California Punitives by Horvitz & Levy

  • Bullock v. Philip Morris Court of Appeal opinion affirms 16:1 punitive damages

    We’ve blogged many times about the saga of the Bullock v. Philip Morris case, which has bounced up and down through the California trial and appellate court system for a while now. Most recently, we reported on the second jury verdict (on remand after the judgment on the first jury verdict was reversed). That 2009 verdict reflected the finding that $13.8 million was the appropriate amount of punitive damages to award on account of harm to a plaintiff who, a prior jury had found, suffered $850,000 in actual damages. As we noted, the resulting judgment allows for a greater than 16:1 ratio between punitive and compensatory damages.

    The Court of Appeal (Second District, Division Three) yesterday affirmed the judgment in a divided opinion. Justice Croskey, writing for the majority, acknowledged that, when “substantial” compensatory damages are awarded, there is a presumption of unconstitutionality as to punitive awards exceeding a single-digit ratio (in comparison to the compensatory damages) to a significant degree. (See opn., fn. 18.) However, he concluded that a departure from a single-digit ratio was acceptable because, in his view, an $850,000 compensatory award is not “substantial” within the meaning of United States Supreme Court jurisprudence, when the award is viewed in light of the defendant’s financial condition.

    Justice Kitching, dissenting, pointed out that those two concepts have not previously been linked. In fact, in many cases around the country, considerably smaller compensatory awards against very well-heeled companies have been deemed “substantial” within the meaning of the due process principles set out by the United States Supreme Court, and have triggered reversal or reduction of punitive awards that exceed single-digit ratios. It will be interesting to see what happens with the Bullock opinion, and whether other courts will similarly veer off in this new direction for punitive damages jurisprudence.

  • Jim & Ray Telecom v. Kim: unpublished appellate decision shows the Supreme Court really should clarify the status of punitive damages awards after compensatories are cut

    As we’ve discussed a number of times before (see related posts linked below), there’s a lot of uncertainty out there about what’s supposed to happen when a jury does its job of weighing the amount of punitive damages in light of a reasonable relationship to compensatory damages, but then the compensatory damages are cut on posttrial motions or on appeal. The Supreme Court recently declined to take up that question, denying review in Behr v. Redmond, despite the split of authority on the recurring issue.

    An unpublished decision handed down last week from the California Court of Appeal is yet another case in point confirming that some guidance is needed here. In that matter involving a commercial dispute, the jury awarded $374,646.01 in compensatory damages and a matching $375,000 in punitive damages, for a 1:1 ratio. The trial court then found the compensatory damages were subject to an offset for amounts owed by the plaintiff to the defendant, and thus reduced those damages to $202,533.75. The court did not, however, adjust the punitive damages accordingly. So much for a 1:1 ratio.

    Now, it may be that a postverdict reduction of compensatory damages due to a counterclaim by the defendant is treated differently from a reduction on excessiveness or legal error grounds. But this case won’t provide a vehicle for the Supreme Court to analyze that issue because, while the court of appeal noted that the defendant (acting in pro per) raised six arguments on appeal, a challenge to the amount of punitive damages was not among them. Nonetheless, the case highlights another example of the interconnected complex questions arising when compensatory damages are reduced in a punitive damages case.

    Related posts:

    Rex Heeseman op-ed discusses Behr v. Redmond

    Two out of three ain’t bad: Supreme Court denies review in Behr v. Richmond, despite my prediction that they’d take the case

    Petition for review asks Cal. Supreme Court to resolve split in authority regarding the proper treatment of a punitive damages award after reduction of compensatories

    Behr v. Redmond: Court of Appeal publishes previously unpublished opinion, creates split of authority

    Behr v. Redmond: $2.8M punitive award affirmed, despite reduction of compensatory damages from $4M to $1.6M

  • State Fish Co., Inc. v. Deluca: California Court of Appeal explains interplay between nominal and punitive damages

    In this unpublished opinion handed down last week, the California Court of Appeal (Second District, Division Three), rejected a plaintiff’s appeal challenging the trial court’s denial of nominal damages under Cal. Civil Code section 3360 and denial of punitive damages. The appellate opinion explains that, even if the trial court erred in denying statutory nominal damages for a breach of fiduciary duty that did not apparently cause actual damages, reversal is not warranted unless some further consequence would result—such as triggering the possibility that the plaintiff might obtain a punitive damages award. The court noted,

    An award of “nominal damages” can mean two different things: “a trifling or token allowance for mere technical invasion of a right, without actual damages; and the very different allowance made when actual damages are substantial, but their extent and amount are difficult of precise proof.” (Kluge v. O’Gara (1964) 227 Cal.App.2d 207, 209–210.) Only the second can provide a basis for an award of punitive damages. (Id. at p. 210.) Punitive damages cannot be awarded in the absence of actual damages. (Id. at p. 209.) The type of nominal damages to which State Fish would conceivably be entitled is the type of nominal damages which do not imply the existence of actual damages and therefore do not justify an award of punitive damages.

    As the nominal damages sought by State Fish would not permit an award of punitive damages, the failure to award nominal damages is not a sufficient basis for reversal. We therefore need not consider whether a breach of fiduciary duty which did not cause actual damages justifies an award of nominal damages.

    Side note: if you’re interested in the fate of punitive damages where no compensatory damages were awarded, you might follow the continuing progress of a Missouri wrongful death case against Alberta Comstock, whose daughter sued her mother, claiming the mother shot and killed her ex-husband (the plaintiff’s adoptive father). According to news accounts (e.g., “Comstock lawyers appeal judgment“), the civil jury found no compensatory damages were owed, but awarded $125,000 in punitive damages—half the amount suggested by the plaintiff’s attorney. Ms. Comstock is reportedly challenging the award.

    UPDATE (8/4/11): In a decision decided this week, the Missouri Court of Appeal ruling in Lindahl v. State that a jury verdict awarding no compensatory damages but awarding punitive damages is inconsistent, and that a defendant who obtained judgment notwithstanding the verdict (on the ground that no punitives can stand where no compensatory damages are awarded) had invited an error by the trial court by affirmatively suggesting the matter need not be returned to the jury while it was still empaneled, to resolve the inconsistency. Therefore, the appellate court reversed the defense judgment and granted a complete new trial.

    Related posts discussing punitive damages in the context of nonexistent or nominal compensatory damages:

    Pending cert. petitions raise punitive damages issues

    A Curious Punitive Damages Opinion from Florida

    California DOI Loses Out on Collecting $700 Million Punitive Damages Award—For Now

    Grimes v. Rave Motion Pictures: District Court Holds FACTA Punitive Damages Provision Unconstitutional

  • XTC Investments, LLC v. Bluenose Trading, Inc.: California Court of Appeal affirms $318,551 punitive damages award (1:1 ratio) for financial tort

    In this unpublished opinion, the California Court of Appeal (Second District, Division Four) affirmed a punitive damages award against an individual defendant (Sanford Gaum) and a corporate defendant (Bluenose Trading, Inc.) based on evidence that Gaum used Bluenose to conceal assets from creditors such as the plaintiff investment company, which had made a loan guaranteed by Guam. The trial court found Gaum had diverted his own earnings to another company, “making it impossible for [creditors] to learn about, attach or garnish the monies that were due Gaum. At the same time, Gaum held himself out to the plaintiff (and the community he lived in) as having title to all the assets that he had transferred to [the other company], creating the impression that he was a sound investment partner.”

    The court awarded $318,551 in compensatory damages on a fraudulent conveyance theory and the same amount in punitive damages, awarded jointly and severally against the defendants. The court found that Gaum had acted with malice, oppression and fraud, and added that defendant Bluenose “possesses sufficient assets . . . and derives sufficient income to support punitive damages in an amount equal to the actual damages and that a multiplier of 1 to 1 is entirely appropriate and reasonable.”

    On appeal, the defendants argued there was insufficient evidence of defendants’ financial condition, which plaintiffs bear the burden of producing. The Court of Appeal dispensed with this argument in one sentence. After briefly quoting the trial court’s summary of income evidence, the court stated simply, “Defendants cite no authority to suggest that evidence of Bluenose’s income and of the value of real property it owns is insufficient to support a punitive damages award.”

    Of course, plenty of authority indicates that net worth is the best measure of financial condition, and evidence of income and property value alone is not meaningful evidence of a defendant’s financial condition without taking into account liabilities as well as assets. (E.g., Baxter v. Peterson (2007) 150 Cal.App.4th 673, 680 [“Normally, evidence of liabilities should accompany evidence of assets, and evidence of expenses should accompany evidence of income”]; Kenly v. Ukegawa (1993) 16 Cal.App.4th 49, 58 [“Without evidence of the actual total financial status of the defendants, it is impossible to say that any specific award of punitive damages is appropriate”]; see Adams v. Murakami (1991) 54 Cal.3d 105, 109-110, 114 [jury must not be left to “speculate” on the extent of the defendant’s ability to pay a punitive damages award, and appellate court has a duty to independently evaluate the evidence to ensure plaintiff introduced meaningful evidence of financial condition relating to ability to pay].)

    Recent related posts:

    Nguyen v. Do: $50,000 punitive damages award reversed for lack of meaningful financial condition evidence

    Tran v. Lecong: $100,000 in punitive damages vacated due to lack of meaningful financial condition evidence

    LeFlore v. MTA: $150,000 in punitive damages vacated due to lack of meaningful financial condition evidence

  • Two unpublished California court of appeal opinions reach different results in writ petitions involving claims for punitive damages

    In Newland v. Superior Court, the California Court of Appeal, Third Appellate District, granted plaintiff’s writ petition challenging the trial court’s grant of summary adjudication on the plaintiff’s punitive damages claim. The potentially punitive conduct was an insurance company’s denial of a claim for a stolen car based upon the insurance adjuster’s opinion that the insured had been responsible for the theft. The Court of Appeal found that the insurance company had not met its burden to show that the conduct could not be punitive given the allegedly inappropriate manner in which the insured was treated.

    By contrast, in Old Republic Home Protection Co., Inc. v. Superior Court, the California Court of Appeal, Fourth Appellate District, Division Two, granted defendant’s writ petition challenging the trial court’s overruling of its demurrer to an insurance bad faith complaint that included a prayer for punitive damages. The lawsuit involved a claim for breach of a home warranty contract. The Court of Appeal held that breach of contract actions should not lightly be turned into tort actions outside the insurance context. Therefore, the bad faith claim, and the attendant claim for punitive damages, should be dismissed with prejudice.

  • Rex Heeseman op-ed discusses Behr v. Redmond

    Rex Heeseman, an L.A. County Superior Court judge who has written a series of op-eds for the Daily Journal on punitive damages and insurance law, has an op-ed in today’s Daily Journal (subscription required) discussing the Behr v. Redmond case.

    Judge Heeseman’s op-ed concludes with a discussion about appellate strategy for defendants facing the issues raised in Behr.  He suggests that when a defendant appeals from a large compensatory damages award and a relatively smaller punitive damages award, and the defendant challenges the amount of the compensatory damages award, the defendant should also argue that the punitive damages are excessive when compared to the compensatory award after the expected reduction on appeal (assuming the defendant can predict how much the reduction will be).  He also suggests that defense counsel should not ask for a retrial of the punitive damages award, but should ask the appellate court to simply reduce the amount of punitive damages without a remand.  He doesn’t get into the split of authority that was the subject of the petition for review, but he observes that the trend of recent cases is to resolve the final amount of punitive damages at the appellate level without further trial proceedings.

    Related posts:

    Two out of three ain’t bad: Supreme Court denies review in Behr v. Richmond, despite my prediction that they’d take the case

    Petition for review asks Cal. Supreme Court to resolve split in authority regarding the proper treatment of a punitive damages award after reduction of compensatories

    Behr v. Redmond: Court of Appeal publishes previously unpublished opinion, creates split of authority

    Behr v. Redmond: $2.8M punitive award affirmed, despite reduction of compensatory damages from $4M to $1.6M

  • Gunderson v. Wall: defendant who paid punitive damages not entitled to interest after award reversed on appeal

    In 2009, the defendant in this case persuaded the California Court of Appeal (Second Appellate District, Division Seven) to reverse a $800,000 punitive damages award.  (We described the reversal in a prior post.)  While the appeal was pending, however, the plaintiff had forced the defendant to pay the $800,000.  Apparently the defendant was unable to post an appeal bond or otherwise obtain a stay of enforcement pending appeal.

    After the appeal, the defendant sought restitution of its $800,000, with interest.  Ordinarily, when a defendant is forced to pay a money judgment that is reversed on appeal, the defendant is entitled to get the money back with interest.  But the trial court here ruled that the defendant was not entitled to interest because it engaged in “inequitable” conduct by resisting the plaintiff’s enforcement efforts; specifically, the defendant avoided attempts to serve writs of execution and ignored a subsequent court order.

    The California Court of Appeal (Second Appellate District, Division Seven) affirmed in this published opinion, holding that the trial court acted within its discretion when it weighed the equities and declined to award interest.  The Court of Appeal noted that the plaintiff had expended $100,000 in attorney’s fees to collect the judgment, and concluded that letting the plaintiff keep the interest on the $800,000 would properly return the plaintiff to the position he would have been in if he hadn’t enforced the judgment.  The defendant, however, ends up in a worse position, losing out on the interest on the $800,000 that rightfully belonged to the defendant all along. 

    Related posts:

    Gunderson v. Wall: inconsistencies in defendant’s testimony are not alone sufficient to support punitive damages

  • Progressive Environmental v. El Cap Ranch: $1 million punitive damages award affirmed because of vague verdict form

    This case illustrates how a defendant can lose its ability to challenge a punitive damages award by not requesting a sufficiently detailed verdict form.  This case involved both contract and tort claims, and the jury rendered a lump-sum $500,000 compensatory damages award, without differentiating between tort damages and contract damages. The defendant argued on appeal that the portion of the compensatory damages attributable to the tort claim might be as low as $1 (or even $0), making the $1 million punitive damages award constitutionally excessive.

    The California Court of Appeal (Second Appellate District, Division Six) didn’t buy it.  In this unpublished opinion, the court held that, because the defendant failed to ask for a verdict form segregating the tort damages from the contract damages, it must be inferred that the jury found the damages co-extensive for both claims (i.e., that the tort and the breach of contract both caused the same $500,000 in damages).  The court then concluded that the $1 million punitive damages award was not excessive in relation to the $500,000 compensatory damages award.

  • Nguyen v. Do: $50,000 punitive damages award reversed for lack of meaningful financial condition evidence

    We haven’t seen one of these for a few months, but here’s the latest unpublished opinion in which the California Court of Appeal (Sixth District) reverses a punitive damages award because the plaintiff failed to introduce meaningful evidence of the defendant’s financial condition. Here’s the court’s description of the evidence that proved to be inadequate:

    The evidence . . .  showed only that Tam had a net income of $29,072 in 2008, no assets other than a 2004 Porsche Cayenne, and liabilities consisting of $34,000 owed to vendors and employees of SaigonUSA and a annual loss of $20,000 in operating SaigonUSA. No evidence was presented with regard to Tam’s income in years other than 2008, or as to the existence of any bank accounts, retirement accounts, or investments. Thus, the evidence showed only that Tam’s current liabilities exceeded his 2008 income and he has no assets other than a 2004 Porsche Cayenne of unknown value.

  • Kimes v. Grosser: court reinstates punitive damages claim for attack on Pumkin the cat

    Don’t mess with Pumkin the cat, or you may end up paying punitive damages.  That’s the message of this published opinion from the California Court of Appeal (First Appellate District, Division One).

    The plaintiff alleged that the defendants shot his beloved cat Pumkin with a pellet gun while Pumkin was perched on a fence between the plaintiff’s property and the defendants’ property.  Pumkin needed emergency surgery costing $6,000.  She survived but was left partially paralyzed.  Plaintiff sued to recover the cost of the surgery, increased costs of care due to Pumkin’s paralysis, and punitive damages.  The trial court ruled, however, that plaintiff could only recover Pumkin’s fair market value.  The plaintiff conceded that Pumkin had no market value, so the trial court dismissed his case.

    The Court of Appeal reversed the judgment of dismissal, ruling that the plaintiff was entitled to recover damages for the reasonable and necessary costs he incurred due to the wrongful injury of his cat.  More importantly for purposes of this blog, the court ruled that the plaintiff could recover punitive damages under California Civil Code section 3340(f), which provides that “exemplary damages may be given” in cases involving “wrongful injuries to animals . . committed willfully or by gross negligence, in disregard of humanity.”  The statutory language leaves me wondering whether there are any cases defining “disregard of humanity,” but I’ll leave that issue for another day.  

    UPDATE (6/2/11):  Bob Egelko of the San Francisco Chronicle reports: Brentwood man cleared to sue over cat’s shooting (the article contains a photo of Pumkin)