California Punitives by Horvitz & Levy

  • Court of Appeal issues slightly modified opinion in long-running insurance bad faith case (Nickerson v. Stonebridge)

    A few days ago the California Court of Appeal published what may be the final chapter in the lengthy saga involving a $19 million punitive damages award in an insurance bad faith case.

    We have discussed this case at length in prior posts (see the links below).  I don’t want to rehash all of that, but here’s a brief recap:

    • A jury awarded $19 million in punitive damages and $35,000 in compensatory damages against an insurer.  After the verdict, the trial court tacked on an additional $12,500 in damages to compensate the insured for the legal fees he incurred to obtain his wrongfully withheld policy benefits (Brandt fees).
    • The trial court decided the punitive damages were excessive and ordered a new trial unless the plaintiff accepted a reduction of the punitive damages to $350,000, ten times the compensatory damages awarded by the jury.
    • The Court of Appeal (Second Appellate District, Division Three) affirmed.  In the process, it said the trial court properly excluded the $12,500 in Brandt fees from the ratio calculations.  The Court of Appeal reasoned that punitive damages award could not be based on a multiplier of the Brandt fees because the jury did not know about the Brandt fees when it made the initial punitive damages award.
    • The Supreme Court disagreed, and held that the Brandt fees should have been included as part of the compensatory damages for ratio purposes.  Instead of modifying the judgment itself, the Supreme Court sent the case back to the Court of Appeal for further proceedings.

    That brings us to this week.  The Court of Appeal’s new published opinion is nearly identical to its prior decision.  The court simply deleted the prior discussion of the Brandt fee issue, and inserted a summary of the Supreme Court’s decision.  The court then added the Brandt fees onto the jury’s compensatory damages award, for a total of $47,500 in compensatory damages.  Keeping the same 10-to-1 ratio as in the previous decision, the Court of Appeal concluded that the final punitive damages award should be $475,000.

    That’s a lot of litigation over $175,000.

    P.S.  Two of the justices involved in the original decision were not part of the panel for new opinion.  Justice Croskey died while the case was pending before the Supreme Court, and Justice Klein retired.  Justice Croskey had dissented from the original opinion, taking the view that punitive damages should never have been awarded in this case.  But there is no dissent this time around.  The new decision is unanimous.

    Related posts:

    California Supreme Court rules for plaintiff in dispute over ratio calculations in insurance bad faith cases (Nickerson v. Stonebridge)

    California Supreme Court limits issues for review in Nickerson v. Stonebridge

    California Supreme Court grants review in Nickerson v. Stonebridge

    Court of Appeal orders reduction of $19M punitive damages award to $350,000 (Nickerson v. Stonebridge) – PART II

    Court of Appeal orders reduction of $19M punitive damages award to $350,000 (Nickerson v. Stonebridge) – PART I

    L.A. trial court reduces punitive damages award against Stonebridge insurance from $19 million to $350,000

    L.A. jury awards $19 million in punitive damages and $35,000 in compensatory damages in insurance bad faith case

     

  • Court of Appeal orders new trial in case that generated $55 million punitive damages award (Grow Land & Water v. McCarthy Family Farms)

    The Hanford Sentinel reported over the weekend on a decision from the Fifth Appellate District in Fresno that reversed a judgment awarding $73.4 million in compensatory damages and $3 million in punitive damages.  A jury had originally awarded $55.2 million in punitive damages, one of the largest punitive damages awards in California in recent years.  But the trial court reduced that to $3 million.

    The case arises from a failed development project.  The plaintiff, Grow Land & Water, alleged that it was in the process of acquiring land and water rights when the defendant interfered with his deal and acquired the rights for himself.

    The unpublished opinion doesn’t say much about the punitive damages.  The reversal was based entirely on problems with the compensatory damages, namely, that the plaintiff failed to prove some elements of its damages claims and the compensatory award was tainted by irrelevant and prejudicial evidence.  The Court of Appeal concluded that a new trial was therefore required on all the damages, including the punitives:

    Punitive damages must bear a reasonable relationship to the actual damages.  Thus, the reversal of the compensatory damages requires that the punitive damages be redetermined as well.

    While that may seem like an intuitive result, other divisions of the California Court of Appeal have issued opinions that dramatically reduced a compensatory damages award without ordering a new trial on punitive damages.  (See, for example, here and here.)  Under the reasoning of this case, those cases should have come out differently.  The defendants in those cases were entitled to have a jury decide in the first instance what amount of punitive damages would be reasonable in relation to the actual damages.  I’m still hoping the California Supreme Court will examine this issue, although it has passed up several opportunities to do so.

  • California Court of Appeal finds $5.5M in punitive damages unconstitutional, gives plaintiffs the option of a new trial or $900k (Vaughn v. Darwish)


    In this lawsuit by six tenants against their landlord, a Los Angeles jury awarded punitive damages totaling roughly $5.5 million.  That award was ultimately deemed constitutionally excessive in this unpublished opinion, but the path to that result was a rocky one, and I have doubts about whether the Court of Appeal’s disposition is procedurally correct.

    The procedural weirdness began in the trial court, where the court issued a rolling series of rulings on the defendants’ post-trial motions.

    After the jury’s verdict, the trial court entered judgment and the plaintiffs served notice of entry of that judgment on August 30, 2013.  The defendants then filed post-trial motions arguing, among other things, that the punitive damages were excessive.  The trial court’s deadline for ruling on those motions was October 29 (60 days after the service of notice of entry of judgment).

    On October 25 the trial court issued a minute order stating that the post-trial motions were denied, except that a new trial would be granted unless the plaintiffs consented to a remittitur of the total punitive damages to $900,000.  The minute order referenced a separate formal order dated October 25, but the trial court never signed or entered any other order on that date.

    Three days later, on October 28, the trial court issued another order stating that its October 25 ruling was only tentative and not final.

    On November 12, roughly two weeks after deadline, the trial court issued an “amended” order, again stating that the post-trial motions were denied, except that a new trial would be granted on punitive damages unless the plaintiffs accepted a remittitur of the amount to $900,000.

    On November 20, the trial court issued yet another purported amendment to its ruling on the post-trial motions, changing the amount of the remittitur.

    Both sides appealed.  The Second Appellate District, Division Two, determined that the trial court’s order purporting to grant a conditional new trial was ineffective because the trial court failed to issue a signed statement of its reasons when it initially granted a conditional new trial, and because the trial court later vacated its initial ruling by deeming it to be “tentative.”  The November 12 and November 20 rulings were ineffective because the deadline had already passed.

    Having reversed the trial court’s grant of a conditional new trial, the Court of Appeal then proceeded to grant a conditional new trial on its own, finding that the jury’s punitive damages award was constitutionally excessive under Simon v. San Paolo U.S. Holding Co., and ordering a remittitur in exactly the same amount as in the trial court’s original order.

    That disposition is questionable, because the Supreme Court of California said in Simon that, when a court determines that a punitive damages award is constitutionally excessive, the appropriate remedy is to modify the judgment by reducing the award to the constitutional maximum.  Simon explains that courts should not give plaintiffs the option of choosing a new trial as an alternative to the reduction:

    Giving a plaintiff the option of a new trial rather than accepting the constitutional maximum for this case would be of no value. If, on a new trial, the plaintiff was awarded punitive damages less than the constitutional maximum, he would have lost. If the plaintiff obtained more than the constitutional maximum, the award could not be sustained. Thus, a new trial provides only a ‘heads the defendant wins; tails the plaintiff loses’ option.

    The Court of Appeal here cited Simon but ordered precisely the sort of disposition that Simon cautions against. In so doing, the court cited a Court of Appeal opinion that pre-dates Simon.  This is probably just an oversight, which the court may correct before the opinion becomes final.

  • Court of Appeal reinstates punitive damages claim against DirecTV (Salinda v. DirecTV)

    In this disability discrimination case against DirecTV, the plaintiff won a jury verdict for $1.18 million in compensatory damages.  But she could not get punitive damages because the trial court granted a motion DirecTV’s for summary adjudication on that issue.  DirecTV argued, and the trial court agreed, that plaintiff could not obtain punitive damages because she could not prove that any corporate officer, director, or managing agent was responsible for the alleged misconduct against the plaintiff.

    The Court of Appeal (Second Appellate District, Division Three) reversed in an unpublished opinion.  The court noted that, under Supreme Court precedent, an employee does not qualify as a “managing agent” within the meaning of Civil Code section 3294 unless the employee has substantial discretionary authority over decisions that ultimately determine company policy.  In this case, DirecTV submitted declarations from several employees who stated, “I have no discretion or independent authority over decisions that ultimately determine corporate policy.”  The Court of Appeal said these declarations were insufficient because they merely restated the legal standard, and  the declarants should instead have provided descriptions of their job duties and responsibilities so that the trial court could decide for itself whether they might qualify as managing agents.  Accordingly, the Court of Appeal reinstated the plaintiff’s punitive damages claims and sent the case back to the trial court for further proceedings.

    This analysis of this opinion closely tracks this 2013 decision, which was originally unpublished but was later ordered published.

  • Unpublished opinion departs from precedent, gives plaintiff a second chance after failure of proof (Modarres v. Thomas)

    This unpublished opinion reverses a punitive damages award because the plaintiff failed to present meaningful evidence of the defendant’s financial condition at the time of trial.  That holding is nothing unusual.  What is unusual, however, is that the Court of Appeal (Fourth Appellate District, Division Three) gave the plaintiff a do-over on that element of proof.

    Under longstanding California law, plaintiffs who fail to carry their burden of proof are not entitled to a “second bite at the apple.”  (Kelly v. Haag (2006) 145 Cal.App.4th 910, 919-920; see also these four unpublished opinions.)  If the plaintiff had a full and fair opportunity to prove the defendant’s financial condition and failed to do so, there is no reason to give the plaintiff a second chance.  The Court of Appeal should reverse the punitive damages award and direct the trial court to enter judgment for the defendant on that issue.

    In this case, however, the Court of Appeal sends the case back to the trial court to allow the plaintiff to conduct further discovery in order to present the evidence she neglected to present the first time around.  The opinion does not explain why the court departed from the usual rule, which raises the question whether anyone briefed this issue, and whether the Court of Appeal was made aware of the usual rule.  The defendant may want to consider a petition for rehearing.

  • Court of Appeal holds that Probate Code double damages may be punitive in nature, but are not punitive damages (Hill v. Superior Court)

    Last week the California Court of Appeal (First Appellate District, Division Two) issued this published opinion holding that double damages under the Probate Code may be “punitive in nature” and may have a “punitive effect,” but they are not technically “punitive damages.”

    The issue arises at the intersection of Probate Law and punitive damages law.  The plaintiffs in this case sued their stepfather under a Probate Code provision that permits double damages against someone who in bad faith takes property from the estate of a decedent.  Things got complicated, however, when the defendant died and his son was substituted into the case as his successor in interest. The Code of Civil Procedure states that, when a defendant dies, the plaintiffs can recover from the successor in interest all the damages that they could have recovered from the decedent, except for punitive damages.

    The trial court in this case ruled that the plaintiffs could not recover double damages under the Probate Code, because double damages are akin to punitive damages and therefore were no longer available when the decedent was replaced by his successor in interest.

    The plaintiffs petitioned the Court of Appeal for writ relief.  The Court of Appeal granted the petition and reversed the trial court, ruling that double damages, even if similar to punitive damages, are not  punitive damages.  As the court explained: (1) punitive damages require a showing of malice, fraud, or oppression, which is not true for Probate Code double damages; (2) punitive damages are subject to the clear-and-convincing-evidence standard of proof, which Probate Code double damages are not; and (3) punitive damages require proof of the defendant’s financial condition, with Probate Code double damages do not.

    On its way to that conclusion, the Court of Appeal included an interesting aside on the relationship between punitive damages and statutory penalties.  It said that plaintiffs can recover both statutory penalties and punitive damages in the same case.  Many other cases have held, however, that plaintiffs cannot recover both statutory penalties and punitive damages, and must elect one or the other.  The opinion cites one of these cases, Hassoldt v. Patrick Media Group, but the only thing the opinion says about Hassoldt is that “Hassoldt is not a First District case.”

    Ultimately, this case is not really about whether plaintiffs can recover both statutory penalties and punitive damages for the same wrong, so the statements on that issue are dicta.  But this opinion may end up causing some confusion on that point if cited out of context.

  • California Court of Appeal affirms $4 in punitive damages, declines to reinstate jury’s $20 million award (Casey v. Kaiser Gypsum)

    Last week the California Court of Appeal (First District, Division Four) issued this unpublished opinion affirming a punitive damages award just under $4 million.  The jury in this asbestos case originally awarded $20 million in punitive damages, which the trial court reduced in response to the defendant’s post-trial motions.  Both parties appealed and the Court of Appeal affirmed across the board, rejecting the defendant’s request for a new trial and rejecting the plaintiff’s request to restore the jury’s $20 million award.

    We won’t comment on the court’s analysis because our firm represents the defendant.

  • Court of Appeal holds that compensatory damages award does not impact defendant’s financial condition (O’Brien v. AMBS Diagnostics)

    This unpublished opinion from the California Court of Appeal (Second Appellate District, Division Two) affirms a $125,000 punitive damages award. In the process, the court makes a peculiar statement that seems contrary to published authority.

    The defendant argued on appeal that the award was excessive under state law because it was disproportionate to his ability to pay.  According to the defendant, the $427,926 compensatory damages award completely wiped out his net worth, leaving him with no ability to pay an additional award of punitive damages.

    The court refused to consider the compensatory damages award when evaluating the defendant’s financial condition.  The court cited cases stating that the defendant’s financial condition should be measured “at the time of trial.”  Thus, the court concluded that a judgment entered after trial cannot be considered.

    That doesn’t seem quite right.  Under California law, the purpose of considering the defendant’s financial condition is to ensure that a punitive damages award does not destroy the defendant financially.  To figure out whether the defendant will be destroyed, the court needs to consider the impact of the entire judgment.  For example, the Court of Appeal in Washington v. Farlice, in deciding whether a $125,000 punitive damages award was excessive, evaluated the defendant’s financial condition by taking into account the value of the defendant’s interest in real property after the jury found during the first phase of trial that the defendant’s interest should be cut in half.

    The court here was correct to consider the finances “at the time of trial,” but there is no reason why that should not include the verdict that was rendered during the trial.  In any event, this opinion is unpublished and unciteable, leaving Washington v. Farlice as the law of the land on this issue.

  • Court of Appeal orders partial publication of punitive damages case, but leaves punitive damages discussion unpublished (Vardanyan v. AMCO Insurance)

    Last month we reported on the California Court of Appeal’s unpublished decision in Vardanyan v. AMCO Insurance, which reinstated a plaintiff’s claim for insurance bad faith but affirmed the trial court’s order granting a directed verdict on the plaintiff’s claim for punitive damages.  Today that court issued an order certifying part of the opinion for publication, but the published portion does not include the discussion of the directed verdict on punitive damages.

  • Court of Appeal affirms directed verdict on punitive damages in insurance dispute (Vardanyan v. AMCO Insurance)

    This unpublished opinion by the California Court of Appeal concludes that the plaintiff presented some evidence that his insurer made mistakes, but the mistakes were not egregious enough to support punitive damages.

    The plaintiff owned a rental home that had some serious problems.  Parts of the house were sinking, water damage and termite damage were popping up throughout, every room was moldy, and the front door would not open.  The plaintiff’s insurer declined to provide coverage for the needed repairs, on the ground that the damage was caused in party by non-covered hazards.

    When the plaintiff sued for breach of contract and bad faith, the trial court granted a directed verdict for the defense.  The Court of Appeal (Fifth Appellate District) reversed and ordered a new trial, ruling that the plaintiff should have been allowed to argue to the jury that he was entitled to coverage if the damage was predominately caused by a covered hazard.

    The Court of Appeal also ruled, however, that the plaintiff could not seek punitive damages in the retrial.  The court concluded that the plaintiff failed to make a case for punitive damages during the first trial and was not entitled to a do-over on that issue.  According to the court, the plaintiff’s evidence “may be consistent with some improprieties in claims handling, but it does not rise to the level of reprehensibility necessary to support an award of punitive damages.”

    Notably, the Court of Appeal stated it analyzed the plaintiff’s evidence while keeping in mind the “clear and convincing” standard of proof.  Contrast that statement to this recent unpublished opinion, which said that the clear and convincing evidence standard does not apply on appeal.  So far, the docket in that case does not indicate that the defendant has asked the California Supreme Court to review that issue.