California Punitives by Horvitz & Levy

  • Defendant forfeited challenge to $1.2 million punitive damages award by refusing to produce witness on financial condition (Smally v. Nationwide)

    In this insurance bad faith case, a jury awarded $686,000 in compensatory damages and $1.2 million in punitive damages to one of the plaintiffs.  (A second plaintiff also recovered compensatory damages, but no punitive damages).

    On appeal, the insurer argued that the punitive damages should be vacated because the plaintiff failed to meet its burden of presenting meaningful evidence of the defendant’s financial condition.  California courts frequently strike down punitive damages awards on that basis, but not this time.

    The Court of Appeal (First Appellate District, Division Four) held in an unpublished opinion that the defendant forfeited its right to complain about the absence of financial condition because the defendant refused to produce a witness on that issue.  The court noted that the plaintiff asked the defendant to produce a witness knowledgeable about the defendant’s financial condition, and the defendant did not object to that request.  By neither objecting to nor complying with the request, the defendant forfeited its right to complain about the lack of evidence of its financial condition.

  • Court of Appeal holds that California trial court erred by applying Michigan law to bar punitive damages (Scott v. Ford Motor Co.)

    Punitive damages are not permitted under Michigan law.  So what happens when a Michigan corporation is sued for punitive damages in California, based on corporate acts that took place in Michigan?

    The trial court in this asbestos injury case applied Michigan law and dismissed the punitive damages claim.  After the jury ruled for the plaintiff and awarded compensatory damages, the plaintiff appealed, arguing he should have been allowed to seek punitive damages as well.

    The California Court of Appeal (First Appellate District, Division One), agreed with the plaintiff and reversed the trial court’s ruling in a published opinion (Scott v. Ford Motor Co.).

    Applying the “governmental interest analysis” test for conflicts of law issues, the Court of Appeal concluded that Michigan has little interest in having its law applied to the punitive damages claim in this case.

    Ford argued that Michigan’s policy should apply because Ford is domiciled in Michigan, but the Court of Appeal was not buying that argument at all:

    Because the same argument would hold in all 40-odd other states permitting punitive damages, Ford effectively argues it should be found to carry a nationwide shield from punitive damage liability because the state in which it maintains its headquarters has decided punitive damages are poor public policy. We cannot agree, any more than we expect a Michigan court would yield to a plaintiff’s plea to impose punitive damages on a California-based corporation because its home state has made the opposite policy judgment

    That reasoning is not too surprising.  I can’t imagine any California court agreeing that businesses that incorporate in Michigan can come to California and commit acts of malice without fear of punitive damages.

    But Ford also argued that Michigan law should apply because the allegedly malicious acts actually took place in Michigan, not California.  The Court of Appeal struggled to explain its reasoning for rejecting that argument.  Ultimately, the court said Michigan courts have never expressly articulated that the purpose of Michigan’s ban on punitive damages is to preclude punitive damages for conduct occurring in Michigan:

    In Ford’s telling, the Michigan ban on punitive damages represents a declaration that corporate conduct occurring in Michigan should not be subject to punitive damages, regardless of its nature. . . . Michigan has never articulated this as a motive for banning punitive damages, and Michigan courts do not preclude punitive damages based on conduct occurring only within the state. Rather, the ban on punitive damages is entirely independent of the location of the alleged conduct in connection with which punitive damages are sought and applies to any defendant’s conduct, regardless of where it occurred.

    That seems a little questionable.  Isn’t it a safe assumption that, when the Michigan Supreme Court  outlawed punitive damages in 1884, the court was thinking, at least primarily, about Michigan conduct?  Do we really need a Michigan court to say that?  (A federal district court in Michigan has said that, but the Court of Appeal here did not believe that was sufficient.)

    In any event, this may not be a big deal for Ford in this case.  Although this case is going back to the trial court for a trial on punitive damages, the Court of Appeal’s opinion indicates that the evidence here would not support a punitive damages award.  To get punitive damages, the plaintiff would have to prove that Ford consciously disregarded a known risk in the 1960s, when the conduct occurred.  But the opinion explains (while discussing an unrelated issue) that there was no known risk associated with Ford’s asbestos products at the time:

    From 1966, the beginning of the relevant time period, there appears to have been a scientific consensus that industrial exposure to the type of asbestos used in insulation was dangerous. There was no similar consensus about exposure to asbestos through automotive work, given the far less potent type of asbestos involved.

    The court explains that a known risk for high-exposure to one type of asbestos does not establish a known risk for low-dose exposure to a different type:

    That workers with relatively heavy and constant exposure to one type of asbestos fiber develop asbestosis does not necessarily mean that workers with intermittent, lower level exposure to a different type of asbestos fiber will also be adversely affected, particularly by an entirely different disease.

    That does not sound like a punitive damages case to me.  Ford cannot have disregarded a known risk if, according to the Court of Appeal, the risk was not known at the time.

  • Court of Appeal affirms order vacating $200,000 in punitive damages against defendants with negative net worth (Gelhar v. Baldwin)

    This unpublished opinion addresses a scenario that seems to be arising more frequently in California punitive damages litigation: the award of punitive damages against defendants with a negative net worth.

    The jury in this fraud and elder abuse case ordered two defendants to pay a total of $200,000 in punitive damages.  The trial court, however, granted the defendants’ motion for a new trial and vacated the punitive damages award as excessive in relation to the defendants’ financial condition.  The court noted that at the time of trial the defendants had a combined net worth of negative $350,000 to $400,000.  The court concluded that the jury’s $200,000 punitive damages award was so disproportionate to the defendant’s wealth “that it [wa]s presumptively based on passion and prejudice.”

    The California Court of Appeal (Fourth Appellate District, Division Three) affirmed.  It held that “[e]vidence of a negative net worth was a valid reason for the court to hold the punitive damages award was excessive.”  That is not exactly a novel holding, but it is notable in light of several recent decisions that have affirmed punitive damages awards notwithstanding the defendant’s claimed negative net worth.  (For example, Pfeifer v. John Crane, Miracle v. Mehrban, and Bankhead v. ArvinMeritor.)

  • Court of Appeal affirms $30 million punitive damages award – the third largest to survive appeal in California (Asahi v. Actelion)

    This published opinion by the California Court of Appeal (First Appellate District, Division Five) affirms a judgment consisting of $377 million in compensatory damages and $30 million in punitive damages.  The punitive damages award, although small in comparison to the compensatory damages, appears to be the third largest punitive damages award to survive appeal in California.  The punitive damages portion of the opinion, however, is unpublished.

    Here’s our updated list of the largest awards that our appellate courts have ever affirmed:

    1. Buell-Wilson v. Ford (2008) [depublished]: $55 million

    2. Boeken v. Philip Morris (2005) 127 Cal.App.4th 1640: $50 million

    3.  Asahi Kasei Pharma Corporation v. Actelion Ltd. (2013) ___ Cal.App.4th ____: $30 million

    4. Rufo v. Simpson (2001) 86 Cal.App.4th 573: $25 million

    5. Vann v. Travelers (1998) [unpublished]: $25 million

    I’m swamped with other work right now, but I hope to make time to write a further post analyzing the substance of this opinion.  In the meantime, for further reading about this case, see this November 8 story in The Recorder:  With Appeal Pending, Gloves Come Off in Pharmaceutical Feud (subscription required).

  • Court of Appeal finds no inconsistency where jury ruled for defense on liability, but ruled for plaintiff on punitive damages (Marini v. Regenesis Power, LLC)

    The jurors in this case were awfully confused.  They were asked to decide two theories of liability: false promise and breach of fiduciary duty.  They were instructed that, if they found that the defendant’s conduct harmed the plaintiff, they should also decide whether the defendant acted with malice, oppression, or fraud, and therefore is subject to punitive damages.

    The jurors clearly did not understand that instruction, because they ruled in favor of the defendants on the liability issues and then proceeded to answer the punitive damages questions, finding that the defendants acted with malice, oppression, and fraud.

    After the verdict was read, the court reminded the jurors of the instructions, particularly this one: “[i]f you decide that defendants’ conduct caused harm, you must decide whether that conduct justifies an award of punitive damages.”  The judge asked the jurors to tell the court how they understood that sentence.  The answers did little to explain the odd verdict.  One juror said “it means that if I think the defendant did something that would cause this person to lose money . . . then I will have to award him some punitive damages.”

    The judge then tried to explain more clearly to the jurors that they should not reach the issue of punitive damages unless they find for the plaintiff on liability:

    If you decide that the defendants’ conduct caused harm to the plaintiff under either or both of the causes of action, then you can award punitive damages.  But if you did not find any harm under those two causes of action, you cannot award punitive damages . . . the way things stand, I’m going to have to nullify the punitive damages.

    Nevertheless, the foreperson told the court after further deliberations that the jury chose not to change the verdict.

    The court then dismissed the jury and entered judgment for the defendant.  The plaintiffs moved for a new trial, arguing that the jury’s finding of malice, oppression, or fraud was inconsistent with the defense verdict on liability.  The court denied the motion and the plaintiffs appealed.

    The California Court of Appeal (Second Appellate District, Division Three) affirmed.  In this unpublished opinion, the court explained that the verdict was not inconsistent, because the liability issues and the punitive damages issues were distinct.  The malice finding did not conflict with the liability issue–it was merely superfluous.  Accordingly, the court held that the trial court acted properly by effectively striking the punitive damages finding and entering judgment in favor of the defendants.

  • Court of Appeal affirms $200,000 punitive damages award in a published opinion (Powerhouse Motorsports v. Yamaha Motor)

    This published opinion affirms a judgment awarding $1.1 million in compensatory damages and $200,000 in punitive damages against Yamaha Motor Corp. in a dispute between Yamaha and a former franchisee.

    Yamaha argued on appeal, among other things, that the punitive damages should be vacated under Civil Code section 3294, which provides that punitive damages cannot be awarded for the breach of obligations arising solely from a contract.  Yamaha claimed the plaintiff’s various claims all arose from Yamaha’s alleged breach of a franchise agreement.  The California Court of Appeal (Second Appellate District, Division Six) disagreed, finding that the plaintiff had a valid tort claim for interference with a separate contract (to which Yamaha was not a party), between the plaintiff and a third party.

    Yamaha also argued that the plaintiff failed to prove, as section 3294 requires, that any misconduct was committed by an officer, director, or managing agent of Yamaha.  Again, the Court of Appeal disagreed.  It held that Yamaha’s regional sales manager, who testified that he was responsible for the total well-being of between 140 and 240 dealerships, was a managing agent within the meaning of section 3294.

  • Court of Appeal reissues opinion approving jury instruction on clear and convincing evidence (Nevarrez v. San Marino Skilled Nursing)

    In June we reported on this case, in which the defendant challenged the wording of CACI 201, the pattern jury instruction that defines “clear and convincing evidence.”  After our initial post, the Court of Appeal granted rehearing to reexamine a different aspect of the case.

    The court has now reissued its published opinion. It contains the same analysis of CACI 201, i.e., the opinion once again holds that CACI 201 is correct as written and should not be augmented to reflect the definition of clear and convincing evidence set forth by the California Supreme Court in In re Angelia P.

  • Court of Appeal reverses $500,000 punitive damages award because plaintiff failed to provide evidence of the defendant’s financial condition at the time of trial (Oggi’s Pizza v. Durrant)

    This unpublished opinion from the California Court of Appeal (Fourth Appellate District, Division One) reminds us that plaintiffs seeking punitive damages must not only introduce meaningful evidence of the defendant’s financial condition, but they must present evidence of the defendant’s finances at the time of trial.

    The trial in this case took place in December 2011.  The plaintiff presented evidence that the defendant had a net worth of $2.2 million as of June 2009.  Plaintiff’s counsel did not ask the defendant (who testified during the punitive damages phase of trial) about his current assets or liabilities.  The plaintiff introduced a copy of the defendant’s most recent tax return, but that showed only his income, not his assets or liabilities.

    That evidence was not enough to sustain the jury’s punitive damages award, according to the Court of Appeal.  The court reversed the $500,000 punitive award and directed the trial court to enter judgment in favor of the defendant on that issue.

  • Court of Appeal affirms $14.5M punitive damages award in asbestos case (Pfeifer v. John Crane)

    The California Court of Appeal issued this 68-page published opinion today, affirming a $14.5 million punitive damages award.

    The opinion might not remain on the books for long, for reasons having nothing to do with the court’s punitive damages analysis.  The opinion addresses an issue that’s already before the California Supreme Court in another matter, Webb v. Special Electric.  Both cases raise the following question: when a supplier sells a product to a purchaser who is already aware of dangers of the product, can the supplier still be liable for failure to warn?  Because that issue is already before the court in Webb, there is a strong chance the court will grant John Crane’s petition for review (assuming it files one) and hold this case pending the disposition in Webb.

    Aside from that “sophisticated purchaser” issue, there is a lot of interesting stuff in this opinion. I won’t attempt to summarize all 68 pages, but here are some highlights of the punitive damages analysis:

    1.  The opinion states that reviewing courts should take the “clear and convincing” evidence standard into account when deciding whether a plaintiff presented substantial evidence of malice, oppression, or fraud.  As we have noted in prior posts, other recent published cases have said the same thing, but some recent unpublished opinions have disagreed.

    2.   The opinion concludes that the record in this case supports the jury’s finding of malice, because the plaintiffs presented evidence that John Crane knew its customers used its products in ways capable of generating dangerous levels of asbestos dust. 

    3.  The opinion rejects John Crane’s argument that the trial court erred by ordering John Crane to disclose information about its financial condition during trial, after the jury found that John Crane acted with malice.  John Crane argued that the plaintiffs were not entitled to that information because they failed to follow the procedure spelled out in Civil Code section 3295(c) for requesting pretrial discovery of financial condition information.  The opinion follows the holding of Mike Davidov Co. v. Issod, which said that a court can order the defendant to produce its financial condition evidence during trial, after a finding of malice, so long as the trial court allows the defendant sufficient time to gather its records.

    4.  The opinion rejects John Crane’s argument that its financial condition was insufficient to support the punitive damages award.  According to the plaintiffs’ expert, John Crane had $403 million in assets and nearly $16 million in cash on hand, but had a negative net worth of $125 million.  The opinion observes, however, that John Crane’s net worth would be a positive $98 million if not for its  asbestos-litigation liabilities.  And the opinion observes that the jury’s award of $14.5 million is only six percent of the funds John Crane set aside for payment of asbestos litigation.  Based on these observations, the opinion concludes that John Crane could afford to pay the award without being destroyed.  

    5.  The opinion rejects John Crane’s argument that California’s punitive damages statute, Civil Code section 3294, is unconstitutionally vague as applied to this case.

    6.  The opinion holds that the jury’s $14.5 million award was not excessive.  The opinion compares that amount to the $6.2 million compensatory damages owed by John Crane (after reduction to reflect the jury’s allocation of fault), and concludes that the resulting ratio of 2.3 to one is not excessive, considering the highly reprehensible nature of John Crane’s conduct.

    We will keep tabs on this one to see if the Supreme Court grants review.

  • $500,000 punitive damages award reduced to $150,000 (Wallis v. PHL Associates)

    The California Court of Appeal (Third Appellate District) issued this published opinion today, reducing a jury’s $2 million compensatory damages award to $15,000, and reducing a $500,000 punitive damages award to $150,000.

    The case involves allegations of fraud in connection with the sale of an antigen used in a vaccine.  Although the jury awarded $2 million in compensatory damages for fraud, the Court of Appeal said the evidence could only support an award of $15,000.

    The court then had to decide what to do about the $500,000 punitive damages award, in light of the reduced compensatory damages award.  As we have seen, courts have taken differing approaches to that issue.  The court could have sent the case back to the trial court to reevaluate the punitive damages in light of the reduced compensatories.  Instead, the court decided to simply order a reduction of the award to $150,000, representing ten times the amount of the compensatory damages as reduced, because the defendant offered to accept that amount, and any higher amount “would surely violate [the defendant’s] due process rights.”

    The court noted that the reprehensibility of the defendant’s conduct was “moderate” because it implicated only three of the five reprehensibility factors identified in State Farm v. Campbell.  The plaintiff argued that the presence of three out of five factors supports a finding of heightened reprehensibility, but the court disagreed:

    Wallis argues that the reprehensibility is rather more extreme. Keeping in mind that reprehensible conduct is, by definition, reprehensible in all instances and that extreme reprehensibility is found only in exceptional cases, we conclude that this case does not rise to the level of extremely reprehensible cases.

    In particular, the court noted that the defendant caused no physical harm, and did not act with an indifference to health and safety.  Accordingly, the court concluded that the jury’s award of $500,000, more than 33 times the compensatory damages as reduced, could not withstand constitutional review.  The court did not have to decide the maximum permissible ratio in this case, because the defendant agreed to pay the award if reduced to a ratio of 10 to 1 ($150,000).  So the court simply ordered a reduction of the punitive damages award to that amount, without the need for any further proceedings.

    Related posts:

    Petition for review asks Cal. Supreme Court to resolve split in authority regarding the proper treatment of a punitive damages award after reduction of compensatories