March 3, 2017

A mixed bag of unpublished opinions (Haworth, Saller, Frederick)

The California Court of Appeal issued a trio of unpublished opinions on punitive damages last month, with mixed results for plaintiffs and defendants.  Here's a quick recap:

1.  In Haworth v. Adams the Second Appellate District, Division Two, affirmed a punitive damages award of $13.3 million in a case involving claims of fraud and elder abuse.

The opinion is unclear about what punitive damages issues the defendant raised on appeal.  At one point the opinion states that the defendant argued the punitive damages award was unsupported by the evidence and motivated by passion and prejudice. Those are classic state-law arguments governed by a well developed body of California cases.  But the opinion does not discuss any of those cases, and instead launches into a discussion of federal constitutional standards for excessiveness, without ever actually addressing the sufficiency of the evidence or the passion and prejudice issue.

Aside from that confusion about what issues the defendant raised, the opinion's excessiveness analysis is itself problematic.  According to the opinion, the California Supreme Court has held that a ratio of "9 or 10 to 1 is the appropriate benchmark for determining whether a reasonable relationship exists between an exemplary and compensatory damages award." The opinion then concludes that the award in this case is not excessive because the ratio of 10 to 1 falls within the Supreme Court's "benchmark."

That analysis suggests that any ratio of 10 to 1 or less is necessarily constitutional. But the California Supreme Court has expressly stated otherwise: "multipliers less than nine or 10 are not, however, presumptively valid."  (See Simon v. San Paolo U.S. Holding Co..)  And both the U.S. Supreme Court and the California Supreme Court have indicated that a ratio of 1 to 1 may be the maximum in cases involving substantial compensatory damages awards.  (See Roby v. McKesson.) The $1.3 million compensatory damages award in this case certainly qualifies as substantial, but the Court of Appeal did not address whether the size of that award required a smaller ratio.  Perhaps the defendant did not raise those issues (if the defendant even raised a constitutional excessivness argument at all).

2.  In Saller v. Crown Cork & Seal the Second Appellate District, Division One, reversed a $3.6 million punitive damages award because the plaintiff failed to present evidence of the defendant's financial condition.  Horvitz & Levy represented the defendant in that case so I won't provide any commentary about it.

3.  In Frederick v. Pacwest Security Services the Second Appellate District, Division Seven, affirmed a $63,000 punitive damages award, rejecting the defendant's argument that the plaintiff failed to present sufficient evidence of the defendant's financial condition.  The court observed that the record contained evidence of the defendant's gross receipts, net income, loan amounts, and line of credit. The court found that such evidence was enough to satisfy the plaintiff's burden of proving the defendant's ability to pay the award.  Moreover, the court found the award was not excessive in relation to the defendant's finances, because although the award was equal to the defendant's entire annual net income, it represented less than one percent of the company's annual gross receipts.