May 22, 2018

California Court of Appeal affirms $784,000 punitive damages award (Burlingame Investments)

This unpublished opinion involves a complicated set of facts, but the upshot is that a jury awarded roughly $784,000 in compensatory damages and $784,000 in punitive damages against an attorney who allegedly participated in an illegal scheme to take over a group of closely-held businesses.

The defendant attorney argued on appeal that the Court of Appeal should reverse the punitive damages award entirely because the plaintiffs presented no evidence that he acted with malice, oppression, or fraud as required for a punitive damages award under Civil Code section 3294.  The Court of Appeal (First District, Division One), however, had no trouble concluding that the record supported the jury's finding that the defendant knew what he was doing was illegal.

The Court of Appeal also rejected the defendant's challenge to the amount of the punitive damages. The court agreed with the defendant that his conduct did not implicate most of the reprehensibility factors that the Supreme Court set forth in BMW v. Gore as indicators of highly reprehensible conduct.  But the court found that the reprehensibility of the conduct was "severe" because it implicated one of those factors---the harm was the result of intentional malice, not mere accident.

That analysis is interesting.  In California, punitive damages can never be awarded for "mere accident."  If that factor alone were enough for a court to deem conduct severely reprehensible, then the vast majority of punitive damages case in California would qualify.  Compare that approach to the Supreme Court of California's analysis in Roby v. McKesson, which held that the reprehensibility of the defendant's conduct implicated four of the five BMW reprehensibility factors but was nevertheless "at the low end of the range of wrongdoing that can support an award of punitive damages."

In any event, it probably wouldn't have made any difference whether the court characterized the defendant's conduct as severe or mild in this case, given the one-to-one ratio of punitive damages to compensatory damages.  California courts would rarely find such a ratio excessive, especially where the punitive damages are less than $1 million.