March 12, 2020

Court of Appeal reduces $13.8 million punitive damages award to $5.7 million in discrimination case (Moland v. McWane)

In this employment case involving claims of racial discrimination and wrongful termination, a jury awarded $13.8 million in punitive damages and $2.87 million in compensatory damages, a ratio of 4.8 to 1.  On appeal, the defendant argued that the punitive damages should be vacated entirely or at least reduced as excessive.

The California Court of Appeal (Second District, Division Seven) held in an unpublished opinion that an award of punitive damages was justified because the evidence, viewed in the light most favorable to the plaintiff, could support an inference that the defendant acted with extreme indifference to the plaintiff's right to be free of racial discrimination in the workplace.

Turning to the question of excessiveness, the court analyzed the three BMW/State Farm guideposts: (1) the reprehensibility of the conduct, (2) the ratio of punitive to compensatory damages, and (3) the difference between the punitive damages award and civil penalties authorized by the Legislature for similar misconduct.

1.  The court found several indicators of a higher level of reprehensibility: the defendant's acts affected the plaintiff's emotional and mental health (i.e., did not inflict purely economic harm), the defendant should have known the plaintiff would suffer emotional harm, and the plaintiff was financially vulnerable.  But the court rejected the plaintiff's argument that the level of reprehensibility was enhanced by the fact that the defendant made multiple decisions that harmed the plaintiff.  The court explained that discrimination against the plaintiff was a single instance of wrongdoing, and in the absence of further instances against the plaintiff or others, the defendant could not be treated as a repeat offender.

2.  When analyzing the ratio of punitive damages to compensatory damages, the court rejected the defendant's argument that a 1 to 1 ratio should be the constitutional maximum in light of the substantial noneconomic damages (about $2.5 million of the total compensatory damages award).  The court held that the ratio can exceed 1 to 1 when the noneconomic damages and the reprehensibility of the defendant's conduct are both high.  Relying heavily on a Second Circuit decision, the court concluded that a limit of 2 to 1 is the constitutional maximum in a case of this nature.

3.  Finally, the court compared the punitive damages award to a now-repealed $150,000 cap on administrative fines for claims before the California Fair Employment and Housing Commission.  The court found that the cap weighed in favor of an award less that the jury's verdict, but did not mandate an award below a 2 to 1 ratio.

Accordingly, the court ordered the trial court to modify the judgment to reduce the punitive damages award to $5.8 million, roughly double the amount of compensatory damages.  Appropriately, the court did not give the plaintiff the option of rejecting the lower amount in favor of a new trial.