March 28, 2014

Court of Appeal holds that California trial court erred by applying Michigan law to bar punitive damages (Scott v. Ford Motor Co.)

Punitive damages are not permitted under Michigan law.  So what happens when a Michigan corporation is sued for punitive damages in California, based on corporate acts that took place in Michigan?

The trial court in this asbestos injury case applied Michigan law and dismissed the punitive damages claim.  After the jury ruled for the plaintiff and awarded compensatory damages, the plaintiff appealed, arguing he should have been allowed to seek punitive damages as well.

The California Court of Appeal (First Appellate District, Division One), agreed with the plaintiff and reversed the trial court's ruling in a published opinion (Scott v. Ford Motor Co.).

Applying the "governmental interest analysis" test for conflicts of law issues, the Court of Appeal concluded that Michigan has little interest in having its law applied to the punitive damages claim in this case.

Ford argued that Michigan's policy should apply because Ford is domiciled in Michigan, but the Court of Appeal was not buying that argument at all:

Because the same argument would hold in all 40-odd other states permitting punitive damages, Ford effectively argues it should be found to carry a nationwide shield from punitive damage liability because the state in which it maintains its headquarters has decided punitive damages are poor public policy. We cannot agree, any more than we expect a Michigan court would yield to a plaintiff’s plea to impose punitive damages on a California-based corporation because its home state has made the opposite policy judgment
That reasoning is not too surprising.  I can't imagine any California court agreeing that businesses that incorporate in Michigan can come to California and commit acts of malice without fear of punitive damages.

But Ford also argued that Michigan law should apply because the allegedly malicious acts actually took place in Michigan, not California.  The Court of Appeal struggled to explain its reasoning for rejecting that argument.  Ultimately, the court said Michigan courts have never expressly articulated that the purpose of Michigan's ban on punitive damages is to preclude punitive damages for conduct occurring in Michigan:
In Ford’s telling, the Michigan ban on punitive damages represents a declaration that corporate conduct occurring in Michigan should not be subject to punitive damages, regardless of its nature. . . . Michigan has never articulated this as a motive for banning punitive damages, and Michigan courts do not preclude punitive damages based on conduct occurring only within the state. Rather, the ban on punitive damages is entirely independent of the location of the alleged conduct in connection with which punitive damages are sought and applies to any defendant’s conduct, regardless of where it occurred.
That seems a little questionable.  Isn't it a safe assumption that, when the Michigan Supreme Court  outlawed punitive damages in 1884, the court was thinking, at least primarily, about Michigan conduct?  Do we really need a Michigan court to say that?  (A federal district court in Michigan has said that, but the Court of Appeal here did not believe that was sufficient.)

In any event, this may not be a big deal for Ford in this case.  Although this case is going back to the trial court for a trial on punitive damages, the Court of Appeal's opinion indicates that the evidence here would not support a punitive damages award.  To get punitive damages, the plaintiff would have to prove that Ford consciously disregarded a known risk in the 1960s, when the conduct occurred.  But the opinion explains (while discussing an unrelated issue) that there was no known risk associated with Ford's asbestos products at the time:
From 1966, the beginning of the relevant time period, there appears to have been a scientific consensus that industrial exposure to the type of asbestos used in insulation was dangerous. There was no similar consensus about exposure to asbestos through automotive work, given the far less potent type of asbestos involved.
The court explains that a known risk for high-exposure to one type of asbestos does not establish a known risk for low-dose exposure to a different type:
That workers with relatively heavy and constant exposure to one type of asbestos fiber develop asbestosis does not necessarily mean that workers with intermittent, lower level exposure to a different type of asbestos fiber will also be adversely affected, particularly by an entirely different disease.
That does not sound like a punitive damages case to me.  Ford cannot have disregarded a known risk if, according to the Court of Appeal, the risk was not known at the time.