California Punitives by Horvitz & Levy

  • Unpublished opinion: an agent of a public entity can be liable for punitive damages

    Public entities are immune from punitive damages in California under Government Code section 818. What about agents performing a public entity’s functions?  This unpublished opinion says the statutory immunity doesn’t extend to them.

    Plaintiff Thomas Madeiros filed a tort claim with the City of Palo Alto.  Defendant George Hills Co. (GHC) was a third party-contractor responsible for administering claims against the city.  After GHC told Madeiros his claim was untimely, he sued GHC for false representation, seeking punitive damages.  The trial court granted GHC’s motion to strike the punitive damages claim under section 818, under the theory that GHC was entitled to immunity as an agent performing the duties of a public entity.

    The California Court of Appeal (Third Appellate District) reversed and reinstated the punitive damages claim. It held that a contractor for a public entity is not immune from punitive damages for its own tortious conduct. The case will go back to the trial court, and Medeiros will have the chance to prove that GHC acted with malice, oppression, or fraud in its processing of his claim.

  • Unpublished opinion finds that defendant waived challenge to punitive damages award

    As a general rule, when a California defendant wants to challenge a jury’s damages award as excessive, the defendant must raise that issue in a new trial motion to preserve it for appeal.  This unpublished opinion (Silas v. Arden) from the Second Appellate District, Division One, applies that rule and finds that a defendant waived his right to challenge a punitive damages award by not raising excessive damages in a motion for new trial.

    In Silas, the defendant argued that the award was excessive because the plaintiff’s counsel inflamed the passions and prejudices of the jury with improper arguments.  That seems like the sort of argument that is a trial court should probably decide in the first instance.  In other situations, however, a defendant might be able to challenge a punitive damages award on appeal even without moving for a new trial.  A defendant who argues that an award is excessive as a matter of law under the Due Process Clause should be able to raise that argument for the first time on appeal, because it is a pure legal issue that does not require the appellate court to resolve evidentiary conflicts.  See, for example, Storage Services v. Ooosterbaan (1989) 214 Cal.App.3d 498, 515, fn. 9 [no waiver where excessive damages argument does not involve conflicting testimony or issues of credibility].    

  • Trial court properly dismissed punitive damages claim because plaintiff introduced no evidence of corporate ratification (Betson v. Rite Aid)

    This unpublished opinion (Betson v. Rite Aid) allows a plaintiff to proceed with her claims for disability discrimination and retaliation, but prohibits her from seeking punitive damages.  Although she accused her manager of numerous malicious acts, she presented no evidence that the manager’s misconduct was authorized or ratified by the defendant’s upper management.

    The plaintiff worked as a shift supervisor at a Rite Aid drug store in Beverly Hills.  She sued Rite Aid for various theories of discrimination, retaliation and harassment.  She claimed that the store manager routinely mocked her because she had a limp, refused to accommodate her disability, and fired her based on false accusations of stealing money from a cash register.  The trial court granted summary adjudication on many of plaintiff’s claims, including her claim for punitive damages.  The case went to trial on the remaining claims and the jury awarded the plaintiff $500,000.  The trial court, however, granted Rite Aid’s motion for judgment notwithstanding the verdict and entered judgment for Rite Aid.

    Plaintiff appealed and the California Court of Appeal (Second Appellate District, Division Four), held that the trial court erred in granting JNOV and erred in granting summary adjudication on plaintiff’s claims for disability discrimination and retaliation.  Nevertheless, the court affirmed the trial court’s decision to toss out the plaintiff’s claim for punitive damages, because plaintiff presented no evidence that the store manager’s misconduct was ratified by any officer, director, or managing agent of Rite Aid.  The plaintiff argued that Rite Aid’s continued employment of the store manager was sufficient evidence of ratification, but the Court of Appeal rejected that contention as a matter of law.

    This case is a reminder that a corporate employee with the title of “manager” may not qualify as a “managing agent” within the meaning of Civil Code section 3294. As the California Supreme Court has explained, managing agents include only those corporate employees who have sufficient authority in the corporation such that their decisions ultimately determine corporate policy.  (See White v. Ultramar.)

  • Court of Appeal affirms $25 million punitive damages award against co-founder of Guess, Inc. (Gottlieb v. Fahs)

    In 2009 we reported on a Los Angeles jury verdict awarding $370 million, including $25 million in punitive damages, against Georges Marciano, the co-founder of Guess, Inc.  This unpublished opinion (Gottlieb v. Fahs) from the California Court of Appeal (Second Appellate District, Division Two) affirms the punitive damages, rejecting the defendant’s claim that the record contained insufficient evidence of his financial condition.  But the Court of Appeal did grant him some relief.  It reduced the compensatory damages to a total of $25 million.

    The end result is a much higher punitive-to-compensatory ratio than the jury originally awarded.  The defendant could have sought a new trial on that basis, although there is a split of authority on this issue as we have noted.  As far as the opinion reveals, the defendant did not raise that as a ground for a new trial.

  • Plaintiff can pursue tort claim solely to obtain punitive damages (Fullington v. Equilon Enterprises LLC)

    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.”

  • Unpublished opinion reduces $750,000 punitive damages award as excessive in relation to defendants’ financial condition (Stuckert v. Pyke)

    There are so many unpublished California opinions that reverse punitive damages awards because the plaintiff failed to introduce sufficient evidence of the defendant’s financial condition, we don’t bother to report them all.  But this unpublished opinion from the Fourth Appellate District, Division Two, merits a little discussion.

    In a dispute between former business partners, the jury awarded the plaintiff $2.15 million in compensatory damages and $750,000 in punitive damages.  As far as I can tell from the opinion, the punitive damages were awarded jointly against both defendants. That’s not how it usually works in California (or elsewhere), but at least one appellate court has endorsed the idea of joint and several liability for punitive damages, and the defendants didn’t make an issue of it in this appeal.

    Both defendants attacked the punitive damages as excessive in relation to their financial condition. Defendant #1 claimed at trial that he had a negative net worth and zero income.  On appeal, he took the position that, viewing the evidence in the light most favorable to the plaintiff, the record could support a finding that his net worth was $1.8 million.  The Court of Appeal concluded that the defendant gave the plaintiff’s evidence too much credit:

    We also believe that [Defendant #1] is too generous in accepting all of [Plaintiff’s] evidence. Although the substantial evidence standard is deferential to the factfinder, “this does not mean we must blindly seize any evidence in support of [Plaintiff] in order to affirm the judgment. . . . ‘[I]f the word “substantial” [is to mean] anything at all, it clearly implies that such evidence must be of ponderable legal significance. Obviously the word cannot be deemed synonymous with “any” evidence. It must be reasonable . . . , credible, and of solid value . . . .’ [Citation.]” (Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1633.)

    Looking only at the “credible” evidence, the Court of Appeal concluded that Defendant #1’s net worth was $961,218, and that the $750,000 punitive damages award was therefore disproportionately excessive.  The court acknowledged that, according to published case law, courts generally do not allow punitive damages to exceed 10 percent of the defendant’s net worth.  That would suggest a maximum award of $96,000 in this case.  Instead the court adopted a maximum of $175,000, roughly 18 percent of the defendant’s net worth.  The court did not explain why it departed from the traditional 10 percent rule.  And the court did not simply order a reduction of the punitive damages to $175,000.   It gave the plaintiff the option between that reduced amount or a new trial on punitive damages.  It’s hard to imagine why the plaintiff would choose a new trial, unless he thinks Defendant #1’s financial condition will have improved by the time of a second trial.

    As for Defendant #2, the Court of Appeal agreed that the plaintiff had failed to establish that Defendant #2 had the ability to pay any punitive damages award.  The court said that Defendant #2 had a negative net worth, no income, and less than $5,000 in cash.  Accordingly, the court vacated Defendant #2’s liability for punitive damages altogether.

     

  • Unpublished opinion drastically cuts compensatory damages, but leaves punitive damages award intact (Moran v. Quest Communications)

    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.

  • $44 million punitive damages award reversed in unpublished opinion (VW Credit v. Keuylian)

    In California, two recurring scenarios appear in the unpublished opinions on punitive damages: (1) the court reverses a punitive damages award because the plaintiff obtained a default judgment but did not provide the defendant with adequate notice of the amount of punitive damages the plaintiff was seeking, or (2) the court reverses a punitive damages award because plaintiff failed to introduce meaningful evidence of the defendant’s financial condition.

    In this unpublished opinion from the Fourth Appellate District, Division Three, we have a twofer: the plaintiff provided insufficient notice of the amount it was seeking by default and failed to introduce meaningful evidence of the defendant’s financial condition.  The $44 million punitive damages award in this case never had a chance.

  • Unpublished opinions reject defendants’ arguments about inability to pay punitive damages (Miracle v. Mehrban and Landeros v. Torres)

    We frequently report on California appellate decisions that reverse or reduce punitive damages because the plaintiff failed to produce meaningful evidence of the defendant’s financial condition.  A few weeks ago we reported on the Bankhead decision, which bucked that trend and affirmed a large punitive damages award against a company with a negative net worth.  This week brought two more decisions bucking the same trend:

    In Miracle v. Mehrban, Second Appellate District, Division Seven, affirmed a $30,000 punitive damages award against an individual who claimed a negative net worth.  The trial court didn’t believe the defendant’s testimony about her net worth and the Court of Appeal declined to revisit that credibility determination on appeal.

    In Landeros v. Torres, the Fifth Appellate District affirmed $14,000 in punitive damages based on evidence that the defendant, who owned no assets, had $7,000 in a retirement account, a home with no equity, and a job that paid $8 an hour.  The court said this was a “close case,” but that the evidence demonstrated the defendant’s ability to pay the punitive damages award.  The court partially certified the opinion for publication, but did not certify the part containing the punitive damages analysis.

    Disclosure: Horvitz & Levy represents the defendant in Landeros.

  • Unpublished opinion addresses standard of review issue that has divided California appellate courts (Romandia v. Engineered Polymer Solutions, Inc.)

    California appellate courts disagree about whether the “clear and convincing” evidence standard, which normally applies to punitive damages determinations, should apply to judicial review of the sufficiency of the evidence to support a punitive damages award.

    Some courts have said yes.  (See, e.g. Shade Foods [“since the jury’s findings were subject to a heightened burden of proof, we must review the record in support of these findings in light of that burden . . . . we must inquire whether the record contains ‘substantial evidence to support a determination by clear and convincing evidence’”]; Hoch v. Allied Signal [“a nonsuit on the issue of punitive damages is proper when no reasonable jury could find the plaintiff’s evidence to be clear and convincing proof of malice”].)

    Other courts have said no.  (E.g, Lopez v. Bimbo Bakeries [clear and convincing standard “does not alter our standard of review”].)

    The California Supreme Court has said both yes and no, in different cases.  (Compare Converatorship of Wendland [discussing the clear and convincing evidence standard and stating, “[a]pplying that standard here, we ask whether the evidence . . . has that degree of clarity . . .”] with In re Marriage of Saslow [heightened standard exists “‘for the edification of and guidance of the trial court,’ not as a standard for appellate review”].)

    This unpublished opinion from the Third Appellate District says no, and says that a trial court erred when it took the “clear and convincing” standard into account when granting JNOV for the defense. 

    The requirement that Romandia meet that higher burden of proof . . . was relevant only to the jury’s determination of the case. Once the jury decided that Romandia had proven by clear and convincing evidence that Valspar acted with oppression, fraud, or malice, that higher burden of proof “disappear[ed]” . . . and had no bearing on the trial court’s review of the jury’s decision on a motion for JNOV.

    The court did not cite any of the authorities going the other way on this issue.

    If the defendant asks the California Supreme Court to resolve this split, there’s a decent chance the Supreme Court will grant review.  It granted review on this same issue a few years ago, but dismissed review when the parties settled that case.

    Related posts:

    Review Dismissed in Harvey v. Sybase

    Predicting the Outcome in Harvey v. Sybase Based on California  Supreme Court Precedent

    Harvey v. Sybase: California Supreme Court Grants Review In Case With Punitive  Damages Issue