidov Co. v. Issod, which said that a court can order the defendant to produce its financial condition evidence during trial, after a finding of malice, so long as the trial court allows the defendant sufficient time to gather its records.

4.  The opinion rejects John Crane's argument that its financial condition was insufficient to support the punitive damages award.  According to the plaintiffs' expert, John Crane had $403 million in assets and nearly $16 million in cash on hand, but had a negative net worth of $125 million.  The opinion observes, however, that John Crane's net worth would be a positive $98 million if not for its  asbestos-litigation liabilities.  And the opinion observes that the jury's award of $14.5 million is only six percent of the funds John Crane set aside for payment of asbestos litigation.  Based on these observations, the opinion concludes that John Crane could afford to pay the award without being destroyed.  

5.  The opinion rejects John Crane's argument that California's punitive damages statute, Civil Code section 3294, is unconstitutionally vague as applied to this case.

6.  The opinion holds that the jury's $14.5 million award was not excessive.  The opinion compares that amount to the $6.2 million compensatory damages owed by John Crane (after reduction to reflect the jury's allocation of fault), and concludes that the resulting ratio of 2.3 to one is not excessive, considering the highly reprehensible nature of John Crane's conduct.

We will keep tabs on this one to see if the Supreme Court grants review.