This published opinion (Fullington v. Equilon Enterprises) addresses an issue of first impression in California law: whether a plaintiff can pursue a tort claim solely for the purpose of punitive damages, when the plaintiff has already been compensated for the alleged loss caused by the tort.

The plaintiff, who leased and operated a Shell gas station, brought several lawsuits against Shell.  In one of those cases (the Marquez litigation), he claimed that Shell failed to offer him an opportunity to purchase his station before Shell transferred ownership of the station to another company.  He accepted a settlement with Shell in which Shell agreed to refund all the rent that plaintiff paid on his gas station from 1998 through 2001.

In the instant case, he brought a fraud claim against Shell for overcharging him on rent from 1998 through 2000.  The trial court granted summary adjudication on the fraud claim, finding that plaintiff could not establish any damage because he had already received a complete refund of all rent in the Marquez action.  The plaintiff appealed, arguing that he should be allowed to pursue the fraud claim for the purpose of obtaining punitive damages.  While a plaintiff cannot ordinarily obtain punitive damages in the absence of compensatory damages, the plaintiff argued that what matters is whether he suffered a compensable injury, regardless of whether he was already compensated for that injury through another lawsuit.

The California Court of Appeal (Second District, Division Four) agreed with the plaintiff and reversed the grant of summary adjudication on the fraud claim.  The court held on October 25 that a defendant cannot avoid an award of punitive damages by paying the plaintiff for his alleged injuries. The court noted that “California law has a variety of doctrines—none of which [defendant] invoked here—that prohibit the filing of multiple suits arising out of the same wrongful conduct. If none of those doctrines applies—and thus the filing of two separate actions does not offend California law—we perceive no reason why the maintenance of one action should become impermissible because a judgment or settlement is entered in the other.”

This unpublished opinion furthers the continuing split of authority in California appellate courts about what a reviewing court should do with a punitive damages award when it reduces the amount of compensatory damages on appeal.

As mentioned in prior posts, our courts are all over the map on this issue.  When a compensatory damages award is reduced on appeal, some courts will order a new trial on punitive damages, some will reduce the punitive damages to maintain the punitive-to-compensatory ratio set by the jury, some courts will send the case back to the trial court to determine whether the punitive damages should be reduced, and some courts do nothing, simply leaving the punitive damages untouched.  This unpublished opinion in this case (Moran v. Qwest Communications), falls into the “do nothing” category.  The court rules that the jury’s award of $2.8 million in noneconomic damages is excessive, and that a new trial should be conducted unless the plaintiff  accepts a reduction of that award to $750,000.  If the plaintiff agrees to the reduction, the judgment is affirmed in full.  In other words, the $1 million punitive damages award will stand even if the compensatory damages are reduced by over $2 million.

In my view, the “do nothing” approach is the least defensible.  Juries are instructed to award punitive damages based on the amount of harm suffered by the plaintiff.  If a Court of Appeal later concludes that the amount of harm was actually less than the jury thought it was, the court should not affirm a punitive damages award that was based on the erroneous compensatory award.  I hope the California Supreme Court will sort this issue out soon, even though it passed on the opportunity to do so last year.

In recent years, it seemed that California courts were finally embracing the U.S. Supreme Court’s observation in State Farm v. Campbell that a low ratio of punitive damages to compensatory damages, perhaps only 1 to 1, is appropriate in cases involving substantial compensatory damages.  First, several Court of Appeal opinions cited that aspect of Campbell when reducing an award to a 1 to 1 ratio. (E.g., Jet Source Charter, Inc. v. Doherty (2007) 148 Cal.App.4th 1 [ratio reduced from 4-to-1 down to 1-to-1]; Walker v. Farmers Ins. Group (2007) 153 Cal.App.4th 965 [ratio reduced from 5.6-to-1 down to 1-to-1]; Grassilli v. Barr (2006) 142 Cal.App.4th 1260 [ratios reduced from 8.4-to-1 and 7.5-to-1 down well below 1-to-1]; Stevens v. Vons (2009) [unpublished] [ratio reduced from 10-to-1 down to 1-to-1]; Essex Ins. v. Prof. Building Contractors (2009) [unpublished] [ratio reduced from 3.7-to-1 down to 1-to-1].)

Then the California Supreme Court got into the act in Roby v. McKesson (2009) 47 Cal.4th 686 [ratio reduced from 10.7-to-1 down to 1.4-to-1, further reduced to 1-to-1 by California Supreme Court].  We expected this trend to pick up even more steam in the lower courts after Roby, but recent decisions are bucking that trend.

In Bullock v. Philip Morris, the court decided not to follow that aspect of Campbell because the court concluded that an $850,000 compensatory damages award was not “substantial,” at least not when compared to the defendant’s wealth.  Justice Kitching dissented from the decision to depart from Campbell, but the California Supreme Court declined to grant review.  Last month, in Bankhead v. ArvinMeritor, the Court of Appeal affirmed a $4.5 million punitive damages award in a case with a $1.85 million compensatory damages award without even mentioning that aspect of Campbell.  And now we have Sumner Hill HOA v. Rio Mesa Holdings, again affirming a ratio in excess of 1 to 1 in a case with substantial compensatory damages, without even mentioning that aspect of Campbell.

Sumner Hill involved a dispute over access to a private road leading to the San Joaquin river.  A group of homeowners in a gated community had enjoyed exclusive use of the road for years.  A developer bought the land surrounding their community, erected a gate blocking the road, and sought to impose a curfew on the use of the road. The homeowners sued for slander of title and various other torts, and a jury awarded $803,951 in compensatory damages and $2,419,800 million in punitive damages against the developer.

In an unpublished portion of an otherwise published opinion, the California Court of Appeal (Fifth Appellate District) affirmed the punitive damages award, rejecting the developer’s argument that the award was unconstitutionally excessive. After analyzing the reprehensibility of the defendant’s conduct under the five factors set forth in Campbell, the Court of Appeal concluded that the reprehensibility of the defendant’s conduct was “at the low to moderate end of the range of wrongdoing that can support of punitive damages under California law.”

Nevertheless, despite the level of reprehensibility, the substantial compensatory damages, and the ratio in excess of 1 to 1, the court allowed the punitive damages award to stand on the theory that the misconduct here — interfering with the unrestricted private river access enjoyed by homeowners in a gated community —  supports a higher punitive damages award than interference with run-of-the-mill property rights.  Seriously.  Here’s the actual quote from the opinion:

While we note that reprehensibility in this case is low to moderate, plaintiffs have received substantial compensatory damages for the harm caused by defendant‟s conduct, and the case is principally concerned with conflicting property rights claims, there is an additional factor that elevates the permissible level of punitive damages in this case. These were not run-of-the-mill property rights. Rather, the rights and interests with which defendant so callously interfered, and which plaintiffs were forced to defend in court, were intimately related to plaintiffs‟ homes and neighborhood—and plaintiffs‟ enjoyment thereof. Defendants‟ conduct threatened and/or interfered with plaintiffs‟ private residential community and unrestricted river access, which had been promised to them when they purchased their lots and had been a way of life for over two decades. We conclude that a three to one ratio of punitive to compensatory damages does not violate federal constitutional standards.

 If a court is willing to place this misconduct into a special category warranting a ratio above 1 to 1, it is difficult to imagine there is any sort of misconduct that couldn’t be placed into a special category by a court with a sufficient degree of creativity.

In this dispute over a commercial lease, a jury awarded $49,100 in compensatory damages and $300,000 in punitive damages, based on a claim of “intentional interference with premises.”  The trial court struck the punitive damages award on the ground that the conduct at issue involved only a breach of contract, not a tort, and therefore could not support any tort remedies, including punitive damages.

In a published opinion, the California Court of Appeal (Second Appellate District, Division Eight) affirmed:  “Ginsberg essentially argues that Gamson maliciously breached the contract, and asserts Gamson’s evil motive for breaching her contractual duties warranted imposition of tort remedies.  It did not.”

Under California law, punitive damages are not automatically available in every wrongful termination case.  That’s exactly what the California Court of Appeal said three years ago in Scott v. Phoenix Schools.  (“[W]e conclude that wrongful termination, without more, will not sustain a finding of malice or oppression”).

But this unpublished opinion seems to take a contrary approach.  The Court of Appeal (First District, Division Two) reverses a trial court’s order granting a nonsuit on a punitive damages claim in a wrongful discrimination case.  In doing so, the court acknowledges the rule set forth in Scott, but finds that this case presents something more than just wrongful termination, because in this case the defendant denied that it acted with an improper motive:

When the termination of employment is based on a violation of the Fair Employment and Housing Act and the employer denies the decision was based on any discriminatory motive, that action is sufficiently contemptible to support imposition of punitive damages.

Wait a minute.  What?  Wrongful termination alone isn’t enough to support punitive damages, but if the defendant denies that the termination was wrongful, the denial supports punitive damages?  That not only seems contrary to Scott, but inconsistent with the caselaw holding that a defendant cannot be punished simply for defending itself against the plaintiff’s claims.  (See, e.g., Holgrafer v. Unocal, p. 30, fn. 17.)