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(2006) 142 Cal.App.4th 1260 [ratios reduced from 8.4-to-1 and 7.5-to-1 down well below 1-to-1]; Stevens v. Vons (2009) [unpublished] [ratio reduced from 10-to-1 down to 1-to-1]; Essex Ins.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 Building Contractors (2009) [unpublished] [ratio reduced from 3.7-to-1 down to 1-to-1].)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.)

It has been very quiet here lately.  We haven’t had any big verdicts, appellate decisions, legislative proposals, or law review articles to report in the past few weeks.  If you’re desperate for your fix of punitive damages news, this will have to do: in this unpublished opinion, the California Court of Appeal (Second Appellate District, Division One) held that the trial court properly refused to instruct the jury that the maximum punitive damages award was $12,250 (the amount of compensatory damages). It’s hard to argue with the court’s analysis; there isn’t any law that would impose a one-to-one ratio with a compensatory damages award of that size.  The defendant was clearly over-reaching by requesting that instruction.

Under California law, plaintiffs seeking punitive damages from a healthcare provider must satisfy special pleading requirements. Specifically, California Code of Civil Procedure section 425.13 requires plaintiffs to submit evidence demonstrating a substantial probability of success before they can plead a claim for punitive damages in an “action for damages arising out of the professional negligence of a health care provider.”

The question in this case is whether section 425.12 applies to a lawsuit against an HMO or other health care plan, alleging that it devised a compensation scheme that induced the participating health care providers to deny costly medical services to plan members. In a published opinion, the California Court of Appeal (Second District, Division Seven) held that a plaintiff does not have to comply with section 425.13 in an action brought against a health care service plan because such a plan “does not directly provide medical care to its subscribers.  Instead, the Health Plan contracts with other entities to deliver medical care to subscribers who enroll in its plans.”

The California Court of Appeal issued two unpublished opinions this week discussing the rule that punitive damages cannot be awarded without an award of compensatory damages.  Both cases involve a little twist on that rule, and both arguably should be published.

In Romero v. Leon Max, an employment case, a jury rendered the following verdict for the plaintiff:

• $0 in compensatory damages and $50,000 in punitive damages on her claim for intentional infliction of emotional distress
• $6,349.10 in compensatory damages and $0 in punitive damages on her claims for wrongful discharge and retaliation

The jury expressly found that the defendant acted with malice in connection with the intentional infliction of emotional distress claim, but did not act with malice in connection with the wrongful discharge and retaliation claims.

The trial court tossed the punitive damages award on the ground that it was not supported by any compensatory damages award, and the Court of Appeal (Second Appellate District, Division One) affirmed.  The court held that, because the plaintiff’s only “actual damages” were awarded on claims that did not involve malice, the plaintiff could not recover any punitive damages:  “no punitive damages are appropriate based on ‘actual damages’ awarded on any cause of action in which this finding [of malice, oppression, or fraud] was not made.”

It’s worth noting that the defendant was able to make this argument only because the special verdict form was drafted in such a way that the jury had to decide the issue of malice separately for each cause of action.  If the verdict form had contained only one catch-all question about malice at the end of the form (as is often the case), the defendant would not have been able to demonstrate that the jury awarded punitive damages only on the claim for which it did not award any actual damages.  So kudos to defense counsel at Towle Denison for some nice lawyering.

In Starrh and Starrh Cotton Growers v. Aera Energy, the Court of Appeal (Fifth Appellate District) held that the plaintiff was entitled to pursue a punitive damages claim even though the jury did not make a finding that the plaintiff suffered any actual harm.  The plaintiff, who claimed that the defendant’s oil extraction operations contaminated the plaintiff’s groundwater, obtained an $8.5 million damages award on a disgorgement theory.  In other words, the jury awarded damages based on the benefits the defendant obtained through its misconduct, not based on any actual losses suffered by the plaintiff.

After the jury returned the $8.5 million award, the trial court concluded, based on certain findings that the jury made about the timing of the defendant’s conduct, that the jury could not possibly find that the defendant acted with malice.  Accordingly, the trial court did not submit the issue of malice to the jury.

The Court of Appeal reversed, holding that the trial court should have submitted the question of punitive damages to the jury, and should have allowed both parties to present evidence and argument on the issue, because the evidence would have supported a finding that the defendant acted with malice.  The defendant argued on appeal that imposing punitive damages in the case would violate the Due Process Clause because the jury did not find any “actual harm.”  The court rejected that argument, stating that punitive damages are not limited “to cases in which the underlying damages verdict is measured by reference to the plaintiff’s loss rather than the defendant’s gain.”  The court noted that California law has permitted punitive damages where the compensatory award is only nominal, and therefore doesn’t represent any actual harm to the plaintiff.

The end result is that, in Romero the plaintiff proved actual harm but was not entitled to punitive damages, and in Starrh the plaintiff did not prove any actual harm but was entitled to punitive damages.  Both cases may be consistent with existing law, but the results aren’t exactly intuitive.

This unpublished opinion from the California Court of Appeal (Second Appellate District, Division Seven) affirms a judgment awarding $8 million in compensatory damages and $750,000 in punitive damages in a case involving claims of fraud and breach of fiduciary duty by two doctors.

The defendants did not challenge the amount of the punitive damages award as excessive, but they argued that the Court of Appeal should vacate the award because the plaintiff failed to prove that the defendants acted with malice, oppression, or fraud within the meaning of Civil Code section 3294.  The court rejected that argument, reasoning that the defendants are subject to punitive damages because the jury found them guilty of fraud:

The jury found the defendants committed fraud.  As discussed above, that finding was supported by substantial evidence . . . Accordingly the punitive damages must be upheld.

The court’s analysis seems to assume that, if a plaintiff proves a cause of action for fraud, then punitive damages are automatically available under the fraud prong of section 3294.  But California law defines the tort of fraud differently from the sort of fraud needed to obtain punitive damages.  The difference is the sort of “intent” required.  To prove the tort of fraud, the plaintiff must prove that the defendant acted with an intent to induce reliance.  But to obtain punitive damages for fraud, the plaintiff must prove that the defendant actually intended to cause harm.  Thus, a defendant who commits fraud with intent to induce reliance, but no intent to cause harm, is not liable for punitive damages.  It’s not possible to tell from this opinion whether it would have made any difference if the Court of Appeal had considered this distinction.