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  If you’re desperate for your fix of punitive damages news, this will have to do: in this unpublished opinion, the California Court of Appeal (Second Appellate District, Division One) held that the trial court properly refused to instruct the jury that the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The California Court of Appeal issued two unpublished opinions this week discussing the rule that punitive damages cannot be awarded without an award of compensatory damages.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.

Ordinarily, a party to a California divorce proceeding cannot seek punitive damages from their future ex-spouse, because the California Family Code permits the parties to seek only certain specifically authorized remedies (which do not include punitive damages).  But this rule has an exception. It does not apply to disputes about transactions that occurred before the marriage.  Thus, if the parties agree to have a dispute about a pre-marital transaction resolved by the same judge who is handling the dissolution, that judge is empowered to award the full range of tort remedies, including punitive damages.

The question in this divorce case is whether the wife could take advantage of that exception.  The Court of Appeal (First Appellate District, Division Four) in this unpublished opinion says “no,” because there was insufficient evidence that both parties agreed to submit the issue of punitive damages to the judge handling the dissolution.  The wife presented only weak evidence that she intended to submit that issue to the judge, and she presented no evidence that her husband agreed to put that issue on that table.

As readers of this blog are aware, California law requires courts to reduce punitive damages awards that are disproportionate to the defendant’s financial condition.  Consistent with this principle, California courts have vacated punitive damages awards entirely when the defendant had a negative net worth.  (See the cases discussed here, here, and here.)  But there has been some inconsistency on this point.  Some courts have affirmed punitive damages awards even when the defendant had a negative net worth.  (See the cases discussed here and here.)

This unpublished opinion from the California Court of Appeal (First District, Division Two) falls into the latter category, affirming a $410,000 punitive damages award despite evidence that the defendant had a negative net worth.  The court concluded that the award was not excessive because the defendant had borrowed substantial sums of money secured by loans on property he owned.  I don’t see how the defendant’s heavy borrowing shows that he can afford to pay punitive damages without suffering financial ruin (which is the whole point of requiring taking the defendant’s financial condition into account).  Perhaps the court just didn’t believe that he really had a negative net worth.

In this defamation case, a jury awarded $60,000 in compensatory damages and $1 million in punitive damages.  The trial court ruled that both the compensatory and punitive damages were excessive, but denied the defendant’s motion for a new trial after the plaintiff consented to a reduction of the damages to $45,000 in compensatory damages and $450,000 in punitive damages.  The defendant appealed, arguing that the reduced amounts were still excessive.  The plaintiff cross-appealed seeking reinstatement of the $1 million punitive award.

The California Court of Appeal (First Appellate District, Division Three) issued this unpublished opinion rejecting both appeals and affirming the damages awards as reduced.  The opinion doesn’t contain much analysis on the excessiveness issue; it simply concludes that, “[g]iven the nature and circumstances” of the case, the jury’s $1 million award was excessive but the trial court’s reduced award of $450,000 was not.

Although the excessiveness analysis isn’t particularly noteworthy, the opinion reveals an interesting procedural irregularity in the lower court proceedings.  In the second phase of this bifurcated trial, one of the jurors became seriously ill, forcing the trial court to declare a mistrial.  The court then empaneled a second jury to decide the issue of punitive damages, instead of ordering a complete new trial.  That would seem to violate the “same jury” requirement of Civil Code 3295(d), which requires a single jury must decide both liability and punitive damages.  Case law has carved out some limited exceptions under which a limited retrial may be held on the issue of punitive damages.  (See our prior blog post about limited retrials.)  But this case wouldn’t seem to fit those exceptions.  Nevertheless, the Court of Appeal affirms the judgment without even mentioning that problem.  Perhaps the defendant didn’t raise this issue on appeal.

When a defendant doesn’t bother to defend himself against a lawsuit, the plaintiff can get a default judgment for punitive damages only if the plaintiff serves the defendant with a statement of the amount of punitive damages sought.  (See Code of Civil Procedure section 425.115.)  In this case, the plaintiff got a default judgment for $25,000 in punitive damages, but never served a statement of damages.  An easy reversal, right?  Not so fast.  The default judgment in this case was entered way back in 1990, well before the Legislature enacted the statute requiring a statement of damages (which happened in 1992).  Accordingly, the California Court of Appeal (Second Appellate District, Division Two) affirms in an unpublished opinion.