Law 360 (subscription required) is reporting on yesterday’s oral argument in Pfeifer v. John Crane, a case in which a jury awarded $14.5 million in punitive damages against a manufacturer of asbestos-containing gaskets.  According to the story, John Crane is seeking to vacate the award due to the absence of any evidence of malice, oppression, or fraud.  The story reports that one member of the appellate panel, Justice Manella, was skeptical of Crane’s arguments.  The opinion should be released by the end of the year.

Last week we blogged about this published opinion and its curious disposition.

In this post, we discuss some interesting aspects of the majority opinion, which held that any punitive damages award over $350,000 would be unconstitutional.

First, I am confused by this statement at the outset of the legal discussion, indicating that excessiveness is the only issue on appeal:”[t]he contentions on appeal raise only the question of whether the remitted punitive damage award passes constitutional muster under the due process clause.”  That’s confusing because the dissenting opinion says that the appellant challenged not only the amount of the award, but also the sufficiency of the evidence supporting the jury’s finding of fraud: “Stonebridge contends there is no substantial evidence that it intentionally misrepresented or concealed a material fact and therefore there is no substantial evidence to support the fraud finding.”

So which is it?  Did Stonebridge challenge the sufficiency of the evidence or not?  If so, the majority opinion should have addressed that issue before embarking upon an excessiveness analysis.  Stonebridge’s argument seems to warrant serious consideration, given that the dissenting justice actually agrees with Stonebridge on that point.  The mysterious omission of this argument from the majority opinion makes me suspect that the majority opinion was originally written to be a dissent, but that’s pure speculation.

Turning to the merits of the majority’s excessiveness analysis, here are some notable aspects:

1. The court concluded, for purposes of measuring the reprehensibility of Stonebridge’s conduct, that Stonebridge caused no physical harm, despite the jury’s award of emotional distress damages.  The court distinguished Roby, in which the Supreme Court found that the plaintiff’s emotional distress was a form of physical harm.  The Court of Appeal said emotional distress can be treated as physical harm only if the plaintiff suffers some physical symptoms.

2.  The court concluded, for purposes of computing the ratio of punitive to compensatory damages, that it could not consider the jury’s award of policy benefits or Brandt fees.  The court distinguished Major v. Western Home, a case in which the court included Brandt fees in the ratio analysis.  The court pointed out that in Major the jury awarded Brandt fees before it awarded punitive damages.  Where, as here, the trial court awards Brandt fees after the conclusion of the jury trial, those fees cannot be used to uphold the jury’s punitive damages award.  (This aspect of the majority opinion follows the reasoning of Amerigraphics.)

3.  The court concluded that any ratio in excess of 10 to 1 would be unconstitutional, even though the court thought Stonebridge’s conduct was particularly bad, implicating four of the five reprehensibility subfactors identified in BMW.  The court described the $35,000 compensatory damages award as “small,” but did not invoke the statement in BMW that “low awards of compensatory damages may properly support a higher ratio . . . if, for example, a particularly egregious act has resulted in only a small amount of economic damages.”

4.  The court rejected the notion that a higher ratio could be justified by the defendant’s sizable wealth. While that analysis is consistent with the Supreme Court’s admonition that wealth cannot be used to uphold an otherwise unconstitutional award, it seems in tension with this panel’s prior decision in Bullock v. Philip Morris (Bullock II), which cited the defendant’s wealth to justify a 16 to 1 ratio.

Related post:

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

Today, the California Court of Appeal published one of the most interesting punitive damages opinions that court has issued in quite some time.  The opinion has so many interesting aspects, our discussion of the case will be split up into several posts.  In this first post, we’re going to talk about the puzzling disposition of the case.

This is an insurance bad faith case in which a jury awarded $31,500 in contract damages, $35,000 in tort damages, and $19 million in punitive damages. The defendant, Stonebridge Life Insurance, filed a motion for JNOV and a new trial motion arguing excessive punitive damages, among other things.  The trial court denied the JNOV motion but granted a conditional new trial, giving the plaintiff the option to avoid the new trial by accepting a remittitur of the punitive damages to $350,000.  The plaintiff declined the remittitur and both parties appealed.

On appeal, the court concludes that the jury’s $19 million award was excessive as a matter of federal due process, and that the maximum constitutionally permissible award is $350,000.  (We’ll have more discussion of the court’s excessiveness analysis in later posts).

Based on the court’s conclusion that $350,000 is the constitutional maximum, we would have expected the following disposition: the trial court’s order denying JNOV is reversed, and the trial court is directed to grant a partial JNOV reducing the punitive damages to the constitutional maximum of $350,000 (see, e.g., Gober and Simon).  The court’s conditional new trial order would then be moot.

Instead, the Court of Appeal did exactly the opposite.  It affirmed the order denying the motion for JNOV and reversed the order granting a new trial.  But it nevertheless directed the trial court to reduce the amount of punitive damages to $350,000.  Huh?

If the constitutional maximum is $350,000, the trial court did exactly the right thing by granting a new trial based on excessive damages.  The trial court’s only error was that it should also have granted partial JNOV to reduce the award to the constitutional maximum, and the new trial should have been merely an alternative ruling.  So why does the Court of Appeal affirm the JNOV ruling and reverse the new trial ruling?  It should be the other way around. The end result is the same in this case either way, but this disposition may cause undue confusion in future litigation. 

Related posts:

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

Earlier today we reported on a rare instance of the California Court of Appeal issuing a writ petition to reinstate a plaintiff’s punitive damages claim.  Here’s another writ proceeding on punitive damages, with the opposite result.    

This is a malpractice case against law firm Paul Hastings.  Paul Hastings filed a motion for summary judgment, arguing that the claim is meritless because the plaintiff prevailed in the underlying case.  When the trial court denied that motion, Paul Hastings filed a writ petition with the Court of Appeal.

The California Court of Appeal (Second Appellate District, Division Four) issued this unpublished opinion, declining to throw out the entire case, but agreeing that Paul Hastings is entitled to summary adjudication on the issue of punitive damages.  The court said the plaintiffs identified evidence that might support claims of legal malpractice and breach of fiduciary duty, “but do not rise to the level of extreme indifference to the client’s interests which would support an award of punitive damages.”

In the five-plus years since we started this blog, we’ve rarely seen the Court of Appeal grant a writ petition to overturn an order granting summary adjudication on punitive damages.  Maybe never.  Until now, that is.

In this unpublished opinion, the California Court of Appeal (Fourth Appellate District, Division Two) grants a plaintiff’s writ petition and reverses a grant summary of adjudication for the defense on the plaintiff’s claim for punitive damages.  The opinion states that the defendants failed to meet their burden of demonstrating a lack of evidence supporting the plaintiff’s claim.  The defendants “made no effort to identify the facts upon which plaintiffs are relying to substantiate their claim for punitive damages.”  The court suggested that the defendants could have used the plaintiff’s discovery responses or admissions by the plaintiff to show what plaintiff was relying on, but having cited no such evidence, the defendant was not entitled to summary adjudication. 

This unpublished opinion contains a very interesting discussion about the validity of some unusual posttrial procedures involving a punitive damages award.  Or at least it’s very interesting if you are into the arcana of California posttrial and appellate procedure.  If that’s not your thing, you might want to stop reading now.

The jury in this case awarded $420,000 in compensatory damages and $1.75 million in punitive damages.  Before judgment was entered, the defendant asked the trial court to rule that the punitive damages were constitutionally excessive.  The plaintiff objected, arguing that the court should enter judgment and the defendant should then raise the excessive damages through posttrial motions.

The trial court overruled the plaintiff’s objections and decided the excessiveness issue before entering judgment.  The court ruled that the maximum constitutionally permissible punitive damages award is $420,000 on the facts of this case.

The court then entered judgment and the defendant filed a new trial motion and a JNOV motion.  The plaintiff argued that the trial court had no jurisdiction to grant either motion because the court had already considered the plaintiff’s prejudgment motion, which was effectively a new trial motion.

The trial court overruled the plaintiff’s objections again, and granted the defendant’s new trial motion.  The court ruled that plaintiff’s counsel committed misconduct, depriving the defendant of a fair trial.  The court granted a new trial conditioned on the plaintiff’s acceptance of a remittitur of the amount of the compensatory and punitive damages to a total of less than $500,000.  The plaintiff accepted the remittitur.

After the trial court’s jurisdiction to grant a new trial expired, the court issued its specification of reasons for granting a new trial.  In the specification of reasons, the court amended its earlier new trial order to eliminate the conditional part of the order and to eliminate the plaintiff’s right to avoid a new trial by accepting a remittitur.

The plaintiff appealed and the Court of Appeal (First Appellate District, Division Five) affirmed. It found nothing wrong with the judge deciding the issue of excessive punitive damages before entering judgment.  The Court of Appeal said the trial court’s prejudgment ruling was effectively a de facto JNOV motion, not a de facto new trial motion, because the issue of constitutional excessiveness is a JNOV issue, not a new trial issue.

The plaintiff argued that even a de facto JNOV motion before judgment would be improper because by statute the trial court is supposed to hear and decide the JNOV motion at the same time as a new trial motion.  The Court of Appeal said that argument might have been valid if the plaintiff had raised it below, but since he didn’t, the argument was waived.

The Court of Appeal also found nothing nothing wrong with the court “amending” the new trial order in the specification of reasons and taking away the plaintiff’s right to accept a remittitur.  The Court of Appeal said that the remittitur part of the original new trial order was void all along because trial courts are not permitted to order a remittitur when granting a new trial on grounds other than excessive damages.  Therefore, because the remittitur was never legally valid in the first place, the trial court did not err by revoking the remittitur in its specification of reasons.