We have a pretty high threshold for imposing punitive damages in California.  The plaintiff has to prove by clear and convincing evidence that the defendant committed intentional fraud or engaged in “despicable” conduct with a “conscious disregard” for the rights others.  When a plaintiff’s allegations to meet those standards, courts often strike the punitive damages claims from the complaint, or grant summary adjudication on the issue of punitive damages.

It’s a little hard to see how the claims in this case made it through.  The plaintiff is seeking punitive damages against Johnson & Johnson for failing to warn of the possibility of a severe allergic reaction that causes a potentially fatal skin condition.  Johnson & Johnson did warn about the possibility of severe allergic reactions, but didn’t specifically warn about skin reddening, blisters, or rash.

The plaintiff also claims Johnson & Johnson should be punished for withholding information from the FDA.  Johnson & Johnson did provide all the information in question to the FDA, but allegedly acted with malice by including the information in a voluminous submission without specifically highlighting this particular risk.

The trial court denied Johnson & Johnson motion for summary adjudication on the issue of punitive damages, and Johnson & Johnson petitioned the Court of Appeal for writ relief.  The Court of Appeal (Second Appellate District, Division Four) issued an alternative writ and called for briefing on the merits, but then issued an unpublished opinion upholding the trial court’s order.  There court concludes there are sufficient facts to create a triable issue on the question of malice.

Maybe there are some additional facts not included in the opinion, but I just don’t see how the a reasonable jury could conclude that the evidence described in the opinion amounts to clear and convincing evidence of “despicable conduct” or “conscious disregard.”

This unpublished opinion presents a punitive damages issue I haven’t encountered before.

The issue is unique to shareholder derivative actions.  In such cases, a shareholder of a corporation brings a lawsuit on behalf of the corporation against a third party, typically a corporate insider.  The shareholder who brings the suit is referred to as a “nominal” plaintiff because, although he or she initiated the action, any recovery in the action belongs to the corporation, not the individual plaintiff.

The issue that arose here is how to analyze the issue of excessive punitive damages when a court in a derivative action awards punitive damages against a defendant who has a controlling interest in the corporation.  If the defendant pays $1 million in punitive damages to the corporation, but owns 60% of the corporation, then $600,000 of the punitive damages payment will flow right back to the defendant.  So the question is, can the maximum amount of punitive damages be adjusted upward to compensate for the fact that the defendant will benefit from his or her own payment of damages.  The California Court of Appeal (Fourth Appellate District, Division One) says “yes.”

The Court of Appeal accepted the trial court’s conclusion that, if this were not a shareholder derivative action, the facts of the case would not permit a punitive damages award in excess of the amount of compensatory damages (in this case, $2 million).  The Court of Appeal further held, however, that the trial court properly adjusted the award upward to $4.7 million to account for the defendant’s control over the corporation.  Taking into account the percentage of the punitive award that would flow back to the defendant, the court concluded that the effective award against the defendant would be $2 million, equal to the compensatory damages.

I can see the logic of the Court of Appeal’s reasoning.  But the opinion also suggests that the trial court increased the amount of the award partly to ensure that the shareholder who brought the derivative action would be entitled to a $2 million share of the punitive damages award, taking into account the plaintiff’s ownership interest in the corporation.  That doesn’t seem right at all.  The purpose of a derivative action is to provide a remedy for a wrong to the corporation, not to ensure that the shareholder who brought the action receives any particular amount.  And certainly the plaintiff is not entitled to any particular amount of punitive damages, which are always a windfall to the plaintiff.  Fortunately, however, the Court of Appeal stayed away from endorsing that part of the trial court’s analysis.

In this unpublished opinion, the California Court of Appeal (Fourth Appellate District, Division One) affirms punitive damages totaling $625,000 against three defendants in a real estate fraud action.  The court rejected the defendants’ “conclusory” argument that the evidence did not support an award of punitive damages.  Interestingly, none of the defendants challenged the amount of the punitive damages, even though the ratios were fairly high, including a ratio in excess of 10 to 1 for one of the defendants.

We previously blogged about Turman v. Turning Point, an unpublished opinion in which the California Court of Appeal affirmed a trial court order striking a plaintiff’s claim for punitive damages.  Today the Court of Appeal issued an order publishing that opinion.  The court ordered publication in response to a request from plaintiff’s counsel, who undoubtedly requested publication not because of the opinion’s discussion of punitive damages, but because of the earlier discussion in the opinion overturning a defense verdict on the plaintiff’s claim for compensatory damages.

In this published opinion, the California Court of Appeal (Second Appellate District, Division Five) affirms a $6 million punitive damages award to a plaintiff who recovered $2.7 million in compensatory damages.

This opinion bucks the trend of California appellate decisions over the past few years, which have consistently applied the rule that the ratio of punitive damages to compensatory damages cannot exceed one-to-one when the compensatory damages award is “substantial.” In keeping with the usual practices on this blog, I won’t comment further because our firm represents the defendant and the litigation is ongoing.

We don’t see many opinions in which a trial court rules that a plaintiff is not entitled to punitive damages, and the Court of Appeal disagrees.  But here’s one. 

The Fourth Appellate District, Division Three, concludes that the trial court misinterpreted a contract between the parties.  The trial court said the contract unambiguously prohibited the plaintiff from recovering punitive damages, but the Court of Appeal says no, the contract only prohibits the plaintiff from seeking indemnity for punitive damages awarded to a third party.  Accordingly, the Court of Appeal sends the case back to the trial court for a retrial limited to the issue of punitive damages.  The opinion contains no discussion of any of the potential problems associated with a partial retrial limited to punitive damages. 

In this unpublished opinion, the California Court of Appeal (Second Appellate District, Division Seven) affirms a punitive damages award in excess of $5.2 million.  Our firm represents the defendant in this case so, per our usual policy, we won’t comment on the decision while the litigation is ongoing.

It’s amazing how many questions continue to arise with respect to the proper method for calculating the ratio between punitive damages and compensatory damages.  In this unpublished opinion, the California Court of Appeal (Second Appellate District, Division Two) tackles the following ratio-calculation issue:

Whether the one-to-one ratio between compensatory damages and punitive damages ordered by the trial court and affirmed by this Court must be measured by the jury’s award of compensatory damages or by an amount that takes account of a setoff for a third-party settlement.

The court answers the question by concluding that the ratio calculation should not take settlement offsets into account; courts should compare punitive damages to the jury’s award of compensatory damages before any post-verdict reductions under Code of Civil Procedure section 877. 

The opinion relies on out-of-state authorities reaching the same result.  But it makes no mention of  some prior California opinions that appear inconsistent with this result.  Two published Court of Appeal opinions have held that a proper calculation of punitive damages should take into account any amounts the plaintiffs received from third parties as compensation for their injuries.  (See Palmer v. Ted Stevens Honda, Inc. (1987) 193 Cal.App.3d 530, 540-542 and Krusi v. Bear, Stearns & Co. (1983) 144 Cal.App.3d 664, 680-681.)  Perhaps the Court of Appeal thought these cases were distinguishable, or perhaps the parties simply did not call them to the court’s attention.  In any event, given the apparent conflict in these cases, we probably haven’t seen the last of this issue. 

Related post: Essex Ins. v. Professional Building Contractors: punitive damages reduced to 1-to-1 ratio in insurance bad faith case