July 16, 2018

Court of Appeal tosses punitive damages claim against PG&E in Butte fire litigation (PG&E v. Superior Court)

The Third Appellate District issued this published opinion on July 2.  I've been delayed in writing about it, but it is one of the more interesting California punitive damages decisions in recent memory.

The Court of Appeal granted writ relief, reversing the denial of the defendant's motion for summary adjudication on punitive damages.  That alone is pretty rare in California.  In the ten years of this blog's existence, we have seen only a handful of writs granted on that basis.

The case arose out of the 2015 wildfire known as the Butte Fire, which caused widespread damage in Northern California.  Contractors working for PG&E removed two trees that were too close to a power line.  Removal of those trees left a third tree exposed and unsupported, causing it to lean towards the path of the sun until it eventually toppled and hit the power lines, sparking the fire.

The plaintiffs, who suffered personal injuries and property loss in the fire, sued PG&E for negligence, trespass, nuisance, and various other claims.  They sought punitive damages on the theory that PG&E acted in conscious disregard of the risks of wildfires.  The plaintiffs acknowledged that PG&E had a wildfire management program that involved inspecting and removing trees, but the plaintiffs argued that PG&E failed to ensure that the contractors' employees were properly trained.

PG&E moved for summary adjudication on the issue of punitive damages, presenting evidence of its extensive wildfire management efforts.  The trial court denied the motion, ruling that a reasonable jury could conclude that PG&E's program was inadequate and that PG&E deliberately failed to adopt a more robust program.  PG&E petitioned the Court of Appeal for writ relief.

The Third District granted PG&E's petition and directed the trial court to dismiss the punitive damages claim.  The court said PG&E met its initial burden by presenting evidence of its extensive efforts to mitigate the risk of wildfires, at a cost of more than $190 million per year.

The burden then shifted to the plaintiffs to present sufficient evidence to demonstrate a triable issue of fact on whether PG&E acted with malice.  The court concluded that, even viewing the evidence in the light most favorable to the plaintiffs, no reasonable factfinder could find that the plaintiffs had presented clear and convincing evidence of malice.

First, the court found that many of plaintiffs' criticisms of PG&E's fire management efforts could not support an award of punitive damages because many of the asserted defects in PG&E's programs had no connection to the fire in this case.  That's an important holding.  Although California law already provides that punitive damages must be based on the same conduct that gave rise to liability in the case, this requirement is often overlooked.

Second, the court rejected plaintiffs' reliance on a case known as Romo I.  (Romo v. Ford Motor Co. (2002) 99 Cal.App.4th 1115.)  California plaintiffs often argue that, under Romo I, they need not show that any particular managing agent of a defendant corporation acted with malice, if they can show that the company as a whole acted with malice by adopting a flawed policy.  The Court of Appeal in this case agreed that a finding of malice can be based on the existence of a company policy that willfully, consciously, and despicably disregards the rights of others.  But the court refused to extrapolate the reasoning of Romo I into a rule that malice can be inferred from the existence of any company policy that fails to protect against a known risk:

Plaintiffs would have us conclude that an unsuccessful risk management policy necessarily reflects a conscious and and will decision to ignore or disregard the risk.  This we decline to do.
(The court did not address whether Romo I is even citeable precedent.  Another court recently held, in an unpublished discussion, that Romo I cannot be cited in California courts because it was vacated by the United States Supreme Court.  See footnote 16 of this opinion.)

Third, the court rejected the plaintiffs' argument that PG&E acted with malice by outsourcing its wildfire prevention program to contractors and then failing to ensure they properly trained their employees. The court noted that PG&E required contractors to hire qualified employees and train them in accordance with industry standards.  "No reasonable jury could find by clear and convincing evidence that PG&E acted with malice in failing to ensure that contractors complied with these requirements."

Finally, the court determined that PG&E's nondelegable duty to maintain its power lines in a safe condition had no bearing on the punitive damages analysis.  The court explained that the nondelegable duty rule means that PG&E may be vicariously liable for compensatory  damages arising from the contractors' negligence.  But the nondelegable duty rule does not alter the rules for imposing punitive damages.  Plaintiffs must still prove that an officer, director, or managing agent acted with malice, which they failed to do.