August 30, 2017

Court of Appeal reduces compensatory damages and orders matching reduction in punitives (Pulte Home v. American Safety Indemnity)

This published opinion issued today addresses a recurring issue in California punitive damages litigation: when an appellate court significantly reduces a compensatory damages award, what should the court do with a punitive damages award?

The best way to handle this situation is to order a re-evaluation of the punitive damages in the trial court. That means a new trial is necessary if the punitive damages were awarded by a jury.  If the punitive damages were awarded by the trial court, the Court of Appeal should send the case back to the trial judge for reconsideration.  That approach preserves the defendant's right to have the trier-of-fact assess punitive damages based on actual harm caused to the plaintiff.  Some California appellate decisions, like this one, have followed that approach.

The second-best approach is to direct the trial court to reduce the punitive damages to match the original ratio of compensatory to punitive damages.  That's the approach taken by the Court of Appeal (Fourth Appellate District, Division One) in today's Pulte Home case.  It determined that the trial court erred in calculating the compensatory damages, so it sent the case back to the trial court to recalculate the compensatory damages and then reduce the punitive damages to preserve the 1-to-1 ratio of the original award.  Although that approach maintains the original ratio, it deprives the defendant of the right to have the jury (or judge) determine whether a lesser ratio is more appropriate, in light of the fact that the harm was not as severe as originally thought.

By far the worst approach is for the Court of Appeal to simply affirm the punitive damages, without respecting the original ratio or giving the trier of fact the opportunity to determine whether a different punishment is appropriate. Unfortunately, our courts have sometimes adopted that approach, both in published and unpublished opinions.

Some day the California Supreme Court will sort this out.  We hope.